In an effort to enhance the flow of home remittances, the State Bank of Pakistan (SBP) is taking steps to encourage exchange companies to seek new agency agreements with foreign institutions, including banks and currency wire transfers.
The SBP has issued specific guidelines for exchange businesses, emphasizing the importance of due diligence and regulatory compliance. Exchange companies are required to submit draft agreements to the SBP for review, ensuring adherence to the necessary framework.
Selection of Foreign Entities
According to the new guidelines, exchange companies should select overseas companies with efficient customer acceptance and robust Know Your Customer (KYC) standards. These foreign entities should also be effectively supervised by relevant authorities.
The SBP advises against entering into or continuing arrangements with correspondent entities that lack a physical presence in their jurisdiction or are unaffiliated with regulated financial groups. Extra caution is necessary when dealing with organizations based in nations with lax KYC regulations or those flagged as “non-cooperative” by the Financial Action Task Force.
Essentials of the Agreement
Under the agency agreement, home remittances should be conducted exclusively in Pakistani Rupees (PKR).
To ensure transparency, all monies for domestic remittances must be deposited in advance into Foreign Currency (FCY) accounts held by Pakistani banks on behalf of the exchange companies.
For transactions exceeding $1,000, the agreement should require foreign entities to disclose senders’ addresses along with their names. Alternative identification methods, such as distinct identification numbers, national identity numbers, customer identification numbers, or date and place of birth, may also be used.
The agency agreement should be non-exclusive, allowing exchange companies to offer similar competing services under different arrangements.
Ownership rights of all related accounting, book-keeping, and other records should be granted to the exchange companies and maintained for at least five years.
The agreement should not include clauses that grant blanket approval to foreign entities to assign or transfer their part of the agreement or any rights or duties to a third party without prior approval from the SBP.
Flexibility is essential, and the agreement should accommodate future revisions, adhering to all rules, instructions, directives, circulars, and other communications published by the State Bank.
It should also guarantee adherence to sensible procedures and accepted standards for internal controls, information technology, anti-money laundering, and KYC, among other requirements.
Lastly, the agreement should not compromise the State Bank’s right to terminate it at any time.
SBP’s Green Vision
The SBP aims to promote sustainability and transparency in the financial sector. By following these guidelines, exchange companies can contribute to the seamless flow of home remittances and support the nation’s economy.
The State Bank’s initiative is a significant step towards fostering an environment of compliance and boosting home remittance flow in Pakistan.
