Anti-money laundering, sustainable finance are banks’ top concerns – BSP

MANILA, Philippines — Compliance with anti-money laundering (AML) regulations and sustainable finance guidelines proved to be the most challenging areas for banks and financial institutions, according to the Bangko Sentral ng Pilipinas (BSP).

In its Banking Sector Outlook Survey for 2023, the BSP said diverse responses emerged across banking groups when asked to identify top three challenges in terms of regulatory compliance.

This is in contrast to last year’s predominant concern over compliance with the mandatory credit to agri-agra. The BSP earlier said the level of compliance with the mandatory agriculture, fisheries and rural development (AFRD) financing sharply improved due to amendments to Republic Act 11901.

Based on the results of the survey, universal and commercial banks identified compliance with AML regulations as their top concern due to the increasingly complex and ever-evolving regulatory landscape, which involves large volumes of data and continuous system enhancements to carry out due diligence activities.

Meanwhile, foreign banks cite reportorial requirements as their primary hurdle as these banks try to adjust and address validation issues with the transition to automated regulatory reporting.

Rural and cooperative banks said they are having a hard time with sustainable finance guidelines and initiatives. These smaller lenders seek guidance and capacity building to craft their frameworks and policies.

Thrift banks are concerned with the implementation of the new mandatory AFRD Financing Enhancement Act due to the high credit risk associated with qualified borrowers.

On the other hand, digital banks cited mandatory AFRD financing, AML regulations, credit risk management and compliance with the Application Programming Interface-Extensible Markup Language (API-XML) as their key challenges

“In addition to these key concerns, respondent banks cite other areas within the BSP’s regulatory framework–such as regulations on Information Technology (IT) risk management, financial consumer protection, stress testing, reportorial requirements and operational risk management–as other challenges in terms of compliance,” the BSP said.

In ensuring that the financial system remains steadfast and stable, the BSP said it would continuously adopt progressive reforms, advance inclusive and sustainable finance as well as promote and enable the continuing digital transformation in the industry.

“For 2024 and beyond, the BSP is working on operational resilience standards for supervised banks and developing an enhanced crisis management and resolution framework,” the central bank said.

It said that the national risk assessment on money laundering and terrorism financing is well underway, with the final report expected in 2025.

The BSP will also focus on improving data analytics and SupTech capabilities through the launch of the Digital Supervision Platform and the live implementation of the Comprehensive Credit and Equity Exposures Report (COCREE 2.0).

On sustainability, the BSP said it continues to employ a phased approach to the issuance of enabling regulations on sustainable finance. It will also amend the prudential reports submitted by banks to assist in the surveillance of ESG-related risks in the banking system.

“To further develop the sustainable finance market, the BSP will implement measures that will help broaden the range of sustainable financial instruments for retail and institutional investors,” the BSP said.