State Bank extends timeline in implementation of circulars due to COVID19

As the coronavirus pandemic continues with a fresh second wave, the State Bank of Pakistan (SBP) has decided to extend the timeline in implementation of a number of its Circulars.

Based on the representation of the banking industry regarding challenges faced by the industry in meeting the timeline due to COVID19, it has been decided to extend the timelines for various SBP circulars/guidelines' requirements.

The guidelines for the implementation of Compliance Risk Management System and Formulation of RCSA and Development of KRIs have been extended to October 31, 2020. Whereas, guidelines pertaining to the First external quality review of Internal Audit Function and System for Internal Audit Function has been extended to September 30, 2021.

However, in the case where the Financial Institution has already undergone an assessment before issuance of SBP guidelines on Internal Audit Function (IAF), the next assessment would be due after 5 years of the earlier assessment.

The SBP has also instructions to facilitate IAF operations during the COVID19 situation.

Audit/risk review of international jurisdictions (BPRD Circular No. 6 of 2018):

SBP said that the banks with overseas operations are allowed a one-time wavier from performing annual internal audit and risk reviews of international jurisdictions for the year 2020, provided that, the Board Audit Committees (BACs) of respective banks approve the adoption of such measure.

Subsequently, the BAC and Chief Internal Auditor (CIA) shall take all required measures to ensure that risks of these jurisdictions are properly assessed and that any major control/governance deficiencies are properly highlighted through extensive off-site assessments, full scope desktop reviews and discussions with management and other relevant stakeholders at international jurisdictions.

Credit risk review of all facilities of borrowers (BSD Circular No. 7 of 2003):

In cases where the credit origination and/or documentation/monitoring is not centralized or digitally accessible, and the risk review teams have to physically visit the branches/credit regions/hubs for review/verification of documentation and monitoring of loans; the banks are allowed a onetime relaxation from conducting physical verification of such documents till October 31, 2020.

However, the risk review function of the bank shall devise a comprehensive action plan to perform credit reviews for such branches/regions/hubs following a risk-based approach and must review documentation through desktop/ offsite approach.

Besides, the risk review function shall ensure that adopting such an approach does not compromise on assessing the health and quality of the bank’s credit portfolio and all efforts shall be made to ensure that control is properly implemented and credit risks are timely identified.