Banks developing central system to combat scams

MANILA, Philippines — The Bankers Association of the Philippines (BAP) is working on a central system that will allow lenders to coordinate in real time and stop suspicious transactions, as part of efforts to comply with the Anti-Financial Account Scamming Act (AFASA).

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Elmore Capule said banks have one year to roll out a “coordinated verification protocol” that would enable immediate blocking of funds once a client reports a scam.

“If a (victim) reports, the whole system should be alerted. That’s the beauty of it,” Capule told reporters. “The (system) will use big data and artificial intelligence so everything can be done real-time and fast.”

The system will also feature a centralized database of accounts linked to fraudulent activities, making it easier for financial institutions to flag and block potential scam-related transfers.

Capule said the BAP has already presented an initial version to the BSP and expressed optimism that banks will meet the deadline next year.

At the same time, Capule stressed that AFASA carves out an explicit exemption from the country’s bank secrecy laws, enabling authorities to open suspicious accounts and share information across institutions.

“The law is very explicit, that AFASA is an exception to bank secrecy,” Capule said.

Under BSP circulars issued in July, banks with transactions exceeding P75 million over six months are required to install enhanced fraud management systems, including geolocation checks, velocity monitoring and blacklisting capabilities. Smaller institutions such as rural and thrift banks will be subject to proportionate requirements.

Capule warned lenders that failure to comply by August next year could expose them not just to regulatory penalties, but also to restitution claims from scam victims.

“If I am scammed and it turns out the bank is not compliant with regulations, they will be obliged to repay me. I don’t have to go after the scammer,” Capule said, citing provisions under the Financial Consumer Protection Act of 2022.

BAP president Jose Teodoro “TG” Limcaoco confirmed that industry discussions are ongoing.

“We like the way the IRR (implementing rules and regulations) has come out… now we just have to implement it,” Limcaoco said, adding that operational details are still being ironed out at the Philippine Payments Management Inc. (PPMI).

The AFASA, signed into law earlier this year, criminalizes money mule activities and mandates stronger fraud prevention systems in the financial sector amid a surge in cyber-enabled scams.

Meanwhile, Limcaoco, who is also president and chief executive officer of Ayala-led Bank of the Philippine Islands, said banks continue to push for the removal of mandatory credit allocation, arguing that such requirements compromise prudent risk management.

“Banking is about taking deposits and lending them responsibly. When you impose mandatory lending, you’re forcing us to take risks regardless of the borrower’s profile and that’s not fair to depositors,” he said.

Instead of quotas, he said the government should provide incentives to encourage lending to priority sectors, such as tax breaks or exemptions from documentary stamp taxes.

“You can incentivize us, but you cannot force us. Otherwise, it takes away a bank’s fiduciary duty to protect people’s money,” Limcaoco said.

Based on BSP data, loans extended to micro, small and medium enterprises (MSMEs) rose in the first quarter of the year but still fell short of the mandated credit allocation under the law.

Total MSME loans grew by 15 percent to P546.82 billion in the first quarter from P475.12 billion in the same quarter last year.

Despite the increase, banks only set aside 4.63 percent of their total loan portfolio for MSMEs. This is less than half of the 10 percent required under the Magna Carta for MSMEs.

The law requires banks to allocate eight percent of their total loan portfolio for micro and small enterprises and two percent for medium enterprises.