Under the legal framework, the Bank has been entrusted with necessary powers and mandate mainly under the State Bank of Pakistan Act 1956, the Banking Companies Ordinance 1962, Microfinance Institutions Ordinance 2001 and the Foreign Exchange Regulation Act, 1947 and other laws to regulate and supervise the activities of banks, development finance institutions, microfinance banks, foreign exchange companies and other regulated institutions. These laws are regularly reviewed and updated to address the changing environment.
The regulatory framework comprises a set of policies, guidelines, prudential standards and allied processes which cover the following key areas:
In terms of section 42A of Banking Companies Ordinance (BCO), 1962, the State Bank of Pakistan (SBP) has been designated a Resolution Authority (RA) for banks and institutions specified under section 3A of BCO. Being RA, SBP is responsible for ensuring the orderly resolution of financial institutions facing severe financial distress or failure. SBP’s resolution regime aims to contribute to the stability of financial system and protection of depositors’ interest. To undertake its statutory function as a resolution authority, SBP has instituted comprehensive frameworks for conducting resolution planning, resolvability assessment, preparing institution specific resolution plans and implementing the resolution tools (Bail-in, Reconstruction, Amalgamation, Bridge Bank, Liquidation) in the event a bank meets the conditions for entry into resolution.
SBP regularly reviews and updates its resolution frameworks in the light of changing market dynamics and emerging best practices to ensure that resolution objectives are achieved in an effective and prudent manner.
The supervisory scope encompasses prudential supervision, cybersecurity & technology risk supervision, conduct and consumer protection oversight, and anti–money laundering and countering financing of terrorism (AML/CFT) supervision. BSG departments perform supervisory activities including onsite inspections, offsite supervision, and continuous engagement with regulated institutions, under Risk Based Supervision Framework to assess governance, risk management, financial soundness, conduct, cyber security and compliance with regulatory requirements.
The State Bank of Pakistan also employs a robust enforcement regime to support the effectiveness of its supervisory oversight and promote compliance with applicable laws, regulations, and supervisory directives. As part of its Risk-Based Supervision approach, SBP takes enforcement actions where supervisory assessments identify regulatory violations, control deficiencies, or unsafe and unsound practices. These actions may include monetary penalties, administrative measures, and other regulatory interventions in accordance with the applicable legal and regulatory framework. Enforcement measures are proportionate to the nature, severity, and impact of the identified breaches and are aimed at ensuring timely remediation and strengthening institutional accountability. Through consistent and transparent enforcement, SBP reinforces regulatory discipline, sound governance, and prudent risk management across the banking sector.
Prudential Supervision at the State Bank of Pakistan under Risk Based Supervision Framework contributes to soundness of regulated financial institutions of banks, microfinance banks and development finance institutions, thereby contributing to stability of overall financial system. SBP evaluates banks’ capital adequacy, asset quality, governance standards, risk management practices, and liquidity positions through a combination of onsite inspections and offsite monitoring. Supervisory assessments emphasize forward-looking analysis to identify emerging vulnerabilities and ensure timely corrective actions. Supervisory efforts are directed under the Risk-Based Supervision framework toward institutions and activities that pose higher risks to financial stability. Through continuous engagement with regulated institutions, SBP promotes prudent banking practices and strengthens the stability of the financial system. This approach supports a resilient banking sector capable of withstanding economic and financial shocks.
Cybersecurity Supervision by the State Bank of Pakistan aims to strengthen the resilience of the banking sector against evolving cyber threats. Within the Risk-Based Supervision framework, SBP assesses the adequacy of banks’ cyber risk management, governance structures, incident response capabilities, and technology controls. Institutions are required to implement robust cybersecurity frameworks aligned with international standards and regulatory guidelines issued by SBP. Supervisory reviews include evaluation of IT governance, data protection practices, third-party risk management, and cyber resilience measures. SBP also monitors significant cyber incidents and requires regulated entities to undertake timely reporting and remediation. Through continuous supervision and industry engagement, SBP seeks to ensure the security, integrity, and reliability of Pakistan’s digital financial infrastructure.
Conduct Supervision at the State Bank of Pakistan aims to promote fair, transparent, and responsible behavior by regulated entities in their dealings with customers and the market. Under the Risk-Based Supervision approach, SBP assesses conduct risks arising from product design, sales practices, disclosures, complaint handling, and customer treatment. Supervisory reviews focus on ensuring that financial institutions maintain effective governance and internal controls to manage conduct risks. SBP evaluates whether banks provide clear information, avoid misleading practices, and uphold standards of consumer protection. Monitoring of market practices and customer complaints helps identify emerging risks and areas requiring supervisory attention. Through these measures, SBP seeks to strengthen trust in the banking system and ensure responsible financial service delivery.
AML/CFT/CPF Supervision by the State Bank of Pakistan focuses on ensuring that banks implement effective controls to prevent money laundering and terrorist financing. Using a risk-based supervisory approach, SBP assesses institutions’ compliance with applicable AML/CFT laws, regulations, and international standards. Supervisory activities evaluate the effectiveness of regulated entities’ compliance with AML/CFT obligations including customer due diligence, transaction monitoring, sanctions screening, payment transparency and reporting of suspicious transactions. SBP also reviews governance arrangements, internal controls, and the effectiveness of compliance functions responsible for managing AML/CFT risks. Institutions with higher inherent and residual risks receive greater supervisory attention and follow-up actions are ensured to address any identified weaknesses. Through its AML/CFT/CPF Supervision, SBP works to safeguard the integrity of Pakistan’s financial system and support national AML/CFT objectives.
The Financial Stability function at the State Bank of Pakistan focuses on identifying, assessing, and monitoring risks that may affect the stability of Pakistan’s financial system. Operating within the Risk-Based Supervision framework of the Banking Supervision Group, the function conducts system-wide analysis to detect emerging vulnerabilities in the banking sector and the broader financial landscape. It evaluates macro-financial developments, interconnected risks, and structural trends that may have implications for financial institutions and markets. The department also undertakes stress testing, risk assessments, and analytical research to support informed policy and supervisory decisions. Through continuous monitoring and dissemination of key assessments, SBP aims to strengthen the resilience of the financial system and promote sustainable financial sector stability.
SBP takes supervisory enforcement actions against those institutions that fail to comply with legal or regulatory requirements. These actions may range from imposition of penalties, administrative & financial sanctions and reference to concerned law enforcement/prosecution agencies.
The enforcement actions depend upon the nature, severity and continuity of regulatory breaches and risks posed to the institution and may range from mild to severe. The nature of intervention or corrective actions also takes into consideration behavior and ability of the institution’s management and sponsors, and the previous record of dealing with deficiencies. Supervisory enforcement actions, inter alia, include meetings with the relevant Key Executives, Chief Executive or Board of Directors of the institutions by SBP’s team.
In the mild supervisory and enforcement actions, SBP advises the institution to submit Commitment Letter, Board Resolutions /Undertaking in which management/Board of the institution resolves to correct the identified deficiencies or weaknesses within a given time. The failure to implement corrective actions by the institutions leads to initiation of severe corrective measures. Severe actions may include:
