KARACHI: Financial institution are required to ensure complete identity verification of customers for compliance with Financial Action Task Force (FATF).
In a significant move to enhance the country’s Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), and Countering Proliferation Financing (CPF) framework, the State Bank of Pakistan (SBP) has issued a circular mandating financial institutions to ensure complete identity verification of customers before establishing a business relationship.
The circular, directed to the presidents and chief executives of all SBP regulated entities (REs), underscores the importance of aligning the AML/CFT/CPF regulations with the international standards set by the Financial Action Task Force (FATF). The amendments made by the SBP are intended to strengthen the regulatory framework and ensure robust mechanisms for preventing illicit financial activities.
One of the key amendments introduced through the circular is a new provision emphasizing the necessity for SBP regulated entities to complete the verification of the identity of customers, occasional customers, and beneficial owners before establishing a business relationship or conducting occasional transactions. This move aims to reinforce the due diligence process at the initiation of any financial relationship, contributing to a more secure and transparent financial environment.
The SBP has highlighted the critical role of Customer Due Diligence (CDD) in the regulatory process. Financial institutions are now required to conduct thorough CDD for both customers and occasional customers under specific circumstances and matters. This ensures a comprehensive understanding of the individuals or entities involved in financial transactions and helps in detecting and preventing potential risks associated with money laundering, terrorism financing, and proliferation financing.
For legal persons or legal arrangements, the SBP has mandated REs to delve into the nature of the customer’s business, as well as its ownership and control structure. This additional step in the due diligence process for legal entities aims to bring greater transparency and accountability to the business relationships established by financial institutions.
The circular is a part of ongoing efforts by the SBP to align with international best practices and meet the requirements set by the FATF. Compliance with these standards is crucial not only for the reputation of the financial sector but also for ensuring the integrity of the country’s financial system.
Financial institutions operating under the SBP’s jurisdiction are expected to implement these amendments promptly. The new regulations set the stage for a more robust and vigilant financial ecosystem, reinforcing Pakistan’s commitment to combating financial crimes and contributing to the global fight against illicit financial activities. The SBP, through these measures, aims to create an environment where businesses can thrive securely, fostering economic growth and stability.
