BSP clears digital, Islamic banks to engage in FX transactions

Digital banks as well as Islamic banks are now allowed to engage in foreign exchange (FX) transactions as the Bangko Sentral ng Pilipinas (BSP) followed through with moves to amend regulations on the Philippine foreign currency deposit system.

The BSP in May 2020 embarked on reforms, providing greater flexibility to covered banks in managing their FX denominated exposures through the amendment to requirement on the asset cover of foreign currency deposit units (FCDUs) or those that are authorized to transact in foreign currencies.

This second phase of amendments expand the coverage of entities that are authorized to engage in FX transactions. It also streamlines the related licensing requirements for banks applying for FCDU authority.

So far, the BSP has issued licenses to six entities to operate as digital banks. These include Overseas Filipino Bank, Tonik Bank, Unobank, Gotyme, Union digital Bank and Maya Bank.

Meanwhile, state-owned Al Amanah Islamic Investment Bank of the Philippines, a subsidiary of Development Bank of the Philippines, remains as the sole Sharia law-compliant finance specialist in the Philippines.

Before the latest amendments, all banks were required to seek the prior approval of the BSP before they could engage in FX transactions.

Also, the new rules rationalize the prescriptive requirements for certain expanded or FCDU activities such as foreign currency derivatives activities and securities transactions. This follows the relevant provisions in the Manual of Regulations for Banks to ensure consistency in the implementation and enforcement of guidelines.

Moves to amend the regulations are aimed at recalibrating the requirements for FCDU transactions in line with current business norms and risk management practices.

“The second phase of the reforms will afford banks the opportunity to perform efficient and flexible liquidity cash management of FX denominated funds by easing the stringent conditions on lending to regular banking units by the expanded FCDU,” BSP Governor Benjamin Diokno said in a statement.

“In view of the liberalized FX regulatory environment, banks are expected to put in place an appropriate risk management system and integrate the same into the overall risk management process to ensure that material risks arising from FX denominated transactions are properly identified, measured, monitored and controlled,” Diokno added. INQ