Banks involved in foreign exchange activities to establish wholly-owned
exchange companies
In response to the significant depreciation of the rupee in the
open market, the State Bank of Pakistan (SBP) has taken steps to introduce structural reforms in the Exchange Companies' (ECs) sector to enhance control
and transparency.
As part of these reforms, prominent banks actively involved in foreign exchange activities will establish wholly-owned Exchange Companies (EC) to meet the legitimate foreign exchange requirements of the general public.
Additionally, various types of existing Exchange Companies and their franchisees will be consolidated and restructured into a single category of Exchange Companies with a well-defined mandate. Furthermore, the SBP has raised the minimum capital requirement for ECs from Rs200 million to Rs500 million, which will make it more challenging for private sector entities to enter this market.
ECs in category 'B' (ECs-B) and franchisees of Exchange Companies are given the following options to transition into mainstream Exchange Companies:
ECs-B may elevate themselves to Exchange Companies by meeting all regulatory requirements within three months, or else their licenses will be revoked.
Franchisees of Exchange Companies may either merge with or sell their operations to the respective franchiser company, provided they meet all regulatory prerequisites, within three months.
For this purpose, ECs-B and Franchises of Exchange Companies are required to submit their conversion plans and seek a No Objection Certificate (NOC) from the SBP within one month.
The SBP stated that these reforms aim to improve services for the general public, enhance transparency, and promote competitiveness within the Exchange Companies' sector. Additionally, the reforms are expected to reinforce governance, internal controls, and compliance culture within the sector.
These measures come in the wake of a widening gap between inter-bank and open-market exchange rates, which has exceeded 7% in recent weeks, surpassing the limit prescribed by the International Monetary Fund (IMF).
Source: Business Recorder