Monetary transfers, remittances and currency exchanges used to be the almost exclusive domain of banks. This is not true anymore. The increased sophistication of the financial system, aided by technological advancements, has enabled non-bank entities to enter these operations as, indeed, they have mushroomed into a separate industry by themselves into what is now referred to as the money service business or MSB. In parallel moves, governments across the world realize the need for consumer protection from these enterprises and have therefore regulated them to assure that they are operating with safety, soundness and reliability. This is also the regulatory environment in the Philippines. This article will be in two parts to introduce the readers to the MSB, to its constituent entities, and to their basic operations.
For a start, the MSB refers to financial services that involve the acceptance of cash, checks, other monetary instruments in cash or other forms for payment to a beneficiary by means of a communication, message, transfer, or through a clearing network in which the service provider belongs. MSB covers three (3) principal business operations: first, the remittance or monetary transfer business; second, the money changing or foreign exchange dealership; and third, a recent variant, the virtual assets service. Virtual assets, as may be mentioned, refer to cryptocurrency like the Bitcoin. The first category of its operation, the “remittance business” deals with the transferring or facilitating the movement of funds, locally or internationally, from one party to another. The next category, the “money changing or foreign exchange dealership” means the buying or selling of one type of currency in exchange for another type of currency. It is the third category, the “virtual asset service” that has the broader scope. It deals not only with transfer and exchange operations. It involves also the custodianship and investment of the virtual assets.
The instruments covered by the MSB include: (1) fiat currency or legal tender currency issued by governments; (2) drafts, checks and notes; (3) virtual assets; and (4) other similar instruments. The following definitions are related to these instruments: “Electronic money or E-Money” refers to a unit for remittance or transfer using electronic stored money system. “Electronic wallet or E-Wallet” refers to a digital account that enables one party to transfer funds electronically to another party. “Virtual asset” refers to any type of digital unit that can be digitally traded or transferred and can be used for payment or investment services. Please note that, as defined, a virtual asset can be used also for investment purposes.
All the above business activities are regulated by the Bangko Sentral ng Pilipinas (BSP). The BSP bases its jurisdiction on its powers under the new Central Bank Act and the Payments and Settlement Systems Act. It is the policy of BSP to provide an environment that encourages financial innovation while safeguarding the integrity and stability of the financial system. BSP therefore requires that all entities under the MSB secure their licenses before they can operate. There are specific requirements for each type of business operation such as minimum capital and business plans. If, for example, an existing foreign exchange dealer wants to operate also the remittance business, it has to apply for a new and additional license for such additional business. BSP jurisdiction means that all entities under the MSB are subject to BSP audit and examination, and also to administrative sanctions and enforcement actions. The subsequent article will discuss the specific entities comprising the MSB.
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The above comments are the personal views of the writer. His email address is [email protected]