Promoting Islamic financial markets: SECP issues ‘Shariah Governance Regulations, 2023’

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) Friday issued Shariah Governance Regulations, 2023 to promote Islamic financial markets in Pakistan.

The SECP has issued the regulations primarily to remove bottlenecks in product development and simplify the Shariah screening criteria and stock screening process. The draft regulations, which have been made available for public comment, aim to strengthen the framework for Shariah-compliant businesses, Shariah-compliant securities, and Shariah advisors.

The proposed regulations provide for a complete process for the construction of an Islamic index at the stock exchange and introduce the concept of Shariah supervisory boards. In addition, the Shariah Governance Regulations, 2018, and the Shariah Advisors Regulations, 2017 have been integrated to remove overlapping provisions and requirements.

The proposed regulations are framed in a simple manner to provide greater clarity and simplicity to Shariah-compliant companies, Shariah-compliant securities issuers, stock screening participants, Shariah advisors, and other connected parties. By promoting Shariah-compliant financial products, the proposed regulations will contribute to the constitutional goal of eliminating Riba and Islamizing the economy.

SECP also intends to organise stakeholder consultation sessions in Karachi and Lahore in collaboration with the Pakistan Stock Exchange, the Federation of Pakistan Chambers of Commerce and Industry, and other stakeholders.

During consultative sessions with stakeholders, SECP has received several observations and suggestions for removing bottlenecks and making the Shariah Advisors Regulations, 2017 (SAR) and Shariah Governance Regulations, 2018 (SGR) more progressive.

Some of the important concerns highlighted are, limiting the scope of Section 451(2) of the Act, practical difficulties in implementing prescribed Shariah screening criteria, transparency issues in the stock screening process, absence of concept of a Shariah supervisory board, and some overlapping provisions in the SAR and SGR.

Accordingly, after reviewing SAR and SGR and seeking feedback from key stakeholders, the SECP considered integrating the two existing sets of regulations, namely SAR and SGR, into a single new set of proposed Shariah Governance Regulations, 2023 (the “proposed regulations”).

Additionally, it is suggested that SAR and SGR be repealed with due protection of actions taken thereunder.

The proposed regulations, in addition to addressing the above-listed issue, are framed in a simple manner and are therefore expected to create the required enabling regulatory environment for Shariah compliant companies (SCCs) and Shariah compliant securities (SCSs).

Further, the proposed regulations, apart from bringing more clarity, will have a minimal impact on SCCs, issuers of SCSs, persons involved in the stock screening process, Shariah Advisors (SA), and other connected persons. Furthermore, the proposed regulations will bring further clarity and facilitate ease of doing business for growth and development in the Islamic capital market.

It is expected that proposed regulations will further help in achieving the constitutional objective of eradication of Riba and Islamization of the economy by promoting SCCs and SCSs, SECP added.

Copyright Business Recorder, 2023