ISLAMABAD: Amid concerns expressed by the Financial Action Task Force (FATF) over violations of the counter-terrorism financing regime committed by the country’s financial institutions, Pakistan faces a challenge to effectively regulate telecom companies that are conducting transactions worth billions of rupees every month through mobile wallet accounts.
Some telecom companies that are operating a network of agents through microfinance banks are reluctant to be adequately regulated, said sources in the State Bank of Pakistan (SBP). There are also regulatory lacunae, as the anti-money laundering (AML) and countering financing of terrorism (CFT) regulations are not applicable to Level-0 and Level-1 accounts being operated by these agents, said the sources.
Through the level-0 account, up to Rs25,000 and through level-1 account, Rs50,000 can be transferred on a daily basis without adhering to AML and CFT regulations. There are high risks of misuse of this facility by miscreants without even being noticed, they added.
All these transactions do not come directly under the supervision of SBP, as the four telecom companies are regulated by the Pakistan Telecommunication Authority (PTA). However, the PTA has long been struggling to enforce its writ effectively.
All telecommunication companies provide services of mobile wallet accounts through a nationwide network. They have their presence across Pakistan through over 400,000 retailers. The second largest player processes over Rs6 billion worth of mobile-to-mobile balance transfers every month, according to data compiled by the industry.
The central bank has been trying to strengthen the regulatory framework for effective monitoring of financial institutions. However, due to division of supervision between the PTA and SBP, telecom companies are not being effectively monitored despite handling financial transactions, stated the sources.
Last year, the central bank had issued instructions to all financial institutions to ensure internal risk reviews of their portfolios and implement stringent AML-CFT controls with regard to ascertaining transactions, which may appear to be used as source of funds for terrorists.
Branchless banking (BB) represents a significantly cheaper alternative to conventional branch-based banking that allows financial institutions and other commercial players to offer financial services outside traditional bank premises by using delivery channels like retail agents and mobile phones.
The unauthorised money or value transfer services remain a concern for both FATF and SBP. The FATF has formally placed Pakistan on its grey list with effect from June. It has developed a 26-point action plan for Pakistan, to come out of the grey list.
One of the first deliverables of the plan states that by January next year Pakistan will have to demonstrate that terrorism financing risks (including sectors, geographic locations, products, channels) are properly identified, assessed and understood by supervisors, which includes supervisors obtaining up to date and region-specific risk information from law enforcement agencies and the financial monitoring unit to guide their evolving risk based approach.
However, a July 12, 2016 circular of SBP regarding branchless banking regulations for financial institutions only binds the banks to implement the AML and CFT regulations. In case of a level-2 account that is opened by a bank, it is mandatory to “fulfil all KYC requirements, specified under the AML/CFT regulations and guidelines, issued by SBP as amended from time to time and bank’s own policy”, according to the circular.
Pakistan has adopted the bank-led model for branchless banking operations, whereby banks and microfinance banks are required to obtain approval from SBP to offer basic branchless banking facilities through the agent network, said SBP chief spokesman Abid Qamar.
He said that only those banking facilities are allowed through the agents, which have been defined in branchless banking regulations.
The spokesman said that the branchless banking is governed through the branchless banking regulations for financial institutions, issued vide BPRD Circular No 09, dated July 12, 2016 and the framework for branchless banking agent acquisition and management issued vide BPRD Circular No 06 dated June 21, 2016.
But its July 12 circular is silent on the issue of application of the AML and CFT regulations on Level-0 and Level-1 accounts being handled by agents of these telecom companies via microfinance banks.
To a question whether the transactions valued below Rs50,000 and being carried out by telecom agents are considered risky as these do not meet the know-your-client requirements, Qamar said and added that “no over-the-counter (OTC) transaction for fund transfer is allowed without biometric verification of the customers”.
He said that banks verify all data of customers from NADRA on a real time basis through biometric verification, which is necessary for true identity. Further, limits of Rs50,000 per month have also been imposed on OTC transactions in terms of above regulations to mitigate further risks, said Qamar.
Published in The Express Tribune, July 19th, 2018.