SECP Highlights Actions Against Illegal Digital Lending Apps

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has said that it is proactively engaged with Google to counter the proliferation of illegal apps as the search engine has removed 84 illegal lending apps from its Play Store.

The SECP through circular no. 15 has directed the digital lenders that the borrowers’ data cannot be stored on any cloud infrastructure outside the jurisdiction of Pakistan.

The commission has also issued digital lending standards applicable to Non-Banking Finance Companies (NBFCs) undertaking lending activities through digital channels/mobile applications (apps).

Some of these NBFCs have also ventured into personal loans through digital Apps. A list of SECP approved Apps is available on the SECP’s website. Other than these, all Apps available on various play/app stores are unauthorized and illegal.

The SECP has also specified a comprehensive grievance redressal mechanism over and above the current NBFC grievance redressal framework.

Further, to ensure the confidentiality and privacy of data, the digital lender will not be allowed access to the borrower’s phone book or contact list, or photo gallery, even if the borrower has given consent in this regard.

The SECP prohibits access to personal data, enforces a mandatory 24-hour cooling-off period for loans, and restricts digital lending NBFCs to a single app. Call agents are required to utilize registered numbers and recorded lines. Lenders and agents must adhere to ethical and legal standards, which prohibit unfair practices and harassment. The SECP maintains a robust enforcement system for ensuring compliance. The commission follows a two-tier process for digital lending companies. The first tier involves obtaining an NBFC license, which entails conducting due diligence, evaluating sponsors and directors, and appointing an independent director. The second tier includes app approval based on the CSAF auditors’ certificate, which ensures the security of data and apps by assessing disclosure requirements.