SBP permits banks’ board members to hold similar posts in exchange firms

The State Bank of Pakistan (SBP) has updated its Corporate Governance Regulatory Framework, allowing bank board members to also serve as directors on the boards of exchange companies wholly owned by the same banks — a move aimed at improving institutional coordination, oversight, and compliance across the financial sector.

The central bank announced the policy change through an amendment to Regulation G-4, Paragraph 1(f) of its Corporate Governance Framework, which governs the eligibility and conduct of directors and senior executives of banks and development finance institutions (DFIs).

Under the revised regulation, a president, CEO, or director of a bank may now hold a director’s position in an exchange company fully owned by that bank, subject to the submission of an additional affidavit as specified in Appendix V of the framework.

The SBP said the amendment is designed to “strengthen institutional arrangements among banks and their wholly owned subsidiaries” by allowing better alignment of governance structures between parent banks and their exchange company operations.

Clarifications and limitations

The SBP emphasized that the amendment applies only to exchange companies wholly owned by banks. It does not relax existing restrictions that prevent bank officials from serving in other financial institutions such as stock exchanges, corporate brokerage firms, credit information bureaus, or entities owned or controlled by such firms.

Previously, individuals serving as directors or executives in banks or DFIs were prohibited from holding any management or governance positions in related financial entities to prevent conflicts of interest.

The new regulation maintains these safeguards while introducing limited flexibility for banks managing their own exchange subsidiaries, which handle foreign exchange operations and currency transactions under SBP supervision.

The SBP also clarified that an independent director of the Pakistan Stock Exchange (PSX) may be appointed as a board member of any bank or DFI, provided that the individual remains independent and has no affiliations with restricted financial entities.

The amendment comes amid the central bank’s broader push to tighten governance and compliance standards within Pakistan’s financial system. In recent years, the SBP has taken a series of steps to enhance anti–money laundering (AML) controls, foreign exchange transparency, and board accountability following regulatory gaps identified in exchange companies and money service businesses.

Financial sector analysts said the revised rule would help banks exercise stronger oversight over their exchange subsidiaries, improving compliance with both domestic regulations and international standards set by organizations such as the Financial Action Task Force (FATF).

By enabling closer coordination between banks and their wholly owned exchange companies, the central bank aims to strengthen internal controls, increase accountability, and enhance operational efficiency in managing foreign exchange operations.

Analysts said the amendment signals SBP’s confidence in banks’ governance capacity while reinforcing its commitment to keeping financial institutions under rigorous regulatory supervision.