Brokers Refuse Compliance With SECP’s New Anti-Money Laundering Regime

The stock market brokers, who are conducting small scale operations have expressed their incapability to dedicate sufficient resources to meet financial reporting requirements. They are unable to develop a sound compliance system and meet FATF standards.


According to the new brokers’ regime issued by the SECP, brokers have highlighted the problems they are facing.

In addition to compliance with capital market laws, the Anti Money Laundering/Combating Financing Terrorism requirements have evolved over time and now form a major part of the compliance system of financial institutions.

As Pakistan’s is in the FATF greylist, there is a more pronounced need to upgrade the compliance system of brokerage houses, including the appropriate human resource and the specialized software to demonstrate adherence with the risk-based approach prescribed under the FATF recommendations and to implement sound KYC/CDD policies and procedures.

This situation not only compromises the discipline and compliance level of capital market intermediaries but it also places compliant brokerage houses, that have incurred substantial compliance costs, at an unfair disadvantage, the SECP said.

Low Scale Investor Size

The investor size in Pakistan is quite small. It actually paints a dismal picture of the capital market depth. Sustainability of the secondary capital market and its intermediaries is directly linked with the investor size.


In order to increase the investor-base, the brokerage houses need to explore new distribution channels which include partnerships with banks, telecom companies and exploring innovative solutions by taking advantage of technological advancements. This requires investments in infrastructure and sufficient financial capacity and standing in the market. Well-capitalized brokers will be in a much better position to increase investor outreach and enter into collaboration with other market players, the SECP added.

The commission has also proposed to allow commercial banks, development financial institutions (DFIs) and deposit-taking non-banking finance companies (NBFCs) to offer custodial and clearing services for Trading Only (TO) Brokers.

According to the new the brokers regime issued by the SECP, considering the feedback received from brokers and in line with international practices, the concept of Professional Clearing Member (PCM) may also be introduced as an alternative for custodial and clearing services for TO brokers.

Accordingly, commercial banks, DFIs and deposit-taking NBFCs which fulfill the eligibility criteria will be allowed to offer these services.



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