SECP places conditions on AMCs

SOHAIL SARFRAZ

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has placed certain conditions on asset management companies (AMCs) for charging of selling and marketing expenses to collective investment schemes managed by them. According to an SECP circular issued here on Wednesday, the commission, exercising the powers conferred under section 282B(3) of the Companies Ordinance 1984 read with Regulation 60 (3) (v) of the Non-Banking Finance Companies and Notified Entities Regulations, 2008, hereby prescribe the conditions on AMCs for charging of selling and marketing expenses to collective investment schemes managed by them:

Firstly, the selling and marketing expenses will be allowed initially for three years (from January 01, 2017 till December 31, 2019) to be charged to open end equity, asset allocation and index funds only. Secondly, maximum cap of selling and marketing expenses shall be 0.4% per annum of net assets of fund or actual expenses whichever is lower.

Thirdly, the selling and marketing expenses can only be used for the following purposes: cost pertaining to opening and maintenance of new branches by AMCs in cities except Karachi, Lahore, Islamabad and Rawalpindi; payment of salaries to sales team posted at new branches; payment of commission to sales team and distributors in all the cities of Pakistan and payment of advertising and publicity of these funds.

The SECP said that the selling and marketing expenses shall only be allowed to those AMCs which comply with opening of new branches in cities except Karachi, Lahore, Islamabad and Rawalpindi as per specified requirements.

The SECP said that the AMCs which intend to charge these expenses to fund shall submit their annual plan duly approved by their board of directors to the SECP for concurrence. The AMCs can charge such expenses only after concurrence of the plan by the SECP. The plan should cover name of funds in which such expenses will be charged, projected selling and marketing expenses by an AMC from its own sources, maximum expense limit that will be charged, nature of expenses that will be charged, plan for increasing retail outreach by charging such expenses, targeted branch network and net assets to be increased, and targeted increase in number of investors.

Expenses to be paid to AMCs at the end of each quarter on reimbursement basis will be subject to verification of documentary evidence by the trustee and ensuring that expenses are used for the purposes allowed. In case of dispute between AMC and trustee, the matter shall be referred to SECP and decision of the SECP shall be binding on both AMC and trustee.

These expenses shall be counted in the Total Expense Ratio Cap of the fund and AMC shall adjust the NAV of fund on daily basis. These expenses shall be separately disclosed in fund managers' report and published accounts of funds. The board of directors of an AMC shall at least on quarterly basis monitor the performance of annual plan of AMC and proper application of selling and marketing expense charged to fund as per the approved plan, the SECP added.