Philippines – Payment Systems To Comply With International Standards.

28 September 2021

 

In a previous article, we discussed the Bangko Sentral ng Pilipinas’ (BSP) role in regulating payment systems operators — an undeniably vital role in this high time of online payment, mobilebank transfers, and other forms of cashless transactions. In the said article, we introduced Republic Act 11127, also known as the National Payment Systems Act (NPSA), which recognized that payment systems are crucial parts of the financial infrastructure of the country.
 

Pertinently, Section 7 of the NPSA provides that the BSP’s authority under the said Act shall be guided by internationally accepted standards and practices. Thus, last 14 September 2021, the BSP issued Circular No. 1126, which requires designated payment systems (DPS), whether designated as a systemically important payment system (SIPS) or prominently important payment system (PIPS), to adopt the Principles for Financial Market Infrastructures (PFMI).
 

The PFMI, published by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions (IOSCO), lays out principles to be followed to manage market risk in financial market infrastructures (FMI), such as payment systems, central securities depositories, securities settlement systems, central counterparties, and trade repositories.
 

The Circular clarifies that while the standards are principles-based, said standards provide specific minimum requirements to achieve the same base level of risk management across different FMIs and countries. Moreover, the Circular provides that the adoption of the applicable principles by the DPS shall depend on whether the DPS is designated as a SIPS or PIPS. To aid the DPS, the BSP provided a checklist appended to the Circular to determine the principles that a SIPS or PIPS must comply with.
 

The BSP recognizes that in certain cases, the operational reliability of a DPS may be dependent on the performance of service providers that are critical to its operations, Thus, the Circular also provides expectations for Critical Service Providers in the areas of risk identification and management; information security; reliability and resilience; technology planning; and communication with users.
 

To give teeth to the Circular, BSP may deploy enforcement actions to ensure compliance with the provisions of such Circular, and bring about timely corrective actions. Moreover, any violation of the Circular shall subject not only the DPS, but also its participants, directors, officers and/or employees to the sanctions set forth under the General Banking Act and the NPSA, as may deem proper.
 

To echo the BSP, the adoption of international standards in regulating the NPS is not only important to be at par with global practices — which is vital to the economy — but also timely due to the surge of digital payments in the country caused by mobile restrictions brought about by the pandemic coupled with the undeniable convenience of online banking. Thus, it is essential that payment systems must function safely and efficiently for the effectiveness of the financial system.