MANILA, Philippines—It’s no longer enough for banks to perform thorough background checks on their customers and ascertain the provenance of their money under the prevailing know-your-customer, or KYC, scheme.
Under the newly approved rules of the Bangko Sentral ng Pilipinas (BSP), supervised financial institutions will now have to carefully vet their own employees, too, under the so-called know-your-employee framework, or KYE.
The move was given the green light by the regulator’s policy making Monetary Board in a bid to prevent would-be rogue bank employees from committing fraud against bank clients, which does not happen often locally but involves hundreds of millions of pesos in funds that go missing when it does.
According to the BSP, the the guidelines “aim to strengthen policies and practices and tighten controls related to confirmation of deposit accounts, as part of the overall operational risk management system” of banks.
BSP Governor Benjamin Diokno said that the issuance is part of the commitment of the regulator “to continue to raise the bar on corporate governance and risk management systems to protect the integrity of the financial system.”
He added that “aligning BSP regulations with international best practices on KYE procedures is just half the battle,” explaining that the other half depends on the strength of oversight of the board of directors of financial institution implementing these policies.
Under the new rules, financial institutions are required to adopt a risk-focused screening process which considers sensitivities of certain positions that may require more stringent procedures.
Adequate understanding of a candidate’s personal background and character, potential conflicts of interest, as well as propensity to commit fraud or irregularity shall be considered in the recruitment process. The revised rules also puts emphasis on the use of BSP records as part of the screening process of banks.
The issuance highlights the importance of continuing assessment of employees’ fitness and propriety to perform the responsibilities required of their positions. Banks are expected to leverage on existing controls, available reports, and other relevant information to facilitate the assessment. The new policy also identified certain behaviors that could serve as red flags warranting further scrutiny as part of employee performance evaluation.
The guidelines also include the requirement for the banks’ head offices to act on requests for confirmation of accounts from their clients or depositors. Segregating the confirmation process from the branch or officer handling the account is a control measure aligned with the principles set out by the operational risk management guidelines earlier issued by the BSP.