2nd Financial Crime Summit

Pakistan’s FATF Way Forward: Transforming

the National Financial Crime Landscape
Key notes from Panel Discussions and PwC Presentations

Panel of Presidents & CEOs of Banks – Realizing the Immensity of Threat and
Insulating the Stakeholders’ Value
The need for sensitizing the financial crime agenda across the banking industry in light of
Pakistan’s National Risk Assessment (NRA) and Asia Pacific Group’s (APG) Mutual
Evaluation Report 2019, and recent developments including regulatory frameworks issued in
2019.
In light of recently concluded NRA, APG’s Mutual Evaluation Report, local and international trends and
regulatory frameworks, significant transformational initiatives are required to be undertaken in the
banking industry with respect to governance & culture, people, process and technology.
To discuss the implications, the Summit brought together a panel of Presidents & CEOs from large,
medium and emerging banks, including Islamic bank, to share their view points around institutional
threats, vulnerabilities and risk assessments, Compliance led holistic institutional transformation, risk
appetite and sponsors’ awareness, de-risking strategies and challenges, capacity building and leadership
strategies in the wake of emerging and disruptive trends.
Panel Highlights
▪ Mr. Arif Usmani from National Bank of Pakistan highlighted the fundamental role of KYC/ CDD
which needs to be done effectively, efficiently and on ongoing basis, in the fight against financial
crime. He also pointed out the practicality constraints in conducting effective price verification due
to absence of required database/ repository of trade goods and pricing benchmar ks.

▪ Mr. Tahir Hassan Qureshi of Allied Bank Limited emphasized on the importance of mutual
cooperation and information sharing among banks. He also mentioned that 1 st and 2nd lines of
defense need to work together to combat Financial Crime as it is not an individual responsibility of
Compliance.

▪ Mohsin Nathani of Habib Metropolitan Bank briefed the audience on major initiatives undertaken
by the Bank in using technology in trade finance, including vessel tracking and digital KYC, ensuring
that the bank does right kind of business. He also mentioned the need to minimize use of cash
dramatically from the banking industry .

▪ Yousaf Hussain of Faysal Bank Limited was of the view that financial crime leads to catastrophic
financial and reputational risks, and must be handled through proper risk management
frameworks. He also stressed on the importance of technology and people, and the need for
investing more in these domains.

▪ Syed Amir Ali from BankIslami Pakistan Limited stated that building a Compliance culture focusing
on financial crime, is the need of the hour which inculcates compliance mindset throughout the
organization. Changing the mindset at 1 st line of defense can enable meeting the challenges
comfortably.
Panel of CEOs of Non-Banking Financial Institutes – Addressing the Expectations:
Moving Mountains at the Crossroads

The challenge of financial crime is even more serious in non-banking financial institutions
which are less regulated than the banking industry. Significant transformational initiatives
will be required to achieve compliance
Another important panel session of the CEOs of Non-Banking Financial Institutions focusing on topical
considerations involving insights into the key FATF/ APG concerns, holistic governance, risk and
compliance (GRC) maturity, cultural change emanating from the very top, monumental transformation
journey around people, process and technology, and need for regulatory push, continuous monitoring
and implementation of best practices.

The panelists comprised of Presidents, CEOs and senior personnel from various non-banking FIs,
associations including Forex Association, Takaful, Asset Management, brokerage firm etc.

Panel Highlights
▪ Mr. Malik Bostan, President Forex Association of Pakistan, shared his views on the vital role SBP
plays in providing awareness to exchange companies and implementing KYC/CDD/EDD standards
across these entities. He also stressed on the importance of taking full advantage of technology to
conduct KYC/ CDD, transaction monitoring and name & payment screening at the first line of
defense.

▪ Mr. Umair Ismail, Head of Operations in Takaful Pakistan Limited, stated that the Takaful Industry
is currently lagging in implementing the regulatory framework but gearing up in fighting financial
crime.

▪ Mr. Zafar Paracha, Executive Director in Paracha International Exchange, mentioned that exchange
companies realize the importance of technology optimization and currently 20-25% of their budgets
are allocated for such investments. He also mentioned that although the exchange companies are
complying with regulatory frameworks, there are still some improvement opportunities which are
being worked upon.

▪ Jawad Amjad, CEO PNO Capital Limited, highlighted that cultural issues are being faced as there
is reluctance in providing information but as standardization and compliance culture is improving,
the mindset is also changing. He also clarified that low STR reporting is due to non-availability of
adequate systems to identify suspicious transactions.

▪ Khaldoon Bin Latif, CEO Faysal Asset Management Limited, stressed the importance of zero
tolerance at board level with respect to Financial Crime and the need for investing significantly in
HR capacity and capability increase.
Panel of RegTechs - RegTech and Financial Crime Evolution

RegTech tools can provide significant support in the efforts against financial crimes, while
adding value to the business in moving from a defensive risk avoidance mindset to a strategic
risk management approach.

Understanding the emerging RegTech solutions and using them wisely is part of a forward‐looking
approach to compliance, which may provide the stability and security of businesses besides meeting
regulatory and compliance requirements. RegTech uses digital technologies, including big data
analytics, for early warnings coupled with ingestion technologies and learning to facilitate financial
crime compliance.

In light of the emerging importance and criticality, the panel of RegTechs was organized which
comprised of participants from various technology vendors and had representation from State Bank of
Pakistan (SBP) and the banking community, to highlight the role RegTech can play in the banking and
non-banking financial institutions, and the regulatory expectations for compliance with regulatory
requirements and best practices.

Panel Highlights
▪ Mr. Khalid Bhatti, Head AML Banking Policy and Regulation Department of SBP, highlighted that
the regulatory expectations are ever increasing with business growth and increase in transaction
volumes. The resultant quantum of huge data cannot be monitored humanly so there is a need for
implementing effective technological solutions for monitoring, reporting, compliance, risk
management and audit.

▪ Khalil Sharawneh, Director of Operations in Eastnets, emphasized on the use of machine learning
and artificial intelligence in this evolving era of financial crimes which will help in reducing false
positives and focus on real risk, resulting in reducing the cost of doing business. He also stressed on
the criticality of data availability for trade-based money laundering solutions to work optimally.

▪ Salman Akhtar, Founder & Co-CEO Techlogix, stressed on the importance of investigating the
systems/solutions on a regular basis to ensure they are working effectively and efficiently. He also
highlighted the importance of efficient working in other domains of people and processes and not
just technology for successful fight against financial crime.

▪ Zeb Khan, Director Strategic Alliance in Accuity London, informed that price verification solution
is a challenge for technology service providers in implementing the Trade Based Money Laundering
framework. He emphasized on using compliance based Artificial Intelligence solutions developed
by Regtechs in fighting financial crime.

▪ Nasir Islam, Head Internal Audit at Faysal Bank Limited, mentioned that conducting e-KYC and its
centralization will play a vital role in doing business in a cost-effective manner.
Panel of Compliance Heads – Compliance Remodelling through
Transformative Adjustments

Cost of compliance is ever increasing with the increasing number and complexity of
regulatory requirements, growing complexity of business and operating models and
technologies, and added pressures due to inquiries from law enforcement and regulatory
agencies, compliance incidents and emerging trends both locally as well as globally.
Compliance Heads panel discussion focused on emerging trends and practices pertaining to TF risk
assessments, ultimate beneficial owners, PEPs, non-customer due diligence, STRs and risk of terrorism
financing, trade and asset-based money laundering, transnational risk, adverse media and financial
intelligence, leveraging technology investments and overcoming barriers.
Panel Highlights
• Nauman Riaz, Chief Compliance Officer at Habib Bank Limited, stressed the importance of
identifying the ultimate beneficial owner and the complexity of the process. He also stressed on the
need for establishing a web portal to put the information of Pakistani entities’ beneficial ownerships
as is the practice in many countries globally.

• Sajid Hussain, Group Executive Compliance at United Bank Limited, provided his view points on
mitigating the terrorist financing and transnational risks, through specialized Payment and Name
Screening units and adverse media searches at a single point for all trade and other transactions. He
also highlighted the challenges of identifying ghosts or sleeper cells, and tracking of vessel routes,
commodities, dual usage products etc.

• Mubashir Yasin, Chief Compliance Officer at Standard Chartered Bank (Pakistan) Limited,
highlighted the challenges resulting from inadequate information on trade documents, limiting
effective identification of underlying risks. He also talked about the major challenge of non-
availability of trade goods listing with codes for price verification.

• Ahmed Mansoor, Chief Compliance Officer at Allied Bank Limited, shared his perspective on
customer profiling accounting for all aspects including type of business, counterparties, type of goods
dealt with etc. The biggest challenge highlighted was identifying duel usage of goods, and how
RegTech can solve this problem.

• Aneeq Malik, Group Head Operations at Faysal Bank Limited, stressed on the importance of effective
implementation of the mitigating controls and practices at the 1 st line of defense. Compliance is not
just the responsibility of 2 nd line of defense, and 1 st and 2nd lines need to work together in order to
effectively combat Financial Crime.
Panel of Business, Operations and Digital Heads – Making the 1 st Line of Defense
the Transformation Leaders

Compliance is everyone’s responsibility but increasing compliance requirements also mean

additional pressures on 1 st line of defense to perform on both fronts i.e. achieving business and
growth targets while working within the boundaries defined by the regulatory and
compliance requirements.
With the mounting pressures on 1 st line of defense functions, it was vital to obtain their view points on
risks to the franchise, integration of business and compliance acumen, culture, performance and
accountability, synchronization of national, institutional and customer loyalties, and suspicious
transactions identification and investigation ownership.
The Panelists comprised of Heads of business, digital and operations functions of commercial and
microfinance banks.

Panel Highlights

• Saad Ur Rehman, Group Chief International FI and International at National Bank of Pakistan,
shared his views on the change of regulatory landscape in Pakistan in line with various developed
economies post 2008 financial meltdown. He stressed on the challenges emanating from current
business and operating models, work force capacity and capability, and tone at the top specially for
investing more on people, processes, and technology. This is an ongoing process and streamlining
may take some time.

• Mehreen Ahmed, Group Head Retail Banking at Bank Alfalah Limited, stated that 2019 has been the
most challenging year for the banking system, with decreasing depositors’ trust, plethora of inquiries
from law enforcement and regulatory agencies, regulatory inspections, and ever increasing and
complex regulatory requirements. The solution to these challenges is more collaboration between
businesses and compliance, and introducing rewards culture that is linked with compliance
performance.

• Nasir Salim, Head Global Operation at Habib Bank Limited, stressed on the criticality of the
awareness of 1st line of defense regarding importance of having complete and accurate KYC
information. He also highlighted the need for ensuring KYC information visibility to Operations
teams responsible for International payments, trade finance etc. by introducing KYC repository
which is possible only through e-KYC.

• Sharjeel Shahid, Group Executive Digital Banking at United Bank Limited, shared his views that
Branchless banking is the turning point of Pakistan banking industry , resulting in financial inclusion
of a large number of clients. The major challenges include identifying whom the bank is dealing with
and involving large number of cash-based transactions. The solutions to these challenges include e-
KYC, KYC centralization, micro payment gateway, and investing in technology, trainings, skills set
etc.

• Khurram Gul Agha, Head of Operation at Telenor Micro Finance Bank, highlighted the difference in
business model of microfinance and commercial banks, with microfinance banks having more of
community based model. The key challenge is identifying the underlying purpose of loan resulting
from inadequate financial education of the customers. This challenge can be managed through
collaboration among the industry for data sharing, enabling data availability and its utilization. The
microfinance banks also need to undertake technology optimization to reduce false alerts.
Presentation by Mr. Liviu Chirita, PwC Financial Crime T echnology Leader – “Financial
Crime T echnology Optimization – Need of the Hour”

The ever-increasing regulatory pressures, increasing number of transactions, and the complexity of
financial crimes has resulted in the need for a robust financial crime technology environment for
transaction monitoring, name & payment screening and trade screening.

To provide an insight into the current global trends mainly pertaining to growing use of emerging
technologies including RegTech, KYC utilities, RPA, AI & machine learning, next generation screening,
transaction monitoring & investigations, use of big data/ data analytics in bolstering the financial crime
programme, a session was conducted by PwC financial crime technology leader from Czech Republic.

Session Highlights

• Certain global institutional trends include:

AML/CFT systems: Most significant challenges faced
- Focus on effective compliance, macro risk- globally
based supervision and redesign of the NRA
processes 33% 23% 24%
Data quality and Monitoring systems Complexity of
- Increasing reliance on data, AI and machine maintenance of client generating large implementing/
learning, technologies/ regulators taking a information in numbers of false upgrading
leap of faith electronic format positive alerts systems

- Greater regulatory focus on wider ecosystem

including non-bank sectors 9% 11%
Other Data privacy limitations
- Escalating AML & anti-financial crime costs on information sharing
and cost-benefit analysis across jurisdictions

- Global banks acting like quasi-regulators for smaller banks

• Liviu also highlighted certain pitfalls in the financial crime practices, including:

- AML systems triggering a large number of alerts with a low true-positive ratio, requiring
considerable resources to review and generally results in a very low number of STRs
- Costly and complex implementation and maintenance of numerous expert-based AML scenarios
- Complexity of estimating thresholds for multi-parameter scenarios and limited flexibility to
adjust thresholds dynamically
- Data completeness and quality
• The above pitfalls give rise to the emerging trends of investing in AI/ ML, Regtech optimization, and
KYC utilities
Presentation by Mr. Matthew Russell, PwC Financial Crime Leader – “Financial Crime
International Developments and Priorities – Lessons to Learn”
There have been significant developments internationally in the financial crime arena particularly in
AML/ CTF and sanctions domains including the FATF AML/ CTF priorities, which have been shaping
the global regulatory agenda.

It was vital for the local banking community to be aware of these international developments, which will
also have an affect on local regulatory landscape in the short-medium term. Mr. Matthew Russel, who is
a partner in PwC UK and leads the financial crime practice, held a very informative session providing
best practices for managing financial crime and TF risks, PEP and Ultimate Beneficial Owner
considerations, and utilizing technology to mitigate ML/ TF risks.
Session Highlights

• Key international trends highlighted include the following:

- Distinguishing between threats and risks, and framing them within an overarching financial
crimes spectrum
- Focusing on effective compliance, macro risk-based supervision and redesigning the
National Risk Assessment processes
- Greater regulatory focus on wider ecosystem including non-bank sectors, and the inter-
dependencies at a national and international level
- Increased information sharing within jurisdictions and internationally

• Some of the recent and emerging institutional trends and initiatives included the following:
- Focusing on TF risk methodologies that are fit for purpose
- Enhancing the ability to ingest structured and unstructured data to facilitate the detection of
trade-based money laundering
- Adopting a more risk-based approach to sanctions compliance to ensure greater flexibility at
a regional level
- Introducing more dynamic customer profiles that enable perpetual KYC
- Leveraging multiple internal and external sources to promote more holistic and data-led
assurance and monitoring

• Egmont Group’s strategic objectives include strengthening of FIUs and facilitating bilateral and
multilateral exchanges of financial information

• Matthew also highlighted the criticality of identifying the PEPs and UBOs, and posed various
questions to enable participants in assessing the current state of their processes and tools

• Matthew also pointed out that new tools and technologies have allowed more complex analytics to
build upon previous approaches through rule-based and predictive modelling, link and behavioural
analysis
Presentation by Syed Faraz Anwer, Business & Risk Consulting Partner, A. F. Ferguson &
Co. (a member firm of PwC network) – “Looming Deadline – Enlightening the
Compliance Arena”

PwC Pakistan initiated a first ever annual financial crime survey with the objective of seeking and sharing
collective industry perceptions on the most topical matter of financial crime risks, impacts, readiness,
challenges and way forward. The initial results of the survey were presented during this session
providing interesting insights and trends. A detailed report on the survey findings is also expected to be
released in January 2020.

Besides the first annual financial crime survey , Faraz also shared certain major current and emerging
local industry trends on customer onboarding, KYC, AML, CFT, Sanctions, TBML and TF, financial
intelligence and investigation.

Session Highlights

• Some interesting findings of the first annual financial crime survey:

- 67% Chief Compliance Officers (CCOs)
reported no impact or no major impact of
financial crime risks over the last two
years
- 80% business & key enablers consider the
level of risk posed by money laundering
as very high compared to only 43% CCOs
- Similar was the case for terrorist
financing, fraud and cyber crimes
- Major challenges identified by compliance and business & key enablers included technology,
people, data, cost implications and pace of regulatory changes
- Employee morale and relationship with regulators (38% and 31% respectively) were the most
impacted aspects due to financial crime incidents from Compliance perspective, whereas from
business & key enablers perspective, relationship with regulators and correspondent banks were
most impacted (50% and 33% respectively)
- Business & key enablers expect significant
de-risking at product, customer, location,
business line and overseas operations level
compared to minimal such expectations
from Compliance
- Key limitations in existing financial crime
systems include large number of false
positive alerts, resource constraints, and
data quality and maintenance

• Faraz also shared certain local and global trends pertaining to number of accounts in conventional
and branchless banking, channel-wise transaction volumes, remittances, import and export profiling
based of top 5 countries, cash in circulation of Pakistan being significantly higher compared to other
comparable developing economies) etc.