Promoting Islamic Financial Markets: SECP publishes “Shariah Governance Regulations, 2023” – Business & Finance

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

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

The proposed rules provide for a full process to build an Islamic index on the stock exchange and introduce the concept of Sharia 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 rules are worded simply to provide greater clarity and simplicity for Shariah-compliant corporations, Shariah-compliant securities issuers, equity screening participants, Shariah advisers and other related parties. By promoting Sharia-compliant financial products, the proposed regulations contribute to the constitutional goal of abolishing Riba and Islamizing the economy.

SECP also intends to organize stakeholder consultations in Karachi and Lahore in cooperation with the Pakistan Stock Exchange, the Federation of Pakistan Chambers of Commerce and Industry and other stakeholders.

During consultation sessions with stakeholders, the SECP has received several observations and suggestions to remove bottlenecks and make the Sharia Advisory Regulations 2017 (SAR) and the Sharia Governance Regulations 2018 (SGR) more progressive.

Some of the key concerns highlighted are the limitation of the scope of Section 451(2) of the Act, practical difficulties in implementing the required Shariah screening criteria, transparency issues in the stock screening process, the lack of a concept of a Shariah board of directors and some overlapping provisions in the SAR and SGR .

Accordingly, after reviewing the SAR and SGR and gathering feedback from key stakeholders, the SECP considered the two existing regimes, namely the SAR and SGR, into a single new set of Proposed Shariah Governance Rules, 2023 (the “Proposed Rules”) integrate.

In addition, it is proposed that SAR and SGR be repealed with due protection of the measures taken under them.

In addition to addressing the issue outlined above, the proposed rules are worded simply and are therefore intended to create the necessary conducive regulatory environment for Shariah-compliant corporations (SCCs) and Shariah-compliant securities (SCS).

In addition, the proposed rules, apart from bringing more clarity, will have minimal impact on SCCs, issuers of SCSs, persons involved in the stock screening process, Sharia Advisors (SA) and other associated persons. In addition, the proposed regulations will bring further clarity and ease of doing business to encourage growth and development in the Islamic capital market.

The proposed regulations are expected to help achieve the constitutional goal of eradicating Riba and Islamizing the economy through the promotion of SCCs and SCSs, SECP added.

Copyright Business Recorder, 2023