A LAWMAKER has filed a measure seeking to allow local government units (LGUs) to conduct banking activities with private banks.

“This legislative measure seeks to empower LGUs with the choice to conduct banking activities with private financial institutions, while instituting adequate safeguards to protect public funds,” Cebu City Rep. Eduardo R. Rama, Jr. said in House Bill No. 9724.

The proposed law would allow LGUs to engage in banking and other financial transactions with their preferred banks, whether a private universal or commercial bank (U/KB) or a qualified government financial institution (GFIs).

The Bangko Sentral ng Pilipinas (BSP) and the Department of Finance (DoF) must set defined criteria for private U/KBs before they are allowed to transact with LGUs.

The BSP must then provide a shortlist of private banks eligible to transact with LGUs.

Mr. Rama noted that local governments in countries like the United States and the United Kingdom are allowed to deposit public funds in private financial institutions with adequate safeguards.

He added that GFIs’ “investment portfolios may not offer the same breadth of options as those of private banking institutions.”

U/KBs will be mandated to implement risk management measures and safeguards against unauthorized access, fraud and cybersecurity threats. It should also maintain accurate records and allow an oversight committee to conduct audits.

A private U/KB cannot engage in banking activities with an LGU if its official or major shareholder is within the fourth civil degree of consanguinity or affinity with any elected local official.

Members of the oversight committee must have one representative each from the DoF, the BSP, the Department of Interior and Local Government (DILG), and the Commission on Audit.

The panel must also contain one advisory participant from the private banking institutions — as nominated by the Bankers Association of the Philippines — and from a recognized nongovernmental organization or advocacy group focused on financial inclusion and consumer protection, to be nominated by the DoF, the BSP, and the DILG.

Currently, the DoF only allows LGUs to maintain government funds with qualified GFIs like the Land Bank of the Philippines and the Development Bank of the Philippines.

A similar bill filed last year by Senator Sherwin T. Gatchalian said LGUs can only transact with U/KBs if a GFI cannot provide specific banking products and services, if they are not accessible within a 20-kilometer radius, or if there are security and safety risks in transacting.

The bill is currently pending in both the House and Senate banks committees. — Beatriz Marie D. Cruz