Will the Philippines Exit FATF Grey List by 2024?

Charting the Waters: Philippines' History with FATF Grey List

The Philippines is under the regulatory magnifying glass, grappling with the complexities of the Financial Action Task Force (FATF) Grey List for the second consecutive year. This designation comes on the heels of the country's failure to address gaps in its anti-money laundering and terrorist financing controls within the specified timeframe.

Presidential Resolve and AML/CFT Strides

In the face of this challenge, President Marcos and the Anti-Money Laundering Council (AMLC) have demonstrated a robust commitment to elevate the nation's AML/CFT standing. Acknowledging that eight out of 18 action items are still outstanding, the government aims to initiate the exit process from the FATF Grey List by 2024.

The Philippines has achieved commendable progress, ticking off 10 of the 18 identified deficiencies. However, areas demanding further attention include the mitigation of risks associated with casino junkets and the oversight of designated non-banking and business professionals, notably casinos.

Challenges on the Horizon: Pending Gaps

Despite the strides, certain challenges loom on the horizon. The Philippines grapples with pending deficiencies, especially in areas critical for exiting the Grey List. The focus areas encompass increasing AML and CTF investigations and prosecutions, fortifying cross-border measures at entry points, augmenting the registration of designated non-financial businesses and professions (DNFBPs), including lawyers and accountants, and implementing additional controls to mitigate risks within the realm of casino junkets.

The Impending Risks of Staying Grey

The urgency to exit the Grey List stems from the understanding that prolonged inclusion amplifies the risk of blacklisting. Such an outcome would reverberate across the overseas Filipino workers' remittances, causing potential increases in costs, more stringent requirements, or even transaction denials. The implications for regulated institutions in the Philippines are palpable. The FATF placed the country on the "Grey List," subjecting it to increased monitoring due to strategic deficiencies. This status has far-reaching consequences, as evidenced by a 2021 International Monetary Fund working paper, which highlights a substantial reduction in capital inflows for grey-listed countries.

• Capital inflows decline by an average of 7.6% of GDP.
• Foreign direct investment inflows decline by an average of 3.0% of GDP.
• Portfolio inflows decline by an average of 2.9% of GDP.
• Other investment inflows declined by an average of 3.6% of GDP.

Regulatory Spotlight on Key Areas

The regulatory spotlight intensifies on several key fronts:

• DNFBPs, Especially Casinos:
  • Casinos, with their vulnerability in preventing terror financing, face heightened scrutiny. This aligns with global trends, as exemplified by Cambodia successfully exiting the FATF Grey List last year.
• Focus on Registration:
  • Professionals, including lawyers, accountants, and jewellery shops, will experience increased scrutiny, translating into heightened compliance measures for these entities.
• Intensified Investigations and Prosecutions:
  • FATF expects more proactive actions from the government, aligning with the evolving risk landscape in the Philippines. This anticipates a surge in investigations and prosecutions.
• Scrutiny on Fintechs, Especially in Cross-Border Payments:
  • Fintechs, particularly those facilitating cross-border payments, will face increased scrutiny. The extension of the stay on new Electronic Money Issuer licences until December 2024 underscores the regulatory emphasis on this sector.
• Emphasis on Beneficial Ownership Information:
  • Establishing a Beneficial Ownership (BO) registry and streamlining data is a key requirement for exiting the Grey List. The unified focus on Ultimate Beneficial Ownership (UBO) is expected to become a norm among regulators.

The Path Forward: An Imperative Investment

As the Philippines steers toward its goal of exiting the FATF Grey List in 2024, the strategic imperative for regulated institutions is clear. It necessitates a proactive approach, aligning with regulatory expectations and fortifying AML/CFT controls. The journey underscores the pivotal role of a comprehensive compliance system, not just as a shield against risks but as a cornerstone for a resilient and compliant financial ecosystem.

The Philippines' endeavour to exit the FATF Grey List is not just a regulatory obligation; it's a strategic manoeuvre to fortify the nation's financial integrity and global standing. As the nation navigates these compliance waters, the ripples will be felt across institutions, underscoring the importance of steadfast commitment and investment in AML/CFT measures.