State Bank of Pakistan (SBP) has released ‘Governance Framework for Banks’ Overseas Operations’ via a circular to help banks adapt to the foreign financial environment in a bid to strengthen governance, risk management & compliance practices of local banks.
SBP framework which covers all foreign operations of local banks including general operations, overseas subsidiary operations, overseas operations and profit repatriation, performance monitoring & regulatory reporting of overseas branch operations are to applicable with immediate effect.
After the US slapped penalties on HBL and raised red flags for UBL in the last year, the SBP has decided to release a policy aimed at strict and vigilant oversight of banks.
Under the new policy, the fall-out from any punitive actions taken by regulators against banks would be extended to bank’s board and senior management. The SBP report is aimed at imparting necessary understanding of relevant important laws and regulations in respective overseas jurisdictions to boards and senior management at banks with overseas operations.
The law entails all banks with overseas operation to develop mechanisms in coordination with their boards to oversee and evaluate financial and operational performance of its overseas subsidiary, sub-subsidiary, joint venture operations and overall overseas branch operations within the next three months.
Under the framework, all banks will be required to develop comprehensive risk governance framework for its overseas operations within six months.
Furthermore, “the bank with overseas assets of over $1 billion, will consider forming a separate sub-committee of board to oversee its overseas operations,” said the State Bank.
Banks may also consider forming a dedicated management committee under the chair of President for their respective overseas operations, the SBP suggested.
Moreover, under the framework, banks will have to ensure that all their transactions, dealings, contracts with foreign branches and joint ventures of those foreign branches among themselves are also carried out in a transparent manner under a board-approved policy.
Banks will not be allowed to expand operations in jurisdiction(s) where SBP itself is unable to conduct on-site examination or through a third party due to host country’s laws and regulations.