Brokers, insurance companies and NBFCs: SECP tightens anti-money laundering regime

To further strengthen anti-money laundering regime, the Securities and Exchange Commission of Pakistan (SECP) has directed the securities brokers, futures brokers, insurance companies, Takaful operators, NBFCs and Modarabas to identify beneficial owners of investments and source of funding, and use technological solutions for screening of designated/proscribed persons, ongoing monitoring of transactions and reporting of suspicious transactions.

The SECP has issued SRO 56(I)/2020 on Tuesday for draft amendments to Securities and Exchange Commission of Pakistan (Anti Money Laundering and Countering Financing of Terrorism) Regulations, 2018.

The SECP has also sought additional information from customers intended to open new accounts with securities brokers, futures brokers, insurers, Takaful operators, NBFCs and Modarabas. Under the SRO 56(I)/2020, the SECP has further tightened anti-money laundering for the securities brokers, futures brokers, insurers, Takaful operators, non-banking finance companies (NBFCs) and Modarabas.

Under the additional measures prescribed for securities brokers, futures brokers, insurers, Takaful operators, NBFCs and Modarabas, the regulated persons shall conduct ongoing due diligence on the business relationship including scrutinizing transactions undertaken throughout the course of that relationship to ensure that the transactions are consistent with the regulated persons' knowledge of the customer, its business and risk profile and where appropriate, the sources of funds, the SECP said.

According to the SECP, the regulated persons are encouraged to make use of technological solutions required for effective screening of designated and proscribed persons, ongoing monitoring of transaction and reporting of suspicious transactions, and upgrade their system and procedures in accordance with the changing profile of various risks.

The SECP has further directed the regulated persons including securities brokers, futures brokers, insurers, Takaful operators, NBFCs and Modarabas to identify every customer for establishing business relationship and may obtain such range of data, information and documents from different types of customers as provided. They have been directed to identify the beneficial owner and taking reasonable measures to verify the identity of beneficial owner on the basis of relevant data or information obtained from a reliable source, such that the regulated person is satisfied that he knows who the beneficial owner is.

The securities brokers, futures brokers, insurers, Takaful operators, NBFCs and Modarabas shall take appropriate steps to identify, assess and understand its money laundering and terrorism financing risks. The appropriate steps shall include keeping the risk assessments up-to-date on an annual basis, or in case of any major event, or in light of latest National Risk Assessment (NRA), besides other instructions issued from time to time.

In relations to foreign and domestic Politically Exposed Persons (PEPs), regulated person shall implement appropriate internal risk management systems, policies, procedures and controls to determine if any customer or a beneficial owner is PEP. In case of foreign PEPs, regulated person shall perform EDD in addition to other requirements of these regulations. In case of domestic PEPs, where business relationship poses higher risk, regulated person shall carry out EDD in accordance with sub-regulations in addition to other requirements of these regulations.

The requirements are also applicable on family members and close associates of foreign and domestic PEPs. The expression "close associates" means any natural person who is known to hold joint ownership or control of a legal instrument with a politically exposed person; or any other close business or personal relationship with a politically exposed person; or ownership or control of a legal instrument or a person which is set up for the benefit of a politically exposed person. The expression "family member" includes a spouse, and lineal ascendants and descendants of a politically exposed person.

For identity and due diligence purposes, at the minimum following information shall also be obtained, verified and recorded on KYC/CDD form or account opening form and relevant Information Technology (IT) systems: Full name as per identity document; identity document number or where the customer is not a natural person, the registration/incorporation number or business registration number (as applicable); existing residential address, registered or business address (as necessary), contact telephone number(s) and e-mail (as applicable); date of birth, incorporation or registration (as applicable); nationality or place of birth, incorporation or registration (as applicable); nature of business, geographies involved and expected type of counter-parties (as applicable); purpose of account; type of account; source of earnings; expected monthly turnover (amount and No. of transactions); and normal or expected modes of transactions.

For customers that are legal persons or legal arrangements, the following information shall also be obtained, verified and recorded on KYC/CDD form or account opening form and relevant Information Technology (IT) systems: Name, legal form and proof of existence; the powers that regulate and bind the legal person or arrangement, as well as the names of the relevant persons having a senior management position in the legal person or arrangement and the address of the registered office and, if different, a principal place of business.