In order to further align Anti Money Laundering (AML) and Combating of Financing of Terrorism (CFT) Regulations with the Financial Action Task Force (FATF) recommendations, the State Bank of Pakistan (SBP) has amended various regulations for financial institutions.
The SBP issued some eight (8) circulars in single day for Banks, DFIs, Microfinance Banks (MFBs) and Exchange Companies (ECs) for amendment in banking regulations to strengthen the controls related to Money Laundering (ML)/ Terrorist Financing (TF) risks.
Pakistan was put on the grey list of FATF and since then making serious efforts to delist from grey list of FATF, which, in October 2019, has asked Pakistan to complete its full action plan by February 2020. Bankers said that SBP's recent measures are a part of these efforts to meet the FATF action plan before the deadline.
According to BPRD Circular No. 08 of 2019, with an objective to preserve the integrity, soundness and safety of the financial system, State Bank is endeavoring to prevent the possible use of banking channel for money laundering, terrorist financing, proliferation financing and other illicit activities.
Towards this end, SBP under powers conferred in Section 41 of Banking Companies Ordinance (BCO) 1962 and Section 31 of the Microfinance Institutions Ordinance 2001, has issued various instructions/guidelines for the Banks/DFIs/MFBs from time to time.
Further to the "AML and CFT Guidelines on Risk Based Approach" for Banks/DFIs, it has now been decided to realign, update and expand coverage of these guidelines, in the backdrop of recent observations highlighted in Pakistan's Mutual Evaluation Report and revisions made in AML/CFT Regulations for Banks/DFIs/MFBs.
All Banks/DFIs/MFBs have been advised to ensure meticulous compliance of updated "AML and CFT Guidelines on Risk Based Approach" that will be applicable with immediate effect.
In addition, with a view to further align the AML/CFT Regulations with requirements embodied in FATF recommendations and observations highlighted in Pakistan's Mutual Evaluation Report 2018, SBP has also decided to amend various provisions of the regulations on Anti- AML/CFT for all banks and DFIs.
In order to accelerate the level of outreach of Branchless Banking (BB) operations for achieving the objective of financial inclusion and strengthening the controls related to ML/ TF risks, SBP has also decided to revise the existing Branchless Banking Regulations.
The Circular BPRD No. 10 of 2019, sent to the Presidents/Chief Executives of all Banks/Microfinance Banks said that the revised regulations will be applicable on all Authorized Financial Institutions (AFIs) providing Branchless Banking services.
SBP has advised AFIs providing BB services to streamline their existing operations/processes, where applicable as per revised Regulations, and submit compliance report of the same to SBP latest by 31st January, 2020.
As per fresh directives, AFIs will not increase the limit of existing level-1 accounts, which are operating without Biometric Verification (BV). Further, AFIs are advised to complete BV of all such level-1 account latest by 31st March, 2020. In case BV is not performed, AFIs will convert all these accounts to Level 0 with effect from 1st April, 2020.
SBP has also amended "AML/CFT Regulations for Microfinance Banks" and through AC&MFD Circular No. 04 of 2019, it has reiterated that MFBs must ensure strict observance of all applicable instructions including identification and verification of customers and their beneficial owner(s) and obtain information on the purpose and intended nature of business relationship.
The monitoring mechanism in place at MFBs should be adequately resourced and strengthened to ensure that the transactions being conducted in the accounts are consistent with the MFB's knowledge of their customer, business, risk profile and the source of funds, SBP said.
With the objective to know the ultimate beneficial ownership of accounts/ transactions, the MFBs have been asked to enhance their efforts to obtain relevant information and examine background and purpose of all complex, unusual large transactions and unusual patterns of transactions, which do not commensurate with customer profile or have no apparent economic or visible lawful purpose.
Moreover, with a view to further strengthening the measures already in place and mitigate the money laundering and terrorist financing risks, MFBs are advised to immediately ensure optimal utilization of biometric technology and carry out biometric verification of the existing customers and submit compliance status in respect of biometric verification of their existing/legacy portfolio of customers within 15 days of aforesaid timelines.
The SBP has also issued instructions related to Fit & Proper Test Criteria (FPT). In view of potential risk arising from money laundering, terrorism financing and proliferation financing, it is imperative that any person(s) linked to any criminal activities or affiliated to any terrorist organizations shall not become part of MFBs, it added.
As per AC&MFD Circular Letter No. 04 for MFBs, any sponsor shareholders/beneficial owners, directors, presidents and key executives will become disqualified if they are designated/proscribed or associated directly or indirectly with designated/proscribed entities/persons under United Nations Security Council Resolution or Anti-Terrorism Act 1997.
Henceforth, all MFBs are advised to submit Revised Questionnaire for assessing 'Fit & Proper Test' and 'Declaration by the Proposing MFB' to SBP confirming that the person(s) subject to FPT have been verified through National Database and Registration Authority and screened against the list(s) of designated/proscribed entities and persons as per the applicable laws, rules and regulations.
The SBP has also amended the guidelines on Compliance of Government of Pakistan's Notifications issued under United Nations Security Council (UNSC) Resolutions.
"In order to further enhance the understanding of Targeted Financial Sanctions regimes for Terrorism Financing and Proliferation Financing, under UNSC Resolutions, and to further align said regimes with the requirements embodied in FATF Recommendations, SBP has decided to update the subject guidelines", SBP said.
A circular issued to exchange companies said that, in terms of powers conferred on State Bank of Pakistan under Section 3AA of Foreign Exchange Regulation Act, 1947, it has been decided to amend AML/CFT related regulations in Exchange Companies Manual, 2018 in order to further align them with the Financial Action Task Force (FATF) Recommendations and to bring clarity in the relevant instructions.
SBP has warned that failure to comply with these instructions will attract regulatory action under the relevant provisions of the Foreign Exchange Regulation Act, 1947.
In addition, SBP, during the course of inspection, will particularly assess the compliance of these requirements and non-compliance will attract appropriate enforcement action in accordance with relevant laws.
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