Pakistan is facing a challenge to effectively regulate telecom companies transferring money through mobile wallet accounts, amid concerns raised by global financial watchdog FATF over violations of the counter-terrorism financing regime committed by the country’s financial institutions. The telecom companies are conducting transactions worth billions of rupees every month through mobile wallet accounts. Some companies that are operating a network of agents through microfinance banks are reluctant to be adequately regulated, the Express Tribune quoted sources in the State Bank of Pakistan (SBP) as saying.
There are also regulatory lacunae, as the anti-money laundering (AML) and countering financing of terrorism (CFT) regulations are not applicable to Level-0 and Level-1 accounts being operated by these agents, the daily said. Through the level-0 account, up to Rs 25,000 and through level-1 account, Rs 50,000 can be transferred on a daily basis without adhering to AML and CFT regulations. “There are high risks of misuse of this facility by miscreants without even being noticed,” the sources said. All these transactions do not come directly under the supervision of the apex bank, as the four telecom companies are regulated by the Pakistan Telecommunication Authority (PTA). However, the PTA has long been struggling to enforce its writ effectively.
All telecommunication companies provide services of mobile wallet accounts through a nationwide network. They have their presence across Pakistan through over 400,000 retailers, the daily said. The second largest player processes over Rs six billion worth of mobile-to-mobile balance transfers every month, according to data compiled by the industry. The central bank has been trying to strengthen the regulatory framework for effective monitoring of financial institutions.
However, due to division of supervision between the PTA and SBP, telecom companies are not being effectively monitored despite handling financial transactions, they said. Last year, the central bank had issued instructions to all financial institutions to ensure internal risk reviews of their portfolios and implement stringent AML-CFT controls with regard to ascertaining transactions, which may appear to be used as source of funds for terrorists. The unauthorised money or value transfer services remain a concern for both Financial Action Task Force (FATF) and the SBP.
Pakistan was placed on the ‘grey list’ by the FATF for failing to curb anti-terror financing. It has developed a 26-point action plan for Pakistan, to come out of the grey list. One of the first deliverables of the plan states that by January next year Pakistan will have to demonstrate that terrorism financing risks (including sectors, geographic locations, products, channels) are properly identified, assessed and understood by supervisors.
However, a July 12, 2016 circular of the SBP regarding branchless banking regulations for financial institutions only binds the banks to implement the AML and CFT regulations. In case of a level-2 account that is opened by a bank, it is mandatory to “fulfil all KYC requirements, specified under the AML/CFT regulations and guidelines, issued by SBP as amended from time to time and bank’s own policy”, according to the circular.
Pakistan has adopted the bank-led model for branchless banking operations, whereby banks and microfinance banks are required to obtain approval from SBP to offer basic branchless banking facilities through the agent network, said SBP chief spokesman Abid Qamar. He said that only those banking facilities are allowed through the agents, which have been defined in branchless banking regulations.