Islamic Financial Service Law proposed in consultation paper published by SECP
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has released an extensive consultation document proposing the establishment of a specific law aimed at promoting and enhancing Islamic financial services within its regulatory framework. The SECP plans to engage with experts and the general public to draft the Islamic Financial Services Act, which aims to create a supportive legal structure for these services.
The proposed legislation seeks to establish a thorough primary law on Islamic finance, reform the current financial services framework, address legal ambiguities and risks, and standardize Shariah-related issues across all sectors regulated by the SECP in the Islamic finance industry.SECP Engages with Punjab and Sindh Government to Advance “Insured Pakistan” Initiative
The SECP highlighted the importance of legal and regulatory frameworks for the advancement of the Islamic finance sector. While Pakistan’s non-bank financial sector has experienced a legal and regulatory overhaul, it predominantly focuses on the conventional market. The Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980, is the sole primary legislation specifically addressing Islamic finance. The rise of Islamic financial institutions, assets, and services within the non-bank sector underscores the necessity for improved regulations and Islamic financial services.
Specifically, the 26th constitutional amendment mandates the complete eradication of Riba by January 1, 2028. Previously, the Federal Shariat Court of Pakistan (FSC) declared that challenged laws are ineffective and has instructed the government to amend these laws by December 2027. To comply with the constitution and the FSC ruling, it is proposed to create a dedicated law for all financial services, excluding those overseen by the SBP, which has already initiated a comprehensive transformation plan encompassing legal and regulatory improvements.
The proposed law is anticipated to establish a framework for the Islamization of financial markets, institutions, products, and services within the SECP’s regulatory scope. This initiative also aims to introduce a fundamental balance between legal rigor, Shariah compliance, and market realities.
The development process for this law prioritizes alignment with Shariah, collaboration among stakeholders, growth, financial stability, investor protection, transparency, accountability, innovation, harmonization with national and international legal standards, and effective fiduciary responsibility. The proposed legislation will encompass all facets of Islamic financial services, products, markets, and intermediaries, with detailed provisions outlined through subsidiary legislation. The ‘principle of proportionality’ seeks to balance risk, cost, and efficiency in business operations.
