BSP mulls consumer protection rules on forex deals

MANILA, Philippines – Sending money here and abroad will be made easier through banks than through pawnshops and remittance centers under planned central bank reforms amid the $81-million money laundering probe.

“The way we approach it is that we are tightening in one hand and loosening in the other,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. said over the weekend.

“We are studying what we can do to enable regulated institutions or banks to recapture businesses or for people to move from non-banks,” he said during a seminar of business journalists.

Specifically, consumer protection rules on foreign exchange deals with remittance and money centers are being considered, while a “comprehensive” regulation for pawnshops is being crafted.

On the flip side, documentary requirements for foreign exchange transactions in banks may further be relaxed.

This, as it became clear during the Senate investigation that the Philippine Remittance Co. (Philrem) participated in the conversion and transfer of stolen funds from Bangladesh Bank to the local financial system.

While the probe is ongoing, Espenilla said the Anti-Money Laundering Council (AMLC) began examining policy loopholes to ensure there would be no repeat of the incident.

“We have to worry about (non-banks) because an unintended consequence of strengthening oversight over the formal banking system is the potential enlargement of the shadows or shadow banking,” he explained.

Pawnshops, for instance, no longer just serve clients who exchange jewelry for cash, but now even accept remittance payments and even distributes micro-insurance.

For remittance agents and money changers, BSP wants them to find ways to better determine what are suspicious transactions as per AMLC regulations.

“We are aware that these institutions are being used by OFWs (overseas Filipino workers) for their transactions because they have looser rules than banks,” Espenilla said.

“At the same time though, they are also being abused by non-OFWs,” he added.

This is why, Espenilla said, the BSP wants consumers to “go back” to lenders in processing their money since they are deemed “more diligent in following the rules.”

Two weeks ago, the central bank reminded lenders transacting with non-bank financial institutions to take “extra caution” as they pose higher money laundering risk outside BSP’s purview. 

“You should consider a crisis as an opportunity to reform,” Espenilla said.

Meanwhile, the central bank has warned its counterparts in emerging markets against evolving bank practice of rejecting financial transfers to territories deemed at risk to money laundering and terrorist financing. 

“Wholesale de-risking should be avoided as it brings negative unintended consequences, particularly restricting the flow and increasing the cost of remittances,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told a keynote address.

He delivered the remarks during the roundtable on financial inclusion hosted by the Intergovernmental Group of Twenty Four (G-24) emerging nations and the Alliance for Financial Inclusion. 

The meeting was held on the sidelines of the International Monetary Fund-World Bank Group Spring Meetings in Washington, last week.

De-risking is characterized by banks terminating or severely restricting relationships with clients such as money transfer operations or remittance agents for fear of money laundering and terrorist financing.

Money service businesses, foreign embassies, nonprofit organizations and correspondent banks in the US, United Kingdom, and Australia have reportedly cancelled accounts and severed ties with Filipinos sending money home. 

Jeremaiah Opiniano, executive director of think tank Institute for Migration and Development Issues, said de-risking is a “big issue” for both the over 10 million overseas Filipinos and the economy. 

“The central bank would want those inflows to go to formal banking channels. With this, that may be difficult to do,” Opiniano said in a phone interview over the weekend.

“They may resort to informal channels which BSP does not monitor. The result will be lower remittances and this could impact on our dollar reserves at first base,” he added.

Remittances, which accounts for nearly a tenth of economic output, surged nine percent in February, the fastest growth rate in eight months. For the first two months, they are up 6.2 percent year-on-year at $4.13 billion.

The BSP expects remittances to grow four percent this year.

During the meeting, Tetangco highlighted the enormous potential of digitization of financial services in driving scale in financial inclusion and at the same time the need to properly manage the attendant risks to this emerging trend.

Earlier, Espenilla said local banks are having difficulty finding correspondent banks abroad even before the $81 million money laundering scandal wherein the funds stolen from the Bangladesh Bank entered the country through the Rizal Commercial Banking Corp. (RCBC).

“Some remittance companies are finding it difficult to find correspondent banks abroad to deal with them. But that situation was already being felt (before) and a situation like this can conceivably make it even harder,” Espenilla earlier told the Senate Blue Ribbon Committee.

“The Philippines actually is experiencing increasing difficulty in terms of remittance flows because of the perception of problems of weak environment in terms of money laundering,” he added.

For his part, Bank of the Philippine Islands president Cezar Consing confirmed that Filipinos abroad are at risk of paying higher fees to send money to their loved ones in the Philippines due to the $81 million bank heist.

“Foreign banks are beginning to be much more choosy with which local banks to deal with. That’s one of the very sad effects of this,” Consing said.

Former Finance Secretary Roberto de Ocampo earlier said Philippine banks’ remittance operations abroad experience tighter scrutiny from their partner foreign banks.