This document summarizes current trends on KYC regulations: 1. It discusses risk-based and tiered customer identification systems that categorize customers as low, normal, or high risk and require different levels of due diligence. 2. International wire transfers and ensuring KYC is properly performed through documentation are also covered. 3. Enforcement actions taken by regulators are mentioned as well to ensure compliance with KYC regulations.

1. CURRENT TRENDS ON KYC
REGULATIONS
ATTY. MEL GEORGIE B. RACELA, CPA, LlB, LlM
Deputy Director and Head
Anti-Money Laundering Specialist Group (AMLSG)
Supervision and Examination Sector

2. I. Introduction to Risk Based approach
II. Risk Based and Tiered Customer Identification
System
III. International Wire Transfers
IV. Techniques to ensuring KYC is properly
performed
V. Enforcement Actions

3. 3

4. 1. Placement – Objective is to transform banknotes
into non-cash assets. Places physical cash with
Banks and other financial institutions or makes cash
purchases.
• smurfing or structuring
• converted into financial instruments
• commingled with legitimate funds
• purchase of insurance contract, real estates,
precious stones, jewelries

5. 2. Layering – Objective is to disguise the origin of
criminal funds. To do this, the launderer creates
complex layers of financial transactions.
• Electronic transfer of funds
• disguise the transfer as a payment for goods or
services
• transfer the funds to shell corporation

6. 3. Integration – Objective is to integrate illicit funds
with legitimate business. The money is once again
made available to the criminal with the occupational
and geographic origin obscured or concealed. The
laundered funds are now integrated back into the
legitimate economy through the purchase of
properties, businesses and other investments.
• Purchase shares of stocks in the stock exchange
• Purchase of house and lot
• Engage in legitimate businesses

7. Laundered money is most vulnerable to detection when:
 cash initially enters the financial system
 funds are transferred within and out of the financial
system
 cash flows abroad

8. A risk-based approach avoids 'one-size fits all'
policies and procedures. Banks should tailor their
efforts according to the level of the money laundering
risk posed by their customers, products and services.
This involves putting anti-money laundering policies
and procedures in place that cover risk identification,
assessment, mitigation and monitoring.

9. The extent of AML/CTF measures and due diligence
depends greatly on perceived risk. There are a number
of areas where banks tend to be more vulnerable.
1. Vulnerable Services (i.e. international wire transfers,
private banking operators, electronic banking);
2. High Risk Customers (i.e. money changers/
remitters, luxury item retailers, non-governmental
organizations); and
3. High Risk Geographic Areas (i.e. NCCT list)

10. Objective: To establish the true and full identity of
customers by undertaking the following
requirements:
1. Identification Document
2. Face to Face requirement
3. Gathering of minimum information
4. Risk Profile the customer

11. Customers and the authorized signatory/ies of
a corporate or juridical entity who engage in a
financial transaction with covered institutions
for the first time shall be required to present
the original and submit a clear copy of at
least one (1) valid photo-bearing ID
document issued by an official authority.

12. General Rule: No New accounts shall be
opened and created without face-to-face
contact and personal interview, except:
1. Account opened through a trustee, nominee, agent,
or intermediary,
2. Outsourcing arrangement, and
3. Third Party Reliance

13. What are these minimum information?
I. For Individuals:
1. Name;
2. Present address;
3. Date and place of birth;
4. Nature of work, name of employer or nature of self-
employment/business;
5. Contact details;
6. Specimen signature;
7. Source of funds.
8. Permanent address;
9. Nationality;
10. Tax identification number, Social Security System number or
Government Service Insurance Number, if any; and
11. Name, present address, date and place of birth, nature of work and
source of funds of beneficial owner or beneficiary, whenever applicable.

14. What are these minimum information?
II. For Juridical Entities:
1. Certificates of Registration issued by DTI for single proprietors, or by
the SEC, for corporations and partnerships, and by the BSP, for money
changers/foreign exchange dealers and remittance agents;
 2. Articles of Incorporation or Association and By-Laws;
 3. Principal business address;
 4. Board or Partners’ Resolution duly certified by the Corporate/Partners’
Secretary authorizing the signatory to sign on behalf of the entity;
 5. Latest General Information Sheet which lists the names of
directors/trustees/ partners, principal stockholders owning at least twenty
percent (20%) of the outstanding capital stock and primary officers such as the
President and Treasurer;
 6. Contact numbers of the entity and authorized signatory/ies;
 7. Source of funds and nature of business;
 8. Name, present address, date and place of birth, nature of work and
source of funds of beneficial owner or beneficiary, if applicable.

15. Who may perform this? The BSP Supervised Entity, or
1. Outsourcee pursuant to an Outsourcing
arrangement (§X806.2.d)
 Outsourcing Entity has ultimate responsibility
 Board Approved Written Service Level Agreement
 Counterparty has reliable and acceptable KYC process and
training program
 Turn over of all identification documents within 90 days
2. Third Party through TP Reliance (§X806.2.e.1)
 Relying Entity has ultimate responsibility
 Sworn Certification that Third Party has conducted KYC and has
custody of all ID documents and Relying Entity has ability to
obtain ID docs upon request without delay

16. RATIONALE: Focus on the risks that really matter in
your institution- the one with the potential to cause
harm- and placing measures that will enable it to
monitor, control and minimize these risks.

17. RISK-BASED TIERED CUSTOMERS
LOW RISK
REDUCED
DUE
DILIGENCE
EXISTING
AND
ON-BOARDING
NORMAL RISK
AVERAGE
DUE
DILIGENCE
EXISTING
AND
ON-BOARDING
HIGH RISK
ENHANCED
DUE
DILIGENCE
EXISTING
AND
ON-BOARDING

18. Factors to consider in assessing customers (see §
X806.1.a.) during on-boarding:
Factors LOW NORMAL HIGH
1. Background/ Source of funds Payroll Business Unknown/
inconsistent
2. Country of Origin/Residence Philippines U.S. Afghanistan
3. Public position of the
customer or of the directors/
trustees, stockholders, officers
and authorized signatories
Retired PEPs PEPs of
reputable
GOCCs
PEPs with
elevated risks,
etc.
4. Materially linked accounts None With 1 link 2 or more links

19. Factors to consider in assessing customers (see §
X806.1.a.) during on-boarding:
Factors LOW NORMAL HIGH
5. Watchlist of individuals and
entities engaged in illegal
or terrorist activities
None None Listed individuals
and entities
6. Business activities Self-
employed
Hotels,
Restaurants,
Real Estate
Casinos, dealers of
precious stones,
jeweler, NGOs
7. Types of services/
products/ transactions to be
availed of
Savings/
Time
deposits
Current
Accounts
International wire
transfers and private
banking services,etc.

20. Factors to consider in assessing existing customers
(in addition to above):
Factors LOW NORMAL HIGH
1. High volume (relative)
transactions
Below normal Define what is
normal volume
Above normal
2. High value transactions Below normal Define normal
value
Above normal

21. 1. Set Criteria/ Factors that will rate customer
as low, normal and high risk
2. Perform an initial assessment
3. Adjust according to the risk appetite until
an acceptable ratio is arrived (20:60:20)
4. Establish the necessary due diligence
procedures i.e. reduced, average and
enhanced due diligence.

22. Documentation is essential:
1) Copy of the ID, Account Information Form, and
Personal Interview; and
2) There must be an indication and documentation
on how a customer was risk profiled (low,
normal or high) and what standard of CDD
(reduced, average or enhanced) was applied.-
The Risk Score/ Assessment Chart

23. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
High Risk Customers under the UARR:
1) X806.2.m- customer from a country that is
recognized as having inadequate internationally
accepted AML standards, or does not sufficiently
apply regulatory supervision or the FATF
recommendations, or presents greater risk for
crime, corruption or terrorist financing.
2) X806.2.o- NUMBERED ACCOUNTHOLDERS;

24. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
High Risk Customers under the UARR:
3) X806.3.a
 Inaccurate information or document
 Based on the criteria adopted
 Transacting without any underlying legal or trade
obligation, purpose or economic justification
 Transacting an amount that is not commensurate
with the business or financial capacity or deviates
from his profile
 Structuring transactions in order to avoid being the
subject of CT Reporting

25. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
High Risk Customers under the UARR:
3) X806.3.a
 Knowing that the customer was or is engaged or
engaging in any unlawful activity
 Where additional information cannot be obtained
when applying EDD
 Any information or document provided is false or
falsified
 Where validation process is unsatisfactory when
applying EDD
 Where any circumstance for filing an STR exists

26. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
High Risk Customers under the UARR:
4) X806.2.l. - Forex dealers/ MCs/ Ras
5) X806.2.n. – Shell Company/ Shell Bank/ Bearer
Share entities
6) Foreign PEPs
7) Domestic PEPs with elevated risks

27. Apart from profiling and monitoring the
transactions, CIs should do the following:
1. Obtain additional information other than the
minimum information and/documents required
such as list of banks, companies and banking
services to be availed if individuals and for juridical
entities, certain information on and identification
documents of primary officers and stockholders
and directors;

28. Apart from profiling and monitoring the
transactions, CIs should do the following:
2. Conduct Validation Procedures.
 For individuals
 confirm date of birth from official document;
 verify permanent address through utility bills, credit card
statements;
 contacting customer by phone, email or letter; and
 Determining authenticity by requesting certification from issuing
authority or by any other means.

29. Apart from profiling and monitoring the
transactions, CIs should do the following:
2. Conduct Validation Procedures.
 For Juridical Entities
 Require submission of Audited Financial Statements
 Inquire from Supervising Authority the status of the entity
 Obtain Bank references
 On-site visitation of the Company; and
 Contact the entity by phone, email or letter

30. Apart from profiling and monitoring the
transactions, CIs should do the following:
3. Obtain senior management approval for
establishing business relationship.

31. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
(K) Beneficial Owner – refers to natural person(s)
who ultimately owns or controls a customer and/or
person on whose behalf a transaction is being
conducted. It also incorporates those persons who
exercise ultimate effective control over a legal
person or arrangement.
 Owns- 100%; Controls- 50% plus 1; ultimate
effective control- literal meaning
 Improved Risk Management Policy

32. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
(K) Politically Exposed Person or PEP - an individual
who is or has been entrusted with prominent public positions
in the Philippines or in a foreign state, including heads of
state or of government, senior politicians, senior national or
local government, judicial or military officials, senior
executives of government or state owned or controlled
corporations and important political party officials.
 Requirement for CI: Endeavor to establish and record the
true and full identity of PEPs as well as their immediate family
members and the entities related to them and establish a
policy on what standard of due diligence will apply to them
(see § X806.2.g).

33. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
§X806.2.i. (e) The following originator information
shall remain with the transfer or related message
amounting to P50,000 or more or its equivalent
through out the payment chain:
1. Name of the originator;
2. Address or in its absence the national identity
number or date and place of birth of the originator;
3. Account number of the originator or in its absence,
a unique reference number

34. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
Subsection X806.2.i. Fund/Wire Transfer, item 5 thereof is amended to read as
follows:
Ҥ X806.2.i. Fund/Wire Transfer. xxx:
For cross border and domestic wire/fund transfers and related message
amounting to P50,000 or more or its equivalent in foreign currency, the
information accompanying all qualifying wire transfers should contain the
following:
1. the name of the originator;
2. the originator account number where such an account is used to
process the transaction;
3. the originator’s address, or national identity number, or customer
identification number, or date and place of birth;
4. the name of the beneficiary; and
5. the beneficiary account number where such an account is used to
process the transaction.

35. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
§X806.2.i. (f) provides that the CI shall:
1. Exert efforts to establish the true and full identity and
existence of the originator; and
2. Apply EDD on the beneficiary.
3. If any of the two fails, the beneficiary institution shall
REFUSE TO EFFECT the wire transfer or the PAY-OUT of
funds; and
4. When circumstances warrant, file an STR with the AMLC.
5. What to do with the funds? CI’s Internal Policy

36. 1. Establish a system of internal controls and
monitoring to ensure ongoing compliance:
 implement risk-based customer due diligence
 identify high-risk banking operations
 periodically update customer's risk profile
 identify all reportable transactions
 include dual controls and the segregation of duties

37. 2. Perform testing of AML compliance
 The testing should be independent of the internal
audit function itself
 Objective is to establish the existence of customers
aka identifying fictitious accounts

38. 3. Specifically designate an AML compliance
officer(s), responsible for managing AML
compliance
 Should have adequate authority to execute the
responsibilities of the position
 Should possess the necessary independence
◦ Adequate resources- sufficiently staffed
◦ Direct reporting line to the Board of Directors/ Board Level
Committee or Board Approved Committee

39. 4. Ensure adequate training and supervision of
personnel
 personnel should be fully aware of their
responsibilities under AML policies and practices
 personnel who handle currency transactions,
complete reports, grant exemptions or monitor for
suspicious activity should be well supervised

40. 5. Institute systemic reporting to the board and
senior management
Reports should cover:
 compliance initiatives
 identified compliance deficiencies
 suspicious activity reports
 corrective action/s taken

41. 6. Invest in Systems upgrade and Technology
 A robust system is founded on sound technology
 Trash-in Trash Out
 Officers and Staff should be equipped
 Constant checking

42. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
Section X811. Sanctions and Penalties. In line with the
objective of ensuring that covered institutions
maintain high anti-money laundering standards in
order to protect its safety and soundness as well as
protecting the integrity of the national banking and
financial system, violation of these Rules shall
constitute a major violation subject to the following
enforcement actions against the Board of Directors,
Senior Management and line officers.

43. Bangko Sentral ng Pilipinas
Maynila, Pilipinas
Thank you…