Banks told to monitor negative news on clients

THE BANGKO SENTRAL ng Pilipinas (BSP) is reminding its supervised institutions to monitor negative media reports as part of customer due diligence, in an effort to check for potential money laundering risks.

“All BSP-supervised financial institutions (BSFI) are reminded to incorporate Negative Media Report (NMR) screening as an integral procedure in the conduct of customer due diligence,” it said in a memorandum, adding this would complement ongoing transaction monitoring system and processes.

The central bank defines NMR as “published or televised adverse news, advisories, and/or reports on certain individuals and entities.”

“NMR related to possible money laundering predicate offenses, terrorist financing, and proliferation financing risks may trigger further review or look back on customers’ transactions and activities, particularly those subject of such NMRs.”

The BSP said that BSFIs must adopt policies and procedures to screen these negative news, including updating their institutional risk assessment.

Covered financial institutions should update their institutional risk assessment on newly identified financial crime threats and emerging trends that could have an impact on their products and operations, as well as other developments that could affect their operations, the BSP said.

BSFIs must consider all relevant risk factors, such as the institutional level of exposure to the subjects of negative information or reports and those who may be involved in illegal activities, it added.

They must also keep an updated list of sources of negative media reports, such as news articles, public registers, court/congressional/Senate records, as well as publicized hearings and deliberations.

A database of persons and entities that are the subject of these negative media reports should also be maintained, the BSP said.

“A BSFI shall develop means or measures to reasonably assess the credibility of these NMR sources and use the same for the conduct of ongoing monitoring,” it added.

Meanwhile, the BSP also noted customer due diligence and transaction monitoring processes must integrate NMR screening and scrubbing.

“To ensure holistic investigation, screening and scrubbing shall extend to ultimate beneficial owners and authorized signatories of juridical customers, as well as related parties/interests and counterparties involving material and significant transactions.”

BSFIs shall develop an NMR handling framework that is consistent with the board’s risk appetite and strategies.

It must also clearly define “material and significant” transactions considering risk factors, such as materiality of outstanding exposures; historical transactions; the relevance and magnitude of the NMR; and the presence of other attendant suspicious circumstances.

If warranted, a BSFI may conduct enhanced monitoring and transaction review for possible risk reassessment, risk-based account management, and suspicious transaction and risk event reporting depending on the results of the NMR investigation.

“A BSFI shall identify the action that may be triggered by the results of the NMR investigation, whose range shall be calibrated based on the severity of the results,” it said.

These include flagging the customer’s account for ongoing monitoring and periodic enhanced due diligence, account restriction, or termination of the relationship.

“A BSFI shall analyze the significance of NMRs and assess the impact of the possible operational, compliance, legal, concentration and reputational risks brought by clients subject of NMRs,” the central bank said.

Institutions must escalate and report significant risks, including Anti-Money Laundering Council inquiries or freeze orders, to their board of directors and senior management, it added. 

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said this effort shows proactive and dynamic monitoring by the BSP against potential “dirty money” risks.

“Thus, also minimizing the risk of asymmetric information and better due diligence and being more anticipatory in the management of these risks,” he added.

In February, the Financial Action Task Force removed the Philippines from the “gray list” or jurisdictions under increased monitoring for dirty money risks. — Luisa Maria Jacinta C. Jocson