ISLAMABAD: Pakistan’s financial sector is preparing for a significant regulatory shift as institutional investors operating under Islamic mandates will now be required to channel their securities transactions through Shariah-compliant brokerage houses.
Senior officials of the Securities and Exchange Commission of Pakistan (SECP) and industry experts explained regulator’s initiative to promote Shariah compliance in Securities Trading.
The move, aimed at strengthening the integrity of the Islamic finance ecosystem, comes in line with the country’s constitutional objective of phasing out interest-based practices. For years, analysts have pointed out a contradiction: while billions are raised under Islamic labels, through mutual funds, pension schemes, Sukuk and employee stock options, many of these trades have still been executed via conventional brokers, diluting their Shariah credentials, officials added.
The industry experts stress that mutual funds and voluntary pension schemes branded as Islamic must guarantee Shariah compliance at every level. Partnering with a Shariah-compliant brokerage house ensures that their day-to-day market transactions reflect the same Islamic values promised to their investors.
Similarly, Sukuk, being Shariah-based instruments, carry an assumption of purity in both issuance and trading. Yet, executing secondary market Sukuk trades via conventional brokers undermines this foundation. By contrast, a licensed Shariah-compliant broker ensures that Sukuk trading remains within the Islamic framework from end to end.
Investors must route trade via Shariah-compliant brokers: SECP
The development follows a circular issued by the Securities and Exchange Commission of Pakistan (SECP), which lays out a phased roadmap for institutional investors to gradually transition their securities trading to Shariah-compliant brokerage houses.
The new framework is being rolled out in phases. By December 2025, institutions must prepare internal policies for Shariah-compliant execution and begin reporting their progress the following March. By mid-2026, every entity will be required to include at least one Islamic broker on its approved panel. From July 2026 to June 2027, at least one-fifth of all transactions will have to be routed through such brokers. The SECP is expected to review the sector’s performance before deciding on further expansion of the requirement.
Analysts view the directive as a positive step towards building investor confidence, arguing that amore consistent compliance framework will deepen trust in Islamic financial products. “This step closes an important gap,” said a senior market analyst. “Shariah-compliant products should not rely on conventional intermediaries. Investors who choose Islamic finance expect the entire chain, from issuance to execution, to remain consistent with those principles.”
In this context, experts emphasise that when investors choose Shariah-compliant products, they expect consistency. Partnering with a licensed Islamic brokerage house eliminates reputational risks for institutions and assures investors that their capital is never exposed to non-compliant practices, not even indirectly.
While the initiative has been broadly welcomed by proponents of Islamic finance, some caution that the market will need more Shariah-compliant brokers to handle the increased flow of trades, with calls for the SECP to encourage conventional brokers to gradually transition towards Shariah-compliant entities. The transition, they add, could test the readiness of institutions to adapt systems, policies, and reporting frameworks to meet the new standards.
The development is being seen as part of Pakistan’s gradual but steady effort to bring its financial system into greater alignment with Shariah principles. With implementation spread over several years, market participants will be closely watching how both regulators and institutions manage the shift, and whether it succeeds in bringing greater credibility to Islamic financial products, experts added.
Copyright Business Recorder, 2025
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