SECP flagged for not depositing Rs6.99bn surplus in federal fund
The Securities and Exchange Commission of Pakistan diverted nearly Rs7 billion in surpluses to an internal reserve instead of transferring the funds to the Federal Consolidated Fund, as required by law.
ISLAMABAD: An audit has revealed that the Securities and Exchange Commission of Pakistan (SECP) failed to deposit Rs6.993 billion in surplus receipts into the Federal Consolidated Fund (FCF), instead transferring the amount into its asset acquisition reserve over the last two fiscal years. The move has raised questions over compliance with financial governance laws that mandate such surpluses be returned to the federal exchequer.
According to the audited financial statements of SECP Islamabad, Rs4.45 billion was transferred in 2022-23 and Rs2.53 billion in 2023-24, totaling Rs6.99 billion. Section 24(3A) of the SECP Act, 1997 explicitly states that any surplus of receipts over actual expenditure, including budgeted capital expenditure in a year, must be remitted to the Federal Consolidated Fund. In addition, Section 45 of the Public Finance Management Act, 2019, stipulates that this requirement overrides all other laws, with any inconsistency resolved in favor of the Act.
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The audit report observed that by diverting the funds to its own reserves instead of transferring them to the federal kitty, SECP breached the statutory obligation. The Finance Division had also clarified through an official memorandum dated January 23, 2024, that annual surpluses must be promptly deposited into the FCF.
In its reply, SECP management defended the action by citing Section 3(3) of the SECP Act, which ensures the Commission’s administrative, financial, and functional independence. It argued that the Commission is mandated to use its resources to promote and maintain its independence, suggesting that retaining surpluses under its own reserves was consistent with this mandate. SECP added that it prepares its financial statements according to International Financial Reporting Standards (IFRS).
However, auditors highlighted that Section 24(3A) clearly requires remittance of surpluses to the Federal Consolidated Fund, with any deficit in SECP’s expenditures to be covered by the federal government. This suggests that the Commission’s justification conflicts with the overriding provisions of the Public Finance Management Act, 2019, and the SECP Act itself.
The issue underscores an ongoing tension between regulatory bodies seeking financial autonomy and the federal government’s insistence on centralizing surplus revenues. SECP, as Pakistan’s apex corporate and capital markets regulator, is tasked with ensuring transparency and compliance among listed companies, brokers, and market participants. Yet its own handling of surplus funds has now been flagged for non-compliance with statutory financial rules.
Financial analysts note that the failure to remit nearly Rs7 billion to the federal pool comes at a time when Pakistan’s fiscal position remains fragile, with the government under pressure to shore up revenues and control deficits. For perspective, Rs6.99 billion is equivalent to around \$25 million at current exchange rates, an amount that could help offset fiscal slippages in development or debt servicing.
This is not the first time surplus funds of independent regulators have been a point of contention. In the past, similar disputes have arisen with entities like the State Bank of Pakistan and Pakistan Telecommunication Authority, where questions have been raised about whether retained earnings should be used to finance operational independence or surrendered to the federal treasury.
The current findings are expected to be reviewed further by oversight authorities, with possible directions for SECP to remit the disputed funds to the FCF in compliance with existing laws. If enforced, the decision could set a precedent for stricter enforcement of financial remittances across independent regulatory bodies.
The SECP’s handling of the Rs6.99 billion surplus will likely remain under scrutiny in the coming months, particularly as Pakistan seeks to strengthen its fiscal discipline under commitments to international lenders and domestic reform agendas. The outcome of this audit finding will also signal how far the government intends to go in ensuring compliance from autonomous regulators with statutory fiscal obligations.
