Brokers must establish source of income for ‘high risk’ customers | Pakistan Today

Brokers must establish source of income for ‘high risk’ customers

The Securities and Exchange Commission of Pakistan (SECP) has clarified that the stock investors’ exemption from declaring source of income under the recently-promulgated Presidential Ordinance on Capital Gains Tax (CGT) does not apply on the incomes derived from criminal activities.
The apex regulator, through issuing a notice numbering SMD/SE/2(20)2012, has asked front regulators at the country’s three stock exchanges in Karachi, Islamabad and Lahore that the stock brokers must establish the source of income for the “high-risk” customers. The brokers have also been asked to obtain sufficient information to determine the expected source of funding for the account. The SECP notice said the provisions of the Finance (Amendment) Ordinance 2012 shall only be applicable under the Income Tax Ordinance, 2001 (ITO) and does not bar asking source of income under any other law including Anti-Money Laundering Act, 2010 (AMLA).
“The exemption under these provisions is not available for income derived from a criminal activity under any other law for the time being in force,” said the notice issued by Musarrat Jabeen, Director at Policy, Regulation and Development Department of the SECP.
It said that the requirements of AMLA and the rules and regulations made there-under were not affected by these provisions of the ITO and no exemption, in whole or in part, was available for any AML/CFT preventative measures under the AMLA.
The KYC/CDD and Suspicious Transaction Report (STR) reporting required vide stock exchange regulations and guidelines dated February 1, 2012 shall continue regardless of this amendments.
“(The) brokers shall take reasonable measures for establishing the source of wealth and source of funds for high risk customers,” the regulator said.
It said that the Financial Monitoring Unit may refer any STR to the tax authorities, notwithstanding, the provisions of ITO and tax authorities would continue to cooperate with law enforcement agencies on AML matters.
The commission also reminded the brokers of Section 33 of the AML Act 2010, inter alia that specifically provides for criminal sanctions on failure to file STRs and for providing false information.
“In case any member/broker is found to be in violation of above legal requirements, a simultaneous regulatory action shall be initiated,” it warned.

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