KARACHI: The State Bank of Pakistan has introduced more strict criteria for granting licences to exchange companies (ECs), apparently on complaints of use of hundi or hawala system by some of the companies.

The exchange companies would now find it more difficult to get a clean chit from the State Bank to get a licence for a maximum period of three years.

The State Bank has changed the criteria as well as period of licence depending upon the performance of the exchange companies.

The SBP said on Friday that it has decided to amend its instructions relating to renewal of licences of exchange companies.

According to new criteria, licences of only those exchange companies which have been assessed as fully compliant and satisfactorily compliant in SBP’s inspection reports would be renewed for a period of three years.

As per previous instructions, licences of all exchange companies were renewed by the SBP for a period of three years.

The new criteria says licences of exchange companies assessed as fairly compliant will be renewed for a period of two years and those assessed as marginally compliant would be renewed for one year only, during which the company would be required to improve upon its performance, corporate governance and compliance status.

The State Bank further said licences of exchange companies assessed as non-compliant may be considered for renewal for six months only along with a warning advising them to address the concerns mentioned in the SBP’s inspection report.

“In case the exchange company fails to address observations contained in the inspection report, its licence will automatically stand expired without any possibility of renewal,” said a circular issued by the SBP.

The circular said the request for renewal of the licence must reach State Bank at least 60 days before expiry of the said licence.

Earlier, the ECs were required to approach Exchange Policy Department (EPD) of the State Bank for renewal of licences within a period of not less than three months before the expiry of the licence.

Exchange companies said the new criteria would create more pressure on them while those already under watch list would face tough time to get their licences renewed.

Last month during a raid by the Federal Investigation Agency (FIA) for checking illegal transactions of foreign exchange, company owner created a mess and a clash-like situation developed with the guards of the exchange company.

The incident was peacefully resolved but exchange companies came under strict supervision of the regulatory authority.

“Exchange companies will find it difficult to deal with the new criteria of the State Bank for renewal of licences,” said Anwar Jamal, a currency dealer in the open market.

He said no one can get clean chit as licence requires a lot of information.

Currency dealers said these restrictions by the SBP do not match the inflow of remittances which are in full swing.

Bankers said over 20 per cent higher remittances showed that banks are real channel for transaction.

They said exchange companies could hardly have any chance to get a significant share out of it.