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Markets

SBP wants banks engaged in forex business to establish wholly-owned Exchange Companies

  • Amid rupee's freefall in open market, SBP moves to introduce structural reforms in sector
Published September 6, 2023

In a bid to strengthen controls amid the massive fall in rupee’s value in the open market, the State Bank of Pakistan (SBP) on Wednesday decided to introduce structural reforms in the Exchange Companies’ (ECs) sector.

“As part of these reforms, leading banks actively engaged in foreign exchange business will establish wholly-owned Exchange Companies (EC) to cater to the legitimate foreign exchange needs of general public,” said the SBP in a statement.

“Furthermore, various types of existing Exchange Companies and their franchisees will be consolidated and transformed into a single category of Exchange Companies with a well-defined mandate.”

In addition, the SBP also raised the minimum capital requirement for EC from Rs200 million to Rs500 million, raising the barrier to entry for the private sector.

The ECs of category ‘B’ (ECs-B) and franchisees of Exchange Companies have been offered the following options to transform into mainstream Exchange Companies:

  • ECs-B may graduate to Exchange Companies after meeting all regulatory requirements, within three months; otherwise, their license would be cancelled.

  • Franchisees of Exchange Companies may either merge or sell operations to the concerned franchiser company, within three months after meeting all regulatory requirements

“For the above purpose, the ECs-B and Franchises of Exchange Companies will submit their conversion plan and seek NOC from SBP within one month,” the SBP added.

The SBP said the reforms have been introduced to provide better services to the general public and bring transparency and competitiveness in the Exchange Companies’ sector.

“This is expected to strengthen governance, internal controls, and compliance culture in the sector,” it added.

The development comes as the gap between the inter-bank and open-market rates widened to over 7% in recent weeks, well above the prescribed limit by the International Monetary Fund (IMF).

In a post following the development, noted economist Shabbar Zaidi hailed the step to regulate the ECs.

“Regularisation of Exchange Companies. Listen (to) my views for last ten years. This animal has to be merged with banks,” he said in a post on X, formerly known as Twitter. “Better late then never. Now government should close physical movement of $.Only for travel on passports or Bank accounts. Anyone carrying to be jailed.”

Comments

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Arif Sep 06, 2023 05:13pm
While appreciating SBP initiative , Bank should be allowed to do foreign currency dealings in branches to avoid extra overheads .
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Sohail Sep 06, 2023 06:03pm
Banks should also own investment arms and seats in PSX to promote stocks investing and investment banking etc. This is a missing link long-missed/ignored.
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Fazeel Siddiqui (Overseas Pakistani) Sep 06, 2023 06:26pm
Very good step, I suggest more and more banks to transform their branches to deal in foreign currency. Take as much regulated deposits in USD/FC as much possible. You need only a very good smart machine to catch fake FC, rest of work same branch staff can do.
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Love Your Country Sep 06, 2023 06:46pm
Sound like a good idea keeping in mind that competition is the key to better service and price.
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Amigo Sep 06, 2023 07:45pm
Excellent move by SBP. Congrats Dr. Shamshad Akhtar. Regards
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Syed Hadi Sep 06, 2023 08:01pm
SBP does not get the point, as Rupee will have a more gap between open market and interbank rate. The open market players will offer more to attract customers while banks will have to follow procedures.
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Az_Iz, Muridke Sep 06, 2023 08:19pm
Frustrated young population will populate like rabbits or try to enter other countries illegally and die in the process.
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E Sep 07, 2023 11:27am
@Sohail, this will give rise to inflated stock market. Sarbanes. Oxley. As long as reserve curreny is usd pakistan and engine world will face these issues. Another reserve currency is required I think chinese currency shoild be encouraged.
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