A foreign exchange company provides currency exchange and international payment services to both businesses and individuals. It has the legal authority to convert one currency into another within Pakistan. However, it must operate under specific conditions set by regulators. Provided the State Bank of Pakistan allows these operations, exchange firms in Pakistan may handle foreign currency notes, coins, postal notes, money orders, bank drafts, travellers’ cheques, transfers, and other relevant services.

Often known as a foreign exchange broker or merely a forex broker, a non-banking foreign exchange firm manages currency trading and international payments for both consumers and businesses. People usually use this term for companies that provide actual currency delivery instead of speculative trading.

In simple words, the money is physically transferred to a bank account rather than traded for profit in markets. Foreign exchange companies are different from money transfer or remittance companies. They mainly handle large-value transactions, while remittance companies focus on sending smaller amounts, often by overseas workers sending money back home or by travellers needing cash. These transactions can be carried out as spot transactions or forward transactions.

Legal Framework for Foreign Exchange Companies in Pakistan

In Pakistan, the main laws and rules that govern foreign exchange companies include:

• Foreign Exchange Regulation Act, 1947;
• Regulations issued by the State Bank of Pakistan; and
• The Companies Act, 2017

Licensing Process for Foreign Exchange Company in Pakistan

Only the State Bank of Pakistan is empowered to give a company wishing to engage in foreign currency notes, coins, postal notes, money orders, bank drafts, traveller’s cheques, and transfers a No Objection Certificate (NOC).

Step 1: Name Availability Certificate from SECP

The suggested Exchange Company must first get a name availability certificate from the Pakistan Securities & Exchange Commission (SECP) to start the process.

Step 2: Application for NOC from State Bank of Pakistan

Once the name availability certificate is secured, the firm should submit the prescribed form (Annexure-2) together with the necessary payment to the State Bank of Pakistan for the grant of NOC.

The State Bank charges a non-refundable application processing fee of Rs. One Million (Rs. 1,000,000). The applicant must attach a pay order or bank draft for this amount with the application.

Within one month of receiving a completed application, the State Bank will notify the applicant of its decision.

Step 3: Company Incorporation under Companies Act, 2017

The applicant must approach the SECP for incorporation under the Companies Act, 2017 after obtaining the NOC from the State Bank.

Step 4: Application for Exchange Company License

Once SECP registers the Exchange Company under the Companies Act 2017, the corporation has to submit for a license from the State Bank to begin operations.

The State Bank reviews the application according to its regulations and may either grant or refuse the license. If the State Bank refuses the license, it will clearly state the reasons for rejection. The State Bank also has the discretion to limit the number of licenses issued, and it may stop issuing licenses once it reaches its internal limit.

An Exchange Company cannot transfer its license to any other entity, in any form or by any method.

License Validity and Renewal Process

The State Bank initially issues the license for a period of three years. After these three years end, the company can apply for renewal for up to five more years from the date the original license expires. The company must submit its renewal request at least sixty days before the license expires. It must also attach proof of payment of Rs. 500,000 as the renewal fee, supported by a bank-issued deposit or payment receipt.

Regulatory Requirements for Exchange Companies in Pakistan

Company Name Restrictions

The Exchange Company cannot use words like “Bank,” “Financial Institution,” “Investment,” “Commercial,” “Finance,” “Real Estate,” or any other term that suggests it carries out activities other than exchange business.

Minimum Capital Requirement for Exchange Company

The company must have a minimum authorised and paid-up capital of Rs. 200 million.

The Minimum Capital Requirement is calculated as follows:

• Minimum Capital Requirement = Paid-up Capital minus Accumulated Losses
• Exchange Companies must always maintain and meet their required minimum capital levels.

Exchange Companies may allow foreign investors to hold up to 50% of their equity. The State Bank allows profit repatriation in proportion to the foreign shareholding percentage.

The company must operate strictly within its declared capital. Shareholders and Directors cannot withdraw company funds as loans. They also cannot provide loans, including subordinated loans, to the company unless they first obtain specific written approval from the State Bank.

Statutory Liquidity Reserve (SLR) Requirement

A SLR with 25% of the capital should be maintained in the State Bank as unencumbered approved government securities. State Bank would extend current account and SGLA facilities to Exchange Companies.

Procedure for Enhancement of Authorised or Paid-Up Capital

Existing Directors or shareholders do not need prior approval from the State Bank to increase the authorised or paid-up capital. The Exchange Company can directly approach the SECP to complete the required formalities for increasing its capital.

State Bank Approval for Major Changes in Company Structure

The company must obtain prior approval from the State Bank before making any major changes. These changes include, but are not limited to:

• Memorandum and Articles of Association
• Directors
• Shareholding structure
• Statutory Auditors
• Chief Executive Officer
• Location of Head Office or any outlets

Compliance Policies and Internal Controls

The Foreign Exchange Company may develop its own standard policies related to Internal Controls, Audit, Human Resources, Information Technology, and AML/CFT/CPF compliance, according to regulatory requirements.

Processing Fees for Outlets and Network Expansion

The State Bank charges a non-refundable processing fee as follows:

• For opening a new outlet at the time of submitting the Annual Network Expansion Plan (ANEP) = Rs. 50,000
• For the substitution of an outlet’s location = Rs. 25,000
• For relocation of each outlet = Rs. 25,000