Regulatory Alerts2022-06-10
Added · Updated
Circular No. 6 of 2022 - Requirements for Assessing Suitability and Risk Categorization of Collective Investment Schemes (CIS)
Asset Management Companies must classify Collective Investment Schemes and investment plans into five specific risk profiles ranging from Very Low to High based on their investment policies and portfolio constraints. The classification mandates specific limits, such as a maximum weighted average duration of six months for Low risk funds and two years for Moderate risk funds, alongside defined equity exposure mandates for High risk categories. All Asset Management Companies are required to implement these new risk categorization standards within 60 days of the circular's issuance on June 1, 2022.
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
SPECIALIZED COMPANIES DIVISION
POLICY, REGULATION AND DEVELOPMENT DEPARTMENT
No. SCD/CIRCULAR/36/2022
June 1, 2022
Circular No. 6 of 2022
Subject: Requirements for Assessing Suitability and Risk Categorization of Collective Investment Schemes (CIS)
The Securities and Exchange Commission of Pakistan in exercise of the powers conferred under section 282 B (3) of the Companies Ordinance, 1984 read with regulation 66A(d) of the Non-Banking Finance Companies and Notified Entities Regulations, 2008 hereby makes the following amendments in Circular No. 2 of 2020 dated February 6, 2020 in supersession of Circular No. 32 of 2020 dated October 22, 2020:
AMCs shall classify CIS and investment plans as per the following risk profiles:
| Category of CIS/ Plans based on investment policy | Risk Profile | Risk of Principal Erosion |
|---|---|---|
| Money Market Funds with no exposure in corporate commercial papers | Very Low | Principal at very low risk |
| Money Market Funds with investment in corporate commercial papers, Capital Protected Funds (non-equity), Income Funds with deposits/placement in A or above rated banks/ DFIs and investment in Government Securities or Government backed Sukus. Weighted average duration of portfolio of securities shall not exceed six (6) months. | Low | Principal at low risk |
| Income Funds with investment in AA rated corporate debt instruments, MTS and spread transactions. Weighted average duration of portfolio of securities shall not exceed two (2) years. | Moderate | Principal at moderate risk |
| CPP I Strategy Based Funds, Income Funds (where investment is made in fixed rate instruments or below A rated banks or corporate sukuks or bonds, spread transactions, Asset Allocation and Balanced Funds (with equity exposure up to 50% mandate). | Medium | Principal at medium risk |
| Equity Funds, Asset Allocation (with 0 - 100% Equity exposure mandate) and Balanced Funds (with 30 - 70% Equity exposure mandate), Commodity Funds, Index Trakker Funds and Sector Specific Equity Related Funds. | High | Principal at high risk |
All AMCs shall ensure compliance with above requirements within 60 days of issuance of this Circular. All other requirements stipulated under Circular No. 2 of 2020 dated February 6, 2020 shall remain unchanged. All other investments allowed in various categories under Circular No. 7 of 2009 will remain the same.
Distribution:
- Chief Executive Officers, Asset Management Companies
- Mutual Funds Association of Pakistan
- Trustees of Collective Investment Schemes
Commissioner (SCD)
"Say no to Corruption"
NIC Building, 63 Jinnah Avenue, Blue Area, Islamabad.
Tel: 051-9207091-4, Fax. No. 051-9100473