SBP bars banks from freezing accounts without legal approval

The State Bank of Pakistan (SBP) has issued fresh directives to commercial banks across the country, instructing them not to freeze, block or impose operational restrictions on customers' bank accounts unless there is a clear legal basis,

Islamabad: The State Bank of Pakistan (SBP) has issued fresh directives to commercial banks across the country, instructing them not to freeze, block or impose operational restrictions on customers’ bank accounts unless there is a clear legal basis, proper verification and approval from a competent authority.

The new instructions have been issued in compliance with court directives and are aimed at protecting customers from unnecessary financial hardship caused by unauthorized or precautionary restrictions on their bank accounts.

According to the SBP, banks must ensure that any debit block, account freeze or operational limitation is imposed strictly in accordance with the law. The central bank emphasized that no action should be taken against an individual’s bank account without first establishing legal authority and carrying out the required verification process.

The regulator stressed that banks should avoid placing precautionary restrictions that lack legal backing, as such measures can disrupt customers’ financial activities and cause avoidable inconvenience and financial losses.

To strengthen compliance, the SBP has authorized banks to establish internal monitoring and control mechanisms. These systems will help ensure that account restrictions are applied only in legally justified cases and that no unauthorized action is taken by bank officials.

The central bank also directed financial institutions to regularly review their internal procedures to ensure they fully comply with the latest regulatory instructions. Banks have been asked to maintain proper documentation and ensure accountability whenever an account is restricted or frozen.

The latest guidelines were issued following a ruling by the Islamabad High Court, which held that banks cannot freeze customers’ accounts without lawful authority or approval from a competent authority. The court observed that arbitrary restrictions violate the legal rights of account holders and directed the State Bank to develop a comprehensive mechanism to prevent such practices.

The judgment was delivered by Justice Arbab Muhammad Tahir, who instructed the SBP to formulate an effective internal framework and issue detailed directions to all banks operating in Pakistan. In response, the central bank submitted its compliance report and subsequently circulated the new instructions to ensure uniform implementation across the banking sector.

Separately, the State Bank recently reported a $25 million increase in the country’s foreign exchange reserves, reflecting continued monitoring of Pakistan’s external financial position. While unrelated to the new banking directives, the improvement in reserves comes as the central bank continues efforts to strengthen financial stability and enhance public confidence in the banking system.