The State Bank of Pakistan (SBP) has introduced a revised and consolidated Regulatory Framework for Exchange Companies (RFEC), aimed at enhancing governance, internal controls, and compliance within the sector. This updated framework is designed to replace the previous Exchange Companies Manual and introduces modernized regulations to ensure greater accountability and transparency in the operations of exchange companies.
The SBP’s review and revision of the framework are part of its broader efforts to streamline corporate governance, improve internal controls, and strengthen supervisory and enforcement mechanisms in the exchange companies sector. The revised RFEC will come into effect on January 1, 2025, and exchange companies are required to align their internal policies, procedures, and systems to fully comply with the new guidelines by June 30, 2025.
Key Highlights of the Revised Framework
One of the major objectives of the new framework is to enhance corporate governance and internal controls. It mandates that exchange companies establish robust governance structures and implement stringent internal controls, including the installation of advanced IT systems. These measures are designed to improve operational efficiency and ensure that companies maintain high standards of financial reporting and regulatory compliance.
The framework also introduces enhanced supervisory and enforcement mechanisms to ensure that exchange companies adhere to the guidelines. The SBP has consolidated the reporting requirements under the RFEC, creating a unified source for streamlined compliance. This update aims to simplify the regulatory process and minimize operational complexities for exchange companies.
Another key aspect of the RFEC is the reporting and licensing procedures. The framework provides detailed protocols for obtaining authorization under Section 3AA of the Foreign Exchange Regulation Act (FERA). These steps include obtaining a No Objection Certificate (NOC) for company formation, securing in-principle approval for operationalization, and receiving final authorization for business commencement. The SBP reserves the right to reject applications at any stage, providing clear communication on the reasons for any rejections.
Capital Requirements and Operational Efficiency
Under the new framework, exchange companies must maintain a minimum paid-up capital of PKR 1 billion. Companies that currently fall short of this requirement must meet the following deadlines: PKR 600 million by December 31, 2025, PKR 800 million by December 31, 2026, and PKR 1 billion by December 31, 2027. Additionally, companies must maintain 15% of their paid-up capital as a Regulatory Reserve (RR) with the SBP, either in cash or approved government securities.
The SBP has also emphasized the importance of operational efficiency and compliance. Exchange companies are required to develop comprehensive policies and procedures that ensure accurate financial reporting, adherence to applicable laws, and operational efficiency. These initiatives are expected to help build stronger and more reliable businesses within Pakistan’s exchange companies sector.
Anti-Money Laundering Compliance and Closures
To combat financial crimes such as money laundering and terrorism financing, the new regulatory framework mandates that exchange companies comply with Anti-Money Laundering (AML), Counter Financing of Terrorism (CFT), and Counter Proliferation Financing (CPF) regulations. This measure reflects the SBP’s commitment to maintaining the integrity of Pakistan’s financial system.
The RFEC also outlines procedures for voluntary and enforced closures of exchange companies. Companies that wish to cease operations voluntarily can apply for authorization revocation, while the SBP has the authority to suspend, cancel, or limit the scope of business activities in certain circumstances.
Extension of Cash USD Import
In addition to unveiling the updated RFEC, the SBP has granted a one-year extension for exchange companies to import cash U.S. dollars. This extension will provide companies with operational flexibility, allowing them to better navigate evolving market conditions and ensure continued access to foreign exchange.
The revised RFEC is a significant step in the SBP’s ongoing efforts to enhance Pakistan’s financial ecosystem. By consolidating existing regulatory guidelines and introducing modernized controls, the SBP aims to create a more robust, transparent, and efficient exchange companies sector, which is critical for maintaining financial stability and fostering growth within Pakistan’s economy.