Payment and settlement systems (Part II)
The Philippines now has a law providing for the regulation and supervision of payment systems under the act entitled “The National Payment Systems Act”, which was signed into law by the President on 30 October 2018 as Republic Act No. 11127. The country now meets the global standard for payment systems to be subject to supervision by the State, through the Bangko Sentral ng Pilipinas, under a legal mandate that is fully enforceable.
There is a need for an overseer, administrator and supervisor of payment systems because their operations may also involve exposures to risks for the participating parties. The risk that the failure of one participant in a payment system to meet its required financial obligations may also cause other participants to be unable to meet their obligations thereby threatening the stability of the financial system. This would constitute a systemic risk. Thus, the law aims to promote the safe, secured, efficient and reliable operation of payment systems in order to control systemic risk.
Here are the salient features of the law.
1.There is finality of settlement. Settlement through a payment system shall be final and irrevocable and shall not be subject to reversal for any reason whatsoever. If it is shown that any such fund so paid was not legally due, the settlement shall remain and such amount shall constitute a new monetary obligation owed by the payee to the person who caused the payment. This means that settlement under the payment system shall not be subject to “stop payment” orders. If payment turns out not to be due because, for example, what were delivered in exchange were forged securities, the payment will not be reversed although the payor may exercise legal remedies such as a collection case, outside such system, to recover the amount wrongfully paid.
2.The Bangko Sentral shall designate the payment systems which pose or have the potential to pose a systemic risk, and those whose designation is necessary to protect the public interest. Operators of payment systems designated shall be required to secure prior authority from the Bangko Sentral. Such systems should have a high degree of security and operational reliability and have contingency requirements for timely completion of transactions.
3. In granting authority, the Bangko Sentral shall take into consideration the financial resources of the operator, its technical expertise and reputation. The licensing process shall include but not limited to, an assessment of the ownership structure, governance, key personnel, business model risk management and financial resources.
4.There should be appropriate measures to ensure the confidentiality of payment information which under the law is considered confidential. Moreover, there should be regulations for mechanisms to protect the right of the end-users and participants of the designated payment systems.
5.The Bangko Sentral shall also have authority to own and operate payment systems as may be deemed necessary by the Monetary Board. As of the present, the Bangko Sentral owns and operates the real time gross settlement system known as the Philippine Payments and Settlements Systems or PhilPaSS.
6.Designated payment systems shall be subject to supervision and examination by the Bangko Sentral including the imposition of administrative sanctions and the initiation of criminal actions for violations of the law. The Monetary Board shall have authority to suspend, disqualify or remove any director or officer thereof found unfit for the position, and to revoke the certificate of authority of an operator under any of the grounds provided for in the law.
The next discussion will include the conclusion.
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The above comments are the personal views of the writer. His email address is jzuniga@bsp.gov.ph