State Bank’s New Governance Framework to Regulate Banks’ Overseas Operations

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The State Bank of Pakistan (SBP) has developed a “Governance Framework” to more closely regulate the overseas operations of Pakistani banks. The regulatory framework is applicable with immediate effect.

According to a circular issued by the central bank, the framework is “aimed at strengthening banks’ capacity to understand, identify and manage various risks” that are posed by their foreign operations. The circular further directs the banks to ensure strict compliance with the framework within the stated timelines.

The framework covers foreign operations of all banks, including the general, overseas subsidiary, and overseas branch operations, as well as profit repatriation, performance monitoring, and regulatory reporting of overseas branch operations. The framework, in particular, requires each bank to develop a comprehensive risk governance framework for its overseas operations within six months, in addition to developing “a mechanism whereby the board shall oversee and regularly evaluate [the] financial and operational performance” of its overseas operations.

This move comes from SBP after two of the country’s largest private banks, Habib Bank Limited (HBL) and United Bank Limited (UBL), were involved in regulatory discrepancies in the USA recently, with HBL having to pay a penalty of USD 225 million to the Department of Financial Services of New York State in 2017.

The Governance Framework document can be downloaded here.

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