BSP orders banks to improve targeted financial sanctions framework: new report

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In a new thematic review, the Bangko Sentral ng Pilipinas (BSP) called on banks and financial institutions (FIs) to improve their Targeted Financial Sanctions (TFS) framework amid evolving terrorist financing risks and of proliferation. As part of efforts to remove the Philippines from the Financial Action Task Force (FATF) gray list, the thematic review presents the status of the industry’s efforts regarding its TFS obligations and includes the possibility additional improvements.

BSP Deputy Governor Chuchi Fonacier said FIs overseen by BSP should use the report to strengthen their anti-money laundering/terrorism and proliferation financing (AML/CTPF) controls to effectively implement targeted financial sanctions.

Regulatory expectations

Earlier this year, the FATF noted that the Philippines should continue to work on implementing its action plan to address its strategic shortcomings. The action plan established by the FATF included demonstrating an increase in the identification, investigation and prosecution of terrorist financing (FT) cases and improving the effectiveness of the TFS framework for FT and proliferation financing (PF).

To this end, the BSP highlights seven regulatory expectations that FIs supervised by the BSP must meet. These include:

  • Conducting an Institutional Risk Assessment (IRA)
  • Adopt risk-based sanctioning policies and procedures to ensure TFS implementation is in line with business risk appetite
  • For universal and commercial banks and complex covered persons, adopt an electronic AML system capable of monitoring the risks of money laundering (ML) / FT / PF
  • Use electronic and/or manual screening tools commensurate with the risk profile of the business and ensure that sanctions lists are updated regularly
  • Ensure client screening is done both on onboarding and periodically throughout the relationship
  • Perform sanctions screening on (i) customers’ names, aliases, countries of residence or transactions; (ii) traders and non-account holders who transact with the company; and (iii) counterparties to wire transfers or commercial transactions
  • Ensure that appropriate policies, procedures and processes are in place to guide staff in managing name matches, freezing actions and filing suspicious transaction reports (STRs)

The report also lists various typologies on the use of virtual assets in FT. Based on the typologies, red flags are scored to guide companies in formulating appropriate measures to prevent and detect FT activities using virtual assets. The BSP encourages banks to mitigate these emerging risks by properly calibrating existing AML processes.

Mutual Evaluation of the Philippines

The Philippines was initially blacklisted by the Financial Action Task Force (FATF) from 2000 to 2005 due to its ineffective efforts to prevent money laundering and track down criminals involved in financing terrorism. The country’s 2019 Mutual Evaluation Report (MER) also identified several gaps in the AML/CFT framework. The country was put back on the FATF gray list during the fourth virtual plenary in June 2021.

In the Philippines’ third follow-up report published in July 2022, it was noted that notable progress had been made to address the technical compliance gaps identified in its 2019 MER. Supervision of Designated Non-Financial Businesses and Professions (DNFBPs) which were previously rated “partially compliant” have been re-rated as “largely compliant”.

The Philippines remains under “enhanced monitoring” and will continue to report to the Asia-Pacific Group on Money Laundering (APG) on progress made to strengthen its implementation of AML/CFT measures.

Officials hope the Philippines will be removed from the FATF gray list by January 2023, with Anti-Money Laundering Council (AMLC) executive director Mel Georgie B. Racela saying the council “has hired over ‘financial intelligence analysts, investigators, and attorneys to build their units’ operational compliance capabilities.”

Key points to remember

The practical nature of this guidance document should be noted by compliance personnel and reviewed for its guidance and solutions to specific challenges presented on page 11. This guidance includes:

  • Participate in AML training that covers IRAs
  • AMLC Public-Private Partnership Registration on Information Sharing Protocol
  • Conduct in-depth market research on available vendor subscriptions that meet TFS minimum requirements
  • Adopt fuzzy logic in the filtering system adapted to the company’s risk profile

7 Tips for Fintechs to Comply with Anti-Money Laundering in the Philippines

As a Fintech, how can you ensure anti-money laundering compliance in the Philippines? Check out our seven tips for AML in the Philippines.

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In a new thematic journal, the Bangko Sentral ng Pilipinas (BSP) has ordered banks and financial institutions (FIs) to improve their Targeted Financial Sanctions (TFS) framework amid evolving terrorist financing and proliferation financing risks. As part of efforts to remove the Philippines from the Financial Action Task Force (FATF) Gray Listthe thematic review presents the status of the industry’s efforts with respect to its SFT obligations and indicates the possibility of further improvements.

BSP Deputy Governor Chuchi Fonacier said FIs overseen by BSP should use the report to strengthen their anti-money laundering/terrorism and proliferation financing (AML/CTPF) controls to effectively implement targeted financial sanctions.

Regulatory expectations

Earlier this year, the FATF noted that the Philippines should continue to work on the implementation of its action plan to address its strategic shortcomings. The action plan established by the FATF included demonstrating an increase in the identification, investigation and prosecution of terrorist financing (FT) cases and improving the effectiveness of the TFS framework for FT and proliferation financing (PF).

To this end, the BSP highlights seven regulatory expectations that FIs supervised by the BSP must meet. These include:

  • lead a Institutional Risk Assessment (IRA)
  • Adopt risk based Sanctions policies and procedures to ensure TFS implementation is in line with enterprise risk appetite
  • For universal and commercial banks and complex covered persons, adopt an electronic AML system capable of monitoring the risks of money laundering (ML) / FT / PF
  • Use electronic and/or manual screening tools commensurate with the risk profile of the business and ensure that sanctions lists are updated regularly
  • Ensure client screening is done both on onboarding and periodically throughout the relationship
  • Perform sanctions screening on (i) customers’ names, aliases, countries of residence or transactions; (ii) traders and non-account holders who transact with the company; and (iii) counterparties to wire transfers or commercial transactions
  • Ensure that appropriate policies, procedures and processes are in place to guide staff in name mapping management, freeze actionsand filing of suspicious transaction reports (STR)

The report also lists various typologies on the use of virtual assets in FT. Based on the typologies, red flags are scored to guide companies in formulating appropriate measures to prevent and detect FT activities using virtual assets. The BSP encourages banks to mitigate these emerging risks by properly calibrating existing AML processes.

Mutual Evaluation of the Philippines

The Philippines was initially blacklisted by the Financial Action Task Force (FATF) from 2000 to 2005 due to its ineffective efforts to prevent money laundering and track down criminals involved in financing terrorism. The country Mutual Evaluation Report (MER) 2019 also identified several gaps in the AML/CFT framework. The country was put back on the FATF gray list during the fourth virtual plenary in June 2021.

In the Philippines’ third follow-up report published in July 2022, it was noted that notable progress had been made in addressing the technical compliance gaps identified in its 2019 MER. (DNFBPs) that were previously rated “partially compliant” have been re-rated as “largely compliant”.

The Philippines remains under “enhanced monitoring” and will continue to report to the Asia-Pacific Group on Money Laundering (APG) on progress made to strengthen its implementation of AML/CFT measures.

Officials hope the Philippines will be removed from the FATF gray list by January 2023, with Anti Money Laundering Council (AMLC) Executive Director, Mel Georgie B. Racela, indicating that the board “has hired more financial intelligence analysts, investigators and lawyers to strengthen their units’ operational compliance capabilities.”

Key points to remember

The practical nature of this guidance document should be noted by compliance personnel and reviewed for its guidance and solutions to specific challenges presented on page 11. This guidance includes:

  • Participate in AML training that covers IRAs
  • AMLC Public-Private Partnership Registration on Information Sharing Protocol
  • Conduct in-depth market research on available vendor subscriptions that meet TFS minimum requirements
  • Adopt fuzzy logic in the filter system adapted to the company’s risk profile

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Originally published September 16, 2022, updated September 16, 2022

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