20 May 2021
Digital banks are being used by more and more Filipinos each day.
From the high interest rates on savings accounts to the low transaction fees and lack of any required minimum balance, the benefits of digital banks cannot be ignored.
Anyone can open an account with digital banks at the comfort of their own home as long as they have access to the Internet and proper documentation.
However, despite all these advantages, some Filipinos still avoid digital banking because of legitimate concerns, such as identity theft and that they might not be as secure as traditional banks.
Fortunately, the Bangko Sentral ng Pilipinas (BSP) has issued BSP Circular 1105-20, or Guidelines on the Establishment of Digital Banks, to promote an enabling regulatory environment that takes into account the unique characteristics of digital banks.
Digital banks offer financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branch/sub-branch or branch-lite unit offering financial products and services.
A digital banking license is required for any bank to represent itself as such regarding its business name.
Although digital banks fall under a distinct classification of banks, they must still comply with the same basic guidelines for establishment just like any other bank.
Their shareholders and ultimate beneficial owners must be suitable, and they must have adequate financial strength, a legal structure in line with its operational structure, as well as a board of directors and senior management with sufficient expertise and integrity to operate the bank in a safe and sound manner.
Even though transactions may be done digitally, digital banks are still required to maintain a principal/head office in the Philippines to serve as the main point of contact for both stakeholders and regulators such as the BSP.
This should alleviate the fears of some prospective digital banking customers that these digital banks are mere lines of code; digital banks must have a physical presence as well.
Digital banks are not constrained to digital means when it comes to the offer of their financial products and services.
They may also do so through cash agents and other qualified service providers, subject to certain guidelines.
To protect the public, digital banks are still subject to the prudential requirements set out by the BSP regarding corporate governance and risk management, particularly those on information technology and cyber security, outsourcing, anti-money laundering and combating the financing of terrorism. Further, they are also required to have a minimum capitalization of P1 billion.
The Guidelines also provide for limits of stockholdings in a digital bank.
The voting shares of stock and aggregate ownership of such in a digital bank of foreign individuals and/or foreign non-bank corporations shall have a ceiling of 40 percent.
On the other hand, qualified foreign banks may completely own a digital bank’s voting shares of stock or combined ownership of such. The voting shares of stock of a Filipino individual or a Philippine non-bank corporation in a digital bank shall not exceed 40 percent.
Finally, the combined ownership of an individual and corporations which are either wholly owned or a majority of the voting shares of stock of which is owned by said individual in a digital bank shall be limited to 40 percent.
These Guidelines also apply to existing banks when they apply for conversion to a digital bank or when the BSP requires those that meet the definition of a digital bank to secure a digital banking license.
Its transitory provision outlines the necessary rules governing the periods for compliance of such banks.
It is also worthy of note that the Monetary Board may limit the total number of digital banks that may be established, taking into consideration the total number of applications received and the assessment of the overall banking situation.
Though digital banks do have the disadvantages associated with online platforms, such as the need for Internet connection and accessibility to those who are not technologically inclined, the convenience they provide cannot be gainsaid.
First published on The Daily Tribune.
For further information, please contact:
Nilo T. Divina, Managing Partner, DivinaLaw
nilo.divina@divinalaw.com
