BSP: new digital banks subject to same risk standards as conventional counterparts

MANILA, Philippines — Digital banks that will be put up under the central bank’s new framework for a new category of financial institutions that will operate without physical branches will be subject to the same level of prudential controls and risk mitigation measures as their established conventional counterparts.

Thus said the Bangko Sentral ng Pilipinas after its Monetary Board approved the rules that set the parameters for the policy aimed at bringing as many as 70 percent of the country’s population into the formal banking system in three years’ time.

“Digital banking applicants are expected to have sound digital governance, robust, secure and resilient technology infrastructure, and effective data management strategy and practices,” the central bank said in a statement.

The regulator explained that, despite not having the physical presence of a traditional branch network, digital banks are exposed to the same financial risks faced by conventional banks with potential elevated exposure to cybersecurity and money laundering risks.

“As such, digital banks would be subject to the same prudential requirements applicable to other types of banks with recalibration to be commensurate to their business model and risk profile,” the central bank said.

Earlier this week, the Monetary Board approved the recognition of digital bank as a new bank category that is separate and distinct from the existing bank classifications. Digital banks are defined as those that offer financial products and services which are processed end-to-end through a digital platform or electronic channels with no physical branches.

Under the central bank’s new framework, digital banks are expected to maintain a principal place of business in the Philippines, despite the absence of branches, to house the offices of management and other support operations and serve as the main hub for customer concerns handling and point of contact for stakeholders, including the BSP and other regulators.

Digital banks are also allowed to tap cash agents and other qualified service providers subject to existing regulations to complement the innovative delivery of financial services.

The Monetary Board has the option to limit the number of digital banks that may be established considering the total number of applications received and the assessment of the overall banking situation.

“Essentially, the BSP is looking to attract players with strong value proposition, sufficient financial strength, technical expertise of management and effective risk management,” Governor Benajmin Diokno said.

The new policy forms part of the BSP’s digital payments transformation roadmap aimed at creating a more streamlined, technology-driven and inclusive financial ecosystem.

“Digital banks will play an important role in the digital financial ecosystem,” the central bank chief said. “We see these banks as additional partners in further promoting market efficiencies and expanding access of Filipinos to a broad range of financial services, bringing us closer to the realization of our target that at least 50 percent of total retail payment transactions have shifted to digital, and 70 percent of adult Filipinos have transaction accounts by year 2023. This is seen to remove sticky points and leapfrog our financial inclusiveness agenda.”

/MUF