MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION

1. Session: TWENTY EIGHT MBF-705LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF

2. Summary of Last session • State Bank of Pakistan Act, 1956

3. Agenda of this Session • Foreign Exchange Regulation Act

4. Foreign Exchange Regulation Act, 1947Act No. VII of 1947 (11th March, 1947) 

5. Foreign Exchange Regulation Act, 1947 • An Act to regulate certain payments, dealings in foreign exchange and Securities and the import and export of currency and .

6. Foreign Exchange Regulation Act, 1947 • WHEREAS it is expedient in the economic and financial interest of Pakistan to provide for the regulation of certain payments, dealings in foreign exchange and securities and the import and export of CURRENCY.

7. SECTIONS AND CHAPTERS

8. SECTIONS AND CHAPTERS (Contd.)

9. SECTIONS AND CHAPTERS (Contd.)

10. Short title, extent and commencement (1) This Act may be called the Foreign Exchange Regulation Act, 1947.  (2) It extends to the whole of Pakistan and applies to all citizens of Pakistan and persons in the service of Government wherever they may be.  (3) It shall come into force on such date as the Federal Government may, by notification in the official Gazette, appoint in this behalf.

11. Foreign Exchange Regulation Act, 1947 • Foreign Exchange Policy and its operations in Pakistan are formulated and regulated in accordance with the provisions of the Foreign Exchange Regulation Act, 1947.

12. Objective • The object of this Act is to regulate, in the economic and financial interest of Pakistan, certain: • payments, • dealings in foreign exchange, • securities, • import/export of currency.

13. Objective (Contd.) • Under the Act, the basic regulations are issued by the Government of Pakistan and the State Bank in the form of Notifications which are published in the official Gazette.

14. Directions issued under the Act • For the purpose of securing compliance with the provisions of the Act and the Notifications and any rules, orders or directions issued thereunder, the State Bank may, under sub-section (3) of Section 20 of the Act, give directions to:

15. Directions issued under the Act (Contd.) • Authorised Dealers, • travel agents, • carriers, • stock brokers and • other persons who are authorised by the State Bank to do anything in pursuance of the Act, • in regard to making of payments and carrying out other acts in the course of their business.

16. Directions issued under the Act (Contd.) • Directions having general application are issued in the form of public notices, Foreign Exchange circulars and circular letters etc.

17. Amendments. • Changes in the regulations are generally advised by issue of F.E. circulars. • Amendments in the provisions of the Manual are printed periodically by the State Bank in the form of replacement pages which will be substituted in place of the old pages

18. Authorised Dealers in Foreign Exchange (1)     The State Bank may, on application made to it in this behalf, authorize any person to deal in foreign exchange. (2)     An authorisation under this section:- • (i) may authorize dealings in all foreign currencies or may be restricted to authorizing dealings in specified foreign currencies only;

19. Authorised Dealers in Foreign Exchange (Contd.) • (ii) may authorise transactions of all descriptions in foreign currencies or may be restricted to authorizing specified transactions only; • (iii) may be granted to be effective for a specified period, or within specified amounts.

20. Authorised Dealers in Foreign Exchange (Contd.) (3)     An authorised dealer shall in all his dealings, in foreign exchange comply with such general or special directions or instructions as the State Bank may from time to time think fit to give, and, except with the previous permission of the State Bank, an authorised dealer shall not engage in any transaction involving any foreign exchange which is not in conformity with the terms of his authorization under this section.

21. Authorised Dealers in Foreign Exchange (Contd.) • (4)     An authorized dealer shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declarations and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of, any contravention or evasion of the provisions of this Act or of any rules, directions or orders made thereunder,

22. Authorised Dealers in Foreign Exchange (Contd.) • and where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorised dealer shall refuse to undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the State Bank.

23. 3B  Cancellation of authorization: • Without prejudice to the provisions of section 23B, if an authorized dealer or money changer commits a contravention of any term of authorization or uses it for any purpose other than the purpose, or there otherwise exist reasons appearing sufficient to the State Bank, after giving a reasonable opportunity of being heard to the authorized dealer or money changer to cancel the authorization.

24. Jurisdiction of the Offices of Exchange Policy Department • Under the Act, the State Bank is responsible for day to day administration of Foreign Exchange Policy which is exercised through its Exchange Policy Department.

25. Jurisdiction of the Offices of Exchange Policy Department (Contd.) • The Principal Office of the Department is situated at Karachi under the charge of a Director. • The Department has following offices with the jurisdiction of each Office mentioned there against:

26. Office Jurisdiction • 1. Operations Division, Exchange Policy Department, SBP, Central Directorate, Karachi: Karachi Division. 2. Hyderabad: Hyderabad Division 3. Sukkur: Sukkur Division. 4. Quetta: Quetta, Kalat, Sibi and Mekran Divisions. 5. Lahore: Lahore Division. 6. Faisalabad: Faisalabad and Sargodha Divisions 7. Sialkot: Sialkot District. 8. Multan: Multan and Dera Ghazi Khan Divisions.

27. Office Jurisdiction (Contd.) 9. Rawalpindi: Rawalpindi Division 10.Islamabad: Federal Capital Area of Islamabad. 11.Peshawar: Hazara, Kohat, Malakand and Peshawar Divisions. 12.Gujranwala: Gujranwala Division, excluding Sialkot District. 13.D. I. Khan: Dera Ismail Khan Division. 14.Bahawalpur: Bahawalpur Division. 15.Muzaffarabad: Azad Kashmir.

28. Notice to Customers • Authorised Dealers are required to bring the Foreign Exchange regulations to the notice of their customers and to ensure compliance in their day to day operations.

29. Evasion • They should also report to the State Bank every case of : • evasion or attempt, • direct or indirect, • at evasion of the provisions of the Act and Notifications or any rules, orders or directions issued thereunder, immediately as it comes to their notice.

30. References to the State Bank • Authority has been delegated to the Authorised Dealers to approve certain transactions on behalf of the State Bank.

31. References to the State Bank (Contd.) • In these cases, Authorised Dealers should, before approving any transactions, satisfy themselves about the bonafides of the applicant and the genuineness of the transaction by verifying the necessary documents.

32. References to the State Bank (Contd.) • They should refer to the State Bank along with their recommendations/comments only those cases which they are not authorised to approve.

33. References to the State Bank (Contd.) • While referring cases to the State Bank, they should ensure that the applications are on the prescribed forms, wherever such forms are prescribed and are supported by appropriate documentary evidence.

34. References to the State Bank (Contd.) • In all these cases it will be deemed that they have satisfied themselves about the bonafides of the applicants and the correctness of the statements made by them on the application and the accompanying documents, if any.

35. Submission of Returns to the State Bank • Authorised Dealers must submit to the State Bank returns of their dealings in foreign exchange on due dates in the forms prescribed in the Manual. • Specimens of all application forms and returns prescribed by the State Bank are given in Appendices.

36. Stationery • (i) Forms M , T-1, E and I will be got printed by the Head/Principal Offices of the Authorised Dealers themselves strictly according to the size, contents and format of the specimens supplied to them by the State Bank.

37. Stationery (Contd.) • These forms should bear an identifying prefix as per Appendix followed by serial numbers in six digits except in the case of form “E” which will have seven digits.

38. Stationery (Contd.) • For example, the first number of all the forms printed by XYZ bank except form “E” will be “XYZ 000001″ (i.e. six digits) and so on, and in the case of form “E”, the serial number will be “XYZ 0000001″ (i.e. seven digits) and so on..

39. Stationery (Contd.) • The other prescribed forms may also be got printed by the Authorised Dealers themselves. These must conform exactly in size, content and format to the respective forms prescribed by the State Bank

40. Stationery (Contd.) • (ii) As omission of any part in the printing of the forms is likely to make a material change and may weaken the position of the State Bank legally, Authorised Dealers should take utmost care in the printing of the forms.

41. Stationery (Contd.) • They should also keep an updated record of the forms printed and distributed to their branches, which should be kept adequately stocked to avoid any complaint on account of non-availability of the forms.

42. 8. Restrictions on import and export of certain currency • (1)     The Federal Government may, by notification in the official Gazette, order that, subject to such exemptions, if any, as may be contained in the notification, no person shall, except with the general or special permission of the State Bank and on payment of the fee, if any, prescribed bring or send into Pakistan any gold or silver or any currency notes or bank notes or coin whether Pakistan or foreign.

43. 8. Restrictions on import and export of certain currency (Contd.) • The restriction imposed by sub-section shall be deemed to have been imposed under section 16 of the Customs Act, 1969, without prejudice to the provisions of section 23 of this Act, and all the provisions of that Act shall have effect accordingly.

44. 11.    Power to regulate the uses, etc., of imported gold and silver. • The Federal Government may, by notification in the official Gazette, impose such conditions as it thinks necessary or expedient on the use or disposal of or dealings in gold and silver prior to, or at the time of, import into Pakistan.

45. 19.    Power to call for information. • The Federal Government or the State Bank may, at any time by notification in the official Gazette, direct owners subject to such exceptions, if any, as may be specified in the notification, of such foreign exchange or foreign securities as may be so specified, to make a return thereof to the State Bank within such period, and giving such particulars, as may be so specified.

46. 22.    False statements. • No person shall, when complying with any order or direction under section 19 or when making any application or declaration to any authority or person for any purpose under this Act, give any information or make any statement which he knows or has reasonable cause to believe to be false, or not true, in any material particular.

47. 23.    Penalty and procedure. • (l)      Whoever contravenes, attempts to contravene or abets the contravention of any of the provisions of this Act or of any rule, direction or order made thereunder other than the provisions of sub-sections (2), (3) and (5) of section 3, sub-section (3) of section 4, section 10, sub-section (1) of section 12 and sub-section (3) of section 20

48. 23.    Penalty and procedure (Contd.) • or any rule, direction or order made thereunder shall notwithstanding anything contained in the Code of Criminal Procedure, 1898, be tried by a Tribunal constituted by Section 23A, and shall be punishable with imprisonment for a term which may extend to two years or with fine or with both,

49. 23.    Penalty and procedure (Contd.) • and any such Tribunal trying any such contravention may, if it thinks fit, and in addition to any sentence which it may impose for such contravention, direct that any currency, security, gold or silver, or goods or other property in respect of which the contravention has taken place shall be confiscated.

50. 25.    Power to Federal Government to give directions. • For the purposes of this Act the Federal Government may from time to time give to the State Bank such general or special directions as it thinks fit, and the State Bank shall, in the exercise of its functions under this Act, comply with any such directions.