A Retiree, a Capital-at-Risk Note and PKR 4 Million in Split Deposits
Imran, a relationship manager at a Karachi branch, looks after Mrs Siddiqui, a 68-year-old retired school principal with PKR 25 million from a provident fund and a property sale, currently in a three-month deposit. Her recorded risk profile is 'conservative' and the form is signed. The branch manager, under pressure to hit a quarterly fee-income target, urges Imran to sell a five-year structured note with 30% capital at risk and a 3% early redemption penalty; another RM has already sold it to eight depositors. Mrs Siddiqui says she does not understand the product but 'trusts the bank', and her son is demanding the highest return. She asks Imran to tick the boxes on the risk questionnaire for her. The key facts statement is in English; she reads Urdu. The same week, Imran notices the branch has been splitting a customer's PKR 4 million cash deposits into PKR 1.9 million lots on consecutive days.
1. Identify the ethical and regulatory issues in this situation and separate those that are personal to Imran from those that are institutional.
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Personal to Imran
- Completing the risk questionnaire for the client. The suitability assessment is the bank's record of the client's own risk appetite; filling it in converts a control into a formality and enables mis-selling.
- Silence on the structuring. Splitting PKR 4m into PKR 1.9m lots to stay under the cash reporting threshold is structuring. Knowing about it and not reporting it makes him part of it.
- Selling into a known mismatch. A five-year, 30% capital-at-risk product with a 3% exit penalty, sold to a conservative 68-year-old whose money is her retirement savings, is unsuitable whatever she signs.
Institutional 4. Incentive design that pays fee income on a product that can harm the customer. 5. Product governance - an English-only key facts statement for an Urdu-reading client base. 6. Manager pressure to sell, and the fact that eight other depositors have already been sold the same product. 7. AML controls that do not detect repeated near-threshold deposits.
Why the distinction matters: the personal failures are Imran's to correct today; the institutional ones are escalation and remediation matters. He cannot fix the second group alone, but the first group is his regardless of the second.
2. Set out what Imran should do, in order, and what he should say to (a) Mrs Siddiqui and (b) the branch manager.
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(a) To Mrs Siddiqui Explain in Urdu, slowly, with a one-page Urdu summary she keeps: the money is committed for five years, she can lose up to 30% of the capital, and exiting early costs 3%. Say plainly: 'This product does not match the conservative profile you gave us, and I cannot recommend it for your retirement savings.' Offer two or three suitable alternatives - a term deposit ladder, a government-backed instrument, a low-risk fund - and give her time. Do not tick her questionnaire. If she wants to change her profile, she must do it herself, and any change triggers a fresh suitability review and senior sign-off. Do not treat the son's demand as a reason to proceed; offer a joint meeting so that the risk is heard by both.
(b) To the branch manager Frame it in policy terms, not personal ones: 'Her profile is conservative and the product is capital-at-risk. I cannot recommend it and I will not complete her questionnaire. If you want it booked, I need your instruction in writing and I will copy compliance.' Offer the alternative that meets the fee target without the mismatch. If the pressure continues, escalate in writing to the compliance/conduct channel.
Also, the same day: report the deposit-splitting pattern to the MLRO. Do not mention the report to the customer - tipping off is itself an offence.
Order matters: protect the client first, create the record second, escalate third.
3. If the branch manager instructs him in writing to proceed and the client signs, does that protect Imran? Explain the accountability and the record he should create.
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Does a written instruction protect him? No.
- Accountability is personal. A code of conduct and fitness-and-properness expectations attach to the individual. 'My manager told me to' explains the pressure; it does not convert an unsuitable sale into a suitable one. The instruction aggravates the manager's liability; it does not transfer Imran's.
- The client's signature does not cure it either. If the recorded profile is conservative and the product is capital-at-risk, the signature is evidence that a sale occurred, not evidence of suitability. A form signed after the client asked the RM to fill it in is worse, not better.
- Written instructions help in one way only: they remove the excuse that Imran misunderstood. That is precisely why the record matters.
The record he should create
- A dated file note of the meeting: what was explained, in what language, the alternatives offered, and the client's own words.
- The suitability assessment in the client's own answers, or a note that she declined to complete it.
- The escalation email to the manager, any reply, and the compliance referral.
- The MLRO report on the structuring, kept separately from the customer file.
Keep copies in a form he can retrieve if he leaves the branch. Contemporaneous notes are what an investigation reads first; memory is not a record, and a reconstruction six months later reads as a defence rather than a fact.