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SBP Issues Guidelines on Agreements of Exchange Companies with Foreign Entities

KARACHI (January 02 2009): State Bank of Pakistan has issued new guidelines for home remittances related agreements of Exchange Companies with Foreign Entities. SBP said that over a period of time, while reviewing agency arrangements of Exchange Companies, certain structural weaknesses have been identified which could impair Exchange Companies ability to effectively mobilise funds from overseas.

Therefore, in order to facilitate Exchange Companies in their diligence process and bring uniformity & discipline in agency arrangements of exchange companies, it is considered necessary to provide fundamental structure of agency arrangements.

In the above backdrop, SBP has developed some guidelines and it is mandatory for Exchange Companies to follow them in true spirit. These guidelines do not supersede other directives issued by State Bank of Pakistan in respect of areas not covered therein. Please note that overall responsibility of safeguarding interest of the company and avoidance of all related legal, regulatory and commercial risks would rest with the company.

GUIDELINES:

SELECTION OF FOREIGN ENTITIES:

1. Only those foreign entities that have effective customer acceptance and KYC policies and are effectively supervised by the relevant authorities should be selected for agency arrangements

2. No arrangements should be entered into or continued with a correspondent entity incorporated in a jurisdiction in which it has no physical presence and which is unaffiliated with a regulated financial group.

3. Particular attention should be paid when continuing relationships with entity located in jurisdictions that have poor KYC standards or have been identified by Financial Action Task Force as being “non-co-operative” in the fight against money laundering.

PRE-AGREEMENT STAGE:

1. The Exchange Companies should develop a general understanding of legal & regulatory framework of the jurisdiction involved with respect to the following:-

i. Rules related to licensing requirements.

ii. Rules regarding opening/closing/shifting of business locations.

iii. Rules governing remittances transactions.

iv. Anti Money Laundering & KYC requirements.

v. Laws & regulations related to overseas agency arrangements.

2. The copy of license issued by concerned regulatory body to the foreign entity should be obtained and to confirm that the entity has power to enter into or execute such arrangements.

3. The Exchange Company should obtain brief introduction of sponsors of the foreign entity and thoroughly investigate their credentials and market repute.

4. The details of network of the foreign entity should be in the possession of Exchange Company.

5. The list of existing agency arrangements of the foreign entity should be obtained.

6. All agreement should be made with the principal company and not with any of its agent/subagent. Further, all negotiations/communications should be made/addressed to authorised person of the counter- party.

ESSENTIALS OF THE AGREEMENT:

1. The agreement should be for payment of home remittances in PKR only.

2. All funds against home remittances should be received in advance in Exchange Company's FCY Accounts maintained with banks in Pakistan. In this regard, attention is also invited to Circular letter No 13 dated August 04, 2006.

3. For transactions greater than USD 1,000 the agreement should require foreign entity to provide address of senders in addition to his/her name. However, address may be substituted with any unique Identification Number/ National Identity Number/Customer Identification Number/Date & Place of Birth.

4. The agreement should be non exclusive meaning thereby that it should not restrict Exchange Company, directly or indirectly, from offering similar competing services under other arrangements.

5. The agreement should give ownership rights of all related accounting/book-keeping and other record to Exchange Company and the same is be maintained for at least five years.

6. The agreement should not contain clauses which give blanket approval to foreign entity to assign or transfer their part of the agreement or any right or duty thereof, to any third party without prior approval of SBP.

7. The agreement should be in compliance with all the regulations, instructions, directives, circulars and other communications issued by the State Bank and contains provision of incorporating any amendments made therein from time to time.

8. The agreement should ensure compliance of prudent practices and standard policies related to Internal Controls, Information Technology, Anti Money Laundering and Know Your Customer etc.

9. The agreement should not compromise State Bank right to terminate the agreement at any time.

POST-AGREEMENT FOLLOW UP:

1. The Exchange Companies should continuously monitor market repute and financial condition of the foreign entity to ensure that all the time during validity of the agreement, foreign entity is capable to meet its financial obligations under the agreement.

2. Foreign entity should be bound to immediately bring into notice of the company any change in laws, rules and regulations, which may effect business arrangements.

3. For any subsequent amendment in the agreement, prior approval of SBP should be ensured.

4. Foreign entity should also be required to keep EC updated about any change in its network. SBP has advised all Exchange Companies to review their existing arrangements with foreign entities and submit to SBP a copy of the revised agreements in light of the above guidelines latest by March 31, 2009.

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