Regulator Issues New Guidelines for Correspondent Banking Services

To strengthen anti-money laundering (AML) and combating the financing of terrorism (CFT) measures, Pakistan’s banking regulator has issued new guidelines for correspondent banking services.

Enhanced Due Diligence Requirements

The guidelines require banks and designated financial institutions (DFIs) to conduct thorough due diligence on respondent banks before establishing a correspondent relationship. This includes:

• Gathering information about the respondent bank’s business, management, ownership, and AML/CFT regulations
• Assessing the reputation of the respondent bank and determining whether it has been subject to money laundering or financing of terrorism investigations or regulatory action

Clear Understanding and Documentation of AML/CFT Responsibilities

The regulator emphasizes the importance of clear understanding and documentation of AML/CFT responsibilities between correspondent banks. Before establishing a new relationship, senior management approval is required.

Special Attention for Institutions in Jurisdictions with Inadequate AML/CFT Standards

Correspondent banks must pay special attention when establishing or continuing relationships with institutions in jurisdictions identified by the Financial Action Task Force (FATF) for inadequate AML/CFT standards.

Prevention of Shell Banking and Wire Transfer Guidelines

• Correspondent banks must not enter into relationships with shell banks
• Banks/DFIs must ensure that their respondent banks do not permit accounts to be used by shell banks

The guidelines also provide rules for wire transfers/fund transfers, including:

• Identifying and verifying the originator of funds
• Recording adequate details of the transfer
• Including specific information in the message or payment instruction accompanying the transfer

Reporting Suspicious Transactions and Terminating Business Relationships

Banks/DFIs must report suspicious transactions to the Financial Monitoring Unit (FMU) and terminate business relationships with institutions that do not comply with standard requirements for wire transfers.

Purpose of the Guidelines

The new guidelines are aimed at strengthening Pakistan’s AML/CFT regime and preventing the use of correspondent banking services for illicit activities. Banks/DFIs must ensure compliance with these guidelines to mitigate ML/TF risks and avoid regulatory action.