BSP and Fintech: The way forward

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FINEX Folio -- By Flor G. Tarriela


The first On Q sponsored by FINTQ presented a Fintech Thought Leadership Roundtable Series with Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. as the first featured speaker. On Q is an event that gathers the shakers and movers to engage in conversations about trends, emerging regulations and key developments.

As Lito Villanueva, managing director of FINTQ, said “we are doing ON Q because we believe the right conversations can bring forward new ideas and actions that benefit more people especially the unbanked and underserved.”

Gov. Nesting said “we are adopting technologies even as we advocate the use of technology in the financial system. We have realized over the years looking at the way our banking system has evolved, the brick and mortar just not catch it. The Philippines is an archipelago.”

Does BSP support Fintech or financial technology innovation? Yes! Gov. Nesting says BSP supports responsible Fintech innovation as it creates greater efficiency for financial transactions and ushers in greater financial inclusion. He says BSP allows innovations to flourish while being mindful of risks.

The principles that govern the BSP regulatory approach are:

1. Regulation must be risk based, proportionate and fair – Mr. Espenilla said the BSP adopted as early as 2004 the “test and learn” approach, now referred as the “regulatory sandbox” approach. This allows BSP to observe actual operations, appreciate the risks better and craft appropriate regulatory responses. BSP encourages innovations and don’t want it blocked or prevented by too many compliance requirements. That’s great to hear so banks can now look forward to “innovations without the burden of regulatory compliances related to a new activity”. He says it’s a balancing act, open to business models and determining who bears the risk.

2. Need to maintain active multi-stakeholder collaboration – Gov. Nesting said that there are many players and multi-layered relationships in Fintech, and varied financial sector players. Continued engagement is necessary to have a good understanding of risks, financial inclusion goals and market conduct expectations. There is also a need to have collaboration with other regulatory agencies to ensure cohesive and consistent policies and prevent any regulatory arbitrage.

3. Ensure consumer protection – Regulations are in place to ensure that in the design and deployment of digital solutions, the innovations work for the consumers’ benefits, especially the most vulnerable. Values such as product suitability, security, transparency, and confidentially are considered.

Also, in keeping with current developments, the BSP issued the following circulars to mitigate technology related risks among others:

• BSP Circular 942 – Money Service Business Operations

• BSP Circular 940 – Cash Agents Guidelines

• BSP Circular 944 –  Virtual Currency Exchanges

• BSP Circular 949 –  Social Media Risk Management

Gov. Nesting confirms the BSP’s open and flexible approach to financial innovation and walks the talk on this. He is fully aware that when banking laws were crafted, the new trends were not even imagined. So he is closely engaging with stakeholders and fintech players to understand their models systems and processes, bearing in mind that financial stability, public interest and consumer protection remain top of priorities. Thus, a balancing act of promoting financial innovation at the same time with safeguards to manage risks.

We are thankful that BSP under Gov. Nesting maintains a forward looking approach to ensure that regulatory and supervisory frameworks are in tune with emerging trends and developments. Continuity Plus Plus indeed!

Flor G. Tarriela is chairman of PNB and a director of FINEX. She was formerly undersecretary of Finance, the first Filipina vice president of Citibank N.A. and past president of BAIPHIL.