Pakistani Banks Take Steps to Strengthen Anti-Fraud Measures

The State Bank of Pakistan (SBP) has directed banks, microfinance banks, and development finance institutions (DFIs) to formulate and implement anti-fraud policies in an effort to curb the growing menace of fraud in the country’s banking sector.

Requirements for Banks’ Anti-Fraud Policies

• Banks must have a comprehensive fraud prevention policy that outlines their approach to preventing, detecting, investigating, and reporting fraudulent activities.
• The policy should include definitions of various types of fraud, roles and responsibilities of stakeholders, measures for prevention and detection, investigation procedures, confidentiality agreements, and remedial actions.

Quarterly Review of Fraud Cases

• Banks are required to submit a quarterly review of fraud cases to the Board’s Risk Management Committee (BRMC) or Audit Committee (BAC).
• The review should include a summary of fraudulent activities, trend analysis, and measures taken to prevent recurrence.
• The BRMC/BAC is responsible for reviewing the effectiveness of anti-fraud measures and suggesting additional steps to strengthen preventive measures.

Reporting Fraud Cases

• Banks are required to report all fraud cases involving Rs5 million or more to their respective Boards within 24 hours of detection.
• They must also maintain a database of individuals who have committed or attempted to commit fraud, including employees, depositors, customers, borrowers, and third parties.

Whistle-Blowing Policies

• The SBP has emphasized the importance of whistle-blowing policies, which allow bank staff and outside parties to report concerns about irregularities, financial malpractices, and wrongdoings without fear of reprisal.
• Banks are required to have a whistle-blower program that includes procedures for lodging complaints, communication channels, complaint handling procedures, confidentiality agreements, and protection and rewards for complainants.

Due Diligence and Reporting Requirements

• Banks are advised to exercise due diligence while appraising the credit needs of unscrupulous borrowers, including their associates who have defrauded banks in the past.
• They must also report details of such persons or third parties involved in frauds to the Pakistan Bank’s Association (PBA) or any other mutually agreed arrangement.

Goals and Benefits

• The SBP’s anti-fraud measures are aimed at enhancing transparency and accountability in the banking sector, protecting depositors’ interests, and preventing financial crimes.
• By implementing these guidelines, Pakistani banks can significantly reduce the risk of fraud and maintain public trust in the financial system.