KARACHI - State Bank of Pakistan has demanded more powers from the federal government to impose financial penalties on the foreign exchange companies that violated the rules and regulations set by the central bank, The Nation learnt. Presently, the SBP is working as a regulator for the foreign exchange companies, but the central bank cannot impose financial penalty on the companies that violate the law, sources in SBP said. The central bank has recently demanded powers from the federal government to impose financial penalty on the foreign exchange companies that would discourage the violation of rules by the companies, said sources. Sources also said that the govt's crackdown against the leading foreign exchange co and others would stabilize the foreign exchange market and the value of rupee-dollar in the open market. "In order to bring informal forex market into foreign exchange parameter, the existing Foreign Exchange Regulation Act (FERA) needs to be amended", sources said.   Earlier, SBP had proposed to Govt to make two amendments in FERA, 1947 (for giving powers to SBP to impose direct monetary penalties) and PERA, 1992 (excluding FERA 1947 from PERA 1992's overriding effect). However, no development on requisite amendments in legislations has yet taken place. Regarding the issue of penalties on account of violations of Foreign Exchange Regulations, sources said that due to contradictory legislations in place, it has become difficult for the Central Bank to effectively monitor and supervise foreign exchange activities as PERA 1992 has an overriding effect over FERA 1947 and all other laws.  As an example to explain the effect of this, it may be noted that under FERA 1947, an individual cannot take out of the country an amount more than $ 10,000/- in cash whereas PERA 1992 provides complete freedom in this respect, sources added.   As regards imposition of monetary penalties on account of violations of foreign exchange rules and regulations, sources pointed out that at present there is no such provision in FERA 1947. Accordingly, the only option available with SBP is to go through a complex and lengthy adjudication process. This issue becomes graver where immediate action is required against the Banks and Exchange Companies particularly when evidence is found on rising speculative activities in forex markets. Under such circumstances, the only recourse available with SBP is to suspend / cancel licences of the banks/Exchange Companies which often become more severe than the violation warrants. It is important to mention here that SBP has been enforcing the Foreign Exchange Manual and its various provisions as well as using these tools like disallowing certain activities of the Exchange Companies or suspending the licences for a certain period. Letters for calling explanation and Show Cause Notices were also issued.  The SBP took a number of actions against Exchange Companies for violating its rules and regulations. Moreover, SBP has also taken a number of policy and administrative measures to stabilize forex markets since April 2008. As on November 10, 2008,the State Bank of Pakistan had suspended with immediate effect the licence of Khanani & Kalia International (Pvt) Limited for a period of 30 days pending further investigation/notice, for violation of its (SBP) rules and regulations. SBP has also asked Exchange Companies to follow SBP instructions issued from time to time on the minimum criteria to be observed with respect to proper documentation of transactions, maintenance of proper AML / KYC standards, reporting of business transactions and strict compliance to all SBP rules & regulations. SBP in its circular had also said that despite reiterating the requirement of ensuring strict compliance to the SBP Rules & Regulations, the level of compliance on certain occasions was found to be unsatisfactory. This state of affairs had been viewed very seriously and the Exchange Companies, in their own interest, had advised to maintain their compliance status to the requisite levels. It had reiterated that in case, any Exchange Company was found involved in any violation of SBP Rules & Regulations in general and any undocumented transactions in particular, strict action leading towards suspension or cancellation of the license would be taken against the company involved. It is worth noting that in consequence of government's onslaught on a foreign exchange company and SBP warning to other companies to comply central bank's certain regulations, the US dollar suffered a major blow in the inter-bank and open markets on Tuesday as the dollar-rupee parity closed at Rs 80, after crossing 81 on November 10, 2008.During the past couple of weeks this was the first time that the US dollar had sustained a major blow at kerb and in the open market operations in Pakistan. "For the last two years the central bank has been pursuing liberal foreign exchange policy where by the market forces are usually determined the exchange rate and currency price movement. Prices differential between inter-bank and kerb operations may motivate buyers or investors to use illegal channel likewise "Hawala & Hundi" to some extent but currently, only law-enforcement agencies have mandate to seize all these activities. Illegal and off the book currency transactions can only be discouraged from strengthening vigilant forces. We need to secure our borders to restrict flight of capital to other countries as the central bank cannot monitor airports and other sensitive points all time", said sources.