SECP tightens restrictions for proscribed individuals

Further restricting access to financial services, the Securities and Exchange Commission of Pakistan (SECP) has directed all nonbank financial institutions to issue red flags for associates of the proscribed individuals.

The SRO881(I)/2020 was issued under the SECP's (Anti-Money Laundering and Countering Financing of Terrorism) Regulations 2018, directing securities brokers, futures brokers, insurance companies, takaful operators, non-banking finance companies (NBFCs) and modarabas to scan their customer database for any linkages or association with proscribed persons.

The SECP directives also state that if the responsible authority failed to comply with the requirements or submit a compliance report, a penalty extending up to Rs10 million will be imposed and extended further if such contravention continues. The commission had already restricted access to finance for the persons named under the Schedule IV, Anti Terrorism Act 1997, in January and the current directive relates to individuals associated with the proscribed persons.

Under the directives, the 'Regulated Persons' (RP) includes securities brokers, futures brokers, insurance companies, Takaful operators, NBFCs and modarabas would place an alert related to customer's fund, policy or block their transactions and lodge a suspicious transaction report (STR) with the Financial Monitoring Unit (FMU) of the finance ministry.

The SECP directed RPs to apply red flag indicators for persons or entities suspected to be acting on behalf of or at the direction of proscribed individuals or entities for customer appears to have conducted transactions on behalf of or at the direction of a proscribed individual.

The directives are also applicable to entities that have a designated proscribed individual on its board or management. The red flag will be applicable if a customer is involved in providing financial or other assistance to designated proscribed individual if such reports have been highlighted in broadcast, print or social media.

The red flag will be placed on customers in wake of inquiry from law enforcement agency or intelligence agency indicating linkage of a customer with designated proscribed individual or entity.

The directives have been issued regarding applicability of red flags relating to nonbanking financial institutions (NBFIs) including if a customer declares a proscribed person as a guarantor of loan or nominee of the customer.