The State Bank of Pakistan (SBP) has tightened regulatory requirements for trade-linked financial instruments, mandating that all banks include Harmonized System (H.S.) Codes and Unit of Measurement (UoM) details in every transaction. The move forms part of a broader framework aimed at curbing Trade-Based Money Laundering (TBML) and Terrorist Financing, while simultaneously strengthening the country’s trade documentation system.
The new guidelines have been introduced under the recently issued Framework for Managing Risks of Trade-Based Money Laundering and Terrorist Financing. According to the SBP, banks are now obligated to carry out enhanced due diligence when processing financial instruments linked to trade, with a particular focus on transparency, accuracy, and consistency in reporting.
As part of the requirements, the central bank has stressed that issuance of financial instruments should preferably be centralized under a dual-control system. Where decentralization is unavoidable, banks must implement strong monitoring mechanisms to ensure full compliance. This shift is designed to reduce risks associated with weak oversight and to ensure all trade transactions are subject to the same level of scrutiny.
The SBP has set out detailed due diligence obligations for financial institutions. Each financial instrument must specify the nature of the goods involved, covering aspects such as quality, variety, and subcategories. The use of vague or generic descriptions will not be accepted. Customers are required to provide complete product details, along with the corresponding H.S. Codes, to ensure trade goods can be accurately identified. The central bank has discouraged the practice of using the catch-all “others” code unless there is a valid justification supported by documentation.
The new framework also requires that all parties involved in the transaction be identified with full names rather than abbreviations, further tightening traceability and accountability. Where multiple products fall under a single H.S. Code, banks must ensure that the details of each product are separately listed in the financial instrument.
For units of measurement, the SBP has directed banks to avoid vague terms such as “cartons” or “boxes” that fail to convey precise quantities. Instead, institutions must adopt standardized measurements that align with Customs Valuation Rulings to avoid ambiguity in trade documentation. Brand names or trademarks cannot be used in isolation; they must always be accompanied by the generic product name to ensure clarity.
Additional safeguards include stricter rules for export advance payments. In such cases, the details provided in financial instruments must match the particulars in the Advance Payment Voucher, including consignee details. Similarly, the expiry date of any financial instrument must be aligned with the nature and tenor of the underlying trade transaction to prevent inconsistencies that could create avenues for fraudulent activity.
By mandating these detailed requirements, the SBP aims to strengthen Pakistan’s ability to monitor trade flows and reduce risks of misuse within the financial system. The central bank believes that enforcing precision in trade documentation will not only improve compliance but also enhance the credibility of the banking sector in global financial markets.
These measures mark another decisive step by the SBP to safeguard the integrity of the external sector and ensure that Pakistan’s trade ecosystem remains resilient against illicit practices. For banks and businesses, the new compliance obligations underscore the growing importance of accuracy and transparency in international trade operations.