The Bangko Sentral ng Pilipinas (BSP) announced on Tuesday that it had adopted a new assessment system for financial institutions’ money-laundering and terrorist-financing risks.
In a memorandum signed on November 23 but released a day after, BSP Governor Chuchi Fonacier said the Money Laundering (ML)/Terrorist Financing (TF) Risk Assessment System (MRAS) approved by the central bank’s policymaking Monetary Board on November 13 would replace the existing AML risk rating system and be implemented with the Supervisory Assessment Framework for BSP-supervised financial institutions (BSFIs).
“The MRAS is a tool to assess the inherent ML/TF and proliferation financing (PF) risk and the quality of [the] risk management system to determine the net ML/TF/PF risk of BSFIs, taking into account their risk and context, business models and operations, among others,” she explained.
According to the memorandum, the system provides the platform to evaluate the level of inherent risks and the quality of risk management and self-assessment systems of BSFIs to arrive at their net risk profile.
“The net results will serve as a basis for determining the frequency and scope of examinations, as well as the type, intensity and intrusiveness of supervisory activities,” it said.
The MRAS would gauge BSFIs’ inherent risk, which refers to the intrinsic risks arising from their business and relationships. It would consider key elements, such as nature of the products or services offered; profile of clients or business relationships; delivery channels; and the location of the BSFI, its customers and counterparties.
The system has a four-point rating scale to describe the net ML/TF/PF risks: high, above average, moderate and low.
A high rating describes an excessive level of residual risk, where a BSFI’s risk management and control framework is disproportionate and not commensurate with the high level of inherent risks posed by the nature and complexity of its activities.
Under this rating, the BSP said this financial institution was “most likely to be used as a conduit for the proceeds of unlawful activities, TF and PF.”
An above-average rating connotes a substantial level of residual risk. Its risk management and control framework is either acceptable, with certain areas for improvement relative to the high level of inherent risk, or inadequate in critical aspects relative to the above-average or lower level of inherent risk posed by the nature and complexity of its activities.
It also “may be used as conduit for the proceeds of unlawful activities, TF and PF,” the Bangko Sentral said.
A moderate rating describes a manageable level of residual risk, where a BSFI’s risk management and control framework is adequately compatible or equal to the level of the inherent risks posed by the nature and complexity of its activities.
A BSFI with this rating “can withstand associated ML/TF/PF risks, and there is low to moderate probability to be used for ML/TF/PF activities,” the central bank said.
A BSFI with a low rating has a marginal level of residual risk. This means its risk and control framework is robust and/or fully compatible with the level of inherent risks posed by the nature and complexity of its activities.
It is “highly capable of withstanding ML/TF/PF risks and curbing ML/TF/PF activities,” the BSP said.