SECP Orders Shift to Shariah-Compliant Brokerage

SECP has directed licensed entities to route securities trading through Shariah-compliant brokers, beginning with phased implementation from December 2025.

The Securities and Exchange Commission of Pakistan (SECP) has issued directives mandating licensed Shariah-compliant institutional investors to progressively shift their securities trading business to Shariah-compliant securities brokers. The move is part of efforts to bring the financial sector in line with Pakistan’s constitutional requirement to gradually eliminate riba, or interest-based practices, from the economy.SECP launches framework for infrastructure mutual funds

The regulatory order applies to a wide range of licensed entities operating under SECP’s supervision, including takaful operators, window takaful operators, non-banking finance companies, collective investment schemes, voluntary pension schemes, modarabas, modaraba management companies, private funds, and securities brokers.

Under the new framework, the transition will take place in phases. By December 31, 2025, all Shariah-compliant institutional investors must formulate internal policies outlining how they will adopt the changes. From March 31, 2026, they will also be required to submit quarterly progress reports to SECP, detailing progress and highlighting implementation challenges. By June 30, 2026, each entity must include at least one Shariah-compliant securities broker in its approved panel of intermediaries.

The second phase, spanning July 1, 2026, to June 30, 2027, will require institutional investors to route a minimum of 20 percent of their securities transactions through Shariah-compliant securities brokers. At the end of this period, SECP will assess progress on both an entity and sector basis before announcing the next stage of implementation.

In addition to trading obligations, SECP has urged Shariah-compliant entities to transition their insurance coverage to takaful operators and to rely on Shariah-compliant asset management services for investment purposes. This is aimed at ensuring consistency across the broader financial ecosystem, reinforcing the integrity of Islamic finance practices in Pakistan.

The Pakistan Stock Exchange (PSX) has also been tasked with supporting the transition by developing a Shariah-compliant trading mechanism and increasing awareness of Islamic brokerage services among market participants. To facilitate this, the Exchange has been directed to work with Trading Rights Entitlement (TRE) Certificate Holders, encouraging them to offer Shariah-compliant brokerage services either by converting their operations outright, creating subsidiaries, or launching dedicated Islamic “window” services.

Meanwhile, the Central Depository Company (CDC) has been instructed to give greater visibility to Shariah-compliant intermediaries. This will involve creating a separate category for such services across key digital platforms, including Asaan Connect, Emlaak Financials, and the digital applications of Islamic banks. Coordination with the State Bank of Pakistan is expected to ensure the integration of these services into mainstream financial channels.

The SECP’s directive marks a significant step in strengthening the infrastructure for Islamic finance in Pakistan, a sector that has grown steadily over the past two decades. According to industry reports, Islamic banking assets now represent over 20 percent of the total banking sector, while takaful and Islamic mutual funds continue to expand market share. However, Shariah-compliant brokerage services have lagged behind, limiting the ability of institutional investors to fully align their portfolios with Islamic principles.

Pakistan’s courts and policymakers have long emphasized the need to eliminate interest-based transactions in compliance with constitutional directives and rulings by the Federal Shariat Court. In April 2022, the court ruled that all forms of riba were prohibited and directed the government to ensure a phased transition toward an interest-free economy by 2027. SECP’s move on brokerage services appears aligned with that timeline, further extending Islamic finance reforms into the capital markets.

Analysts believe that while the directive could expand opportunities for Shariah-compliant brokers, its success will depend heavily on the development of adequate market infrastructure, investor education, and coordination between regulators and intermediaries. Without these, there may be challenges in meeting the 20 percent target by 2027.

For now, SECP’s step is being seen as both a signal to accelerate Islamic finance reforms and a structural push to create new avenues for Shariah-compliant investments. Market stakeholders will be closely watching how institutional investors adapt over the next two years, with the expectation that the policy will not only strengthen compliance with Islamic principles but also broaden investor participation in Pakistan’s capital markets.

The SECP directive on Shariah-compliant securities brokerage underscores the regulator’s role in deepening Islamic finance integration, a priority that is expected to shape Pakistan’s financial sector reforms in the years leading up to 2027.Read More Stories on Newztoday.