The Securities and Exchange Commission of Pakistan (SECP) has directed regulated persons (securities brokers, commodities brokers, insurers, Takaful operators, non-banking finance companies (NBFCs) and Modarabas) to ensure strict compliance with anti-money laundering/countering financing of terrorism (AML/CFT) regime by remaining vigilant and putting in place requisite system and control procedures.
The direction has been given by the SECP commissioner Specialized Companies Division to the regulated persons in an order issued against an Asset Management Company (AMC) Friday. The SECP has also issued similar kind of order in case of another investment management company, ie, Asset Management Company.
Through this order, the SECP has made observations, "The transferring of money from a bank account to an Asset Management Company's account may not be reliable means of identifying the source of funds of a customer and in no way absolves the company of its responsibility to comply with the regulatory requirements for AML/CFT."
According to the SECP commissioner SMD order, the regulatory requirements relating to AML/CFT have been implemented since long, thus, all regulated persons are required to ensure strict compliance with this regime by remaining vigilant and putting in place requisite system and control procedures. The SECP also considers it important to direct the management of the company to organise appropriate training programmes for the concerned employees to enable them to better understand the requirements of the regulatory framework for AML/CFT vis-a-vis their respective roles and responsibilities. In this regard, the SECP would like to draw AMC's attention towards guidelines issued by the Commission to supplement the AML & CFT regulations by elaborating on the general requirements of the regulatory framework in order to help regulated persons in better understanding the AML/CFT responsibilities, Commissioner added.
The SECP order has disposed of proceedings initiated against an AMC) through Show Cause Notice (the "SCN") under Section 40A of the Securities and Exchange Commission of Pakistan Act, 1997 and Section 282J (1) read with Section 282M (1) of the Companies Ordinance, 1984 (the "Ordinance").
The brief facts of the case are that a limited scope inspection of the company was ordered under Section 2821 of the Ordinance vide inspection order to review compliance with the Securities and Exchange Commission of Pakistan (Anti Money Laundering and Countering Financing of Terrorism) Regulations, 2018 ("AML & CFT Regulations") and circular 12 of 2009. As per the inspection findings, the company did not obtain sufficient documents for Know Your Customer/Customer Due Diligence ("KYC/CDD") which included clear identifiable source of income, copies of CNICs of the governing body of the account holder, certificate of registration and financial statements regarding accounts resulting in non-compliance with the Regulations 6(3) (c), 6(4), 9(1), 9(4) (b) of AML & CFT Regulations and clause 2(a), 4 (a) of the circular 12 of 2009.
Consequently, the SCN dated November 16, 2018 was issued whereby the AMC was called upon to show cause in writing by November 26, 2018 as to why penal action may not be taken for the abovementioned non-compliances and the hearing in the matter was scheduled for November 30, 2018, however, at the request of the AMC, the same was rescheduled for December 6, 2018.
During the hearing, the respondents' attention was also drawn towards Clause 6 of Circular No. 12 of 2009, which requires that KYC/CDD is not a one-time exercise but an ongoing process. The respondents were also informed that the SCN primarily contains all observations of the inspection team, therefore, an opportunity has been provided to the AMC to explain its viewpoint. The respondents were apprised of the necessity of diligently conducting the KYC/CDD process while entering into formal relationship with any investor. The respondents were informed that the transferring of money from a bank account to an asset management company's account may not be reliable means of identifying the source of funds of a customer and in no way absolves the company of its responsibility to comply with the regulatory requirements for AML/CFT. It was further added that the onus of conducting a thorough KYC/CDD process falls entirely on the company itself. The respondents were also advised that complete documentation highlighting evidence of source of funds of Account No. 78270 and 74331 should be submitted. The SECP Commissioner SMD has examined the facts of the case, written responses submitted along with documentary evidences, the arguments put forth by the respondents during the course of hearing and the relevant regulatory requirements.
The SECP is of the view that the AMC was found to be negligent to the extent that the requisite documents were not provided/readily available during inspection rather these were provided after initiation of adjudication proceedings. However, by taking a lenient view this time, the AMC is hereby warned to ensure compliance of the AML/CFT regulatory framework in letter and spirit. It is pertinent to mention that future non-compliances, if any, shall be strictly dealt with in accordance with the enforcement action(s) as provided in law, the SECP added.