Banking Regulations & Supervision

The regulatory framework comprises a set of policies, guidelines, prudential standards and allied processes which cover the following key areas:

• Licensing Regime
  SBP’s licensing regime facilitates the establishment of new banking companies—Commercial Banks, Microfinance Banks, Islamic Banks, and Development Finance Institutions, i.e. Regulated Entities. It also oversees licensing of new places of business within and outside Pakistan.
  Expanding the network of regulated entities is central to achieving SBP’s strategic goal of enhancing financial inclusion. To support this, SBP has issued the Branch Licensing Policy (BLP), which enables REs to open new places of business across banked and unbanked areas.
  Moreover, privatization of public sector banks and schemes of amalgamation or mergers of banks are processed in accordance with Section 48 of BCO, 1962. This function also includes assessment of ownership changes and financial evaluations to ensure compliance with regulatory requirements.
• Digital Banking & Technology Governance Regime
  To advance its strategic objectives of promoting financial inclusion and fostering digital financial services, the State Bank of Pakistan (SBP) has issued various enabling regulatory frameworks related to the licensing and operations of digital banks, branchless banking, and technology governance and risk management.
  The Licensing & Regulatory Framework for Digital Banks is designed to broaden access to affordable, technology-enabled financial services for retail customers, including both individuals and MSMEs, with a gradual extension of such services to corporate and commercial entities. Furthermore, with the objective of enhancing outreach to underserved and unbanked populations through alternative delivery channels including agents, SBP has issued the Branchless Banking Regulations and the Framework for Branchless Banking Agent Acquisition and Management.
  Additionally, the Enterprise Technology Governance & Risk Management Framework sets standards for IT governance in financial institutions, with a focus on risk management, cybersecurity, and the alignment of technology strategies with business objectives. The Framework for Risk Management in Outsourcing Arrangements and the Framework for Outsourcing to Cloud Service Providers enable financial institutions to outsource both material (excluding core banking activities) and non-material workloads to third parties. These outsourcing frameworks further emphasize governance, risk management, and cybersecurity controls to be adopted by financial institutions.”
• Prudential Regulations
  The State Bank has issued different sets of Prudential Regulations, which prescribe the prudential standards for risk management, operations and fair treatment to the customers of the financial institutions. These regulations duly cater the unique features and underlying risks of respective business sectors i.e. large corporate/ commercial financing, consumer financing etc. Similarly, relevant regulations and guidelines have also been put in place for revival of the sick industrial units in the country through rescheduling and restructuring of the financing facilities in line with international best practices. Besides, State Bank is vigorously working for reduction of the legacy non-performing loans (NPLs) in the banking industry. For the purpose, State Bank has issued a comprehensive framework disseminating various policy measures, including charge-off of qualifying NPLs, formulation of bank-specific strategies for NPL management and the development of secondary markets for NPLs.
• Corporate Governance Regime
  Corporate Governance at the State Bank of Pakistan focuses on developing policies that promote strong governance practices across regulated entities, thereby supporting financial stability, protecting depositors’ interests, and upholding market integrity. This includes, among other things, the application of Fit & Proper Criteria for presidents/ CEOs, members of the Board of Directors, sponsor shareholders, and key executives. The regulatory instructions in this regard have been consolidated as Corporate Governance Regulatory Framework, which can be accessed as per given link:
  
  • Corporate Governance Regulatory Framework
  • BPRD Circular Letters No. 21
  • BPRD Circular Letters No. 24
  • FE Circular No. 02 of 2024
  • PSP&OD Circular No 03 of 2023
  • PSD Circular No. 03 of 2014
• Business Conduct And Fair Treatment Of Consumer Regulatory Framework (BC&FRF)
  State Bank of Pakistan (SBP), in its continuous efforts to strengthen consumer protection and ensure the Fair Treatment of Consumers (FTC) has issued regulatory framework titled “Business Conduct and Fair Treatment of Consumers Regulatory Framework (BC&FRF)”. The framework outlines proposed principles and rule-based instructions aimed at promoting responsible business conduct, accountability, and fairness within the financial sector. It is designed to ensure that customers are treated with respect, fairness, and transparency in all their interactions with financial institutions operating in Pakistan.
  
  • Business Conduct and Fair Treatment of Consumers Regulatory Framework
• Capital Adequacy Regime
  Effective implementation of capital adequacy regime in line with Basel Accord, and development and strengthening of related policies and instructions for the banking sector.
• AML/CFT/CPF Regime
  SBP develops, periodically reviews, and updates the AML/CFT (Anti-Money Laundering and Countering/Combating the Financing of Terrorism) regulatory framework to ensure that regulated entities maintain robust systems and controls for preventing money laundering, terrorist financing, and proliferation financing. This framework is continuously aligned with international standards, global best practices, domestic laws and emerging risks to safeguard the integrity and stability of Pakistan’s financial system.
• Policy Environment & Market Discipline
  A key function of State Bank of Pakistan is to strengthen market discipline in its regulated entities. SBP achieves this goal through issuance of guidelines and frameworks on risk management and internal controls and standardization of financial statement formats along with their disclosures, including climate-related financial disclosures. To ensure quality and comparability of financial statements, SBP also evaluates external auditors (Chartered Accountant Firms) and maintains a panel of approved auditors eligible to audit SBP regulated entities. SBP also reviews establishment of subsidiaries by banks and monitors performance and governance of overseas operations of banks.
  • Guidelines on Risk Management
  • Guidelines on Country Risk
  • Guidelines on Business Continuity Planning
  • Policy Framework in Banks / DFIs
  • Framework for External Audit Function
  • Guidelines on Interest Rate Risk Management (IRRM)
  • Guidelines on Compliance Risk Management
  • Governance Framework for Banks’ Overseas Operations
  • Internal Audit Function
  • IFRS-9 Application Instructions