KYC Requirements in Philippines

For companies doing business in the Philippines, maintaining regulatory compliance now requires ensuring adherence to Know Your Customer (KYC) procedures. The significance of KYC procedures is highlighted by the changing nature of financial crimes and the growing emphasis on anti-money laundering (AML) measures. 

What Is KYC in the Philippines?

The Bangko Sentral ng Pilipinas (BSP) enforces Know Your Customer (KYC), a crucial compliance process required by the Anti-Money Laundering Act (AMLA) of 2001. KYC guarantees that all "covered entities," including financial institutions, banks, and Virtual Asset Service Providers (VASPs), authenticate their clients. 

Businesses that use KYC not only abide by the law but also protect their reputation and build consumer trust.

The Legal Foundation for KYCs

In the Philippines, KYC is regulated by a number of laws and rules, such as:

The Anti-Money Laundering Act (AMLA), also known as Republic Act No. 9160: This law creates the legal framework that mandates Know Your Customer (KYC) procedures be implemented by financial institutions and businesses. 

Circular No. 1022 of the BSP (2020): This circular that was released by the Bangko Sentral ng Pilipinas provides thorough instructions for carrying out enhanced due diligence (EDD) and customer due diligence (CDD). In order to stop financial system abuse, it guarantees that financial institutions evaluate the risk levels of their clients, confirm their identities, and impose more stringent controls on high-risk transactions.

Anti-Money Laundering Council (AMLC): This government organisation is responsible for monitoring reporting requirements for covered and suspicious transactions, ensuring compliance among organisations, and ensuring that the required reports are submitted in order to prevent money laundering activities.

FATF Recommendations: The Financial Action Task Force (FATF) establishes international guidelines to prevent the financing of terrorism and money laundering. In order to promote trust and collaboration with foreign partners, these recommendations offer a framework for bringing Philippine regulations into line with global best practices, bolstering financial systems, preventing financial crimes, and ensuring global compliance.

Together, these frameworks cover important facets of KYC, such as risk classification, customer identification, record-keeping, and continuous monitoring.

Essential KYC Requirements in the Philippines

The following essential conditions must be met in order to comply with KYC in the Philippines:

Program for Customer Identification (CIP)

Companies must collect and record important client information, such as:

• Full name 

• Birthdate

• Address

• Nationality

• Tax Identification Number (TIN)

• Employment or income source

• A legitimate form of identification

Identity Verification

Verification documents that are acceptable include:

Secondary IDs: Postal ID, SSS ID, TIN ID, voter ID, and student school ID; primary IDs: passport, driver's license, Unified Multi-purpose ID (UMID), and PhilSys ID

Alien Certificate of Registration (ACR) or a current foreign passport are required for non-residents.

Address Verification

Utility bills, bank statements, or a barangay clearance verifying the customer's residential address are a few examples.

Video or in-person ID verification

Customers must go through in-person verification or its digital equivalent, such as video ID verification with real-time liveness checks, in accordance with BSP Circular No. 1022.

Record Keeping 

To ensure accessibility for audits and regulatory review, KYC documents and transaction records must be safely kept for a minimum of five years after the transaction.

Continuous Observation

A crucial component of continuous compliance is the regular updating of customer data and the continuous screening for high-risk individuals (such as those on watchlists or sanctions lists).

Customer Risk Profiling in KYC

In order to reduce potential exposure to financial crimes, KYC mandates that businesses categorise their customers according to their risk profiles. Clients are divided into:

Low-risk: People who conduct transactions that are clear-cut and simple

Medium-risk: People or things exhibiting somewhat complex behaviours

High-risk: Clients who exhibit erratic behaviour or high levels of exposure, such as PEPs

Among the criteria used to classify risks are:

Type of business or occupation 

• Origin country (particularly if it has lax AML regulations)
• PEP status and public profile
• Transaction value and frequency
• High-risk individuals need more documentation and closer examination.

Triggers for Enhanced Due Diligence (EDD)

In certain situations, enhanced due diligence, or EDD, becomes required:

• The client is a Foreign Politically Exposed Person (PEP).
• Transactions take place without in-person confirmation.
• Transactions with high values or unusual complexity are recognised.
• The client lives in a country where money laundering is considered to be a serious risk.

EDD might need:

• Verification of the wealth or source of funds; 
• Ongoing transaction monitoring; 
• Senior management approval for account onboarding.

Digital KYC (eKYC) Revolution in the Philippines

The Bangko Sentral ng Pilipinas (BSP) now allows eKYC under certain restrictions due to the growth of fintech and digital banking. eKYC's key characteristics include:

• By confirming that clients are physically present during video-based verification procedures, Liveness Video Detection, which is our first item, stops attempts to use pre-recorded footage or dishonest techniques. 
• Document Authenticity Checks, the second item on our list, extract and examine information from identification documents with the help of sophisticated optical character recognition (OCR) technology.
• Biometric Integration, which is another characteristic, uses smartphone apps to compare a user's live selfie with the picture on an ID to improve security. 

API Integration with National Systems, which helps greatly, enables real-time information cross-checking by giving direct access to reliable national databases, like PhilSys. 

• Neobanks, like Tonik and UnoBank, are digital-only financial institutions that provide quick banking services without the need for physical branches, and they are essential.
• By enabling bill payment, money transfers, and online shopping with just a smartphone, e-wallets such as GCash and Maya simplify daily transactions. 
• Compared to conventional methods, cryptocurrency exchanges and remittance platforms, another item on our list, offer ways to send money internationally or invest in cryptocurrencies with cheaper fees and quicker processing times.

Penalties for Non-Compliance with KYC

Serious repercussions result from breaking KYC regulations can be shown as,

• First penalty, administrative fines of between ₱100,000 and ₱5 million.
• Another penalty is licenses  being suspended or revoked by regulatory agencies such as the SEC and BSP.
• Criminal responsibility in situations involving money laundering or fraud may very well be another penalty.
• Reputational harm and being added to the FATF grey list is also another disadvantage.
• Compliance serves as a safeguard against risks to finances, operations, and reputation in addition to being a legal requirement.

KYC and Ongoing Monitoring

To maintain compliance, Philippine AML (Anti-Money Laundering) regulations require ongoing transaction monitoring and recurring KYC (Know Your Customer) data updates. Important elements of continuous monitoring consist of:

Continuous Transaction Tracking 

Financial institutions are required to conduct routine reviews of customer transactions to spot and report any suspicious activity that might point to money laundering.

Regular updates to KYC data 

Depending on their risk profile, customer information needs to be updated on a regular basis. High-risk accounts need to have their information reviewed more frequently to reflect any changes in their situation.

The requirements for screening 

The following lists and sources must be checked as part of the stringent screening procedures that institutions must follow:

Sanctions Lists (e.g., UN, OFAC) 

Make sure that no transactions are made with people or organisations that are restricted by sanctions.

Lists of Politically Exposed Persons (PEPs) 

To apply enhanced due diligence, identify those with political clout or influence.

Negative Media Sources 

Keep an eye out for unfavourable news or reports that could point to dangers associated with fraud, financial crime, or unethical behaviour. 

These actions highlight how crucial proactive risk management and diligence are to maintaining AML regulatory standards.

Using Sanction Scanner for KYC in the Philippines

Businesses can navigate Philippines' KYC requirements more easily with the help of Sanction Scanner's solutions:

Automated Identity Verification: Use real-time verification tools to cut down on inefficiencies in customer onboarding.

Global Watchlist Monitoring: Get the most recent PEP, sanctions, and negative media information.

Real-time alerts: Get informed when transactions or customers appear questionable.

API-Based Integration: For a more efficient experience, smoothly incorporate KYC procedures into current systems.

Compliance Reporting: With little manual labour, enable AMLC reporting requirements.

Find out how Sanction Scanner greatly improves your KYC operations' efficiency.