SBP revises reporting format to curb bank frauds

KARACHI (January 20 2005): The State Bank of Pakistan (SBP) on Wednesday formulated the revised reporting requirement for banks, development finance institutions on fraud, forgery and dacoity cases.

The decision has been taken in the wake of rising complexities of internal and external frauds in the banks and DFIs. The operational risk is gaining importance in the banking industry in the wake of increasing complexity of operations and the risks involved therein, said the SBP circular.

The incidents of internal and external frauds and forgeries are included in the list of the operational risk events that have the potential to result in substantial losses.

Keeping in view the size, sophistication, nature and complexity of operations of each bank/DFI, adoption of clear-cut strategies and introduction of strong internal controls and effective reporting will remain critical factors in preventing this and other types of operational risk events and resultant losses.

“In view of the importance of frauds prevention/mitigation strategy in overall operational risk framework and to improve the mechanism for active supervisory response, the State Bank has formulated the revised reporting requirement for banks/DFIs on fraud, forgery, and dacoity cases,” said the SBP circular.

The submission of complete and timely information on revised formats will enable the State Bank to remain apprised of developments at banks/DFIs and monitor follow-up action taken by them for all medium and high severity frauds and forgeries, including the emergency reported cases.

The information so collected will also be used to develop a database of frauds, forgeries, and dacoities, which will be used for measuring operational risk and determining capital requirements there-against. The reporting of frauds/forgeries/ dacoities by banks/DFIs is to be done as per the codes list.

All banks/DFIs have been advised to submit a quarterly statement of frauds/forgeries/ dacoities on the revised format attached, which will replace the existing quarterly reporting format, within 15 days of the close of each calendar quarter along with a soft copy to the Banking Supervision Department.

The quarterly report will include all actual as well as attempted fraud cases even if the bank may not have sustained any monetary loss. Therefore, cases where bank recovers the entire amount involved and does not suffer any loss must also be reported to the SBP.

Furthermore, banks/DFIs will separately report to this department all material incidents of frauds/forgeries/dacoities, etc of Rs 1 million and above on urgent basis as under:

Preliminary report within two working days of the occurrence of such incident by mentioning the date of the incident, and other information about the case as available at the time of such reporting and detailed report within 15 days of the occurrence of such incident.

Failure to comply with these instructions will attract punitive action under the Banking Companies Ordinance, 1962. The first quarterly statement for the quarter ending March 31, 2005 on the revised format shall be submitted by April 30, 2005, said the SBP circular.

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