Karachi, December 27, 2024 – The State Bank of Pakistan (SBP) has introduced a fresh regulatory framework for exchange companies to strengthen governance and streamline operations.
The updated “Regulatory Framework for Exchange Companies (RFEC)” represents a comprehensive review and consolidation of existing instructions, offering a unified source of regulatory guidance.
The RFEC elaborates on corporate governance structures, internal controls, IT systems requirements, and supervisory and enforcement mechanisms. It also updates reporting standards to enhance compliance and operational efficiency. The framework will replace the existing Exchange Companies Manual and come into effect on January 1, 2025. Exchange companies are required to align their policies, procedures, and systems with the new framework by June 30, 2025.
A key highlight of the RFEC is the increase in the minimum paid-up capital requirement for exchange companies to PKR 1 billion. Companies with capital deficiencies must meet the following phased timelines:
• PKR 600 million by December 31, 2025
• PKR 800 million by December 31, 2026
• PKR 1 billion by December 31, 2027
The Minimum Capital Requirement (MCR) must be maintained on an ongoing basis and is calculated as: MCR = Paid-up Capital +/- Shares related Reserves +/- Unappropriated Profit/Accumulated Losses
The SBP has emphasized strict conditions regarding financial transactions. Shareholders and directors are prohibited from withdrawing company funds as loans or credits without SBP’s written approval. Similarly, companies cannot secure financing for business activities, other than vehicle leasing, without prior SBP consent. Additionally, shareholders cannot divest capital without SBP’s approval.
The framework mandates maintaining a Regulatory Reserve (RR) equivalent to 15% of the paid-up capital with SBP. This reserve must be held in cash or unencumbered government securities. To facilitate this, companies are required to open a current account with SBP-BSC and maintain a Securities General Ledger Account (SGLA), if necessary.
Regarding capital enhancement, companies are no longer required to seek SBP’s prior approval for increasing authorized or paid-up capital. They may directly approach the SECP for formalities but must inform SBP immediately after the increase, providing evidence of compliance, including SECP returns, regulatory reserve adjustments, and source of funds documentation.
The SBP’s updated framework is expected to improve transparency, enforce stronger financial discipline, and bolster investor confidence in exchange companies.