PRUDENTIAL REGULATIONS SMEs AND KYC

PRESENTED TO: SIR KHALID JAMIL ANSARI

BY: ABEER SALEEM ROLL #: 01

DATE: 9TH MAY 2012

KARACHI UNIVERSITY BUSINESS SCHOOL UNIVERSITY OF KARACHI.

PRUDENTIAL REGULATIONS: When Government embarked upon a policy of deregulation and liberalization of economy in Pakistan, it allowed the establishment of a number of commercial banks in private sector, in addition to denationalized and disinvestment of some nationalized commercial banks. Prudential regulations were introduced due to the change in banking sector because it has become necessary that Central Bank should effectively regulate and monitor the banking operations so that the baking business is conducted in conformity with high ethical standards. These regulations came into effect from January 01 1992. It aimed to prevent: Criminal use of banking channels. Unlawful trading activities Monitoring accounts on regular basis. Providing guidelines related to accounts.

According to these regulations the banks should also ensure that the current liabilities of the borrower do not exceed his current assets and the total long term equity ratio of the borrower does not exceed 60:40. These regulations have prescribed various standards to be maintained on administrative and operational aspects of banking also which include directives for good corporate governance in banks.

SME (SMALL AND MEDIUM SIZE ENTERPRISE) DEFINITION: SME is defined as Small and Medium Size enterprise. SMEs play a pivotal role in economic development. In Pakistan they provide employment to about 80% of industrial workforce and contribute 40% to GDP. Since most

of the SMEs in Pakistan are involved in the production of export oriented items, they contribute 30% of the total export receipts.

KYC (KNOW YOUR CUSTOMER) AND ANTI MONEY LAUNDERING OR M CATEGORY: These regulations are 5 in numbers and provide a framework for knowing the customer and lay down the basic document needed to establish bankercustomer relationship. Regulation M-1: Provide guidance about documentation and formalities to be completed to know your customer. Regulation M-2: Identifies minimum precaution and care to be exercised for anti-money laundering measures. Regulation M-3: Describes formalities fir record retention. Regulation M-4: Draws attention towards the issues in correspondent banking. Regulation M-5: Identifies measure to cheek and procedure to report suspicious transactions.

RECOMMENDATIONS: State Bank of Pakistan has issued directives to all banks that these regulations should strictly comply with. Prudential regulations are helping in developing a still healthier banking operation in Pakistan.