Regulators tighten noose on money laundering

Published April 23, 2021
The initiative has been taken after the country failed to come out from the grey list of the Paris-based Financial Action Task Force (FATF) which has tightened its grip over Pakistan. — AFP/File
The initiative has been taken after the country failed to come out from the grey list of the Paris-based Financial Action Task Force (FATF) which has tightened its grip over Pakistan. — AFP/File

KARACHI: The State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) on Thursday signed a Letter of Understanding (LoU) to tighten their joint supervisory role against money laundering and terror financing.

The SBP and SECP have amended the Terms of Reference (ToR) of their Joint Task Force (JTF) on financial conglomerates to further strengthen the supervisory cooperation, inter alia, in Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing (AML/CFT/CPF) supervision at financial-group level.

SBP Governor Dr Reza Baqir and SECP Chairman Aamir Khan signed the LoU for amendments in the ToR.

The initiative has been taken after the country failed to come out from the grey list of the Paris-based Financial Action Task Force (FATF) which has tightened its grip over Pakistan. Financial circles in Pakistan believe the watchdog discriminates against Pakistan while comparing the financial systems of other regional countries including India and Bangladesh.

On Feb 25, 2021, FATF announced the move to keep Pakistan on its ‘grey list’, with the country’s status set to be reviewed next at an extraordinary plenary session in June 2021.

The watchdog observed that Pakistan remained under increased monitoring. While Islamabad had made “significant progress”, there remained some “serious deficiencies” in mechanisms to plug terrorism financing, an announcement by the watchdog said. It further said that three out of the 27 points need to be fully addressed by Pakistan.

Pakistan has another chance to come out from the grey list in June 2021 which is why the two regulators – SBP and SECP – decided to strengthen their role against AML and CFT.

“The interagency cooperation between financial sector regulators is a crucial element for the effective supervision of financial groups, which comprise various types of financial institutions,” a statement issued by the SBP said.

The SBP and SECP established the JTF in March 2009 to proactively identify and tackle the risks posed by conglomeration in the financial sector.

The ToR of the JTF envisaged the supervisory cooperation, holding periodic meetings and information sharing between both the regulators in respect of the financial groups.

“Keeping in view the importance of the group-level AML/CFT/CPF supervision, both SBP and SECP jointly agreed to specifically cover this area in the ToR of the JTF in a more explicit manner,” said the statement.

These improvements in the ToR will allow the regulators to effectively implement group-level AML/CFT/CPF supervision in line with the international standards, and strengthen cooperation and information sharing in a more systematic manner.

The tightening role of the regulators has seriously affected banking for customers in Pakistan. Opening a new account is not easy while complaints against banks have been increasing as they are extremely cautious about Know Your Customer (KYC).

A detailed instruction given to all banks to reads, “Where the customer or occasional customer is represented by an authorised agent or representative, SBP REs (regulated entities-financial institutions) will identify every person who acts on behalf of the customer, verify the identity of that person using reliable and independent documents, data or information and verify the authority of that person to act on behalf of the customer,’ is one of instructions (regulations) given by the State Bank’s policy regulations for banks.”

Published in Dawn, April 23rd, 2021

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