Pakistan’s central bank has tightened regulations and monitoring of financial transactions to flag suspicious activity in order to implement in true letter and spirit the laws related to anti-money laundering (AML), combating financing of terrorism (CFT) and countering proliferation financing (CPF).
The State Bank of Pakistan (SBP) has directed financial institutions to invest in technology and human resources to create an enabling environment to detect illegal financial transactions and bound staffers to maintain secrecy of the likely suspected transaction but report the development to the Financial Monitoring Unit (FMU).
For the purpose, the SBP has upgraded and issued regulations pertaining to AML, CFT and CPF for its regulated entities (REs) including banks, development finance institutions, microfinance banks, exchange companies, payment system operators, payment service providers, electronic money institutions and third party payment service providers.
“Any violation of the…regulations shall attract penal as well as administrative action under the applicable laws/ rules/ regulations including the AML/ CFT Sanctions Rules 2020,” according to the upgraded regulations.
“The ultimate responsibility of ensuring effective AML/ CFT/ CPF controls lies on BoD (board of directors of regulated entities). Therefore, BoD shall ensure adequate, reliable, periodic management information system, from senior management, for ensuring effective oversight, monitoring and accountability,” it added.
SBP REs shall ensure that “compliance officers have timely access to all customer records and other relevant information, which they may require to discharge their functions, as well as any other persons appointed to assist the compliance officer.”
Employees of SBP REs shall be strictly prohibited from disclosing fact to the customer or any other quarter that a suspicious transaction report (STR) or related information is being or has been reported to the FMU, except if required by law. This shall be made part of the code of ethics to be signed by employees and directors of the SBP REs at the time of induction.
SBP REs as per requirement of their business and operational models shall make use of technology and upgrade their systems and procedures in accordance with the changing profile of various ML/ TF/ PF risks, the updated regulations said.
“Accordingly, all SBP REs shall implement automated transaction monitoring systems (TMS) capable of producing meaningful alerts based on pre-defined parameters/thresholds and customer profile, for analysis and possible reporting of suspicious transactions.
“Furthermore, SBP REs shall establish criteria in their AML/ CFT/ CPF policies and/ or procedures for management of such alerts. The adequacy of staff posted for effective monitoring and reporting of STRs is a critical factor of customer due diligence,” it said.
Training to employees directly/ indirectly responsible for AML/ CFT/ CPF shall enable them to understand new developments, money laundering and financing of terrorism techniques, methods and trends.
SBP REs shall apply their AML/ CFT/ CPF policies to all of their branches and subsidiaries outside of Pakistan to the extent that laws and regulations of the host country permit.
Where the AML/ CFT/ CPF requirements in the host country or jurisdiction differ from those in Pakistan, SBP REs shall require their overseas branches or subsidiaries to apply the higher of the two standards, to the extent that the law of the host country or jurisdiction permits.
Where the law of the host country conflicts with the AML/ CFT/ CPF requirements of Pakistan and the overseas branch or subsidiary is unable to observe the higher standards, SBP REs, through their head office, shall report this to the SBP and comply with such further directives as may be issued.
Financial institutions would make sure that no employee is or has been convicted/ involved in any fraud/ forgery, financial crime, etc. Moreover, no employee is or has been associated with any illegal activity concerning banking business, foreign exchange business, financial dealing and other business or employment, the upgraded regulations said.
The requirement of national tax number (NTN) should not be the reason for refusal of financial services to the customers, especially, where bank account is a prerequisite for obtaining NTN as per FBR’s (Federal Board of Revenue) criteria. “SBP REs should facilitate their customers in opening bank accounts and subsequently obtain NTN, when issued by the FBR.”
SBP REs shall implement appropriate internal policies, procedures and controls to determine if a customer or beneficial owner is a politically exposed person (PEP) or a close associate or a family member of PEP, both prior to establishing a business relationship or conducting a transaction throughout the course of the business relationship.
They shall obtain approval from the senior management to establish or continue business relations or want to execute financial transaction where the customer or a beneficial owner is PEP or subsequently becomes PEP, a close associate or family member of PEP.
“(They shall) establish, by appropriate means, the sources of wealth and the source of funds of customers and beneficial owners identified as PEP, a close associate or family member of PEP; (and) conduct enhanced ongoing monitoring of business relations with the customer or beneficial owner identified as PEP, close associate and family member of PEP.”
Besides, SBP REs shall conduct enhanced due diligence (including obtaining senior management approval) while establishing relationship/ executing a financial transaction with NGOs/ NPOs, charities and trusts, when risks are higher, “to ensure that these accounts are used for legitimate purposes and the transactions are commensurate with the stated objectives and purposes.”
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