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050119
STATE BANK OF PAKISTAN - BANKING SUPERVISION DEPARTMENT
BSD Circular No. 1 of 2005
January 19, 2005
The Presidents / Chief Executives
All Banks / DFIs
Dear Sirs/Madam,
Reporting Requirements on Frauds/Forgeries/Dacoities
Operational Risk is gaining importance in the banking industry in the wake of
increasing complexity of operations and the risks involved therein. The
incidents of internal and external frauds and forgeries are included in 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.
2) 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 frauds/forgeries/dacoities cases, which is attached as Annexes ‘A’
& ‘B’. 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/forgeries including the emergency reported cases. The information so
collected will also be used to develop a database of frauds, forgeries, and
dacoities events, which will be used for measuring operational risk and
determining capital requirements thereagainst. Reporting of frauds/forgeries/dacoities
cases by banks/DFIs is to be
done as per the codes list placed at Exhibit ‘1’. A glossary defining the terms
used in the revised reporting requirements is attached as Exhibit ’2’, which
though is not to be taken with exhaustive detail.
3) All banks/DFIs are advised to submit a quarterly statement of
frauds/forgeries/dacoities on the revised format attached as Annex ‘A’ (Forms I
to VI), which will replace the existing Quarterly reporting format, within 15
days of the close of each calendar quarter alongwith 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 SBP.
4) Furthermore, banks/DFIs will separately report to this Department all
material incidents of frauds/forgeries/dacoities etc. of Rs. one million and
above on urgent basis as under:-
a) Preliminary report within 2 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
b) Detailed report within 15 days of the occurrence of such incident on the
format attached as Annex ‘B’ (Form-VII).
5) Failure to comply with these instructions will attract punitive action under
the Banking Companies Ordinance, 1962. The first quarterly statement for the
quarter ending 31st March, 2005 on the revised format shall be submitted by 30th
April, 2005.
Please acknowledge receipt.
Encl:
1. Annex Form - A-I
2. Annex Form - A-II
3. Annex Form - A-III
4. Annex Form - A-IV
5. Annex Form - A-V
6. Annex Form - A-VI
7. Annex Form - B-VII
8. EXHIBITS 1 & 2
Yours faithfully,
Sd/-
(JAMEEL AHMAD)
Director
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