Banks, officials to face sanctions for irregularities due to lax KYE mechanisms

BANKS and their officials may face monetary and non-monetary penalties once irregularities occur due to their lax know-your-employee (KYE) mechanisms amid tighter restrictions from the Bangko Sentral ng Pilipinas (BSP).

“The range of sanctions that can be imposed on the bank can be monetary or non-monetary sanctions. The officer can be included in the watchlist file or disqualification to enter into the banking system, depending on the seriousness or gravity of the offense,” BSP Director for Financial System Integrity Department Florabelle M. Santos-Madrid said in an online briefing on Thursday.

Last month, the BSP issued Circular No. 1112, which directs lenders to come up with policies and risk management and control measures for the hiring and performance management of bank officials.

It requires lenders to screen applicants against available BSP records when assessing would-be employees’ “fitness and propriety” for a particular position.

“Previously, it’s (screening against BSP records) a voluntary action but now we mandate that to be done by the banks when they hire employees,” Ms. Santos-Madrid said.

In cases of irregularities with a criminal aspect, she said the central bank has the option to refer the case to the Anti-Money Laundering Council or other enforcement agencies.

The director said they update their database whenever they receive information regarding the disqualification of specific persons, based on reports submitted by banks.

“Based on our total records, we have around 7,500 names and the most common reason is dismissal for cause. Let me clarify that the information in the database is not limited to persons disqualified in banks,” BSP Governor Benjamin E. Diokno said.

In April, the BSP said it will also start requiring lenders to report “reputational risks” within five calendar days from determination of an incident. These risks pertain to events that could lead to “financial losses, negative publicity, and loss of stakeholder confidence.”

“Robust know-your-employee procedures foster a stable banking system by weeding out unprincipled personnel who may cause reputational risk to a bank and the financial system,” Mr. Diokno said.

Lenders are given a year to fully comply with the guidelines on reputational risk management. — L.W.T. Noble