A SENIOR LEGISLATOR filed a bill on Monday seeking to provide a regulatory framework for virtual banks.

Representative Jose Maria Clemente S. Salceda of Albay, who is also the Chair of the House Committee on Ways and Means, filed House Bill (HB) 5913, which if passed will be known as the Virtual Banking Act of 2020.

HB 5913 outlined the following functions of a virtual bank: grant loans, whether secured or unsecured; invest in readily marketable bonds and other debt securities; issue domestic letters of credit; extend credit facilities to private and government employees; and accept savings and time deposits.

The measure also mandates virtual banks to have a minimum capital of P20 billion to be raised in four years.

According to Mr. Salceda, the bill will provide “a clear, coherent, and far-sighted regulatory framework for virtual banks, while also granting adequate latitude to the BSP (Bangko Sentral ng Pilipinas).

Under the bill, the BSP will grant licenses to operate to no more than five virtual bank applicants every year for five years, afterwhich the number may be increased or decreased by the Monetary Board.

Both financial firms and non-financial firms may apply to own and operate a virtual bank. Virtual bank applicants will also be mandated to maintain a physical presence in the country which will be its “principal place of business.”

Virtual banks are also directed not to impose minimum account balance requirements to “actively promote financial inclusion in delivering their financial products and services.”

The measure also opens the virtual banking sector to some degree of foreign ownership to “ensure that the playing field is open to a wider set of candidates who can deliver more efficient outcomes for consumers, to attract some of the financial technology already developed in other countries, and to ensure adequate capitalization of the industry.”

In addition to the usual risks associated with conventional financial institutions, virtual banks will be required to ensure that consumers are “fully appraised” of both the risks and advantages of availing its services.

Under the bill, the customer is also not responsible “for any direct loss suffered by him or her as a result of unauthorized transactions conducted through his or her account,” unless the customer “acts fraudulently or with gross negligence.”

To monitor the implementation of the bill, a Congressional Oversight Committee on Virtual Banks will be created which will be composed of the Chair and four other members of the House Committee on Banks and Financial Intermediaries, and the Chair and four other members of the Senate Committee on Banks, Financial Institutions and Currencies.

Meanwhile, existing virtual banks or virtual banking services authorized by the BSP prior to the effectivity of the proposed law will be given six months to comply with rules and regulations set by the central bank pursuant to the measure.

According to Mr. Salceda, the bill is expected to encourage virtual banking to grow into a P903-billion industry, adding that “this augurs well for our prospects to become a financial technology hub in the region.”

“Based on the proponent’s estimates, the bill may increase the share of virtual-only banking assets to between 2.83% and 4.34% of total assets in universal and commercial banks. This represents an almost 65,000% growth from the current share, a development that would be to the clear advantage of the consumer, since virtual-only banking can offer more favorable interest rates,” Mr. Salceda said. — Genshen L. Espedido