Circulars/Notifications - Banking Supervision Department  
 BPRD Circular No. 13
April 9, 1999  

All Scheduled Banks

Dear Sirs,

PRUDENTIALREGULATION-XXI- AMENDMENT OF

 

It has been decided to substitute with immediate effect the existing Prudential Regulation-XXI as under:-

PRUDENTIAL REGULATION-XXI

1. ASSET MANAGEMENT:

For the purpose of this Regulation the Asset Management will constitute the following:

  1. Cash or portfolio management.
  2. All forms of collective investment management, and
  3. Custodial and Depository Services.

Banks desiring to undertake asset management services shall be allowed to do so through subsidiary company to be formed by them under the laws of Pakistan for the exclusive purpose of undertaking such activities. The minimum paid-up capital of such a subsidiary shall by 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 equity holding of 51% in the company’s paid-up capital. The balance 49% share capital shall be offered to the general public.

2. Banks which have been consistently meeting the liquid assets requirement and other credit disciplines during the latest 52 weeks shall 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 from SBP.

3. The transactions undertaken/services provided by the subsidiaries set up for asset management purposes should not create any financial obligation whether contingent or otherwise on the balance sheet of the holding company or otherwise. The said subsidiaries shall not be permitted to:

    1. invest in real estates;
    2. grant credit in any form whatsoever;
    3. hold and invest in more than 1% (one percent) of the paid-up shares of any bank or financial institution;
    4. 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 an d publish their accounts in accordance with the internationally accepted accounting standards and disclosure requirements, besides meeting the standards set by the domestic regulatory authorities.

5. Before accepting funds from a client, the subsidiary shall notify to the client the avenues of investments available to it for the purpose of deployment of funds. Each asset management deal to be undertaken by the subsidiary shall be documented in the form of a written contract to be called "Asset Management Contract" expressly stating all the terms and conditions of the deal and duly authenticated by the company and the provider of funds. Each subsidiary shall be required to obtain prior approval of the format of its stander Asset Management Contract from the State Bank of Pakistan.

6. Banks which are already engaged in fund management business if any are directed to forthwith disclose the total amount of funds provided to them for fund management as "asset Management Liabilities" under the head "other Liabilities" in the balance sheet. Simultaneously, the corresponding assets acquired against the Management Liabilities shall be shown as "Assets 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 Assets 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 asset management other than through a subsidiary formed for the purpose

11. FINANCIAL AND INVESTMENT ADVISORY SERVICES:
Banks desiring to undertake Financial and Investment Advisory Services shall be allowed to do so through subsidiary company to be formed by them under the laws of Pakistan for the exclusive purpose of undertaking such activities. The 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 equity holding upto 100% but not less than 51% in the company’s paid-up capital.

2. Banks which have been consistently meeting the liquid assets requirements and other credit disciplines during the latest 52 weeks shall 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 from State Bank.

3. The contracts executed/services provided by the subsidiaries set up for Financial and Investment Advisory Services purposes should not create any financial obligation whether contingent or otherwise on the balance sheet of the holding company or otherwise.

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.


Yours faithfully,
(Mansur-ur-Rehman Khan)
Director

       
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