NRB Tightening Financial Restrictions to Exit FATF Grey List

Nepal Rastra Bank (NRB) has intensified the enforcement of targeted financial sanctions as part of efforts to remove Nepal from the Financial Action Task Force (FATF) grey list. Regulators have directed financial service providers to block transactions involving countries, institutions, and individuals on the United Nations (UN) and Nepal’s own sanctions lists.

The UN sanctions currently cover countries such as North Korea and Iran, as well as various terrorist organizations and individuals. In line with these measures, Nepal Rastra Bank on Monday issued new directives for payment service providers, including digital wallet companies, requiring them to subscribe to both the UN’s consolidated sanctions list and the Ministry of Home Affairs’ domestic list before processing transactions.

Under the directive, digital wallet service providers must freeze suspicious transactions within 24 hours of receiving a report and, if a customer matches a sanctioned individual or entity, suspend all related financial activity immediately. They are also required to notify the Financial Information Unit within three days.

These steps follow FATF’s recommendation in February that Nepal strengthen controls on terrorist financing and proliferation of financing of weapons of mass destruction by actively using the UN and national sanctions lists.

Earlier, the Securities Board of Nepal (SEBON) issued its own guidance, instructing market participants to regularly update their records against the Home Ministry’s sanctions database and to immediately freeze the assets of any listed person or entity. In December, NRB had also ordered banks, financial institutions, the Employees’ Provident Fund, the Citizen Investment Trust, and hire-purchase companies to verify clients against sanctions lists before making investments, and to improve information-sharing systems.

Nepal’s latest mutual evaluation report highlighted weaknesses in the implementation of targeted financial sanctions, noting that despite legal reforms to enable asset freezes and seizures, enforcement has been slow. Experts such as anti-money laundering specialist Prakash Bhandari attribute this to incomplete regulatory coverage and ineffective public disclosure of the domestic sanctions list.

The government says it is advancing a national strategy and action plan to curb money laundering and terrorist financing, aiming to bring Nepal’s compliance in line with global standards.