Financial Crime World

Nepal Rastra Bank Directives on AML/CFT and KYC Policy for Effective Implementation of Legal Instruments

Introduction

Kathmandu, Nepal - The Nepal Rastra Bank has issued directives on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Policy to combat money laundering, financing of terrorism, predicate offenses, and other related financial frauds.

Objectives

The policy aims to establish an internal control system regarding AML/CFT compliance measures as per the requirement of legal, regulatory, and international banking practices. The specific objectives are:

  • To develop a sound mechanism for AML/CFT compliance
  • To adopt a risk-based approach
  • To have a robust customer identification system
  • To monitor suspicious transactions

Regulatory Requirements

Banks and financial institutions are required to apply a risk-based approach to identify, assess, monitor, manage, and mitigate AML and CFT risks. The risk management should be based on:

  • Countries’ reports on national and sectoral risk evaluation
  • Renowned international institutions’ reports on AML/CFT
  • Business relationships
  • Nature of transactions
  • Transaction thresholds

The bank will classify risk into high, medium, and low as per regulators’ directions, international standards, and the bank’s internal risk-based approach and model.

AML/CFT Compliance Framework

To ensure effective implementation of AML/CFT measures, the bank has formed an AML committee at the board level with a designated board member as coordinator. The committee will oversee:

  • Obtaining KYC information
  • Risk profiling
  • Customer due diligence
  • Transaction monitoring
  • Threshold transaction reporting
  • Suspicious activity monitoring
  • Reporting

The action plan includes developing annual plans and programs to implement AML/CFT systems, conducting regular reviews, and annual appraisals to ensure functionality, effectiveness, and further enhancement. The bank will also implement standard procedures for:

  • Screening customers while onboarding
  • Obtaining KYC information
  • Risk profiling
  • Customer due diligence
  • Transaction monitoring

Know Your Customer (KYC) Policy

The KYC policy is a process of identifying and verifying customers about their identity, address, transactions, profiles based on a risk-based approach, and adopting required measures to protect the bank from being means of money laundering. The policy requires:

  • Due diligence while establishing business relationships
  • Minimum standards for KYC/ CDD

The bank has set minimum standards for KYC/CDD, including:

  • No acceptance of fictitious or anonymous accounts or transactions
  • Shell banks
  • Any other relationship without satisfactory completion of KYC/CDD

Implementation

To ensure effective implementation of the AML/CFT and KYC policies, the bank will:

  • Develop annual plans and programs to implement AML/CFT systems
  • Conduct regular reviews and annual appraisals
  • Implement standard procedures for screening customers while onboarding
  • Obtain KYC information, risk profiling, customer due diligence, transaction monitoring, and reporting
  • Maintain confidentiality of customer information
  • Retain records
  • Train and capacity-build human resources

The AML/CFT and KYC policies are designed to ensure the bank’s compliance with international standards and regulations, thereby protecting its customers, employees, and reputation from potential risks associated with money laundering and terrorism financing.