Wed. Jan 27th, 2021

Regulation HK

Financial Regulator

Philippine Central Bank Introduces Digital Banking Framework

2 min read

Foreign individuals and non-bank corporations are allowed to hold up to 40% of a digital bank’s voting shares, while foreign banks are allowed to hold up to 100%.

​The BSP (Bangko Sentral ng Pilipinas) has approved the recognition of ‘digital bank’ as a new bank category that is separate and distinct from the existing bank classifications.

Under a new framework, a digital bank is defined as a bank that offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branches.

“Digital banks will play an important role in the digital financial ecosystem,” said BSP governor Benjamin Diokno. “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 realisation of our target that at least 50 percent of total retail payment transactions have shifted to digital … by year 2023.”

Under the digital banking framework, applicants are expected to have sound digital governance, robust, secure and resilient technology infrastructure, and effective data management strategy and practices, the BSP said.

In recognition that digital banks are exposed to the same financial risks faced by conventional banks (e.g. cyber, AML), the BSP will subject them to the same prudential requirements applicable to other types of banks, albeit with some recalibration.

Digital banks are expected to maintain a principal place of business in the Philippines to house the offices of management and other support operations. This will also serve as the main hub for customer concerns handling and as a point of contact for stakeholders, including regulators.

Under the framework, 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 BSP may 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,” Diokno said.

Foreign individuals and non-bank corporations are allowed to hold 40 percent of the voting shares of a digital bank, in aggregate, while foreign banks are allowed to hold up to 100 percent of the voting shares.

The minimum capitalisation of a digital bank shall be at least PHP 1 billion (USD 20.8 million), though the BSP may subject a digital bank to a higher minimum capital requirement and capital ratio based on its assessment of the bank’s risk profile.

The application fee is PHP 250,000 and the license fee is PHP 12.5 million.

Applications are now being accepted.

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