BSP requires banks to set aside card fraud buffers

THE BANGKO SENTRAL ng Pilipinas (BSP) will soon require banks to set aside funds for fraud losses if they have not completed the issuance of chip-based cards to their account holders, as the regulator cracks the whip for industry-wide compliance.

BSP Deputy Governor Nestor A. Espenilla, Jr. said the Monetary Board has approved updated rules for the shift to Europay Mastercard Visa (EMV) cards, where lenders will have to put up reserves against potential cases of card fraud.

“One of the additional measures is that if they are delayed [ in shifting to EMV], they have to estimate how much are the possible losses due to fraud because of not being EMV compliant... They will have to set up provisions for possible fraud losses,” Mr. Espenilla said during a media roundtable last week.

“If you delay further, you have a provisioning. That will motivate banks to expedite [the adoption].”

The fraud loss provision will be a mandatory buffer that banks have to set aside on their balance sheets, similar to loan loss reserves for soured debts.

The central bank announced the use of the microchip technology for all

deposit and credit cards back in 2014, where they gave card issuers three years to migrate to the EMV by Jan. 1, 2017.

The EMV card system is currently the international standard as it is deemed more secure compared to the magnetic strip cards which are prone to skimming — usually done by illegally tapping into automated teller machine ( ATM) terminals to steal client data.

Mr. Espenilla previously said that roughly 90% have “substantially” complied with the EMV requirement as of end 2016, but noted that there are “varying degrees of compliance” among lenders.

Among the upgrades needed include deploying chip- reader ATMs and upgrading back- end systems, securing host certifications with the interbank network BancNet and other payment networks, updating point-of-sale terminals, and producing and issuing EMV cards to account holders.

There are around 76 million debit and prepaid cards in the country, alongside 8.5 million credit cards, according to the central bank.

Mr. Espenilla added that the BSP will soon announce a “final” deadline for full EMV compliance.

The central bank earlier rolled out the liability shift framework, which places the burden on banks in cases of theft or losses coming from skimming if the account holder has not been issued the microchip-based card.

The incoming BSP governor also said that it will require network operator BancNet to monitor whether banks are refusing to serve clients from a different bank on their ATMs, as the lenders try to dodge skimming incidents at the cost of denying access to financial services to the public.