Guidelines on the Settlement of Instant Retail Payments

BANEKo Serurnal Nc; PILIPINAS OFFICE OF THE GOVERNOR ctRcuLAR NO.1000 Series of 2018 Subject : Guidelines on the Settlement of Instant Retail Payments The Monetary Board, in its Resolution No. 659 dated L9 April 20L8, approved the following guidelines on settlement of instant retail payments. Section 1. The following Sections and Subsections are hereby created in the Manual of Regulations for Banks(MORB)/Manual of Regulations for Non-bank Financial Institutions (MORNBFI): "Section XL2OGI 4t206Q/47O6 S | 47 OGP I 4806N Settl ement of t nsta nt Reta il Payments; Policy Statement. lt is the thrust of the Bangko Sentral to ensure efficiency of payment systems in the country. In line with this thrust, the Bangko Sentral requires BSP-Supervised Financial Institutions (BSFls) participating in an automated clearing house (ACH) for instant retail payments to ensure that this ACH provides for certainty of settlement of the multilateral clearing obligations of the clearing participants. The settlement scheme agreed upon by the clearing participants shall form an integral part of the comprehensive credit risk management for instant retail payment services. For the purpose of this Section, an instant retail payment, otherwise known as fast payment, is defined as an electronic payment in which the transmission of the payment message and the availability of "final" funds to the payee occur in real time or near-real time on as near to a 24-hour and seven-daV Qa/7) basis as possiblel. Moreover, as used in this Section, clearing participants shall refer to direct clearing participants. "subsection xt2o6.tl4t2o6Q.Ll47O6S.tl4706p.1/rt806N.1 Minimum requirements for the operotion of o settlement mechonism for instont retail poyments. The settlement mechanism for instant payments shall meet the following minimum requirements: a. A clearing participant or its settlement sponsor shall maintain with the Bangko Sentral a demand deposit account (DDA) which shall be used specifically for the settlement of the clearing participant's net clearing obligations arising from instant retail payments; R:qad ^n l-ha paper "Fast payments - Enhancing the speed and avaiJabiLity of retaif payments" of the Committee on Payments and Market Infrastructures, Bank for International Settl-ements A. Mabini St., Malate 1004 Man;la, Philippins5 . {632) 708-7701. www.bsp.gov.pfi . [email protected]

b. The clearing participant or its settlement sponsor shall prefund the settlement of its net clearing obligation through the DDA stated above, ensuring that such account can sufficiently cover said obligation at any point during a settlement cycle. When prefunding, the clearing participant/settlement sponsor shall consider increasing the fund in its account for longer settlement cycles such as during weekends and holidays; c. The clearing participants shall agree on thresholds which shall be the bases of the Clearing Switch Operator (CSO) to execute a notification process that enables the clearing participants to efficiently monitor movements in their instant retail payment positions, and at the same time alerts them to place additional funds in their DDAs particularly when the ultimate threshold is breached; d. The service contract between the clearing participants and the CSO shall include, at a minimum, the following provisions: (1) The CSO shall record the clearing participants' DDA balances obtained from the Bangko Sentral at the start of every settlement cycle and monitor the clearing participants' net clearing obligations against their respective accou nt balances; (2) Should the instant retail payments position (Funds in the DDA minus net clearing obligation/withdrawal from the DDA) of any of the clearing participants breach their agreed-upon thresholds, the CSO shall immediately send an electronic notification to the concerned clearing participant; and (3) Any instant retail payment which is not fully covered by the corresponding DDA or which will result in a negative instant retail payments position shall be rejected by the CSO. A clearing participant with an instant retail payments position of zero shall be suspended from carrying out further outgoing instant payment transactions until said participant registers a positive position on account of its incoming payment transactions and/or subsequent deposits into its DDA; Should the clearing participants determine that the funds in their DDAs for instant retail payments are excessive after taking into account their highest potential clearing obligations, the clearing participants shall be allowed to withdraw from their DDAs to enable them to make optimal use oftheir funds; and

f. The Bangko Sentral shall not be precluded from deploying applicable regulatory enforcement actions to concerned clearing participants notwithstanding the inclusion of sanctions in the ACH for non-compliance with the clearing participants' agreed-upon settlement mechanism. "subsection XL2O6.2 | 4t2O6Q.2 I 47OGS.2 I 47OGP.2I rt806N.2 Risk management. ln view of the risks involved in the prescribed settlement mechanism for instant retail payments, including the possibility that a rejected payment transaction of a client due to prefunding issues may give rise to serious reputational damages to the concerned clearing participant, the BSFIs participating in the instant retail payment ACH shall ensure that they have the necessary operational and liquidity risk management measures in place. Such measures shall be designed in accordance with the guidelines provided under Section and the subsections of X179/4L79Q/4L98N of the MORB/MORNBFI on Operational Risk Management, and Section and the Subsections of XL76/4L76Q/4L95S/4195N on Liquidity Risk Management of the MORB/MORNBFI. "subsection XL206.3141206q.3 Demond deposits for instont payments os eligible reserues. The DDAs maintained with the BSP for the settlement of net clearing obligations arising from instant retail payment transactions shall form part of the banks'/QBs' reserves against deposit and deposit substitute liabilities pursuant to section x254/4254Q of the MORB/MORNBFI. "Subsection Xt206.4I4L2OGQ.4|47OGS.4|4706P.4/4806N.4 Superuisory enforcement oction. Consistent with Section X009/4009Q, the Bangko Sentral may deploy enforcement actions to promote compliance with the requirements set forth in this Section and ensure timely implementation of preventive or corrective measures as needed. As part of its enforcement actions, the Bangko Sentral may issue directives or impose sanctions which limit the level of or suspend any business activity that adversely affects the safety and soundness of a BSFl." Section 2. Effectivity. This Circular shall take effect immediately upon its publication either in the Official Gazette or in a newspaper of general circulation. FOR THE MONETARY BOARD: ftJ^ c*!L ftrsron rsplrunlA, e. JR. Governor ?3 April2OLB