Government Plans Separate Regulator for Non-Banking Financial Institutions

The Government of Nepal is preparing to establish a separate specialised regulatory body to oversee and regulate major non-banking financial institutions, including the Employees Provident Fund (EPF), Citizen Investment Trust (CIT) and the Social Security Fund (SSF).

The initiative is a part of the five-year Financial Sector Development Strategy for fiscal years 2025/26 to 2029/30 approved by a meeting of the Council of Ministers on January 12.

The strategy lays out a clear roadmap for creating a distinct institutional mechanism for the establishment, operation, regulation and supervision of non-banking financial institutions.

The government aims to strengthen the financial system, make it more resilient and inclusive, and support long-term economic growth through the reforms outlined in the strategy.

Institutions such as the EPF, CIT and SSF play a critical role in Nepal’s financial system by managing the savings, pensions and social security contributions of millions of people employed in the government, public, private and self-employment sectors. These funds mobilise large volumes of long-term capital for infrastructure development, the capital market, government securities and other investment instruments. However, they currently operate outside a clear and unified regulatory framework.

While Nepal Rastra Bank regulates banks and financial institutions, non-banking social security funds do not fall under its direct supervision. At the same time, these funds operate under the Ministry of Finance, where weaknesses in institutional regulation, monitoring and risk management have gradually emerged. To address this gap, the strategy proposes the creation of a separate regulatory mechanism for non-banking financial institutions.

The strategy also seeks to develop an integrated system to manage the state’s financial obligations related to social security, with a focus on sustainable and inclusive economic growth. It includes plans to channel savings into more productive sectors, conduct feasibility studies for an integrated social security system, and introduce necessary legal reforms to strengthen contribution-based social security schemes.

At present, social security programmes operate in a fragmented manner through multiple funds, leading to duplication, higher administrative costs and complexity in service delivery. The government plans to address these issues by running contribution-based social security schemes through a unified system.

Expanding the coverage of social security programmes remains a key priority of the strategy. The government plans to study ways to bring workers from the government, public, private and informal sectors, self-employed individuals, and Nepalis working abroad who are not currently covered by existing schemes into the social security system.

To ensure regular contributions from migrant workers and the self-employed, the strategy also proposes simplifying and expanding access to payment gateway systems, including secure online payment platforms. The government expects this to help transform social security from a limited benefit into a broader citizen entitlement.

The strategy identifies investment diversification of non-banking financial funds as another major reform area. It proposes legal and policy arrangements to allow funds to invest accumulated savings in short- and long-term financial instruments based on market demand.

It also plans to allow investments in specialised investment funds and private equity funds, expand investments in housing and other basic-needs-related projects for contributors, and develop housing projects with fund participation to make long-term capital mobilisation more effective.

To support capital market development, the strategy includes investment diversification through closed-end mutual funds and portfolio management services. It also calls for financial literacy and awareness programmes focusing on the need, relevance and importance of social security programmes, as well as citizens’ responsibilities.

The strategy places strong emphasis on consumer protection by proposing institutional mechanisms for regulation and supervision, codes of conduct to safeguard participants’ interests, and clear provisions on risks, benefit claims and grievance-handling procedures.

In addition, the government plans to amend relevant laws to clarify the roles, mandates and responsibilities of existing funds, integrate overlapping programmes, and deliver all services through a single digital portal. The strategy also aims to integrate insurance, pension and lending services through the use of modern information technology.

Addressing governance and risk management challenges in the non-banking financial sector remains a key concern. The strategy proposes a comprehensive risk management framework to identify, assess and mitigate financial, operational, market and social security-related risks. It also calls for strengthening internal control systems and ensuring regular public disclosure of funds’ financial status, investments and administrative expenses. -- RSS