‘Take extra caution’ in forex deals, banks told

Following the money laundering scandal that shook the financial system, the Bangko Sentral ng Pilipinas (BSP) has ordered banks to “take extra caution” when dealing with foreign exchange dealers, money changers and remittance agents.

Citing the anti-money laundering regulations under the Manual of Regulations for Banks (MORB), BSP Deputy Governor Nestor A. Espenilla Jr. said banks dealing with foreign exchange dealers, money changers and remittance agents should take extra caution and vigilance and should perform enhanced due diligence consistent with regulations and the bank’s procedures as provided under its Money Laundering and Terrorist Financing Prevention Program (MLPP).

“The bank’s MLPP should contain appropriate risk management practices to ensure that money laundering and terrorist financing risks arising from dealings with foreign exchange dealers, money changers and remittance agents are effectively identified, assessed, monitored, mitigated and controlled,” Espenilla said in an April 5 memorandum.

The memorandum cited that “by the nature of their business, they [foreign exchange dealers, money changers and remittance agents] inherently pose higher money laundering and terrorist financing risk.”

In a meeting last month, the BSP and the Bankers Association of the Philippines (BAP) discussed the possibility of liberalizing, with attendant safeguards, the undocumented foreign exchange limit in order to discourage legitimate foreign exchange deals from going into the “black market” or foreign exchange brokerage and money changers outside the formal banking system.

The BAP had also proposed to raise to $2 million from $120,000 at present the amount of foreign exchange that banks could sell to residents without prior BSP approval. The BSP currently requires banks to secure underlying documents from clients who want to buy more than $120,000 a day from the banking system.

About 85 percent of foreign exchange transactions in the country were being conducted outside the banking system, industry estimates showed, as foreign exchange and money changing services were not illegal as long as these were registered.

The BAP has also suggested to tighten regulations on money changers.

To ensure that transactions with foreign exchange dealers, money changers and remittance agents are sound as well as in line with risk management policies and practices, the BSP ordered banks to:

Only deal with foreign exchange dealers, money changers and remittance agents registered with the BSP;

Conduct appropriate due diligence when dealing with remittance agents as remittance partners to ensure that such will not be used as channel for money laundering and terrorist financing activities;

Conduct risk assessment of foreign exchange dealers, money changers and remittance agents’ customers, considering relevant factors such as business operations, types of customers, product/service availed, distribution channel, jurisdictions they are exposed to and expected account activity;

Perform enhanced due diligence (including a review of  the anti-money laundering and combating the financing of terrorism measures and programs adopted by foreign exchange dealers, money changers and remittance agents, as well as submission of proof of registration with the Anti-Money Laundering Council), an unsatisfactory result of which should be a ground for denying the business relationship, and

Perform continuing account and transaction monitoring.