Banks’ foreign transaction costs may spike on FATF relisting

KARACHI: Banks could see a sharp increase in costs of their foreign transactions if the country is placed on an international terrorism-financing watchlist, bankers said on Friday, but the central bank sounds sanguine on its well-placed regulations to combat financial crimes.

Head of compliance at a major bank said banks would need to further tighten anti-money laundering controls.

“Every financial transaction, especially remittances could go through a stricter monitoring and extra checks,” the banker said on condition of anonymity. “We see a more increase in bank compliance cost related to human resource and automation.”

Bankers said they already spend ‘huge’ money on compliance pertaining to technological advancement. Numerous local banks have implemented the US artificial intelligence system for the monitoring of the financial crime, they added.

Shaukat Tarin, the advisor to the chairman of Silk Bank, believed that banks would have to be more cautious in dealing with big transactions routing through the US and the European countries “in case Pakistan is added to a list of countries considered non-compliant with terrorist financing regulations by the Financial Action Task Force (FATF)”.

“This probable move could have some disturbing consequences for banks that turn out to be delays in payments,” Tarin said.

A world’s influential financial sector’s policy-making body FATF convened a meeting on February 18 with US and some European countries planning to table a motion to put Pakistan back on its watchlist of ‘deficient’ anti-money laundering regimes. Pakistan remained on the list between 2012 and 2015.

Sources in the State Bank of Pakistan (SBP), however, said it has already placed ‘strong’ regulations related to anti-money laundering and combating of terrorism financing for the financial institutions.

In June last year, the SBP issued regulations and advised banks to ensure that activities of banks are complying with the laws and regulations especially with regard to know-your-customer and other anti-money laundering and combating terrorism financing rules – AML/CFT.

Tarin added that there is no ‘earth-shattering’ events insight the FATF meeting. “We hope our diplomatic efforts will be successful and Pakistan won’t be included in the grey list of FATF.”

The government is making all-out efforts, along with the foreign diplomats to withdraw the nomination from the US. The government has already amended the anti-terrorism law to ban militant groups and organisations that are listed as ‘terrorists’ by the United Nations Security Council.

A senior banker said it is essential for each and every bank to have a clearly laid down anti-money-laundering, customer due diligence and combating the financing of terrorism policy to ensure that they remain protected from the menace of money laundering and is not used by existing or prospective customers for any criminal activity.

“The regulations give the central bank enough authority to act,” the banker said. “The SBP can impose heavy penalties on banks for the violation of AML/CFT laws.”

An ex-governor Muhammad Yaqub of SBP sees no major economic impact of Pakistan’s inclusion in the watchlist.

“(But) the government and people of Pakistan should seriously read the writing on the wall about the intentions of the US government,” Yaqub said. “The cumulative impact of the aggressive US strategy to tighten the screws around Pakistan would be devastating unless the government and people of Pakistan decide to adopt policies to strengthen its own economic and political foundations to withstand such pressures,”

The former SBP governor said the only way the economy could be insulated is through drastic policy measures to strengthen the economy, in particular through reduction in the budget and balance of payments deficits.