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Compliance Risks for Banks in Pakistan on the Rise, SBP Issues Guidelines

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Pakistan’s State Bank has issued guidelines to help banks manage compliance risks, a critical issue that has been exacerbated by the increasing complexity of banking operations and competitive landscape. The guidelines aim to provide a uniform approach for identifying, assessing, and managing compliance risks, which are increasingly viewed as a key determinant of financial institutions’ performance and stability.

Challenges Faced by Banks

The circular issued by the SBP highlights the challenges faced by banks due to increased competition and regulatory expectations in terms of fairness to customers, financial stability, and compliance with applicable laws and regulations. In this challenging environment, effective compliance with regulatory requirements, best practices, and internal policies has become essential for banks’ survival.

International Best Practices

To address these concerns, policy–makers and financial institutions worldwide have modified their compliance risk management frameworks. The SBP’s guidelines are in line with international best practices and aim to promote a culture of compliance within banks by adopting a structured and risk-focused approach.

Implementation Timeline

The guidelines require banks to bring their compliance functions, policies, and procedures in line with the requirements by December 31, 2017. All banks, development finance institutions, and microfinance banks are advised to comply with these guidelines in letter and spirit. The SBP expects that these guidelines will strengthen the effectiveness of compliance functions and supplement the role and responsibilities already prescribed under regulation G-1 of Prudential Regulations for Corporate/Commercial Banking.

Key Takeaways

  • Compliance risks are on the rise due to increasing complexity of banking operations and competitive landscape
  • Banks must adopt a structured and risk-focused approach to manage compliance risks
  • Guidelines issued by SBP aim to promote a culture of compliance within banks
  • Implementation timeline: December 31, 2017
  • All banks, development finance institutions, and microfinance banks must comply with the guidelines in letter and spirit