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AML Process Maturity in the Philippines Banking Industry

A comprehensive AML/CFT process maturity survey was conducted by Fintelekt in May-June 2018 within the Philippines banking industry to aid the understanding along parameters such as the current state of AML compliance, compliance officers’ challenges and priorities, bench-marking AML efforts in the banking industry as well as understanding expected areas of support from the Anti-Money Laundering Council (AMLC) Secretariat.

The survey covered, in detail, opinion on various current issues, and questions on processes related to governance and reporting, risk identification and assessment, technology, resources, training, and other issues.

Respondent banks included public banks, private banks as well as branches of foreign banks in the Philippines and represent roughly 30 per cent of commercial banks in the country.

The Philippines is currently undergoing its third Mutual Evaluation to gauge the country’s level of compliance with international anti-money laundering (AML) and combating the financing of terrorism (CFT) standards.

Key highlights from the report are presented here.

Tone from the top needs to be strengthened

Maintaining an optimal balance between competing priorities of compliance and business growth was identified by 65 per cent AML compliance officers who participated in the survey as the top-most organisational challenge, indicating a likely struggle around bringing in compliant business. 64 per cent compliance officers indicated that they feel the need for greater senior managerial and Board level involvement into AML compliance matters.

The tone from the top management and Board of Directors will be critical to driving the entire organisation to respect AML compliance priorities. An active, involved, and knowledgeable board of directors is essential for the successful implementation of a robust AML compliance programme in any organisation.

Continuous investment in AML systems and technology is required

The global AML landscape is challenging and continuously evolving. Technology and systems will play a key role in ensuring that organisations are flexible and can adapt to change. The level of technology usage for AML is reasonably high. Yet, 19 per cent banks are relying on manual methods for KYC and CDD-related record keeping. 13 per cent conduct transaction monitoring manually. 26 per cent conduct screening manually.

Further, 79 per cent compliance officers indicated that procuring/ enhancing transactions monitoring systems was their top-most priority area for AML compliance spending over the next 1-2 years. This suggests that current systems are either outdated, or incapable of meeting the organisational requirements.

KYC and ongoing CDD are important areas of focus

Understanding of sources of customers’ funds was identified by 47 per cent respondents as a risk perceived as serious threat to the bank.

Most banks update high risk customer profiles often – 3 per cent compliance officers report that their banks update high risk customer profiles every six months, 85 per cent do it once in a year, another 9 per cent once in two years, with just 3 per cent refreshing high risk profiles once in three years.

Further, KYC reviews, update and maintenance has been listed as one of the priority areas for AML compliance spending by 68 per cent of compliance officers. Although banks in Philippines seem to be placing a lot of importance on updating and maintaining customer records, it is important that they identify the full range of relevant trigger events that may lead to a need to update customer records, rather than just doing it by default.

Periodic risk assessments will help identify gaps

Organisations would benefit from periodically assessing the adequacy of their AML monitoring systems and the benefits that a reassessment or subsequent refinement could bring.

27 per cent compliance officers indicated that their organisation has never undertaken an enterprise-wide AML risk assessment and need to undertake this on an urgent basis.

The rest of the participating organisations (73 per cent) have conducted this at some time in the last 1 to 3 years. Most banks in the Philippines recognise the benefits of continuous risk assessment, as 56 per cent indicated that conducting an enterprise-wide AML risk assessment was one of the priorities for AML compliance spending for them in the next 1-2 years.

Increase in human resource cost is anticipated

55 per cent of the organisations were seen to be operating with an average of five or fewer dedicated staff in the AML compliance team. However, 61 per cent compliance officers expect that to increase in the next year, affirming that AML compliance workloads will go up in the near future.

Consequently, spending on recruitment as well as provision of AML specific training for new team members will go up for these banks. Among the recruitment challenges – inadequate subject matter expertise and lack of practical experience were cited as among the top hiring challenges for new employees by 48 per cent compliance officers.

Banks’ expectations from the AMLC are rising

The survey results suggest that banks would welcome greater guidance (chosen by 84 per cent of compliance officers), training (68 per cent) and knowledge-sharing in the form of wider publication of typologies and thematic reviews (58 per cent) from the AMLC.

68 per cent compliance officers rated the current level of guidance or support from the AMLC with respect to clarifications or help required in the last year as ‘Good’. The others felt the need for more outreach and hand-holding by the AMLC. 70 per cent compliance officers said that they do not receive feedback about STRs submitted by them to the AMLC, while 10 per cent said that the feedback that they receive is not enough.

The full report can be downloaded at: