According to a CPD Circular No 5 of 2014 issued on October 17, 2014, a system of effective internal control is an essential component of the banks/ MFB's management and foundation for the safe and sound operation. Given the sensitivity of the payment instruments, the banks/MFBs are vulnerable to fraud attempts and losses. In view of the inherent operational risks in processing, cancellation and issuance of Payment Order/Demand Draft/Cash Deposit Receipt/Banker's Cheque (hereinafter collectively referred as the Payment Instruments), it has been decided that henceforth the banks/MFBs shall strictly observe the some new controls, in addition to those already in place for the purpose.
According to circular under the general instructions, before processing the request for purchase of the Payment Instruments, the banks/MFBs shall ensure that the purchaser has properly narrated the name, Computerised National Identity Card Number/Smart National Identity Card Number, National Tax Number (for corporate entities), complete address, and contact details of both the purchaser and the beneficiary in the Payment Instrument purchase form, beside describing the purpose for which the Payment Instrument is required.
In addition, the banks/MFBs ensure and declare that information provided in the form is correct and verifiable with all risks and consequences on the part of the purchaser.
Before the issuance of the Duplicate Payment Instrument, the banks/MFBs will obtain Police Daily Diary Report No /copy of the FIR regarding loss of the original Payment Instrument, affidavit on non judicial stamp paper from purchaser to the effect that original Payment Instrument has been lost before its delivery to the intended beneficiary, wherein he/she will provide indemnity bond favouring the bank/MFB against all claims, suits, proceedings, actions, costs, losses, charges and expenses, which may arise against or suffered by the bank/MFB in consequence of paying the amount of the Payment Instrument. The related format may also be got vetted from the bank's Legal advisor/Legal Department.
The banks/MFBs will immediately mark the original Payment Instrument as "CANCELLED" in the system before the issuance of duplicate Payment Instrument to the purchaser and specifically mark the subsequent Payment Instrument as "DUPLICATE". For cancellation/refund of Duplicate Payment Instrument, the banks/MFBs will prescribe limits on the amount of Payment Instrument that may be subjected to the requirements for cancellation/refund of Duplicate Payment Instrument. These requirements include lawful discharge of the beneficiary for cancellation/ refund of the Duplicate Payment Instrument in favour of the purchaser and the purchaser's undertaking as to the genuineness of the beneficiary's discharge in the Payment Instrument cancellation/refund request. The SBP has asked the banks/MFBs to promptly process request for cancellation/refund of the Payment Instruments where no Duplicate Payment Instrument, irrespective of any amount, has been issued and the purchaser is the holder of the original Payment Instrument.
In addition, the banks/MFBs have been directed to devise a standardised Payment Instrument Verification Form and upon request from the beneficiary (ies), verify the genuineness of the Payment Instrument along with other related details (number, amount, date, beneficiary/purchaser detail, etc.) free of cost/service charges.
The banks/MFBs should retain a copy of the Payment Instrument Verification Form in line with record retention policy. They have been asked to put in place stringent internal controls for printing, stock taking, issuance and storage of stationery used for printing of the Payment Instruments and all these arrangements should be subject to regular review by the Internal Audit of the banks/MFBs.
Similarly, banks and MFBs have been directed to customise and adopt the security features should be for printing of the Payment Instruments as prescribed for printing of cheques by the State Bank of Pakistan from time to time. They should make available Instant Verification Markers at branches as well as at all clearing units whereby authenticity of the Payment Instruments, for an amount over a limit to be specified by the banks/MFBs, is to be verified and endeavour to immediately resolve the disputed Payment Instruments transactions in accordance with applicable laws/rules/regulations and banks'/MFBs' own policies.
According to the circular, the banks/MFBs should adhere these instructions in letter and spirit as any deviation or non-compliance of the above instructions shall attract punitive action against delinquent banks/MFBs under the relevant provisions of the laws.