Recently, Bangko Sentral ng Pilipinas (BSP), the central bank of the Philipines, aims to regulate electronic money (e-money) firms by increasing the requirements for both banks and non-bank financial institutions that are looking to enter the business. The tightening of rules applies to single transactions using electronic money as well. A draft circular posted on BSP’s website also focused on requiring enhanced due diligence for high-value e-money transactions.
Based on the proposal, all Electronic Money Issuers (EMIs), be it a bank or nonbank, should prepare a minimum capitalisation of P200 million to function. Specifically, this is applicable for EMI banks that have a one-year average value of aggregated inflow and outflow transactions worth P25 billion and higher.
On the other hand, smaller-sized EMIs are also set to be regulated. Small-scale EMI banks and nonbanks who have lesser aggregate inflow/outflow of transactions will need to comply with a P100-million minimum capital requirement.
As part of the oversight, the BSP will require EMIs to oversee their clients more. Specifically, they should categorise their patrons in order to be able to determine transaction limits and suitable thresholds based on a comprehensive risk assessment. In short, they should be able to quantify and limit risks per transaction.
The public sector will not undergo similar due diligence. Government agencies will not be subjected to such limits for government-to-person and government-to-merchant payment transfers. Moreover, EMIs are expected to keep track of business transactions. As such, they should keep due diligence records for a period of at least five years.
The central bank is also keeping a close watch on nonbank EMIs. Thus, they must be able to pass a stringent set of requirements in order to be granted a licence to operate. Nonbanks wanting to enter the business are expected to comply with central bank regulations related to electronic payment and financial services — as well as IT and liquidity risk management.
The requirements nonbank EMIs need to abide by include:
- Anti-money laundering measures
- Counter-terrorism financing measures
- Corporate governance requirements
The BSP has also made clear its rules on system changes. EMIs should provide clear terms and conditions for merchants and users. That means disclosures should be given to stakeholders 30 days prior to the implementation of a change in their system.
It sets the value of e-money apart from a regular interest-earning deposit. It also stressed that e-money will not be higher than the amount used to purchase it and will only be credited to customers at face value.
The central bank warns financial institutions that engage in electronic money operations without a central bank licence will be dealt with penalties and sanctions. Even those who have already obtained a licence will have to wait one year before operating or have their licence automatically revoked.
Stakeholders, however, can comment on these sweeping electronic money changes. They can send their feedback on the central bank’s proposed regulation until 18 March. To date, there are 29 lenders that carry an EMI bank license, while 38 are classified as nonbank EMIs.
As sweeping as these changes are, however, they underscore the fact that suspicious transactions have risen during the pandemic. As lockdowns and restrictions were in effect to combat COVID-19, the Anti-Money Laundering Council reported suspicious transaction reports from EMIs in 2020 doubled to more than 140,000 from a year earlier. Still, digital transformation experts point out that the better way to safer payments online is through the use of a Central Bank Digital Currency (CBDC), a move that has not been on top of the agenda.
The Philippines’ digital adoption is well on its way in spite of the pandemic. Recently, Manila requested a leading global search engine to include its successful bike road implementation that stretched for thousands of miles in the company’s widely used digital maps, as reported on OpenGov Asia.
