Legislative agenda,
In any case, remittance as a business should be BSP-supervised for the benefit of stakeholders and for AMLA compliance purposes as well.
It will be good to include the proposed oversight over payment and settlement systems in the Philippines and expansion of BSP’s functions over payment systems operators [and] Internet payment services.
The BSP charter should consider the changes in complexity and scale of the operations of the BSP since the approval of its existing charter. It is essential that capitalization be raised to ensure BSP’s viability. The new charter should also provide reasonable protection and immunity for proper protection of the regulators in the exercise of their functions.
Capitalizing the BSP will put a lot more capability on their part to address market conditions and of course, you would want your monetary authority to be in a very stable position.
[T]he BSP charter is long overdue. One salient provision of the charter is the increase in capitalization of the BSP… An updated charter may include better clarifying BSP’s responsibility in terms of money service businesses, credit-granting businesses and payment systems, including its responsibility in ‘regulating’ or ‘ having oversight’ over financial technology ( FinTech) firms who are encroaching the banking space and who should, ideally, abide with the same rules and regulations of banks, to ensure a level playing field.
ON ISLAMIC BANKING
DBP’s Ms. Borromeo: As DBP owns 99% of the Al-Amanah Investment Bank of the Philippines (AAIBP), it would be more helpful to include/draw attention to the following:
• In general, the law should put greater emphasis on making AAIBP a viable Islamic bank in the country. Proposed amendments should address those provisions that constrain AAIBP from operating as a full-fledged Islamic bank.
• Increasing the bank’s authorized capital stock to P10 billion, with a provision for authority to increase the same as may be needed.
• Creating the position of president and CEO, whose role and functions are separate and distinct from that of the chairman. Said separation of functions allows the board greater independence from management as a result of clear delineation between management ( a CEO function) and oversight (a board function). It is also always a prudent move to subject board members to the fit and proper rule of the BSP.
• The final bill should be explicit in adopting policies that will eliminate multiple taxation of Islamic banking products. Taxes to be imposed on Islamic banking products should be comparable to their conventional counterparts.
• The bill should also include provisions on regulatory standards by which AAIBP and other Islamic banks or Islamic lending windows of conventional banks may be measured and regulated by the BSP and other regulatory bodies.
It is in the best interest of our Muslim Filipino brothers that the regulators allow the development of Islamic banking to promote economic development in the Muslim areas. In the absence of a legal framework, interim measures can be adopted to allow Islamic banking activities to flourish, especially in the area of banking, and not necessarily in the more complex areas of capital market development activities. These include the opening of Islamic windows in conventional banks currently operating so commercial lenders may offer Islamic banking services without establishing a new entity catering exclusively to Muslim clients.
As far as we are aware, there is still no framework on Islamic banking in the Philippines except the Al-Amanah charter… We are of the opinion that this proposed legislation is crucial in promoting Islamic banking in the Philippines, which is also needed for regional integration and cooperation, as... the Philippines is part of the ASEAN Economic Community; and since ASEAN countries like Indonesia and Malaysia (and also the Philippines) have a significant Muslim population… We would expect some key features here [to] be more clear as to how it will incentivize and support nonIslamic banking banks to enter this segment, given that the nature of the business (starting with the concept of ‘interest-on-loans’) is different from the mainstream Philippine banking set-up.
ON RELAXING THE BANK DEPOSIT SECRECY LAW
DBP’s Ms. Borromeo: There seems to be blanket removal of government employees from the protection of the Law on Secrecy of Bank Deposits, which might be challenged legally as a violation of their right to equal protection and due process under the Constitution. Government employees, as every Filipino citizen, have the Constitutional right to be secure in their persons, papers and effects. We should not lose sight of the fact that under their constitutionally guaranteed rights, all depositors, whether or not they are government employees, should be afforded the same protection under the same law… Parameters should be clearly set and applied when it comes to the possible granting of authority or power to inquire into bank deposits of government employees without need of a court order. For example, application of said power may be limited to acts or omissions of public officials or serious offenses such as plunder, in the same way that AMLA may inquire into deposits without court order only in cases when probable cause exists that the deposits involved are related to kidnapping for ransom, destructive arson and murder, drugs, hijacking and terrorism.
[It] [w] ill be good to align with compliance with AMLA provisions, the FATCA (Foreign Account Tax Compliance Act) provisions and the provisions of the Common Reporting Standards where more than 100 countries are already signatories, including most Asian countries.
That’s quite ticklish because remember, secrecy of deposits can also create apprehension from the depositing public. So for me, it has to be well thought of before something will be done... I think there should be a thorough discussion between the banking system, the business, and the regulator about it so that if and when something will be done, then that should have a solid [support] from all the people involved.
The Philippine bank secrecy law is considered as among the strictest in the world in terms of confidentiality and non- disclosure. This can be used to protect spurious and fictitious accounts, thereby frustrating efforts to uncover crimes and wrongdoings. Amendments should ensure that only bona fide depositors are protected, and that additional exceptions be recognized to make the country globally competitive and in tune with present policies and practices of international trade and commerce. The lifting of the veil of secrecy should allow the BSP to look into bank accounts in the course of bank examination when there is reasonable ground to believe that fraud, unlawful activity or irregularity has been committed, and being able to look into bank accounts would establish if such is really the case.
The relaxation in the Bank Deposit Secrecy Law should indicate the exemptions to its application or where it will not apply (i.e., money laundering matters, cases of graft and corruption, impeachment, etc.). At the moment, much of the exemptions are based on Supreme Court decisions on various cases or through other laws where it is clearly stated that the Bank Deposit Secrecy Law will not apply.
ON NATIONAL PAYMENTS SYSTEMS ACT
DBP’s Ms. Borromeo: We are fully supportive of initiatives towards addressing the urgent need to promote reliable payment systems within an environment of enhanced regulation. Hence, the proposed additional authority for the BSP to oversee the payment systems and exercise supervisory and regulatory powers for the benefit of all stakeholders — consumers, businesses, and financial institutions... Importance should also be given to presenting in specific terms how systemic risks are to be controlled under the proposed National Payment System Act. As pointed out, said act is aimed at addressing identified systemic risks; and said act would be more responsive if the final version will include specific provisions on what are to be considered or identified as systemic risks, and how these will be addressed or mitigated in the proposed regulation.
The Payment Systems Act will radicalize how payments are being done. I think one of the improvements is that it will... [remove] excess cash in circulation as the Philippines is still strong in terms of cash payments while globally, there are a lot of settlements that are already being done via IT-related or cardrelated settlement systems. So that will also take a lot of added cost for the banks. I think the epayments system is well appreciated on that end.
The Payments Systems Act should have controls in place from the BSP to ensure stability and effectiveness of the monetary system given the electronic payment systems. In addition, this has to be supported by a robust telecommunications and information infrastructure to allow financial inclusion to reach the unbanked areas.
The proposed legislation mentions that the Philippines lags behind its ASEAN neighbors in terms of e- commerce transactions (4-5% of total commerce vs. 1% for the Philippines). A crucial feature of the legislation proposes to give the BSP the authority to oversee and regulate payment systems. Thus, some features one would expect would include:
• Clearer and stronger provisions for cyber security since it puts all financial institutions under one payments platform;
• Information gathering that will aid in development of credit bureau, balanced with the right type of information security which still prevents money laundering;
• Clearer ‘roadmap’ leading to foreign cooperation (e.g. how will our payment system seamlessly connect with the Network for Electronic Transfers of Singapore);
• Clear statement on what this system covers (e.g. will it also cover stored value e-money or electronic money instruments?); and
• New, more incentives for participants to encourage/accelerate their participation, particularly in establishing large closed-loop payment systems. — with reports from Mark T. Amoguis and Lourdes O. Pilar