Designated payment systems to adopt PFMI — BSP

Published September 15, 2021, 3:30 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) has issued a new circular requiring designated payment systems (DPS) to adopt the Principles for Financial Market Infrastructure (PFMI) to ensure the continued safety, efficiency of the flow of funds, and reliability of the country’s national payment system (NPS).

BSP Governor Benjamin E. Diokno, who signed Circular No. 1126 on Thursday (September 14), said in the memo that the mandatory adoption of the PFMI will require all participants of DPS to take on its principles. The BSP’s Peso Real-time Gross Settlement System (PhP-RTGS) using PhilPaSSplus, is the country’s first DPS as of July this year.

Diokno said the BSP will be using PFMI assessment methodology to “determine the observance of relevant principles by the DPS as well as identify possible risks and induce changes in the NPS.” As for non-designated payment systems, he said the BSP could apply “key considerations” under relevant principles such as credit and liquidity risk management and settlement, to assess practices and operations of DPS participants.

The adoption of PFMI is consistent with the BSP’s Payment System Oversight Framework (PSOF) and the National Payment Systems Act (NPSA). “In cases involving non-payment system financial market infrastructures (FMI) and cross-border payment systems, adoption of the PFMI may be subject of cooperative arrangements with other regulatory authorities,” said Diokno.

The circular also laid down expectations for critical service providers (CSPs) defined under the PSOF. It provides guidance and helps ensure that operations of a CSP are held to the same standards as that of the DPS.

The PFMI is developed by the Bank for International Settlement and the International Organization of Securities Commissions. Basically, PFMI is made up of international standards for financial market infrastructures such as payment systems, central securities depositories, securities settlement systems, central counterparties, and trade repositories. PFMI adoption will ensure that the payment system is operating in condition at par with global practices on safety, efficiency and reliability.

“The adoption of the standard is very timely given the surge of digital payments in the country, as it ensures payment systems to have safeguards in place which are at par with global practices,” said BSP in a statement. “With the DPS conforming with the PFMI to be more resilient to financial crises and participant defaults, public interest is better protected, promoting confidence in the use of payments systems.”

All DPS, whether a systemically important payment system or prominently important payment system, will use PFMI to design and conduct its operations.

“Each DPS is expected to demonstrate adequate governance and risk management arrangements covering areas including access of participants to the system, management of liquidity, credit, operational, settlement and general business risks, efficiency, and transparency,” said the BSP.

The NPSA gives the BSP, as regulator of payment systems, the authority to designate a payment system if it determines the payment system as posing or having the potential to pose systemic risk or the designation is necessary to protect public interest.

The PhP-RTGS is the only payment system in the Philippines that facilitates settlement with central bank money.

The BSP’s open market operations, issuance of its securities, the Philippine Peso leg of PhP-US Dollar and domestic securities transactions are settled through the PhP-RTGS. It also services the deferred net settlement of retail payment systems, namely checks, ATMs, PESONet, and InstaPay.

Last year, the PhP-RTGS transacted and settled P544 trillion, 30 times the amount of the nominal gross domestic product which totaled P18 trillion in 2020.

 
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