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Afghanistan Banking Regulations and Compliance Requirements: A Guide to the Latest Developments

In a bid to strengthen Afghanistan’s financial sector, the government has introduced new banking regulations and compliance requirements to improve transparency, stability, and security in the industry while enhancing consumer protection.

Key Reforms

At the heart of these reforms is the Bank Licensing and Permitting Regulation, which sets out the criteria for licensing and permitting banks in Afghanistan. Under this regulation, banks must demonstrate a minimum capital requirement of $5 million and meet strict standards on corporate governance, fit and proper testing, and prohibited and authorized activities.

Regulatory Framework

The following regulations make up the regulatory framework:

  • Corporate Governance Regulation: Requires banks to establish effective boards of directors with clear lines of authority and accountability.
  • Fit and Proper Regulation: Ensures that bank officials are vetted for their integrity, competence, and financial soundness.
  • AML/CTF Responsibilities and Preventative Measures Regulation: Imposes strict requirements on banks to identify and report suspicious transactions, implement anti-money laundering programs, and maintain customer due diligence records.

Capital and Liquidity Requirements

The following regulations set out capital and liquidity requirements:

  • Capital Adequacy Regulation: Sets out the minimum capital requirements for banks.
  • Liquidity Regulation: Requires banks to maintain sufficient liquid assets to meet their short-term obligations.
  • Large Exposure Regulation: Limits a bank’s exposure to any single counterparty.

Other Regulations

The following regulations cover various aspects of banking:

  • Qualified Holdings Regulation: Requires banks to disclose all significant shareholders and establish effective governance structures.
  • Branchless Banking Regulation: Allows banks to operate remotely through agents or kiosks, subject to strict oversight and regulation.
  • Know Your Customer (KYC) Regulations: Require banks to verify the identity of their customers.

Reporting and Control

The following regulations require banks to maintain accurate records and submit regular reports:

  • Reporting and Control Regulation: Requires banks to maintain accurate records and submit regular reports to regulatory authorities.
  • External Audit Regulation: Ensures that banks undergo regular independent audits to ensure compliance with regulatory requirements.

Payment Systems

The following regulations regulate payment systems:

  • Regulation on Electronic Fund Transfers: Allows customers to make electronic payments through various channels.
  • Licensing and Oversight of Payment Regulation: Requires payment service providers to obtain licenses and comply with regulatory requirements.

Foreign Exchange Transactions

The following regulations regulate foreign exchange transactions:

  • Foreign Exchange Auction Regulation: Regulates foreign exchange transactions.
  • Regulation on Domestic Payment Operations in AF: Sets out the rules for domestic payment systems.

Conclusion

Afghanistan’s banking regulations and compliance requirements are designed to promote financial stability, security, and consumer protection. Banks operating in the country must comply with these regulations to avoid penalties and reputational damage. As the industry continues to evolve, it is essential for banks to stay up-to-date with regulatory changes and ensure that they meet all applicable requirements.