NBFIRA regulates the activities of the insurance sector, non-bank lenders such as pawn brokers, capital market players such as the stock exchange, pension funds and asset managers, as well as virtual asset services such as cryptocurrencies. As at March 2024, the regulated entities numbered 867, a year-on-year growth of about six percent, whilst their combined assets were P161 billion, representing a growth of nearly seven percent year on year.
According to NBFIRA’s 2023–2024 annual report released on Tuesday, the value of fines handed down by the regulator across the industries in the year to March 2024, declined to P2.8 million from P3.9 million in 2022. This was despite a marginal increase in enforcement actions, which increased from 88 to 89 over the period.
During the year, NBFIRA decreased the number of its administrative penalties and cancellations, instead increasing its warnings.
“The significant decrease in cancellations and administrative penalties was against an increase in warnings issued, which is evidence of decreased serious and recurring non-compliances and a spike in minor non-compliances, emanating from the non-bank lending sector,” the regulator noted in the report.
NBFIRA operates a risk-based supervisory system for the non-bank financial institutions sector, which encourages regulated entities to identify their own risks and provide solutions in a timely manner. However, the regulator has also been quick to take action against non-compliant actors, with actions that range from warnings to freezing of accounts and liquidations.
Steep fines have been handed down for offences such as employing unqualified insurance agents, over the years.
According to the report, of the 89 enforcement actions taken by NBFIRA in the year to March 2024, the non-bank lending and insurance sectors had the largest share of sanctions at 46% and 40%. The two sectors involve activities such as microlenders and pawn shops, life and general insurance, as well as medical aid insurers and insurance brokers.
The two sectors, however, also dominate the non-bank financial institutions sector in terms of numbers, with the non-bank lending sector boasting 407 entities as at March 2024, whilst the insurance sector had 251.
The non-bank lending sector recorded an increase in enforcement actions in the year to March 2024, whilst other sectors had decreased.
“Non-bank lending sanctions increased from 33 in 2023 to 41 in 2024, whilst the insurance sector penalties decreased from 39 in 2023 to 36 in 2024,” the NBFIRA report noted. “The bulk of the non-compliances in both the lending and insurance sectors comprised failure to submit statutory returns, as well as business non-compliant activities.”
The insurance sector accounted for the bulk of the P2.8 million in fines, receiving P2.6 million in penalties during the year, the NBFIRA report indicates. The regulator said the contraventions in the insurance sector were mostly around the monitoring of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).
Speaking generally on the non-bank financial institutions, NBFIRA directors said while there had been significant improvements in compliance practices, a small number of entities were identified as “significantly non-compliant” and had subsequently been referred for “appropriate enforcement action”.
“The entities failed to meet the minimum standards required for effective AML/CFT practices, including deficiencies in customer due diligence, transaction monitoring and reporting of suspicious activities. “The non-compliance was often characterised by inadequate internal controls, insufficient staff training, and lack of timely updates of their AML/CFT policies and procedures. As a result, such entities were subjected to fines and directives to implement corrective actions.”
NBFIRA figures indicate that two regulated entities were fined P1.3 million for AML/CFT violations in the year to March 2024, compared to three entities fined P1.6 million in the year to March 2023.
