The Bangko Sentral ng Pilipinas (BSP) has identified the Philippine Peso Real-Time Gross Settlement (PhP-RTGS) payment system, which it owns and operates, as a systemically important payment system (SIPS).
This means the PhP-RTGS as SIPS is a payment system “which poses or has the potential to pose systemic risk that could threaten the stability of the National Payment System (NPS).” The NPS ensures the circulation of money or movement of funds in the country.
Based on a BSP Circular Letter approved on August 13, all registered non-bank payment system operators with its Philippine Payment and Settlement System (PhilPaSSplus) will now have to comply with provisions under the BSP’s Payment System Oversight Framework or PSOF (Circular No. 1089 of 2020). This is a must now that PhP-RTGS is a SIPS.
BSP Governor Benjamin E. Diokno, in the circular memo he signed last Friday, said that that participants of a designated payment system or DPS, non-bank OPS will “contribute” in the PhP-RTGS compliance with SIPS principles. They will do this by complying with seven guidelines.
These guidelines basically set the rules and provisions to follow as OPS participating in a SIPS, including the submission of required reports to help BSP in its assessment of the PhP-RTGS.
“The BSP may perform validation of compliance of any of the guidelines at any time, as deemed necessary,” said Diokno.
The BSP’s PSOF, approved last July 2020, ensures a safe and efficient NPS which is crucial to the smooth functioning of financial markets and the stability of monetary and financial systems.
Identifying SIPS is one the provisions of the PSOF, and also in naming prominently important payment system or PIPS which BSP has yet to do. A PIPS is different from a SIPS in that the latter is described as a payment system that may not trigger or “transmit systemic risk but could have a major economic impact or undermine the confidence of the public in the NPS or in the circulation of money.”
The Switzerland-based Bank for International Settlements (BIS) issued the guidelines for the SIPS. A BIS paper said SIPS are an “essential mechanism supporting the effectiveness of financial markets (but) they can also transmit financial shocks.” This is particularly true for “poorly designed systems” that “may contribute to systemic crises if risks are not adequately contained, with the result that financial shocks are passed from one participant to another.”
Such system-wide disruption and threats to the stability of money markets is what makes SIPS crucial for the economy, said BIS, noting that “their safety and efficiency should be objectives of public policy.”
When BSP announced the PSOF approval last year and its role to identify SIPS and PIPS, the PSOF also empowered the BSP to accredit or revoke the accreditation of a Payment System Management Body such as the private sector-run Philippine Payments Management Inc.
If a DPS and its participants fail to satisfy regulatory expectations, the BSP under the PSOF can be appointed as manager for the DPS.
Just last May of this year, Diokno announced that its new RTGS platform of the next-generation PhilPaSSplus will expand the RTGS ecosystem in the country.
Describing the new PhilPaSS with “very comprehensive functionalities”, Diokno said it will settle larger volume of financial transactions of varying types and complexities. Its use of the latest technology has also enhanced its system efficiency rate, risk mitigation, business continuity provisions, liquidity management, and the generation of data and information in support of the decision making and related functions of the real-time gross settlement stakeholders.
The BSP’s switchover to PhilPaSSplus is part of its three-year Digital Payments Transformation Roadmap.