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Compliance in Banking Industry: Nepal’s AML/CFT Regulators Take Charge

Nepal’s banking industry has made significant progress in implementing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulations, with key regulatory bodies playing a crucial role. The country’s Central Bank, Nepal Rashtra Bank, Securities Board of Nepal, and Financial Information Unit (FIU-Nepal) have been at the forefront of ensuring compliance in the sector.

Supervisory Bodies

Nepal Rashtra Bank, established in 1956, is responsible for formulating monetary and foreign exchange policies to ensure banking and financial stability. The Securities Board of Nepal, set up in 1993, regulates the securities market and prevents insider trading and other crimes. FIU-Nepal, an independent unit within Nepal Rashtra Bank, was established in 2008 to receive, process, analyze, and disseminate financial information on suspected/potential money laundering and terrorism financing activities.

Compliance Requirements

To ensure successful anti-money laundering/counter-terrorism financing measures, designated service providers must develop and implement a compliance program. This includes:

  • Establishing consistent procedures for customer due diligence (CDD), risk profiling, and monitoring
  • Implementing proper management oversight and training
  • Determining the identity of ultimate beneficial owners

Each registered entity must consider its unique market, corporate structure, clients, and transaction types when adopting initiatives and procedures to ensure effectiveness.

Risk-Based Approach

All AML/CFT programs must be risk-based, with a risk assessment serving as the foundation for the program. The connection between defined risks and processes, practices, and controls must be clearly demonstrated.

Reporting Obligations

As a designated service provider, companies are required to notify FIU-Nepal regarding any suspicious activities. Notable ongoing reporting responsibilities include:

  • Threshold Transaction Report (TTR): reporting entities must file within 15 days for deposits, withdrawals, and currency exchanges.
  • Suspicious Transaction report (STR): each STR must be filed within three days of determining a report needs to be filed.
  • Recordkeeping: entities must maintain records of all transactions, customer details, and activity logs for at least five years.

Nepal’s banking industry has made significant progress in implementing AML/CFT regulations, with key regulatory bodies playing a crucial role. By continuing to strengthen compliance measures, the country can ensure the stability and integrity of its financial system.