The Securities and Exchange Commission of Pakistan (SECP)’s risk-based approach for effective implementation of Anti Money Laundering (AML)/Combating The Financing of Terrorism (CFT) regulatory framework has resulted in significant improvement in the filing of Suspicious Transactions Reports (STR) with the Financial Monitoring Unit (FMU).
To align itself with the Financial Action Task Force’s (FATF) standards (40 recommendations), SECP has developed a single set of regulations namely SECP AML/CFT Regulations in June 2018. They’ve also developed a comprehensive guideline to help regulated persons in creating an effective AML/CFT risk assessment and compliance framework. Since the promulgation of consolidated AML/CFT regulations, financial institutions have generated a total of 219 STRs, as compared to only 13 in the last eight years.
Moreover, SECP conducted 167 inspections focusing on AML/CFT compliance in the cases of 72 securities brokers, 27 NBFCs, 13 insurance companies, and 55 high-risk NPOs. Significant penalties have been imposed for non-compliance with said regulations.
SECP says that financial institutions have undertaken remedial measures to ensure effective compliance with the regulations. Automated screening software has been deployed by many institutions to screen the proscribed persons.
The regulated entities now also have access to the GoAML system of the FMU for the online filing of STR. The SECP successfully made the transition from one-size-fits-all to a risk-based approach to implement a consolidated AML/CFT regulatory framework in its regulated financial sector comprising of stock and commodity brokers, NBFCs, Modarabas, and the Insurers/Takaful operators.
Also, to effectively identify assess and understand the ML/TF risks that Pakistan faces, a National Money Laundering (ML)/Terror Financing (TF) Risk Assessment was undertaken in 2019 to assess ML/TF vulnerabilities that are inherent within the financial sector including banking, NBFC, brokers, and insurance. NRA aimed to put in place actions and control measures to mitigate those risks.
FMU led the way in collaboration with stakeholders including ministries, law enforcement agencies, SBP and SECP. The risk assessment and understanding enabled SECP and the regulated entities to implement the much-needed control mechanism to check potential abuse by money launderers and terrorist financiers.
Subsequent to NRA, SECP embarked on a comprehensive awareness program to develop the risk understanding and AML Obligations of the regulated sectors and shared the NRA 2019 with its regulated sectors.
SECP’s efforts have resulted in improvement in compliance level of the regulated entities and effective control measures are now implemented to combat ML and TF. SECP has also revamped its overall risk-based supervisory mechanism and works closely with national stakeholder’s inter-alia FMU, SBP, etc. for mutual peer review and evaluation of SECP’s regulated financial sector.
Ever since the Commission has adopted a risk-based approach to supervision and monitoring in the area of AML/CFT, it has completed a sector risk assessment and enhanced risk-based supervisory activities encompassing all high-risk entities and is spreading the scope of supervision to next tier moderate risk entities.
Remedial actions and dissuasive sanctions on non-compliance are now part of its enforcement regime. Recently, the Asia-Pacific Group of Money Laundering (APG) has adopted Pakistan’s Mutual Evaluation Report (MER) in its 22nd Annual Meeting held in Canberra, Australia from 18-23 August 2019, which has now been uploaded on APG’s website as per the procedure.
It is pertinent to mention that Pakistan’s Mutual Evaluation Report (MER) provides a summary of the AML/CFT measures in place in Pakistan as of October 2018. A large component of the above reforms was implemented after October 2018 and are not reflected in the MER published now by APG.