KARACHI: The State Bank of Pakistan (SBP) has introduced stricter regulatory measures for the issuance of financial instruments (FIs) in connection with trade transactions, making it mandatory to include Harmonized System (H.S.) Codes and Unit of Measurement (UoM) details.
The move is aimed at enhancing transparency, ensuring proper documentation, and minimizing the risk of Trade-Based Money Laundering (TBML) and Terrorist Financing.
The new guidelines, issued under the recently unveiled Framework for Managing Risks of Trade-Based Money Laundering and Terrorist Financing, require banks to strengthen due diligence procedures when processing FIs for trade transactions. The SBP has emphasized that issuance of FIs should preferably be centralized under a dual-control system. Where decentralization is unavoidable, banks must establish strong monitoring mechanisms to ensure full compliance.
Key FI Due Diligence Requirements
The SBP has directed that every FI must clearly specify the nature of the goods involved in the trade, including their quality, variety, and subcategories. Generic or incomplete descriptions are strictly discouraged. Customers must provide complete product details, along with accurate H.S. Codes. Codes described as “others” should be avoided, unless justified with valid reasons. The full names of all parties involved in the transactions must be stated, with abbreviations discouraged.
In cases where a single H.S. Code covers multiple products, banks must ensure that the FI lists the details of each product separately. For UoM, banks are instructed to avoid using terms that obscure the actual quantity—such as “cartons” or “boxes” for items that should be counted individually—and to follow relevant Customs Valuation Rulings wherever applicable.
The use of brand names, trade names, or trademarks without the corresponding generic product name will not be acceptable. For export advance payments, banks must ensure that FI details match exactly with the particulars in the Advance Payment Voucher, including consignee information.
Additionally, the expiry date of the FI should align with the nature and tenor of the underlying trade transaction, preventing discrepancies that could facilitate suspicious activities.
These measures form part of the SBP’s ongoing efforts to safeguard Pakistan’s financial system from misuse through fraudulent or misreported trade transactions. By tightening compliance requirements, the central bank aims to enhance the accuracy of trade documentation, improve monitoring, and support the integrity of the country’s external sector operations.
