Bangko Sentral ng Pilipinas Payment System Oversight Framework
Published: August, 2020
Submission: August, 2020
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The Bangko Sentral ng Pilipinas (BSP, the Central Bank of the Philippines) issued on July 7, 2020, Circular No. 1089, which sets out the Payment System Oversight Framework (Oversight Framework). This is in line with the BSP’s mandate under Republic Act No. 11127 (National Payment Systems Act) to ensure a safe, efficient, and reliable national payment system through an effective regulatory and governance framework.
Circular 1089 supplements Circular 1049 (dated September 9, 2019), which required registration of operators of payment systems and mandated the creation of a Manual of Regulations for Payment Systems (MORPS). Circular 1089 is the second tranche of regulations that are included in the MORPS.
In adopting the Oversight Framework, the BSP seeks to establish a safe, efficient, interoperable and competitive payment system, which is crucial to the smooth functioning of financial markets and the stability of monetary and financial systems, and is instrumental in attaining and sustaining inclusive economic growth. The Oversight Framework is geared towards having an effective governance of the National Payment System and strengthening cooperation and flow of information among various concerned agencies, including foreign regulators, with regard to the supervision of Financial Market Infrastructures (FMIs) – the multilateral system among participating institutions for clearing, settlement, or recording of payments and other financial transactions. Cooperative oversight is intended to prevent regulatory arbitrage resulting from gaps, inefficiencies, duplications, and inconsistencies in the regulation of FMIs.
As the BSP actively promotes the use of e-payments in the country, it is important to ensure the public’s confidence by preventing and managing potential systemic risks. Towards this end, the Circular enables the BSP to designate a payment system either as a Systematically Important Payment System (SIPS), which poses or could pose systemic risk that threatens the stability of the NPS, or a Prominently Important Payment System (PIPS), which does not trigger systemic risk but could undermine public confidence in the NPS or in the circulation of money. The BSP places these systems under strict oversight.
BSP’s oversight functions include (i) monitoring of existing and planned payment systems, including registration and licensing, (ii) assessment of payment systems and the NPS against safety, efficiency and reliability standards, including adoption of internationally accepted standards and practices and enforcement actions, and (iii) inducing development and innovation of payment systems.
Other salient features of the Oversight Framework include the following:
Under the MORPS, an OPS is an entity that: (i) maintains the platform that enables payments or fund transfers within or across institutions; (ii) operates the system or network that enables payments or fund transfers to be made through the use of a payment instrument; (iii) provides a system that processes payments on behalf of any person or the government; or (iv) performs similar activities, as may be determined by the Monetary Board of the BSP. The Oversight Framework also introduces new classes of payment system participants covered by BSP regulations.
Due to the wide net cast by the BSP, entities are expected to conduct a self-assessment to determine if their activities fall within the scope of the expanded definition of an OPS or if they are among the additional entities now subject to regulation under the Oversight Framework. Studying the application of the NPSA as implemented by the MORPS and navigating the multiple registrations required of institutions that are already licensed and supervised by the BSP have become significant concerns for fintech companies and other affected businesses.
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