Changes to central bank law mooted in the Philippines

Proposals have been submitted to the Philippines' Senate Committee on Banks, Financial Institutions and Currencies, suggesting changes may soon be made to the country's 20-year-old central bank law.

Since June, three bills have been put forward to senator Francis Escudero, chairman of the committee – the latest of which was authored by him.

Senate Bill number 1027 aims to "strengthen the tools" wielded by the Central Bank of the Philippines (BSP) when performing its mandate, thereby protecting savings of depositors and ensuring the "smooth flow" of transactions in the financial system.

Legal gaps

One of the key suggestions concerns enhancing the central bank's prudential supervision function by expanding the entities the bank supervises to include other categories of financial institution.

Earlier this year, the Philippines' financial system was plunged into turmoil as Rizal Commercial Banking Corporation (RCBC) was linked to the Bangladesh Bank hacking, which resulted in the theft of more than $100 million.

Four accounts were opened in March 2015 at RCBC but were not used until February 2016, when 'requests' from Bangladesh Bank to the Federal Reserve Bank of New York saw $81 million transferred to the accounts on February 4.

The funds were then withdrawn and remitted by Philrem, a remittance company, which converted the funds into pesos and filtered them through three casinos. Philrem has since had its licence revoked, and RCBC has been fined 1 billion pesos ($21.3 million).

One of the biggest problems for the central bank was gaps in the legal framework, making it very difficult to track down the funds. "There is urgent need to address major gaps in the legal framework," deputy governor Nestor Espenilla told Central Banking back in April.

"There is a need to further strengthen the ability of BSP to effectively check banks' compliance with [anti-money laundering legislation], and its implementing rules and regulations, through appropriate relaxation of strict deposit secrecy laws," he added.

Such action may now be on the cards. Escudero suggests the central bank become the granting authority to impose sanctions on transfers and acquisitions of substantial shares of banks and quasi-banks made without central bank approval. This could include the forfeiture of profits from unauthorised financial transactions.

He also wants the central bank to have the "full flexibility" to conduct risk-based supervision of financial institutions and to improve the resolution mechanism to deal with problematic financial institutions.

Strengthening financial supervision

The other two bills (SBN 859 and SBN 16), filed in July and June, respectively, also stress there is a need for the central bank act to be "revisited and amended" in order to respond to "changing times".

"The prevailing situation 23 years ago is not the same as today and there is a need to redefine or clarify some concepts in the BSP charter in order to render it more effective," senator Ralph Recto said when presenting bill 859.

Recto proposes the expansion of the central bank's supervisory powers to include credit card companies, e-money issuers, remittance agents and institutions performing similar functions.

The bill but forward by Escudero also seeks to increase the central bank's capitalisation by 150 billion pesos to 200 billion pesos and be subject to review every five years.

Capitalisation shall be "adjusted upon joint recommendation by the secretary of finance, the secretary of budget and management and the monetary board," he said.

Since the restructuring of BSP in 1993, Escudero said the country has undergone two financial crises: the Asian crisis in 1997 and the global financial crisis in 2007. The central bank's capitalisation has nevertheless remained constant.