BANKS must continue to update their targeted financial sanctions (TFS) frameworks amid evolving terrorism and proliferation financing risks, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.

BSP Deputy Governor Chuchi G. Fonacier through Memorandum No. M-2022-038 told BSP-supervised financial institutions (BSFIs) that regulations on Anti-Money Laundering/Counter Terrorism and Proliferation Financing (AML/CTPF) must be sustainable to effectively implement TFS.

The memorandum was issued as the Monetary Board released a guidance paper titled “Targeted Financial Sanctions Implementation” that includes best practices on TFS implementation, as well as points for improvement and major challenges for local banks.

“As we move forward, the challenge is to achieve sustainability as TFS risk is evolving and TFS implementation is a continuing obligation. BSFIs are therefore expected to establish and/or continuously improve their respective TFS framework to effectively implement TFS obligations,” the BSP said.

TFS are measures like asset freezing and limiting fund availability for designated persons or entities suspected to be involved in terrorism financing (TF), proliferation of weapons of mass destruction, and proliferation financing (PF).

According to the guidance paper, banks are expected to conduct Institutional Risk Assessment (IRA) to ensure that their systems and processes on TFS are working as intended.   

Lenders must likewise identify risks of potential breach, non-compliance, or evasion of TFS obligations and take appropriate mitigating measures for identified risks.

Based on the results of the IRA, BSFIs must adopt proportionate and risk-based sanctions, policies, and procedures approved by the board of directors. Financial institutions shall also conduct effective awareness programs on relevant sanctions.

Banks are also expected to implement electronic and manual screening tools equal to the BSFI’s risk profile and complexity to ensure timely updating of their sanctions lists, conduct of sanctions screening and implementation of TFS without delay.

At minimum, they are expected to practice sanction screening by verifying the names and country of residences of accountholders and other persons acting on behalf of account owners.

Information on wire transfers and trade transactions should also be screened. This should be conducted upon account opening, periodically, and whenever there are updates to a client’s account information including ultimate beneficial ownership, authorized signatories, or change in the names of clients.

Banks must also conduct a periodic screening of all customers whenever there are changes to the sanctions list and designated persons, the BSP said.

“Finally, the Board and Senior Management of BSFIs are expected to continuously provide high-level direction and adequate support and resources in their respective institutions to further strengthen safeguards and prevent the designated persons from accessing and moving funds in financial channels for TF and PF activities.”

The BSP said BSFIs must have appropriate processes to guide personnel in handling name matches, freezing actions in case of potential target match, as well as filing of returns and suspicious transaction reports under existing regulations.

Banks are expected to coordinate with the Anti-Money Laundering Council in resolving name and potential target matches.

The sanctions database of financial institutions includes identified terror groups by the United Nations Security Council, among others.

The guidance paper also noted some typologies on the use of virtual assets in TF. Banks are expected to develop sound risk management frameworks in mitigating TF risk exposures on the use of virtual assets.

“This includes calibration of existing AML processes to mitigate emerging risks such as the use of virtual assets in TF activities. Continuous collaborative and proactive engagement among industry players, regulators and other stakeholders should be pursued to continually address the challenges noted,” it added.

Based on these typologies, red flag indicators were developed to guide lenders in formulating measures to prevent and detect TF activities using virtual assets. — K.B. Ta-asan

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