Effective from 1st January, 1997, banks desiring to provide fund management and other investment advisory services shall be allowed to do so through subsidiary companies to be formed by them under the laws of Pakistan for the exclusive purpose of undertaking fund management activities. The minimum paid-up capital of such a subsidiary shall be not less than Rs. 100 million. The companies to be set up for the purpose shall be public limited companies, which may commence business with a bank’s contribution of not less than 51% in the company’s paid up capital, with a binding commitment to offer to the general public not more than 49-percent of the paid-up shares within a specified period not exceeding 3 years from the date of commencement of business.

2. Banks which have been consistently meeting the liquid assets requirements and other credit disciplines during the latest 52 weeks shall not only be eligible to set up such subsidiaries after obtaining prior clearance of the Articles & Memorandum of Association of the proposed company from the State Bank. Subsequent amendments in the Articles & Memorandum of Association of such companies will also require similar prior clearance.

3. Subsidiaries set up for fund management purposes shall not undertake such transactions which affect the balance sheet of the holding company and shall not be permitted to:--
(a) invest in real estates;
(b) grant credit in any form whatsoever;
(c) hold and invest in more than 3% of the paid up shares of any bank or financial institution;
(d) invest in the securities of such companies which failed to earn net profit for two financial years out of the preceding three financial years.

4. The holding company shall ensure that subsidiaries do conduct their operations and publish their accounts in accordance with the internationally accepted accounting standards and disclosure requirements.

5. Before accepting funds from a client, the subsidiary shall notify to the client the avenues of investments a available to it for the purpose of deployment of funds. Each fund management deal to be undertaken by the subsidiary shall be documented in the form of a written contract to be called ‘Fund Management Contract’ (FMC) expressly stating all the terms and conditions of the deal and duly authenticated by the company and the provider of funds. Each subsidiary shall required to obtain prior approval of the format of its standard Fund Management Contract.

6. Banks which are presently engaged in fund management business are hereby directed of forthwith disclose the total amount of funds provided to them for fund management as ‘Fund Management Liabilities’ under the head "Other Liabilities" in the balance sheet. Simultaneously, the corresponding assets acquired against the Fund Management Liabilities shall be shown as "Fund Management Assets" under the head "Other Assets" in the balance sheet. All related returns to be submitted to the State Bank must also carry a similar disclosure regarding Fund Management Liabilities & Assets.

7. Banks are further directed to ensure that all existing fund management contracts must be settled on due dates and no bank shall be allowed to undertake any fresh deal for fund management from the date of the issue of this Regulation other than through a subsidiary formed for the purpose.

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