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Philippines’ central bank clarifies PEP definitions & best practices

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The Bangko Sentral Ng Pilipinas (BSP), the Philippines’ central bank, has released a memorandum reminding financial institutions it regulates (BSFIs) of their customer due diligence (CDD) obligations concerning politically exposed persons (PEPs). The memo clarifies the definition of a PEP and what compliant CDD should entail for these customers.

“As part of CDD, covered persons shall establish and record the true and full identity of PEPs, as well as their immediate family members and close relationships/associates,” the memo stated. “In implementing the CDD procedures for PEPs, BSFIs are reminded to implement customer-centric onboarding procedures.”

Ongoing due diligence and customer communication

The memo, published on October 10, focuses on four key areas:

  • The definition of a PEP – According to the regulator, a PEP is a person who is or has been entrusted with a prominent public function. If that function is in the Philippines, the PEP is domestic. If the function is in another country, they are a foreign PEP. Individuals serving high-level functions for international organizations also qualify as PEPs. 
  • Onboarding due diligence – Upon establishing the business relationship, regulated firms must thoroughly establish key information about the PEP. Domestic and organizational PEPs are subject to similar identification and verification (ID&V) and risk evaluation processes as regular customers. However, foreign PEPs are automatically high-risk and must undergo enhanced due diligence (EDD). This includes obtaining upper-level permission before entering or continuing the business relationship, establishing the source of wealth and funds, and ongoing EDD.
  • Ongoing due diligence – Firms must continually evaluate a customer’s PEP status according to approved definitions and not assume “once a PEP, always a PEP.” Firms should consult a continually updated PEP database to ensure this evaluation is effective.
  • Communication with customers – To avoid discrimination, customers should be clearly and predictably updated regarding account opening procedures and requirements.

FATF assessment of the philippines’ AML measures

The memo bolsters the Philippines’ positive record with the Financial Action Task Force (FATF) for managing PEP risks. In its 2019 Asia/Pacific Group on Money Laundering (APG) Mutual Evaluation Report (MER), the country received positive marks for its financial and designated non-financial businesses and professions (DNFBP) sectors’ PEP CDD measures. 

Among areas needing additional work, the APG indicated that banks’ current beneficial ownership identification processes could hinder the proper identification of PEPs and their networks. BSP also mentioned that in some cases, banks’ PEP databases were not kept sufficiently up-to-date, although it also said that the issue had largely been addressed.

In its June 2023 Plenary, the FATF indicated several areas for continuing improvement for the Philippines, including beneficial ownership information (BOI) accuracy. It urged the country to swiftly implement its action plan to address these areas.

The importance of strong PEP and sanctions data

The 2019 APG MER highlighted the importance of up-to-date data and automated tools for effective PEP due diligence. While most sectors surveyed have adopted automated tools and addressed data issues, firms that may still rely on manual processes should consider updating their data and tools for better risk management.

In addition, firms can peruse FATF Recommendations 11 and 12, which cover PEPs, and the Wolfsberg Group guidance on PEP risk management.

Sanctions Screening in the Philippines

Learn more about when and how to perform sanctions screening and minimize the risk of non-compliance as the Philippines seeks removal from the Financial Action.

Download the guide

Originally published 13 October 2023, updated 18 April 2024

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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