SBP asks banks to tighten up risk management

KARACHI: The State Bank of Pakistan (SBP) on Monday asked the banks to tighten up their internal controls and reporting mechanism for combating fraud and forgery incidents in the banks.
A central bank circular advised banks, microfinance banks (MFBs) and development finance institutions (DFIs) to report frauds data of those associates and joint ventures where they have a minimum shareholding of 20 percent.
“The timeline for submission of quarterly statement of frauds in foreign subsidiaries, associates, joint ventures of banks, MFBs and DFIs has been extended and the first quarterly statement for the quarter ending June 30, 2015 shall be submitted by July 15, 2015,” it added. “In case of legal issues in sharing of information by foreign subsidiaries, associates and joint ventures, the SBP will deal such issues on case to case basis.”
A senior banker said the central bank has directed banks to mitigate the risk of fraud management after making amendments from time to time, as fraud and forgery is a daily occurrence in banks causing to a loss of millions of rupees to banks.
“The increased use of technology in executing transactions has increased the risks of financial frauds, such as debt cards transactions, mobile banking and bank internal funds transfers,” he said. “It has been a regular practice for the banks to send a regular report on fraud and forgery to the SBP.”
The central bank also advised the banks to formulate and implement ‘fraud prevention policy’ duly approved by their respective boards for prevention, detection, and investigation and reporting of frauds.
“A summary of quarterly report on frauds, forgeries and dacoities shall be placed before the Board’s Risk Management Committee (BRMC), Board’s Audit Committee (BAC) in the next meeting following the quarter end,” the circular said. “The summary of quarterly report shall be accompanied by supplementary materials such as trend analysis based on Nature/ Event type category of fraud, Business Lines/ Area of operations, Nature of severity and Individual involved etc.”
The circular stated that the BRMC and BAC must ensure that the systemic gaps, if any, that facilitated perpetration of fraud have been filled and actions being taken by the management to curb such incidents in the future.
The BRMC and BAC will responsible to monitor progress of investigations, court cases and recoveries position of cases of Rs. 0.5 million and above.