A foreigner leaves a money changer after exchanging his dollars notes to peso in Manila on November 24, 2016. -- AFP

BSP crafts rules for electronic KYC procedures

The Bangko Sentral ng Pilipinas (BSP) is crafting guidelines to allow financial entities to carry out client verification via electronic means, alongside more “flexible” rules to combat money laundering, a central bank official said.

Pia Bernadette Roman-Tayag, head of the BSP’s Inclusive Finance Advocacy Unit, said the central bank will soon release a circular covering updated rules for the Anti-Money Laundering Act (AMLA), which also allows financial firms to use digital platforms to conduct “know-your-customer” (KYC) procedures, as regulators take an adaptive stance towards emerging financial technology (fintech).

Ms. Roman-Tayag said the upcoming circular comes after revisions to the implementing rules and regulations of the AMLA have been approved.

“There’s more clarity on the risk-based implementation of the AMLA. If it’s a lower risk, there is more scope for reduced KYC. If the financial institution can justify with data and assessments that it’s really lower risk, then they can do different things like electronic or even deferred KYC,” Ms. Roman-Tayag told reporters on the sidelines of the Financial Technology Forum organized by SGV & Co.

The KYC rule is required to establish the full identity of individuals looking to transact with a financial firm, which is usually done by requiring identification cards from a client. It also involves monitoring account activity, in keeping with operational risk management and combatting dirty money deals.

E-KYC procedures allow financial firms to use online channels like video calls and geocoding to verify a client’s identity. However, any entity looking to tap this new platform must first install appropriate protocols before such a service can be offered to the public.

“This is not automatic… [but] there’s more flexibility now to leverage on what technology can provide,” Ms. Roman-Tayag said. “Minsan baka mas (Sometimes it may be more) certain pa in terms of verifying identity. Some banks, they also use social media. You can really verify the identity more than an ID, for example.”

The BSP official added that the central bank has consciously taken an accommodative stance towards fintech developments, as it is seen as a tool to broaden financial inclusion.

“We don’t want to unnecessarily stifle innovation,” Ms. Roman-Tayag said in explaining as to why the BSP has not taken a hard-line approach on new developments.

The central bank has released a series of circulars that seek to update rules for non-banks offering financial services to the public. Earlier this month, the BSP issued Circular 944 that seeks to regulate virtual currency exchanges by requiring such players to regularly report the amounts they convert from fiat to digital currencies.

Last month, the BSP also came out with updated rules covering money changers and remittance agents, which requires all platform providers and partner firms to register and report to the central bank.

Such changes reflect a “principles-based” approach to new technology, BSP Deputy Governor Nestor A. Espenilla, Jr. previously said.

New service providers are expected to get more Filipinos aboard formal financial channels, riding on a strong base of mobile phone users in the Philippines. In particular, 40% of Filipinos have smartphones and 41% are connected to the Internet, according to central bank data.

A big chunk of Filipinos remain unbanked with only 43% of adults with savings, although 68% choose to keep their money at home rather than in banks, according to a survey published by the central bank in 2015.

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