The rules for Know Your Customer (KYC) in Pakistan aim to prevent financial crimes like money laundering and terrorist financing by verifying customer identity and understanding their financial activities. Here's an overview of key requirements:
1. Customer Identification:
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Individuals: Banks and financial institutions in Pakistan are required to obtain and verify specific documents from individual customers:
- Attested photocopy of National Identity Card (NIC) or passport. An attestation is typically done by a gazetted officer, a notary public, or a bank officer.
- If the NIC doesn't have a photograph, the bank must also obtain another document containing a photograph, such as a driver's license.
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Entities (Companies, Partnerships, etc.): The requirements are more extensive and involve verifying the entity's legal existence, ownership structure, and the identity of beneficial owners. This includes documents like:
- Certificate of Incorporation/Registration
- Memorandum and Articles of Association
- Partnership Deed
- Details of Directors/Partners/Beneficial Owners and their identification documents (NIC/Passport).
2. Ongoing Due Diligence:
KYC is not a one-time process. Financial institutions must continuously monitor customer transactions and update their KYC information periodically. This includes:
- Transaction Monitoring: Identifying unusual or suspicious transactions that may indicate money laundering or terrorist financing.
- Periodic Review: Updating customer information to ensure it remains accurate and complete. The frequency of review depends on the risk profile of the customer. Higher-risk customers require more frequent reviews.
3. Risk-Based Approach:
The KYC rules in Pakistan follow a risk-based approach. This means that the level of due diligence required depends on the assessed risk associated with the customer and the type of transaction. Factors considered include:
- Customer Type: Some customers (e.g., politically exposed persons (PEPs)) are considered higher risk.
- Geographic Location: Transactions involving certain countries may be subject to enhanced scrutiny.
- Nature of Business: Certain industries are more susceptible to money laundering than others.
4. Record Keeping:
Financial institutions must maintain detailed records of all KYC information and transaction activity for a specified period (typically five years or longer).
5. Reporting Suspicious Transactions:
A crucial component of KYC is the obligation to report any suspicious transactions to the Financial Monitoring Unit (FMU) of the State Bank of Pakistan.
6. Regulatory Oversight:
The State Bank of Pakistan (SBP) is the primary regulator responsible for overseeing KYC compliance in Pakistan. The SBP issues guidelines and regulations that financial institutions must adhere to. Violations of KYC rules can result in significant penalties.
In Summary: KYC rules in Pakistan require financial institutions to verify customer identity, understand their financial activities, monitor transactions, and report suspicious activities to prevent financial crimes. This framework follows a risk-based approach, with the level of due diligence tailored to the specific risks associated with each customer and transaction.
