KARACHI: The State Bank of Pakistan allowed commercial banks to invest up to 15% of their equity through subsidies or other specialized companies. However, a restriction for outsourcing only non-core functions is also imposed by State Bank.

According to the Spokesman of SBP Mr. Wasim-ud-din, the exposure limit up to 15% has been setup.  The bank has amended its guidelines on outsourcing provided earlier to meet this purpose.  This will also be applicable for Development Financial Institutions (DFIs) and Microfinance banks.

The guidelines issued in July 2007 stopped banks from outsourcing all those core activities which need the involvement of board of directors and senior management.

These directives are issued keeping in view the continuous growth in technology advancement and techniques implemented by these commercial banks through outsourcing.

The State Bank of Pakistan has formulated these guidelines in such a manner that these will prove helpful in increasing performance, and also to make sure that these institutions are able to meet their financial and service obligations.

These guidelines however do not encouraging the outsourcing of core banking functions. The financial institutions are also advised strictly by SBP, that these outsourcing activities in no way reduce the protection available to both investors and depositors. Compliance to the policies, procedures and guidelines provided by the regulator should not be disturbed in any way.

Some of the core functions which are not allowed for outsourcing by the financial institutions are: Risk management function, internal audit, treasury functions, internal control, compliance and decision-making functions including Know Your Customer (KYC) requirement for deposit accounts and credit functions.

Outsourcing is not prohibited some of the financial institutions are more interested in outsourcing treasury and investment functions to their subsidiaries for better functionality. The State Bank of Pakistan has allowed to them to do the same up to the limit of 15% of their equity.

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