The State Bank of Pakistan has introduced a key regulatory change that allows board members of banks to also serve as directors on the boards of their wholly-owned exchange companies. This policy shift, announced through an amendment to the Corporate Governance Regulatory Framework, is intended to enhance coordination, strengthen supervisory alignment, and streamline institutional arrangements between banks and their subsidiaries engaged in foreign exchange operations.
According to the circular issued by the central bank, the revised clause modifies restrictions that previously barred individuals from holding board positions simultaneously in banks and certain financial entities. The updated regulation now makes an exception for exchange companies that are entirely owned by a bank, provided the individual complies with additional affidavit requirements specified by the SBP. This adjustment recognizes the need for integrated oversight in cases where the exchange company operates as a subsidiary fully controlled by the parent bank.
The circular specifically amends Reg G-4, Para 1(f), which outlines disqualifications for directorships and senior executive roles within banks. Traditionally, individuals serving as Director or President/CEO of a bank or development finance institution were restricted from holding key roles in exchange companies, brokerage firms, credit bureaus, and other related entities due to potential conflicts of interest. Under the revised provision, a President, CEO, or Director of a bank may now serve as a director of a wholly-owned exchange company, subject to submitting an affidavit affirming compliance with regulatory conditions.
The affidavit must be submitted to institutions falling under four key categories: stock exchanges, corporate brokerage firms, credit information bureaus, and any entities owned or controlled by individuals associated with these categories. The intent is to ensure transparency, prevent conflicting relationships, and uphold market integrity while allowing for better governance synergies between banks and their subsidiaries.
The circular also clarifies rules related to the Pakistan Stock Exchange. A PSX board member may serve on the board of a bank or DFI only if they hold the status of an independent director and maintain no connections with the restricted categories identified under the regulation. This provision helps preserve independence in governance structures while enabling expertise sharing across key financial institutions.
The regulatory update comes at a time when the landscape of foreign exchange operations in Pakistan has undergone significant restructuring. A year earlier, the State Bank allowed commercial banks to establish their own exchange companies to improve oversight, curb unauthorized currency trading, and enhance service quality in the retail forex market. Following the announcement, several banks received approval to set up dedicated exchange companies, marking a shift toward more regulated, institutionally managed currency operations.
With the introduction of this governance amendment, the SBP aims to further consolidate these structural reforms by enabling banks to exercise more direct oversight over their exchange subsidiaries. This is expected to support stronger compliance cultures, smoother operational alignment, and improved management of risks associated with foreign exchange services. Stakeholders across the banking sector view the update as a step toward reinforcing stability in a market segment that plays an essential role in Pakistan’s financial system.
Follow the PakBanker Whatsapp Channel for updated across Pakistan’s banking ecosystem.