Central bank tightens compliance rules for PSP’s with new targeted financial sanctions guidelines

KATHMANDU: Nepal Rastra Bank (NRB) has issued a comprehensive set of guidelines mandating Payment Service Providers (PSPs) to rigorously implement Targeted Financial Sanctions (TFS) against individuals, groups, and entities listed on the United Nations Consolidated List and Nepal’s Domestic Terrorist List.

The new framework, released by NRB’s Payment Systems Department, aligns Nepal’s financial system with international obligations under United Nations Security Council (UNSC) resolutions and the Financial Action Task Force (FATF) recommendations. The primary objective is to prevent funds or other assets from being made available—directly or indirectly—to those involved in terrorism financing or the proliferation of weapons of mass destruction.

Mandatory Asset Freezing and Service Restrictions
Under the directive, PSPs must freeze all funds, financial assets, and economic resources owned or controlled—wholly or jointly—by a designated person, without prior notice. The prohibition extends to making any funds or financial services available to such individuals or entities, directly or indirectly. The freezing measures remain in force indefinitely, until the designated person is removed from the sanction lists or a competent authority orders the release.

The sanctions apply to both the UN Consolidated List, which covers various UNSC resolutions including 1267, 1988, and 1718, and Nepal’s Domestic Terrorist List published by the Ministry of Home Affairs (MoHA).

Daily Screening and Reporting Obligations
PSPs are required to subscribe to automated UN and MoHA notification systems to receive timely updates on additions or removals from the lists. They must conduct initial screening before onboarding any customer or processing occasional transactions, followed by daily screening of all existing customers, transaction parties, beneficial owners, and associated agents or directors.

Any confirmed match with a designated person must be reported to NRB within three days of taking freezing action or detecting an attempted transaction. NRB will then forward the information to the Money Laundering and Revenue Investigation Division at the Office of the Prime Minister and Council of Ministers.

Penalties for Non-Compliance
Failure to comply with TFS requirements will attract severe consequences. NRB has the authority to impose administrative actions ranging from formal warnings to license revocation. Additionally, PSPs may face financial penalties between NPR 1 million and NPR 2 million under the Asset (Money) Laundering Prevention Act.

Provisions for Humanitarian Exemptions
The guidelines allow individuals or entities whose assets have been frozen to apply to MoHA for limited access to funds to meet basic humanitarian needs, such as food, housing, health care, education, legal expenses, and utility payments. However, for those listed under the UN Consolidated List, such exemptions require approval from the relevant UNSC Sanctions Committee.

Global Compliance Alignment
NRB stated that the guidelines are designed to strengthen Nepal’s digital payment sector against abuse by sanctioned entities and to ensure full compliance with international counterterrorism financing obligations. By enforcing stringent screening and freezing measures, regulators aim to safeguard the integrity of Nepal’s financial system and avoid the risk of international blacklisting.

“This move ensures that our payment service sector remains resilient, transparent, and aligned with global anti-money laundering and counter-terrorism financing standards,” NRB officials said.

The new rules are effective immediately, and PSPs have been urged to update their internal systems, policies, and controls to meet the enhanced compliance requirements.