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Pakistan’s Financial Institution Compliance: A Guide to AML/CTF Regulations and Reporting Obligations

Pakistan’s financial sector has implemented various measures to combat money laundering, terrorist financing, and proliferation financing. The country’s regulatory bodies, including the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), and Financial Information Unit (FIU-Pakistan), have established anti-money laundering/counter-terrorism financing (AML/CTF) regulations to ensure compliance.

Regulatory Bodies

  • State Bank of Pakistan (SBP): Responsible for regulating AML controls for banks and related services
  • Securities and Exchange Commission of Pakistan (SECP): Ensures that stockbrokers, commodity brokers, non-banking financial companies, insurers, corporations, and non-profit organizations comply with AML/CFT regulations
  • Financial Information Unit (FIU-Pakistan): Serves as Pakistan’s central agency for receiving, analyzing, and disseminating financial information about suspected proceeds of crime and potential money laundering offenses

Compliance Requirements

To comply with AML/CTF regulations in Pakistan, designated service providers must ensure that they have a rigorous anti-money laundering/counter-terrorism financing policy in place. This includes:

  • Conducting customer due diligence
  • Determining beneficial owners
  • Monitoring customer business relationships
  • Implementing policies and procedures for politically exposed persons
  • Establishing AML/CFT/CPF policies

Internal Risk Assessment Reports (IRAR)

Internal Risk Assessment Reports (IRAR) are also crucial for assessing the effectiveness of existing AML/CFT policies and identifying ML/TF/PF risks at the entity level. The IRAR must consider:

  • The unique nature of each market
  • Corporate structure
  • Clients
  • Transaction types

Risk-Based Approach

All AML/CFT programs must be risk-based, with a clear connection between defined risks and the processes, practices, and controls that address those risks. Designated service providers must also ensure that their AML/CFT program is regularly reviewed and updated to reflect changes in the market or business environment.

Reporting Obligations

In addition to implementing an effective AML/CFT program, designated service providers have specific reporting obligations under Pakistani law. These include:

  • Submitting Suspicious Transaction Reports (STRs) for any suspicious transactions, regardless of threshold
  • Submitting Currency Transaction Reports (CTRs) for cash transactions exceeding PKR 2 million or equivalent

Conclusion

It is essential for financial institutions in Pakistan to understand the AML/CTF regulations and reporting obligations to avoid non-compliance penalties. By implementing an effective AML/CFT program and submitting required reports, designated service providers can demonstrate their commitment to combating money laundering, terrorist financing, and proliferation financing.