Bangko Sentral ng Pilipinas is set to update regulations on pawnshops and loan providers to strengthen the financial system in the wake of the $81-million money laundering scam that rocked the domestic banking industry in February.
Bangko Sentral Deputy Governor Nestor Espenilla Jr. said over the weekend the bank regulator was closely monitoring the activities of pawnshops and non-stock savings and loan associations.
“There are upcoming circulars. One that is almost cooked is the comprehensive regulations updating our regulations on pawnshops. As you know, pawnshops have actually evolved beyond our traditional construct of a corner establishment that you bring your jewelry and you have money as payback. It has evolved more than that,” Espenilla said during the San Miguel Corp.-sponsored 2016 Economic Journalists Association the Philippines business journalism seminar in Tagaytay City.
“A significant chunk of pawnshop business is actually being derived from remittance activity and other kinds of cross-sold activities. You may not realize it but pawnshops today are the number one distributors of micro insurance more than banks, competing the traditional insurance agents. What can pawnshops do today? They do remittances, in addition of course to traditional loans, they do insurance, some even do money changing. So it’s a much more complicated business,” he said.
Espenilla said the pawnshop law was based on presidential decrees that were issued during the martial law regime and implemented by Bangko Sentral.
“We are going to issue [an upgraded one] that will cover the pawnshops… We are also upgrading regulations covering non-stock savings and loans associations. They are focused on certain type of markets–military, police, teachers–these are sensitive markets and they also involved people’s money,” Espenilla said.
He said shadow banking was an area of growing interest and concern because an unintended consequence of strengthening oversight over the formal banking system might result in the potential enlargement of shadow banking.
“And the shadows can happen in the non-bank context, be that in real estate, in payment services etc… You will see in the coming months and days the growing intensity as well of the BSP’s focus on activity in the shadows,” Espenilla said.
He said the challenge was that the legal framework had its own limitation in terms of what it could do. He said Bangko Sentral tried to deal and work with other financial regulators like the Securities and Exchange Commission and the Insurance Commission, pulling their efforts together through the body called Financial Sector Forum established in 2004.
“Through that process—although BSP is only responsible for banks in general and some other financial institutions like pawnshops etc., by combining our powers and our attention, we are able to cover the financial system reasonably well,” Espenilla said.
He said that resulted in more competition in the system, offering more kinds of financial services at more affordable prices.
“So what we are going to try is to study what we can do in terms of revisiting the regulations to recapture the business … by strategically modifying our foreign exchange regulations, more transactions can be done in banks rather than in money changers, for example,” he said.
Espenilla alsos aid the anti money laundering law should be strengthened to prevent another scam from happening in the future.
“We have to strengthen our defenses and the best way to do that is strengthen the anti-money laundering law. Even though there is a big penalty for those involved, if we can’t catch them, nothing will happen. By easing [the bank secrecy law], the system becomes more visible and we can detect these [illegal activities]. Because ‘bad money’ passes through deposits,” Espenilla said.