BSP Imposes New Liquidity and Capitalization Requirements for Electronic Money lssuers in the Philippines

On 7 February 2023, the Bangko Sentral ng Pilipinas (“BSP”) released BSP Circular No. 1166, series of 2023 (“Circular”) which expands the definition of Electronic Money (“E-Money”) and imposes new liquidity and capitalization requirements along with a transitory period for E-Money Issuers (“EMI”) in the Philippines.

The Circular applies to both (a) Bangko Sentral-Supervised Financial Institutions (“BSFIs”) that issue E-Money and engage in E-Money business in the Philippines through an open-loop electronic wallet system, and (b) Non-Bank Financial Institutions (“NBFIs”), particularly to quasi-banks, non-stock savings and loan associations, and other NBFIs including cooperatives.

Definition of E-Money

The BSP now defines E-Money as an electronically stored monetary value that is:

1. Maintained in a non-interest-bearing non-deposit transaction account;
2. Denominated in or pegged to a Philippine Peso or other foreign currencies;
3. Pre-funded by customers to enable payment transactions;
4. Accepted as a means of payment by the issuer and by other persons or entities including merchants/sellers;
5. Issued against receipt of funds of an amount equal to the monetary value issued;
6. Represented by a claim on its issuer; and
7. Withdrawable in cash or cash equivalent or transferable to other accounts/instruments that are withdrawable in cash.

Liquidity Requirements

The BSP requires BSFIs and NBFIs to have sufficient liquid assets to always meet E-Money redemptions by its customers. The BSFIs and NBFIs are required to maintain liquid assets at least equal to the amount of outstanding E-Money issued for each currency in which E-Money obligations are denominated. The BSP categorized BSFIs and NBFIs into two categories: (1) BSFIs and NBFIs with outstanding E-Money balance of at least PHP100 million; and (2) Those with outstanding E-Money balance of less than PHP100 million. 

1. BSFIs and NBFIs with outstanding E-Money balance of at least PHP100 million:
   
   BSFIs and NBFIs shall have at least 50% of the outstanding E-Money balance in trust for the specific purpose of E-Money balance liquidation. The EMIs shall ensure that the amount held in trust account shall not fall below the required minimum trust account balance at any given day. Decline in required minimum trust account balance arising solely from marked-to-market losses shall not be considered a breach of the minimum requirement if the BSFI tops up the deficiency arising from aforesaid marked-to-market as of month-end within 5 days after end of reference month. 
   
   The remaining percentage of outstanding E-Money balance shall be held in any of the following assets:
   
   
   1. bank deposits specifically earmarked for liquidity requirements of the E-Money balances; 
   2. government securities earmarked and set aside for the purpose;
   3. balance in the settlement account with the BSP that is used by a non-bank EMI specifically for the settlement of its net clearing obligations arising from electronic payments; and
   4. such other liquid assets as the BSP may allow.

2. BSFIs and NBFIs with outstanding E-Money balance of less than PHP100 million may:
   
   
   1. Hold liquid assets following the requirements for BSFIs of the first category; or
   2. Hold liquid assets equivalent to the total amount of outstanding E-Money balance in any of the following assets:
      1. bank deposits specifically earmarked for liquidity requirements of the E-Money balances; or
      2. government securities earmarked and set aside for the purpose; or
      3. balance in the settlement account with the BSP that is used by a non-bank EMI specifically for the settlement of its net clearing obligations arising from electronic payments; or
      4. such other liquid assets as the BSP may allow; and
   3. Hold such other liquid assets as the BSP may allow.

Capitalization Requirements

The BSP, through the Circular, has also set new capitalization requirements for EMI-Banks and EMI-NBFIs. The new amount shall now be the higher of: (a) the required minimum capitalization for banks depending on bank category or NBFIs depending on NBFI type, or (b) the minimum required capitalization based on EMI category below:

An EMI-Bank/EMI-NBFI is considered large scale if its 12-month average value of aggregated inflow and outflow of transactions is equal to or greater than PHP25 billion. Once classified as large scale, it cannot be reclassified as small scale unless approved by the BSP.

Transitory Period

The BSP also provided for a transitory period of 3 months from the effectivity of the Circular for existing BSFIs authorized to issue E-Money or engage in E-Money operations to submit the following to the appropriate supervising department of the BSP:

1. A certification, signed by the President or Officer with equivalent rank and function, that the BSFI is in compliance with all the applicable requirements of this Section; and
2. Accomplished gap assessment template as prescribed by the BSP (as appended in the Circular) specifying the plan of actions it will undertake, with the corresponding timelines not exceeding 1 year from the date of issuance of this Circular, to conform with the provisions it has yet to fully comply with.

BSFIs may continue to operate their business pending submission of the Certification unless instructed otherwise. Failure to comply with these requirements within the prescribed period will merit appropriate action from the BSP.
The full text of BSP Circular No. 1166 can be found here.