SBP tightens grip on exchange companies.

KARACHI -- In the midst of an intensified crackdown against foreign currency smuggling and illicit hawala-hundi operations, the State Bank of Pakistan (SBP) has unveiled a series of stringent measures aimed at reforming the currency exchange sector. Currency exchange companies categorised as 'B' have been given a three-month ultimatum to either transform into full-fledged exchange firms or face the prospect of losing their licenses.

The SBP's move comes in response to concerns over the weak operational structure and inadequate compliance levels observed within category 'B' exchange companies. The central bank has now advised both category 'B' firms and franchisees to either merge with established full-fledged entities or sell their businesses to stronger counterparts. Failing to comply with this directive within the stipulated three-month window will result in the automatic cancellation of licenses for standalone category 'B' firms.

In addition to this, the SBP has opened the door for leading banks to 'establish wholly owned exchange companies to cater to the legitimate foreign exchange needs of the general public,' as outlined in a circular.

Also read SBP's forex reserves fall by $32 million

Earlier, the Exchange Companies Association of Pakistan (ECAP) raised concerns with the SBP regarding plainclothes policemen visiting exchange companies in Gujranwala, alleging violations of the law and unwarranted monitoring of currency transactions.

In a separate circular, the SBP has mandated that exchange companies increase their paid-up capital to a minimum of Rs500 million (excluding losses) by December 31, 2023, up from the current minimum requirement of Rs200 million.

These structural reforms have been introduced at a critical juncture when the caretaker government has launched a crackdown on foreign currency smugglers and hawala-hundi operators. These illicit activities have contributed to severe leakages in foreign exchange reserves, jeopardising the ability to meet import needs and service maturing foreign debt obligations.

Under the existing market-based exchange rate regime, the Pakistani currency has suffered a cumulative depreciation of over 6%...

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