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KARACHI: The State Bank of Pakistan (SBP) has issued the Anti Money Laundering, Combating the Financing of Terrorism, and Countering Proliferation Financing (AML/ CFT / CPF) Regulations for SBP’s Regulated Entities (REs).

The State Bank with the objective to preserve the integrity, soundness and safety of the financial system, has been endeavoring to prevent the possible use of its REs for money laundering, terrorist financing, proliferation financing and other illicit activities. Accordingly, SBP has issued these regulations under powers conferred to it under Section 6A (2) of the Anti-Money Laundering Act, 2010.

The SBP has warned that any violation of these regulations will attract penal as well as administrative actions under the applicable laws including the AML/ CFT Sanctions Rules, 2020.

According to the SBP, REs will be required to appropriately comply with the requirements stipulated in these Regulations considering their size, nature of business and complexities of operations; through proper documentation of the scope and applicability of requirements envisaged in these Regulations.

As per Regulations, in order to document the identified Money Laundering (ML), Terrorist Financing (TF) and Proliferation Financing (PF) risks, SBP REs will ensure an entity level Internal Risk Assessment Report (IRAR), which will identify, assess, and understand ML/ TF/ PF risks at entity level for customers, products, services, delivery channels, technologies, and their different categories of employees etc.

IRAR will take into account results of National Risk Assessment (NRA) shared with SBP REs, major international and domestic financial crimes and terrorism incidents that have probability of posing ML/ TF/ PF risks to the entity itself, to other SBP REs and to the Pakistan’s financial sector.

The IRAR will be used for evaluating residual ML/ TF/ PF risks about which SBP REs have to take decisions i.e. on-boarding of customers, allowing execution of financial transactions, provision of financial service, launching of product, use of technology, and initiating business and operation in particular geographical location, etc.

SBP REs will also formulate policy for application of Simplified Due Diligence, Customer Due Diligence, and Enhanced Due Diligence in light of levels of ML/ TF/ PF risks identified as low, medium, or high in their IRAR.

SBP REs will ensure that IRAR is a dynamic and up-to-date document, by periodically updating their IRAR when circumstances change or relevant new threats emerge. Further, in case the NRA is updated at national level, SBP REs will ensure updating their IRAR in light of the updated NRA. These requirements will be clearly stated by the SBP REs in their own AML/ CFT/ CPF policies duly approved by their BoD. The updated IRAR will be provided to any department of SBP and SBP’s inspection teams as and when required.

IRAR will be presented to the BoD for approval will include recommendations for the BoD along with a time bound action plan for mitigation of ML/ TF/ PF risks and ensuring effective AML policies.

SBP REs have been asked to ensure adequate monitoring mechanism to assess ML/ TF/ PF risks and adequacy of AML/ CFT/ CPF controls through internal audit, transaction monitoring, and name screening etc. SBP said that it may issue enabling circulars and guidance as an addendum to these Regulations.

Meanwhile, the State Bank has also issued Guidelines on Targeted Financial Sanctions (TFS) under UNSC Resolutions in order to further enhance the understanding and ensure effectiveness on implementation of Targeted Financial Sanctions (TFS) regime and obligations under UNSC Resolutions. SBP has asked All SBP Res for strict compliance of these TFS guidelines.

Copyright Business Recorder, 2020