BSP implements monthly monitoring of sponsored settlement

BSP implements monthly monitoring of sponsored settlement By Lee C. Chipongian The Bangko Sentral ng Pilipinas (BSP) will require a monthly monitoring report of sponsored peso-denominated real time gross settlement payment system (RTGS PS) participants starting July 1 this year. The BSP said in a memo (Memorandum No. M-2023-020) issued on June 1 that submission of said report will “identify, monitor and manage any material risks” to the peso RTGS PS that could come from sponsored participation arrangements. The BSP defines sponsorship as a “relationship between two parties, where one party (sponsor/sponsoring institution) provides or assumes the responsibility to settle the transaction of the other party (sponsored/beneficiary institution).” These parties are banks, non-bank financial institutions or payment service providers (PSPs). Basically, a sponsored institution is the party with no direct access to the RTGS PS and it settles its transactions through its sponsoring institution, said the BSP. RTGS PS participants also include the BSP and financial institutions maintaining settlement accounts with the BSP, well as financial market infrastructures or FMIs, clearing switch operators, and critical service providers within the RTGS ecosystem. In the submission of reports on sponsored participation, the BSP said it may require supporting documents such as the sponsorship contract and agreement between the sponsoring institution and the sponsored institution. If any RTGS PS participants fail to submit a monthly report on sponsored settlements they will be slapped penalties and sanctions. “The report shall be complete, accurate. and timely. The failure of a participant to comply with this rule shall be subject to corresponding penalties and sanctions,” said the BSP in the memo. The BSP’s RTGS PS ensures the country’s smooth flow of funds and transfers. It facilitates fund transfers in financial markets where these institutions trade securities and foreign currencies for business and risk management purposes. The BSP has previously streamlined the qualification requirements for the settlement system such as for non-bank e-money issuers and other entities with retail transactions through the RTGS PS. Non-banks can now transact without the need for sponsorship by existing participants. The BSP also updated and amended the RTGS PS rules since as a systemically important payment system (SIPS), it could have systemic risks and threaten the safety of the National Payment System (NPS) and the circulation of money or movement of funds in the Philippines. 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.”