September 29, 2020

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House Bill 5913 to Regulate Virtual Banking in the Philippines

House Bill 5913

The Chairman of the House Committee on Ways and Means recently filed a measure that provides a regulatory framework for virtual banking to boost the financial inclusion thrust pursued by the Bangko Sentral ng Pilipinas (BSP).

Background

According to a recent report, House Bill 5913 aims to expedite the rollout of critical anti-poverty measures and help achieve the country’s inclusive growth goals.

Albay Representative Joey Salceda explained that virtual banks are able to provide financial services at much more favourable rates since they do not incur such expenses like establishing and securing branches and maintaining automated teller machines (ATMs).

As reported, it marries widely accessible digital platforms, such as mobile phone applications, with conventional banking strategies, such as deposits and micro-lending.

The opportunity for regulation is clear now, when the industry is yet to go in full swing.

The industry’s potential, however, is staggering, with CIMB recording a 97% growth in deposits from the second quarter to the third quarter of 2019.

About House Bill 5913

  • The bill proposes four key pillars to a virtual banking sector in the country.
  • The house bill 5913 seeks to encourage virtual banking as a means to improve financial inclusion and to promote the development of financial technology.
  • It provides a clear, coherent, and far-sighted regulatory framework for virtual banks and at the same time, also granting adequate latitude to the central bank.
  • The bill also auctions license to qualified virtual banking applicants to ensure that the state and the public receive the highest benefits from their applications.
  • The measure also provides operations and management rules, which levels the playing field to ensure that virtual banking can become a fair, sustainably developing, and profitable industry.
  • It also outlines a framework for consumer protection in virtual banks, including deposit insurance and protection against unauthorised transactions.
  • Hopefully, the bill will build confidence and stability in the virtual banking sector, while promoting associated national goals such as financial inclusion and technological development.
  • Chairman Salceda expects that the country will become one of the first in Asia to provide a basic framework for virtual banking.
  • This bodes well for the Philippines’ prospects to become a financial technology hub in the region.
  • The bill may increase the share of virtual-only banking assets between 2.83% and 4.34% of total assets in universal and commercial banks.
  • As an industry promoting measure, the proposal is expected to result in encouraging virtual banking to grow into a PHP 903 billion (US$ 18
  • billion) industry.

Other Virtual Banking Initiatives

Virtual banking is gaining traction in neighbouring countries as well.

As Malaysia’s population grows increasingly digital and eKYC technology becomes more affordable, government agencies, particularly the regulator, is being urged to release eKYC guidelines for the wider financial services sector.

In August 2019, Bank Negara Malaysia issued an exposure draft which expanded its e-KYC guidelines for money changers in Malaysia.

The draft outlines proposed the minimum requirements and standards that a licensed money changer approved to implement e-KYC must observe in on-boarding customers.

Meanwhile, the Hong Kong Monetary Authority (HKMA) awarded virtual banking licenses to make the applicants some of the select virtual banks in the region.

The virtual banks need to have one physical office in Hong Kong; thereafter they will operate online only.

They will contribute towards greater financial inclusion particularly among small and medium-sized enterprises (SMEs), which are so essential to Hong Kong, and accelerate the move to electronic payments.