Islamabad, September 6, 2023 – The State Bank of Pakistan (SBP) has initiated a series of structural reforms aimed at enhancing the monitoring and governance of exchange companies operating within the country.
The SBP’s move comes in response to persistent regulatory issues and weaknesses observed in the exchange companies sector, particularly among Exchange Companies of ‘B’ Category (ECs-B) and franchises of Exchange Companies. These issues have hindered the attainment of desired levels of governance quality, internal controls, and compliance with laws and regulations, necessitating the need for structural reforms within the sector.
As part of these reforms, it has been decided to consolidate and transform various types of exchange companies into a single category with a clearly defined mandate. The SBP, under Section 3AA of the Foreign Exchange Regulation Act, 1947, is offering the following options to ECs-B and exchange company franchises:
Conversion of ECs-B into Full-fledged Exchange Companies:
All ECs-B are given the option to convert into full-fledged exchange companies within three months from the issuance of this circular. This conversion can be achieved through several methods, including merging with existing exchange companies, upgrading from EC-B to an exchange company, or merging with one or more ECs-B to establish a new exchange company. ECs-B interested in conversion must seek a No Objection Certificate (NOC) from the SBP within one month of the circular’s issuance. Applications for NOC should include a detailed conversion/merger plan, proposed shareholding structure, shareholder and director information, and relevant board resolutions. ECs-B that do not approach the SBP for NOC within the stipulated time will have their licenses canceled.
After receiving the NOC from the SBP, ECs-B must fulfill all legal and regulatory requirements within three months to obtain a formal license/authorization to commence operations as required under the Exchange Companies Manual (ECM).
Conversion of Franchises into Branches of Exchange Companies:
All franchises of exchange companies have the option to convert into branches of their respective franchisers within three months of the circular’s issuance. Franchises can choose either to merge with the exchange company (franchiser) or to sell the franchise to the exchange company. Franchises opting for merger should provide relevant details to the concerned exchange company, which will then submit an application to the SBP within one month of the circular’s issuance, including required documentation.
In cases of selling a franchise, the exchange company will also approach the SBP within one month of the circular’s issuance with the necessary regulatory documentation for the conversion of the franchise license into a branch. Licenses of franchises that do not choose either option within the stipulated one-month period will be canceled.
These reforms are aimed at streamlining and strengthening the exchange companies’ sector in Pakistan, ensuring better regulatory compliance, and improving governance and internal controls within the industry.
