Reforms in the Exchange Companies Sector

       Attention of Exchange Companies and Exchange Companies of ‘B’ Category (ECs-B) is invited towards F.E. Circular No. 09 dated July 30, 2002 and F.E. Circular No. 06 June 7, 2004, whereby the Authorized Money Changers were allowed to establish Exchange Companies and ECs-B, respectively. Exchange Companies, in addition to full-fledged branches, payment booths, and currency exchange booths, were also allowed to have franchise arrangements with other entities.

2.    During the last few years, frequent regulatory issues/weaknesses have been observed in the Exchange Companies’ sector, particularly in the operations of ECs-B and franchises of Exchange Companies. Since the desired level of quality of governance, internal controls and compliance with laws and regulations has not been achieved, there is a need for introducing structural reforms in the sector. As part of these reforms, it has been decided that various types of Exchange Companies will be consolidated and transformed into a single category with a well-defined mandate.

3.    Thus, in exercise of powers conferred on the State Bank of Pakistan (SBP) under Section 3AA of the Foreign Exchange Regulation Act, 1947, it has been decided to offer the following options to ECs-B and franchises of Exchange Companies:

A-Conversion of Exchange Companies of ‘B’ Category into Full-fledged Exchange Companies:

1. All ECs-B shall have the option of conversion into Exchange Companies within three months of the issuance of this circular, after fulfilling all legal and regulatory requirements. For the purpose, ECs-B may exercise any of the following options:
   
   
   1. Merge into an existing Exchange Company;
      
      
   2. Upgrade from EC-B to an Exchange Company;
      
      
   3. Merge with one or more ECs-B to establish an Exchange Company.
      
      
2. For the purpose, ECs-B shall approach SBP to seek NOC for exercising any one of the above options, within one month of issuance of this circular. All such applications for NOC must contain a conversion/merger plan, proposed shareholding structure, particulars/information/affidavit of shareholders and directors, as per Annexure 2AI and 2AII of Exchange Companies Manual (ECM), and board resolution(s) of the relevant company(ies), where applicable. SBP may, after scrutinizing the application, grant or refuse to grant the NOC if the applicants do not meet the regulatory requirements. The licenses of ECs-B, which do not approach SBP for the NOC within the stipulated time period, shall stand cancelled after the expiry of one month’s deadline.
   
   
3. After receiving the NOC from SBP as per point (b) above, ECs-B shall fulfill all legal and regulatory requirements for a formal license/authorization, as applicable, for commencement of operations as required under Para 2, Chapter 2 of ECM within three months from the date of issuance of this circular. The licenses of those ECs-B which fail to complete the formalities within the stipulated time period of three months will stand cancelled.

B-Conversion of Franchises into Branches of the Exchange Companies:

1. All franchises of the Exchange Companies shall have the option of conversion into branches of their respective franchisers within three months of the issuance of this circular. For the purpose, franchises of Exchange Companies may exercise any one of the following two options:
   
   
1. Merge with the Exchange Company (franchiser); or
   
   
2. Sell the franchise to the Exchange Company (franchiser).
   
   
2. Franchises, exercising the option of merger, will approach the concerned Exchange Company providing it the relevant details to submit the application to SBP, within one month of the issuance of this circular, along with the relevant documentary requirements, including Annexure-2AI and Annexure-2AII of ECM. SBP may, after scrutinizing the application, grant or refuse to grant the approval for the merger.


3. In case of sale of franchise by the franchisees, the concerned Exchange Company would also approach SBP, within one month of the issuance of this circular, along with relevant regulatory documentation for conversion of the franchise license to branch category. SBP may, after scrutinizing the application, grant or refuse to grant the approval for conversion of franchise license into a branch.



4. The licenses of all those franchises, which do not opt for either merger or sale within the aforesaid stipulated time period of one month would stand cancelled.

4.    All other terms and conditions on the subject shall remain unchanged.