SBP unveils new AML/CFT regulations for forex firms

KARACHI: The central bank on Tuesday tightened regulations for foreign exchange companies, making it mandatory for them to render ‘independent’ efforts related to know-your-customer and due diligence to check money laundering and terror financing.

“ECs (exchange companies) and ECs-B [category] are not allowed to rely on third party institutions to perform any element of KYC/CDD (know-your-customer/customer due diligence) or to introduce business even if the third party belongs to the same financial group,” the State Bank of Pakistan (SBP) said in an updated exchange companies manual. “ECs and ECs-B are required to develop and implement programs against money laundering (ML)/terrorism financing (TF), which have regard to their ML/TF risks based on customer, product, channel, geographies and the size of the business.”

The SBP amended anti-money laundering (AML) and combating the financing of terrorism (CFT) related regulations in Exchange Companies Manual 2018 to further align them with the Financial Action Task Force (FATF) action plan.

The global finance system watchdog is slated to announce next month its decision on Pakistan regarding the country’s deficiencies on AML/CFT.

The SBP said exchange firms and exchange companies of ‘B’ category are completely responsible for implementing AML/CFT instructions throughout their network. They also need to monitor their franchisees/payment booths and are responsible for their compliance with AML/CFT instructions.

“ECs/ECs-B shall take steps to ensure that their AML/CFT policies and controls adhere to and are effective,” the SBP said. “To this end, their controls i.e. policies, procedures/SOPs (standard operating procedures), compliance programs, product services and delivery channels, decision to operate in new geography, etc. should be monitored on an ongoing basis by the board of directors.”

Exchange companies are further required to identify the customer and verify the customer’s identity on the basis of documents, data or information obtained from customer or any information from reliable and independent source documents, data or information. They need to identify if there is a beneficial owner who is not the customer. “The exchange company/exchange companies of ‘B’ category should take adequate measures to identify and verify the beneficial ownership to its satisfaction.”

Exchange firms are also required to obtain and verify authority letter for any person purporting to act on behalf of the customer, identify and verify the identity of that person and obtain information on the purpose and intended nature of the transaction.

“For exchanging any currency equivalent to, or below, USD500, ECs/ECs-B may resort to simple customer due diligence, wherein only name and number of identity document of the customer should be obtained at the minimum, if there are no circumstances of any suspicion.”

The SBP said some customers may pose higher than average risk, which may be categorised as high risk customers.

Examples of high risk customers are high net worth individuals with no clearly identifiable source of income, non-resident customers from countries or jurisdictions with inadequate AML/CFT laws and regulations such as high-risk and other monitored jurisdictions with weak measures to combat money laundering and terrorism financing identified by FATF from time to time or from countries.

“ECs/ECs-B shall ensure the use of adequate, reliable and efficient technologies/automated systems to ensure risk compliance and control requirements in the area of ML/TF risk identification/assessment and AML/CFT compliance and controls,” the SBP said.

“In this regard, ECs/ECS-B shall implement automated system for customer risk profiling, name screening and transactions monitoring.”

The SBP asked foreign exchange companies to obtain prior approval of SBP before offering any new product/service.

“Further, ECs and ECs-B shall identify and assess the ML/TF risks that may arise in relation to the development of new products and new business practices, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products,” it said.

“Additionally, ECs and ECs-B shall take appropriate measures to manage and mitigate the risks that may arise thereon.”