Attention of Authorized Dealers is invited to F.E. Circular No. 02 dated March 22, 2011, and the related instructions contained in Chapter IV, FEM – 2002 on the subject.

In order to further streamline instructions on the forward cover facility provided by Authorized Dealers against imports, it has been decided that in addition to compliance of all related instructions contained in Chapter IV, FEM – 2002 and aforesaid FE Circular, following terms and conditions will apply with immediate effect:

1.         Maturity of forward contracts against import should coincide with the maturity of the underlying Letter of Credit.

2.         In cases where the import Letter of Credit has a tenor of more than 12-months, the tenor of the forward cover facility would be 12-months on rollover basis or the remaining tenor of the L/C whichever is less; subject to the condition that the tenor of the forward cover should not be for less than one month.

3.         If the terms of the Letter of credit are amended to extend its tenor in accordance with the regulations stipulated in Para 9 of Chapter XIII of the FEM – 2002, the importers can rollover the forward cover on the original maturity date of the forward contract coinciding with new maturity of the underlying L/C, subject to the condition that the forward cover is not less than one month.

4.         All forward contracts against which the underlying L/Cs are cancelled are required to be closed out on maturity at prevailing exchange rates and differential is settled between the importer and the bank. However, all such cases, where underlying L/Cs were cancelled will be submitted to DMMD on the date of cancellation of L/Cs with full details as per enclosed format, and justification, for further action by SBP as deemed appropriate in terms of regulations under the FERA Act, 1947.

5.         In terms of instructions contained in chapter IV of F.E. Manual 2002, banks will ensure abinitio that the facility is being availed for genuine import transaction and that the importers do not hedge more than the underlying exposure. Furthermore, if during SBP’s inspection or at any point of time, it is found that the said facility was misused for and not against genuine transactions, action will be taken by SBP under Foreign Exchange Regulation Act, 1947, against the concerned bank and the importer.

Authorized Dealers are advised to bring the above to the notice of their constituents, and ensure strict compliance.

Annexure