Banks, money changers at odds over FX liberalization campaign

THE COUNTRY’S largest banks and independent money changing firms are divided over the Bangko Sentral ng Pilipinas’ (BSP) plan to further liberalize the local foreign exchange industry, with the former supporting measures to close money laundering loopholes while the latter believing forcing dollar transactions into the formal sector will only push some players deeper underground.

The Bankers Association of the Philippines (BAP), in particular, expressed its support for BSP’s plan, saying raising the ceiling on no-questions-asked foreign exchange deals from the current $120,000 to as high as $2 million would help banks accommodate more clients who would otherwise go to the currency black market.

“Raising the [transaction] amount where you don’t require documentation will be good for the banks and good for the market,” BAP president Nestor Tan said in a telephone interview with the Inquirer.

As envisioned by the BSP, relaxing rules on banks’ foreign exchange deals would encourage more individual and corporate clients to transact within the highly regulated formal banking sector, making it easier for the government to monitor the movement of funds into and out of the financial system.

At present, both individual and corporate clients are deterred from trading dollars with banks due to heavy and time consuming documentation requirements and, to a lesser degree, more expensive fees charged by banks compared to the lower overhead cost operations of money changers.

The formal banking system in the Philippines sees anywhere between $300 million to $1 billion transacted on any given day and, although no accurate figure is available, bankers and regulators estimate this represents only between 50 percent to 70 percent of actual foreign exchange deals executed in the local financial system. The rest are transacted through no-questions-asked money changers whose access to dollar liquidity is sometimes bigger than those of the largest banks.

BSP’s proposed liberalization scheme was, however, met with skepticism by players in the informal foreign exchange market.

“It will not succeed, I think,” said one owner of a foreign exchange firm who spoke to the Inquirer on condition of anonymity because of the ongoing clampdown in their industry.

He explained there are parties who trade dollars for completely legitimate business reasons but want to stay away from the prying eyes of banks or regulators due to security concerns.

“They want to kill our industry. But we are survivors, and people will simply find another way,” the foreign exchange dealer said.

But BAP’s Tan said the proposal would put banks on equal footing with the nimbler money changers, thus eliminating the market’s incentive to do business with the latter.

More importantly, the head of BAP, the umbrella organization of the country’s largest banking institutions, said regulators would have greater access to information that could be used to combat the illicit flow of dirty money.

“What’s important with this measure is that [the regulator] will be able to see the patterns [of cash movement] within the [financial] system,” Tan said, adding that BSP’s proposal would also reduce the burden of compliance risk presently borne disproportionately by banks.