By Farooq Awan

Pakistan has stepped up efforts to overhaul its legal and regulatory framework to support the country's transition to a Riba-free financial system by 2028, with authorities planning to complete legislative amendments and regulatory reforms before the constitutional deadline.

According to the strategy paper, Post-2027 Financial System in Pakistan, available with Wealth Pakistan, the review of Pakistan's legal framework is aimed at identifying statutory provisions requiring amendment to facilitate the transition towards a Shariah-compliant financial system while ensuring continuity and stability in financial and commercial activities.

The strategy states that laws governing financial and commercial activities are being examined to determine areas where legislative adjustments are necessary to align the country's legal framework with Shariah principles. The federal and provincial governments, together with financial sector regulators, are expected to introduce legislation within their respective jurisdictions to support the evolving financial system.

According to the document, any proposed amendments will be designed to facilitate the smooth functioning of the financial system while safeguarding the continuity of existing financial and commercial arrangements. The strategy emphasises that the reforms are intended to create an enabling legal environment rather than disrupt ongoing economic activity.

The paper notes that substantial progress has already been achieved. A comprehensive review of banking-related laws in light of the Federal Shariat Court's judgment has been completed, while the review of the remaining relevant laws is scheduled to be finalised during 2026. The government plans to complete the legislative process during 2027 to ensure that the required legal framework is in place before the transition takes effect.

According to the strategy, the amendments identified in banking laws are minor in nature, suggesting that the existing legal framework already provides a strong foundation for the transition. Authorities will also review other financial and commercial laws to ensure that the broader legal architecture is recalibrated responsibly, helping avoid legal and fiscal complications before the proposed amendments are presented to Parliament for enactment.

Alongside legislative reforms, Pakistan's financial regulators are reviewing the existing regulatory and supervisory framework to ensure full conformity with Shariah principles while maintaining consistency with internationally recognised regulatory standards. The strategy says the current framework is already comprehensive and broadly aligned with global best practices, with only limited amendments required to complete the transition.

The State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) have recently completed reviews of their respective regulatory frameworks to assess compliance with Shariah principles. According to the document, the majority of existing regulations are already compatible with Islamic finance, while the remaining amendments identified through the review process will be notified after stakeholder consultations well before December 2027.

The strategy stresses that Pakistan's regulatory framework will continue to comply with internationally recognised prudential, governance and risk management standards issued by leading global standard-setting bodies. These include the Basel Committee on Banking Supervision (BCBS), the Financial Stability Board (FSB), the International Accounting Standards Board (IASB), the International Organization of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS), the Islamic Financial Services Board (IFSB), and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

Special emphasis will also be placed on compliance with the Basel Core Principles as well as the additional core principles for Islamic banking outlined in IFSB-17, reflecting Pakistan's intention to align its Islamic financial system with internationally accepted supervisory standards.

The strategy identifies the timely enactment of amendments to federal and provincial laws as one of the most critical requirements for ensuring a successful transition to the post-2027 financial system. It notes that a comprehensive review of relevant legislation has largely been completed and the required amendments have already been identified, with the legislative process expected to begin shortly.

According to the strategy paper, the legal and regulatory reforms are intended to establish a comprehensive framework that supports Shariah conformity while ensuring consumer protection, financial stability and continued confidence in Pakistan's financial system throughout the transition to a Riba-free economy.

Credit: INP-WealthPk