BSP drafts new rules for real time payment system

Published May 24, 2022, 3:20 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) is proposing new rules that will govern the operation of its peso real time gross settlement payment system (RTGS PS) to ensure a trouble-free flow of funds.

The RTGS, as defined by the BSP, is a system that provides real time settlement of payments, transfer instructions, or other obligations individually on a transaction-by-transaction basis. The draft circular, currently being circulated among banks and non-banks, is aligned with the National Payment Systems Act (NPSA), or Republic Act No. 11127 which was enacted in 2018.

The BSP, in explaining the proposed rules, said RTGS PS is “critical” in maintaining price and financial stability, as well as preserving public interest, and that is why the BSP is adopting rules to govern its operation.

BSP building and logo/Reuters

The new rules are also crucial after the Monetary Board, BSP’s policy-making arm, designated the RTGS PS in 2021 as a systemically important payment system (SIPS).

“This payment system ensures the smooth flow of funds between financial institutions that maintain demand deposit or settlement accounts with the BSP. It also facilitates funds transfers in financial markets where these institutions trade securities and foreign currencies for business and risk management purposes,” said the BSP.

It added that “by providing the settlement facility for the open market operation of the BSP, the RTGS PS also supports the BSP’s mandate of ensuring price stability. Moreover, this system plays an indispensable role in upholding public welfare by enabling the efficient and low-risk settlement of retail payments in central bank money.”

The draft circular will address the governance issues of the RTGS PS as a SIPS by setting up a management committee or ManCom which will be composed of central bank officers from various units and departments that are “involved in sustaining the smooth functioning of the payment system.”

The ManCom will report directly to the Monetary Board via the BSP’s Office of the Governor, and it could “seek guidance” from the sector handling payments and currency management.

The ManCom will be responsible for ensuring the “safe, efficient, and reliable operation” of the RTGS PS and to make sure it is compliant with SIPS rules.

Its responsibilities will include: to review and to endorse policy amendments; and to oversee the implementation of programs, policies, and procedures, which are aimed at ensuring that the operation of the RTGS PS aligns with global standards or best practices and complies with laws, regulations, and Monetary Board directives on payment systems.

ManCom tasks also include: to take initiatives or evaluate recommendations in response to the issues on the operation of the RTGS PS and the evolving needs of the payment participants; and to collaborate with the industry, local regulators, and foreign central banks, as applicable, on major RTGS rules and initiatives that can be successfully accomplished through partnership with them.

The BSP has set an industry feedback deadline of June 3.

When the BSP identified its RTGS as SIPS, it is acknowledging that it could pose or has the potential to pose systemic risk that could threaten the stability of the national payment system or NPS. The NPS ensures the circulation of money or movement of funds in the country.

As a SIPS, all registered non-bank payment system operators (OPS) with the BSP’s Philippine Payment and Settlement System or PhilPaSSplus will now have to comply with provisions under the BSP’s Payment System Oversight Framework or PSOF because this was a requirement after the peso RTGS was designated as a SIPS.

The non-bank OPS sector were given seven basic guidelines to follow including the submission of required reports to help BSP in its assessment of the peso RTGS.

Meantime, the BSP’s PSOF, approved last July 2020, ensures a safe and efficient NPS and identifying SIPS is one the provisions of the PSOF, and also in naming prominently important payment systems.