Balance anti-money laundering rules with financial inclusion


The Bangko Sentral ng Pilipinas (BSP) required its supervised financial institutions to find a balance between their anti-money laundering and anti-terrorist financing regulations and the promotion of financial inclusion in
the country, which an analyst described as a “sensible approach.”

The policy-setting Monetary Board has approved the latest amendments to BSP’s Anti-Money
Laundering/Combating the Financing of Terrorism (AML/CFT) regulations. The amendments feature refinements in due diligence on customers, with a more pragmatic definition of “official document” and the use of other reliable, independent source documents, data or information for customer identification and verification, the BSP said in a statement on Friday.

The new rules introduced the concept of a “restricted account” catering to the targeted unbanked sector that requires minimal customer information subject to certain conditions such as activity constraints.

“These will provide much greater flexibility in on-boarding unbanked customers, especially in rural areas where official IDs are not prevalent,” the central bank said.

London-based data and business research provider IHS Markit said amendments to the BSP’s AML regulations are extremely pragmatic, taking a risk-based approach to AML regulations.

IHS Markit Asia Pacific chief economist Rajiv Biswas said it is a very sensible approach that will also help banks refocus on higher risk accounts, while making it easier for the large share of the rural population currently excluded from the financial system to open low value bank accounts.

With the advent of new technologies in the financial system, the BSP stressed that the new rules recognize and allow the use of information and communication technology in conducting customer identification parallel to appropriate measures in place to manage attendant risks.

The rapid growth of financial technology is transforming the financial services industry in developing countries like the Philippines, with telecom providers also competing to provide e-banking services which quicken the pace of development of mobile payment solutions for e-commerce transactions, Biswas noted.

The rules will facilitate the access of low-income rural households to e-banking accounts, and improve the access of those currently excluded from the banking system to digital banking through mobile phones.

“Improving the financial inclusion of the rural poor, who often lack detailed documentation, is critical as it also allows the government to pay benefits and entitlements through e-payments, reducing the risk of fraud and significantly lowering transactions costs,” Biswas said.

The BSP amendments are an important enabling step to improve financial inclusion for low income households, he added.

“Finally, to realize desired change towards effective implementation, escalation of supervisory enforcement action is introduced in cases of heightened AML/CFT supervisory concerns as reflected in the overall AML risk rating of the covered person,” it said.

The central bank noted that covered persons have six months from to update their AML/CFT policies from the date of implementation of the revised rules.

“This is part of the BSP’s ongoing efforts to strengthen the financial system’s safeguards against money laundering (ML) and terrorist financing (TF) balanced against the objective of also promoting financial inclusion of the unbanked,” it highlighted.

The primary considerations in amending the rules are the latest Revised Implementing Rules and Regulations of the Anti-Money Laundering Act, which took effect on January 7 2017; lessons learned from recent ML/TF cases; and the latest Financial Action Task Force (FATF) Recommendations and Guidance Papers on applying a risk-based approach to AML/CFT standards and striking a balance between financial integrity and financial inclusion.

The revised regulations emphasize the importance of a sound risk assessment, the foundation of a proportionate, risk-based approach to appropriately focus greater efforts and resources on areas posing higher risks, while reducing these for low-risk transactions.

Requirements for group-wide AML compliance function and monitoring systems are incorporated for a holistic management and prevention of risks, the BSP said.


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