Lecture Legal and regulatory aspects of banking supervision – Chapter 28

An Act to regulate certain payments, dealings in foreign exchange and Securities and the import and export of currency and. 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.

MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING

SUPERVISION

OSMAN BIN SAIF

Session: TWENTY

EIGHT

Summary of Last session

• State Bank of Pakistan Act, 1956

2

Agenda of this Session

• Foreign Exchange Regulation Act

3

Foreign Exchange Regulation

Act, 1947

Act No VII of 1947 (11th March, 1947)

4

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

5

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

6

SECTIONS AND CHAPTERS

SECTIONS CHAPTERS

1 Short title, extent and commencement.

2 Interpretation.

3 Authorised Dealers in Foreign Exchange.

4 Restrictions on dealing in Foreign Exchange.

SECTIONS AND CHAPTERS

(Contd.)

SECTION

S

CHAPTERS

9 Acquisition by Federal Government of foreign exchange.

10 Duty of persons entitled to receive foreign exchange, etc.

11 Power to regulate the uses, etc., of imported gold and silver.

12 Payment for exported goods.

13 Regulation of export and transfer of securities.

14 Custody of securities.

15 Restrictions on issue of bearer securities.

16 Acquisition by Federal Government of foreign securities.

17 Restriction on settlement.

18 Certain provisions as to companies.

19 Power to call for information.

20 Supplemental provisions. 8

SECTIONS AND CHAPTERS

(Contd.)

SECTIONS CHAPTERS

21 Contracts in evasion of this Act.

22 False statements.

23 Penalty and procedure.

24 Burden of proof in Certain Cases.

25 Power to Federal Government to give directions.

26 Bar of legal proceedings.

27 Power to make rules.

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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

10

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

11

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.

13

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:

14

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

15

Directions issued under the Act

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

17

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;

18

Authorised Dealers in Foreign

Exchange (Contd.)

• (ii) may authorise transactions of all

descriptions in foreign currencies or may

be restricted to authorizing specified

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

20

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,

21

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

22

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

23

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

24

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:

25

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

26

Office Jurisdiction (Contd.)

9 Rawalpindi: Rawalpindi Division

10.Islamabad: Federal Capital Area of

13.D I Khan: Dera Ismail Khan Division

14.Bahawalpur: Bahawalpur Division

15.Muzaffarabad: Azad Kashmir

27

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

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directions issued thereunder, immediately

as it comes to their notice

29

References to the State Bank

• Authority has been delegated to the

Authorised Dealers to approve certain

transactions on behalf of the State Bank

30

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

31

References to the State Bank

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

33

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

34

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

35

• (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

36

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

37

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

38

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

39

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

40

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

41

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

42

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

43

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

44

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

45

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

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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

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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,

48

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

49

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

50

26 Bar of legal proceedings.

• No suit, prosecution or any other

proceeding shall lie against the Federal

Government or the State Bank or any

officer of the Federal Government or of the State Bank or any other person exercising any power or discharging any functions or performing any duties under this Act

51

27 Power to make rules.

• The Federal Government may, by

notification in the official Gazette, make

rules for carrying into effect the provisions

of this Act

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THANK YOU

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