The Securities and Exchange Commission of Pakistan (SECP) has ruled that the companies shall obtain approval from their senior management to establish or continue business relations with high-risk customers, check sources of wealth/funds or beneficial ownership of funds, and carry out enhanced monitoring of business relations. The SECP has made these observations in an order issued against an asset management company.
According to the SECP Order, the process of enhanced due diligence (EDD) is not limited to a prescribed form; rather, it includes implementation of appropriate internal risk management systems, policies, procedures and controls to determine if any customer presents high risk of money laundering/terrorist financing. In accordance with the prevailing regulatory framework for AML/CFT, the company shall, in case of EDD, obtain approval from senior management to establish or continue business relations with high risk customers; establish the sources of wealth and/or funds or beneficial ownership of funds and carry out enhanced monitoring of business relations, amongst other things, the SECP added.
The brief facts of the case are that a limited scope inspection of the company was ordered under section 2821 of the Companies 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 required documentation to identify the source of funds and certain other observations were noticed regarding five of its clients resulting in non-compliance with the Regulation 6(3), 6(4), 9(4)(b) of the AML & CFT Regulations and clause 2(a), 4(a) of Circular 12 of 2009.
Consequently, a show cause notice (SCN) dated November 16, 2018 was issued whereby the company was called upon to show cause in writing by November 26, 2018 as to why penal action may not be taken for the abovementioned alleged non-compliances and hearing in the matter was scheduled for November 30, 2018.
During the hearing, the company was apprised of the necessity of diligently conducting the KYC/CDD process while entering into formal relationship with any investor as the onus of conducting a thorough KYC/CDD process falls entirely on the AMC itself. The respondent was also informed that the SCN primarily contains all observations of the inspection team, therefore, providing an opportunity to the Company to explain its view point. The documentation of EDD was stressed for referencing in future. Moreover, the respondent was advised to furnish complete documentation.
The SECP has examined the facts of the case, written responses submitted along with documentary evidences, the arguments put forth by the respondent during the course of hearing and the relevant regulatory requirements.