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Banks Directed to Enhance Customer Due Diligence, KYC Compliance

Karachi, [Date] - The State Bank of Pakistan (SBP) has issued a directive to all commercial banks in the country to enhance their customer due diligence and know-your-customer (KYC) compliance processes.

Enhanced Customer Due Diligence Requirements

According to the circular, banks are required to obtain satisfactory evidence of the true identity of beneficial owners of all accounts opened by individuals or entities. This includes:

  • Obtaining certified copies of letters of administration or probate
  • Attested photocopies of identity cards of executors/administrators

Thorough Background Checks

The SBP has emphasized the importance of conducting thorough background checks on prospective customers before opening new accounts. Banks are advised to:

  • Verify the signature and other particulars of introducers, who must be existing account holders at the same branch or another branch of the bank
  • Conduct regular monitoring of customer accounts and transactions

Customer Information Management

Banks are required to maintain a system for:

  • Updating customer information and records periodically
  • Installing an effective management information system (MIS) to monitor customer activity

High-Risk Customers and Enhanced Due Diligence

The directive requires banks to develop guidelines for customer due diligence, including descriptions of high-risk customers who may pose a higher risk to the bank. Enhanced due diligence shall be applied to these customers, including those from countries where KYC and money laundering regulations are lax or have links to offshore tax havens.

Record Keeping and Exception Handling

Banks are advised to:

  • Maintain proper records of customer identifications and exceptions made in fulfilling due diligence procedures
  • Monitor unusually large cash transactions and check for any inconsistencies with customer histories and patterns

Know-Your-Customer Policy

Each bank is required to formulate a comprehensive Know-Your-Customer policy, which must be approved by its Board of Directors and cascaded down the line to all branches and offices for strict compliance.

Regular Inspections and Compliance Monitoring

State Bank of Pakistan officials will conduct regular inspections to ensure the efficacy of KYC systems put in place by banks and their compliance by all staff members. Appropriate action shall be taken against non-compliant banks and staff members under the provisions of the Banking Companies Ordinance 1962.

Purpose of the Directive

The move is aimed at strengthening customer due diligence and preventing money laundering and terrorist financing activities in Pakistan’s banking sector.