SBP unifies ECs for stronger financial regulation, increases capital requirement to Rs500mn

September 06, 2023 (MLN): Owing to the frequent regulatory issues observed in the Exchange Companies (ECs), particularly in the operations of ECs-B and franchises of ECs, the State Bank of Pakistan (SBP) has decided to consolidate and transform various types of ECs into a single category with a well-defined mandate.

In addition, the minimum capital requirement for ECs has been increased from Rs200 million to Rs500 million.

Furthermore, leading banks actively engaged in foreign exchange business will establish wholly owned ECs to cater to the legitimate foreign exchange needs of the general public.

"During the last few years, frequent regulatory issues/weaknesses have been observed in the Exchange Companies’ sector, particularly in the operations of ECs-B and franchises of Exchange Companies," the circular issued to the Chief Executives of all ECs and ECs-B reads.

Since the desired level of quality of governance, internal controls and compliance with laws and regulations has not been achieved, there is a need for introducing structural reforms in the sector, it added. 

Thus, it has been decided to offer the following options to ECs-B and franchises of ECs:

A- Conversion of Exchange Companies of ‘B’ Category into Full-fledged Exchange Companies

All ECs-B shall have the option of conversion into Exchange Companies within three months of the issuance of this circular, after fulfilling all legal and regulatory requirements. For this purpose, ECs-B may exercise any of the following options:

1. Merge into an existing Exchange Company;
2. Upgrade from EC-B to an Exchange Company;
3. Merge with one or more ECs-B to establish an Exchange Company

For this purpose, ECs-B shall approach SBP to seek NOC for exercising any one of the above options, within one month of issuance of this circular.

SBP may, after scrutinizing the application, grant or refuse to grant the NOC if the applicants do not meet the regulatory requirements.

The licenses of ECs-B, which do not approach SBP for the NOC within the stipulated time period, shall stand cancelled after the expiry of one month’s deadline, the notice further stated.

The licenses of those ECs-B which fail to complete the formalities within the stipulated time period of three months will stand cancelled.

B-Conversion of Franchises into Branches of the Exchange Companies

All franchises of the Exchange Companies shall have the option of conversion into branches of their respective franchises within three months of the issuance of this circular.

For this purpose, franchises of Exchange Companies may exercise any one of the following two options:

1. Merge with the Exchange Company (franchiser); or
2. Sell the franchise to the Exchange Company (franchiser).

Franchises, exercising the option of merger, will approach the concerned Exchange Company providing it with the relevant details to submit the application to SBP, within one month of the issuance of this circular, along with the relevant documentary requirements.

SBP may, after scrutinizing the application, grant or refuse to grant the approval for the merger.

In case of the sale of franchises by the franchisees, the concerned Exchange Company would also approach SBP, within one month of the issuance of this circular, along with relevant regulatory documentation for conversion of the franchise license to branch category.

SBP may, after scrutinizing the application, grant or refuse to grant the approval for the conversion of a franchise license into a branch, it said.

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, it further noted.

Copyright Mettis Link News