Prudential Regulations of State Bank Of Pakistan For Commercial Banks.

Presented By: Alveena Qayyum 3003 Rabia Qayyum 3037

CDD AND ANTI MONEY LAUNDERING (M)

Prudential Regulations of State Bank of Pakistan for Commercial Banks

Disclaimer:  State Bank of Pakistan compiles a booklet of Prudential Regulations from time to time for convenience of users.One of the regulation is following: CDD AND ANTI MONEY LAUNDERING (M)

CDD AND ANTI MONEY LAUNDERING (M)

Here we have further five regulations in CDD &

Anti Money Laundering (M): Regulation M-1 Customer Due Diligence (CDD). Regulation M-2 Anti-money laundering measures. Regulation M-3 Record retention. Regulation M-4 Correspondent banking. Regulation M-5 Suspicious transactions.

Regulation M-1 Customer Due Diligence (CDD)

With the view to preserve integrity and safety of the financial

system, it is expedient to prevent the possible use of the

banking sector for money laundering and terrorist financing.

To this end, Customer Due Diligence/Know Your Customer

(CDD/KYC) requires special attention and concrete

implementation.

Regulation M-1 Customer Due Diligence (CDD) CONT….

Accordingly, the following minimum guidelines are

required to be followed by banks/DFIs:

Banks/DFIs are free to take additional measures.

Banks/DFIs shall formulate and put in place, a comprehensive CDD/KYC policy duly approved by their Board of Directors for strict compliance.

Regulation M-1 Customer Due Diligence (CDD) CONT…...

CDD/KYC policy of the banks/DFIs shall include a description of the types of customers, guidelines for conducting Enhanced Customer Due Diligence depending upon the customers’ background, country of origin, public or high profile position, nature of business, etc.

Banks/DFIs should undertake customer due diligence measures when:

Establishing business relationship Conducting occasional transactions above rupees one

million Carrying out occasional wire transfers There is suspicion of money laundering

Regulation M-1 Customer Due Diligence (CDD) CONT…

Banks/DFIs shall undertake at least following

Customer due diligence measures:

Banks/DFIs should not open and maintain anonymous accounts . All reasonable efforts shall be made to determine identity of every

prospective customer. Banks/DFIs shall identify the beneficial ownership of accounts . For all customers, banks/DFIs should determine whether the

customer is acting on behalf of another person.

Verification is an integral part of CDD/KYC measures for which banks/DFIs shall ensure that:

Copies of CNIC are verified, before opening the account. the identity of the beneficial owner is verified using reliable

information.

Banks/DFIs shall note that: Debit transactions shall not be allowed until the account holder

produces an attested copy of his/her CNIC and fulfills all other formalities for activation of the account.

Banks/DFIs shall block accounts without CNIC.

Regulation M-1 Customer Due Diligence (CDD) CONT...

Regulation M-1 Customer Due Diligence (CDD) CONT….

Banks/DFIs are also is an on-going process for prudent banking practices.

Banks/DFIs shall conduct enhanced due diligence when: dealing with high-risk customers. opening correspondent banks’ accounts. dealing with non-face-to-face/on-line customers. customers in high-value items etc.

Regulation M-1 Customer Due Diligence (CDD) CONT….

For politically exposed persons enhanced due diligence should include the following:

Relationship should be established. Appropriate risk management systems .

Where there are low risks and information on the identity of the customer banks/DFIs may apply simplified or reduced CDD/KYC measures.

Reduced CDD/KYC measures shall not be applied where there is risk of money laundering .

Regulation M-2 Anti-money laundering measures:

Banks/DFIs are advised to follow the following guidelines to safeguard themselves against their involvement in money-laundering activities, and other unlawful trades:

Banks/DFIs shall ensure that their business is conducted in conformity with high ethical standards and that banking laws and regulations are adhered to.

Specific procedures be established for ascertaining customer’s status and his source of earnings.

Regulation M-2 Anti-money laundering measures CONT…

Banks/ DFIs are required to include accurate and meaningful originator information on funds transfers including wire transfers .

Beneficiary financial institutions shall adopt effective risk-based procedures for identifying and handling wire transfers that are not accompanied by complete originator information.

Regulation M-2 Anti-money laundering measures CONT…

Banks/DFIs shall not allow personal accounts to be used for business purposes except proprietorships, small businesses and professions.

For an effective implementation of banks’/DFIs’ policy and procedures relating to anti money laundering suitable training be imparted to members of staff .

Regulation M-3 Record retention:

The records of transactions and identification data etc. maintained by banks/DFIs occupy critical importance as for as legal proceedings are concerned.

The banks/DFIs shall keep records on the identification data obtained through the customer due diligence process ,

Regulation M-3 Record retention CONT…

The records relating to the suspicious transactions reported by the bank/DFI will be retained by the bank/DFI , even after the lapse of the period prescribed above , till such time the bank/DFI gets permission from State Bank of Pakistan to destroy such record.

Regulation M-3 Record retention CONT…

The banks/ DFIs should provide timely information related to suspicious transactions to domestic law enforcement agencies (LEAs).

Regulation M-4 Correspondent banking:

The banks/DFIs shall gather sufficient information about their correspondent banks to understand fully the nature of their business. Factors to consider include:

Know your customer policy (KYC)

Information about the correspondent bank’s management and ownership

Major business activities

Their location

Money laundering prevention and detection measures

The purpose of the account

Regulation M-4 Correspondent banking CONT……

The banks/DFIs should establish correspondent relationships with only those foreign banks that have effective customer acceptance and KYC policies and are effectively supervised by the relevant authorities.

The banks/DFIs should refuse to enter into relationship with a bank incorporated in a jurisdiction in which The banks/DFIs should also guard against establishing relations with correspondent foreign financial institutions that permit their accounts to be used by shell banks.

Regulation M-4 Correspondent banking CONT...

The banks/DFIs should pay particular attention when continuing relationships with correspondent banks located in jurisdictions that have poor KYC standards.

The banks/DFIs should be particularly alert to the risk that correspondent accounts might be used directly by third parties to transact business on their own behalf (e.g., payable-through-accounts).

Regulation M-4 Correspondent banking CONT...

Approval should be obtained from senior management, preferably at the level of Executive Vice President or equivalent, before establishing new correspondent banking relationships.

Regulation M-5 Suspicious transactions:

The banks/DFIs should pay special attention to all complex, unusually large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose.

Regulation M-5 Suspicious transactions CONT…

If the bank/DFI suspects , that funds are the proceeds of a criminal activity , it should report promptly, its suspicions, through Compliance Officer of the bank/DFI to Director General, Financial Monitoring Unit Karachi.

The employees of the banks/DFIs are strictly prohibited to disclose the fact to the customer or any irrelevant quarter that a suspicious transaction or related information is being reported for investigation.

Regulation M-5 Suspicious transactions CONT…

In cases of foreign branches of the banks/DFIs and subsidiaries of the banks/DFIs in foreign countries undertaking banking business, the banks/DFIs would ensure compliance with the regulations (relating to Anti Money Laundering and KYC) of State Bank of Pakistan or the relevant regulations of the host country, whichever are more exhaustive.