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THE CENTRAL BANK is proposing rules for the operation of the Peso Real-Time Gross Settlement Payment System (RTGS PS), based on a draft circular on its website.

The draft rules are in accordance with Republic Act No. 11127 or the National Payment Systems Act, which allows the Bangko Sentral ng Pilipinas (BSP) to own and operate a payment system, and issue guidelines governing payment systems in the country.

The rules, if approved, will be included in the BSP’s Manual of Regulations for Payment Systems. They will cover the participants of the RTGS PS, including banks and other financial institutions, financial market infrastructures, clearing switch operators, and critical service providers.

Stakeholders are given until June 3 to give their feedback on the proposed circular.

The BSP owns and operates the Philippine Payment and Settlement System or PhilPaSS, the country’s current RTGS payment system. Banks and non-banks with quasi-banking functions are granted access to PhilPaSS to facilitate electronic interbank payments.

PhilPaSS and PhilPaSS Plus were designated as systematically important payment systems last year.

According to the draft circular, the Peso RTGS PS will settle peso-denominated funds transfers representing “time critical and high value payments”.

These transactions include government collections; the movements of funds between participants proprietary accounts; interbank or inter-institution transfers; withdrawals from and deposits into financial institutions’ accounts with the BSP; transactions with the BSP, such as placements in deposit facilities, the purchase or sale of foreign currency (FX) and securities or those related to its intraday liquidity facility; and the money settlement leg of security trades; the peso leg of FX trades; clearing results for checks, automated teller machine transactions, digital payments and other types of retail payments; and other large value transactions.

“The RTGS PS is critical for maintaining price and financial stability, as well as preserving public interest,” the BSP said in the draft circular. “By providing the settlement facility for the open market operation of the BSP, the RTGS PS also supports the BSP’s mandate of ensuring price stability.”

“Moreover, this system plays an indispensable role in upholding public welfare by enabling the efficient and low-risk settlement of retail payments in central bank money.”

Because payment systems affect demand for funds and, consequently, money market rates, the BSP offers intraday and overnight liquidity facilities “to ensure that payments smoothly flow through the RTGS system and that interdependent settlements are executed in a timely manner to manage systemic risk.”

The BSP’s Peso RTGS Management Committee (ManCom) composed of central bank officers and units will manage the operation of the RTGS PS.

“The ManCom shall be responsible for ensuring the safe, efficient, and reliable operation of the RTGS PS and compliance with the applicable expectations for an operator of a designated payment system under Section 101 of the MORPS,” the draft said.

The ManCom will review and endorse for Monetary Board approval the policy proposals or amendments on the operation of the RTGS PS and oversee the implementation of programs, policies, and procedures to ensure the operation of the system aligns with global standards or best practices.

The draft rules also outline the criteria for determining entities that can settle through the RTGS PS. Participants will need to comply with the BSP’s connectivity requirements and have a risk management system in place.

“While participation is open regardless of the size of a prospective participant and the complexity of its business, the BSP considers the applicant’s capacity to fulfill operational, financial, legal, and regulatory pre-requisites to manage participant-induced risks to the safety and efficiency of the PS,” the central bank said in the draft circular.

“Managing the risks arising from participation in the RTGS PS shall be an integral part of the participants’ operation. To ensure that risks are comprehensively addressed, the participants shall establish policies, procedures, and controls, which are aimed at mitigating legal, credit, liquidity, general business, and operational risks. The participants shall consider not only the risks to themselves but also those that they pose to the RTGS PS,” it added.

According to the draft rules, RTGS PS participants may use the following payment messaging channels: the Society for Worldwide Interbank Financial Telecommunication or SWIFT messaging system, the web-based system provided by the BSP to system participants, and the Virtual Private Network – Straight Through Processing or VPN-STP Gateway communication module.

Settlement through the RTGS system will need to comply with required levels of settlement account balances and execution of settlement instructions, among others. The RTGS PS will also implement settlement guarantee mechanisms.

The draft circular likewise included rules on incident management, business continuity, system enhancement and testing, and settlement fees and charges. — KBT