STANDARDS OF PROCEDURE FOR A NON-BANKING FINANCE COMPANY

UNDER NON BANKING FINANCE COMPANY RULES 2003

Conditions applicable to a NBFC

(a) maintain such books of accounts and other records, as prescribed under the
Ordinance, as shall depict a true and fair view of its state of affairs, including,__

(i) journals, cash books and other records of original entry forming the basis
of entry in any ledger;

(ii) ledgers (or other comparable record) reflecting assets, liabilities, income
and expenses along with all supporting documents or records;

(iii) ledgers (or other comparable record) showing securities in the portfolio;

(iv) record of transactions with banks;

(v) record of the meetings of the board of directors and all relevant
committees including the audit committee, credit committee and
investment committee; and

(vi) original record of all reports, analysis and memoranda containing

investment advice distributed;

(b) maintain such books of accounts and other records, as prescribed under the
Ordinance, to depict a true and fair view of its state of affairs for a period of not less than ten
years;

(ba) ensure that its statutory auditors are from the approved list of auditors circulated by
the Commission;

(c) appoint an individual, having minimum three years experience, as its financial or
chief accounting officer who is-

(i) a chartered accountant; or

(ii) a cost and management accountant; or

(iii) a member of a recognized foreign accountancy organization; or

(iv) a person having master’s degree in commerce or business administration

with specialization in finance,
 [Provided that a non-deposit taking and unlisted lending NBFC
may designate another officer as its financial or chief accounting
47
officer;]

(ca) appoint [as internal auditor]

[(i) a person having minimum three years relevant experience who is-]

(a) a chartered accountant; or

(b) a cost and management accountant; or
(c) a certificated internal auditor; or
(d) a certified information system auditor; or
(e) a member of recognized foreign accountancy organization; or
(f) an individual having master degree in commerce or business
administration with specialization in finance; or

(ii) a chartered accountancy firm having satisfactory Quality Control Review

(QCR) and not being the statutory auditors to whom this function is outsourced.

[Provided that the internal auditor shall report directly to the board of directors or the audit
committee of the board of the NBFC.]
(cb) appoint a person as compliance officer to ensure reporting to the Commission of
status of compliance with the existing regulatory framework by the NBFC[:

Provided that a non-deposit taking and unlisted Lending NBFC may

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designate another officer as its compliance officer;]

(cc) appoint such executives who shall fulfill the terms and conditions mentioned in
the fit and proper criteria specified by the Commission by notification in the
official Gazette;

[(cd) appoint the directors in accordance with Schedule I, provided that the
Commission shall be the final authority to determine the status of a director as
independent or otherwise;

(d) prepare its accounts in conformity with the International Accounting Standards
notified under sub-section (3) of section 234 of the Ordinance and technical
releases issued by Institute of Chartered Accountants of Pakistan from time to
time;

[(da) furnish to the Commission its quarterly and annual financial statements in
accordance with Schedule I;]

(g) follow directions issued to protect NBFCs against their involvement in money
laundering activities [, terrorist financing] and other unlawful trades;
 (h) [obtain rating in accordance with Schedule-I] as and when it becomes eligible for
rating as per the rating criteria of a rating agency registered with the Commission,
and such rating shall be updated at least once every financial year:
Provided that the NBFC shall within one year of the decrease in its rating
from the grade specified by the Commission by notification in the official
Gazette, obtain a fresh rating and during the period that its rating is below the
grade so specified, the NBFC may be allowed by the Commission to continue its
operations on such conditions as are deemed appropriate by the Commission;

(i) publish the rating in its annual report and quarterly reports, annual and quarterly
reports of the collective investment schemes managed by it, if applicable, and any
advertisement and brochures in relation to promotion of its business;]
(j) acquire and maintain membership of the relevant association and follow the code
of conduct specified by the said association approved by the Commission seek
registration of notified entities as per the regulations notified by the Commission in the
Official Gazette before offering of unit, certificates or shares of notified entities:
(k) seek registration of notified entities as per the regulations notified by the Commission in
the Official Gazette before offering of unit, certificates or shares of notified entities:]
(2) A NBFC shall not,
a) appoint as directors [those]60 persons who hold such office in any other NBFC licensed
for the same form of business.

Provided that this clause shall not apply to the nominees of the Federal or Provincial
Governments on the board of any NBFC or, any exception specified by the Commission;
(aa) appoint or change its chief executive or any of its directors subject to fulfillment
of the fit and proper criteria and prior approval of the Commission provided that the
Commission may refuse appointment of any person
Explanation. - This clause shall not apply to a director nominated by the Federal
Government or Provincial Governments;
b) enter into premises leasing or renting, and sale or purchase of any kind with their
directors, officers, employees or their close relatives or any person acting on their behalf
or such persons who either individually or in concert with family members beneficially
own 10% or more of the equity of the NBFC:

Provided that this restriction shall not apply to such NBFCs that have a policy to this
effect duly approved by their board of directors:
Provided further that in case of any sale and purchase to the directors the prior approval
in writing of the board, excluding the participation of the beneficiary directors, is
required;]62
 [(ba) hold or make investment in a subsidiary other than that which is a financial
services company:
Provided that an NBFC may make strategic investments in
financial services company with the approval of the Commission;]63
c) Form, sell or transfer ownership of shares in subsidiary or associated company,
merge with, acquire or takeover any other company unless it has obtained prior approval
of the Commission in writing to such formation or sale or transfer;]6
[(ca) sell strategic investment unless it has obtained prior approval of the
Commission in writing to such sale;
(cb) merge with, acquire or takeover any other company unless it has obtained
prior approval of the Commission in writing to such scheme of merger,
acquisition or takeover

d)
e)
f) remove any of its records or documents relating to its business from Pakistan to a place
outside Pakistan without the prior permission of the Commission;
g)
h) make aggregate investment in shares of unlisted company in excess of twenty percent of
its equity. Investment in unlisted company shall be approved in a board meeting
after carefully analyzing the merits and financial impact of the investment and
recording the decision in detail in minutes of the meeting and such decisions shall be
communicated to the Commission within fourteen days of the board meeting along with
copy of the minutes:

Provided that the NBFC shall not own shares of any one unlisted company in excess of
ten per cent of its own equity or of the issued capital of that company, whichever is less:
Provided further that investment by an NBFC out of its surplus equity (i.e. over and
above the required minimum equity requirements) in unlisted shares of its subsidiaries or
any other financial services company in the group, shall not be taken into account for
calculating the limit for unquoted shares;
i) offer any of its own or other securities for any consideration other than cash [or liquid
assets]68 nor make any loan or advance against these securities. Unless otherwise
specified by the Commission by notification in the official Gazette;

j) hold, deal or trade in real estate except for the use of NBFC itself or where specified by
the Commission by notification in the official Gazette[:
 Provided that properties acquired by lending NBFC in satisfaction of its claims shall be
disposed of within a maximum period of seven years from the date of acquisition;]
k) raise deposits in any form by whatever name called except as specified by the
Commission in the Non-Banking Finance Companies and Notified Entities Regulations,
2008;]

l) provide unsecured facilities or exposures except as specified by the Commission by

notification in the official Gazette; [and]

m) encumber or mortgage or pledge or transfer clients’ assets deposited as security with the
NBFC against any facility extended to the client, for securing its own obligation.

n) undertake the brokerage business in capital market except by forming a separate company
for this purpose.

[(3) An NBFC shall comply with such minimum equity requirement or any other
requirement in lieu of minimum equity requirement as may be prescribed by the
Commission from time to time for specific form of business or class of companies by
notification in the official Gazette.]

ALEEM KHAN
(Advocate High Court)
Manager Legal & Compliance
(Pavo Technologies)