Acquisition by a private party of majority of the outstanding capital stock of a state-owned bank, and acquisition by the government of the controlling interest of a private bank, are subject to review by the Governance Commission for Government-Owned or Controlled Corporations, in consultation with the supervising government agency to which the bank is attached, for recommendation to and approval by the President of the Philippines. challenges of digital banking in the Philippines from the banks perspective and how banks should address these points. For this purpose, the PDIC may, among other things, determine a resolution package for the bank, identify possible acquirers or investors, and conduct a bidding to determine the acquirer of the bank. With respect to PCC notification, parties to the transaction are prohibited from consummating the transaction before the expiry of the relevant periods provided in the regulations. In particular, commercial banking includes: Universal banking includes the above functions and two additional powers, namely the capacity to invest in enterprises not allied to banking and to underwrite securities. The BSP and the National Privacy Commission are currently reviewing possible overlaps in their functions with a view to harmonising them for a more efficient regulatory framework. Introducing PRO ComplianceThe essential resource for in-house professionals. The acquisition may not be consummated prior to the expiry of the waiting period prescribed under applicable law. Manila, Philippines 1004. Select from the topics below to learn more about banking regulations and trends we are tracking in 2020. In case a bank is considered a reporting company under securities regulations, an acquisition of 35 per cent (or of such percentage as would cause the acquirer to own more than 50 per cent, if it already owns 35 per cent) of the outstanding voting shares of a bank in one or more transactions, within a period of 12 months, may trigger tender offer requirements. A written application (together with supporting documents) is to be filed with the BSP for the purpose of acquisition of control of a bank. (0). Apart from being subject to DOSRI rules, entities controlling a bank are expected to see to it that such bank observes the BSP rules on corporate governance, which are anchored on the principle of transparency, accountability and fairness or equity. What constitutes an ‘affiliate’ for this purpose? Universal and commercial banks have their respective internal capital adequacy assessment process that supplements the BSP’s risk-based capital adequacy framework. Understand your clients’ strategies and the most pressing issues they are facing. The bank’s directors and officers who knowingly assent to patently unlawful acts of the bank or who are guilty of gross negligence or bad faith in directing the affairs of the bank or acquire any personal or pecuniary interest in conflict with their duties as such directors or officers, will be liable jointly and severally for all resulting damages suffered by the bank and its shareholders. Domestic systemically important banks (DSIBs) are required to submit a recovery plan to the BSP. Moreover, parties to an acquisition, where the value of the transaction exceeds 1 billion Philippine pesos and as a result of which the acquirer will own at least 35 per cent (or more than 50 per cent, if the acquirer already owns 35 per cent) of the outstanding voting shares of the corporation, must notify the Philippine Competition Commission (PCC) before the execution of the definitive agreements relating to the transaction. However, no bank in the Philippines can engage in insurance business as an insurer. The BSP examiners are authorised to administer oaths to any director, officer or employee of any bank and to compel the presentation of all books, documents, papers or records necessary to ascertain the facts relative to the true condition of such bank. Be sure to read the fine print about how much money is insured. The recovery plan will take effect when the DSIB breaches the total required Common Equity Tier 1 capital or the minimum liquidity ratios prescribed by the BSP or both. Power up your legal research with modern workflow tools, AI conceptual search and premium content sets that leverage Lexology's archive of 900,000+ articles contributed by the world's leading law firms. The Central Bank of the Philippines or the Bangko Sentral ng Pilipinas (BSP) is the governing body that has been authorized by law, through the provisions of the General Banking Act of 2000 1, to regulate all banks in the Philippines. How are banks supervised by their regulatory authorities? It should not assume any access to or receipt of government or public financial support or aid from the Philippine government. Accordingly, it is the government’s policy to promote and maintain a stable and efficient banking system that is globally competitive, dynamic and responsive to the demands of a developing economy. How is the regulatory process different for a foreign acquirer? Questions? In this connection, an original quo warranto proceeding may be commenced with the Supreme Court of the Philippines. Must banks have a resolution plan or similar document? The Banking Regulation Review Reproduced with permission from Law Business Research Ltd. In the event of non-compliance by a bank with the prescribed minimum ratio, the Monetary Board may, until that ratio is met or restored by such bank: What happens in the event that a bank becomes undercapitalised? The plan must contain a detailed list of options or courses of action that will be taken by the DSIB to address a range of severe stress scenarios to restore its financial strength and viability. If you would like to learn how Lexology can drive your content marketing strategy forward, please email enquiries@lexology.com. Taking it a step further, the BSP has also begun its regulation and licensing of digital-only banks – meaning banks without any physical presence except for its head office – with ING Bank and CIMB taking the pioneer regulatory licences for this financial service. The BSP, through its Monetary Board, is primarily responsible for overseeing banks. If conservatorship is not successful or not deemed proper by the Monetary Board, the Monetary Board may summarily forbid the bank from doing business and designate the PDIC as its receiver. ownership, control or power to vote of at least 20 per cent of the outstanding voting stock; interlocking directorship or officership; common stockholders owning at least 10 per cent of the outstanding voting stock of the bank and at least 20 per cent of the outstanding voting stock of the borrowing entity; management contract or any arrangement granting power to the bank to direct or cause the direction of management and policies of the borrowing entity; or. Each depositor is a beneficiary of the insurance for a maximum amount of 500,000 Philippine pesos or its foreign currency equivalent. Banks’ key balance sheet accounts registered respectable growths despite the challenging operating environment. 1Introduction 2Regulatory architecture: overview of banking regulators and key regulations 3Recent regulatory themes and key regulatory developments 4Bank governance and internal controls 5Bank capital requirements 6Rules governing banks' relationships with their customers and other third parties Philippines chapter to Banking Regulation … Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified. The General Banking Law governs not only universal banks but also commercial banks. Top cyber-threats include card skimming, phishing attacks, ransomware and other malware. Accordingly, the BSP has directed banks to adopt advanced cybersecurity controls and countermeasures, and to improve the management of information security risks and exposures. In this respect, the termination (or even the resignation) from office of such director or officer will not exempt him from administrative or criminal sanctions. Become your target audience’s go-to resource for today’s hottest topics. Without prejudice to the foregoing criminal sanctions against culpable persons, the Monetary Board may impose administrative sanctions for any of the above violations, wilful violation of the charter or by-laws of the bank, any commission of irregularities, or conducting business in an unsafe or unsound manner as determined by the Monetary Board. The bank has over 800 branches in Philippines, Europe, and Hong Kong and 3,000 ATMs and CDMs. The content of this website is for general information purposes only and does not purport to provide comprehensive full legal or other advice. Are managers or directors personally liable in the case of a bank failure? Among the principal regulatory challenges facing the banking industry at present are those posed by the use of financial technology, including compliance with know-your-customer (KYC) requirements, incorporating fintech into their systems and structures, and ensuring cybersecurity. Commercial banks (KBs), which are further subdivided into universal and regular commercial banks, continued to be the dominant players in the industry, accounting for more than 90 percent of the total assets. fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed 30,000 Philippine pesos a day for each violation, taking into consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank; suspension of rediscounting privileges or access to the BSP credit facilities; suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; suspension of interbank clearing privileges; and. If the bank notifies the BSP or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities continuously for more than 30 days, the Monetary Board may, summarily and without prior hearing, close the bank and place it under receivership of the PDIC. The list of DSIBs is updated annually and is considered by the BSP to be confidential. The bank also called BPI, and it serves a wide range of products and services to its retail and corporate clients. Banks must insure their deposit liabilities with the PDIC. Must banks make contingent capital arrangements? For this purpose, a request for Monetary Board approval must be accompanied by a liquidation plan. See question 23. For instance, a universal bank with more than 100 branches must have a minimum capital of 20 billion Philippine pesos, while that of a commercial bank with similar number of branches is 15 billion Philippine pesos. The Philippine banking industry: competition, consolidation and systemic stability Alberto Reyes1 1. For further information please email Adam.Sargent@lbresearch.com For these purposes, an affiliate is an entity linked directly or indirectly to a bank by means of: The BSP recently excluded portions of loans and other credit accommodations covered by guarantees of international and regional institutions or multilateral financial institutions where the Philippine government is a member or shareholder, from the ceilings on loans granted by banks to their subsidiaries and affiliates. On the other hand, the Philippine Cooperative Code recognises the primacy of the General Banking Law in the regulation of cooperative banks. Please contact customerservices@lexology.com. Total outstanding loans to each of the bank’s DOSRI is limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank. The approval process with the BSP can be completed within one month. Transactions of offshore banking units with non-residents or with other offshore banking units shall be freely allowed: Provided, that the Central Bank of the Philippines may establish such safeguards as may be necessary to prevent circumvention of applicable foreign exchange regulations. How is ‘control’ defined for this purpose? What are the principal regulatory challenges facing the banking industry? In addition, the BSP adopted Basel III-based capital adequacy requirements for universal banks and commercial banks. Banking in the philippines 1. Bank of the Philippine Islands (BPI)– P1,306,518.42 4. Describe the extent to which deposits are insured by the government. If the receiver determines that the bank cannot be rehabilitated or permitted to resume business, the Monetary Board may instruct the receiver to liquidate the bank. On the other hand, the Philippine Cooperative Code recognises the primacy of the General Banking Law in the regulation of cooperative banks. For instance, a universal bank must have a minimum capital of 4.95 billion Philippine pesos while that of a commercial bank is 2.4 billion Philippine pesos. This contrasts with the minimum paid-up capital requirement for a universal or commercial bank in the Philippines, which could be anywhere between P2 billion and P20 billion, depending on size of the branch network. Ltd. followed suit and secured a similar licence for TONIK Bank. Have capital adequacy guidelines changed, or are they expected to change in the near future? The new regulation emphasises the use of a risk-based approach to the KYC processes. An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes. An electronic copy of the form contained in a secure electronic storage device, must be submitted to the PCC, simultaneous with the filing of the aforementioned hard copy. It must take into account the DSIB’s nature, size, interconnectedness, level of substitutability and complexity. The MORB provides different ceilings for loans to DOSRI, and to subsidiaries and affiliates. You may contact the BSP Consumer Empowerment Group at consumeraffairs@bsp.gov.ph. The Monetary Board may also: The Monetary Board must also ensure that control of 60 per cent of the resources or assets of the entire banking system is held by domestic banks, which are majority-owned by Filipinos, at all times. With respect to PCC notification, parties to the acquisition must give notification using the notification form prescribed by the PCC. consider the willingness of the applicant to fully share its technology. It was established in 1993 pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993. Under Republic Act No. The next generation search tool for finding the right lawyer for you. BANKING IN THE PHILIPPINES AVEC M. JOHN DARREL RILLO ECONOMICS 2. Union Bank of the Philippines is an entity regulated by the Bangko Sentral ng Pilipinas (BSP). Foreign individuals and non-bank corporations controlled by foreign nationals can collectively own up to 40 per cent of the voting stock of a universal or commercial bank. Q&A: Labour & Employment Law in Philippines, In brief: media law and regulation in Philippines, COVID-19 updates: The Imposition of a modified enhanced Community Quarantine (MECQ) in high-risk areas, New Rules of Court to Take Effect on May 1, In review: prudential regulation of banks in Philippines, Prudential regulation of banks in Philippines, A general introduction to the banking regulatory regime in Philippines, E-money and electronic payments: foreign investment in the philippine financial technology sector, Living wills regulatory reform in Asia Pacific. 858 Amendments to Relevant Provisions of the Manual of Regulations for Banks Implementing Republic Act. limit or prohibit the distribution of net profits by such bank, and require that such profits be used, in full or in part, to increase the capital accounts of such bank; restrict or prohibit the acquisition of major assets by such bank; and. With the issuance of the implementing rules and regulations of the Data Privacy Act, banks (as with other entities that collect and process personal information) are expected to observe certain registration and compliance requirements. Describe the regulatory approvals needed to acquire control of a bank. MOBILE MONEY REGULATION IN THE PHILIPPINES 1. The assets of a bank under liquidation are held in trust for the equal benefit of all creditors. take charge of the assets and liabilities of the bank; refusal to turn over bank records and assets to the designated receiver; appropriating bank assets for himself or herself or another party; causing the misappropriation and destruction of bank assets; receiving or permitting or causing to be received in the bank any deposit, collection of loans, or receivables; paying out or permitting or causing to be paid out any fund of the bank; and. See question 16. More banking industry trends and insights . The quality of the newsfeeds is good and I like reading different firms' contributions on the same topic, as it provides an opportunity to compare their insights. Bank of the Philippine Islands is the first bank in the Philippines found in 1851 which is having total assets 1,701,049.95 Million Pesos as of September 2018. The Banking Regulation Review - Edition 11, This edition covers 37 countries and territories in addition to the chapters on international initiatives and the European Union. The regulatory process is no different for a foreign acquirer. What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer? You'll need an ACR I-Card and other documents to open a bank account in the Philippines. Which regulatory authorities are primarily responsible for overseeing banks? Cybersecurity concerns continue to confront financial institutions (both locally and worldwide). The controlling entity or individual will not be liable to the creditors of the insolvent bank beyond the amount of its or his or her equity contribution to the bank. The grant of loans and other credit accommodations by a bank to its directors, officers, stockholders and their related interests (DOSRI) and to subsidiaries and affiliates is regulated. “Notably, a Philippine digital bank needs only P900 million of paid-up capital. 2) The Central Bank of the Philippines (Bangko Sentral ng Pilipinas) 3) Duties, functions and Operations of the Bangko Sentral ng Pilipinas. Are there any restrictions on foreign ownership of banks? What is the role of the bank’s management and directors in the case of a bank failure? An interval of at least 12 months is required between annual examinations. These banks in the Philippines have a varied range … Describe the legal and regulatory capital adequacy requirements for banks. 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