Financial Crime World

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Due Diligence in Banking: A Must for Financial Institutions in the Philippines

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The Philippine banking industry has been grappling with the importance of due diligence, particularly when it comes to knowing your customer (KYC) and anti-money laundering (AML) regulations. In recent years, the government has implemented stricter measures to combat money laundering and terrorist financing.

National Regulatory Framework

Republic Act No. 9160 or the Anti-Money Laundering Act of 2001 is the primary law that regulates AML in the Philippines. The Implementing Rules and Regulations (IRR) of the AMLA, which took effect on February 8, 2021, provides details on the implementation of the law.

Anti-Money Laundering Council

The Anti-Money Laundering Council (AMLC) is the central AML authority and financial intelligence unit in the Philippines. It is responsible for implementing AML regulations and investigating money laundering offenses.

Customer Due Diligence

Under the AMLA IRR, customer identification process involves verifying the identity of customers through a series of steps, including gathering identification information and presenting original identification documents. Covered persons must also implement and maintain a system to verify the true identity of their clients.

Reliance on Third Parties

Covered persons may rely on third parties to conduct customer due diligence (CDD) provided they meet certain conditions. These third parties must be covered persons or financial institutions operating outside the Philippines that are subject to equivalent CDD and record-keeping measures.

Outsourcing Customer Due Diligence

Covered persons can outsource customer identification and verification procedures to a counterparty, but ultimate responsibility for knowing the customer remains with the covered person. The counterparty must have a reliable and acceptable customer identification system and training program in place.

License or Registration Requirement

There is no license or registration required for third parties, but certain conditions must be complied with. For both covered and non-covered persons, there must be an approved written service level agreement and the third party has a reliable and acceptable customer identification system and training program in place.

Entities that can be Relied on as Third Parties

The following entities can be relied on specifically by law as third parties to comply with AML regulations:

  • Credit institutions
  • Financial institutions
  • Other trust or company service providers
  • Estate agents
  • Providers of gambling services
  • All other persons and their subsidiaries and affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP)