Amendments to the Check Clearing and Settlement Regulations

BANGKO STNTRAL NG PILIPINAS OFFICE OF THE COVERNOR CIRCULAR NO. [I80 Series ot2023 Subject: Amendments to the Check Clearing and Settlement Regulations The Monetary Board (MB), in its Resolution No. l47l dated 9 November 2023, approved the following amendments to the check clearing and settlement regulations in the Manual of Regulations for Banks (MORB) for the following purposes: l. Comply with the requirements of Section 6lO of the Manual of Regulations for Payment Systems (MORPS), particularly, item g on Finality of Settlement; and 2. Terminate the Overdraft Credit Line (OCL) of the Bangko Sentral since its limited purpose of addressing overdraf[s arising from check clearing losses is covered by the Bangko Sentral's automated intraday settlement facility (lSF) that the banks can use not only for the settlement of check clearing results but also for any other local currency real-time gross settlement. Section l. Section 2O2 of the MORB is hereby amended to read, as follows: 2O2 RETURNED CHECKS XXX The Drawee bank shall transmit the electronic documentsr relative to the dishonor to the Presenting bank within the prescribed period or not later than the cut-off time indicated in Appendix 35 for returned items in accordance with the following procedures: XXX (2) The AM clearing windowfor clearing items dishonored due to insufficiency of funds or credit, technical reason, closed account, and/or stop payment order shall be conducted in accordance with the timeline prescribed in Appendix 35 for returned items; and (3) The returned checks shall be settled through the Peso Real-Time Cross Settlement (RTCS) system. For purposes of settlement, the value date of the returned Checks and Other Cash ltems (COCls) in the AM clearing window shall be the date of settlement through the Peso RTCS system. I Such as but not limited to the Return lmage Cash Letter (Return ICL) containing the dishonored Regular Clearing ltem [i.e., electronically generated document showing a Check lmage with Electronic Payment Information transmitted via CICS to the Drawee bank for collection of the amountl. lmage Cash Letter (lCL) is an ANSI standard interface file specifications (X9.1OOJ87) for electronic exchange of check ang image data. lt is generated by the front-end system of a Presenting bank or Drawee bank containing CICS ltems transmitted to the Drawee bank or Presenting bank, respectively.

Section 2. Section 285 of the MORB is herebv amended to read, as follows: 285 EMERGENCY LOANS OR ADVANCES TO BANKING INSTITUTIONS XXX Acceptoble colloterqls qnd their corresponding loon values. xxx with with Surety Surety with No Surety Agreement Negative Agreement ACCEPTABLE Agreement but Pledge but and No COLLATERALS and No No Surety Negative Negative Negative Agreement Pledge Pledge Pledqe XXX XXX XXX XXX XXX with with Surety Surety with No Suretlr Agreement Negative Agreement ACCEPTABLE Agreement Pledge but COLLATERALS and but and No No No Surety Negative Negative Negative Agreement Pledge Pledge Pledqe XXX XXX XXX XXX XXX Assets of other third parties to cover deficiency arising from unpaid interest and liquidated damages and reduction in loan value of existing collaterals: XXX XXX XXX XXX XXX XXX lnterest rotes, Iiquidoted do moges, ond penolties. xxx XXX Any shortfall in collateral due to unpaid accrued interest, liquidated damages, and reduction in loan value of existing collaterals may be covered by third party assets after the assets ofthe bank have been exhausted. XXX Section 3. Section 8O2 of the MORB, as amended by Circular No. ll32 dated 14 December 2021, is hereby amended to read, as follows: Page 2 of12

8O2 CHECK CLEARINC OPERATIONS A check clearing switch operator (check CSO) is appointed and designated by the Bangko Sentral as a processing agency and exclusive provider of a nationwide Automated Clearing Facility. lt shall implement clearing of checks via electronic presentment through its Check tmage and Clearing System (CICS) upon receipt by the Bangko Sentral of a written notice from the check CSO that CICS is operationa12. Banks shall observe the clearing procedures in accordance with the check CSO rules for the clearing of checks, including the Banks' responsibility to verify the accuracy of reports and directly communicate with the concerned party regarding any clearing discrepancy or error noted in the course of proving their incom ing/outgoing clea ring items. Check Clearing f,lules for Bonks Authorized to Accept Demond DepositsP The following are the check clearing rules for banks authorized to accept demand deoosits: a. Banks authorized to accept demand deposits may participate in the clearing process conducted by the check CSO, subject to the latter's accreditation rules, either through (l) direct participation in clearing operations; or (2) indirect participation through conduit arrangements. Other banks may indirectly participate through maintenance of DDAs with UBs/KBs as settlement account for demand deposit or NOW accounts of TBs/RBs. b. Banks authorized to participate directly in clearing through the check CSO shall be subject to the following measures to manage settlement risk: (l) For purposes of settlement, the value date of inward and outward check clearing items, including returns, shall be the date of settlement through the Peso RTCS system. (2) lf any of the banks has insufficient settlement account balance to cover its check clearing obligation, the Peso RTCS system shall automatically reject the settlement file from the check CSO, which in turn shall receive a corresponding notification from the Peso RTCS system. The Bangko Sentral shall advise the concerned bank to fund its deficient settlement account so that the checks issued by the bank's clients will be honored for settlement. lf the liquidity shortfall is addressed, the check CSO shall resend the file that was initially transmitted to the RTCS system. Otherwise, the check CSO shall send a new settlement file reflecting the necessary clearing result adjustments brought about by the failure of the concerned bank to fund its settlement account. The new check clearing process shall be implemented on 20 January 2017. For participant banks which will not be compliant with the CICS standard on 20 January 2017, they shall execute a Letter of Commitment stating, among others, the actions that they will be ta king to be compliant with the CICS standard until 2l April2017. See schedule of revised clearing and settlement process shown as footnote of Sec. 2O3. Page 3 of12

c. In an indirect participation through conduit arrangement4, the conduit banks shall be responsible for taking the necessary measures to ensure that the risk exposure to the sponsored bank/s6 remains within the conduit bank's risk tolerance. Cleoring of Negotioble Order of Withdrowql Accounts. Any NOW account which may be deposited with a bank other than the drawee bank may be cleared through the check CSO in accordance with the check CSO's rules.Txxx XXX Section 4. Appendix 25 on lmplementing guidelines for bonks porticipoting directly in the cleoring operotions of the Philippine Cleoring House Corporotion (PCHC) of the MORB is hereby deleted. Section 5. Appendix 35 on Sett/ement of lnterbonk Tronsoctions yrs-o-yrs Covering Reserye Requirement/Deficiency of Bonks' Demond Deposit Account with the Bongko Sentrolis hereby amended in its entirety, and shall now be titled as "schedule of Peso Reo/-Time Cross Sett/ements". as shown in Annex A. Section 6. Appendixl23 of the MORB is hereby amended to read, as follows: GUIDELINES ON THE HANDLING OF RETURNED CHECKS UNDER THE AUTOMATED CHECK CLEARING SYSTEM (Appendix to ltem a of See.2O2l a. Checks qnd Other Cosh ltems (COCls) without sufficient funds/with stop poym ent orders/d rqwn og a i nst closed issu er/pqye r qccou nts XXX COCIs dishonored for the reason that such are drawn against insufficient funds or credit, or are drawn against closed issuer/payer accounts, or payment of the COCIs has been stopped, shall be returned by the drawee bank to the presenting bank in accordance with the clearing timeline for returned COCIs set by the check CSO.] " An arrangement where the clearing results pertaining to the participating sponsored banks are consolidated with those of the conduit banks. s "Conduit banks" is used interchangeablywith "direct participants". These are participants in a funds or securities transfer system, directly exchanging transfer orders with other participants in the system (BlS Clossary of Terms Used in Payment and Settlement Systems). 6 "sponsored banks" is used interchangeably with "indirect participants", which are banksffinancial institutions that are characterized by their inability to perform system activities (e.9. input of transfer orders, settlement) performed by direct participants. They therefore require the services of direct participants to perform those activities on their behalf (BlS Clossar5l of Terms Used in Payment and Settlement Systems). 7 See schedule of revised clearinq and settlement orocess shown as footnote of Sec.2O3. Page 4 of12

(l) For local Exchonges There shall be two (2) clearing windows for COCIs returned due to insufficient funds or credit, closed account, and/or stop payment order - one in the afternoon of T+O for checks returned within the PM Adjustment Window and another in the morning of T+l for checks returned until the close of the AM return window. The Schedule of the Peso RTCS, which includes the timeline for the settlement of check clearing results, is shown in Appendix 35. (a) PM Adjustment Window (PAW) - The COCIs returned in the PAW due to insufficient funds or credit, closed account, and/or stop payment order shall be cleared in accordance with the timeline set by the check CSO. For purposes of settlement, the value date of the returned COCIs shall be the date of settlement through the Peso RTCS system. (b) AM Return Window - The COCIs returned in the AM clearing window due to insufficiency of funds or credit, closed issuer/payer account, and/or stop payment order shall be cleared in accordance with the timeline set by the check CSO. For purposes of settlement, the value date of the returned COCIs shall be the date of settlement through the Peso RTGS svstem. (2) COCIs not coursed through the Cleoring System COCIs dishonored by reason of insufficiency of funds or credit, drawn against a closed issuer/payer account, and/or stop payment order, and bilaterally transacted outside the clearing system for purposes of settlement, shall be returned by the drawee bank to the holder or the presenting bank, as the case may be, not later than the banking day following the date the COCIs are presented for payment by the drawee bank. The presenting bank shall, in turn, return the COCIs dishonored by reason of insufficiency of funds or credit, drawn against a closed issuer/payer account, and/or stop payment order to the holder not later than the banking day following its receipt of the dishonored COCIs from the drawee bank. b. Checks dishonored due to technicol reqsons. COCIs dishonored due to technical reasons shall be returned by the drawee bank to the presenting bank in accordance with the clearing timeline for returned COCIs set by the check CSO. (1) For Locol Exchonges There shall be two (2) clearing windows for COCIs returned due to technical reasons - one in the afternoon of T+O for checks returned as of the end of the PAW and another in the morning of T+l for checks returned until the close of the AM return window.

The Schedule of the Peso RTCS, which includes the timeline for the settlement of check clearing results, is shown in Appendix 35. (a) PAW - The COCIs returned through the PAW due to technical reasons shall be cleared in accordance with the timeline set by the check CSO. For purposes of settlement, the value date of the returned COCIs shall be the date of settlement through the Peso RTCS system. (b) AM Return Window - The COCIs returned in the AM clearing window due to technical reasons shall be cleared in accordance with the timeline set by the check CSO. For purposes of settlement, the value date of the returned COCIs shall be the date of settlement throuoh the Peso RTCS system., (2) COCIs not Coursed Through the Cleoring System COCIs dishonored due to technical reasons, which were bilaterally transacted outside the clearing system, for purposes of settlement, shall be returned by the drawee bank to the holder or the presenting bank, as the case may be, not later than the banking day following the date the COCIs are presented for payment by the drawee bank. The presenting bank shall, in turn, return the COCIs dishonored due to technical reasons to the holder not later than the banking day following its receipt of the dishonored COCIs from the drawee bank. Section 7. References to the PCHC in certain sections of the MORB pertaining to check clearing and settlement shall be changed to check clearing switch operator or check CSO, whichever is applicable, as shown below: MORB Section/Appendix Amendments Section 1O2 (Basic Cuidelines in xxx a TB (previously authorized by the Establishing Domestic Banks), Monetary Board to accept demand Conditions for the grant of authority deposits) may be allowed to retain such to convert into a lower category. authority when converting into an RB but Item b may clear checks only through a corresoondent bank and shall not be allowed to participate directly in the check clearing system: xxx Section 2O'l (Authority to Accept or That if it is not a member of the check CSO, Create Demand Deposits), it has appointed a commercial bank, or a Requirements for Accepting normally operating thrift bank which is a Demand Deposits. ltem b direct participant in the check clearing system with the check CSO/Peso RTCS system and has complied with the minimum capital required for commercial banks, thru which it shall participate in the check clearing system; and Section 222 (Minimum Features of The standards and design of the order of Negotiable Order of Withdrawal withdrawal form shall be in accordance Accounts) with the check CSO rules if said order of withdrawal form is intended to be cleared

MORB Section/Appendix Amendments through the check CSO. Otherwise, the minimum features of the pro-forma order of withdrawal shall conform with Appendix 11. Section 8. The check clearing participants shall be given a period of three (3) months from the effectivity of this Circular to make appropriate changes to their plans, rules, policies, processes, and systems in order to comply with the requirements under this Circular/Section. Upon the lapse of said period,the Bangko Sentral's OCLfacilityshall be terminated. Consequently, all existing OCLs with the Bangko Sentral shall be cancelled and the corresponding collaterals shall be returned to the concerned banks. Section 9. This Circular shall take effect 15 calendar days following its publication either in the Official Gazette or in any newspaper of general circulation in the Philippines. FOR THE MONETARY BOARD: - ha' vav{nro r ANGONAN Oflicer- Charge 1o November 2023 PageT of 12

SCHEDULE OF PESO REAL.TIME GROSS SETTLEMENTS (Appendix to Sec. 2O2 ond 2O3) Start Parties Activities End Time Time Involved 8:3O AM BSP-FAD Sending of Final Statement of 8:45 AM Accou nt (va ue Wed nesday) I 9:OO AM BSP-PSD Settlement operations as follows: 5:45 PM 9:O5 AM BSP-PSD Settlement/repayment of ll:OO AM BSP-FM maturities related to the BSP's monetary operations ll:OO AM BSP-FM Monetary Operations tradi ng ll:3O AM window - Overnight RRP 9:OO AM Peso RTCS Intra- and lnter-Fl transactions, 5:45 PM Payment System including transactions of BSP (PS) Participants departments BSP- Settlement of InstaPay clearing PSD/lnstaPay results and defundinq transactions cso r Batch I 9:OO AM 'l'l:OO o Batch 2 lO:OO AM AM r Batch 3 l2:OO PM 3:OO PM 4:OO PM 9:OO AM BSP-PSD/BSP- Repurchase of securities used for ll:OO AM FM/Peso RTCS PS ISF availed on Wednesdav Pa rticioants 9:OO AM BSP-CMRO/BSP- Cash withdrawal transactions from l2:OO PM ROBs/BSP.PSD/ the BSP Peso RTCS PS Participants 9:OO AM BSP-CMRO/BSP- Cash deposits and other cash 5:45 PM PSD/Peso RTCS transactions throuqh BSP-CMRO PS Particioants 9:OO AM DvP FMI/BSP- Settlement of CS trades via DvP 4:OO PM PSD 9:OO AM BSP-PSD/eDvP Settlement of secu rity trades via 4:OO PM FMI eDvP 9:OO AM PvP FMls Settlement of FX trades via PvP 5:45 PM 9:.l5 AM BSP-PSD/Peso Availment of ISF 5:3O PM RTCS PS pa rtic ipa nts

Start Parties Activities End Time Time lnvolved (Covernment Securities for ISF are transferred to the BSP-ISF Direct Account in NRoSS between 9:OO AM to 5:.l5 PM) BSP-FM/ BSP- Monetary Operations trading PSD/ Peso RTCS window: PS participants lO:OO AM . Outright CS purchase and 5:OO PM sate . OLF r ODF 5I5 PM 5:3O PM lO:OO AM BSP-PSD Settlement of TDF, Outright CS 5:45 PM pu rchase and sa le/OLF/ODF ATM CSO/BSP- Settlement of ATM clearing results PSD o Batch I lO:OO AM . Batch 2 ll:OO AM 3:OO PM 4:OO PM PESONet Settlement of PESONet clearing CSO/BSP-PSD results and defund ing transactions 'lO:OO o Batch I AM o Batch 2 ll:OO AM 5:45 4:OO PM PM 4:3O PM Check CSO/BSP- Settlement of regular checks 5:.|5 PM PSD 516 PM Check CSO/BSP- Settlement of returned checks and 5:3O PM PSD other adjustments in the PM Ad iustment Window (PAW) ll:OO AM BSP-PSD Settlement of Overniqht RRP 5:45 PM 5:3.l PM BSP-PSD/BSP- Repurchase of securities for ISF 5:45 PM FM/Peso RTCS PS availed on Thursdav Particioants 5:45 PM BSP-PSD Close of settlement operations N.A. 9:OO AM Check CSO/BSP- Settlement of returned checks 9:O5 AM PSD following the 8:OOam clearing cut- off 9:OO AM BSP-FM Repurchase of securities for ISF ll:OO AM availed on Thursday (with fee)

8:OO AM Peso RTCS PS Availment of ISF 9:3O AM participa nts/BsP- PSD (Covernment Securities for ILF were transferred to the BSP-ILF Direct Account in NRoSS on Thursday) Monetary Operations trading window on an extended EOD basis 8:OO AM BSP-FM 9:45 AM . TDF o Outright CS purchase and sale . OLF . ODF . Overnight RRP (bid submission at 8J6 AM) 8J6 AM BSP-PSD Settlement of TDF, outright CS 9:59 AM purchase and sale, OLF, ODF, and RRP 9:OO AM Peso RTCS PS Intra- and Inter-Fl transactions, lO:OO AM Particioants including transactions of BSP departments 9:3.IAM BSP-PSD/BSP- Repurchase of securities for ISF 9:45 AM FM/Peso RTCS PS availed on Thursday Participants (if not repurchased on Thursday) lO:OO AM BSP-PSD Close of settlement operations N.A. 12:55 PM Uploading of beginning balances l:OO PM of settlement accounts (SA)from the CL System to the Peso RTCS Payment System 'l:OO PM BSP-PSD/Peso Settlement operation 5:45 PM RTCS PS Participants (The settlement activities reflected under Thursday, normal operation, shall happen on Friday within the shortened business hours from l:OOPM to 5:45PM without specific windows, unless explicitly stated below). l:OO PM BSP-PSD/BSP- Repurchase of securities for ISF 2:OO PM FM/Peso RTCS PS availed on Thursday Participants Page lO of 12

l:OO PM BSP-FM Monetary Operations trading 5:3O PM window on an extended EOD basis (back value Thursday) o BSP SF auction o Outright CS purchase and sate . OLF r ODF . Overnight RRP (bid submission at 4:3OPM) II5 PM BSP-PSD/Peso Availment of ISF 5:3O PM RTCS PS participants (Covernment Securities for ILF are transferred to the BSP-ILF Direct Account in NRoSS between l:OO PM to 5J5 PM) 5:3.| PM BSP-PSD/BSP- Repurchase of securities for ISF 5:45 PM FM/Peso RTCS PS availed on Friday Participants 5:45 PM BSP-PSD Close of settlement oDerations N.A. Page ll of 12

List of Acronyms ATM Automated Teller Machine BSP-FAD BSP Financial Accountinq Department BSP-FM BSP Financial Markets BSP-CMRO Creater Manila Reqional Office BSP-PSD BSP Pavments and Settlements Department BSP-ROBs Reqional Offices and Branches BSP-ROSS BSP Reqiona I Ooerations Su b-Sector BSP-TDIO BSP Technoloqv and Diqital Innovations Office cso Clearinq Switch Operator DvP Deliverv versus Pavment eDvP Enhanced Deliverv versus Pavment EOD End-of-Dav FI Financia | | nstitutions FMI Financial Market lnfrastructure CS Covernment Securities ISF I ntradav Settlement Facilitv MBS M u lti-batch Settlement nRoSS National Registrv of Scripless Securities ODF Overniqht Deposit Facilitv OLF Overn iqht Lendinq Faci itv I PDS Philippine Dealinq Svstem PvP Pavment versus Pavment RRP Reverse Repu rchase Ag reement RTCS Real-Time Cross Settlement TDF Term Deposit Facilitv T+O Current Bankino Dav T+l Next Bankinq Dav