REGULATIONS FOR STARTUPS IN PAKISTAN

GROUP MEMBERS:
FABIHA SHAHID - 21707
MANAHIL SHAHID - 22935
UMAIMA SYED - 22904
MARYAM ABRO - 23532
NEHA FATIMA - 23178
REGULATIONS FOR FINTECH:
Financial technology (better known as Fintech) is used to describe new tech that seeks to
improve and automate the delivery and use of financial services. At its core, fintech is utilized
to help companies, business owners, and consumers better manage their financial operations,
processes, and lives by utilizing specialized software and algorithms that are used on computers
and, increasingly, smartphones. Fintech, the word, is a combination of "financial technology."
The Securities and Exchange Commission of Pakistan (SECP), to promote innovation in
financial sector and encourage startups, issued Regulatory Sandbox Guidelines in 2019. The
SECP's Regulatory Sandbox is expected to stimulate financial and technological innovation and
help in enhancing financial inclusion and broaden the range of financial products in Pakistan.
This is Pakistan's first Regulatory Sandbox in the financial services industry.
GUIDELINES OF SECP FOR SANDBOX:
APPLICABILITY:
Applicable for new products, services or business models which have not been addressed under
existing and regulations.
PARTICIPANTS:
Following persons can apply in which set of applicants enter to test their innovation in a
specified time, namely:
 All companies registered with SECP
 Unregistered start-ups, or
 Internationally well-known companies or any other person.

PROCESS FOR SEEKING PERMISSION FOR PROMOTING INNOVATION:

The Regulatory Sandbox shall be operated by way of bringing applicants together to learn
together and work collaboratively toward common goals.
The commission to decide to start any experimentation cycle. The process will comprise
following stages:
 CALL FOR APPLICATIONS:
SECP will make announcement and its related call for application whenever considered
appropriate.
 APPLICATION FOR POTENTIAL INNOVATORS
An applicant will make an application to SECP on prescribed Form-1 along with requisite
information and documents.
 PRELIMINARY SCREENING OF APPLICATIONS:

1. SECP will communicate to applicate preliminary screening results within 30 working

days of receipt an application. Incomplete applications do not proceed to next step.
2. The successful applications will be thoroughly scrutinized.
3. The initial screening of applications shall be done based on parameters, including the
following:
I. Genuineness of innovation.
II. Financial inclusion
III. Consumer benefit
IV. Exit plan

 REVIEW AND SELECTION:

1. After the initial screening, SECP to review and evaluate applications within 45 working
days and may seek further information from the applicant.
2. SECP to issue letter of approval to unsuccessful applicants to participate.
3. After approval, participants will be allowed to operate in accordance with these
Guidelines for the period of up to 6 months.
4. SECP may extend the testing period at the request of Participants.
5. Every Participant shall implement a Safeguard Plan for the duration of the test,
participants to design the plan in consultation with SECP. This plan will address at
minimum, the integrity, conduct and applicable consumer protection requirements and
should at least include:
 Compliance with applicable rules and regulations concerning prevention of
money laundering, counter-terrorism financing, and other illicit activities; and
 Address the risks presented by Regulatory Sandbox test and specify any
mandatory actions to be taken by the Participants to minimize impact of such
risks on consumer, market participants, and the financial markets.
6. Participant to ensure protection and stability of market participants and consumers and to
mitigate regulatory risks and propose to take remedial measures.
7. Participant to identify any regulatory impediments.
8. The commission may delay or defer acceptance of any applicant, which may impair
quality, effectiveness, impact of Regulatory Sandbox test.
9. If applicants are beyond SECP’s capacity, SECP may delay the acceptance of eligible
participants to the next group.
10. SECP’s decision denying admission to the Regulatory Sandbox to be in writing, giving
rationale for denying application.

 TESTING / EXPERIMENTATION:

1. The approved participant allowed to operate in Sandbox environment for a period of 6

months, under the monitoring of SECP.
2. Participant will provide reports upon agreed terms to SECP prior to commencement of
testing stage.
3. Incase of force majeure circumstances, Participant may submit request for extension in
time for commencement of testing period to SECP.
4. Participant to inform SECP, if any the ability to commence or complete the testing is
impaired.

 COMPLETION REPORT:

At the end of the testing period, participants shall submit a completion report to SECP
including:
 The overall results and statistics of the testing.
 An objective assessment of the potential impact of the solution to be scaled out
which include a comparison of results with objective; scope of scaling out to a
larger audience in case of success; and how the Participants will fully comply
with relevant legal and regulatory requirements.

 EXIT STAGE:
SECP to analyze completion report submitted by participant at the exit stage and will
determine future course of action with respect to the following:
1. Facilitating the participants in scaling up its solution in a compliant manner to a larger
market in case of success or wind up its proceeding in case of failure.
2. Decision with regards to formulation of regulatory framework for promotion of the
innovate solution, amendment to the existing regulatory framework for facilitating
innovation.
3. Prohibit completely or defer the deployment of the solution to a wider scale if the
Commission is not satisfied with the results of testing.

 SUSPENSION OR REVOCATION OF APPROVAL:

At any stage where SECP has reasons to believe that the innovator has failed to the detail
agreed during the review and selection stage:
1. SECP can temporarily suspend the approval until the
matter in question has been fully clarified.
2. SECP can withdraw the approval with a public notice in case a serious discrepancy has
been observed related to consumer detriment or any other serious matter.

FINTECH START-UPS IN PAKISTAN:

There are 269 FinTech startups in Pakistan. Here is a list of the 10 most exciting ones
 Bazaar
 Sadapay
 Abhi
 Tag
 Finja
 CreditBook
 Oneload
 PostEx
 Seed Labs
 Qineqt

REGULATIONS FOR NFBC’s

A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is
a financial institution that does not have a full banking license or is not supervised by a
national or international banking regulatory agency. NBFC facilitate bank-related financial
services, such as investment, risk pooling, contractual savings, and market brokering.
  Examples of these include insurance firms, pawn shops, cashier's check issuers, check
[1]

cashing locations, payday lending, currency exchanges, and microloan organizations.

Non-Banking Finance Company (“NBFC”) licensed by the Securities and Exchange
Commission of Pakistan (”SECP”) to carry out Investment Finance Services (“IFS”), Leasing
Business(“LB”) or Housing Finance Services(“HFS”) in accordance with Part VIII- A of the
Companies Ordinance, 1984 and the NBFC & NE Regulations, 2008. The NBFC is to be
incorporated under the Ordinance read with provision of the Non-Banking Finance
Companies (Establishment and Regulation) Rules, 2003.

Following is the suggested chronological methodology for Incorporation of NBFC and

licensing as Investment Finance Service, Leasing Business or Housing Finance Service.
 NOC FOR FORMATION OF NBFC

Application should be submitted to Specialized Companies Division, SECP Headquarter

Islamabad for obtaining permission to form a NBFC along with the following documents:
1. Form I of the NBFC Rules along with all relevant supporting documents as per Annexure
2. Fee with Form I (as per Schedule II of the NBFC & NE Regulations)
3. NOC for formation of NBFC granted by SCD

 INCORPORATION OF NBFC
Incorporation of NBFC as a public limited company, at concerned Company Registration
Office, as per the existing procedures, forms, and fees.
 LICENSING AS IFS, LB OR HFS

1. Application should be submitted to Specialized Companies Division, SECP Headquarter

Islamabad for grant of license to carry out business as Investment Finance Services,
Leasing Business or Housing Finance Services.
2. Form II of the NBFC Rules along with all relevant supporting documents
3. Fee with Form II (as per Schedule II of the NBFC & NE Regulations)
4. License granted by SECP
NBFC for carrying business as IFS, LB or HFS is ESTABLISHED.
REGULATIONS FOR DIGITAL BANKS
Digital banking involves the digitization of all traditional banking products, processes, and
activities to serve customers through online channels.
Karandaaz has signed an agreement with State Bank of Pakistan under which Karandaaz is
supporting State Bank and providing technical assistance for formulating legal and regulatory
framework including licensing criteria for digital banks in Pakistan. This will help create an
enabling environment based on international best practices for digital banks and improve the
efficiency, effectiveness, and fairness of the banking system through strengthening and
streamlining the regulatory and supervisory framework.
TYPES OF LICENSES:
Under this framework, SBP may grant two types of digital bank licenses: 1) Digital Retail
Bank (DRB); and, 2) Digital Full Bank (DFB). DRBs will primarily focus on retail customers
and DFBs can deal with retail customers as well as business and corporate entities. Minimum
capital requirement for DRBs is set at PKR 1.5 billion during the pilot phase that will
gradually increase to PKR 4 billion over a transition period of three years. Subsequent to
completion of transition phase, DRBs may graduate to receive license of a DFB subject to
fulfillment of applicable minimum capital requirement and completion of a two-years
progression phase.
This framework is primarily designed for setting-up of a new digital bank. However, based
on a viable business case and satisfactory Digital Financial Services (DFS) experience,
traditional banks/Micro Finance Banks (MFBs) may request SBP for conversion of their
institution into a digital bank.
 Applications will be accepted until March 31, 2022.
 SBP has decided to initially limit the number of digital banks’ license up to five (05).