ArticlesBanking & Finance – Legal Updates

The SEC issued the rules on sustainable and responsible investment funds applicable to the following: (a) a newly formed or existing investment company that seeks to qualify, or has qualified, as a Sustainable and Responsible Investment (SRI) Fund, including any sub-fund of an umbrella fund, which adopts sustainability considerations or environmental, social, and governance (ESG) factors as its key investment focus; and (b) a non-SRI investment company that incorporates or seeks to include sustainability or ESG factors or considerations in its investment objective and discloses such information in its Registration Statement.

To qualify as an SRI fund, the company must adopt one or more sustainability principles or considerations or ESG factors as its key investment focus and appropriately reflect such focus in its investment objective and/or strategy. The minimum asset allocation percentage consistent with the SRI Fund’s sustainable investment objective should account for at least two-thirds (2/3) of its net asset value (NAV) at all times. Furthermore, the name of the SRI Fund should also reflect the sustainability or ESG factors set out in its investment objective and/or strategy. An explanation should be submitted to the Commission as to how the proposed name is proportionate to the ESG features of the SRI Fund as a whole.

The sustainability considerations, principles or EGS factors that may be considered by an SRI Fund are as follows:

Moreover, there is a prohibition for non-SRI Fund to use the term “ESG,” “sustainability” or words of similar import in its name and/or its marketing materials, unless otherwise permitted by the Commission. The rules also provide guidance on the disclosures and reporting of investment companies classified as SRI Funds.

• United Nations Sustainable Development Goals (SDGs)
• United Nations Global Compact Principles
• Common Principles for Climate Mitigation Finance Tracking
• Green Bond Principles of the International Capital Market Association (ICMA)
• Climate Bonds Taxonomy of the Climate Bonds Initiative
• Any other nationally or globally acceptable ESG or sustainability principles or criteria.

The Circular amends Section 282 of the Manual of Regulations for Banks (MORB) on US Dollar/Japanese Yen rediscount rates.

The rediscount rates for loans in US dollars and Japanese yen will be determined by adding a spread to the applicable benchmark rate, based on the loan term as determined by the Bangko Sentral ng Pilipinas (BSP). The spread between these two rates may also change to reflect movements in market interest rates and to achieve monetary policy objectives. Banks that qualify may apply at the BSP’s foreign currency rediscounting window and avail of the 1-90 days, 91-180 days, and/or 181-360 days term facilities, subject to applicable rediscount rates.

The Circular amends the regulations governing the issuance of E-money and the operations of E-money issuers in the Philippines. Salient provisions are as follows:

Scope: The guidelines cover BSP Supervised Financial Institutions (BSFI) that issue E-money and engage in E-money business in the Philippines. E-money issued under closed-loop electronic wallet systems are not covered.

Definition of E-money: E-money refers to electronically-stored monetary value that is:

• maintained in a non-interest-bearing non-deposit transaction account;
• denominated in or pegged to Philippine Peso or other foreign currencies;
• pre-funded by customers to enable payment transactions;
• accepted as a means of payment by the issuer and by other persons or entities including merchants/sellers;
• issued against receipt of funds of an amount equal to the monetary value issued;
• represented by a claim on its issuer; and
• withdrawable in cash or cash equivalent or transferable to other accounts/instruments that are withdrawable in cash.

Definition of closed-loop electronic wallet system:
Closed-loop electronic wallet system shall refer to an arrangement wherein the electronic wallet is accepted as a means of payment only by the merchant-issuer. Merchant-issuers including their subsidiaries and affiliates shall be considered as one entity for purposes of determining closed-loop electronic wallet systems.

Liquidity requirement:
Generally, BSFIs shall have sufficient liquid assets to meet E-money redemptions at all times and protect the interest of the E- money holders. In this respect, BSFIs shall maintain liquid assets at least equal to the amount of outstanding E-money issued for each currency in which the E-money obligations are denominated.

The Circular provides for a ceiling on interest or finance charges for credit card receivables.

The interest or finance charge that Banks / credit card issuers impose on all credit card transactions shall not to exceed an annual interest rate of thirty-six (36%), except credit card installment loans which may be subject to monthly add-on rate not exceeding one (1%) percent. In the case of credit card cash advances, other than the foregoing applicable maximum interest rate caps, no other charge or fee shall be imposed or collected apart from the processing fee in the maximum amount of Php200.00 per transaction. The maximum processing fee and interest rates or finance charges are subject to review by the BSP every six (6) months.

The Circular amended the regulations under MORB governing the credit exposure limits to a single borrower and definition of capital which is used for purposes of determining compliance with various prudential limits and requirements.

Credit Exposure Limits to a Single Borrower
Credit risk transfer
The loans and other credit accommodations or portion covered by an effective credit risk transfer arrangement in the form of a guarantee or credit derivative that complies with the minimum operational requirements provided shall:

1. be excluded from the total credit commitment of the bank to a borrower in reckoning compliance with the Single Borrower Limit (SBL). The portion of the loans and other credit accommodations that is not covered by an effective credit risk transfer arrangement, if any, shall still form part of the credit commitment of the bank to the-borrower in reckoning compliance with the SBL; and
2. form part of the total credit commitment of the bank to the protection provider (i.e., guarantor in case of guarantees and protection seller in case of credit derivatives) in reckoning compliance with the SBL. This provision does not apply to guarantees, in the form of standby letter of credit, demand guarantee. or counter-guarantee, between bank’s head office and its branch/es or between bank’s branches that are located in different jurisdictions.

Definition of Capital
The term capital shall be synonymous to unimpaired capital and surplus, combined capital accounts, and net worth and shall refer to the total of the unimpaired paid-in capital. including paid-in surplus. retained earnings and undivided profits. The Circular also enumerated items to be added to or deducted from the capital.

The BSP amendments aim to provide guidance on handling joint accounts as well as the acceptability of electronic signatures and PhilSys ID.

Acceptability of Electronic Signatures
For opening any type of deposit account/establishing relationship under the true and full name of the depositor, all banking institutions are required to obtain a minimum of three (3) specimen signatures, simultaneously executed by the depositor, either wet or electronic, or biometrics (such as fingerprints, iris scans, or facial recognition images) from their depositors and to update the same, as applicable, based on risk and materiality. Banks may, at their option, require their depositors to submit clear ID photos. Electronic signatures shall be accepted pursuant to the provisions of Section 8 of R.A. No. 8792 or the Electronic Commerce Act of 2000.

Acceptability of PhilSys ID
PhilSys Card Number (PCN) or PhilSys Number (PSN) derivative, or PhilID card, in physical or digital form, shall be accepted as official and sufficient proof of identity, subject to the appropriate authentication methods, without the need to present other forms of identification.

Guidance on Handling Joint Accounts
Joint account is a deposit account (i) held jointly by two or more natural persons, or by two or more juridical persons or entities or (ii) held by a juridical person or entity jointly with one or more natural persons. The funds deposited in the joint deposit account are governed by the rules on co-ownership, as provided under the Civil Code of the Philippines, between the joint account holders. The share or portion belonging to the joint depositors in the joint account shall be presumed equal unless the contrary is proved, and the benefits as well as the charges in the joint account shall be proportional to their respective shares. The joint account is held under the name of the depositors described using either “and” or “or”.

Depositors of joint accounts described using the conjunction “and” shall only be allowed to withdraw from the said account with the authority of all the depositors named in the joint account; and any of the depositors of joint accounts described using the conjunction “or”, acting separately, may be allowed to withdraw from the said account, even without the authority of the other depositors named in the account. Under both types of joint accounts, deposits may be placed in the account even without the authority of the other depositors named in the account.

Electronic access and transactions may be allowed for joint accounts provided that for electronic withdrawals/fund transfers/payments from a joint “and” account, the bank should have appropriate system, procedures, and controls to obtain the authorization of all the depositors in the joint account prior to effecting the transactions.