AML, CFT regulations: AMCs directed to consult SECP

To enforce Anti-Money Laundering and Countering Financing of Terrorism Regulations fully, the Securities and Exchange Commission of Pakistan (SECP) has directed Asset Management Companies (AMCs) to immediately consult SECP in case of any confusion or misunderstanding with regard to implementation of Anti-Money Laundering and Countering Financing of Terrorism regulations.

According to an order issued by the SECP, the AMCs should have referred back to or consulted with SECP in case of any confusion or misunderstanding with regards to the implementation of AML/CFT regulations.

The SECP order has disposed of proceedings against a public limited company licensed to undertake the business of asset management and investment advisory services, initiated through show cause notice for violations of the Securities and Exchange Commission of Pakistan (Anti-Money Laundering and Countering Financing of Terrorism) Regulations, 2018 ("AML and CFT Regulations").

The scope of the inspection extended to review and assess the level of compliance of the AMC with respect to the AML and CFT regulations. However, during the course of inspection, various violations/non-compliances were observed. The inspection team highlighted several deficiencies in customers' record/documentation (selected on sample basis) which were in violation of several provisions of AML and CFT regulations.

The commissioner SECP observed that the AML and CFT regulations were effective immediately after their issuance and warranted that the company initiated the process at its earliest. Had the company done so, all discrepancies/deficiencies of the legacy accounts would have been removed by the time the inspection took place. A 10-month delay indicates weakness in responsiveness of the management. In my view, given AMCs size and very professional management, it is obligated to ensure that it is implementing the AML and CFT regulations in letter and spirit, the Commissioner added.

The SECP order said that AMC needs to realize that in the absence of requisite documents/information, the screening of unit holder's database is rendered ineffective and does not serve the purpose/objective of screening of unit holders/beneficial owners completely. The absence of such critical information is likely to expose the Company to inefficient screening of its customers with SROs/notifications issued by NACTA/provincial governments/Ministry of Foreign Affairs, etc, the SECP added.

The SECP stated that regulation 11 (2) of AML and CFT Regulations clearly stipulates that the decision to rate a customer as low risk shall be justified in writing by the regulated person. It is SECP's considered understanding that there is absolutely no vagueness in the understanding of the regulation, therefore the argument of the company that marking of "Low Risk" check box on the account opening form or on the NBFCs system would suffice for the requirement of AML Regulation 11 (2), is not acceptable.