SBP AML/CFT/CPF Regulations Overview
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Questions and Answers

What does AML stand for?

  • Anti-Money Laundering (correct)
  • Automated Money Lending
  • Anti-Monetary Loss
  • None of the above

    • The Anti-Terrorism Act was created in 2010.

    False

    What is the function of the Financial Monitoring Unit (FMU)?

    It is established under Section 6 of the Anti-Money Laundering Act to monitor financial transactions.

    The regulations were updated up to ______.

    <p>November 28, 2022</p> Signup and view all the answers

    What does CDD stand for?

    <p>Customer Due Diligence</p> Signup and view all the answers

    A PEP stands for Politically Exposed Person.

    <p>True</p> Signup and view all the answers

    What does the acronym FATF refer to?

    <p>Financial Action Task Force</p> Signup and view all the answers

    What is a Currency Transaction Report (CTR)?

    <p>A report that must be filed for transactions exceeding a specified amount.</p> Signup and view all the answers

    The State Bank of Pakistan issues regulations under the authority of ______.

    <p>the Anti-Money Laundering Act, 2010</p> Signup and view all the answers

    Match the following acronyms with their full forms:

    <p>AML = Anti-Money Laundering CFT = Combating the Financing of Terrorism CPF = Countering Proliferation Financing KYC = Know Your Customer</p> Signup and view all the answers

    How long should the records of identification data obtained through CDD process be maintained after the business relationship ends?

    <p>ten years</p> Signup and view all the answers

    What types of records must SBP REs maintain for a minimum period of ten years from transaction completion?

    <p>Records of transactions, STRs, and CTRs</p> Signup and view all the answers

    SBP REs can dispose of records involved in litigation once the litigation begins.

    <p>False</p> Signup and view all the answers

    What do SBP REs need to assess in relation to correspondent banking services? (Select all that apply)

    <p>AML/CFT/CPF controls and procedures</p> Signup and view all the answers

    Which of the following measures is NOT mandated when establishing correspondent banking relationships?

    <p>Obtaining customer feedback</p> Signup and view all the answers

    What is illegal MVTS?

    <p>Unauthorized foreign exchange business including unauthorized money transfers</p> Signup and view all the answers

    SBP REs can use any premises for conducting money transfer services.

    <p>False</p> Signup and view all the answers

    What should information about wire transfers enable?

    <p>Reconstruction of the transfer</p> Signup and view all the answers

    What is the primary purpose of maintaining records of wire transfers by SBP REs?

    <p>Permit reconstruction of transactions</p> Signup and view all the answers

    What must SBP REs ensure about transactions lacking complete information?

    <p>They must adopt risk-based policies to assess such transactions.</p> Signup and view all the answers

    SBP REs shall ensure compliance with _____ laws and regulatory instructions.

    <p>prevailing</p> Signup and view all the answers

    What type of systems must SBP REs implement for monitoring transactions?

    <p>Automated Transaction Monitoring Systems (TMS)</p> Signup and view all the answers

    What do 'Payment Services' include?

    <p>Services that enable customers to make payments for goods and services, bill payments, fund transfers, cash deposit and withdrawal, and any other service endorsed by SBP.</p> Signup and view all the answers

    What is the meaning of 'Payment System' as per PS&EFT Act?

    <p>It refers to the definition provided under Section 2(1)(zd) of the PS&amp;EFT Act.</p> Signup and view all the answers

    Who is considered a 'Politically Exposed Person (PEP)'?

    <p>An individual entrusted with a prominent public function domestically or abroad, including heads of state, government officials, and senior executives.</p> Signup and view all the answers

    What does 'Regulated Entities (REs)' refer to?

    <p>Financial institutions licensed and regulated by the SBP which includes banks, DFIs, MFBs, and others.</p> Signup and view all the answers

    What is the purpose of an Internal Risk Assessment Report (IRAR)?

    <p>To document identified ML/TF/PF risks and assess the effectiveness of existing AML/CFT/CPF policies and controls.</p> Signup and view all the answers

    What should SBP REs achieve with their IRAR?

    <p>Identify, assess, and understand ML/TF/PF risks at the entity level.</p> Signup and view all the answers

    What does CDD stand for?

    <p>Customer Due Diligence.</p> Signup and view all the answers

    What should be verified as part of Customer Due Diligence?

    <p>The identity of the customer, including beneficial owners, through reliable documents.</p> Signup and view all the answers

    SBP REs are not allowed to apply Enhanced Due Diligence (EDD) measures.

    <p>False</p> Signup and view all the answers

    What does EDD stand for?

    <p>Enhanced Due Diligence.</p> Signup and view all the answers

    A ____________ means an obligation annexed to the ownership of property for the benefit of a beneficiary.

    <p>trust</p> Signup and view all the answers

    What is a 'Shell Bank'?

    <p>A bank that has no physical presence in the country where it is incorporated and is unaffiliated with a regulated financial group.</p> Signup and view all the answers

    Which of the following are included in Regulated Entities (REs)? (Select all that apply)

    <p>Development Finance Institutions</p> Signup and view all the answers

    Which measures are part of Customer Due Diligence requirements? (Select all that apply)

    <p>Verify beneficial owners</p> Signup and view all the answers

    What shall SBP REs maintain in line with the Code of Corporate Governance?

    <p>Independent audit function</p> Signup and view all the answers

    SBP REs should ignore compliance with FATF Recommendations in countries where branches are located.

    <p>False</p> Signup and view all the answers

    What must SBP REs do if the AML/CFT/CPF requirements in the host country differ from those in Pakistan?

    <p>Apply the higher of the two standards, if permitted by host country law.</p> Signup and view all the answers

    SBP REs shall develop and implement appropriate ______ procedures for hiring employees.

    <p>screening</p> Signup and view all the answers

    What types of people should not become part of SBP REs?

    <p>Both A and B</p> Signup and view all the answers

    What type of training program should SBP REs implement for AML/CFT/CPF?

    <p>An Annual Training Program developed after a Formal Training Need Assessment.</p> Signup and view all the answers

    SBP REs are encouraged to provide outreach and awareness regarding AML/CFT/CPF obligations only to their employees.

    <p>False</p> Signup and view all the answers

    Which document should be used for the identification of natural persons?

    <p>Valid identity document</p> Signup and view all the answers

    Match the following components with the corresponding identification requirements:

    <p>National Tax Number = Legal Persons Date of Birth = Individuals Purpose of account = All Customers Trust Deed = Trusts</p> Signup and view all the answers

    The training content shall also include responsibilities relating to ______.

    <p>AML/CFT/CPF</p> Signup and view all the answers

    What is required to be obtained for the identification of customers?

    <p>Relevant documents as per customer type.</p> Signup and view all the answers

    Which of the following measures may be included in SDD? (Select all that apply)

    <p>Not collecting specific information about the business relationship</p> Signup and view all the answers

    SBP REs shall apply SDD whenever there is a suspicion of money laundering.

    <p>False</p> Signup and view all the answers

    What shall SBP REs ensure regarding customer risk profiling?

    <p>The update of Customer Risk Profiling of their new and existing customers on an ongoing basis.</p> Signup and view all the answers

    SBP REs shall block accounts without valid ______.

    <p>Identity Document</p> Signup and view all the answers

    Match the following measures with their descriptions regarding dormant accounts:

    <p>Prior notice = Notices sent one month, seven days, and one day prior to marking the account as dormant Credit entries = Allow credit entries in dormant accounts Debit transactions = Not allowed until the account is activated Formal request for activation = Activation upon receipt of a request through authenticated medium</p> Signup and view all the answers

    Government accounts can be opened in the personal names of government officials.

    <p>False</p> Signup and view all the answers

    What must be obtained before opening accounts for autonomous bodies?

    <p>Necessary approval or resolution from their respective board or governing bodies.</p> Signup and view all the answers

    SBP REs are allowed to rely on third-party financial institutions for CDD measures.

    <p>True</p> Signup and view all the answers

    What action should SBP REs take if they find a relationship with existing or potential customers linked to DPs or PPs?

    <p>Both A and C</p> Signup and view all the answers

    What should SBP REs do if they suspect a match between customer information and that of a DP or PP?

    <p>View with suspicion and analyze the details for necessary actions.</p> Signup and view all the answers

    SBP REs shall conduct ______ while establishing a relationship with NGOs, NPOs, Charities, and Trusts when risks are higher.

    <p>Enhanced Due Diligence</p> Signup and view all the answers

    Match the actions required for PEPs with the corresponding obligations:

    <p>Approval from senior management = Required when establishing or continuing relationships with PEPs Establish sources of wealth = Required for customers identified as PEPs Enhanced ongoing monitoring = For business relations with identified PEPs or their associates</p> Signup and view all the answers

    Personal accounts may be used for charity purposes.

    <p>False</p> Signup and view all the answers

    What is the requirement for SBP REs regarding transaction reporting?

    <p>To file STRs and CTRs with FMU as required under Section 7 of the Act.</p> Signup and view all the answers

    What is required for newly registered branches or liaison offices of foreign companies?

    <p>Form II about particulars of directors, Principal Officer etc.</p> Signup and view all the answers

    What document must be obtained from the Principal Officer authorizing account operation?

    <p>Letter from Principal Officer of the entity</p> Signup and view all the answers

    Which identity documents are required for Trusts, Clubs, Societies, and Associations?

    <p>Identity documents of Governing Body members</p> Signup and view all the answers

    What must be provided by NGOs/NPOs/Charities when opening an account?

    <p>Photocopy of applicable identity documents and certified copies of registration documents.</p> Signup and view all the answers

    Which document is required for Executors and Administrators?

    <p>Both A and C</p> Signup and view all the answers

    A certified copy of the order of appointment of the Guardian is required for ______ accounts.

    <p>Minor</p> Signup and view all the answers

    All CDD requirements must be completed only for the mentally disordered person.

    <p>False</p> Signup and view all the answers

    What additional verification is required for a mentally disordered person's account?

    <p>Biometric verifications</p> Signup and view all the answers

    Expired CNIC can be used to open an account under certain conditions.

    <p>True</p> Signup and view all the answers

    What is required if an individual has shaky or immature signatures?

    <p>A passport size photograph and thumb impressions.</p> Signup and view all the answers

    Study Notes

    Overview of SBP AML/CFT/CPF Regulations

    • Issued by the State Bank of Pakistan (SBP) under Anti-Money Laundering Act, 2010.
    • Intended for SBP Regulated Entities (SBP REs).
    • Violations attract penal and administrative actions.
    • Regulations prioritize compliance based on the size and complexity of operations.
    • Updates and amendments may be issued through circulars, which can affect the interpretation of regulations.

    Key Sections of the Regulations

    • Part A: Acronyms - Abbreviations relevant to AML/CFT/CPF, including AML (Anti-Money Laundering), CDD (Customer Due Diligence), and FATF (Financial Action Task Force).
    • Part B: Definitions - Provides clarity on terms like "Bank," "Beneficial Owner," "Politically Exposed Persons (PEPs)," and various transaction types.

    Major Regulations

    • Risk-Based Approach - Regulation prioritizes assessing customer risk to tailor AML/CFT strategies.
    • Customer Due Diligence (CDD) - Essential for understanding and verifying customer identities and risk profiles.
    • Reporting Transactions - Requires Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) to be maintained and reported.
    • Record Keeping - Mandates proper documentation and storage of transaction data and customer information.
    • Politically Exposed Persons (PEPs) - Enhanced scrutiny for individuals with prominent public functions due to higher risks of corruption.

    Customer Identification Requirements

    • Identification documents required include:
      • Valid CNIC/SNIC/NICOP for Pakistani citizens.
      • Valid passport for foreign nationals.
      • Proof of registration for Afghan refugees.
    • Enhanced due diligence is necessary for higher-risk customers.

    Financial Transactions Regulations

    • Wire Transfer Regulations - Outline protocols for domestic and international fund transfers, requiring accurate info for both sender and receiver.
    • Targeted Financial Sanctions - Compliance with sanctions from the United Nations Security Council (UNSC) mandated under specific laws.

    Responsible Bodies

    • Financial Monitoring Unit (FMU) - Oversees compliance and reports on suspicious activities.
    • Law Enforcement Agencies (LEAs) - Collaborate with financial institutions for investigations and enforcement of AML/CFT measures.

    Additional Considerations

    • Correspondent Banking - Banks providing services to foreign banks must adhere to strict compliance standards.
    • Anti-Terrorism Act, 1997 - Regulations integrate frameworks established under this act, reinforcing the need for vigilance against terrorism financing.
    • Technological Adaptation - New technologies adopted by institutions for transaction monitoring and identification processes.

    Conclusion

    • Continuous monitoring and compliance with AML/CFT/CPF regulations are critical for SBP REs to mitigate risks associated with money laundering, terrorism financing, and proliferation financing.### Definitions and Key Terms
    • Payment Services: Services facilitating payments for goods, bill payments, fund transfers, cash deposits and withdrawals, as endorsed by the State Bank of Pakistan (SBP).
    • Payment System: Defined under Section 2(1)(zd) of the PS&EFT Act.
    • Politically Exposed Person (PEP): Individuals with prominent public roles, classified into foreign, domestic, and international organization officials. Excludes middle-ranking or junior individuals.
    • Prescribed: Means established under applicable rules, circulars, or orders.
    • Proscribed Person (PP): Individuals or entities banned under the Anti-Terrorism Act (ATA).
    • Regulated Entities (REs): Financial institutions licensed and regulated by SBP, including banks, development finance institutions, microfinance banks, exchange companies, and payment service providers.
    • Ultimate Effective Control: Ownership or control exercised through a chain of ownership or indirect means.

    Regulations Overview

    • Regulation – 1: Risk-Based Approach to AML/CFT

      • Compliance with AML/CFT regulations mandated for SBP REs.
      • Requires an Internal Risk Assessment Report (IRAR) to assess money laundering and terrorist financing risks.
      • IRAR should include insights from National Risk Assessment (NRA), past financial crimes, and stakeholder feedback.
      • Policies for customer onboarding and service provision should be guided by risk levels identified in IRAR.

    • Regulation – 2: Customer Due Diligence (CDD)

      • Mandatory CDD for all customers, with specific measures detailed under section 7A of the Act.
      • Verification of customer identity using reliable independent documents.
      • Special provisions for authorized agents or representatives, requiring identification and verification of the agent's identity.
      • Identification of beneficial owners is crucial, with defined measures for legal persons and arrangements.
      • EDD measures are required in high-risk scenarios, including transactions with PEPs.

    CDD Implementation

    • CDD must occur before establishing business relationships or transactions.
    • Legal persons require additional verification including proof of existence, governing powers, and senior management details.
    • Prohibition on opening numbered accounts or conducting transactions using fake identities.

    Ongoing Monitoring

    • SBP REs must refine customer risk profiling and verify identities on an ongoing basis.
    • Regular updates of CDD data are mandated, particularly for high-risk customers, to ensure all information is current and accurately reflects any changes in risk status.
    • All transactions must align with the established knowledge of the customer and their risk profile.

    Enhanced and Simplified Due Diligence

    • Enhanced Due Diligence (EDD): Required for high-risk customers/transactions, involving deeper investigation into customer profiles and funds source verification.
    • Simplified Due Diligence (SDD): Permitted only when low risk is established; does not require the same level of scrutiny as standard CDD.
    • SDD cannot be applied if there are suspicions of money laundering or terrorism financing.

    Responsibility and Governance

    • The Board of Directors (BoD) is ultimately responsible for ensuring effective AML/CFT controls and adequate monitoring systems.
    • Internal policies must reflect dynamic approaches to evolving risks and must be approved by the BoD and senior management for effectiveness and compliance.### SBP REs Responsibilities
    • Obligation to acquire information about the background and purpose of complex or unusually large transactions lacking apparent economic rationale.
    • Document findings to make available to competent authorities when needed.
    • Requirement to update customer records for effective communication, recording postal/email addresses and phone numbers.

    Customer Due Diligence (CDD)

    • Apply CDD measures based on materiality and risk for existing customers, performing ongoing diligence as needed.
    • Block accounts without valid identity documents after one month's notice; unblock upon verification of valid ID.

    Dormant Accounts

    • Send prior notification to account holders before marking accounts as dormant, with notifications at one month, seven days, and one day prior.
    • Allow credit entries in dormant accounts, but restrict debits until reactivation.
    • Reactivation requires a formal request from the customer through authorized means.

    Use of Personal Accounts for Business

    • Personal accounts prohibited for business use, with exceptions for proprietorships when KYC is satisfied.
    • Government accounts cannot be opened in the personal names of officials, operating only from the principal account at SBP.

    Accounts for Autonomous Bodies

    • Requirements for opening accounts for autonomous bodies include obtaining necessary board approvals and No Objection Certificates (NOCs) from Finance Divisions.

    Asset Side / Trade Finance Customers

    • SBP REs must implement CDD for asset side/trade finance customers, monitoring for money laundering (ML), terrorism financing (TF), and proliferation financing (PF) risks.

    Reliance on Third Party Financial Institutions

    • SBP REs can rely on third-party institutions for CDD but retain ultimate responsibility for compliance.
    • Ensure third parties are regulated and have appropriate measures for CDD, record-keeping, and data security.

    Targeted Financial Sanctions (TFS)

    • Obligations under UNSC Act and ATA regarding designated persons (DPs) and prohibited persons (PPs) include preventing provision of funds and assets.
    • Implement real-time screening for customer transactions to identify links with DPs and PPs.

    Politically Exposed Persons (PEPs)

    • Policies are necessary to identify PEPs and their associates, requiring senior management approval for business relationships.
    • Conduct enhanced monitoring for PEP relationships to confirm the legitimacy of sources of wealth and funds.

    NGO/NPO/Charity/Trust Accounts

    • Enhanced due diligence required for NGOs, ensuring accounts are used legitimately and for their stated purposes.
    • Any discrepancies in account titles or transaction methods must be marked with caution, potentially filing Suspicious Transaction Reports (STRs).

    Reporting of Transactions

    • Mandatory filing of STRs and Currency Transaction Reports (CTRs) with the Financial Monitoring Unit (FMU) as per legal requirements.

    Record Keeping

    • Maintain records of customer identification for ten years post-business relationship, including transaction records and analysis.
    • Ensure compliance with legal inquiries requires timely responses to authorities regarding records and transactions.

    Correspondent Banking Services

    • Assess suitability of respondent banks, considering factors such as business activities, geographical presence, management, and compliance controls.
    • Thoroughly evaluate the respondent bank's reputation and history of compliance issues regarding money laundering and terrorism financing.

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