Brokers, insurance companies, NBFCs: SECP links account opening to CDD measures

The Securities and Exchange Commission of Pakistan (SECP) has directed securities brokers, insurance companies, Non-Banking Finance Companies (NBFCs) and Modarabas not to open accounts of new customers and terminate business relationship with existing customers where they are unable to satisfactorily complete required customers due diligence (CDD) measures.
The SECP has issued SRO 1081(I)/2018 here on Wednesday to propose amendments to Securities and Exchange Commission of Pakistan (Anti Money Laundering and Countering Financing of Terrorism) Regulations 2018.
According to the notification issued by the SECP, where regulated persons (securities brokers, insurance companies, NBFCs and Modarabas) are not able to satisfactorily complete required CDD measures, account shall not be opened for such customers or existing business relationship with such customers shall be terminated and consideration shall be given if the circumstances are suspicious so as to warrant the filing of an suspicious transaction report (STR) in relation with the customer, the SECP said.
The SECP has also barred securities brokers, insurance companies, NBFCs and Modarabas from engaging in business relationship with entities and individuals which are proscribed under the United Nations Security Council Resolutions and adopted by Pakistan, proscribed under the Anti-Terrorism Act, 1997 and associates/facilitators of persons mentioned in the said proscribed list.
Under the new regulations, a regulated person shall not form business relationship with Entities and/or individuals that are: (a) proscribed under the United Nations Security Council Resolutions and adopted by the Government of Pakistan; (b) proscribed under the Anti Terrorism Act, 1997and associates/facilitators of persons mentioned above.
The regulated person should monitor the relationships with the entities or individual referred on a continuous basis and ensure that no such relationship exists directly or indirectly, through ultimate control of an account and where any such relationship is found, the regulated person shall take immediate action as per law, including freezing the funds and assets of such proscribed entity/individual and reporting to the Commission.
Counter Measures against high risk countries: Regulated persons shall adopt counter measures, including but not limited to, enhance due diligence proportionate to the risk, to the business relationship and transactions with their customer, from countries for which this is called upon by FATF and/or as notified by the Federal Government.
The Commission, on the advice of the Federal Government regarding weakness in the AML/CFT systems of other counties, shall direct the Regulated Person to adopt appropriate measures in accordance with these regulations with the customers of such countries.
Following is the text of the SRO issued here on Wednesday by the SECP: SRO 1081 (I)/2018.- The following draft amendments to Securities and Exchange Commission of Pakistan (Anti Money Laundering and Countering Financing of Terrorism) Regulations 2018, proposed to be made by the Securities and Exchange Commission of Pakistan in exercise of the powers conferred under section 40, read with clause (w) of sub-section (4) of section 20 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), are hereby published in the official Gazette for the information of all persons likely to be affected thereby and notice is hereby given that comments, if any, received within thirty days of the date of this notification shall be taken into consideration, namely:-
DRAFT AMENDMENTS In the aforesaid Regulations,-
(1) for the expression "Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), wherever appearing, the expression "Act" shall be substituted;
(2) in regulation 2, sub-regulation (1),-
(a) before clause (a) the following new clauses shall be inserted, namely:-
"(aa) "Act" means Securities and Exchange Commission of Pakistan
Act, 1997 (XLII of 1997);
(ab) "administered legislation" shall have the same meaning as assigned to it in clause (aa) of sub-section (1) of section 2 of the Act;";
(b) in clause (d), at the end, the following explanation shall be added, namely:-
"Explanation:- For the purposes of this definition the expression "ultimately own or control" or "ultimate effective control" refers to situation in which the ownership or control is exercise through a chain of ownership or by means of control other than direct control and includes beneficial owners or beneficiary under a life or other investment linked insurance policy or scheme or any other instrument availed by the customer in financial services market;";
(c) for clause (f), the following shall be substituted, namely:-
"(f) "business relations" means provision of any financial services by the regulated person under the administered legislation;";
(d) after clause (i), the following new clause shall be inserted, namely:- "(ia) "customer" means any natural person, legal person or legal arrangement to whom financial services has been extended by a regulated person;";
(e) in clause (k), after the word "Terrorism" the expression "TF" shall be added;
(f) for clause (o), the following shall be substituted, namely:-
" (o) "Legal arrangements" includes express trusts or any other similar legal arrangements;";
(g) for clause (p), the following shall be substituted, namely:- "(p) "Legal persons" means entities other than natural persons whether incorporated or not or a legal arrangement that can establish a permanent customer relationship with a regulated person or otherwise own property and include companies, bodies corporate, foundations, Limited Liability partnership (LLP), partnerships, or associations and other relevantly similar entities;"
(h) in clause (r), after the word "Money laundering" the expression "ML" shall be added;
(i) in clause (u), for the word "commodities brokers" the word "futures broker" shall be substituted; and
(j) in clause (v), for the word "risk" appearing for the first time, the word "Risk" shall be substituted;
(3) in regulation 4, for the words "A Regulated Person shall" appearing for the beginning, the expression "A regulated person shall be required to implement counter ML and TF measures, which have regard to the ML and TF risks and the size of the business, and include-" shall be substituted;
(4) in regulation 6,-
(a) after sub-regulation (5), the following new sub-regulation shall be inserted, namely:-
"(5a). A regulated person shall not form business relationship with entities and/or individuals that are:
(a) proscribed under the United Nations Security Council Resolutions and adopted by the Government of Pakistan;
(b) proscribed under the Anti Terrorism Act, 1997(XXVII of 1997); and
(c) associates/facilitators of persons mentioned in (a) and (b)."; and
(b) for sub-regulation (11), the following shall be substituted, namely:-
"(11) Where regulated person are not able to satisfactorily complete required CDD measures, account shall not be opened for such customers or existing business relationship with such customers shall be terminated and consideration shall be given if the circumstances are suspicious so as to warrant the filing of an STR in relation to the customer.";
(5) in regulation 7,-
(a) in sub-regulation (1),-
(i) for the expression "Where the customer is a legal person, in addition to other measures the regulated person shall-" at the beginning, the expression "Where the customer is a legal person, the regulated person shall obtain following information that has come from a reliable source, in addition to other measures -" shall be substituted; and
(ii) for clause (b), the following shall be substituted, namely:-
"(b) identify and verify the identity of the natural persons (whether acting alone or together) who ultimately has controlling ownership interest in the legal person;"; and
(b) in sub-regulation (2), for the words "Where the customer is a legal arrangement, the regulated person shall-" the expression "Where the customer is a legal arrangement, the regulated person shall obtain following information that has come from a reliable source, in addition to other measures,-" shall be substituted;
(6) in regulation 9,-
(a) in the heading, after the word "Diligence" the expression "(EDD)" shall be added;
(b) in sub-regulation (3),-
(i) for the words "enhanced due diligence" the expression "(EDD)" shall be substituted; and
(ii) after the words "regulated person or" appearing for the second time, the words "as" shall be inserted;
(7) in regulation 12, for the words "obligations and shall carry out ongoing monitoring of such customers itself" the words "obligations, including generating STRs and shall carry out ongoing monitoring of such customers itself" shall be substituted;
(8) in regulation 13,-
(a) sub-regulation (6) shall be omitted; and
(b) for sub-regulation (7), the following shall be substituted, namely:-
"(7) The regulated person should monitor the relationships with the entities or individual referred in sub-regulation (5a) of regulation 6, on a continuous basis and ensure that no such relationship exists directly or indirectly, through ultimate control of an account and where any such relationship is found, the regulated person shall take immediate action as per law, including freezing the funds and assets of such proscribed entity/individual and reporting to the Commission.";
(9) after regulation 14, the following new regulation shall be inserted, namely:-
"14A. Counter Measures against high risk countries.- (1) Regulated persons shall adopt counter measures, including but not limited to, enhance due diligence proportionate to the risk, to the business relationship and transactions with their customer, from countries for which this is called upon by FATF and/or as notified by the Federal Government.
(2) The Commission, on the advice of the Federal Government regarding weakness in the AML/CFT systems of other counties, shall direct the Regulated Person to adopt appropriate measures in accordance with these regulations with the customers of such countries."; and
(10) in regulation 20, before clause (a), the following new clause shall be inserted, namely:-
"(aa) have screening procedures to ensure high standards when hiring employees;".