SBP introduces structural reforms for Exchange Companies

Exchange Companies (B-Category) license to cancel in one month

Exchange Companies’ (B-Category) license to cancel

KARACHI, September 6, 2023: The State Bank of Pakistan has decided to introduce structural reforms in the Exchange Companies’ sector. As part of these reforms, leading banks actively engaged in foreign exchange business will establish wholly owned Exchange Companies to cater to the legitimate foreign exchange needs of general public.

Furthermore, various types of existing Exchange Companies and their franchisees will be consolidated and transformed into a single category of Exchange Companies with a well-defined mandate. In addition, the minimum capital requirement for Exchange Companies has been increased from PKR 200 million to PKR 500 million. The Exchange Companies of category ‘B’ (ECs-B) and franchisees of Exchange Companies have been offered the following options to transform into mainstream Exchange Companies:

  • ECs-B may graduate to Exchange Companies after meeting all regulatory requirements, within three months; otherwise, their license would be cancelled.
  • Franchisees of Exchange Companies may either merge or sell operations to the concerned franchiser company, within three months after meeting all regulatory requirements

For the above purpose, the ECs-B and Franchises of Exchange Companies will submit their conversion plan and seek NOC from SBP within one month.

The above reforms have been introduced to provide better services to the general public and bring transparency and competitiveness in the Exchange Companies’ sector. This is expected to strengthen governance, internal controls, and compliance culture in the sector.

All franchises of the Exchange Companies shall have the option of conversion into branches of their respective franchisers within three months of the issuance of this circular. For the purpose, franchises of Exchange Companies may exercise any one of the following two options:

Merge with the Exchange Company (franchiser); or

Sell the franchise to the Exchange Company (franchiser).

Franchises, exercising the option of merger, will approach the concerned Exchange Company providing it the relevant details to submit the application to SBP, within one month of the issuance of this circular, along with the relevant documentary requirements, including Annexure-2AI and Annexure-2AII of ECM. SBP may, after scrutinizing the application, grant or refuse to grant the approval for the merger.

The licenses of all those franchises, which do not opt for either merger or sale within the aforesaid stipulated time period of one month would stand cancelled.

Now, in order to strengthen the solvency of Exchange Companies and enable them to have robust infrastructure and systems, the minimum paid-up capital requirement of Exchange Companies is being enhanced from PKR 200 million to PKR 500 million (free of losses).

 Accordingly, Exchange Companies having paid-up capital (free of losses) below PKR 500 million, are advised to enhance their paid-up capital to the required level latest by December 31, 2023. A capital enhancement plan in this respect should be submitted by the concerned Exchange Company to Exchange Policy Department by September 30, 2023.

Subsequently, a report of compliance in this regard, along with documentary evidence of enhancement of capital, shall be submitted by the concerned Exchange Company to Exchange Policy Department latest by December 31, 2023.

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