The State Bank of Pakistan (SBP) announced on Wednesday its decision to implement comprehensive structural reforms in the Exchange Companies (ECs) sector, aiming to enhance transparency, improve services for the public, and address currency exchange challenges amidst a significant depreciation of the national currency.
As part of these reforms, prominent banks actively involved in foreign exchange operations will establish wholly-owned Exchange Companies (ECs) to meet the legitimate foreign exchange requirements of the general public, according to a statement from the SBP.
The SBP further stated that various existing types of Exchange Companies and their franchisees will be consolidated into a unified category of Exchange Companies, each with a clearly defined mandate.
Additionally, the SBP has raised the minimum capital requirement for ECs from Rs 200 million to Rs 500 million, creating a higher threshold for private sector entry into the industry.
To facilitate this transformation and streamline the sector, the SBP has presented the following options for ECs of category ‘B’ (ECs-B) and franchisees of Exchange Companies:
ECs-B can transition to full-fledged Exchange Companies within three months upon satisfying all regulatory prerequisites. Failure to meet these requirements within the stipulated timeframe will result in the cancellation of their licenses.
Franchisees of Exchange Companies have the option to either merge or sell their operations to the relevant franchiser company within three months, provided they comply with all regulatory conditions.
In preparation for these changes, ECs-B and Franchisees 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 underscored that these reforms are aimed at delivering improved services to the public, fostering transparency, and enhancing competitiveness within the Exchange Companies sector. It is anticipated that these measures will reinforce governance, internal controls, and compliance standards throughout the industry.
These reforms come in response to the widening gap between inter-bank and open-market exchange rates, which exceeded 7% in recent weeks, surpassing the limit prescribed by the International Monetary Fund (IMF). The SBP’s actions aim to address these challenges and promote stability in Pakistan’s currency exchange landscape.