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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) will issue a risk-based capital regime from July 1, 2022, which will help each insurance company determine the required minimum capital in accordance with the risks faced by it.

The SECP has also issued a new regulatory framework for the registration of digital-only insurers and dedicated micro-insurers to enable small and tech-based entities to enter the insurance market.

The SECP annual report (2020-21) revealed that the regulatory reforms aimed to be introduced through Insurance Ordinance (Amendment) Bill, 2021 are expected to bring a paradigm shift in insurance sector regulation by creating a conducive environment for market development, alignment of the regulatory framework with international insurance supervisory standards, and strengthening the supervisory powers of SECP.

The draft regulatory framework for registration of digital-only insurers and dedicated micro-insurers is expected to be finalised by the fiscal year 2022-end. It will lower the barriers to entry, and enable small and tech-based entities to enter the insurance market, thereby increasing insurance penetration in underserved markets.

With the objective to improve the market conduct and ensure the protection of policyholder’s interest, regulatory requirements in relation to the sales process, eligible investment avenues for unit-linked funds, exposure limits in particular instruments such as debt, equity, real estate, collective investment schemes, etc., and guidance on risk categorization of unit-linked funds based on the asset allocation of the fund, are proposed through an amendment to Unit Linked Product and Fund Rules, 2015, the SECP said.

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The SECP stated that the regulation of unit-linked products is critical as the investment risk is borne by the policyholder in unit-linked insurance products. A road map is devised for the development of a risk-based capital regime and implementation of International Financial Reporting Standard-17 (Insurance Contracts). For ensuring a smooth transition of IFRS-17 implementation, SECP has taken a phased manner approach covering gap analysis and the financial impact assessment which will be followed by system design and methodology and parallel run.

For the development of a risk-based capital regime, a Technical Working Group formed by SECP is working to develop a preliminary model for the regime to be completed by June 30, 2022. The adoption of a risk-based capital regime will help each insurance company determine the required minimum capital in accordance with risks faced by it. The graduation of the insurance sector in Pakistan from factor-based capital requirements to risk-based capital requirements will help increase the resilience of the insurance sector towards risks faced by it and improve its compliance with the international standards, SECP maintained.

The SECP in collaboration with all the stakeholders will pursue infusing of Shariah principles in disruptive Fintech innovations (Smart contracts, Big Data and Blockchain technology), which will help in the financial inclusion and further enhance the customer experience for the Shariah sensitive investors.

The department will also review RegTech solutions available for the supervision of the Islamic financial industry, specifically in the areas of Shariah compliance and Shariah Audit. The SECP plans to work with stakeholders for increasing the volume of Takaful in Pakistan, by launching of a Taktech (Takaful technology) to revolutionize the Takaful sector, by complementing existing initiatives to enhance Takaful coverage to the unserved segments of the population.

The SECP will also explore the Asset Light Sukuk framework for the issuance of Asset Light Sukuks. For Green Sukuks, IDF is already conducting research for creating a regulatory framework, enabling the issuance of green Sukuks in Pakistan. In consultation with the Institute of Chartered Accountants of Pakistan (ICAP), IFD is also in the process of introducing a Shariah audit qualification for external Shariah auditors, under Shariah Governance Regulations, 2018. This step shall help in streamlining the external Shariah audit profession in Pakistan.

Copyright Business Recorder, 2022

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