Banks, DFIs asked to report fraud cases

RIZWAN BHATTI

KARACHI: State Bank of Pakistan (SBP) on Monday directed the banks/MFBs/DFIs to report fraud cases of those associates and joint ventures, where they have a minimum shareholding of 20 percent.

SBP, through BPRD Circular Letter No. 06 of 2015, announced to amendment Fraud Risk Management and Reporting procedure for the banks/MBFIs/ DFIs aimed at minimizing the fraud risks. Earlier, SBP on February 20, 2014 issued detailed instructions on Fraud Risk Management for banks/MFBs/DFIs.

As per new directives, from onward all banks/ MFBs/ DFIs will also report frauds data of those associates and joint ventures where they have a minimum shareholding of 20 percent. In this regard, SBP has designed simplified quarterly reporting format for reporting of fraud data of subsidiaries/associates/joint ventures and accordingly has forwarded to the banks/MFBs/DFIs for quarterly reporting.

In addition, the timeline for submission of quarterly statement of frauds in foreign subsidiaries/associates/joint ventures of banks/ MFBs/ DFIs has been extended and now these institutions are required to submit first quarterly statement for the quarter ending June 30, 2015 by July 15, 2015.

In case of legal issues in sharing of information by foreign subsidiaries/ associates/ joint ventures, SBP will deal such issues on case to case basis. Moreover, if there are specific reporting formats prescribed by the concerned regulators of such entities then the same may be utilized, otherwise SBP instructions shall be followed, the circular said.

Moreover, certain amendments have been made in the instruction on Fraud Risk Management. As per revised instruction, Banks/ MFBs/ DFIs are required to place a summary of quarterly report on frauds/ forgeries/ dacoities before the Board's Risk Management Committee (BRMC)/ Board's Audit Committee (BAC) in the next meeting following the quarter end. The summary of quarterly report shall be accompanied by supplementary materials such as trend analysis based on Nature/ Event type category of fraud, Business Lines/ Area of operations, Nature of severity and Individual involved etc. Previously, financial institutions were required to place summary of quarterly report on frauds/ forgeries/ dacoities only before the Board's Risk Management Committee (BRMC).

Moreover, the BRMC/BAC will also be responsible to monitor progress of investigations, court cases and recoveries position of cases of Rs. 0.5 million and above. Banks/MFBs/DFIs will delineate, in fraud prevention policy document, the processes for implementation of the BRMC's/BAC's directions and the officials/unit responsible to implement the directions in this regard.

According to revised instructions, management of banks/ MFBs/ DFIs has also been advised to conduct an annual review of progress report of the outstanding cases of frauds/ forgeries/ dacoities of Rs. 0.5 million and above detected during the year.

SBP has asked all banks/MFBs/DFIs to formulate and implement "whistle blowing programme" duly approved by their respective Boards. In this regard, whistle blowing unit or a management committee may be formed under supervision of Board's Audit Committee. However, the bank's policy document must clearly indicate the official(s) responsible for receiving, handling and monitoring whistle blow complaints. Moreover, the names of the responsible official(s) should be reviewed periodically by the Board's Risk Management Committee/ Board's Audit Committee and minutes of the meeting be preserved for verification by SBP inspection team.