The State Bank of Pakistan has implemented a targeted amendment to its Corporate Governance Regulatory Framework, allowing senior leadership of banks to serve on the boards of exchange companies wholly owned by those banks. This regulatory modification is intended to reinforce institutional synchronization between parent banks and their exchange company subsidiaries, enabling more coherent oversight and operational alignment.
According to the circular issued by the central bank, the reform specifically authorizes presidents, CEOs, and directors of banks to assume board positions at their wholly-owned exchange companies, provided they submit an additional affidavit outlined in Appendix-V of the updated framework. This affidavit requirement is designed to maintain transparency and ensure adherence to fit-and-proper standards governing financial institutions.
Prior to this amendment, individuals with substantial interest or senior roles in certain financial institutions—including stock exchanges, brokerage houses, credit bureaus, and related entities—were broadly restricted from serving as directors or CEOs of banks and development finance institutions. These restrictions remain intact for all entities except wholly-owned exchange companies, signalling a narrowly tailored regulatory relaxation rather than a systemic overhaul.
The SBP noted that this exception aims to facilitate improved governance continuity between banks and their exchange companies, particularly in areas of compliance, risk management, and market operations. By allowing shared directorship, the regulator anticipates more streamlined decision-making and better alignment of corporate objectives between parent banks and their subsidiaries operating in the currency exchange sector.
The circular also addresses board memberships linked to the Pakistan Stock Exchange. The SBP clarified that an independent director serving on the board of the Pakistan Stock Exchange may be appointed as a board member of any bank or development finance institution, provided the individual has no affiliation with other entities categorized under restricted financial holdings. This clarification is expected to reduce interpretational ambiguities that previously limited the pool of eligible independent directors for bank boards.
All remaining stipulations of the Corporate Governance Regulatory Framework remain unchanged. The update represents a targeted adjustment rather than expansive reform, ensuring the overall governance regime continues to safeguard the stability, neutrality, and discipline of Pakistan’s financial system while enabling select operational efficiencies.
The central bank’s selective relaxation underscores its ongoing effort to refine sectoral governance in line with evolving institutional structures, particularly as banks continue to expand their presence through specialized subsidiaries and exchange-related operations. Analysts note that allowing direct involvement of bank leadership in wholly-owned exchange companies may enhance oversight quality and support more unified compliance standards across group entities.
Follow the PakBanker Whatsapp Channel for updated across Pakistan’s banking ecosystem.