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A foreign exchange company offers currency exchange and international payment services to both companies and private individuals. These companies are legally authorized to exchange one currency for another in Pakistan, subject to certain conditions. They are permitted by the State Bank of Pakistan to deal with foreign currency notes, coins, postal notes, money orders, bank drafts, travellers’ cheques, transfers, and other services allowed by the State Bank.
A non-banking foreign exchange company, also known as a foreign exchange broker or forex broker, is a company that provides currency exchange and international payment services to private individuals and organizations. The term is typically used for companies that offer physical currency delivery rather than speculative trading. In this context, currency is physically delivered to a bank account. Foreign exchange companies differ from money transfer or remittance companies, typically handling high-value transfers compared to the latter's focus on high-volume or low-value transfers, often sent by economic migrants to their home countries or for providing cash to travelers. Transactions can be either spot or forward transactions.
In Pakistan, the Relevant Legislation and Rules governing Foreign Exchange Companies are as follows:
The State Bank of Pakistan is the sole authority that can issue a No Objection Certificate (NOC) for a company to deal in foreign currency notes, coins, postal notes, money orders, bank drafts, travellers’ cheques, and transfers.
The first step is for the proposed exchange company to obtain a name availability certificate from the Securities & Exchange Commission of Pakistan (SECP).
Once the name availability certificate is obtained, an application for the Grant of NOC must be submitted to the State Bank of Pakistan on the prescribed form (Annexure-2), along with the required payment. A non-refundable application processing fee of Rs. One Million (Rs. 1,000,000) is charged by the State Bank. A pay order or bank draft for this amount must be submitted with the application.
The State Bank will inform applicants of the decision on all completed applications within one month from the submission date.
After receiving the NOC from the State Bank, the applicant must submit an application to the Securities and Exchange Commission of Pakistan (SECP) for incorporation under the Companies Act, 2017.
Once the exchange company is registered with SECP under the Companies Act, 2017, the applicant may apply to the State Bank for the issuance of a license to commence operations.
The State Bank will review the application in accordance with regulations and can either grant or deny the license. If denied, the State Bank will provide reasons for the rejection. However, the issuance of a license may be restricted once a certain limit has been reached, at the discretion of the State Bank.
The license of the exchange company is non-transferable to any other entity, under any circumstances.
The license will be issued initially for a period of three years (3). Once the initial three-year period expires, the license can be renewed for up to five years from the date of expiry of the initial license. The request for renewal must be submitted to the State Bank at least sixty days before the license expires, along with the relevant deposit/payment receipt of Rs. 500,000/- issued by the bank, as evidence of having paid the applicable fee. nnnnnnnnnnn
The Exchange Company must not include the words "Bank", "Financial Institution", "Investment / Commercial / Finance / Real Estate", or any other description that indicates activities beyond exchange business.
The minimum authorized and paid-up capital of the company is Rs. 200 million.
The Minimum Capital Requirement is calculated as follows:
Minimum Capital Requirement = Paid-up Capital less Accumulated Losses
Exchange companies must ensure they meet their respective minimum capital requirements at all times.
Exchange companies are allowed to have foreign participation in their equity up to a maximum of 50%. The State Bank will permit repatriation of profits in proportion to the extent of foreign equity.
The affairs of the company must be run with the declared capital. Shareholders and directors are prohibited from withdrawing funds from the company as loans or extending subordinated loans to the company unless they have obtained specific approval from the State Bank in writing.
An SLR of 25% of the capital must be maintained in the State Bank as unencumbered approved government securities. The State Bank will provide current account and SGLA facilities to exchange companies.
The prior approval of the State Bank is not required for enhancing the authorized and paid-up capital by existing directors/shareholders. The exchange company may directly approach the Securities & Exchange Commission of Pakistan (SECP) for fulfilling the applicable formalities to increase its authorized or paid-up capital.
Prior approval from the State Bank is mandatory for any changes in significant parameters, including but not limited to:
The foreign exchange company can develop standard policies related to internal controls, audit, human resources, information technology, and AML/CFT/CPF policies.
A non-refundable processing fee of: