BSP Orders Banks to Improve Targeted Financial Sanctions Framework: New Report

In a new thematic review, the Bangko Sentral ng Pilipinas (BSP) has directed banks and financial institutions (FIs) to improve their targeted financial sanctions (TFS) framework amid evolving terrorism and proliferation financing risks. As part of efforts to remove the Philippines from the Financial Action Task Force (FATF) graylist, the thematic review presents the progress of the sector’s efforts regarding their TFS obligations and includes scope for further improvement. 

BSP Deputy Governor Chuchi Fonacier said BSP-supervised FIs should use the report to strengthen their Anti-Money Laundering/Counter Terrorism and Proliferation Financing (AML/CTPF) controls to implement the targeted financial sanctions effectively.

Regulatory expectations 

Earlier this year, the FATF noted that the Philippines should continue to work on implementing its action plan to address its strategic deficiencies. The action plan set out by the FATF included demonstrating an increase in the identification, investigation, and prosecution of terrorism financing (TF) cases and enhancing the effectiveness of the TFS framework for both TF and proliferation financing (PF).

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

• Conducting an institutional risk assessment (IRA) 
• Adopting risk-based sanctions policies and procedures to ensure TFS implementation is in line with the firm’s risk appetite
• For universal and commercial banks and complex covered persons, adopting an electronic AML system capable of monitoring money laundering (ML)/ TF/ PF risks 
• Using electronic and/or manual screening tools that are proportional to the firm’s risk profile and ensuring sanctions lists are updated regularly
• Ensuring customer screening is conducted both during onboarding and periodically throughout the relationship
• Conducting sanctions screening on (i) the names, aliases, country of residence, or operations of customers; (ii) the transactors, and non-account holders who transact with the firm; and (iii) counterparties in wire transfers or trade transactions  
• Ensuring appropriate policies, procedures, and processes are in place to guide staff in handling name matches, freezing actions, and filing suspicious transaction reports (STRs) 

The report also lists various typologies on the use of virtual assets in TF. Based on the typologies, red flag indicators are noted to guide firms in formulating the appropriate measures to prevent and detect TF 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 placed on the Financial Action Task Force’s (FATF’s) blacklist from 2000 to 2005 due to the ineffectiveness of its efforts to prevent money laundering and track down criminals implicated in terrorism financing. The country’s 2019 mutual evaluation report (MER) likewise identified several AML/CTF framework gaps. The country was placed back on the FATF’s graylist at the agency’s fourth virtual plenary in June 2021.

In the Philippines’ third follow-up report published in July 2022, it was noted that good progress had been made in addressing the technical compliance deficiencies identified in its 2019 MER. As a result, two recommendations relating to cash couriers and the supervision of designated non-financial businesses and professions (DNFBPs) that were previously rated as “partially compliant” were re-rated as “largely compliant.” 

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

Officials are hopeful that the Philippines will be removed from the FATF’s graylist by January 2023, with Anti-Money Laundering Council (AMLC) Executive Director, Mel Georgie B. Racela, stating that the council “has been hiring more financial intelligence analysts, investigators, and lawyers to boost the operational capabilities of their units on compliance.”

Key takeaways

The practical nature of this guidance paper should be noted by compliance staff and reviewed for its tips and remedies to specific challenges laid out on page 11. Such guidance includes:

• Participating in AML training that covers IRAs
• Enrolling in the AMLC’s Public-Private Partnership on information sharing protocol
• Conducting extensive market research on available vendor subscriptions that meet the minimum TFS requirements
• Adopting fuzzy logic in the screening system appropriate to the firm’s risk profile