Manual of Regulation For Non Bank Financial Institution PDF

MANUAL OF REGULATIONS
FOR NON-BANK FIN AN

INANCIAL
ANCIAL
INS TITUTIONS
NSTITUTIONS
FOREWORD
The 2008 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is

an updated compilation of regulations and policies issued by the Bangko Sentral ng Pilipinas
(BSP) for financial institutions under its supervision. Available in hard and soft copies, it is a
convenient reference and guide for said financial institutions in the conduct of their operations.
The updated MORNBFI incorporates regulatory policies issued to align banking

practices on risk management, good corporate governance, and capital adequacy, accounting
and reporting with international standards. It also includes rules implementing legislative
reform measures, the more significant of which are the General Banking Law of 2000, the
Anti-Money Laundering Act of 2001 and the Special Purpose Vehicle Act of 2002.
In providing easy access to this information, the updated MORNBFI seeks to facilitate
compliance with the supervisory and regulatory requirements of BSP that will contribute to
the enhancement of its partnership with financial institutions under its supervision, and
ultimately to the strengthening of the Philippine Banking System and the economy.
AMANDO M. TETANGCO, JR.

Governor
FOREWORD
Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the
Monetary Board recognized the need to revise and regularly update the Manual of
Regulations for Banks and Other Financial Intermediaries to enable the industry to better
keep pace with the anticipated rapid regulatory changes that are unavoidable in a dynamic
economic enviroment. A revised Manual would also be able to appropriately take into
account the strenghtened supervisory and regulatory arrangements set out in the BSP’s
new charter.
This Manual of Regulations for Non-Bank Financial Institutions is one of the products
of that effort. It benefits from the inputs of many concerned departments of the BSP as well
as the various industry associations of non-bank financial institutions. We are hopeful that
this new Manual and its subsequent updates will be able to more effectively disseminate
the regulatory issuances of the BSP on a timely basis and provide appropriate guidance to
non-bank financial institutions.
We also believe that it will be a especially useful tool at this time when the BSP has
come up with many regulations and issuances in response to the unprecedented challenges
posed by the Asian financial crisis.
Nevertheless, we recognize that there will always be room for improvement. Our
task is therefore a continuing one of constant search for a better product to provide more
responsive services to the public.
GABRIEL C. SINGSON
Governor
PREFACE
(to the 2008 edition)
The 2008 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is

an updated edition of the 1996 MORNBFI. The updates consist of the significant policy
developments and changes in statutory laws. It shall serve as the principal source of
regulations issued by the Monetary Board and the Governor of the BSP and shall be cited
as the authority for enjoining compliance with the rules and regulations embodied therein.
A multi-departmental Committee on the Updating of the Manual of Regulations for

Banks and Non-Banks Financial Institutions was created under Office Order No. 430, Series
of 2007 dated 8 June 2007. Under the aforesaid office order, the Committee is tasked to
update the Manuals on a continuing basis (i) to incorporate relevant issuances (ii) propose
revision/deletion of provisions which have become obsolete, redundant, irrelevant or
inconsistent with laws/regulations (iii) reformulate provisions as the need arises and (iv)
oversee printing of the Manuals/Updates in coordination with the Corporate Affairs Office.
The Committee is composed of Director Alberto A. Reyes (Central Point of Contact

Department [CPCD] II), Chairman; Deputy Director Magdalena D. Imperio (Office of the
General Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo G. Barcarse,
Manager II (Centralized Applications and Licensing Group [CALG]); Mr. Aristides R.
Wylengco, Manager II (Examination Department [ED] III); Ms. Jocelyn L. Lobas, Manager
II Integrated Supervision Department I (ISD I); Atty. Ruben B. Parto, Acting Manager II (ED
I); Ms. Ma. Corazon T. Alva, Manager II (ED II); Ms. Ma. Belinda G. Caraan, Bank Officer IV
(Office of Supervisory Policy Development [OSPD]); Atty. Lord Eileen S. Tagle, Bank Legal
Officer III, (OGCLS); Ms. Maria Cynthia M. Sison, Bank Officer IV (OSPD); Mr. Armando
M. Dizon, Bank Officer III (CALG)); Atty. Florabelle S. Madrid, Bank Officer III (CPCD I),
members; and Deputy Governor Nestor A. Espenilla, Jr. of the Supervision and Examination
Sector, Adviser.
The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Acting Manager

(CPC II), Head; and Ms. Ma. Corazon B. Bilgera, Bank Officer II (OSPD); Ms. Ma. Cecilia
U. Contreras, Supervision & Examination Specialist I (CPCD II), members.
The Bangko Sentral ng Pilipinas
v
PREFACE
The 2005 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI)

is an updated edition of the 1996 MORNBFI. The updates consist of the significant
policy developments and changes in statutory laws. It shall serve as the principal source
of regulations issued by the Monetary Board and the Governor of the BSP and shall be
cited as the authority for enjoining compliance with the rules and regulations embodied
therein.
A multi-departmental Committee on the Updating of the Manual of Regulations

for Banks and Non-Banks Financial Institutions was created under Office Order No.
430, Series of 2007 dated 8 June 2007. Under the aforesaid office order, the Committee
is tasked to update the Manuals on a continuing basis (i) to incorporate relevant issuances
(ii) propose revision/deletion of provisions which have become obsolete, redundant,
irrelevant or inconsistent with laws/regulations (iii) reformulate provisions as the need
arises and (iv) oversee printing of the Manuals/Updates in coordination with the
Corporate Affairs Office.
The Committee is composed of Deputy Director Alberto A. Reyes (Central

Point of Contact [CPC] II), Chairman; Deputy Director Magdalena D. Imperio (Office
of the General Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo
G. Barcarse, Manager II (Centralized Applications and Licensing Group [CALG]); Mr.
Aristides R. Wylengco, Manager II (Supervision and Examination Department [SED]
III); Ms. Jocelyn L. Lobas, Manager II (SED V); Atty. Ruben B. Parto, Acting Manager II
(SED I); Ms. Ma. Corazon T. Alva, Acting Manager II (SED II); Ms. Ma. Belinda G.
Caraan, Bank Officer IV (Office of Supervisory Policy Development [OSPD]); Atty.
Lord Eileen S. Tagle, Bank Attorney I, (OGCLS); Ms. Maria Cynthia M. Sison, Bank
Officer III (OSPD); Mr. Armando M. Dizon, Bank Officer II (CALG)); Atty. Florabelle
S. Madrid, Bank Officer I (CPC I), members; and Deputy Governor Nestor A. Espenilla,
Jr. of the Supervision and Examination Sector, Adviser.
The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst.

Manager (SED IV), Head; Ms. Ma. Corazon B. Bilgera, Bank Officer I (OSPD);
Ms. Donah P. Marcelino, Administrative Services Officer III (SED V); Mr. Felix B.
Corsino, Jr., Administrative Services Officer III (SED III), members.
vi
PREFACE
The Manual of Regulations for Non-Bank Financial Institutions (the “New Manual”)
is not only an updated edition but also a revision of the present Manual of Regulations for
Banks and Other Financial Intermediaries, Book IV (the “Old Manual”). Its adoption was
impelled by certain considerations, namely: (1) that the Central Bank of the Philippines as
the administrative agency of the monetary, banking and credit system which promulgated
the Old Manual has been replaced by the Bangko Sentral Ng Pilipinas (BSP) as the central
monetary authority and (2) that the Old Manual was last updated as of 31 December 1989
and since that time, significant developments in the statutory law and the financial system
of the country have rendered many of its provisions obsolete or irrelevant.
To accomplish the work of proposing revisions to the Old Manual, the Monetary
Board of the BSP, in its Resolution No. 1203 dated 7 December 1994, directed the creation
of a multi-departmental Ad Hoc Review Committee. This committee was officially
constituted under Office Order No. 2, Series of 1995 and consisted of Deputy General
Counsel Melpin A. Gonzaga (Office of the General Counsel and Legal Services, as chairman;
Deputy Director Ma. Dolores B. Yuvienco (Supervisory Reports and Studies Office); Deputy
Director Rolando A. Q. Agustin (Department of Commercial Banks I); Deputy Director
Danilo A. Monasterio (Department of Rural Banks); Deputy Director Erlinda S. J. Marzan
(Department of Thrift Banks and Non-Bank Financial Institutions), as members; and Managing
Director Fe B. Barin (Office of the Monetary Board), as adviser. The technical staff of the Ad
Hoc Committee was composed of Atty. Magdalena D. Imperio, Bank Attorney III, as head;
and Mr. Fernando B. Caballa, Manager II; Mr. Lauro C. Abuzo, Bank Officer III, Atty. Policarpo
G. Barcarse, Manager II; Mr. Nicanor F. Rillera, Manager II; and Mr. Aristides R. Wylengco,
Manager II, as members. Deputy Governor Armando L. Suratos, the BSP General Counsel,
acted as committee consultant.
Under the aforesaid office order, the Ad Hoc Committee was instructed to examine,
evaluate and review the provisions of the Old Manual for purposes of (1) deleting therefrom
provisions which are obsolete, redundant, irrelevant, superfluous or inconsistent with law,
(2) amending provisions so as to make them consistent with each other or to harmonize
them with existing statutes, executive issuances and official policies, and (3) reformulating
provisions to make them more responsive to the needs and concerns of the banking and
financial intermediation industry.
In discharging its mandated tasks, the Ad Hoc Review Committee sought the
comments of certain departments of the BSP, particularly, Treasury, Foreign Exchange,
Economic Research, Cash, Accounting, and Loans and Credit, on the proposed changes to
provisions of the Old Manual relevant to their operations. Likewise consulted were the
various associations in the non-bank financial intermediary industries. Their valuable
suggestions contributed much to the accomplishment of this project.
vii
The New Manual comprises substantially the regulatory issuances of the BSP, as
well as those of its predecessor agency, the Central Bank of the Philippines, as they were
amended or revised through the years, up to 31 December 1996. It shall serve as the
principal source of all substantive regulations for non-bank financial institutions issued by
the Monetary Board and the Governor of the BSP and shall be cited as the authority for
enjoining compliance with the rules and regulations embodied therein.
It is fervently hoped that the publication of this long-awaited new code of regulations
for non-bank financial institution will measure up to the expectations of these institutions.
viii
INSTRUCTIONS TO USERS
The Manual of Regulations for Non-Bank Financial Institutions (the “Manual”) is the
comprehensive authority on the specific subjects covered therein. New rules and
amendments to the rules shall immediately form part of the affected section or subsection
of the Manual while repealed rules shall be deleted so that the user shall no longer refer to
a separate issuance, i.e., circular or memorandum, but shall instead cite the particular
section or subsection of the Manual. Non-bank financial institutions (NBFIs) governed by
the Manual shall comply with the provisions thereof and any violation thereof shall be
punishable under the specific and/or general provisions on sanctions.
The Manual contains the rules and regulations on NBFIs subject to supervision by
the Bangko Sentral ng Pilipinas (BSP) under the law. Specifically, these institutions are as
follows: NBFIs performing quasi-banking functions, or quasi-banks, which are subject to
BSP supervision under R.A. No. 7653, The New Central Bank Act and R.A. No. 8791, The
General Banking Law of 2000; NBFIs performing trust and other fiduciary activities, under
R.A. No. 337, as amended; non-stock savings and loans association (NSSLAs), under R.A.
3779; and pawnshops, under P.D. No. 114. The regulations addressed to these institutions
are grouped as follows: the Q Regulations, which are addressed to quasi-banks; the S
Regulations, which are addressed to NSSLAs; the P Regulations, which are addressed to
pawnshops; and N Regulations, which are addressed to other NBFIs subject to BSP
supervision.
As a code of regulations, the Manual contains the basic features of division into
Parts, further subdivided into major topic headings which introduce the corresponding
sections and subsections making up the provisions governing a major operation of the
institutions subject to the regulations. Parts and major topic headings as well as coded
section numbers and headings are made uniform for all the groups of regulations.
Coding of sections utilizes six (6) digits; i.e., 4123Q.44. The first digit (4 in the
example) refers to the type of financial institution (i.e., non-bank financial institutions as
distinguished from banks or banking institutions, the regulations addressed to which
institutions are contained in another Manual) to which the regulation is applicable; the
second digit (1 in the example), to the Part number, and the third and fourth digits (23 in
the example), to the section number. The other two (2) digits after the decimal point (44 in
the example) refer to the subsection number. The letters Q, S, P and N are appended to
the pertinent code numbers of the sections to indicate the particular category of NBFIs the
regulations are addressed to, namely: quasi-banks, NSSLAs, pawnshops and other NBFIs
subject to BSP supervision, respectively. For example, Sections 4161Q, 4161S, and 4161P
refer to provisions of reporting requirements of quasi-banks, NSSLAs, and pawnshops, in
that order.
ix
To illustrate, the code numbers 4161Q.2 indicates:
Main caption on “Records”
Subcaption on “SFAS”
4 1 6 1 Q . 2
Regulation addressed to quasi-banks
Part One on “Organization, Management and Administration"
Regulations addressed to NBFIs
The paging is by Parts, each Part beginning with page 1, and so on, corresponding to
the number of pages of the particular Part. For example, Part I, consisting of six (6) pages
will start with a first page indicated as “Part I - Page 1”, and “Part I - Page 6” as its last page.
The pages for updates will follow the same pagination, with letters added to indicate inserted
pages, in the event amendatory regulations require additional pages. Paging is further
identified as to the group of regulations the particular page belong; for example, Q
Regulations.
To facilitate reference, running section headings consisting of the coded numbers of

the sections/subsections whose provisions are contained in a particular page are indicated
at either the upper right- or left-hand corner of the page preceded by the symbols § or §§.
The cut-off date is indicated immediately below the running section heads, as: 05.12.31.
Thereafter, the date of the pages affected by subsequent new issuances or amendments/
repeals will be changed at the end of the semestral period during the semestral updating
which shall reflect the changes that shall have occurred.
x
MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS
Q REGULATIONS
(Regulations Governing Non-Bank Financial Institutions
Performing Quasi-Banking Functions)
TABLE OF CONTENTS
PART ONE - ORGANIZATION, MANAGEMENT AND ADMINISTRATION

A. SCOPE OF AUTHORITY
SECTION 4101Q Quasi-Banking Functions

4101Q.1 Financial intermediaries
4101Q.2 Guidelines on lender count
4101Q.3 Transactions not considered quasi-banking
4101Q.4 Delivery of securities
4101Q.5 Securities custodianship operations
4101Q.6 Sale, discounting, assignment or negotiation by
QBs of their credit rights arising from claims
against the Bangko Sentral to clients
SECTION 4102Q Statement of Policy

4102Q.1 Preconditions for the exercise of quasi-banking
functions
SECTION 4103Q Certificate of Authority from the Bangko Sentral
SECTION 4104Q Bangko Sentral Certificate of Authority
SECTION 4105Q Licensing of an Investment House
B. CAPITALIZATION
SECTION 4106Q Minimum Capitalization
SECTION 4107Q Minimum Capital of Investment House
SECTION 4108Q Sanctions
SECTIONS 4109Q - 4110Q (Reserved)
xi
C. MERGER/CONSOLIDATION
SECTION 4111Q Merger/Consolidation Involving Quasi-Banks
SECTION 4112Q Merger/Consolidation Incentives
D. RISK-BASED CAPITAL ADEQUACY RATIO
SECTION 4116Q Minimum Ratio

4116Q.1 Qualifying capital
4116Q.2 Risk-weighted assets
4116Q.3 Definitions
4116Q.4 Required reports
4116Q.5 Sanctions
4116Q.6 Temporary relief
SECTION 4117Q Treatment of Equity Investment with Reciprocal

Stockholdings
SECTION 4118Q Sanctions on Net Worth Deficiency
E. (RESERVED)
F. STOCK, STOCKHOLDERS AND DIVIDENDS
SECTION 4126Q Dividends

4126Q.1 Definition of terms
4126Q.2 Requirements on the declaration of dividends/
net amount available for dividends
4126Q.3 Reporting and verification
4126Q.4 Recording of dividends
4126Q.5 Rules on declaration of stock dividends
xii
G. DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 4141Q Definition; Qualifications; Powers; Responsibilities and Duties

of Board of Directors and Directors
4141Q.1 Limits on the number of the members of the board
of directors
4141Q.2 Qualifications of a director
4141Q.3 Powers/responsibilities and duties of board of
directors and directors
4141Q.4 Confirmation of the election/appointment of
directors and officers
4141Q.5 - 4141Q.8 (Reserved)
4141Q.9 Reports required
4141Q.10 Sanctions
SECTION 4142Q Definition and Qualifications of Officers
SECTION 4143Q Disqualification of Directors/Trustees and Officers

4143Q.1 Persons disqualified to become directors/trustees
4143Q.2 Persons disqualified to become officers
4143Q.3 Effect of non-possession of qualifications or
possession of disqualifications
4143Q.4 Disqualification procedures
4143Q.5 Watchlisting
4143Q.6 Prohibition against foreign officers/employees of
financing companies
SECTION 4144Q Interlocking Directorships and/or Officerships

4144Q.1 Representatives of government
SECTION 4145Q Profit Sharing of Directors/Trustees, Officers and Employees
SECTION 4146Q Monetary Board Confirmation of Directors/Trustees and Senior

Officers
SECTION 4147Q Compensation and Other Benefits of Directors/Trustees and

Officers
SECTION 4148Q (Reserved)
SECTION 4149Q Conducting Business in an Unsafe/Unsound Manner

4149Q.1 - 4149Q.8 (Reserved)
4149Q.9 Sanctions
xiii
SECTION 4150Q Rules of Procedure on Administrative Cases Involving Directors
and Officers of Quasi-Banks
H. BRANCHES AND OTHER OFFICES
SECTION 4151Q Establishment

4151Q.1 Evaluation guideposts
4151Q.2 Additional capital, if required
4151Q.3 Other requirements/factors to be considered
4151Q.4 Conditions precluding processing of applications
4151Q.5 Documentary requirements
4151Q.6 Filing of applications
4151Q.7 Period within which to submit complete
requirements
4151Q.8 Prohibition against operating without SEC license
I. (RESERVED)
J. RECORDS AND REPORTS
SECTION 4161Q Records

4161Q.1 Uniform system of accounts
4161Q.2 Philippine Financial Reporting Standards/
Philippine Accounting Standards
SECTION 4162Q Reports

4162Q.1 Categories and signatories of reports
4162Q.2 Manner of filing
4162Q.3 Sanctions in case of willful delay in the submission
of reports/refusal to permit examination
SECTION 4164Q Internal Audit Function

4164Q.1 Status
4164Q.2 Scope
4164Q.3 Qualification standards of the internal auditor
4164Q.4 Code of Ethics and Internal Auditing Standards

xiv
K. INTERNAL CONTROL
SECTION 4171Q Internal Control Systems
SECTION 4172Q Audited Financial Statements of Quasi-Banks; Financial Audit

4172Q.1 Posting of audited financial statements
4172Q.2 Disclosure of external auditor's adverse findings
to the Bangko Sentral; sanction
4172Q.3 Disclosure requirement in the notes to the
audited financial statements
4172Q.4 Disclosure requirements in the annual report
4172Q.5 Posting and submission of annual report
SECTION 4180Q Selection, Appointment and Reporting Requirements for

External Auditors; Sanction; Effectivity
L. MISCELLANEOUS PROVISIONS
SECTION 4181Q Publication Requirements
SECTION 4182Q Management Contracts
SECTION 4190Q Duties and Responsibilities of Quasi-Banks and their Directors/

Officers in All Cases of Outsourcing of Quasi-Banking
Functions
SECTION 4191Q Compliance System; Compliance Officer

4191Q.1 Compliance system
4191Q.2 Compliance officer
4191Q.3 Compliance risk
4191Q.4 Responsibilities of the board of directors and
senior management on compliance
4191Q.5 Status
4191Q.6 Independence
4191Q.7 Role and responsibilities of the compliance
function
4191Q.8 Cross-border issues
4191Q.9 Outsourcing
xv
SECTION 4192Q Prompt Corrective Action Framework
SECTION 4193Q Supervision by Risks
SECTION 4194Q Market Risk Management
SECTION 4195Q Liquidity Risk Management
SECTION 4199Q General Provision on Sanctions
PART TWO - DEPOSIT AND BORROWING OPERATIONS
A. - D. (RESERVED)
E. DEPOSIT SUBSTITUTE OPERATIONS
SECTION 4211Q Deposit Substitute Instruments

4211Q.1 Prohibition against use of certain instruments as
deposit substitutes
4211Q.2 Negotiations of promissory notes
4211Q.3 Minimum features
4211Q.4 Delivery of securities
4211Q.5 Regulation on additional stipulation
4211Q.6 Substitution of underlying securities
4211Q.7 Call slips/tickets for 24-hour loans
4211Q.8 Requirement to state nature of underlying
securities
4211Q.9 Compliance with SEC rules
4211Q.10 - 4211Q.11 (Reserved)
4211Q.12 Repurchase agreements covering government
securities, commercial papers and other
negotiable and non-negotiable securities or
instruments
SECTION 4212Q Recording; Payment; Maturity; Renewal
SECTION 4213Q Minimum Trading Lot
SECTION 4214Q Interbank Borrowings
xvi
SECTION 4215Q Borrowings from Trust Departments or Managed Funds of
Banks or Investment Houses
SECTION 4216Q Money Market Placements of Rural Banks

4216Q.2 Conditions required on accepted placements
4216Q.3 Sanctions
SECTION 4217Q Bond Issues of Quasi-banks

4217Q.2 Underwriting of bonds
4217Q.3 Compliance with SEC rules
4217Q.4 Notice to Bangko Sentral
4217Q.5 Minimum features
4217Q.6 Reserve requirement
4217Q.7 Inapplicability of certain regulations
F. (RESERVED)
G. INTEREST
SECTION 4236Q Yield/Interest Rates
H. RESERVES
SECTION 4246Q Reserves Against Deposit Substitutes

4246Q.1 Composition of reserves
4246Q.2 Computation of reserve position
4246Q.3 Reserve deficiencies; sanctions
4246Q.4 Exemptions
4246Q.5 Matured and unclaimed deposit substitutes
4246Q.6 Book entry method for reserve securities
4246Q.7 Interest income on reserve deposit with Bangko
Sentral
4246Q.8 Guidelines in calculating and reporting to the
BSP the required reserves on deposit substitutes
evidenced by repurchase agreements covering
government securities
xvii
I. (RESERVED)
J. BORROWINGS FROM THE BANGKO SENTRAL
SECTION 4276Q Repurchase Agreements with the Bangko Sentral
SECTION 4278Q Enhanced Intraday Liquidity Facility (ILF)
K. OTHER BORROWINGS
SECTION 4281Q Borrowings from the Government

PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS
SECTION 4301Q Management of Risk Assets/Minimum Guidelines

on Lending Operations
4301Q.1 - 4301Q.5 (Reserved)
4301Q.6 Large exposures and credit risk concentrations
SECTION 4302Q Loan Portfolio and Other Risk Assets Review System
4302Q.1 Provisions for losses; booking
4302Q.2 Sanctions
A. LOANS IN GENERAL
SECTION 4306Q Loan Limit to a Single Borrower

4306Q.1 Exclusions from loan limit
4306Q.2 Contingent liabilities included in loan limit
4306Q.3 Sanctions
xviii
SECTION 4307Q Interest and Other Charges
4307Q.1 Rate ceilings
4307Q.2 Floating rates of interest
4307Q.3 Effect of prepayment
4307Q.4 Loan prepayment
4307Q.5 Escalation clause; when allowable
4307Q.6 Rate of interest in the absence of stipulation
4307Q.7 Accrual of interest earned on loans
SECTION 4308Q Past Due Accounts

4308Q.1 Accounts considered past due
4308Q.2 Renewal/extension
4308Q.3 Restructured loans
4308Q.4 Demand loans
4308Q.5 Write-off of loans as bad debts
4308Q.6 Updating of information provided to credit
information bureaus
SECTION 4309Q "Truth in Lending Act" Disclosure Requirement

4309Q.2 Information to be disclosed
4309Q.3 Inspection of contracts covering credit
transactions
4309Q.4 Posters
SECTION 4311Q Non-Performing Loans

4311Q.1 Accounts considered non-performing; definitions
4311Q.2 Interest accrual on past due loans
4311Q.3 Allowance for uncollected interest on loans
4311Q.4 Reporting requirement
SECTION 4312Q Grant of Loans and Other Credit Accommodations

4312Q.1 General guidelines
4312Q.2 Purpose of loans and other credit
accommodations
4312Q.3 Prohibited use of loan proceeds
4312Q.4 Signatories
xix
B. (RESERVED)
SECTION 4328Q Loans, Other Credit Accommodations and Guarantees

Granted to Subsidiaries and/or Affiliates
C. UNSECURED LOANS
SECTION 4336Q Loans Against Personal Security

4336Q.1 General guidelines (Deleted by Circular No. 622
dated 16 September 2008)
4336Q.2 Proof of financial capacity of borrower (Deleted
by Circular No. 622 dated 16 September 2008)
4336Q.3 Signatories (Deleted by Circular No. 622 dated
16 September 2008)
4336Q.4 (Reserved)
SECTION 4337Q Credit Card Operations; General Policy

4337Q.2 Risk management system
4337Q.3 Minimum requirements
4337Q.4 Information to be disclosed
4337Q.5 Accrual of interest earned
4337Q.6 Finance charges
4337Q.7 Deferral charges
4337Q.8 Late payment/penalty fees
4337Q.9 Confidentiality of information
4337Q.10 Suspension, termination of effectivity and
reactivation
4337Q.11 Inspection of records covering credit card
transactions
4337Q.12 Offsets
4337Q.13 Handling of complaints
4337Q.14 Unfair collection practices
4337Q.15 Sanctions
xx
D. RESTRUCTURED LOANS
SECTION 4351Q Restructured Loans; General Policy

4351Q.1 Definition; when to consider performing/non-
performing
4351Q.2 Procedural requirements
4351Q.3 Classification
E. LOANS/CREDIT ACCOMMODATIONS TO DIRECTORS, OFFICERS,

STOCKHOLDERS AND THEIR RELATED INTERESTS
SECTION 4356Q General Policy

4356Q.1 Definitions
SECTION 4357Q Transactions Covered
SECTION 4358Q Transactions Not Covered

4358Q.1 Applicability to credit card operations
SECTION 4359Q Direct or Indirect Borrowings
SECTION 4360Q Individual Ceiling; Single-Borrower Limit
SECTION 4361Q Aggregate Ceiling; Ceiling on Unsecured Loans
SECTION 4362Q Exclusions from Aggregate Ceiling
SECTION 4363Q Credit Accommodations Under Officers' Fringe Benefit

Plans
SECTION 4364Q Procedural Requirements
SECTIONS 4366Q Bank DOSRI Rules and Regulations Applicable to Government

Borrowings in Government-Owned or -Controlled QB
F. (RESERVED)

xxi
G. SPECIAL TYPES OF LOANS
SECTION 4376Q Interbank Loans

4376Q.1 Systems and procedures for interbank call loan
transactions
4376Q.2 Accounting procedures
4376Q.3 Transfer of excess funds
4376Q.4 Settlement procedures
H. EQUITY INVESTMENTS
SECTION 4381Q Investment in Non-Allied Undertakings
SECTION 4382Q Investments Abroad
SECTION 4383Q Underwriting Exempted
I. (RESERVED)
J. OTHER OPERATIONS
SECTION 4391Q Purchase of Receivables and Other Obligations

4391Q.1 Yield on purchase of receivables
4391Q.2 Purchase of commercial paper
4391Q.3 Investments in debt and marketable equity
securities
SECTION 4392Q Reverse Repurchase Agreements with the Bangko Sentral
SECTION 4394Q Acquired Assets in Settlement of Loans

4394Q.1 Booking
4394Q.2 Sales contract receivable
4394Q.3 - 4394Q.14 (Reserved)
4394Q.15 Joint venture of quasi-banks with real estate
development companies
xxii
K. MISCELLANEOUS PROVISIONS
SECTION 4396Q Transfer/Sale of Non-Performing Assets to A Special Purpose

Vehicle or to An Individual
PART FOUR - TRUST, OTHER FIDUCIARY BUSINESS AND

INVESTMENT MANAGEMENT ACTIVITIES
SECTION 4401Q Statement of Principles
SECTION 4402Q Scope of Regulations
SECTION 4403Q Definitions
A. TRUST AND OTHER FIDUCIARY BUSINESS
SECTION 4404Q Authority to Perform Trust and Other Fiduciary Business

4404Q.1 Prerequisites for engaging in trust and other
fiduciary business
4404Q.2 Pre-operating requirements
SECTION 4405Q Security for the Faithful Performance of Trust and Other
Fiduciary Business
4405Q.1 Basic security deposit
4405Q.2 Eligible securities
4405Q.3 Valuation of securities and basis of computation
of the basic security deposit requirement
4405Q.4 Compliance period; sanctions
4405Q.5 Reserves against peso-denominated Common
Trust Funds (CTFs) and Trust and Other Fiduciary
Accounts (TOFA) - Others
4405Q.6 Composition of reserves
4405Q.7 Computation of reserve position
4405Q.8 Reserve deficiencies; sanctions
4405Q.9 Report of compliance
SECTION 4406Q Organization and Management

4406Q.1 Organization
4406Q.2 Composition of trust committee
xxiii
4406Q.3 Qualifications of committee members, officers
and staff
4406Q.4 Responsibilities of administration
4406Q.5 - 4406Q.8 (Reserved)
4406Q.9 Outsourcing services in trust departments
SECTION 4407Q Non-Trust, Non-Fiduciary and/or Non-Investment

Management Activities
SECTION 4408Q Unsafe and Unsound Practices

4408Q.1 - 4408Q.8 (Reserved)
4408Q.9 Sanctions
SECTION 4409Q Trust and Other Fiduciary Business

4409Q.1 Minimum documentary requirements
4409Q.2 Lending and investment disposition
4409Q.3 Transactions requiring prior authority
4409Q.4 Ceilings on loans
4409Q.5 Funds awaiting investment or distribution
4409Q.6 Other applicable regulations on loans and
investments
4409Q.7 Operating and accounting methodology
4409Q.8 (Reserved)
4409Q.9 Living trust accounts
4409Q.10 - 4409Q.15 (Reserved)
4409Q.16 Qualification and accreditation of quasi-banks
acting as trustee on any mortgage or bond
issuance by any municipality, government-
owned or controlled corporation, or any body
politic
4409Q.17 Trust fund of pre-need companies
SECTION 4410Q Unit Investment Trust Funds/Common Trust Funds

4410Q.1 Definition
4410Q.2 Establishment of a Unit Investment Trust Fund
4410Q.3 Administration of a Unit Investment Trust Fund
4410Q.4 Relationship of trustee with Unit Investment Trust
Fund
4410Q.6 Plan rules
4410Q.7 Minimum disclosure requirements
4410Q.8 Exposure limit to single person/entity
4410Q.9 Allowable investments and valuation
xxiv
4410Q.10 Other related guidelines on valuation of
allowable investments
4410Q.11 Unit Investment Trust Fund administration
support
4410Q.12 Counterparties
4410Q.13 Foreign currency-denominated Unit Investment
Trust Funds
4410Q.14 Exemptions from statutory and liquidity reserves,
single borrowers limit, DOSRI
SECTION 4411Q Investment Management Activities

4411Q.1 Minimum documentary requirements
4411Q.2 Minimum size of each investment management
account
4411Q.3 Commingling of funds
4411Q.4 Lending and investment disposition
4411Q.5 Transactions requiring prior authority
4411Q.6 Title to securities and other properties
4411Q.7 Ceilings on loans
SECTION 4413Q Required Retained Earnings Appropriation
B. INVESTMENT MANAGEMENT ACTIVITIES
SECTION 4414Q Authority to Perform Investment Management

4414Q.1 Prerequisites for engaging in investment
management activities
4414Q.2 Pre-operating requirements
SECTION 4415Q Security for the Faithful Performance of Investment

4415Q.2 Eligible securities
4415Q.3 Valuation of securities and basis of computation
of the basic security deposit requirement
4415Q.4 Compliance period; sanctions
SECTION 4416Q Organization and Management
SECTION 4417Q Non-Investment Management Activities
xxv
SECTION 4418Q Unsound Practices
SECTION 4419Q Conduct of Investment Management Activities
SECTION 4420Q Required Retained Earnings Appropriation
C. GENERAL PROVISIONS
SECTION 4421Q Books and Records
SECTION 4422Q Custody of Assets
SECTION 4423Q Fees and Commissions
SECTION 4424Q Taxes
SECTION 4425Q Reports Required

4425Q.1 To trustor, beneficiary, principal
4425Q.2 To the Bangko Sentral
SECTION 4426Q Audits

4426Q.1 Internal audit
4426Q.2 External audit
4426Q.3 Board action
SECTION 4427Q Authority Resulting from Merger or Consolidation
SECTION 4428Q Receivership
SECTION 4429Q Surrender of Trust or Investment Management License
SECTION 4441Q Securities Custodianship and Securities Registry Operations

4441Q.1 Statement of policy
4441Q.2 Applicability of this regulation
4441Q.3 Prior Bangko Sentral approval
4441Q.4 Application for authority
4441Q.5 Pre-qualification requirements for a securities
custodian/registry
4441Q.6 Functions and responsibilities of a securities
custodian
xxvi
4441Q.7 Functions and responsibilities of a securities
registry
4441Q.8 Protection of securities of the customer
4441Q.9 Independence of the registry and custodian
4441Q.10 Registry of scripless securities of the Bureau of
the Treasury
4441Q.11 Confidentiality
4441Q.12 Compliance with anti-money laundering laws/
regulations
4441Q.14 Reportorial requirements
4441Q.15 - 4441Q.28 (Reserved)
4441Q.29 Sanctions
PART FIVE - FOREIGN EXCHANGE OPERATIONS
SECTION 4501Q Authority; Coverage
SECTION 4502Q Specific Foreign Exchange Activities
SECTION 4503Q Separate Department
SECTION 4504Q Applicability of Pertinent Bangko Sentral Rules
SECTION 4505Q Aggregate Ceiling on Issuance of Guarantees
PART SIX - MISCELLANEOUS
A. OTHER OPERATIONS
SECTION 4601Q Open Market Operations

4601Q.1 Settlement procedures
SECTIONS 4601Q.2 - 4601Q.5 (Reserved)
xxvii
4601Q.6 BSP trading windows and services during public
sector holidays
SECTION 4602Q Repurchase Agreements with the Bangko Sentral

4602Q.1 Reverse repurchase agreements with Bangko
Sentral
SECTION 4603Q Derivatives

4603Q.1 Scope and pre-qualification requirements
4603Q.2 Transactions between parent and subsidiary
4603Q.3 Renewals
4603Q.4 Risk management guidelines
4603Q.5 Accounting guidelines
4603Q.6 Reporting requirements
4603Q.7 Sanctions
4603Q.8 - 4603Q.13 (Reserved)
4603Q.14 Forward and swap transactions
4603Q.16 Documentation
4603Q.17 Tenor/maturity and settlement
4603Q.18 Cancellations, roll-overs or non-delivery of FX
forward and swap contracts
4603Q.19 Non-deliverable forward contracts with non-
residents
4603Q.20 Compliance with Anti-Money Laundering rules
4603Q.21 Reporting requirements
4603Q.22 - 4603Q.25 (Reserved)
4603Q.26 Sanctions
SECTION 4604Q Underwriting by Investment Houses
SECTION 4626Q Asset-Backed Securities

4626Q.2 Authority
4626Q.3 Management oversight
4626Q.4 Minimum documents required
4626Q.5 Minimum features of asset-backed securities
4626Q.6 Disclosures
4626Q.7 Conveyance of assets
4626Q.8 Representations and warranties
xxviii
4626Q.9 Third party review
4626Q.10 Originator and seller
4626Q.11 Trustee and issuer
4626Q.12 Servicer
4626Q.13 Underwriter
4626Q.14 Guarantor
4626Q.15 Credit enhancement
4626Q.16 Clean-up call
4626Q.17 Prohibited activities
4626Q.18 Amendment
4626Q.19 Miscellaneous provision
4626Q.20 Report to Bangko Sentral
B. SUNDRY PROVISIONS
SECTION 4651Q Quasi-Bank Premises and Other Fixed Assets

4651Q.1 Appreciation or increase in book value
4651Q.2 (Reserved)
4651Q.3 Reclassification of real and other properties
owned or acquired as quasi-bank premises
4651Q.4 - 4651Q.8 (Reserved)
4651Q.9 Batas Pambansa Blg. 344 - An Act to Enhance
the Mobility of Disabled Persons by Requiring
Certain Buildings, Institutions, Establishments
and Public Utilities to Install Facilities and Other
Devices
SECTION 4652Q Annual Fees on Quasi-Banks
SECTION 4653Q Payment of Fines and Other Charges

4653Q.1 Guidelines on the imposition of monetary
penalties
4653Q.2 Payment of fines
4653Q.3 Check/demand draft payments to the Bangko
Sentral
SECTION 4654Q Examination by the Bangko Sentral

4654Q.1 Definitions
SECTION 4655Q Applicability of Rules Governing Universal Banks to Quasi-Banks
xxix
SECTION 4656Q Basic Laws Governing Investment Houses and Financing
Companies
SECTION 4657Q Recognition and Derecognition of Domestic Credit Rating

Agencies for Quasi-Bank Supervisory Purposes
4657Q.1 Statement of policy
4657Q.2 Minimum eligibility criteria
4657Q.3 Pre-qualification requirements
4657Q.4 Inclusion in BSP list
4657Q.5 Derecognition of credit rating agencies
4657Q.6 Recognition of PhilRatings as domestic credit
rating agency for bank supervisory purposes
SECTION 4659Q Internationally Accepted Credit Rating Agencies

4659Q.1- 4659Q.5 (Reserved)
4659Q.6 Recognition of Fitch Singapore Pte., Ltd. as
international credit rating agency for bank
supervisory purposes
SECTION 4660Q Disclosure of Remittance Charges and Other Relevant

Information
SECTION 4661Q Examination by the BSP
SECTION 4691Q Anti-Money Laundering Regulations

4691Q.1 - 4691Q.8 (Reserved)
4691Q.9 Sanctions and penalties
SECTION 4695Q Valid Identification (ID) Cards for Financial Transactions
xxx
List of Appendices
08.12.31
LIST OF APPENDICES
No. SUBJECT MATTER
Q-1 Guidelines to Evaluate Investment Houses
Q-2 Determination of Amount of Additional Capital the Entity Must Put Up
Q-3 List of Reports Required from Quasi-Banks

Annex Q-3-a - Information on One-Year Borrowing-Investment
Program to be Submitted by Quasi-Banks
Annex Q-3-b - (Reserved)
Annex Q-3-c - Reporting Guidelines on Crimes/Losses
Annex Q-3-d - Documentary Requirements on Directors/Officers/
Major Individual Stockholders
Annex Q-3-e - Documents/Information on Organizational Structure
and Operational Policies
Annex Q-3-f - Guidelines on Calculating Additional Information
Required in Published Statement of Condition
Q-4 Guidelines on Prescribed Reports Signatories and Signatory

Authorization
Annex Q-4-a - Format of Resolution for Signatories of Category A-1
Reports
Annex Q-4-b - Format of Resolution for Signatories of Category A-2
Reports
Q-5 Minimum Internal Control Standards for Quasi-Banks
Q-6 Standardized Deposit Substitute Instruments
Q-7 New Rules on Registration of Short-Term Commercial Papers
Q-8 New Rules on the Registration of Long-Term Commercial Papers
Q-9 List of Reserve - Eligible and Non-Eligible Securities
Q - 10 Guidelines in Identifying and Monitoring Problem Loans and Other Risk

Assets and Setting Up of Allowance for Probable Losses
Q - 11 Format-Disclosure Statement of Loan/Credit Transaction
Manual of Regulations for Non-Bank Financial Institutions Q Regulations

Appendices - Page 1
List of Appendices
08.12.31
No. SUBJECT MATTER
Q - 12 Abstract of "Truth in Lending Act" (Republic Act No. 3765)
Q - 13 Agreement for the Enhanced Interbank Call Loan Funds Transfer System
Q-13-a Settlement Procedures for Interbank Loan Transactions and Purchase

and Sale of Government Securities under Repurchase Agreements with
the Bangko Sentral
Q-13-b Enhanced Intraday Liquidity Facility
Q - 14 Sample Investment Management Agreement
Q - 15 Risk Management Guidelines for Derivatives
Q - 16 Risk Disclosure Statement for Derivatives Activities
Q - 17 Accounting Guidelines for Derivatives
Q - 18 SEC Basic Rules and Regulations to Implement the Provisions of

Presidential Decree No. 129, Otherwise Known as "The Investment
Houses Law"
Q - 19 New Rules and Regulations to Implement the Provisions of R. A. No.

5980 (The Financing Company Act), as Amended
Q - 20 Classification, Accounting Procedures, Valuation and Sales and

Transfers of Investments in Debt Securities and Marketable Equity
Securities
Q-20-a Establishing the Market Benchmarks/Reference Prices and Computation

Method Used to Mark-to-Market Debt and Marketable Equity Securities
Q - 21 Guidelines on the Use of Scripless (RoSS) Securities as Security Deposit

for the Faithful Performance of Trust Duties
Q - 22 Pro-forma Payment Form
Q - 23 Anti-Money Laundering Regulations
Q Regulations Manual of Regulations for Non-Bank Financial Institutions

Appendices - Page 2
List of Appendices
08.12.31
No. SUBJECT MATTER
Annex Q-23-a Certification of Compliance with Anti-Money

Laundering Regulations
Annex Q-23-b Rules on Submission of Covered Transaction Reports
and Suspicious Transaction Reports by Covered
Institutions
Annex Q-23-c Customer Due Diligence for Banks and Quasi-Banks
Annex Q-23-c-1 General Identification Requirements
Annex Q-23-d General Guide to Account Opening and Customer
Identification
Annex Q-23-e AMLC Resolution No. 02 Series of 2005
Q - 24 Activities Which May Be Considered Unsafe and Unsound Practices
Q - 25 Revised Implementing Rules and Regulations - R.A. No. 9160, as

Amended by R.A. No. 9194
Q - 26 Investment Houses and Financing Companies (IH/FC) with Quasi-

Banking Functions - Reverse Repurchase Agreements with BSP Pro-
forma Accounting Entries
Q - 27 Details on the Computation of Quarterly Interest Payments Credited to

the Demand Deposit Accounts (DDAs) of Quasi-Banks' Legal Reserve
Deposits with BSP
Q - 28 Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle or

to an Individual
Q-28-a Accounting Guidelines on the Sale of Non-Performing Assets to Special

Purpose Vehicles and to Qualified Individuals for Housing Under "The
Special Purpose Vehicle (SPV) Act of 2002"
Annex Q-28-a-1 Illustrative Accounting Entries to Record Sale of NPAs
to SPV under the SPV Law of 2002
Annex Q-28-a-2 Pro-Forma Disclosure Requirement
Q - 28-b Significant Timelines Relative to the Implementation of R.A. No. 9182,

also known as the "Special Purpose Vehicle Act", as Amended by R.A.
No. 9343
Q - 29 Guidelines and Minimum Documentary Requirements for Foreign

Exchange (FX) Forward and Swap Transactions

Appendices - Page 3
List of Appendices
08.12.31
No. SUBJECT MATTER
Q - 30 Guidelines to Govern the Selection, Appointment and the Reporting

Requirement for External Auditors of Quasi-Banks
Q - 31 Qualifications Requirements for a Bank/NBFI Applying for Accreditation

to Act as Trustee on any Mortgage or Bond Issued by any Municipality,
Government-Owned or Controlled Corporation, or any Body Politic
Q - 32 Rules and Regulations on Common Trust Funds
Q - 33 Checklist of BSP Requirements in the Submission of Financial Audit

Report (FAR), Annual Audit Report (AAR) and Reports Required Under
Appendix Q-30
Annex A - Pro-Forma Comparative Analysis
Q - 34 Quarterly Investment Disclosure Statement
Q-34-a Unit Investment Trust Funds

Risk Disclosure Statement
Q - 35 BSP Rules of Procedure on Administrative Cases Involving Directors

and Officers of Quasi-banks and Trust Entities
Q - 36 Format Certification
Annex Q-36a Format Certification
Q - 37 Duties and Responsibilities of Banks and their Directors/Officers in All

Cases of Outsourcing of Banking Functions
Q - 38 Implementation of the Delivery by the Seller of Securities to the Buyer

or to his Designated Third Party Custodian
Annex A - Template of Letter to Investor
Q-38-a Disposition of Compliance Issues on Appendix Q-38
Q-38-b Delivery of Government Securities to the Investor's Principal Securities

Account with the Registry of Scripless Securities
Annex A - Memorandum of Argeement
Annex B - Investor's Undertaking
Q - 39 The Guidelines for the Imposition of Monetary Penalty for Violations/

Offenses with Sanctions Falling Under Section 37 of R.A. No. 7653
on Quasi-banks, Directors and/or Officers

Appendices - Page 4
List of Appendices
08.12.31
No. SUBJECT MATTER
Annex A - Aggravating and Mitigating Factors to be Considered

in the Imposition of Penalty
Q - 40 Prompt Corrective Action Framework
Q - 41 Guidelines for the Change in the Mode of Compliance with the Liquidity
Reserve Requirement
Annex A - Debit/Credit Authority Format
Q - 42 Guidelines on Supervision by Risk
Q - 43 Guidelines on Market Risk Management
Q - 44 Guidelines on Liquidity Risk Management
Q - 45 Authorization Form for Querying the BSP Watchlist Files for Screening
Applicants and Confirming Appointments of Directors and Officials
Q - 46 Risk-based Capital Adequacy Framework for the Philippine Banking

System
Q-46a Guidelines on the Capital Treatment of Banks' Holdings of ROP Global

Bonds Paired with Warrants
Q-46b Guidelines on the Use of the Standardized Approach in Computing

the Capital Charge for Operational Risks
Q - 47 Guidelines for Trust Departments' Placements in the SDA Facility of the

BSP
Annex 1 - Letter of Request
Annex 2 - Sample Confirmation
Q-47a SDA Placements of Trust Departments/Entities as Agent for Tax-Exempt

Institutions (TEI) and Accounts
Annex 1 - Certification
Q - 48 Basic Standards in the Administration of Trust, Other Fiduciary and

Investment Management Accounts
Q - 49 Guidelines for Days Declared as Public Sector Holidays

Appendices - Page 5
§§ 4101Q - 4101Q.1
05.12.31
PART ONE
ORGANIZATION, MANAGEMENT AND ADMINISTRATION
A. SCOPE OF AUTHORITY interbank borrowings or borrowings

between financial institutions, or of
Section 4101Q Quasi-Banking Functions securities, of any amount and maturity,
Quasi-banking functions consist of the from domestic or foreign sources.
following: Relending shall refer to the extension
a. Borrowing funds for the of loans by an institution with antecedent
borrower's own account; borrowing transactions. Relending shall
b. Twenty (20) or more lenders at be presumed in the absence of express
any one time; stipulation, when the institution is regularly
c. Methods of borrowing: issuance, engaged in lending.
endorsement, or acceptance of debt Regularly engaged in lending shall
instruments of any kind, other than refer to the practice of extending loans,
deposits, such as: advances, discounts or rediscounts as a
(1) acceptances; matter of business, i.e., continuous or
(2) promissory notes; consistent lending as distinguished from
(3) participations; isolated lending transactions.
(4) certificates of assignment or
similar instruments with recourse; § 4101Q.1 Financial intermediaries
(5) trust certificates; Financial intermediaries shall mean
(6) repurchase agreements; and persons or entities whose principal
(7) such other instruments as the functions include the lending, investing or
Monetary Board may determine; and placement of funds or evidences of
d. Purpose: indebtedness or equity deposited with
(1) relending; or them, acquired by them, or otherwise
(2) purchasing receivables or other coursed through them either for their own
obligations. account or for the account of others.
As used in the definition of quasi- Principal shall mean chief, main, most
banking functions, the following terms and considerable or important, of first
phrases shall be understood, as follows: importance, leading, primary, foremost,
Borrowing shall refer to all forms of dominant or preponderant, as distinguished
obtaining or raising funds through any of from secondary or incidental.
the methods and for any of the purposes Functions shall mean actions,
provided in c and d above, whether the activities or operations of a person or entity
borrower's liability thereby is treated as by which his/its business or purpose is
real or contingent. fulfilled or carried out. The business or
For the borrower's own account shall purpose of a person or entity may be
refer to the assumption of liability in one's determined from the purpose clause in its
own capacity and not in representation, articles of incorporation/partnership, and
or as an agent or trustee, of another. from the nature of the business indicated
Purchasing of receivables or other in his/its application for registration of
obligations shall refer to the acquisition of business filed with the appropriate
claims collectible in money, including government agency.

Part I - Page 1
§§ 4101Q.1 - 4101Q.2
05.12.31
To be considered a financial which connotes financial intermediation,

intermediary, a person or entity must or an entity which advertises itself as a
perform any of the following functions on financial intermediary and is engaged in
a regular and recurring, not on an isolated the function(s) where financial
basis: intermediation is implied.
a. Receive funds from one (1) group (3) A person or entity performing any
of persons, irrespective of number, through of the functions enumerated in Items a to e
traditional deposits, or issuance of debt or of this Subsection.
equity securities; and make available/lend
these funds to another person or entity, and § 4101Q.2 Guidelines on lender
in the process acquire debt or equity count. The following guidelines shall
securities; govern lender count on borrowings or
b. Use principally the funds received funds mobilized by non-bank financial
for acquiring various types of debt or equity intermediaries:
securities; a. For purposes of ascertaining the
c. Borrow against, or lend on, or buy number of lenders/placers to determine
or sell debt or equity securities; whether or not a non-bank financial
d. Hold assets consisting principally intermediary is engaged in quasi-banking
of debt or equity securities such as promissory functions, the names of payees on the face
notes, bills of exchange, mortgages, stocks, of each debt instrument shall serve as the
bonds, and commercial papers; primary basis for counting the lenders/
e. Realize regular income in the placers except when proof to the contrary
nature of, but need not be limited to, is adduced such as the official receipts or
interest, discounts, capital gains, documents other than the debt instrument
underwriting fees, guarantees, fees, itself. In such case the actual/real lenders/
commissions, and service fees, principally placers as appearing in such proof, shall
from transactions in debt or equity be the basis for counting the number of
securities or by being an intermediary lenders/placers.
between suppliers and users of funds. In a debt instrument issued to two (2)
Non-banking financial intermediaries or more named payees under an and/or and
shall include the following: or arrangement, the number of payees
(1) A person or entity licensed and/ appearing on the instrument shall be the
or registered with any government basis for counting the number of lenders/
regulatory body as a non-bank financial placers: Provided, however, That a debt
intermediary, such as investment house, instrument issued in the name of a husband
investment company, financing company, and wife followed by the word spouses,
securities dealer/broker, lending investor, whether under an and, and/or or or
pawnshop, money broker, fund manager, arrangement or in the name of a designated
cooperative, insurance company, non-stock payee under an in trust for (ITF)
savings and loan association and building arrangement, shall be counted as one (1)
and loan association. borrowing/placement.
(2) A person or entity which holds b. Each debt instrument payable to
itself out as a non-banking financial bearer shall be counted as one (1) lender/
intermediary, such as by the use of a placer except when the non-bank financial
business name, which includes the term intermediary can prove that there is only
financing, finance, investment, lending one (1) owner for several debt instruments
and/or any word/phrase of similar import so payable.

Part I - Page 2
§§ 4101Q.2 - 4101Q.3
05.12.31
c. Two (2) or more debt instruments b. The mere buying and selling
issued to the same payee, irrespective of without recourse of instruments mentioned
the date and amount shall be counted as in Sec. 4101Q: Provided, That:
one (1) borrowing or placement. (1) The institution selling without
d. Debt instruments underwritten by recourse shall indicate or stamp in
investment houses or traded by securities conspicuous print on the instrument/s, as
dealers/brokers whether on a firm, standby well as on the confirmation of sale, the
or best efforts basis shall be counted on phrase without recourse or sans recourse
the basis of the number of purchasers and the following statement:
thereof and shall not be treated as having (Name of financial intermediary)
been issued solely to the underwriter or assumes no liability for the payment,
trader: Provided, however, That in case directly or indirectly, of
of unsold debt instruments in a firm this instrument.
commitment underwriting, the (2) In the absence of the phrase
underwriter shall be counted as a lender. without recourse or sans recourse and the
e. Each buyer, assignee, and/or above-required accompanying statement,
indorsee shall be counted in determining the instrument so issued, endorsed or
the number of lenders/placers of funds accepted shall automatically be considered
mobilized through sale, assignment, and/ as falling within the purview of the rules
or indorsement of securities, or receivables on quasi-banking.
on a without recourse basis, whenever Provided, further, That any of the
the terms and/or attendant documentation, following practices or practices similar and/
practice, or circumstances indicate that the or tantamount thereto in connection with
sale, assignment, and/or indorsement a without recourse transaction renders such
thereof legally obligates the non-bank transaction as with recourse and within the
financial intermediary to repurchase or purview of the rules on quasi-banking.
reacquire the securities/receivables sold, (i) Issuance of postdated checks by a
assigned, indorsed or to pay the buyer, financial intermediary, whether for its own
assignee, or indorsee at some subsequent account or as an agent of the debt
time. instrument issuer, in payment of the debt
f. Funds obtained by way of instrument sold, assigned or transferred
advances from stockholders, directors, without recourse;
officers, regardless of nature, shall be (ii) Issuance by a financial intermediary
considered borrowed funds or funds of any form of guaranty on sale transactions
mobilized and such stockholders, directors or on negotiations or assignment of debt
or officers shall be counted in determining instruments without recourse; or
the number of lenders/placers. (iii) Payment with the funds of the
financial intermediary which assigned, sold
§ 4101Q.3 Transactions not or transferred the debt instrument without
considered quasi-banking. The following recourse, unless the financial intermediary
shall not constitute quasi-banking: can show that the issuer has with the said
a. Borrowing by commercial, financial intermediary funds corresponding
industrial and other non-financial to the amount of the obligation.
companies, through the means listed in Any investment house violating the
Sec. 4101Q for the limited purpose of provisions of this Subsection shall be
financing their own needs or the needs of subject to the sanctions provided in Sections
their agents or dealers; and 12 and 16 of P.D. No. 129, as amended.

Part I - Page 3
§ 4101Q.4
07.12.31
§ 4101Q.4 Delivery of securities1 (b) Suspension or revocation of the

a. Securities sold on a without recourse accreditation to perform custodianship function;
basis allowed under Subsec. 4101Q.3(b) (c) Suspension or revocation of the
shall be delivered physically to the purchaser, authority to engage in quasi-banking
or to his designated custodian duly accredited function; and/or
by the BSP, if certificated, or by means of (d) Suspension or revocation of the
book-entry transfer to the appropriate authority to engage in trust and other
securities account of the purchaser or his fiduciary business.
designated BSP accredited custodian in a b. The guidelines to implement the
registry for said securities, if immobilized or delivery by the seller of securities to the
dematerialized, while the confirmation of sale buyer or to his designated third party
or document of conveyance by the seller shall custodian are shown in Appendix Q-38.
be physically delivered to the purchaser. The Sanctions. Without prejudice to the
custodian shall hold the securities in the penal and administrative sanctions
name of the buyer: Provided, That a QB/ provided for under Sections 36 and 37,
other entity authorized by the BSP to respectively of R.A. No. 7653 (The New
perform custodianship function may not be Central Bank Act), violation of any
allowed to be custodian of securities issued provision of the guidelines in Appendix Q-
or sold on a without recourse basis by said 38 shall be subject to the following
NBFI, its subsidiaries or affiliates, or of sanctions/penalties depending on the
securities in bearer form. gravity of the offense:
The delivery shall be effected upon (a) First offense –
payment and shall be evidenced by a (1) Fine of up to P10,000 a day for
securities delivery receipt duly signed by the institution for each violation
the authorized officer of the custodian and reckoned from the date the violation was
delivered to the purchaser. committed up to the date it was
Sanctions. Violation of any provision corrected; and
of this Subsection shall be subject to the (2) Reprimand for the directors/officers
following sanctions/penalties: responsible for the violation.
(1) Monetary penalties (b) Second offense -
First offense – Fine of P10,000 a day (1) Fine of up to P20,000 a day for the
for each violation reckoned from the date institution for each violation reckoned from
the violation was committed up to the date the date the violation was committed up
it was corrected. to the date it was corrected; and
Subsequent offenses – Fine of P20,000 (2) Suspension for ninety (90) days
a day for each violation reckoned from the without pay of directors/officers
date the violation was committed up to the responsible for the violation.
date it was corrected. (c) Subsequent offenses–
(2) Other sanctions (1) Fine of up to P30,000 a day for the
First offense – Reprimand for the directors/ institution for each violation from the date
officers responsible for the violation. the violation was committed up to the date
Subsequent offense – it was corrected;
(a) Suspension for ninety (90) days (2) Suspension or revocation of the
without pay of directors/officers authority to act as securities custodian and/
responsible for the violation; or registry; and
-----------------------------------------------------------------------------
1
Effective 16 November 2004 under Circular 450 dated 06 September 2004.

Part I - Page 4
§§ 4101Q.4 - 4101Q.6
08.12.31
(3) Suspension for 120 days without (4) it shall be the responsibility of any
pay of the directors/officers responsible for BSP regulated institution to satisfy itself
the violation. that the person purchasing securities from
(As amended by M-2007-002 dated 23 January 2007, it has no outstanding securities holdings
M-2006-009 dated 18 July 2006, M-2006-002 dated 05 June which were not delivered to a BSP
2006 and Circular No. 524 dated 31 March 2006) accredited third party custodian.
b. Sanctions. Without prejudice to
§ 4101Q.5 Securities custodianship the penal and administrative sanctions
operations provided for under Sections 36 and 37,
a. Securities sold on a without respectively, of R.A. No. 7653, violation
recourse basis shall be delivered to the of any provision of this Subsection shall
purchaser, or to his designated custodian be subject to the following sanctions/
duly accredited by the BSP: Provided, That penalties:
a bank/other entity authorized by the BSP (1) First Offense –
to perform custodianship function may not (a) Fine of up to P10,000 a day for
be allowed to be custodian of securities the institution for each violation reckoned
issued or sold on a without recourse basis from the date the violation was committed
by said QB/entity, its subsidiaries or up to the date it was corrected; and
affiliates, or of securities in bearer form. (b) Reprimand for the directors/
Existing securities being held under officers responsible for the violation.
custodianship by QB/other entities under BSP (2) Second Offense -
supervision, which are not in accordance (a) Fine of up to P20,000 a day for
with said regulation, must therefore, be the institution for each violation reckoned
delivered to a BSP accredited third party from the date the violation was committed
custodian. However, banks and other FIs up to the date it was corrected; and
under BSP supervision may maintain custody (b) Suspension for ninety (90) days
of existing securities of their clients who are without pay of directors/officers
unable or unwilling to take delivery pursuant responsible for the violation.
to the provisions of this Subsection but who (3) Subsequent Offenses –
declined to deliver their existing securities (a) Fine of up to P30,000 a day for
to a BSP accredited third party custodian the institution for each violation from the
subject to the following conditions: date the violation was committed up to
(1) the custody arrangements with the date it was corrected;
clients have been in existence prior to (b) Suspension or revocation of the
05 November 2004 (effectivity date of authority to act as securities custodian and/
Circular No. 457 dated 14 October 2004); or registry; and
(2) the dealing bank/NBFI under BSP (c) Suspension for 120 days without
supervision had been informed in writing pay of the directors/officers responsible
by the client that he is not willing to have for the violation.
his existing securities delivered to a third
party custodian; § 4101Q.6 Sale, discounting,
(3) any BSP regulated institution shall assignment or negotiation by QBs of their
not enter into securities transactions with a credit rights arising from claims against
client who has outstanding securities not the Bangko Sentral to clients. Pursuant to
delivered to a BSP accredited third party the policy of the BSP to promote investor
custodian; and protection and transparency in securities

Part I - Page 5
§§ 4101Q.6 - 4102Q.1
08.12.31
transactions as important components of consumer loans, in the case of finance

capital markets development, credit rights companies;
in Special Deposit Account (SDA) b. That the institution concerned shall
placements and reverse repo agreements fully inform investors of the nature of a
with the BSP, shall not be the subject of deposit substitute instrument, e.g., that it
sale, discounting, assignment or negotiation is not covered by the Philippine Deposit
on a with or without recourse basis. Insurance Corporation (PDIC), that
Any violation of the provisions of this pre-termination thereof is subject to
Subsection shall be considered a less penalty, where applicable, and such other
serious offense and shall subject the QB material risks involved in investing in such
and the director/s and/or officer/s concerned instrument; and
to the sanctions provided under Sec. c. That the institution concerned shall
4199Q. conduct effective investor suitability testing
(Circular No. 636 dated 17 December 2008) procedures.
(Circular No. 557 dated 12 January 2007)
Sec. 4102Q Statement of Policy. It is the
policy of the BSP to promote the §4102Q.1 Preconditions for the
development of the domestic financial exercise of quasi-banking functions. No
market so as to foster a sound, efficient and person or entity shall engage in quasi-banking
inclusive financial system fully supportive functions without authority from the BSP.
of sustainable economic growth. Towards Only a duly incorporated investment house
this end, the grant of authority to engage in and finance company may undertake or
quasi-banking functions to investment perform quasi-banking functions as defined
houses and finance companies shall be in Section 4101Q. An institution securing
allowed subject to the following conditions: BSP authority to engage in quasi-banking
a. That quasi-banking activities shall functions must meet the following
be undertaken by the institution concerned requirements:
to pursue its core business, i.e., a. It must have complied with the
underwriting of securities of other minimum adjusted capital accounts of at least
corporations and of the government or its P300.0 million or such amounts as may be
instrumentalities, participating as soliciting required by the Monetary Board in the future;
dealer or selling group member in tender b. It has generally complied with
offers, block sales, or exchange offering of applicable laws, rules and regulations, orders
securities, and dealing in options, rights or or instructions of appropriate authority,
warrants relating to securities and such including the Monetary Board and/or BSP
other powers which a dealer may exercise Management where applicable;
under the Securities Regulation Code (SRC), c. Its accounting records, systems and
in the case of investment houses, and procedures as well as internal control
discounting or factoring commercial papers systems are satisfactorily maintained;
or accounts receivable, or by buying and d. It does not have float items
selling contracts, leases, chattel mortgages outstanding for more than sixty (60)
(CHMs), or other evidences of calendar days in the “Due From/To Head
indebtedness, or by leasing of motor Office/Branches/Offices” accounts
vehicles, heavy equipment and industrial exceeding one percent (1%) of the total
machinery, business and office machines resources as of end of preceding month;
and equipment, appliances and other e. It has no past due obligation with
movable property, or granting business and any FI as of date of application;

Part I - Page 6
§§ 4102Q.1 - 4103Q
08.12.31
f. The officers who will be in-charge a. Certified true copy of the resolution
of the quasi-banking operations have of the board of directors of the institution
actual experience of at least two (2) years authorizing the application;
in a bank or QB as in-charge (or at least b. A certification signed by the
as assistant-in-charge). The directors of the president or officer of equivalent rank that:
institution, officer-in-charge of the (1) the institution has complied with all
quasi-banking operations and the conditions/prerequisites for the grant of
managerial staff must comply with the fit authority to engage in quasi-banking
and proper rule prescribed under existing functions;
law/rules and regulations; (2) quasi-banking functions shall be
g. The institution has elected at least pursued/undertaken by the institution in the
two (2) independent directors and all its furtherance of its core business, e.g.,
directors have attended the required underwriting of and dealing in securities of
seminar for directors of QBs conducted or other corporations and of the government
accredited by the BSP; or its instrumentalities, in the case of
h. It has not engaged in unsafe and investment houses, and leasing and/or
unsound practices during the past six (6) discounting/factoring commercial papers or
months immediately preceding the date of accounts receivable, or granting business
application where applicable; and consumer loans, in the case of finance
i. It must have in place a companies;
comprehensive risk management system (3) investors shall be informed that their
approved by its board of directors investments/placements are not insured by
appropriate to its operations characterized the PDIC and that any pre-termination thereof
by a clear delineation of responsibility for shall be subject to penalty, if applicable, as
risk management, adequate risk well as all other material risks; and
measurement systems, appropriately (4) investors shall be subjected to
structured risk limits, effective internal effective investor suitability testing
control and complete, timely and efficient procedures;
risk reporting systems. In this connection, c. An information sheet;
a manual of operations and other related d. Bio-data signed under oath, of the
documents embodying the risk members of the managerial staff who will
management system must be submitted undertake quasi-banking operations; and
to the appropriate department of the SES e. Borrowing-investment program
at the time of application for authority and for one (1) year, and annually thereafter on
within thirty (30) days from updates. or before November 30, which should
(As amended by Circular No. 557 dated 12 January 2007) include at the minimum:
(1) planned distribution of portfolios
Sec. 4103Q Certificate of Authority from as to:
the Bangko Sentral1. An institution securing (a) underwriting;
BSP’s Certificate of Authority to engage in (b) commercial papers;
quasi-banking functions shall file an (c) stocks and bonds;
application with the appropriate department (d) government securities;
of the SES. The application shall be signed (e) receivables financing, discounting
by the president or officer of equivalent and factoring;
rank of the institution and shall be (f) leasing; and
accompanied by the following documents: (g) direct loans;
1
See SEC Circular Nos. 5 dated 17 July 2008, 3 dated 16 February 2006 and 14 dated 24 October 2000.

Part I - Page 7
§§ 4103Q - 4106Q
08.12.31
(2) expected sources of funds to support requirements of Secs. 4102Q and 4103Q
investment program classified as to: and of pertinent laws and regulations.
(a) maturity: short, medium and In the case of a merger or consolidation
long-term; of two (2) or more QBs, the authority shall
(b) interest rates; and continue to have full force and effect. For
(c) domestic or foreign sources documentation purposes, in the case of a
whether institutional or personal. merger, the Certificate of Authority of the
The foregoing requirement shall also absorbing corporation shall be maintained;
apply to QBs existing as of 03 February 2007. and with respect to consolidation, a new
Transitory provisions. Investment houses certificate shall be issued to the new
and finance companies authorized to engage corporation. The Certificate of Authority of
and are actually performing quasi-banking the absorbed corporation in a merger and the
functions but do not meet the new capital certificates of the consolidated corporations
requirement are hereby given a period of two in a consolidation shall be surrendered to
(2) years reckoned from 03 February 2007 the appropriate department of the BSP.
within which to comply with the minimum
capital requirement in Subsec. 4102Q.1(a): Sec. 4105Q Licensing of an Investment
Provided, That this may be substituted by a House. Applications for license as an
capital build-up program for a period of not investment house referred to the BSP by the
more than three (3) years which must be Securities and Exchange Commission (SEC)
approved by the Monetary Board. Such pursuant to P.D. No. 129 shall be evaluated
capital build-up program shall be in equal in accordance with the Guidelines to
annual or diminishing amounts; and shall be Evaluate Investment Houses prescribed in
submitted to the appropriate department of Appendix Q-1.
the SES within three (3) months from
03 February 2007. QBs which fail to comply B. CAPITALIZATION
with the required capitalization upon
expiration of said two (2) year period given Sec. 4106Q Minimum Capitalization. A
them or those which fail to comply with the QB shall have a minimum combined
approved capital build-up program shall capital accounts of P300.0 million.
liquidate their quasi-banking operations Combined capital accounts shall mean
within one (1) year from said deadlines and their the total of capital stock, retained earnings
licenses shall be considered revoked/cancelled. and profit and loss summary, net of (a) such
The licenses of existing QBs not unbooked valuation reserves and other
actually performing quasi-banking functions capital adjustments as may be required by
which do not meet the required minimum the BSP, (b) total outstanding unsecured
capitalization provided in Subsec. credit accommodations, both direct and
4102Q.1(a) on 03 February 2007 shall be indirect, to directors, officers, all
automatically revoked. stockholders and their related interests
(As amended by CL-2008-078 dated 15 December 2008, (DOSRI) and, (c) unsecured loans, other
CL-2008-053 dated 21 August 2008, CL-2008-007 dated credit accommodations and guarantees
05 February 2008 and Circular No. 557 dated 12 January 2007) granted to subsidiaries and affiliates. With
respect to Item “b” hereof, the provisions
Sec. 4104Q Bangko Sentral Certificate of Sec. 4356Q shall apply except that in
of Authority. The BSP shall issue a the definition of stockholders in Subsec.
Certificate of Authority upon proof that the 4356Q.1, the qualification that his
applicant has complied with the stockholdings, individually and/or together

Part I - Page 8
§§ 4106Q - 4107Q
07.12.31
with his related interests in the lending QB, single borrower’s limit and capital-to-risk
amount to ten percent (10%) or more of the assets ratio.
total subscribed capital stock of the QB, shall Any foreign equity shall be registered
not apply for purposes of this Item. Any with and approved by the Board of
appraisal surplus or appreciation credit as a Investments and the appropriate department
result of appreciation or an increase in book of the BSP.
value of the assets of the QB shall be (As amended by Circular No. 560 dated 31 January 2007)
excluded, except in the case of merger and
consolidation, where the appraisal increment Sec. 4107Q Minimum Capital of Investment
resulting from the revaluation shall form House. The minimum paid-in capital
part of capital for purposes of determining requirement for an investment house shall
(Next Page is Part I - Page 9)

Part I - Page 8a
§§ 4107Q - 4112Q
05.12.31
be P300 million pursuant to R.A. No. 129, corporation, which retains its identity and
as amended by R.A. No. 8366. takes over the rights, privileges, franchises,
and properties, and assumes all the
Sec. 4108Q Sanctions. Any or all of the liabilities and obligations of the absorbed
following sanctions may be imposed on corporation(s) in the same manner as if it
any QB which fails to maintain at least the had itself incurred such liabilities or
applicable minimum capital under Secs. obligations. The absorbing corporation
4106Q and 4107Q: continues its existence while the life or lives
(1) Suspension of authority to engage of the other corporation(s) is/are terminated.
in quasi-banking functions; b. Consolidation is the union of two
(2) Suspension of authority to engage (2) or more corporations into a single new
in trust/investment management activities corporation, called the consolidated
(in the case of an investment house); corporation, all the constituent corporations
(3) Cease-and-desist order (in the case thereby ceasing to exist as separate entities.
of an investment house); The consolidated corporation shall thereupon
(4) No new/renewal/extension of and thereafter possess all the rights, privileges,
credit accommodations to DOSRI; immunities, franchises and properties, and
(5) Prohibition against declaration of assume all the liabilities and obligations of
cash dividends; each of the constituent corporations in the
(6) Suspension of the privilege to same manner as if it had itself incurred such
establish and/or open approved branches, liabilities or obligations.
agencies, offices, etc.; and
(7) Other sanctions as may be imposed Sec. 4112Q Merger/Consolidation
by the Monetary Board. Incentives. In pursuance of the policy to
promote mergers and consolidations among
Secs. 4109Q - 4110Q (Reserved) banks and other financial intermediaries as
a means to develop larger and stronger FIs,
C. MERGER/CONSOLIDATION constituent entities may, subject to BSP
approval, avail themselves of any or all of
Sec. 4111Q Merger/Consolidation the following incentives:
Involving Quasi-Banks. The merger/ a. Revaluation of premises, improve-
consolidation of QBs is encouraged to ments and equipment of the institutions:
meet minimum capital requirements and Provided, That such revaluation shall be
to develop larger and stronger FIs. QBs based on fair valuation of the property
which are investment houses are likewise conducted by a reputable appraisal
encouraged to merge with banks to obtain company which shall be subject to review
authority to perform expanded and approval by the BSP;
commercial banking functions. The following rules shall govern the
Mergers/consolidations involving QBs revaluation of assets:
shall comply with the provisions of (1) The revaluation of the QB ’s
applicable law and shall be subject to premises, improvements and equipment
approval by the BSP. shall be allowed only to all institutions
For purposes of merger and participating in a merger/consolidation if all
consolidation of QBs, the following of them belong to the same category, or at
definitions shall apply: least two (2) of them belong to the highest
a. Merger is the absorption of one (1) category among the merging/consolidating
or more corporations by another existing institutions.

Part I - Page 9
§ 4112Q
05.12.31
(2) In case the merging/consolidating The following guidelines shall govern

institutions do not belong to the same the staggered booking of valuation reserves:
category or only one (1) of them falls under (1) The booking on staggered basis
the highest category, all of them may be over a maximum period of five (5) years of
allowed to revalue their premises, unbooked valuation reserves based upon
improvements and equipment: Provided, examination by the BSP may be allowed to
That the amount of appraisal increment all institutions participating in a merger/
resulting from such revaluation shall be consolidation if all of them belong to the
limited to the amount of the total same category, or at least two (2) of them
resources of the institution belonging to belong to the highest category among the
the lower category or categories. merging/consolidating institutions.
(3) The appraisal increment resulting (2) In case the merging/consolidating
from the revaluation shall form part of institutions do not belong to the same
capital for purposes of determining the category or only one (1) of them falls under
single borrower’s limit and capital-to-risk the highest category, all of them may be
assets ratio. The use of appraisal allowed to book the required valuation
increment for cash dividend shall be reserves based upon examination by the
governed by the provisions of the BSP on a staggered basis over a maximum
Corporation Code. period of five (5) years: Provided, That the
(4) The revaluation of premises, aggregate amount of the required valuation
improvements, and equipment of the reserves shall be limited to the amount of
institution as well as the recognition of the total resources of the institution
goodwill as an incentive to mergers/ belonging to the lower category or
consolidations shall only be allowed if the categories.
following conditions are met: c. If by reason of merger/
(i) The surviving or consolidated consolidation, the resulting QB is unable
entity will meet the existing capital to comply fully with the prescribed net
requirements after all adjustments are worth-to-risk assets ratio, the Monetary
taken up in the books of accounts of the Board may, at its discretion, temporarily
merging/consolidating entities but before relieve the QB from full compliance with
considering appraisal increments and this requirement under such conditions as
goodwill, or there will be infusion of fresh it may prescribe;
capital to meet said existing capital In the case of purchase or acquisition
requirements; and of majority or all of the outstanding shares
(ii) The merger/consolidation will of a QB by a bank/another QB, the
result in a more viable FI as a result of revaluation of assets and the booking of
cost savings and improve competitive the required valuation reserves based upon
position. examination by the BSP over a period of
In case of purchase or acquisition of five (5) years shall be allowed only if such
the majority or all of the outstanding purchase or acquisition is for the purpose
shares of stock of a QB, the same of rehabilitating the former QB: Provided,
conditions must be satisfied. That the revaluation of assets and staggered
b. Unbooked valuation reserves booking of reserves shall be allowed in
based upon BSP examination and other full only if the purchaser is another QB
capital adjustments resulting from the merger/ and both the QBs belong to the same
consolidation may be booked on staggered category. Otherwise, only the QB being
basis over a maximum period of five (5) years. acquired/rehabilitated shall be allowed to

Part I - Page 10
§§ 4112Q - 4116Q.1
07.12.31
recognize in full the appraisal increment shall be available for a period of three (3)
resulting from revaluation of assets and years from 31 August 1998.
to book valuation reserves on a staggered The foregoing incentives may also be
basis, while in the case of the acquiring granted in cases of purchases or
bank/QB, the appraisal increment acquisitions of majority or all of the
resulting from revaluation of assets and outstanding shares of stock of a QB.
the privilege of staggered booking of
valuation reserves shall each be limited Secs. 4113Q - 4115Q (Reserved)
to the amount of the total resources of
the QB being acquired/rehabilitated. D. RISK-BASED
d. Conversion or upgrading of the CAPITAL ADEQUACY RATIO
existing head offices, branches and/or other
offices of the merged/absorbed institutions Sec. 4116Q Minimum Ratio. The
into branches of the new or surviving FI; guidelines implementing the revised risk-
e. (Deleted by Cir. 494 dated 20 Sept. based capital adequacy framework for the
2005) Philippine banking system to conform to
f. Relocation of branches/offices may Basel II recommendations is provided in
be allowed within one (1) year from date Appendix Q-46b. These guidelines apply
of merger/consolidation in cases where the to all UBs and KBs, as well as their
merger/consolidation resulted in subsidiary banks and QBs.
duplication of branches/offices in a service QBs that are not subsidiaries of UBs or
area, or in such other cases/circumstances KBs shall continue to be subject to the risk-
as the Monetary Board may prescribe; based capital adequacy framework, as
g. Outstanding penalties in legal provided below as well as Subsecs.
reserve deficiencies and interest on 4116Q.1 to 4116Q.6.
overdrafts with the BSP as of the date of The risk-based capital ratio of a QB,
merger/consolidation may be paid in expressed as a percentage of qualifying
installments over a period of one (1) year; capital to risk-weighted assets, shall not be
h. Restructuring/plan of payment of less than ten percent (10%) for both solo
past due obligations of the proponents with basis (head office plus branches) and
the BSP as of the date of merger/consolidation consolidated basis (parent QB plus
over a period not exceeding ten (10) years; subsidiary financial allied undertakings, but
i. Subject to approval of the excluding insurance companies).
Monetary Board, concurrent officerships The ratio shall be maintained daily.
between a merged/consolidated bank/FI and This shall be effective 1 January 2004.
another bank/FI may be allowed; and (As amended by Circular No. 588 dated 11 December 2007,
j. Any right or privilege granted a M-2007-019 dated 21 June 2007, Circular Nos. 560 dated 31
merging bank under a rehabilitation January 2007 and 538 dated 04 August 2006)
program previously approved by the
Monetary Board or under any special § 4116Q.1 Qualifying capital. The
authority previously granted by the Monetary qualifying capital shall be the sum of –
Board shall continue to be in effect. a. Tier 1 (core) capital -
The revaluation of assets and staggered (1) Paid-up common stock;
booking of valuation reserves shall be (2) Paid-up perpetual and non-
available for a period of two (2) years from cumulative preferred stock;
19 February 1999 while the rest of the (3) Common stock dividends
incentives enumerated under Sec. 4112Q distributable;

Part I - Page 11
§ 4116Q.1
07.12.31
(4) Perpetual and non-cumulative (d) Net unrealized gains on

preferred stock dividends distributable; underwritten listed equity securities
(5) Surplus; purchased: Provided, That the amount
(6) Surplus reserves; thereof that may be included in upper Tier 2
(7) Undivided profits; and capital shall be subject to a fifty-five percent
(8) Minority interest in the equity of (55%) discount (for IH);
subsidiary financial allied undertakings (e) General loan loss provision:
which are less than wholly-owned: Provided, That the amount thereof that may
Provided, That a QB shall not use minority be included in upper Tier 2 capital shall
interests in the equity accounts of be limited to a maximum of one and
consolidated subsidiaries as avenue for twenty-five hundredths percent (1.25%) of
introducing into its capital structure gross risk-weighted assets, and any amount
elements that might not otherwise qualify in excess thereof shall be deducted from the
as Tier 1 capital or that would, in effect, total risk-weighted assets in computing the
result in an excessive reliance on preferred denominator of the risk-based capital ratio;
stock within Tier 1: (f) With prior BSP approval, unsecured
Provided, further, That the following subordinated debt with a minimum original
items shall be deducted from the total of maturity of at least ten (10) years, subject to
Tier 1 capital: the following conditions:
(a) Common stock treasury shares; (i) It must not be secured nor covered
(b) Perpetual and non-cumulative by a guarantee of the issuer or related party;
preferred stock treasury shares; (ii) It must be subordinated in the
(c) Net unrealized losses on right of payment of principal and interest
underwritten listed equity securities to all creditors of the QB, except those
purchased (for IH); creditors expressed to rank equally with,
(d) Unbooked valuation reserves and or behind holders of the debt.
other capital adjustments based on the Subordinated creditors must waive their
latest report of examination as approved right to set off any amounts they owe the
by the Monetary Board; QB against subordinated amounts owed to
(e) Total outstanding unsecured credit them by the QB. The issue
accommodations, both direct and indirect, documentation must clearly state that the
to DOSRI; debt is subordinated;
(f) Unsecured loans, other credit (iii) It must be fully paid-up. Only the
accommodations and guarantees granted net proceeds actually received from debt
to subsidiaries and affiliates; issues can be included as capital. If the debt
(g) Deferred income tax; and is issued at a premium, the premium cannot
(h) Goodwill. be counted as part of capital;
b. Tier 2 (supplementary) capital (iv) It must not be redeemable at the
which shall be the sum of – initiative of the holder;
(1) Upper Tier 2 capital - (v) It must not contain any clause
(a) Paid-up perpetual and cumulative which requires acceleration of payment of
preferred stock; principal, except in the event of
(b) Perpetual and cumulative preferred insolvency;
stock dividends distributable; (vi) It must not be repayable prior to
(c) Appraisal increment reserve – QB maturity without the prior consent of the
premises, as authorized by the Monetary Board; BSP: Provided, That repayment may be

Part I - Page 12
§ 4116Q.1
07.12.31
allowed in connection with call option Provided, That it shall be subject to a

only after a minimum of five (5) years cumulative discount factor of twenty
from issue date and only if – (1) the QB’s percent (20%) per year during the last five
capital ratio is at least equal to the (5) years to maturity [i.e., twenty percent
required minimum capital ratio; and (2) (20%) if the remaining life is four (4) years
the debt is simultaneously replaced to less than five (5) years, forty percent
with issues of new capital which is neither (40%) if the remaining life is three (3) years
smaller in size nor of lower quality than the to less than four (4) years, etc.]: Provided,
original issue; further, That where it is denominated in a
(vii) It may allow a moderate step-up foreign currency, it shall be revalued
in the interest rate in conjunction with a periodically (at least monthly) in Philippine
call option, only if the step-up occurs at a peso at prevailing exchange rate using the
minimum of ten (10) years after the issue same exchange rate used for revaluation
date and if it results in an increase over the of foreign currency-denominated assets,
initial rate that is not more than 100 basis liabilities and forward contracts under
points: Provided, That only one (1) rate step existing regulations: Provided furthermore,
up shall be allowed over the life of the That, for purposes of reserve requirement
instrument; regulation, it shall not be treated as a
(viii) It must provide for possible deposit substitute liability or other forms
conversion into common shares or of borrowings;
preferred shares or possible deferral of (g) Deposit for common stock
payment of principal and interest if the QB’s subscription; and
capital ratio becomes less than the required (h) Deposit for perpetual and non-
minimum capital ratio; cumulative preferred stock subscription:
(ix) It must provide for the principal Provided, That the following items shall
and interest on the debt to absorb losses be deducted from the total of upper Tier 2
where the QB would not otherwise be capital:
solvent; (i) Perpetual and cumulative
(x) It must allow deferment of interest preferred stock treasury shares;
payment on the debt in the event of, and (2) Lower Tier 2 capital –
at the same time as, the elimination of (a) Paid-up limited life redeemable
dividends on all outstanding common or preferred stock: Provided, That these shall
preferred stock of the issuer. It is acceptable be subject to a cumulative discount factor
for the deferred interest to bear interest, but of twenty percent (20%) per year during
the interest rate payable on deferred interest the last five (5) years to maturity [i.e., twenty
should not exceed market rates; percent (20%) if the remaining life is four
(xi) It must be underwritten by a third (4) years to less than five (5) years, forty
party not related to the issuer QB nor acting percent (40%) if the remaining life is three
in reciprocity for and in behalf of the issuer (3) years to less than four (4) years, etc.];
QB; (b) Limited life redeemable preferred
(xii) It must be issued in minimum stock dividends distributable;
denominations of at least P500,000 or its (c) With prior BSP approval, unsecured
equivalent; and subordinated debt with a minimum original
(xiii) It must clearly state on its face that maturity of at least five (5) years, subject to
it is not a deposit and is not insured by the the following conditions:
Philippine Deposit Insurance Corporation (i) It must not be secured nor covered
(PDIC): by a guarantee of the issuer or related party;

Part I - Page 13
§ 4116Q.1
07.12.31
(ii) It must be subordinated in the right (ix) It must be issued in minimum

of payment of principal and interest to all denominations of at least P500,000 or its
creditors of the QB, except those creditors equivalent; and
expressed to rank equally with, or behind (x) It must clearly state on its face that
holders of the debt. Subordinated creditors it is not a deposit and is not insured by the
must waive their right to set off any amounts PDIC:
they owe the QB against subordinated Provided, That it shall be subject to a
amounts owed to them by the QB. The cumulative discount factor of twenty
issue documentation must clearly state that percent (20%) per year during the last five
the debt is subordinated; (5) years to maturity [i.e., twenty percent
(iii) It must be fully paid-up. Only the (20%) if the remaining life is four (4) years
net proceeds actually received from debt to less than five (5) years, forty percent
issues can be included as capital. If the debt (40%) if the remaining life is three (3) years
is issued at a premium, the premium cannot to less than four (4) years, etc.]: Provided,
be counted as part of capital; further, That where it is denominated in a
(iv) It must not be redeemable at the foreign currency, it shall be revalued
initiative of the holder; periodically (at least monthly) in Philippine
(v) It must not contain any clause peso using the same exchange rate used
which requires acceleration of payment of for revaluation of foreign currency-
principal, except in the event of insolvency; denominated assets, liabilities and forward
(vi) It must not be repayable prior to contracts under existing regulations:
maturity without the prior consent of the Provided, finally, That, for purposes of
BSP: Provided, That repayment may be reserve requirement regulation, it shall not
allowed in connection with call option only be treated as equivalent to a deposit substitute
after a minimum of five (5) years from issue liability or other forms of borrowings; and
date and only if – (1) the QB’s capital ratio (d) Deposit for perpetual and
is at least equal to the required minimum cumulative preferred stock subscription;
capital ratio; and (2) the debt is Provided, That the following items shall
simultaneously replaced with issues of new be deducted from the total of Lower Tier 2
capital which is neither smaller in size nor capital:
of lower quality than the original issue; (1) Limited life redeemable preferred
(vii) It may allow a moderate step-up in stock treasury shares; and
the interest rate in conjunction with a call (2) Sinking fund for redemption of
option, only if the step-up occurs at a limited life redeemable preferred stock:
minimum of five (5) years after the issue Provided, That the amount to be deducted
date and if it results in an increase over the shall be limited to the balance of
initial rate that is not more than 100 basis redeemable preferred stock after applying
points or fifty percent (50%) of the initial the cumulative discount factor:
credit spread, at the option of the bank: Provided, further, That the total amount
Provided, That only one (1) rate step up of lower Tier 2 capital that may be included
shall be allowed over the life of the in the Tier 2 capital shall be a maximum
instrument; of fifty percent (50%) of total Tier 1 capital
(viii)It must be underwritten by a third (net of deductions therefrom): Provided
party not related to the issuer QB nor acting furthermore, That the total amount of upper
in reciprocity for and in behalf of the issuer and lower Tier 2 capital that may be
QB; included in the qualifying capital shall be

Part I - Page 14
§§ 4116Q.1 - 4116Q.2
07.12.31
a maximum of 100% of total Tier 1 capital based on the latest report of examination
(net of deductions therefrom); as approved by the Monetary Board.
c. Less deductions from the total of a. On-balance sheet assets. The risk-
Tier 1 and Tier 2 capital, as follows: weighted amount shall be the product of
(1) Investments in equity of the book value of the asset multiplied by
unconsolidated subsidiary banks and other the risk weight associated with that asset,
subsidiary financial allied undertakings, as follows:
but excluding insurance companies (for (1) Zero percent (0%) risk weight
solo basis); (a) Cash on hand;
(2) Investments in debt capital (b) Claims on or portions of claims
instruments of unconsolidated subsidiary guaranteed by or collateralized by securities
banks (for solo basis); issued by -
(3) Investments in equity of subsidiary (i) Philippine national government
insurance companies and subsidiary non- and BSP; and
financial allied undertakings; (ii) Central governments and central
(4) Reciprocal investments in equity of banks of foreign countries with the highest
other banks/enterprises; and credit quality as defined in Subsec.
(5) Reciprocal investments in 4116Q.3;
unsecured subordinated term debt (c) Loans to the extent covered by
instruments of other banks/QBs in excess hold-out on, or assignment of deposit
of the lower of (i) an aggregate ceiling of substitutes maintained with the lending QB;
five percent (5%) of total Tier 1 capital of (d) Portions of loans covered by
the QB; or (ii) ten percent (10%) of the Industrial Guarantee and Loan Fund (IGLF)
total outstanding unsecured guarantee;
subordinated term debt issuance of the (e) Real estate mortgage loans to the
other bank/QB: extent guaranteed by the Home Guaranty
Provided, That any asset deducted from Corporation (HGC);
the qualifying capital in computing the (f) Loans to the extent guaranteed by
numerator of the risk-based capital ratio the Trade and Investment Development
shall not be included in the risk-weighted Corporation of the Philippines (TIDCORP);
assets in computing the denominator of the (g) Residual value of leased equipment
ratio. to the extent covered by deposits on lease
(As amended by Circular No. 560 dated 31 January 2007) contracts (for FCs);
(h) Lease contract receivables to the
§ 4116Q.2 Risk-weighted assets. The extent covered by the excess of deposits
risk-weighted assets shall be determined on lease contracts over residual value of
by assigning risk weights to amounts of on- leased equipment (for FCs); and
balance sheet assets and to credit (i) Foreign currency notes and coins on
equivalent amounts of off-balance sheet hand acceptable as international reserves;
items (inclusive of derivative contracts): (2) Twenty percent (20%) risk weight
Provided, That the following shall be (a) Checks and other cash items (COCIs);
deducted from the total risk-weighted (b) Claims on or portions of claims
assets: (1) general loan loss provision (in guaranteed by or collateralized by securities
excess of the amount permitted to be issued by non-central government public
included in upper Tier 2 capital); and (2) sector entities of foreign countries with the
unbooked valuation reserves and other highest credit quality as defined in Subsec.
capital adjustments affecting asset accounts 4116Q.3;

Part I - Page 14a
§ 4116Q.2
05.12.31
(c) Claims on or portions of claims (b) Local government unit (LGU)

guaranteed by Philippine incorporated bonds which are covered by deed of
banks/QBs with the highest credit quality assignment of Internal Revenue Allotment
as defined in Subsec. 4116Q.3; of the LGU and guaranteed by the LGU
(d) Claims on or portions of claims Guarantee Corporation;
guaranteed by foreign incorporated banks (4) One hundred percent (100%) risk
with the highest credit quality as defined in weight –
Subsec. 4116Q.3; All other assets including, among
(e) Claims on or portions of claims others, the following:
guaranteed by or collateralized by (a) Claims on central governments and
securities issued by multilateral central banks of foreign countries other
development banks; than those with the highest credit quality;
(f) Loans to exporters to the extent (b) Claims on Philippine local
guaranteed by Small Business Guarantee government units;
and Finance Corporation (SBGFC); and (c) Claims on non-central government
(g) Foreign currency checks and other public sector entities of foreign countries
cash items denominated in currencies other than those with the highest credit
acceptable as international reserves; quality;
(3) Fifty percent (50%) risk weight – (d) Claims on government-owned or
(a) Loans for housing purpose, fully controlled commercial corporations;
secured by first mortgage on residential (e) Claims on Philippine incorporated
property that is or will be occupied or banks/QBs other than those with the
leased out by the borrower; and highest credit quality;
(Next page is Part I - Page 15)

Part I - Page 14b
§ 4116Q.2
05.12.31
(f) Claims on foreign incorporated instruments of other banks/quasi-banks, in

banks other than those with the highest excess of the lower of (i) an aggregate
credit quality; ceiling of five percent (5%) of total Tier 1
(g) Loans to companies engaged in capital of the quasi-bank; or (ii) ten percent
speculative residential building or property (10%) of the total outstanding unsecured
development; subordinated term debt issuance of the
(h) Claims on the private sector (except other bank/quasi-bank;
those deducted from capital); b. Off-balance sheet items. The risk-
(i) Equity investments (except those weighted amount shall be calculated using
deducted from capital); a two (2)-step process.
(j) Equipment and other real estate for First, the credit equivalent amount of
lease (for FCs); an off-balance sheet item shall be
(k) Real estate for sale/lease; determined by multiplying its notional
(l) Quasi-bank premises, furniture, principal amount by the appropriate credit
fixtures and equipment (net); conversion factor, as follows:
(m) Appraisal increment – Quasi-bank (1) One hundred percent (100%)
premises, furniture, fixtures and equipment (net); credit conversion factor -
(n) Real and other properties owned or This shall apply to direct credit
acquired (net); substitutes, e.g. general guarantees of
(o) Foreign currency notes and coins indebtedness and acceptances (including
on hand not acceptable as international endorsements with the character of
reserves; and acceptances), and shall include –
(p) Foreign currency checks and other (a) Outstanding guarantees issued
cash items not denominated in foreign This shall also apply to sale and
currencies acceptable as international repurchase agreements and asset sales with
reserves, except those which are deducted recourse where the credit risk remains with
from capital, as follows: the quasi-bank (to the extent not included
(i) Unsecured credit accommodations, in the balance sheet), as well as to forward
both direct and indirect, to DOSRI; asset purchases, and partly-paid shares and
(ii) Deferred income tax; securities, which represent commitments
(iii) Goodwill; with certain drawdown: Provided, That
(iv) Sinking fund for redemption of these items shall be weighted according to
limited life redeemable preferred stock; the type of asset and not according to the
(v) Equity investments in unconsolidated type of counterparty with whom the
subsidiary banks and other subsidiary transaction has been entered into.
financial allied undertakings, but excluding (2) Fifty percent (50%) credit
insurance companies; conversion factor – This shall apply to –
(vi) Investments in debt capital (a) Note issuance facilities and
instruments of unconsolidated subsidiary revolving underwriting facilities (for IHs);
banks; and
(vii)Equity investments in subsidiary (b) Other commitments, e.g., formal
insurance companies and subsidiary non- standby facilities and credit lines with an
financial allied undertakings; original maturity of more than one (1) year.
(viii)Reciprocal investments in equity of This shall include–
other banks/enterprises; and (i) Underwritten accounts unsold (for IHs).
(ix) Reciprocal investments in (3) Zero percent (0%) credit
unsecured subordinated term debt conversion factor –

Part I - Page 15
§§ 4116Q.2 - 4116Q.3
05.12.31
This shall apply to commitments with remaining payments in the contract:

an original maturity of up to one (1) year. Provided, further, That for contracts that are
This shall also apply to those not structured to settle outstanding exposure
involving credit risk, and shall include – following specified payment dates and
(a) Items held for safekeeping/ where the terms are reset such that the
custodianship; market value of the contract is zero on these
(b) Trust department accounts; specified dates, the residual maturity would
(c) Items held as collaterals; etc. be set equal to the time until the next reset
Second, the credit equivalent amount date, and in the case of interest rate
shall be treated like any on-balance sheet contracts with remaining maturities of more
asset and shall be assigned the appropriate than one (1) year that meet these criteria,
risk weight, i.e., according to the obligor, the potential future credit conversion factor
or if relevant, the qualified guarantor or the is subject to a floor of five tenths percent
nature of collateral. (0.5%): Provided, furthermore, That no
c. Derivative contracts. The credit potential future credit exposure shall be
equivalent amount shall be the sum of the calculated for single currency floating/
current credit exposure (or replacement floating interest rate swaps, i.e., the credit
cost) and an estimate of the potential future exposure on these contracts would be
credit exposure (or add-on): Provided, That evaluated solely on the basis of their mark-
the following shall not be included in the to-market value.
computation: The credit equivalent amount shall be
(1) Instruments which are traded on treated like any on-balance sheet asset, and
exchange where they are subject to daily shall be assigned the appropriate risk
receipt and payment of cash variation weight, i.e., according to the obligor, or if
margin; and relevant, the qualified guarantor or the
(2) Exchange rate contracts with nature of collateral: Provided, That a fifty
original maturity of fourteen (14) calendar percent (50%) risk weight shall be applied
days or less. in respect of obligors which would
The current credit exposure shall be the otherwise attract a 100% risk weight.
positive mark-to-market value of the The extent to which a claim is
contract (or zero if the mark-to-market value guaranteed/collateralized shall be
is zero or negative). The potential future determined by the amount of guarantee
credit exposure shall be the product of the coverage/current market value of securities
notional principal amount of the contract pledged, in comparison with the book
multiplied by the appropriate potential future value of the on-balance sheet asset or the
credit conversion factor, as indicated below: notional principal amount of the off-
Interest Exchange balance sheet exposure, except for
Residual Rate Rate
Maturity Contract Contract derivative contracts for which
One (1) 0.0% 1.0% determination is generally made in relation
year or less to credit equivalent amount.
Over one 0.5% 5.0%
(1) year to five § 4116Q.3 Definitions
(5) years
a. Amount due from the BSP. This
Over five 1.5% 7.5% refers to all deposits of the reporting quasi-
(5) years
bank with the BSP.
Provided, That for contracts with b. Appraisal increment reserve. This
multiple exchanges of principal, the factors shall form part of capital only if authorized
are to be multiplied by the number of by the Monetary Board.

Part I - Page 16
§ 4116Q.3
05.12.31
c. Quasi-bank premises, furniture, g. Consolidated basis. This refers to

fixtures and equipment net of depreciation. combined statement of condition of parent
This refers to the cost of land and quasi-bank and subsidiary financial allied
improvements used as the quasi-bank undertakings, but excluding insurance
premises, and furniture, fixtures and companies.
equipment owned by the quasi-bank. h. Debt capital instruments. This
d. Cash on hand. This refers to total refers to unsecured subordinated term debt
cash held by the quasi-bank consisting of instruments qualifying as capital of banks.
both notes and coins in Philippine i. Equity investments. This refers to
currency. investments in capital stock of companies,
e. Central government of a foreign firms or enterprises, made for purposes of
country. This refers to the central control, affiliation or other continuing
government which is regarded as such by business advantage.
a recognized banking supervisory authority j. Exchange rate contracts. This
in that country. includes cross-currency interest rate swaps,
f. Claims. This refer to loans or debt forward foreign exchange contracts,
obligations of the entity on whom the claim currency futures, currency options
is held, and shall include, but shall not be purchased and similar instruments.
limited to, the following accounts, inclusive k. Financial allied undertakings. This
of accumulated market gains/(losses) and refers to enterprises or firms with
accumulated bond discount/(premium homogenous or similar activities/business/
amortization), and net of specific allowance functions with the financial intermediary
for probable losses: and may include but not limited to leasing
(1) Due from BSP; companies, banks, IHs, FCs, credit card
(2) Due from other banks; companies, FIs catering to small and
(3) Interbank loans receivable; medium scale industries (including venture
(4) Loans and discounts, including capital corporations), companies engaged
lease contract receivables, net of advance in stock brokerage/securities dealership,
leasing income received and receivables companies engaged in foreign exchange
financed (for FCs); dealership/brokerage, holding companies,
(5) Restructured loans; and such other similar activities as the
(6) Trading account securities – loans; Monetary Board may declare as appropriate
(7) Underwriting accounts - debt from time to time, but excluding insurance
securities (for IHs); companies.
(8) Underwriting accounts - equity l. Foreign country/foreign
securities (for IHs); incorporated bank and Philippine
(9) Trading account securities – debt incorporated bank/quasi-bank with the
securities; highest credit quality. This refers to a
(10)Trading account securities – equity foreign country/foreign incorporated bank
securities (for IHs); and Philippine incorporated bank/quasi-
(11)Available for sale securities; bank given the highest credit rating of any
(12)Investments in bonds and other two (2) of the following internationally
debt instruments; and accepted rating agencies:
(13)Others, e.g., accounts receivable Rating Agency Highest Rating
and accrued interest receivable. (1) Moody’s “Aa3” and above
Accruals on a claim shall be classified and (2) Standard and “AA-” and above
risk weighted in the same way as the claim. Poor's

Part I - Page 17
§ 4116Q.3
05.12.31
(3) Fitch IBCA “AA-” and above s. Non-central government public

(4) Others as may sector entity of a foreign country. This refers
be approved by
the Monetary to entities which are regarded as such by a
Board recognized banking supervisory authority in
the country in which they are incorporated.
m. Forward asset purchases. This t. Note issuance facilities and
refers to a commitment to purchase a loan, revolving underwriting facilities. This refers
security or other asset at a specified future to an arrangement whereby a borrower may
date, usually on pre-arranged terms. draw down funds up to a prescribed limit
n. Goodwill. This refers to an over an extended period by repeated issues
intangible asset that represents the excess to the market of promissory notes which
of the purchase price over the fair market the quasi-bank committed to underwrite.
value of identifiable assets acquired less u. Other commitments. This includes
liabilities assumed in acquisitions accounted undrawn portion of any binding
for under the purchase method of accounting. arrangements which obligate the quasi-
o. Interest rate contracts. This bank to provide funds at some future date.
includes single-currency interest rate swaps, v. Other commitments with an original
basis swaps, forward rate agreements, maturity of up to one (1) year. This includes
interest rate futures, interest rate options any revolving or undated open-ended
purchased and similar instruments. commitments, e.g., unused credit lines:
p. Loans for housing purpose, fully Provided, That these can be unconditionally
secured by first mortgage on residential cancelled at any time and are subject to credit
property that is or will be occupied or leased revision at least annually.
out by the borrower. This shall not include w. Partly-paid shares and securities.
loans to companies engaged in speculative This arises where only a part of the issue
residential building or property development. price or nominal face value of a security
q. Loans to the extent covered by purchased has been subscribed and the
hold-out on, or assignment of deposit issuer may call for the outstanding balance
substitutes maintained in the lending quasi- (or a further installment), either on a date
bank. A loan shall be considered as secured predetermined at the time of issue, or at an
by a hold-out on, or assignment of deposit unspecified future date.
substitute only if such deposit substitute x. Perpetual preferred stock . This
account is covered by a hold-out agreement refers to preferred stock that does not have
or deed of assignment signed by the a maturity date, that cannot be redeemed at
investor/placer in favor of the quasi-bank. the option of the holder of the instrument,
This shall not include loans transferred to/ and that has no provision that will require
carried by the quasi-bank’s trust department future redemption of the issue. Consistent
secured by deposit substitute hold-out/ with these provisions, any perpetual
assignment. preferred stock with a feature permitting
r. Multilateral development banks. redemption at the option of the issuer may
This refers to International Bank for qualify as capital only if the redemption is
Reconstruction and Development (IBRD), subject to prior approval of the BSP.
Inter-American Development Bank, Asian y. Philippine local government units.
Development Bank (ADB), African This refers to the Philippine government
Development Bank, European Investment units below the level of national
Bank and European Bank for Reconstruction government, such as city, provincial, and
and Development. municipal governments.

Part I - Page 18
§§ 4116Q.3 - 4116Q.6
05.12.31
z. Philippine national government. allied undertakings, but excluding

This shall refer to the Philippine national insurance companies) quarterly to the
government and its agencies such as appropriate department of the SES in the
departments, bureaus, offices, and prescribed forms within the deadlines, i.e.,
instrumentalities, but excluding fifteen (15) business days and thirty (30)
government-owned and-controlled business days after the end of reference
commercial corporations. quarter, respectively. Only QBs with
(1) Private sector. This refers to entities subsidiary financial allied undertakings
other than banks, QBs and governments. (excluding insurance companies) which
This shall also include commercial under existing regulations are required to
companies owned by the public sector, prepare consolidated statements of
such as government-owned or-controlled condition on a line-by-line basis shall be
commercial corporations. required to submit report on consolidated
(2) Redeemable preferred stock. This basis. The above-mentioned reports shall
refers to preferred stock which may be be classified as Category A-2 reports.
redeemed at the specific dates or periods
fixed for redemption. § 4116Q.5 Sanctions. Whenever the
(3) Sale and repurchase agreements capital accounts of a QB are deficient with
and asset sales with recourse. This refers respect to the prescribed capital adequacy
to arrangements whereby a QB sells a loan, ratio, the Monetary Board after considering
security or fixed asset to a third party with a report of the appropriate department of
a commitment to repurchase the asset after the SES on the state of solvency of the
a certain time, or in the event of a certain institution concerned, shall limit or prohibit
contingency. the distribution of the net profits and shall
(4) Solo basis. This refers to combined require that part or all of net profits be used
statement of condition of head office and to increase the capital accounts of the QB
branches. until the minimum requirement has been
(5) Subsidiary. This refers to a met. The Monetary Board may restrict or
corporation or firm more than fifty percent prohibit the making of new investments of
(50%) of the outstanding voting stock of any sort by the QB, with the exception of
which is directly or indirectly owned, purchases of readily marketable evidences
controlled or held with the power to vote of indebtedness issued by the Philippine
by a QB. national government and BSP included in
(6) Treasury shares. This refers to the Item “a(1)(b)i” of Subsec. 4116Q.2, until
QB’s own shares of stock that have been the minimum required capital ratio has
issued and fully paid for, subsequently re- been restored.
acquired through purchase or donations
and have not been cancelled or re-issued. § 4116Q.6 Temporary relief. In case
This also refers to shares of a parent QB held of QB merger or consolidation, or when a
by a subsidiary financial allied undertaking QB is under rehabilitation under a program
in a consolidated statement of condition. approved by the BSP, the Monetary Board
may temporarily relieve the surviving QB,
§ 4116Q.4 Required reports. QBs consolidated QB, or constituent QB or
shall submit a report of their risk-based corporations under rehabilitation from
capital adequacy ratio on a solo basis (head full compliance with the required capital
office plus branches) and on a consolidated ratio for a maximum period of one (1)
basis (parent QB plus subsidiary financial year.

Part I - Page 19
§§ 4117Q - 4125Q
07.12.31
Sec. 4117Q Treatment of Equity (2) In case of continuous capital

Investment with Reciprocal deficiency:
Stockholdings. For purposes of computing (a) For two (2) consecutive reporting
the prescribed ratio of net worth (or periods - suspension of the Certificate of
combined capital accounts) to risk assets, Authority to engage in quasi-banking
equity investments of a QB in another QB functions for a period of thirty (30) calendar
shall be deducted from its net worth if the days.
investee QB has a reciprocal equity (b) For every consecutive reporting
investment in the investing QB, in which period, the suspension shall extend for
case the investment of the QB or the another thirty (30) calendar days.
reciprocal investment of the other QB, (c) The suspension shall be
whichever is lower, shall be deducted from automatically lifted if on the final reporting
the net worth of the QBs. period of the period of suspension, the
entity maintains the minimum capital
Sec. 4118Q Sanctions on Net Worth required under Sec. 4116Q for every day
Deficiency of such reporting period.
a. Any QB which is deficient in the (3) In all of the cases abovementioned,
capital requirement under Sec. 4116Q shall establishment of branches, agencies,
be liable to the following sanctions: extension offices, etc., shall be suspended.
(1) In case of capital deficiency for five (5) b. For improperly accomplished
or more times within a reporting period: report, QBs shall pay P600 per day for
(a) For the first offense - a fine of every day the report is not corrected,
P3,000. counted as of the date the error is brought
(b) For the second consecutive offense - to its attention until the corrected report is
prohibition from extending new loans or submitted.
making new investments for a period of c. For willfully making false
thirty (30) calendar days. statements in the report or submitting a
New loans and new investments shall false report, the Certificate of Authority for
refer to any loan or investment involving quasi-banking functions shall be
disbursement of funds, except government suspended/revoked.
securities. d. The Monetary Board may impose
(c) For the third consecutive offense - additional sanctions on the entity engaged
extension of the penalty under the in quasi-banking functions by:
preceding paragraph for another thirty (30) (1) Revoking the Certificate of
calendar days. Authority to engage in quasi-banking
(d) For the fourth consecutive offense - functions; and
suspension of the Certificate of Authority (2) Such other sanctions as the BSP
to engage in quasi-banking functions for a may deem necessary.
period of thirty (30) calendar days. The (As amended by Circular No. 585 dated 15 October 2007)
suspension shall be automatically lifted if
in the final reporting period of the period Secs. 4119Q - 4120Q (Reserved)
of suspension, the entity maintains the
minimum capital required under Sec. E. (RESERVED)
4116Q for every day of such reporting
period. Secs. 4121Q - 4125Q (Reserved)

Part I - Page 20
§§ 4126Q - 4126Q.2
07.12.31
F. STOCK, STOCKHOLDERS c. In process of collection - A debt

AND DIVIDENDS due to a QB shall be considered in process
of collection when it is the subject of
Sec. 4126Q Dividends. Pursuant to continuing extrajudicial or judicial
Section 57 of R.A. No. 8791, no QB shall proceedings aimed towards its full
declare dividends greater than its settlement or liquidation, or otherwise to
accumulated net profits then on hand, place it in current status.
deducting therefrom its losses and bad The extrajudicial proceedings, such as
debts. Neither shall the QB declare the writing of collection or demand letters,
dividends if, at the time of declaration, it must have been initiated by the QB and/or
has not complied with the provisions of its lawyers before the interest or
Subsec. 4126Q.2. installments or amortizations on the debt
become past due and unpaid for a period
§ 4126Q.1 Definition of terms. For of six (6) months.
purposes of this Section, the following The debt shall continue to be
definitions shall apply: considered in process of collection for a
a. Bad debts shall include any debt period of six (6) months counted from date
on which interest is past due for a period of the first collection or demand letter and
of six (6) months, unless it is well secured if, within this period, the debtor fails to
and in process of collection. make a payment of at least twenty percent
A loan payable in installment with (20%) of the outstanding balance of the
an automatic acceleration clause shall be principal on his account, plus all interests
considered a bad debt within the which may have accrued thereon, the same
contemplation of this Section where shall automatically be classified as bad debt
installments or amortizations have become unless judicial proceedings are instituted.
past due for a period of six (6) months, The debt shall continue to be considered
unless the loan is well secured and in in process of collection during the pendency
process of collection. For a loan payable of the judicial proceedings. When judgment
in installments without an acceleration against the debtor has been obtained, the
clause, only the installments or QB must be active in enforcing the
amortizations that have become past due judgment for the debt to continue to be
for a period of six (6) months and which considered in process of collection.
are not well secured and in the process of
collection shall be considered bad debts § 4126Q.2 Requirements on the
within the contemplation of this Section. declaration of dividends/net amount
b. Well secured - A debt shall be available for dividends
considered well secured (or fully secured) a. Requirements on the declaration of
if it is covered by collateral in the form of dividends. At the time of declaration, QBs
a duly constituted mortgage, pledge, or lien shall have complied with the following:
on real or personal properties, including (1) Clearing account with the BSP is
securities. The outstanding debt, accrued not overdrawn;
interest and other pertinent fees and (2) Minimum capitalization requirement
expenses thereon shall not be in excess of and risk-based capital ratio;
seventy percent (70%) of the appraised (3) Statutory and liquidity reserves
value of real estate, or fifty percent (50%) requirement;
of the other personal properties offered as (4) No past due loans with any
lien. institution;

Part I - Page 21
§§ 4126Q.2 - 4126Q.3
07.12.31
(5) No net losses from operations in (1) Bad debts against which valuation
any one of the two (2) fiscal years reserves are not required by the BSP to be
immediately preceding the date of dividend set up;
declaration; and (2) Unbooked valuation reserves, and
(6) Has not committed any of the other unbooked capital adjustments
following major violations: required by the BSP, whether or not
(a) Loans and other credit allowed to be set up on a staggered basis;
accommodations and guarantees granted (3) Deferred income tax;
in excess of the single borrower’s limit; (4) Accumulated profits not yet received
(b) Loans and other credit but already recorded by the QB representing
accommodations granted/extended in its share in profits of its subsidiaries under
excess of the ceilings on accommodations the equity method of accounting;
to DOSRI; (5) Accrued interest as required to be
(c) Unsafe and unsound banking excluded pursuant to Item “c” of Subsec.
practice as defined under existing BSP 4307Q.7, net of booked valuation reserves
regulations; on accrued interest receivable or allowance
(d) Equity investments in excess of the for uncollectible interest on loans; and
prescribed ceilings; (6) Foreign exchange profit arising
(e) Investments in real estate, QB from revaluation of foreign exchange
premises and equipment in excess of denominated accounts.
prescribed ceilings; (As amended by Circular No. 571 dated 21 June 2007)
(f) Major violations/exceptions cited in
the previous examination not duly acted § 4126Q.3 Reporting and verification
upon or not yet corrected; Declaration of cash dividend shall be
(g) Transactions or activities without reported by the QB concerned to the
prior approval or necessary license from the appropriate department of the SES within
BSP such as, but not limited to derivatives, ten (10) business days from date of
trust and e-banking; approval of the declaration by the QB’s
(h) Refusal to permit examination into board of directors, in the prescribed form.
the affairs of the institution or any willful Pending verification of above-
making of a false or misleading statement mentioned report by the appropriate
to the Monetary Board or to the appropriate department of the SES, the QB concerned
department of the SES; and shall not make any announcement or
(i) Failure to comply with the capital communication on the declaration of cash
build-up program approved by the dividends nor shall any payment be made
Monetary Board. thereon.
QBs which have committed any of the In any case, the declaration may be
major violations under Item “a(6)” above announced and the dividends paid, if, after
may only be allowed to declare dividends thirty (30) business days from the date the
by the Monetary Board upon report required herein shall have been
recommendation of the appropriate received by the BSP, no advice against such
department of the SES that the QB has declaration has been received by the QB
corrected the major violation/s that it has concerned, subject to the condition that
committed. the record date for such dividends cannot
b. Amount available. The net amount be set earlier than thirty (30) business days
available for dividends shall be the amount after declaration.
of unrestricted or free retained earnings and QBs whose shares are listed with any
profit and loss summary less: domestic stock exchange may give notice

Part I - Page 22
§§ 4126Q.3 - 4126Q.4
05.12.31
of cash dividend declaration in accordance of BSP approval thereof, or if no such

with pertinent rules of the SEC: Provided, approval is received, after thirty (30)
That no record date is fixed for such cash business days from the date required
dividend, pending verification of the report report on cash dividend declaration was
on such declaration by the appropriate received by the appropriate department
department of the SES. of the SES, whichever comes earlier. A
memorandum entry may be made to record
§ 4126Q.4 Recording of dividends the dividend declaration on the date of
The liability for cash dividends declared approval by the board of directors and for
shall be taken up in the books upon receipt full disclosure purposes. The cash dividends

Part I - Page 22a
§§ 4126Q.4 - 4141Q.1
05.12.31
may be disclosed in the financial statements (2) Is not a director or officer of the
by means of a footnote which should include related companies of the institution’s
a statement to the effect that the dividend majority stockholder;
declaration is subject to review by the BSP. (3) Is not a majority stockholder of the
Dividends of all kinds, whether on institution, any of its related companies, or
common or on preferred shares of stock, shall of its majority shareholders;
not be treated as interest expense, considering (4) Is not a relative within the fourth
that as a general policy only irredeemable degree of consanguinity or affinity,
stock may be issued by quasi-banks. legitimate or common-law of any director,
officer or majority shareholder of the quasi-
§ 4126Q.5 Rules on declaration of stock bank/trust entity or any of its related
dividends. The declaration of stock dividends companies;
shall be subject to the preceding regulations (5) Is not acting as a nominee or
on declaration of cash dividends. Additional representative of any director or substantial
paid-in capital may be included in the shareholder of the quasi-bank/trust entity,
amount available for stock dividends. any of its related companies or any of its
substantial shareholders; and
Secs. 4127Q - 4140Q (Reserved) (6) Is not retained as professional
adviser, consultant, agent or counsel of the
G. DIRECTORS, OFFICERS AND EMPLOYEES institution, any of its related companies or
any of its substantial shareholders, either
Sec. 4141Q Definition; Qualifications; in his personal capacity or through his firm;
Powers; Responsibilities and Duties of is independent of management and free
Board of Directors and Directors. The from any business or other relationship, has
following shall be the definition, not engaged and does not engage in any
qualifications, powers, responsibilities and transaction with the institution or with any
duties of the board of directors and of its related companies or with any of its
directors. substantial shareholders, whether by
himself or with other persons or through a
§ 4141Q.1 Limits on the number of firm of which he is a partner or a company
the members of the board of directors of which he is a director or substantial
Pursuant to Sections 15 and 17 of R.A. No. shareholder, other than transactions which
8791, there shall be at least five (5), and a are conducted at arms length and could not
maximum of fifteen (15) members of the materially interfere with or influence the
board of directors of a quasi-bank/trust exercise of his judgment.
entity two (2) of whom shall be An independent director of a quasi-
independent directors: Provided, That in bank/trust entity can be elected as an
case of a quasi-bank/trust entity merger or independent director of its: (a) parent or
consolidation, the number of directors may holding company; (b) subsidiary or affiliate;
be increased up to twenty-one (21). (c) substantial shareholder; or (d) other
An independent director shall mean a related companies, or vice-versa: Provided,
person who – That he is not a substantial shareholder of
(1) Is not or has not been an officer or the quasi-bank/trust entity or any of the said
employee of the quasi-bank/trust entity, its concerned entities.
subsidiaries or affiliates or related interests The terms and phrases used in Items
during the past three (3) years counted from “(1)” to “(6)” shall have the following
the date of his election; meaning:

Part I - Page 23
§ 4141Q.1
05.12.31
(a) Parent is a corporation which has (f) Related company means another
control over another corporation directly company which is: (a) its parent or holding
or indirectly through one (1) or more company; (b) its subsidiary or affiliate; or
intermediaries. (c) a corporation where a quasi-bank/trust
(b) Subsidiary means a corporation entity or its majority stockholder own such
more than fifty percent (50%) of the voting number of shares that will allow/enable
stock of which is owned or controlled him to elect at least one (1) member of
directly or indirectly through one (1) or the board of directors or a partnership
more intermediaries by a quasi-bank/trust where such majority stockholder is a
entity. partner.
(c) Affiliate is a juridical person that (g) Substantial or major shareholder
directly or indirectly, through one (1) or shall mean a person, whether natural or
more intermediaries, is controlled by, or is juridical, owning such number of shares
under common control with the quasi- that will allow him to elect at least one (1)
bank/trust entity or its affiliates. member of the board of directors of a
(d) Related interests as defined under quasi-bank/trust entity or who is directly
Sections 12 and 13 of R.A. No. 8791 shall or indirectly the registered or beneficial
mean individuals related to each other owner of more than ten percent (10%) of
within the fourth degree of consanguinity any class of its equity security.
or affinity, legitimate or common law, and (h) Majority stockholder or majority
two (2) or more corporations owned or shareholder means a person, whether
controlled by a single individual or by the natural or juridical, owning more than fifty
same family group or the same group of percent (50%) of the voting stock of a
persons. quasi-bank/trust entity.
(e) Control exists when the parent Non-Filipino citizens may become
owns directly or indirectly through members of the board of directors of a
subsidiaries more than one-half of the quasi-bank/trust entity to the extent of the
voting power of an enterprise unless, in foreign participation in the equity of said
exceptional circumstance, it can be clearly quasi-bank/trust entity: Provided, That
demonstrated that such ownership does not pursuant to Section 23 of the Corporation
constitute control. Control may also exist even Code of the Philippines (BP Blg. 68), a
when ownership is one-half or less of the voting majority of the directors must be residents
power of an enterprise when there is: of the Philippines.
(i) power over more than one-half of The meetings of the board of directors
the voting rights by virtue of an agreement may be conducted through modern
with other stockholders; or technologies such as, but not limited to,
(ii) power to govern the financial and teleconferencing and videoconferencing
operating policies of the enterprise under as long as the director who is taking part
a statute or an agreement; or in said meetings can actively participate
(iii) power to appoint or remove the in the deliberations on matters taken up
majority of the members of the board of therein: Provided, That every member of
directors or equivalent governing body; or the board shall participate in at least fifty
(iv) power to cast the majority votes at percent (50%) and shall physically attend
meetings of the board of directors or at least twenty-five percent (25%) of all
equivalent governing body; or board meetings every year: Provided,
(v) any other arrangement similar to further, That in the case of a director who
any of the above. is unable to physically attend or participate

Part I - Page 24
§§ 4141Q.1 - 4141Q.3
05.12.31
in board meetings via teleconferencing or § 4141Q.3 Powers/responsibilities

videoconferencing, the corporate and duties of board of directors and
secretary shall execute a notarized directors
certification attesting that said director was a. Powers of the board of directors. The
given the agenda materials prior to the corporate powers of a quasi-bank/trust entity
meeting and that his/her comments/ shall be exercised, its business conducted and
decisions thereon were submitted for all its property shall be controlled and held
deliberation/discussion and were taken up by its board of directors. The powers of the
in the actual board meeting, and that the board of directors as conferred by law are
submission of said certification shall be original and cannot be revoked by the
considered compliance with the required stockholders. The directors hold their office
fifty percent (50%) minimum attendance charged with the duty to act for the quasi-
in board meetings. bank/trust entity in accordance with their best
judgment.
§ 4141Q.2 Qualifications of a b. General responsibility of the board
director. A director shall have the of directors. The position of a quasi-bank/
following minimum qualifications: trust entity director is a position of trust. A
a. He shall be at least twenty-five (25) director assumes certain responsibilities to
years of age at the time of his election or different constituencies or stakeholders, i.e.,
appointment; the quasi-bank/trust entity itself, its
b. He shall be at least a college stockholders, its clients and other creditors,
graduate or have at least five (5) years its management and employees, and the
experience in business; public at large. These constituencies or
c. He must have attended a special stakeholders have the right to expect that
seminar for board of directors conducted the institution is being run in a prudent and
or accredited by the BSP: Provided, That sound manner.
incumbent directors as well as those The board of directors is primarily
elected after 17 September 2001 must responsible for the corporate governance
attend said seminar on or before 31 of the quasi-bank/trust entity. To ensure
December 2002 or within a period of six good governance of the quasi-bank/trust
(6) months from date of election for those entity, the board of directors should
elected after 31 December 2002, as the establish strategic objectives, policies and
case may be; and procedures that will guide and direct the
d. He must be fit and proper for the activities of the quasi-bank/trust entity and
position of a director of the quasi-bank/ the means to attain the same as well as the
trust entity. In determining whether a mechanism for monitoring management’s
person is fit and proper for the position of performance. While the management of the
a director, the following matters must be day-to-day affairs of the institution is the
considered: integrity/probity, responsibility of the management team, the
competence, education, diligence and board of directors is, however, responsible
experience/training. for monitoring and overseeing
The foregoing qualifications for management action.
directors shall be in addition to those c. Specific duties and responsibilities
required or prescribed under R.A. No. of the board of directors
8791 and other existing applicable laws (1) To select and appoint officers who
and regulations. are qualified to administer the quasi-bank’s/

Part I - Page 25
§ 4141Q.3
05.12.31
trust entity’s affairs effectively and soundly (4) To establish and ensure
and to establish adequate selection process compliance with sound written policies.
for all personnel. It is the primary The board should adopt written policies
responsibility of the board of directors to on all major business activities, i.e.,
appoint competent management team at all investments, loans, asset and liability
times. The board of directors should apply management, business planning and
fit and proper standards on key personnel. budgeting. A mechanism to ensure
Integrity, technical expertise and compliance with said policies shall also be
experience in the institution’s business, provided.
either current or planned, should be the (5) To prescribe a clear assignment of
key considerations in the selection process. responsibilities and decision-making
And because mutual trust and a close authorities, incorporating a hierarchy of
working relationship are important, the required approvals from individuals to the
board’s choice should share its general board of directors. The board should
operating philosophy and vision for the establish in writing the limits of the
institution. The board of directors shall discretionary powers of each officer,
establish an appropriate compensation committee, sub-committee and such other
package for all personnel which shall be group for the purpose of lending, investing
consistent with the interest of all or committing the quasi-bank/trust entity
stakeholders. to any financial undertaking or exposure
(2) To establish objectives and draw to risk at any time. The board should have
up a business strategy for achieving them. a schedule of matters and authorities
Consistent with the institution’s objectives, reserved to it for decision, such as: major
business plans should be established to capital expenditures, equity investments
direct its on-going activities. The board and divestments.
should ensure that performance against (6) To effectively supervise the quasi-
plan is regularly reviewed, with corrective bank’s/trust entity's affairs. As quasi-
action taken as needed. banks/trust entities are entrusted with the
(3) To conduct the affairs of the handling and investment of public funds,
institution with high degree of integrity. the supervision required from the board
Since reputation is a very valuable asset, it involves a higher degree of wisdom,
is in the institution’s best interest that in prudence, good business judgment and
dealings with the public, it observes a high competence than that of directors of
standard of integrity. The board of directors ordinary companies. Although directors
should prescribe corporate values, codes may delegate certain authority to senior
of conduct and other standards of officers, it is their responsibility to supervise
appropriate behaviour for itself, the senior and be responsible for the institution’s
management and other employees. sound management, as well as its
Among others, activities and transactions problems. The board of directors should
that could result or potentially result in establish a system of checks and balances
conflict of interest, personal gain at the which applies in the first instance to the
expense of the institution, or unethical board itself. Among the members of the
conduct shall be strictly prohibited. It board, an effective system of checks and
should provide policies that will prevent balances must exist. The system should
the use of the facilities of the quasi-bank/ also provide a mechanism for effective
trust entity in furtherance of criminal and check and controlby the board over the
other illegal activities. chief executive officer and key managers

Part I - Page 26
§ 4141Q.3
05.12.31
and by the latter over the line officers of appointment of the internal auditor as well
the quasi-bank/trust entity. as the independent external auditor who
(7) To monitor, assess and control the shall both report directly to the audit
performance of management. The board committee. It shall monitor and evaluate
shall put in place an appropriate reporting the adequacy and effectiveness of the
system so that it is provided with relevant internal control system.
and timely information to be able to Upon setting up the audit committee,
effectively assess the performance of the board of directors shall draw up a
management. For this purpose, it may written charter or terms of reference which
constitute a governance committee. clearly sets out the audit committee’s
(8) To adopt and maintain adequate authority and duties, as well as the
risk management policy. The board of reporting relationship with the board of
directors shall be responsible for the directors. This charter shall be approved
formulation and maintenance of written by the board of directors and reviewed and
policies and procedures relating to the updated periodically.
management of risks throughout the The audit committee shall have explicit
institution. The risk management policy authority to investigate any matter within
shall include: its terms of reference, full access to and
(a) a comprehensive risk management cooperation by management and full
approach; discretion to invite any director or
(b) a detailed structure of limits, executive officer to attend its meetings, and
guidelines and other parameters used to adequate resources to enable it to
govern risk-taking; effectively discharge its functions.
(c) a clear delineation of lines of The audit committee shall ensure that
responsibilities for managing risk; a review of the effectiveness of the
(d) an adequate system for measuring institution’s internal controls, including
risk; and financial, operational and compliance
(e) effective internal controls and a controls, and risk management, is
comprehensive risk-reporting process. conducted at least annually.
The board may constitute a committee The Audit Committee shall establish
for this purpose. and maintain mechanisms by which
(9) To constitute the following officers and staff may, in confidence, raise
committees:1 concerns about possible improprieties or
(a) Audit committee. The audit malpractices in matters of financial
committee shall be composed of members reporting, internal control, auditing or other
of the board of directors, at least two (2) of issues to persons or entities that have the
whom shall be independent directors, power to take corrective action. It shall
including the chairman, preferably with ensure that arrangements are in place for
accounting, auditing, or related financial the independent investigation, appropriate
management expertise or experience. The follow-up action, and subsequent
audit committee provides oversight of the resolution of complaints.
institution’s financial reporting and control (b) Corporate governance committee.
and internal and external audit functions. The corporate governance committee shall
It shall be responsible for the setting up of assist the board of directors in fulfilling its
the internal audit department and for the corporate governance responsibilities. It
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1
Effective 01 January 2005 under Circular 456 dated 04 October 2004.

Part I - Page 27
§ 4141Q.3
05.12.31
shall review and evaluate the qualifications indicators shall address how the board has
of all persons nominated to the board as enhanced long term shareholders’ value.
well as those nominated to other positions (c) Risk management committee. The
requiring appointment by the board of risk management committee shall be
directors. The committee shall be responsible for the development and
composed of at least three (3) members of oversight of the institution’s risk
the board of directors, two (2) of whom management program. The committee shall
shall be independent directors. be composed of at least three (3) members
The corporate governance committee of the board of directors who shall possess
shall have a written charter that describes a range of expertise as well as adequate
the duties and responsibilities of its knowledge of the institution’s risk
members. This charter shall be approved exposures to be able to develop
by the board of directors and reviewed appropriate strategies for preventing losses
and updated at least annually. and minimizing the impact of losses when
The committee shall be responsible for they occur. It shall oversee the system of
ensuring the board’s effectiveness and due limits to discretionary authority that the
observance of corporate governance board delegates to management, ensure
principles and guidelines. It shall oversee that the system remains effective, that the
the periodic performance evaluation of the limits are observed and that immediate
board and its committees and executive corrective actions are taken whenever
management; and shall also conduct an limits are breached.
annual self-evaluation of its performance. The risk management committee shall
The committee shall also decide whether have a written charter that defines the
or not a director is able to and has been duties and responsibilities of its members.
adequately carrying out his/her duties as The charter shall be approved by the board
director bearing in mind the director’s of directors and reviewed and refined
contribution and performance (e.g., periodically.
competence, candor, attendance, The core responsibility of the risk
preparedness and participation). Internal management committee are:
guidelines shall be adopted that address (i) Identify and evaluate exposures.
the competing time commitments that are The committee shall assess the probability
faced when directors serve on multiple of each risk becoming reality and shall
boards. estimate its possible effect and cost. Priority
The committee shall make areas of concern are those risks that are
recommendations to the board regarding the most likely to occur and are costly
the continuing education of directors, when they happen.
assignment to board committees, (ii) Develop risk management
succession plan for the board members and strategies. The risk management committee
senior officers, and their remuneration shall develop a written plan defining the
commensurate with corporate and strategies for managing and controlling the
individual performance. major risks. It shall identify practical
The corporate governance committee strategies to reduce the chance of harm and
shall decide the manner by which the failure or minimize losses if the risk
board’s performance may be evaluated and becomes real.
propose an objective performance criteria (iii) Implement the risk management
approved by the board. Such performance plan. The risk management committee shall

Part I - Page 28
§ 4141Q.3
05.12.31
communicate the risk management plan internally and to the public. All members
and loss control procedures to affected of the board shall have reasonable access
parties. The committee shall conduct to any information about the institution.
regular discussions on the institution’s (12) To ensure that the quasi-bank/
current risk exposure based on regular trust entity has beneficial influence on the
management reports and direct concerned economy. The board has a continuing
units or offices on how to reduce these responsibility to provide those services and
risks. facilities which will be supportive of the
(iv) Review and revise the plan as national economy.
needed. The committee shall evaluate the (13) To assess at least annually its
risk management plan to ensure its performance and effectiveness as a body,
continued relevancy, comprehensiveness, as well as its various committees, the chief
and effectiveness. It shall revisit strategies, executive officer and the quasi-bank/trust
look for emerging or changing exposures, entity itself. The composition of the board
and stay abreast of developments that affect shall also be reviewed regularly with the
the likelihood of harm or loss. The end in view of having a balanced
committee shall report regularly to the membership. Towards this end, a system
board of directors the entity’s over-all risk and procedure for evaluation shall be
exposure, actions taken to reduce the risks, adopted which may include, but not
and recommend further action or plans as limited to, the setting of benchmark and
necessary. peer group analysis.
(10) To meet regularly. To properly (14) To keep their authority within
discharge its function, the board of the powers of the institution as prescribed
directors shall meet regularly. Independent in the articles of incorporation, charter, by-
views in board meetings shall be given full laws and in existing laws, rules and
consideration and all such meetings shall regulations. To conduct and maintain the
be duly minuted. affairs of the institution within the scope
The meetings of the board of directors of its authority as prescribed in its charter
may be conducted through modern and in existing laws, rules and regulations,
technologies such as, but not limited to, the board shall appoint a compliance
teleconferencing and video-conferencing officer who shall be responsible for
as long as the director who is taking part in coordinating, monitoring and facilitating
said meetings can actively participate in the compliance with existing laws, rules and
deliberations on matters taken up therein: regulations. The compliance officer shall
Provided, That every member of the board be vested with appropriate authority and
shall be physically present in at least fifty provided with appropriate support and
percent (50%) of all board meetings in resources. It may also constitute a
every year. compliance committee.
(11) To keep the individual members If the directors carry the institution
of the board and the shareholders into a transaction outside the scope of the
informed. It is the duty of the board to business agreed upon in the articles, with
present to all its members and to the resulting loss to the institution, they may
shareholders a balanced and be called upon to reimburse the institution
understandable assessment of the quasi- for that loss. If directors willfully do an
bank’s/trust entity’s performance and act, which they know or ought to know to
financial condition. It should also provide be unauthorized, they are clearly liable to
appropriate information that flows the institution for resulting damages.

Part I - Page 29
§§ 4141Q.3 - 4141Q.4
05.12.31
d. Specific duties and responsibilities attention to the affairs of the institution, he

of a director should neither accept his nomination nor run
(1) To conduct fair business for election as member of the board.
transactions with the quasi-bank/trust (4) To act judiciously. Before deciding
entity and to ensure that personal interest on any matter brought before the board of
does not bias board decisions. A director directors, every director should thoroughly
should, whenever possible, avoid situations evaluate the issues, ask questions and seek
that would give rise to a conflict of interest. clarifications when necessary.
If transactions with the institution cannot (5) To exercise independent
be avoided, it should be done in the regular judgment. A director should view each
course of business and upon terms not less problem/situation objectively. When a
favorable to the institution than those offered disagreement with others occurs, he should
to others. The basic principle to be observed carefully evaluate the situation and state his
is that a director should not use his position position. He should not be afraid to take a
to make profit or to acquire benefit or position even though it might be
advantage for himself and/or his related unpopular. Corollarily, he should support
interests. He should avoid situations that plans and ideas that he thinks will be
would compromise his impartiality. beneficial to the institution.
(2) To act honestly and in good faith, (6) To be generally informed of both
with loyalty and in the best interest of the the quasi-bank’s/trust entity’s business
institution, its stockholders, regardless of the environment and legal and regulatory
amount of their stockholdings, and other framework controlling its activities. A
stakeholders such as its investors, borrowers, director should have a working knowledge
other clients and the general public. A of the statutory and regulatory requirements
director must always act in good faith, with affecting the institution, including the
the care which an ordinarily prudent man content of its articles of incorporation and
would exercise under similar circumstances. by-laws, the requirements of the BSP and
While a director should always strive to where applicable, the requirements of
promote the interest of all stockholders, he other regulatory agencies and must
should also give due regard to the rights and exercise care to see that these are not
interests of other stakeholders. violated. He should also keep himself
(3) To devote time and attention informed of the industry developments
necessary to properly discharge his duties and business trends in order to safeguard
and responsibilities. A director should the institution's competitiveness.
devote sufficient time to familiarize himself (7) To observe confidentiality. A
with the institution’s business. He must be director must observe the confidentiality of
constantly aware of the institution’s non-public information acquired by reason
condition and be knowledgeable enough of his position as director. He may not
to contribute meaningfully to the board’s disclose said information to any other
work. He must attend and actively person without the authority of the board.
participate in board and committee
meetings, request and review meeting § 4141Q.4 Confirmation of the election/
materials, ask questions, and request appointment of directors and officers. The
explanations and be familiar with audits election/appointment of directors and
and supervisory communications. If a officers of quasi-banks/trust entities shall be
person cannot give sufficient time and subject to confirmation by the:

Part I - Page 30
§§ 4141Q.4 - 4142Q
07.12.31
Confirming Position Level § 4141Q.10 Sanctions. Without

Authority prejudice to the other sanctions prescribed
a. Monetary Board Director/trustee, president,
chief executive officer, under Section 37 of R.A. No. 7653 and to
chief operating officer, the provisions of Section 16 of R.A. No.
senior vice president or 8791, any director/trustee of a QB/trust
equivalent rank of QBs/ entity who violates or fails to observe and/
trust entities
or perform any of the above responsibilities
with total assets of at
least P1 billion. and duties shall for each violation or
offense, be penalized for P15,000.
b. A Committee Director/trustee, senior
to be composed vice president and above Sec. 4142Q Definition and Qualifications
of: or equivalent rank of
(1)The Deputy QBs/trust entities
of Officers. Officers shall include the
Governor - SES whose election/ president, executive vice president, senior
(2)Managing Directors appointment is not vice-president, vice president, general
of SE I and II subject to confirmation manager, treasurer, secretary, trust officer and
(3)Directors of the by the Monetary Board others mentioned as officers of the QB/trust
appropriate entity, or those whose duties as such are
department of
the SES defined in the by-laws, or are generally
known to be the officers of the QB/trust entity
The election/appointment of all (or any of its branches and offices other than
incumbent directors/trustees and officers of the head office) either through
QBs/trust entities as of 17 September 2001 announcement, representation, publication
not previously approved/confirmed by the or any kind of communication made by the
Monetary Board shall be submitted to the QB/trust entity: Provided, That a person
BSP through the appropriate department of holding the position of chairman or vice-
the SES for confirmation. chairman of the board or another position in
the board shall not be considered as an officer
§§ 4141Q.5 - 4141Q.8 (Reserved) unless the duties of his position in the board
include functions of management such as
§ 4141Q.9 Reports required. QBs/ those ordinarily performed by regular officers:
trust entities shall furnish all of their Provided, further, That members of a group
directors/trustees with a copy of the specific or committee, including sub-groups or sub-
duties and responsibilities of the board of committees, whose duties include functions
directors/trustees prescribed under Items of management such as those ordinarily
“b” and “c” of Subsec. 4141Q.3 within performed by regular officers, and are not
thirty (30) business days from 17 May 2001 purely recommendatory or advisory, shall
in cases of incumbent directors/trustees and likewise be considered as officers.
at the time of election in cases of directors/ An officer shall have the following
trustees elected after such date. minimum qualifications:
The directors/trustees concerned shall a. He shall be at least twenty-one (21)
each be required to acknowledge receipt years of age;
of the copies of such specific duties and b. He shall be at least a college
responsibilities and shall certify that they graduate, or have at least five (5) years
fully understand the same. creditable experience or training in financial
Copies of the acknowledgment and management or related activities, or in a
certification herein required shall be field related to his position and
submitted in accordance with Appendix Q-3. responsibilities; and

Part I - Page 31
§§ 4142Q - 4143Q.1
07.12.31
c. He must be fit and proper for the (4) Persons who have been judicially
position he is being proposed/appointed declared insolvent, spendthrift or
to. In determining whether a person is fit incapacitated to contract;
and proper for a particular position, the (5) Directors/trustees, officers or
following matters must be considered: employees of closed QBs who were found
integrity/probity, competence, education, to be culpable for such institution’s closure
diligence and experience/training. as determined by the Monetary Board;
The foregoing qualifications for officers (6) Directors/trustees and officers of
shall be in addition to those required or QBs found by the Monetary Board as
prescribed under R.A. No. 8791 and other administratively liable for violation of
existing applicable laws and regulations. banking laws, rules and regulations where
(As amended by Circular No. 562 dated 13 March 2007) a penalty of removal from office is
imposed, and which finding of the
Sec. 4143Q Disqualification of Directors/ Monetary Board has become final and
Trustees and Officers. The following executory; or
regulations shall govern the disqualification (7) Directors/trustees and officers of
of QB/trust entity directors/trustees and QBs or any person found by the Monetary
officers. Board to be unfit for the position of
directors/trustees or officers because they
§ 4143Q.1 Persons disqualified to were found administratively liable by
become directors/trustees. Without another government agency for violation
prejudice to specific provisions of law of banking laws, rules and regulations or
prescribing disqualifications for directors/ any offense/violation involving dishonesty
trustees, the following are disqualified from or breach of trust, and which finding of
becoming directors/trustees: said government agency has become final
a. Permanently disqualified and executory.
Directors/trustees/officers/employees b. Temporarily disqualified
permanently disqualified by the Monetary Directors/trustees/officers/employees
Board from holding a director/trustee position: disqualified by the Monetary Board from
(1) Persons who have been convicted by holding a director/trustee position for a
final judgment of a court for offenses specific/indefinite period of time. Included
involving dishonesty or breach of trust such are:
as but not limited to, estafa, embezzlement, (1) Persons who refuse to fully disclose
extortion, forgery, malversation, swindling, the extent of their business interest or any
theft, robbery, falsification, bribery, violation material information to the appropriate
of B.P. Blg. 22, violation of Anti-Graft and department of the SES when required
Corrupt Practices Act and prohibited acts and pursuant to a provision of law or of a
transactions under Section 7 of R.A. No. 6713 circular, memorandum, rule or regulation
(Code of Conduct and Ethical Standards for of the BSP. This disqualification shall be in
Public Officials and Employees); effect as long as the refusal persists;
(2) Persons who have been convicted (2) Directors/trustees who have been
by final judgment of a court sentencing absent or who have not participated for
them to serve a maximum term of whatever reasons in more than fifty percent
imprisonment of more than six (6) years; (50%) of all meetings, both regular and
(3) Persons who have been convicted special, of the board of directors/trustees
by final judgment of the court for violation during their incumbency, and directors/
of banking laws, rules and regulations; trustees who failed to physically attend for

Part I - Page 32
§ 4143Q.1
07.12.31
whatever reasons in at least twenty-five (v) A corporation, association or firm

percent (25%) of all board meetings in any wholly-owned or majority of the capital of
year, except that when a notarized which is owned by any or a group of
certification executed by the corporate persons mentioned in the foregoing Items
secretary has been submitted attesting that “(i)”, “(ii)” and “(iv)”;
said directors/trustees were given the This disqualification shall be in effect
agenda materials prior to the meeting and as long as the delinquency persists.
that their comments/decisions thereon (4) Persons who have been convicted
were submitted for deliberation/discussion by a court for offenses involving dishonesty
and were taken up in the actual board or breach of trust such as, but not limited
meeting, said directors/trustees shall be to, estafa, embezzlement, extortion,
considered present in the board meeting. forgery, malversation, swindling, theft,
This disqualification applies only for robbery, falsification, bribery, violation of
purposes of the immediately succeeding B.P. Blg. 22, violation of Anti-Graft and
election; Corrupt Practices Act and prohibited acts
(3) Persons who are delinquent in the and transactions under Section 7 of R.A. No.
payment of their obligations as defined 6713 (Code of Conduct and Ethical Standards
hereunder: for Public Officials and Employees), violation
(a) Delinquency in the payment of of banking laws, rules and regulations or
obligations means that an obligation of a those sentenced to serve a maximum term
person with a QB/trust entity where he is a of imprisonment of more than six (6) years
director/trustee or officer, or at least two but whose conviction has not yet become
(2) obligations with other QBs/trust final and executory;
entities/FIs, under different credit lines (5) Directors/trustees and officers of
or loan contracts, are past due pusuant closed QBs/trust entities pending their
to Secs. X306, 4308Q, 4306S and clearance by the Monetary Board;
4303P; (6) Directors/trustees disqualified for
(b) Obligations shall include all failure to observe/discharge their duties and
borrowings from a QB/trust entity/FI responsibilities prescribed under existing
obtained by: regulations. This disqualification applies
(i) A director/trustees or officer for until the lapse of the specific period of
his own account or as the representative disqualification or upon approval by the
or agent of others or where he acts as a Monetary Board on recommendation by
guarantor, indorser or surety for loans from the appropriate department of the SES of
such FIs; such directors’/trustees' election/re-election;
(ii) The spouse or child under (7) Directors/trustees who failed to
parental authority of the director/trustee attend the special seminar for board of
or officer; directors/trustees required under Item “c”
(iii) Any person whose borrowings or of Subsec. 4141Q.2. This disqualification
loan proceeds were credited to the account applies until the director/trustee concerned
of, or used for the benefit of, a director/ had attended such seminar;
trustee or officer; (8) Persons dismissed from
(iv) A partnership of which a director/ employment for cause. This disqualification
trustee or officer, or his spouse is the shall be in effect until they have cleared
managing partner or a general partner themselves of involvement in the alleged
owning a controlling interest in the irregularity or upon clearance, on their
partnership; and request, from the Monetary Board after

Part I - Page 33
§§ 4143Q.1 - 4143Q.3
07.12.31
showing good and justifiable reasons, or banking laws, rules and regulations where
after the lapse of five (5) years from the time a penalty of suspension from office or fine
they were officially advised by the is imposed, regardless whether the finding
appropriate department of the SES of their of the Monetary Board is final and
disqualification; executory or pending appeal before the
(9) Those under preventive suspension; appellate court, unless execution or
(10) Persons with derogatory records as enforcement thereof is restrained by the
certified by, or on the official files of, the court. The disqualification shall be in effect
judiciary, NBI, Philippine National Police during the period of suspension or so long
(PNP), quasi-judicial bodies, other as the fine is not fully paid.
government agencies, international police, (As amended by Circular Nos. 584 dated 28 September 2007
monetary authorities and similar agencies and 513 dated 10 February 2006)
or authorities of foreign countries for
irregularities or violations of any law, rules § 4143Q.2 Persons disqualified to
and regulations that would adversely affect become officers
the integrity of the director/trustee/officer a. The disqualifications for directors/
or the ability to effectively discharge his trustees mentioned in Subsec. 4143Q.1
duties. This disqualification applies until shall likewise apply to officers, except
they have cleared themselves of the alleged those stated in Items “b(2)” and “b(7)”.
irregularities/violations or after a lapse of b. Except as may be authorized by the
five (5) years from the time the complaint, Monetary Board or the Governor, the
which was the basis of the derogatory spouse or a relative within the second
record, was initiated; degree of consanguinity or affinity of any
(11) Directors/trustees and officers of person holding the position of chairman,
QBs found by the Monetary Board as president, executive vice president or any
administratively liable for violation of position of equivalent rank, general
banking laws, rules and regulations where manager, treasurer, chief cashier or chief
a penalty of removal from office is imposed, accountant is disqualified from holding or
and which finding of the Monetary Board being elected or appointed to any of said
is pending appeal before the appellate positions in the same QB/trust entity; and
court, unless execution or enforcement the spouse or relative within the second
thereof is restrained by the court; degree of consanguinity or affinity of any
(12) Directors/trustees and officers of person holding the position of manager,
QBs or any person found by the Monetary cashier, or accountant of a branch or office
Board to be unfit for the position of director/ of a QB/trust entity is disqualified from
trustee or officer because they were found holding or being appointed to any of said
administratively liable by another positions in the same branch or office.
government agency for violation of banking
laws, rules and regulations or any offense/ § 4143Q.3 Effect of non-possession of
violation involving dishonesty or breach of qualifications or possession of
trust, and which finding of said government disqualifications. Director/trustee/officer
agency is pending appeal before the appellate elected or appointed who does not possess
court, unless execution or enforcement all the qualifications mentioned under
thereof is restrained by the court; and Subsec. 4141Q.2 and the last paragraph
(13) Directors/trustees and officers of of Sec. 4142Q and/or has any of the
QBs found by the Monetary Board as disqualifications mentioned under Subsecs.
administratively liable for violation of 4143Q.1 and 4143Q.2 shall not be

Part I - Page 34
§§ 4143Q.3 - 4143Q.4
07.12.31
confirmed by the confirming authority Subsecs. 4143Q.1 and 4143Q.2, the

under Subsec. 4141Q.4 and shall be director/trustee or officer concerned shall
removed from office even if he/she be notified in writing either by personal
assumed the position to which he/she was service or through registered mail with
elected or appointed. Confirmed director/ registry return receipt card at his/her last
trustee/officer or officer not requiring known address by the appropriate
confirmation possessing any of the department of the SES of the existence of
disqualifications, as enumerated in the the ground for his/her disqualification and
abovementioned subsections shall be shall be allowed to submit within fifteen
subject to the disqualification procedures (15) calendar days from receipt of such
provided under Subsec. 4143Q.4. notice an explanation on why he/she
Director/trustee/officer, prior to assuming should not be disqualified and included
the position to which he/she was elected/ in the watchlisted file, together with the
appointed, must submit to the appropriate evidence in support of his/her position. The
department of the SES a verified statement head of said department may allow an
that he/she has all the aforesaid extension on meritorious ground.
qualifications and none of the c. Upon receipt of the reply/
disqualifications. The submission of explanation of the director/trustee/officer
verified statement will apply to directors/ concerned, the appropriate department of
trustees/officers elected/appointed after 14 the SES shall proceed to evaluate the case.
March 2006. The director/trustee/officer concerned shall
(As amended by Circular No. 513 dated 10 February 2006) be afforded the opportunity to defend/clear
himself/herself.
§ 4143Q.4 Disqualification d. If no reply has been received from
procedures the director/trustee/officer concerned upon
a. The board of directors/trustees and the expiration of the period prescribed
management of every institution shall be under Item “b” above, said failure to reply
responsible for determining the existence shall be deemed a waiver and the
of the ground for disqualification of the appropriate department of the SES shall
institution’s director/trustee/officer or proceed to evaluate the case based on
employee and for reporting the same to the available records/evidence.
BSP. While the concerned institution may e. If the ground for disqualification is
conduct its own investigation and impose delinquency in the payment of obligation,
appropriate sanction/s as are allowable, this the concerned director/trustee or officer
shall be without prejudice to the authority shall be given a period of thirty (30)
of the Monetary Board to disqualify a calendar days within which to settle said
director/trustee/officer/employee from obligation or, restore it to its current status
being elected/appointed as director/trustee/ or, to explain why he/she should not be
officer in any FI under the supervision of disqualified and included in the
the BSP. Grounds for disqualification made watchlisted file, before the evaluation on
known to the institution, shall be reported his disqualification and watchlisting is
to the appropriate department of the SES elevated to the Monetary Board.
within seventy-two (72) hours from f. For directors/trustees/officers of
knowledge thereof. closed banks, the concerned department
b. On the basis of knowledge and of the SES shall make appropriate
evidence on the existence of any of the recommendation to the Monetary Board
grounds for disqualification mentioned in clearing said directors/trustees/officers

Part I - Page 35
§ 4143Q.4
07.12.31
when there is no pending case/complaint (e.g., reprimand, suspension, etc.) if, in its
or evidence against them. When there is judgment the act committed or omitted by
evidence that a director/trustee/officer has the director/trustee/officer concerned does
committed irregularity, the appropriate not warrant disqualification.
department of the SES shall make h. All other cases of disqualification,
recommendation to the Monetary Board whether permanent or temporary shall
that his/her case be referred to the Office be elevated to the Monetary Board for
of Special Investigation (OSI) for further approval and shall be subject to the
investigation and that he/she be included procedures provided in Items “a”,”b”,”c”
in the masterlist of temporarily disqualified and “d” above.
persons until the final resolution of his/her i. Upon approval by the Monetary
case. Directors/trustees/officers with Board, the concerned director/trustee/
pending cases/complaints shall also be officer shall be informed by the appropriate
included in said masterlist of temporarily department of the SES in writing either by
disqualified persons upon approval by the personal service or through registered mail
Monetary Board until the final resolution with registry return receipt card, at his/her
of their cases. If the director/trustee/officer last known address of his/her
is cleared from involvement in any disqualification from being elected/
irregularity, the appropriate department of appointed as director/trustee/officer in any
the SES shall recommend to the Monetary FI under the supervision of BSP and/or of
Board his/her delisting. On the other hand, his/her inclusion in the masterlist of
if the director/trustee/officer concerned is watchlisted persons so disqualified.
found to be responsible for the closure of j. The board of directors/trustees of
the institution, the concerned department the concerned institution shall be
of the SES shall recommend to the immediately informed of cases of
Monetary Board his/her delisting from the disqualification approved by the Monetary
masterlist of temporarily disqualified persons Board and shall be directed to act thereon
and his/her inclusion in the masterlist of not later than the following board meeting.
permanently disqualified persons. Within seventy-two (72) hours thereafter,
g. If the disqualification is based on the corporate secretary shall report to the
dismissal from employment for cause, the Governor of the BSP through the
appropriate department of the SES shall, as appropriate department of the SES the
much as practicable, endeavor to establish action taken by the board on the director/
the specific acts or omissions constituting trustee/officer involved.
the offense or the ultimate facts which k. Persons who are elected or
resulted in the dismissal to be able to appointed as director/trustee or officer in
determine if the disqualification of the any of the BSP-supervised institutions for
director/trustee/officer concerned is the first time but are subject to any of the
warranted or not. The evaluation of the case grounds for disqualification provided for
shall be made for the purpose of under Subsecs. 4143Q.1 and 4143Q.2,
determining if disqualification would be shall be afforded the procedural due
appropriate and not for the purpose of process prescribed above.
passing judgment on the findings and l. Whenever a director/trustee/officer
decision of the entity concerned. The is cleared in the process mentioned under
appropriate department of the SES may Item “c” above or, when the ground for
decide to recommend to the Monetary disqualification ceases to exist, he/she
Board a penalty lower than disqualification would be eligible to become director/

Part I - Page 36
§§ 4143Q.4 - 4143Q.5
07.12.31
trustee or officer of any bank, QB, trust person concerned and with the approval
entity or any institution under the of the Deputy Governor, SES or the
supervision of the BSP only upon prior Governor or the Monetary Board.
approval by the Monetary Board. It shall BSP will disclose information on its
be the responsibility of the appropriate watchlist files only upon submission of a
department of the SES to elevate to the duly accomplished and notarized
Monetary Board the lifting of the authorization from the concerned person
disqualification of the concerned director/ and approval of such request by the Deputy
trustee/officer and his/her delisting from Governor, SES or the Governor or the
the masterlist of watchlisted persons. Monetary Board. The prescribed
(As amended by Circular No. 584 dated 28 September 2007) authorization form to be submitted to the
concerned department of SES is Appendix
§ 4143Q.5 Watchlisting. To provide Q-45.
the BSP with a central information file to QBs can gain access to information in
be used as reference in passing upon and the said watchlist for the sole purpose of
reviewing the qualifications of persons screening their applicants for hiring and/or
elected or appointed as director/trustee or confirming their elected directors/trustees and
officer of a bank, QB or trust entity, the appointed officers. QBs must obtain the said
SES shall maintain a watchlist of persons authorization on an individual basis.
disqualified to be a director/trustee or d. Delisting. All delistings shall be
officer of such entities under its supervision approved by the Monetary Board upon
under the following procedures: recommendation of the operating
a. Watchlist categories. Watchlisting departments of SES except in cases of
shall be categorized as follows: persons known to be dead where delisting
(1) Disqualification File “A” shall be automatic upon proof of death and
(Permanent) need not be elevated to the Monetary
– Directors/trustees/officers/ Board. Delisting may be approved by the
employees permanently disqualified by the Monetary Board in the following cases:
Monetary Board from holding a director/ (1) Watchlist - Disqualification File “B”
trustee/officer position. (Temporary)
(2) Disqualification File “B” (a) After the lapse of the specific period
(Temporary) of disqualification;
– Directors/trustees/officers/ (b) When the conviction by the court
employees temporarily disqualified by the for crimes involving dishonesty, breach of
Monetary Board from holding a director/ trust and/or violation of banking law
trustee/officer position. becomes final and executory, in which case
b. Inclusion of directors/trustees/ the director/trustee/officer/ employee is
officers/employees in the watchlist. relisted to Watchlist– Disqualification File
Directors/trustees/officers/employees “A” (Permanent); and
disqualified under Subsec. 4143Q.4 (c) Upon favorable decision or
included in the watchlist disqualification clearance by the appropriate body, i.e.,
files “A” or “B”. court, NBI, BSP, bank, QB, trust entity or
c. Confidentiality. Watchlist files shall such other agency/body where the
be for internal use only of the BSP and may concerned individual had derogatory
not be accessed or queried upon by outside record.
parties including banks, QBs and trust Directors/trustees/officers/employees
entities except with the authority of the delisted from the Watchlist

Part I - Page 37
§§ 4143Q.5 - 4144Q
07.12.31
– Disqualification File “B” other than venture capital corporations, foreign

those upgraded to Watchlist exchange (FX) dealers, money changers,
– Disqualification File “A” shall be lending investors, pawnshops, fund
eligible for re-employment with any bank, managers, mutual building and loan
QB or trust entity. associations, remittance agents and all other
(As amended by CL-2007-001 dated 04 January 2007 and NBFIs without quasi-banking functions.
CL-2006-046 dated 21 December 2006) a. Interlocking directorships
While concurrent directorship may be
§ 4143Q.6 Prohibition against foreign the least prejudicial of the various
officers/employees of financing companies relationships cited in this Section to the
Except in the case of technical personnel interests of the FIs involved, certain
whose employment may be specifically measures are still necessary to safeguard
authorized by the Secretary of Justice, against the disadvantages that could result
foreigners cannot be officers or employees from indiscriminate concurrent
of financing companies. directorship.
(1) Except as may be authorized by the
Sec. 4144Q Interlocking Directorships Monetary Board or as otherwise provided
and/or Officerships. In order to safeguard hereunder, there shall be no concurrent
against the excessive concentration of directorships between QBs or between a
economic power, unfair competitive QB and a bank; and
advantage or conflict of interest situations (2) Without the need for prior approval
to the detriment of others through the of the Monetary Board, concurrent
exercise by the same person or group of directorships between entities not
persons of undue influence over the policy- involving an investment house shall be
making and/or management functions of allowed in the following cases:
similar FIs while at the same time allowing (a) A QB and a bank without quasi-
banks, QBs and NBFIs without quasi- banking functions; and
banking functions to benefit from (b) A bank and one (1) or more of its
organizational synergy or economies of subsidiary bank/s, QB/s, and NBFI/s; and
scale and effective sharing of managerial (c) A QB and an NBFI.
and technical expertise, the following For purposes of the foregoing, a
regulations shall govern interlocking husband and his wife shall be considered
directorships and/or officerships within the as one (1) person.
financial system consisting of banks, QBs b. Interlocking directorships and
and NBFIs. officerships
For purposes of this Section, QBs shall In order to prevent any conflict of
refer to investment houses, finance interest resulting from the exercise of
companies, trust entities and all other directorship coupled with the reinforcing
NBFIs with quasi-banking functions while influence of an officer’s decision-making
NBFIs shall refer to investment houses (IHs), and implementing powers, the following
finance companies, trust entities, insurance rules shall be observed.
companies, securities dealers/brokers, (1) Except as may be authorized by
credit card companies, non-stock savings the Monetary Board or as otherwise
and loan associations (NSSLAs), holding provided hereunder, there shall be no
companies, investment companies, concurrent directorship and officership
government NBFIs, asset management between QBs, or between a QB and a bank,
companies, insurance agencies/brokers, and between a QB and an NBFI.

Part I - Page 38
§ 4144Q
07.12.31
(2) Without the need for prior approval (3) Between a QB and not more than
of the Monetary Board, concurrent two (2) of its subsidiary QB/s, and NBFI/s;
directorship and officership between a or
bank and one (1) or more of its subsidiary (4) Between a bank and not more than
bank/s, QB/s, and NBFI/s, other than two (2) of its subsidiary bank/s, QB/s, and
investment house/s, shall be allowed. NBFIs, other than investment house/s; or
c. Interlocking officerships (5) Between a bank and not more than
A concurrent officership in different FIs two (2) of its subsidiary QB/s, and NBFI/s.
may present more serious problems of self- Aforementioned concurrent officerships
dealing and conflict of interest. Multiple may be allowed, subject to the following
positions may result in poor governance conditions:
or unfair competitive advantage. (a) that the positions do not involve
Considering the full-time nature of officer any functional conflict of interests;
positions, the difficulties of serving two (2) (b) that any officer holding the
offices at the same time, and the need for positions of president, chief executive
effective and efficient management, the officer, chief operating officer or chief
following rules shall be observed: financial officer may not be concurrently
As a general rule, there shall be no appointed to any of said positions or their
concurrent officerships, including equivalent;
secondments, between QBs or between a (c) that the officer involved, or his
QB and a bank or between a QB and an spouse or any of his relatives within the
NBFI. For this purpose, secondment shall first degree of consanguinity or affinity or
refer to the transfer/detachment of a person by legal adoption, or a corporation,
from his regular organization for temporary association or firm wholly-or majority-
assignment elsewhere where the seconded owned or controlled by such officer or his
employee remains the employee of the relatives enumerated above, does not own
home employer although his salaries and in his/its own capacity more than twenty
other remuneration may be borne by the percent (20%) of the subscribed capital
host organization. stock of the entities in which the QB has
However, subject to prior approval of equity investments; and
the Monetary Board, concurrent (d) that where any of the positions
officerships, including secondments, may involved is held on full-time basis, adequate
be allowed in the following cases: justification shall be submitted to the
(1) Between a QB, other than an Monetary Board.
investment house, and not more than two (6) Concurrent officership position in
(2) of its subsidiary bank/s, QB/s,and NBFI/s the same capacity which do not involve
other than investment house/s; or management functions, i.e., internal
(2) Between two (2) QBs, or between auditors, corporate secretary, assistant
a QB, other than an investment house, and corporate secretary and security officer,
a bank, or between a QB and an NBFI: between a QB and one or more of its
Provided, That at least twenty percent subsidiary QB/s and NBFI/s, or between a
(20%) of the equity of each of the banks, bank and one or more of its subsidiary QBs
QBs or NBFIs is owned by a holding and NBFIs, or between bank/s, QB/s and
company or a QB/bank and the interlocking NBFI/s, other than investment house/s:
arrangement is necessary for the holding Provided, That at least twenty percent (20%)
company or the QB/bank to provide of the equity of each of the banks, QBs and
technical expertise or managerial assistance NBFIs is owned by a holding company or
to its subsidiaries/affiliates. by any of the banks/QBs within the group.

Part I - Page 38a
§§ 4144Q - 4146Q
07.12.31
For purposes of this Section, members of (3) Unbooked valuation reserves on

a group or committee, including sub-groups loans or an amount required to update
or sub-committees, whose duties include valuation reserves in accordance with the
functions of management such as those schedule approved by the Monetary Board,
ordinarily performed by regular officers, shall as well as all amortizations due on deferred
likewise be considered as officers. charges;
It shall be the responsibility of the (4) Provisions for the current year's
Corporate Governance Committee to taxes;
conduct an annual performance evaluation (5) Income tax deferred for the year:
of the board of directors/trustees and senior Provided, however, That in case of reversal
management. When a director/trustee or of deferred income taxes excluded from net
officer has multiple positions, the income in previous years' profit sharings,
Committee should determine whether or the deferred income tax reversed to
not said director/trustee or officer is able to expense shall be added back to net income
and has been adequately carrying out his/ to arrive at the basis for profit sharing for
her duties and, if necessary, recommend the year during which the reversal is made;
changes to the board based upon said (6) Accumulated profits not yet
performance/review. received but already recorded by a QB
(As amended by Circular No. 592 dated 28 December 2007) representing its share in profits of its
subsidiaries under the equity method of
§ 4144Q.1 Representatives of accounting; and
government. The provisions of this b. The QB may provide in its by-laws
Subsection shall apply to persons appointed for other priorities in the computation of
to such positions as representatives of the net profits for purposes of profit sharing:
government or government-owned or Provided, That in no case shall profit
controlled entities unless otherwise sharing take precedence over any of the
provided under existing laws. items in the preceding paragraph.
(As amended by Circular No. 592 dated 28 December 2007)
Sec. 4146Q Monetary Board
Sec. 4145Q Profit Sharing of Directors/ Confirmation of Directors/Trustees and
Trustees/Officers and Employees. Profit Senior Officers. The election/appointment
sharing programs adopted in favor of of directors/trustees and officers with the
directors/trustees/officers and employees rank of senior vice-president and up shall
shall be reflected in the by-laws of QBs, require confirmation by the Monetary
subject to the following guidelines: Board.
a. The base in any profit sharing The election/appointment of the
program shall be the net income for the directors/trustees and such officers shall be
year of the QB, as shown in its deemed to have been confirmed by the
Consolidated Statement of Income and Monetary Board if after sixty (60) business
Expenses for the year, net of the following: days from receipt of the reports required
(1) All cumulative dividends accruing in Appendix Q-3 by the BSP, no advice
to preferred stock to the extent not covered against said election/appointment has been
by earned surplus; received by the QB concerned.
(2) Accrued interest receivable If the Monetary Board finds grounds
credited to income but not yet collected, for disqualification, the director/trustee/
net of reserves already set up for officer so elected/appointed may be
uncollected interest on loans; removed from office even if he/she has

Part I - Page 38b
§§ 4146Q - 4147Q
05.12.31
assumed the position to which he/she was (3) Its composite CAMELS rating in
elected/appointed pursuant to Section 9-A the latest examination is below “3”; and
of R.A. No. 337, as amended. (4) It is under rehabilitation by the
BSP/PDIC which rehabilitation may
Sec. 4147Q Compensation and Other include debt-to-equity conversion, etc.
Benefits of Directors/Trustees and In the presence of any one (1) or more
Officers. To protect the funds of creditors, of the circumstances mentioned above, the
the Monetary Board may regulate/restrict Monetary Board may impose the following
the payment by the QB/trust entity of restrictions in the compensation and other
compensation, allowances, fees, bonuses, benefits of directors and officers:
stock options, profit sharing and fringe a. In the case of profit sharing, the
benefits to its directors/trustees and officers provision of Sec. 4145Q shall be observed
in exceptional cases and when the except that for purposes of this Section, the
circumstances warrant, such as, but not total amount of unbooked valuation
limited to, the following: reserves and deferred charges shall be
a. When the QB/trust entity is under deducted from the net income.
controllership, conservatorship or when it has b. Except for the financial assistance
outstanding emergency loans and advances to meet expenses for the medical,
and such other forms of credit accommodation maternity, education and other emergency
from the BSP which are intended to provide needs of the directors/trustees or officers or
it with liquidity in times of need; their immediate family, the other forms of
b. When the institution is found by the financial assistance may be suspended.
Monetary Board to be conducting business c. When the total compensation
in an unsafe or unsound manner; and package including salaries, allowances,
c. When it is found by the Monetary fees and bonuses of directors/trustees
Board to be in an unsatisfactory financial and officers are significantly excessive
condition such as, but not limited to, the as compared with peer group averages,
following cases: the Monetary Board may order their
(1) Its capital is impaired; reduction to reasonable levels: Provided,
(2) It has suffered continuous losses That even if a QB/trust entity is in financial
from operations for the past three (3) trouble, it may nevertheless be allowed to
years; grant relatively higher salary packages in

Part I - Page 38c
§§ 4147Q - 4149Q.9
05.12.31
order to attract competent officers and discharge by the director or officer of his
quality staff as part of its rehabilitation duties and responsibilities through manifest
program. partiality, evident bad faith or gross
The foregoing provisions founded on inexcusable negligence; or
Section 18 of R.A. No. 8791 shall be deemed d. The act or omission involves entering
part of the benefits and compensation into any contract or transaction manifestly
programs of quasi-banks/trust entities. and grossly disadvantageous to the quasi-
bank/trust entity, whether or not the director
Sec. 4148Q (Reserved) or officer profited or will profit thereby.
The list of activities which may be
Sec. 4149Q Conducting Business in an considered unsafe and unsound is shown
Unsafe/Unsound Manner. Whether a in Appendix Q-24.
particular activity may be considered as
conducting business in an unsafe or §§ 4149Q.1 - 4149Q.8 (Reserved)
unsound manner, all relevant facts must be
considered. An analysis of the impact § 4149Q.9 Sanctions. The Monetary
thereof on the quasi-bank’s/trust entity’s Board may, at its discretion and based on
operations and financial conditions must the seriousness and materiality of the acts
be undertaken, including evaluation of or omissions, impose any or all of the
capital position, asset condition, following sanctions provided under Section
management, earnings posture and 37 of R.A. No. 7653 and Section 56 of R.A.
liquidity position. No. 8791, whenever a quasi-bank/trust
In determining whether a particular act entity conducts business in an unsafe and
or omission, which is not otherwise unsound manner:
prohibited by any law, rule or regulation a. Issue an order requiring the quasi-
affecting quasi-banks/trust entities, may be bank/trust entity to cease and desist from
deemed as conducting business in an conducting business in an unsafe and
unsafe or unsound manner, the Monetary unsound manner and may further order that
Board, upon report of the head of the immediate action be taken to correct the
supervising or examining department based conditions resulting from such unsafe or
on findings in an examination or a unsound practice;
complaint, shall consider any of the b. Fines in amounts as may be
following circumstances: determined by the Monetary Board to be
a. The act or omission has resulted or appropriate, but in no case to exceed
may result in material loss or damage, or P30,000 a day on a per transaction basis
abnormal risk or danger to the safety, taking into consideration the attendant
stability, liquidity or solvency of the circumstances, such as the gravity of the
institution; act or omission and the size of the quasi-
b. The act or omission has resulted or bank/trust entity, to be imposed on the
may result in material loss or damage or quasi-bank/trust entity, their directors and/
abnormal risk to the institutions, creditors, or responsible officers;
investors, stockholders, or to the BSP, or to c. Suspension of lending or foreign
the public in general; exchange operations or authority to accept
c. The act or omission has caused any new deposit substitutes and/or new trust
undue injury, or has given unwarranted accounts or to make new investments;
benefits, advantage or preference to the d. Suspension of responsible directors
quasi-bank/trust entity or any party in the and/or officers;

Part I - Page 39
§§ 4149Q.9 - 4151Q.5
05.12.31
e. Revocation of quasi-banking license § 4151Q.2 Additional capital, if

and/or trust authority; and/or required. An applicant quasi-bank may be
f. Receivership and liquidation under required to put up additional capital in an
Section 30 of R.A. No. 7653. amount to be determined by the
All other provisions of Sections 30 and appropriate SED of the BSP, based on
37 of R.A. No. 7653, whenever criteria which consider expected growth of
appropriate, shall also be applicable on the risk assets and capital accounts and for this
conduct of business in an unsafe or purpose, the methods of computing such
unsound manner. additional capital, as shown in Appendix
The imposition of the above sanctions Q-2, shall be used.
is without prejudice to the filing of
appropriate criminal charges against § 4151Q.3 Other requirements/
culpable persons as provided in Sections factors to be considered. Other
34, 35 and 36 of R.A. No. 7653. requirements/factors to be considered are
the applicant quasi-bank's general
Sec. 4150Q Rules of Procedure on compliance with laws, rules, and regulations,
Administrative Cases Involving Directors and policies of the BSP, such as:
and Officers of Quasi-banks. The rules of a. Capital adequacy and solvency;
procedure on administrative cases involving b. Profitability and capacity to
directors and officers of quasi-banks are absorb losses; and
shown in Appendix Q-35. c. Reserve and liquidity position.
H. BRANCHES AND OTHER OFFICES § 4151Q.4 Conditions precluding

processing of applications. The existence
Sec. 4151Q Establishment. Prior BSP of any of the following conditions shall
authority shall be obtained before operating preclude/suspend the processing of the
a branch, extension office or agency, application:
including any arrangement whereby another a. The applicant has not complied
person or entity is authorized to act as an with the ceilings on credit accommodations
agent for solicitation, issuance or servicing to DOSRI during the last sixty (60) days
of deposit substitutes for the quasi-bank. immediately preceding the date of
Agency arrangements shall refer to all application;
or any type of services to be performed by b. The net worth of the applicant is
another party as an agent other than found to be deficient during the last sixty
collection agency for loans payable in (60) days immediately preceding the date
installments/amortization, and paying agency of application; and
under a definite and specific period for c. The applicant has incurred net
purposes of redeeming long-term notes and/ deficiencies in reserves against deposit
or bonds. substitute liabilities during the last eight (8)
weeks immediately preceding the date of
§ 4151Q.1 Evaluation guideposts.The application.
rate at which branches, agencies, extension
offices, etc. are to be established shall § 4151Q.5 Documentary
depend upon the ability of the company to requirements. All applications shall be
conduct operations from the head office, supported by the following documents:
as well as correspondent/banking a. Ability to conduct operations from
arrangements. the head office as not to be a cause for

Part I - Page 40
§§ 4151Q.5 - 4161Q.2
07.12.31
delayed submission of reports to the BSP application for the QB's lack of interest to
and/or recording of transactions in the head pursue the same.
office;
b. Correspondent banking and § 4151Q.8 Prohibition against
audit arrangements between the branch operating without SEC license. No branch,
and the head office to ensure effective and extension office or agency shall start
efficient cash/money transactions; operations unless the appropriate SEC
c. Certified true copy of the board license, which likewise serves as
resolution authorizing the establishment of authorization for the branch/extension
a branch; office/agency to perform quasi-banking
d. Services to be offered, as well as functions, has been issued.
any extension offices, etc. to be opened;
e. Days and hours to be observed; Secs. 4152Q - 4155Q (Reserved)
f. Areas to be served;
g. Bio-data of the proposed branch I. (RESERVED)
manager and organizational chart;
h. Business and/or economic Secs. 4156Q - 4160Q (Reserved)
justifications (including data) for the
establishment of the branch; and J. RECORDS AND REPORTS
i. Number of FIs in the area (banks,
investment houses, finance companies and Sec. 4161Q Records. QBs shall have a true
pawnshops). and accurate account, record or statement
of their daily transactions. The making of
§ 4151Q.6 Filing of applications any false entry or the willful omission of
Applications for a certificate of authority entries relevant to any transaction is a
to operate a branch, an extension office or ground for the imposition of administrative
an agency shall be filed with the SEC, sanctions under Section 37 of R.A. No.
which office shall refer the same to the 7653, without prejudice to the criminal
appropriate department of the SES for liability of the director or officer responsible
comments and recommendations. A copy therefor under Sections 35 and 36 of R.A.
of the application filed with the SEC, with No. 7653 and/or the applicable provisions
the pertinent documents, shall of the Revised Penal Code. Records shall
simultaneously be furnished the be up-to-date and shall contain sufficient
appropriate department of the SES for detail so that an audit trail is established.
advance verification of the QB's
compliance with the requirements under § 4161Q.1 Uniform System of
the provisions of Sec. 4151Q. Accounts. QBs shall strictly adopt/
implement the Uniform System of Accounts
§ 4151Q.7 Period within which to prescribed for QBs in the recording of daily
submit complete requirements. The transactions including reportorial and
applicant QB shall have one (1) month from publication requirements.
notice of the receipt of the SEC referral by
the appropriate department of the SES § 4161Q.2 Philippine Financial Reporting
within which to submit/complete the Standards/Philippine Accounting Standards
requirements under this Section, after Statement of policy. It is the policy of
which the non-submission of complete the BSP to promote fairness, transparency
documents shall cause the return of the and accuracy in financial reporting. It is in

Part I - Page 41
§§ 4161Q.2 - 4162Q
07.12.31
this light that the BSP aims to adopt all Government grants extended in the
Philippine Financial Reporting Standards form of loans bearing nil or low interest
(PFRS) and Philippine Accounting Standards rates shall be measured upon initial
(PAS) issued by the Accounting Standards recognition at its fair value (i.e., the present
Council (ASC) to the greatest extent value of the future cash flows of the
possible. financial instrument discounted using the
QBs/FIs shall adopt the PFRS and PAS market interest rate). The difference
which are in accordance with generally between the fair value and the net proceeds
accepted accounting principles in recording of the loan shall be recorded under
transactions and in the preparation of “Unearned Income-Others”, which shall be
financial statements and reports to BSP. amortized over the term of the loan using
However, in cases where there are the effective interest method.
differences between BSP regulations and The provisions on government grants
PFRS/PAS as when more than one (1) option shall be applied retroactively to all
are allowed or certain maximum or outstanding government grants received.
minimum limits are prescribed by the PFRS/ FIs that adopted an accounting treatment
PAS, the option or limit prescribed by BSP other than the foregoing shall consider the
regulations shall be adopted by FIs. adjustment as a change in accounting
For purposes hereof, the PFRS/PAS shall policy, which shall be accounted for in
refer to issuances of the Accounting accordance with PAS 8.
Standards Council (ASC) and approved by Notwithstanding the exceptions in
the Professional Regulation Commission Items “a”, “b” and “c”, the audited annual
(PRC). financial statements required to be
Accounting treatment for prudential submitted to the BSP in accordance with
reporting. For prudential reporting, FIs shall the provision of Sec. 4172Q shall in all
adopt in all respect the PFRS and PAS except respect be PFRS/PAS compliant: Provided,
as follows: That FIs shall submit to the BSP adjusting
a. In preparing consolidated financial entries reconciling the balances in the
statements, only investments in financial financial statements for prudential reporting
allied subsidiaries except insurance with that in the audited annual financial
subsidiaries shall be consolidated on a line- statements.
by-line basis; while insurance and non- (As amended by Circular No. 572 dated 22 June 2007)
financial allied subsidiaries shall be
accounted for using the equity method. Sec. 4162Q Reports. QBs shall submit to
Financial/non-financial allied/non-allied the appropriate department of the SES the
associates shall be accounted for using the reports listed in Appendix Q-3 in the forms
equity method in accordance with the as may be prescribed by the Deputy
provisions of PAS 28 “Investments in Governor, SES.
Associates”. Any change in, or amendment to, the
b. For purposes of preparing separate articles of incorporation, by-laws or
financial statements, financial/non-financial material documents required to be
allied/non-allied subsidiaries/associates, submitted to the BSP shall be reported by
including insurance subsidiaries/associates, submitting copies of the amended articles
shall also be accounted for using the equity of incorporation, by-laws, or material
method; and documents to the appropriate department
c. FIs shall be required to meet the BSP of the SES within fifteen (15) days following
recommended valuation reserves. such change.

Part I - Page 42
§§ 4162Q - 4162Q.2
07.12.31
In the case of the independent directors, required of an independent director and

the bio-data shall be accompanied by a does not possess any of the
certification under oath from the director disqualifications therefor and has not
concerned that he/she is an independent withheld nor suppressed any information
director as defined under Subsec. 4141Q.1 material to his/her qualification or
that all the information thereby supplied are disqualification as an independent director.
true and correct, and that he/she: (As amended by Circular Nos. 591 dated 27 December 2007,
1. Is not or has not been an officer or CL-2007-059 dated 28 November 2007, CL-2007-050 dated
employee of the QB/trust entity, its 04 October 2007, 576 dated 08 August 2007, 574 dated 10
subsidiaries or affiliates or related interests July 2007, 560 dated 31 January 2007, and 557 dated 12
during the past three (3) years counted from January 2007)
the date of his/her election;
2. Is not a director or officer of the § 4162Q.1 Categories and signatories
related companies of the institution’s majority of reports. Reports required to be
stockholder; submitted to the BSP are classified into
3. Is not a majority stockholder of the Categories A-1, A-2, A-3 and B reports as
institution, any of its related companies, or indicated in the list of reports required to
of its majority shareholders; be submitted to the BSP in Appendix Q-3.
4. Is not a relative within the fourth Appendix Q-4 prescribes the
degree of consanguinity or affinity, legitimate signatories for each report category and the
or common-law of any director, officer or requirements on signatory authorization.
majority shareholder of the QB/trust entity or Reports submitted by QBs in computer
any of its related companies; media shall be subject to the same
5. Is not acting as a nominee or requirements.
representative of any director or substantial A report submitted to the BSP under the
shareholder of the QB/trust entity, any of its signature of an officer who is not authorized
related companies or any of its substantial in accordance with the requirements in this
shareholders; Subsection shall be considered as not
6. Is not retained as professional adviser, having been submitted.
consultant, agent or counsel of the institution,
any of its related companies or any of its § 4162Q.2 Manner of filing. The
substantial shareholders, either in his/her submission of the reports shall be effected
personal capacity or through his/her firm; is by filing them personally with the
independent of management and free from appropriate department of the SES or with
any business or other relationship, has not the BSP Regional Offices/Units, or by
engaged and does not engage in any sending them by registered mail or special
transaction with the institution or with any delivery through private couriers unless
of its related companies or with any of its otherwise specified in the circular or
substantial shareholders, whether by himself/ memorandum of the BSP.
herself or with other persons or through a firm Where the reports are prescribed by the
of which he/she is a partner or a company BSP to be submitted through electronic
of which he/she is a director or substantial mail, the original notarized affidavit/last
shareholder, other than transactions which page of each report, hard copy of the
are conducted at arms length and could not covering control prooflist, or any other
materially interfere with or influence the related documents required to be submitted
exercise of his/her judgment; and shall be filed in the manner prescribed in
7. Complies with all the qualifications the preceding paragraph.

Part I - Page 43
§§ 4162Q.2 - 4162Q.3
07.12.31
In line with the policy direction of R.A. records shall include, but shall not be
No. 8792 (E-Commerce Act), the BSP is limited to, data and information stored in
strongly encouraging QBs to submit their magnetic tapes, disks, printouts, logbooks
regular reports to the BSP in electronic and manuals kept and maintained by the QB
form. or the EDP servicer, necessary and incidental
However, the BSP cannot presently to the use of EDP systems by the QB.
guarantee the security/confidentiality of data (4) Refusal to permit examination
in the course of transmitting electronic reports shall mean any act or omission which
to BSP. BSP recommends that sensitive or impedes, delays, or obstructs the duly
confidential information be provided by authorized BSP officer/examiner/employee
ordinary post or courier. The BSP will accept from conducting an examination, including
no responsibility for electronic messages/ the act of refusing to accept or honor a letter
reports/information that may be hacked or of authority to examine presented by any
cracked, intercepted, copied or disclosed officer/examiner/employee of the BSP.
outside BSP’s information system. b. Fines for willful delay in
submission of reports. QBs incurring willful
§ 4162Q.3 Sanctions in case of willful delay in the submission of required reports
delay in the submission of reports/refusal shall pay a fine in accordance with the
to permit examination following schedule:
a. Definition of terms. For purposes
of this Subsection, the following definitions I. For Categories A-1, A-2 and A-3
shall apply: reports
(1) Report shall refer to any report or Per day of default
statement required of a QB to be submitted until the report is filed P600
to the BSP periodically or within a specified II. For Category B reports
period. Per day of default
(2) Willful delay in the submission of until the report is filed P120
reports shall refer to the failure of a QB to
submit a report on time. Failure to submit a Delay or default shall start to run on
report on time due to fortuitous events, such the day following the last day required for
as fire and other natural calamities and the submission of reports. However,
public disorders, including strike or lockout should the last day of filing fall on a non-
affecting a QB as defined in the Labor Code working day in the locality where the
or national emergency affecting operations of reporting FI is situated, delay or default shall
QBs, shall not be considered as willful delay. start to run on the day following the next
(3) Examination shall include, but working day. The due date/deadline for
need not be limited to, the verification, submission of reports to BSP as prescribed
review, audit, investigation and inspection under Section 4162Q governing the
of the books and records, business affairs, frequency and deadlines indicated in
administration and financial condition of Appendix Q-3 shall be automatically moved
any QB including the reproduction of its to the next business day whenever a half-
records, as well as the taking possession of day suspension of business operations in
the books and records and keeping them government offices is declared due to an
under the BSP's custody after giving proper emergency such as typhoon, floods, etc.
receipt therefore. It shall also include the For purposes of establishing delay or
interview of the directors and personnel of default, the date of acknowledgment by the
the QB including its Electronic Data appropriate department of the SES or the
Processing (EDP) servicer. Books and BSP Regional Offices/Units appearing on

Part I - Page 44
§§ 4162Q.3 - 4164Q.2
07.12.31
the copies of such reports filed or submitted, f. Appeal to the Monetary Board -
the date of mailing postmarked on the Any aggrieved QB may appeal to the
envelope/the date of registry/special Monetary Board a ruling of the appropriate
delivery receipt, as the case may be, or the department of the SES imposing a fine.
date of the acknowledgment receipt issued (As amended by Circular No. 585 dated 15 October 2007)
by the appropriate office of the BSP if the
reports were submitted through electronic Sec. 4163Q (Reserved)
mail, shall be considered as the date of filing
by the QB. Sec. 4164Q Internal Audit Function
Delayed schedules/attachments and Internal audit is an independent, objective
amendments shall be considered late assurance and consulting function
reporting subject to the above penalties. established to examine, evaluate and
c. Fines for refusal to permit improve the effectiveness of risk
examination management, internal control, and
(1) Amount of fine - Any QB which governance processes of an organization.
shall willfully refuse to permit examination
shall pay a fine of P3,000 daily from the § 4164Q.1 Status. The internal audit
day of refusal and for as long as such refusal function must be independent of the
lasts. activities audited and from day-to-day
(2) Procedures in imposing the fine- internal control process. It must be free to
(a) The BSP officer/examiner/employee report audit results, findings, opinions,
shall report the refusal of the QB to permit appraisals and other information to the
examination to the head of the appropriate appropriate level of management. It shall
department of the SES, who shall forthwith have authority to directly access and
make a written demand upon the communicate with any officer or employee,
concerned for such examination. If the QB to examine any activity or entity of the
continues to refuse said examination institution, as well as to access any records,
without any satisfactory explanation files or data whenever relevant to the
therefore, the BSP officer/examiner/ exercise of its assignment. The Audit
employee concerned shall submit a report Committee or senior management should
to that effect to the said department head. take all necessary measures to provide the
(b) The fine shall be imposed starting appropriate resources and staffing that would
on the day following the receipt by the said enable internal audit to achieve its objectives.
department of the written report submitted
by the BSP officer/examiner/employee § 4164Q.2 Scope. The scope of
concerned regarding the continued refusal of internal audit shall include:
the QB to permit the desired examination. a. Examination and evaluation of the
d. Manner of payment or collection adequacy and effectiveness of the internal
of fines - The regulations embodied in Sec. control systems;
4653Q shall be observed in the collection b. Review of the application and
of the fines from QBs. effectiveness of risk management
e. Other penalties - The imposition of procedures and risk assessment
the foregoing penalties shall be without methodologies;
prejudice to the imposition of the other c. Review of the management and
administrative sanctions and to the filing financial information systems, including the
of a criminal case as provided for in other electronic information system and
provisions of law. electronic banking services;

Part I - Page 45
§§ 4164Q.2 - 4171Q
05.12.31
d. Assessment of the accuracy and or national Coop Bank as auditor-in-charge,

reliability of the accounting system and of senior auditor or audit manager.
the resulting financial reports; A qualified internal auditor of a UB
e. Review of the systems and or a KB shall be qualified to audit TBs,
procedures of safeguarding assets; QBs, trust entities, national Coop Banks,
f. Review of the system of assessing RBs, NSSLAs, local Coop Banks,
capital in relation to the estimate of subsidiaries and affiliates engaged in
organizational risk; allied activities, and other FIs under BSP
g. Transaction testing and assessment supervision.
of specific internal control procedures; and A qualified internal auditor of a TB or
h. Review of the compliance system national Coop Bank shall likewise be
and the implementation of established qualified to audit QBs, trust entities, RBs,
policies and procedures. NSSLAs, local Coop Banks, subsidiaries and
affiliates engaged in allied activities, and other
§ 4164Q.3 Qualification standards of FIs under BSP supervision.
the internal auditor. The internal auditor
of a UB or a KB must be a Certified Public § 4164Q.4 Code of Ethics and Internal
Accountant (CPA) and must have at least Auditing Standards. The internal auditor
five (5) years experience in the regular audit should conform with the Code of
(internal or external) of a UB or KB as Professional Ethics for CPAs and ensure
auditor-in-charge, senior auditor or audit compliance with sound internal auditing
manager. He must possess the knowledge, standards, such as the Institute of Internal
skills, and other competencies to examine Auditors’ International Standards for the
all areas in which the institution operates. Professional Practice of Internal Auditing
Professional competence as well as (e-mail: standards@theiia.org; Web: http://
continuing training and education shall be www.theiia.org.) and other supplemental
required to face up to the increasing standards issued by regulatory authorities/
complexity and diversity of the institution’s government agencies. The standards
operations. address independence and objectivity,
The internal auditor of a TB, QB, trust professional proficiency, scope of work,
entity or national Coop Bank must be a CPA performance of audit work, management
with at least five (5) years experience in the of internal audit, quality assurance
regular audit (internal or external) of a TB, reviews, communication and monitoring
QB, trust entity or national Coop Bank as of results.
auditor-in-charge, senior auditor or audit
manager or, in lieu thereof, at least three Secs. 4165Q - 4170Q (Reserved)
(3) years experience in the regular audit
(internal or external) of a QB as auditor-in- K. INTERNAL CONTROL
charge, senior auditor or audit manager.
The internal auditor of an RB, NSSLA Sec. 4171Q Internal Control Systems. The
or local Coop Bank must be at least an minimum internal control standards
accounting graduate with two (2) years established in Appendix Q-5 shall guide all
experience in external audit or in the regular QBs. The following records/data shall be
audit of an RB, NSSLA or local Coop Bank compiled and made available for the
or, in lieu thereof, at least one (1) year inspection of BSP examiners.
experience in the regular audit (internal or a. Records showing compliance with
external) of a UB, KB, TB, QB, trust entity independent balancing procedures. These

Part I - Page 46
§ 4171Q
05.12.31
records should indicate the accounts and c. All internal control audit reports or
the periodic balancing procedures performed. their equivalent.
b. Statements of actual duties of d. Information/data on the direct and/
persons assigned to handle cash and or indirect equity holdings and/or
securities. connection with any firm, partnership or

Part I - Page 46a
§§ 4171Q - 4172Q
06.12.31
corporation organized for profit, of all the of the financial audit report and certification
institution's directors, officers, and major under oath stating that no material weakness
stockholders, as defined under Secs. or breach in the internal control and risk
4141Q and 4142Q. management systems was noted in the
e. Information/data pertaining to course of the audit of the QB to the board
electronic data processing (EDP) of directors; and (c) the absence of any direct
department or service bureau of the QB or indirect financial interest and other
particularly on organization, input control, circumstances that may impair the
processing control, output control, software, independence of the external auditor; (2)
program and documentation standards, logs reconciliation statement between the AFS
on the operations of mainframes and and the balance sheet and income statement
peripherals, hardware control and such for the QB and trust department submitted
other EDP control standards prescribed by to the BSP including copies of adjusting
the BSP in separate rules and regulations. entries on the reconciling items; and (3)
other information that may be required by
Sec. 4172Q Audited Financial Statements the BSP.
of Quasi-Banks; Financial Audit. The In addition, the external auditor shall be
following rules shall govern the utilization required by the QB to submit to the board
and submission of AFS of QBs. of directors, a LOC indicating any material
For purposes of this Section, AFS shall weakness or breach in the institution’s
include the balance sheets, income internal control and risk management
statements, statements of changes in equity, systems within thirty (30) calendar days after
statements of cash flows and notes to submission of the financial audit report. If
financial statements which shall include no material weakness or breach is noted to
among other information, disclosure of the warrant the issuance of an LOC, a
volume of past due loans as well as loan- certification under oath stating that no
loss provisions. On the other hand, material weakness or breach in the internal
financial audit report shall refer to the AFS control and risk management systems was
and the opinion of the auditor. The AFS of noted in the course of the audit of the QB
QBs with subsidiaries shall be presented shall be submitted in its stead, together with
side by side on a solo basis (parent) and on the financial audit report.
a consolidated basis (parent and Material weakness shall be defined as
subsidiaries). a significant control deficiency, or
QBs shall cause an annual financial combination of deficiencies, that results in
audit by an external auditor acceptable to more than a remote likelihood that a
the BSP not later than thirty (30) calendar material misstatement of the financial
days after the close of the calendar year or statements will not be detected or
the fiscal year adopted by the QB. Report prevented by the institution’s internal
of such audit shall be submitted to the control. A material weakness does not mean
board of directors and the appropriate that a material misstatement has occurred
department of the SES not later than 120 or will occur, but that it could occur. A
calendar days after the close of the calendar control deficiency exists when the design
year or the fiscal year adopted by the QB. or operation of a control does not allow
The report to the BSP shall be accompanied management or employees, in the normal
by the: (1) certification by the external course of performing their assigned
auditor on the: (a) dates of start and functions, to prevent or detect misstatements
termination of audit; (b) date of submission on a timely basis. A significant deficiency

Part I - Page 47
§ 4172Q
06.12.31
is a control deficiency, or combination of the financial audit to be conducted by an

control deficiencies, that adversely affects external auditor acceptable to the BSP, at
the institution’s ability to initiate, authorize, the expense of the QB: Provided, further,
record, process, or report financial data That when circumstances such as, but not
reliably in accordance with generally limited to loans from multilateral financial
accepted accounting principles. The term institutions, privatization, or public listing
more than remote likelihood shall mean warrant, the financial audit of the QB
that future events are likely to occur or are concerned by an acceptable external
reasonably possible to occur. auditor may also be allowed.
The board of directors, in a regular or QBs and other financial institutions
special meeting, shall consider and act on under the concurrent jurisdiction of the
the financial audit report and the BSP and COA shall, however, submit a
certification under oath submitted in lieu copy of the annual audit report (AAR) of
of the LOC and shall submit, within thirty the COA to the appropriate department
(30) banking days after receipt of the of the SES of the BSP within thirty (30)
reports, a copy of its resolution to the banking days after receipt of the report by
appropriate department of the SES. The the board of directors. The AAR shall be
resolution shall show, among other things, accompanied by the: (1) certification by
the actions(s) taken on the reports and the the institution concerned on the date of
names of the directors present and absent. receipt of the AAR by the board of
The board shall likewise consider and directors; (2) reconciliation statement
act on the LOC and shall submit, within between the AFS in the AAR and the
thirty (30) banking days after receipt thereof, balance sheet and income statement of the
a copy of its resolution together with said QB and trust department submitted to the
LOC to the appropriate department of the BSP, including copies of adjusting entries
SES. The resolution shall show the action(s) on the reconciling items; and (3) other
taken on the findings and recommendations information that may be required by the
and the names of the directors present and BSP.
absent, among other things. The board of directors of said
The LOC shall be accompanied by the institutions, in a regular or special meeting,
certification of the external auditor of the shall consider and act on the AAR, as well
date of its submission to the board of as on the comments and observations and
directors. shall submit, within thirty (30) banking
Government-owned or -controlled days after receipt of the report, a copy of
banks, including their subsidiaries and its resolution to the appropriate department
affiliates, as well as other financial of the SES. The resolution shall show the
institutions under BSP supervision which action(s) taken on the report, including the
are under the concurrent jurisdiction of the comments and observations and the names
Commission on Audit (COA) shall be of the directors present and absent, among
exempt from the aforementioned annual other things.
financial audit by an acceptable external The AFS required to be submitted shall
auditor: Provided, That when warranted by in all respect be PFRS/PAS compliant:
supervisory concern such as material Provided, That financial institutions shall
weakness/breach in internal control and/ submit to the BSP adjusting entries
or risk management systems, the Monetary reconciling the balances in the financial
Board may, upon recommendation of the statements for prudential reporting with that
appropriate department of the SES, require in the audited annual financial statements.

Part I - Page 48
§§ 4172Q - 4172Q.3
06.12.31
QBs as well as external auditors shall and external auditors regarding the
strictly observe the requirements in the confidentiality of information.
submission of the financial audit report and b. Sanction. The auditing firm(s) shall
reports required to be submitted under be blacklisted by the Monetary Board for
Appendix Q-33. a period as the Board may deem
The reports and certifications of QBs, appropriate for their failure to perform their
schedules and attachments required under duty of reporting to the BSP any matter
this Subsec. shall be considered Category adversely affecting the condition or
B reports, delayed submission of which soundness of the QB. QBs shall not be
shall be subject to the penalties under allowed to engage the services of the
Subsec. 4162.Q.3.b.II. blacklisted auditing firm.
(As amended by Circular Nos. 554 dated 22 December 2006
and 540 dated 09 August 2006) § 4172Q.3 Disclosure requirement in
the notes to the audited financial
§ 4172Q.1 Posting of audited statements. QBs shall require their external
financial statements. QBs shall post in auditors to include the following additional
conspicuous places in their head offices, information in the notes to financial
all their branches and other offices, as well statements:
as in their respective web-sites, their latest a. Basic quantitative indicators of
financial audit report. financial performance such as return on
(As amended by Circular No. 540 dated 9 August 2006) average equity, return on average assets and
net interest margin;
§ 4172Q.2 Disclosure of external b. Capital-to-risk assets ratio under
auditor’s adverse findings to the Bangko Sec. 4116Q;
Sentral; sanction c. Concentration of credit as to
a. Findings to be disclosed. QBs shall industry/economic sector where
require their external auditors to report to concentration is said to exist when total
the BSP any matter adversely affecting the loan exposures to a particular industry/
condition or soundness of the bank, such economic sector exceeds thirty percent
as, but not limited to: (30%) of total loan portfolio;
(1) Any serious irregularity, including d. Breakdown of total loans as to
those involving fraud or dishonesty, that secured and unsecured and breakdown of
may jeopardize the interest of creditors; secured loans as to type of security;
(2) Losses incurred which e. Total outstanding loans to QB’s
substantially reduce the capital funds of DOSRI, percent of DOSRI loans to total
the QB; and loan portfolio, percent of unsecured DOSRI
(3) Inability of the auditor to confirm loans to total DOSRI loans, percent of past
that the claims of creditors are still covered due DOSRI loans to total DOSRI loans and
by the QB’s assets. percent of non-performing DOSRI loans to
The disclosure of information by the total DOSRI loans;
external auditor to the BSP shall not be a f. Nature and amount of
ground for civil, criminal or disciplinary contingencies and commitments arising
proceedings against the former. from off-balance sheet items [include direct
QB management shall be present credit substitutes (e.g., export LCs
during discussions or at least be informed confirmed, underwritten accounts unsold),
of the adverse findings in order to preserve transaction-related contingencies (e.g.,
the concerns of the supervisory authority performance bonds, bid bonds, standby

Part I - Page 49
§§ 4172Q.3 - 4179Q
05.12.31
LCs), short-term self-liquidating trade- Where:

Net Interest
related contingencies arising from the Income = Total Interest Income – Total Interest Expense
movement of goods (e.g., sight/usance
Average Interest = Sum of Total Interest Earning Assets as
domestic LCs, sight/usance import LCs), Earning Assets of the 12 month-ends in the calendar/
sale and repurchase agreements not fiscal year adopted by the QB
recognized in the balance sheet; interest 12
and foreign exchange rate related items; § 4172Q.4 Disclosure requirements

and other commitments]; in the annual report. QBs shall prepare
g. Provisions and allowances for an annual report which shall include, in
losses and how these are determined; addition to the AFS and other usual
h. Aggregate amount of secured information contained therein, a discussion
liabilities and assets pledged as security; and/or analysis of the following
and information:
i. Accounting policies which shall a. Financial performance;
include, but shall not be limited to, general b. Financial position and changes
accounting principles, changes in therein;
accounting policies/practices, principles of c. Overall risk management
consolidation, policies and methods for philosophy (a general statement of the risk
determining when assets are impaired, management policy adopted by the QB’s
recognizing income on impaired assets and board of directors which serves as the basis
losses on non-performing credits, income for the establishment of its risk management
recognition, valuation policies and system), risk management system and
accounting policies on securitizations, structure;
foreign currency translations, loan fees, d. Qualitative and quantitative
premiums and discounts, repurchase information on risk exposures (credit, market,
agreements, premises/fixed assets, income liquidity, operational, legal and other risks); and
taxes, derivatives, etc. e. Basic business management and
For purposes of computing the corporate governance information such as the
indicators in Item “a” above, the following QB’s organizational structure, incentive
formulas shall be used: structure including its remuneration policies,
a. Return on Average = Net Income (or Loss) after nature and extent of transactions with affiliates
Equity (%) Income Tax x 100
Average Total Capital Accounts
and related parties.
Where:
Average Total = Sum of Total Capital Accounts as of the § 4172Q.5 Posting and submission
Capital Accounts 12 month-ends in the calendar/fiscal of annual report. A copy of the latest
year adopted by the QB
12 annual report shall be posted by the QB in
a conspicuous place in its head office, all
b. Return on Average = Net Income (or Loss) after its branches and other offices.
Assets (%) Income Tax x 100 The deadline for the submission of the
Average Total Assets
Where:
annual report to the appropriate department
Average Total Assets = Sum of Total Assets as of the 12 of the SES is 180 calendar days after the
month- ends in the calendar/fiscal close of the calendar or fiscal year adopted
year adopted by the QB
by the QB.
12
c. Net Interest = Net Interest Income x 100
Margin (%) Average Interest Earning Assets Secs. 4173Q - 4179Q (Reserved)

Part I - Page 50
§§ 4180Q - 4181Q
06.12.31
Sec. 4180Q Selection, Appointment and External auditors who meet the
Reporting Requirements for External requirements specified in this Section shall
Auditors; Sanction; Effectivity. Under be included in the list of BSP selected
Section 58, R.A. No. 8791, the Monetary external auditors. In case of partnership,
Board may require a QB and/or trust entity inclusion in the list of BSP selected external
to engage the services of an independent auditors shall apply to the audit firm only
auditor to be chosen by the QBs and/or trust and not to the individual signing partners
entities concerned from a list of certified or auditors under its employment.
public accountants acceptable to the The BSP will circularize to all banks, QBs,
Monetary Board. trust entities and NSSLAs the list of selected
It is the policy of the BSP to promote external auditors once a year. The BSP,
high ethical and professional standards in however, shall not be liable for any damage
public accounting practice and to or loss that may arise from its selection of the
encourage coordination and sharing of external auditors to be engaged by banks,
information between external auditors and QBs, trust entities or NSSLAs for regular audit
regulatory authorities of banks, QBs, trust or special engagements.
entities and/or NSSLAs to ensure effective a. Rules and regulations. The rules
audit and supervision of these institutions and regulations to govern the selection and
and to avoid unnecessary duplication of delisting by the BSP of external auditors of
efforts. In furtherance of this policy and to QBs and/or trust entities, their subsidiaries
ensure that reliance by regulatory and affiliates engaged in allied activities are
authorities and the public on the opinion shown in Appendix Q-30.
of external auditors is well placed, the BSP b. Sanctions. The applicable sanctions/
hereby prescribes the rules and regulations penalties prescribed under Sections 36 and
that shall govern the selection, 37 of R. A. No. 7653 to the extent applicable
appointment, reporting requirements and shall be imposed on the QB or trust entity,
delisting for external auditors of banks, its audit committee and the directors
QBs, trust entities and/or NSSLAs, their approving the hiring of external auditors who
subsidiaries and affiliates engaged in allied are not in the BSP list of selected auditors for
activities and other financial institutions banks, QBs, trust entities and NSSLAs or for
which under special laws are subject to BSP hiring, and/or retaining the services of the
supervision. external auditor in violation of any of the
The selection of external auditors shall provisions of this Section and for non-
be valid for a period of three (3) years. BSP compliance with the Monetary Board
selected external auditors shall apply for directive under Item “I” in Appendix Q-30.
the renewal of their selection every three Erring external auditors may also be reported
(3) years. The provisions of Items “A” and by the BSP to the PRC for appropriate
“B” of Appendix Q-30 shall likewise apply disciplinary action.
for each application for renewal. (As amended by Circular No. 529 dated 11 May 2006)
The SES shall make an annual
assessment of the performance of external L. MISCELLANEOUS PROVISIONS
auditors and will recommend deletion
from the list even prior to the three (3)- year Sec. 4181Q Publication Requirements
renewal period, if based on assessment, The quarterly consolidated statement of
the external auditors’ report did not comply condition of a QB/trust entity and its
with BSP requirements. subsidiaries and associates shall be

Part I - Page 51
§§ 4181Q - 4191Q.1
08.12.31
published side-by-side with the statement (1) members of the board of

of condition of its head office and its directors; and
branches/other offices as of such dates as (2) president and executive vice-
the BSP may require, within twenty (20) presidents (senior vice-presidents, if there are
working days from receipt of call letter, in no executive vice-presidents) or equivalent
any newspaper of general circulation in the positions shall be presented in the right side
country in the prescribed format. column of the published statement of
The consolidated statement of condition condition as of June of every year.
of a QB/trust entity and its subsidiaries and
associates shall conform with the guidelines Sec. 4182Q Management Contracts
of PAS 27 “Consolidated and Separate Subject to existing laws, all agreements
Financial Statements”, except that for whereby the affairs or operations of a QB
purposes of consolidated financial will be carried out by another corporation,
statements, only investments in financial person or group of persons, shall be subject
allied subsidiaries except insurance to prior approval by the BSP.
subsidiaries shall be consolidated on a The agreements referred to in the
line-by-line basis; while insurance and preceding paragraph shall not be entered
non-financial allied subsidiaries shall be into for a period longer than five (5) years.
accounted for using the equity method. Existing agreements shall be allowed up
Financial/non-financial allied/non-allied to the termination date thereof: Provided,
associates shall be accounted for using the however, That any renewal or extension
equity method in accordance with the upon termination date shall be subject to
provisions of PAS 28 “Investments in approval by the BSP.
Associates”. For purposes of separate
financial statements, investments in Secs. 4183Q - 4189Q (Reserved)
financial/non-financial allied/non-allied
subsidiaries/associates, including insurance Sec. 4190Q Duties and Responsibilities
subsidiaries/associates, shall be accounted of Quasi-Banks and their Directors/
for using the equity method. Officers in All Cases of Outsourcing of
a. The following information shall be Quasi-Banking Functions. The rules on
disclosed in the Statements of Condition: outsourcing of banking functions as shown
(1) Non-performing loans and ratio to in Appendix Q-37 shall be adopted in so
total loan portfolio; far as they are applicable to QBs.
(2) Classified loans and other risk (As amended by Circular Nos. 610 dated 26 May 2008, 596
assets; dated 11 January 2008, 548 dated 25 September 2006 and 543
(3) General loan loss reserve; dated 08 September 2006)
(4) Specific loan loss reserve;
(5) Return on equity (ROE); Sec. 4191Q Compliance System;
(6) DOSRI loans/advances and ratio to Compliance Officer. QBs shall develop
total loan portfolio; and and implement a compliance system and
(7) Past due DOSRI loans/advances appoint/designate a compliance officer to
and ratio to total loan portfolio. oversee its implementation.
For uniform calculation of the additional
information required, the guidelines in § 4191Q.1 Compliance system. The
Annex Q-3-f of Appendix Q-3 shall be compliance system shall have the
observed. following basic elements.
b. The names and positions/ a. A written compliance program
designations of: approved by the board of directors:

Part I - Page 52
§§ 4191Q.1 - 4191Q.2
08.12.31
(1) The compliance program shall regular meetings, distribution of manuals

enable the QB to identify the relevant and dissemination of regulatory issuance.
Philippine laws and regulations, analyze d. Continuous monitoring and
the corresponding risks of non-compliance, assessment of the compliance program.
and prioritize the compliance risks The program shall provide for the
(e.g., low, medium, high). periodic review of the compliance function
(2) The program shall provide for to measure its effectiveness. The review
periodic compliance testing with applicable may be carried out by the internal audit
legal and regulatory requirements. Testing department of the QB.
frequency shall be commensurate with The compliance program may operate
identified risk levels (e.g., annual testing for parallel to or as part of a QB’s internal
low-risk, quarterly testing for medium-risk, control and auditing program.
monthly testing for high-risk). It shall also
provide for the reporting of compliance § 4191Q.2 Compliance officer
findings noted to appropriate levels of a. The principal function of the
management. compliance officer is to oversee and
(3) The program shall establish the coordinate the implementation of the
responsibilities and duties of the compliance system. His responsibility shall
compliance officer and other personnel (if include the identification, monitoring and
any) involved in the compliance function. controlling of compliance risk.
(4) A copy of the compliance program b. The appointment/designation of a
and the written approval of the board of compliance officer shall require prior
directors shall be submitted to the approval of the Monetary Board. The
appropriate department of the SES within bio-data of the proposed compliance officer
twenty (20) business days from date of shall be submitted to the appropriate
approval. department of the SES.
(5) The program shall be updated at c. The compliance officer shall have
least annually to incorporate changes in the skills and expertise to provide
laws and regulations. Any changes in the appropriate guidance and direction to the
program shall likewise be approved by the bank on the development, implementation
QB’s board of directors and submitted to and maintenance of the compliance
BSP within twenty (20) business days from program.
the date of approval. d. QBs with total resources of P500
b. A constructive working million and above shall appoint an
relationship with regulatory agencies. independent full-time compliance officer,
The QB, through its compliance officer, who shall have a rank of at least a vice
may consult the regulatory agencies for president or its equivalent.
additional clarification on specific provisions e. For QBs with total resources of
of laws and regulations and/or discuss below P500 million, an incumbent senior
compliance findings with the regulatory officer may be designated concurrently as
authorities. A dialogue may also be initiated the QB’s compliance officer: Provided,
with respect to borderline issues. That such designation will not give rise to
c. A clear and open communication any conflict of interest situation and that
process within the QB to educate and the main function of the senior officer shall
address compliance matters. be that of a compliance officer.
Officers and staff shall be trained on The internal auditor of a QB may also
the regulatory requirements through be designated as its compliance officer

Part I - Page 53
§§ 4191Q.2 - 4191Q.6
08.12.31
subject to the condition that his main § 4191Q.5 Status. The compliance
function shall be that of a compliance function should have a formal status within
officer. the organization established by a charter
Transitory provision. Compliance or other formal document approved by the
officers concurrently holding the position board of directors that defines the
of Head of Internal Audit or Internal Auditor compliance function’s standing, authority
shall be given one (1) year from 02 and independence, and addresses the
February 2008 within which to comply following issues:
with this Subsection. (1) measures to ensure the
(As amended by Circular No. 598 dated 11 January 2008) independence of the compliance
function from the business activities of
§ 4191Q.3 Compliance risk the QB;
Compliance risk is the risk of legal or (2) its role and responsibilities;
regulatory sanctions, financial loss, or loss (3) its relationship with other functions
to reputation a QB may suffer as a result of or units within the organization;
its failure to comply with all applicable (4) its right to obtain access to
laws, regulations, codes of conduct and information necessary to carry out its
standards of good practice. responsibilities;
(5) its right to conduct investigations
§ 4191Q.4 Responsibilities of the of possible breaches of the compliance
board of directors and senior policy;
management on compliance. Aside from (6) its formal reporting relationships to
the duties and responsibilities of the board of senior management and the board of
directors mentioned under Subsec. 4141Q.3, directors; and
the board should oversee the implementation (7) its right of direct access to the board
of the compliance policy and ensure that of directors or an appropriate committee
compliance issues are resolved of the board.
expeditiously. Senior management should The compliance charter or other formal
be responsible for establishing a compliance document defining the status of the
policy, ensuring that it is observed, reporting compliance function shall be communicated
to the board of directors on its ongoing throughout the organization.
implementation and assessing its
effectiveness and appropriateness. Senior § 4191Q.6 Independence. The
management should, at least once a year, compliance function should be
report to the board of directors or a independent from the business activities
committee of the board on matters relevant of the institution. It should be able to carry
to the compliance policy and its out its responsibilities on its own initiative
implementation, recommending any in all units or departments where
required changes to the policy. The report compliance risk exists and must be
should assist the board members in making provided with sufficient resources to carry
an informed assessment as to whether the out its responsibilities effectively. It must
institution is managing its compliance risk be free to report to senior management
effectively. However, any material breaches and the board or a committee of the board
of laws, rules and standards shall be reported on any irregularities or breaches of laws,
promptly. rules and standards discovered, without

Part I - Page 54
§§ 4191Q.6 - 4191Q.7
05.12.31
fear of retaliation or disfavor from § 4191Q.7 Role and responsibilities of

management or other affected parties. The the compliance function. The role and
compliance function should have access responsibilities of the compliance function
to all operational areas as well as any should be clearly defined. If there is a
records or files necessary to enable it to division of duties and responsibilities
carry out its duties and responsibilities. between different functions such as legal,

Part I - Page 54a
§§ 4191Q.7 - 4194Q
06.12.31
compliance, internal audit or risk obligations of the contracting parties, which

management, the allocation of duties and agreement shall be approved by the board
responsibilities to each function should be of directors of the institution concerned,
properly delineated. There should likewise must be submitted to the appropriate
be formal arrangements for cooperation department of the SES at least thirty (30)
between each function and for the days prior to its execution to enable review
exchange of relevant information. of its compliance with existing regulations
on outsourcing of quasi-banking functions.
§ 4191Q.8 Cross-border issues. The The service level agreement shall
compliance function for institutions that ensure a clear allocation of responsibilities
conduct business in other jurisdictions between the external service providers and
should be structured to ensure that local the QB. Furthermore, the outsourcing QB
compliance concerns are satisfactorily should manage residual risks associated
addressed within the framework of the with outsourcing arrangements, including
compliance policy for the organization as default, operational failures, and possible
a whole. As there are significant differences disruption of services.
in legislative and regulatory frameworks
across countries or from jurisdiction to Sec. 4192Q Prompt Corrective Action
jurisdiction, compliance issues specific to Framework. The framework for the
each jurisdiction should be coordinated enforcement of prompt corrective action
within the structure of the institution’s (PCA) on banks which is in Appendix Q-40,
group-wide compliance policy. The shall govern the PCA taken on QBs to the
organization and structure of the extent applicable, or by analogy.
compliance function and its responsibilities (Circular No. 523 dated 23 March 2006)
should be in accordance with local legal
and regulatory requirements. Sec. 4193Q Supervision by Risks. The
guidelines on supervision by risk to provide
§ 4191Q.9 Outsourcing. QBs should guidance on how QBs should identify,
establish policies for managing the risks measure, monitor and control risks are
associated with outsourcing activities. shown in Appendix Q-42.
Outsourcing of services/activities can The guidelines set forth the expectations
reduce the institution’s risk profile by of the BSP with respect to the management
transferring activities to others with the necessary of risks and are intended to provide more
expertise to manage the risks associated with consistency in how the risk-focused
specialized business activities. However, supervision function is applied to these risks.
the use of third parties does not diminish The BSP will review the risks to ensure that a
the responsibility of the board of directors QB’s internal risk management processes are
and senior management to ensure that the integrated and comprehensive. All QBs
outsourced activity is conducted in a safe should follow the guidance in their risk
and sound manner and in compliance with management efforts.
applicable laws and regulations. (Circular No. 510 dated 19 January 2006)
Compliance risk assessment and testing
may be outsourced, subject to appropriate Sec. 4194Q Market Risk Management. The
oversight by the compliance officer: guidelines on market risk management in
Provided, That a copy of the outsourcing Appendix Q-43 set forth the expectations
agreement stating the duties and of the BSP with respect to the management
responsibilities as well as rights and of market risk and are intended to provide

Part I - Page 55
§§ 4194Q - 4199Q
06.12.31
more consistency in how the risk-focused supervision function is applied to this risk.
supervision function is applied to this risk. QBs are expected to have an integrated
QBs are expected to have an integrated approach to risk management to identify,
approach to risk management to identify, measure, monitor and control risks.
measure, monitor and control risks. Market Liquidity risk should be reviewed together
risk should be reviewed together with other with other risks to determine overall risk
risks to determine overall risk profile. profile.
The BSP is aware of the increasing The guidelines are intended for general
diversity of financial products and that application; specific application will
industry techniques for measuring and depend on the size and sophistication of a
managing market risk are continuously particular QB and the nature and
evolving. As such, the guidelines are complexity of its activities.
intended for general application; specific (Circular No. 545 dated 15 September 2006)
application will depend to some extent on
the size, complexity and range of activities Secs. 4196Q-4198Q (Reserved)
undertaken by individual QBs.
(Circular No. 544 dated 15 September 2006) Sec. 4199Q General Provision on
Sanctions. Any violation of the provisions
Sec. 4195Q Liquidity Risk of this Part shall be subject to Sections 36
Management.The guidelines on liquidity and 37 of R.A. No. 7653.
risk management in Appendix Q-44 set The guidelines for the imposition of
forth the expectations of the BSP with monetary penalty for violations/offenses
respect to the management of liquidity risk with sanctions falling under Section 37 of
and are intended to provide more R. A. No. 7653 on QBs, their directors and/
consistency in how the risk-focused or officers are shown in Appendix Q-39.

Part I - Page 56
§§ 4201Q - 4211Q.3
05.12.31
PART TWO
DEPOSIT AND BORROWING OPERATIONS
A. - D. (RESERVED) a. The present value and maturity

value and/or the principal amount and
Secs. 4201Q - 4210Q (Reserved) interest rate and such other information
as may be necessary to enable the parties
E. DEPOSIT SUBSTITUTE OPERATIONS to determine the cost or yield of the
borrowing or placement shall be
Section 4211Q Deposit Substitute specified.
Instruments. Only the following types of b. The date of issuance shall be
instruments may be issued by QBs as indicated at the upper right corner of the
evidence of deposit substitute liabilities: instrument, and directly below which
a. Promissory notes; shall be the maturity period or the word
b. Repurchase agreements (REPOs); and "demand", if it is a demand instrument.
c.Certificates of assignment/ c. The payee may be identified by
participation with recourse. his trust account/deposit account number
in both negotiable and non-negotiable
§ 4211Q.1 Prohibition against use instruments.
of certain instruments as deposit d. Securities which are the subject
substitutes. Acceptances, bills of exchange of a REPO or a certificate of assignment/
and trust certificates shall not be used as participation with recourse, shall be
evidence of deposit substitute liabilities. particularly described on the face of said
This prohibition shall not apply to the instruments or on a separate instrument
acceptance or negotiation of bills of attached and specifically referred to
exchange in connection with trade therein and made an integral part thereof
transactions, or to the issuance of trust as to the maker, value, maturity, serial
certificates creating trust relationship. number, and such other particulars as
shall clearly identify the securities.
§ 4211Q.2 Negotiations of e. The instrument shall provide for
promissory notes. Negotiable promissory the payment of liquidated damages, in
notes acquired by QBs shall not be addition to stipulated interest, in case of
negotiated by mere indorsement and/or default by the maker/issuer, as well as
delivery, if they do not conform with the attorney's fees and cost of collection in
minimum features prescribed under case of suit.
Subsec. 4211Q.3. If these notes do not f. A conspicuous notice at the lower
contain the features in said Subsection, center margin of the face of the instrument
their negotiation shall be covered by any that the transaction is not insured by the
of the appropriate deposit substitute PDIC.
instruments mentioned in Sec. 4211Q. g. The corporate name of the issuer
shall be printed at the upper center margin
§ 4211Q.3 Minimum features of the instrument and directly below
Deposit substitute instruments issued by which shall be a designation of the
QBs shall have the following minimum instrument, such as, "Promissory Note"
features. or "REPO".

Part II - Page 1
§§ 4211Q.3 - 4211Q.4
07.12.31
h. The words "duly authorized acceptable to the lender/purchaser and

officer" shall be placed directly below borrower/seller, or by means of book-entry
the signature of the person signing for the transfer to the appropriate securities
maker/issuer. account of the BSP accredited custodian in
i. Each instrument shall be serially a registry for said securities, if immobilized
prenumbered. or dematerialized while the overlying
j. The copy delivered to the payee principal borrowing instrument shall be
shall bear the word "Original" and the physically delivered to the lender/
copies retained by the issuer shall be purchaser. The custodian shall hold the
identified as "Duplicate," "File Copy" or securities in the name of the borrower/
words of similar import. seller, but shall keep said securities
k. Only security paper with adequate segregated from the regular securities
safeguards against alteration or falsification account of the borrower/seller if the
shall be used. borrower/seller has an existing securities
Deposit substitute instruments shall account with the custodian. Provided, That
conform to the language prescribed by the BSP. a financial institution (NBFI) authorized by
Any substantial deviation therefrom or the BSP to perform custodianship function
any additional stipulation therein shall be may not be allowed to be custodian of
referred to the BSP for prior approval. The securities issued or owned by said
size and appearance of these instruments institution, its subsidiaries or affiliates, or
shall not be similar to the size and of securities in bearer form.
appearance of checks. Formats of The delivery shall be effected upon
standardized instruments in Appendices Q- payment and shall be evidenced by a
6 to Q-6-k shall be followed. securities delivery receipt duly signed by
Rubber stamping, typewriting and authorized officers of the custodian and
handwriting some provision shall not be delivered to both the lender/purchaser and
considered compliance with said seller/borrower.
regulations. Sanctions. Violation of any provision of Item
Borrowings of QBs from the loans and "a" shall be subject to the following sanctions/
discounts window of banks or QBs shall penalties:
be exempted from the documentation (1) Monetary penalties
requirements of this Section: Provided, First Offense – Fine of P10,000 a day
That the exemption from the for each violation reckoned from the date
documentation requirements shall not be the violation was committed up to the date
construed or interpreted as exemption of it was corrected.
said borrowings from the other rules on Subsequent offenses – Fine of P20,000
borrowings by QBs and from other BSP a day for each violation reckoned from the
regulations on deposit substitutes. date the violation was committed up to the
date it was corrected.
§ 4211Q.4 Delivery of securities1 (2) Other sanctions
a. Securities, warehouse receipts, First offense – Reprimand for the
quedans and other documents of title directors/officers responsible for the violation.
which are the subject of quasi-banking Subsequent offense –
functions, such as REPOs, shall be (a) Suspension for ninety (90) days
physically delivered, if certificated, to a without pay of directors/officers responsible
BSP accredited custodian that is mutually for the violation;
1
Effective 16 November 2004 under Circular No. 450 dated 06 September 2004.

Part II - Page 2
§§ 4211Q.4 - 4211Q.9
07.12.31
(b) Suspension or revocation of the (3) Suspension for 120 days without
accreditation to perform custodianship pay of the directors/officers responsible for
function; the violation.
(c) Suspension or revocation of the (As amended by M-2007-002 dated 23 January 2007; M-2006-009
authority to engage in quasi-banking dated 06 July 2006, M-2006-002 dated 05 June 2006 and Circular
function; and/or No. 524 dated 31 March 2006)
(d) Suspension or revocation of the
authority to engage in trust and other § 4211Q.5 Regulation on additional
fiduciary business. stipulation. Stipulations between the
b. The guidelines to implement the maker/issuer and the payee which are
delivery by the seller of securities to embodied in separate instruments shall be
the buyer or to his designated third specifically referred to in the deposit
party custodian are shown in substitute instruments and made an integral
Appendix Q-38. part thereof.
Sanctions. Without prejudice to the
penal and administrative sanctions § 4211Q.6 Substitution of underlying
provided for under Sections 36 and 37, securities. Any agreement allowing the
respectively of the R.A. No. 7653 (The issuer/maker to substitute the underlying
New Central Bank Act), violation of any securities shall further provide that the
provision of the guidelines in Appendix actual substitution shall be with the prior
Q-38 shall be subject to the following written consent of the payee.
sanctions/penalties depending on the
gravity of the offense: § 4211Q.7 Call slips/tickets for 24-
(a) First offense – hour loans. Call slips or tickets may be
(1) Fine of up to P10,000 a day or used to evidence call loan transactions of
the institution for each violation reckoned not more than twenty-four (24) hours
from the date the violation was committed maturity or to cover reserve deficiencies.
up to the date it was corrected; and In all other cases, call loan transactions
(2) Reprimand for the directors/ shall be evidenced by a promissory note
officers responsible for the violation. containing the minimum features
(b) Second offense - prescribed in Subsec. 4211Q.3.
(1) Fine of up to P20,000 a day for
the institution for each violation § 4211Q.8 Requirement to state
reckoned from the date the violation nature of underlying securities. In case
was committed up to the date it was of REPOs and certificates of assignment/
corrected; and participation with recourse, the stipulation
(2) Suspension for ninety (90) days shall clearly state either (a) that the
without pay of directors/officers underlying securities are being delivered
responsible for the violation. to the buyer or assignee as collaterals or
(c) Subsequent offenses– (b) that the ownership thereof is being
(1) Fine of up to P30,000 a day for transferred to the buyer or assignee.
the institution for each violation from the
date the violation was committed up to § 4211Q.9 Compliance with SEC
the date it was corrected; rules. QBs shall comply with the new rules
(2) Suspension or revocation of the on the registration of short-term and long-
authority to act as securities custodian and/ term commercial papers appended hereto
or registry; and as Appendices Q-7 and Q-8.

Part II - Page 3
§§ 4211Q.10 - 4211Q.12
06.12.31
§§ 4211Q.10 – 4211Q.11 (Reserved) securities or instruments that are not

documented in accordance with existing
§ 4211Q.12 Repurchase agreements BSP regulations and that the QB has strictly
covering government securities, complied with the pertinent rules of the
commercial papers and other negotiable SEC and the BSP on the proper sale of
and non-negotiable securities or securities to the public and performed the
instruments. The following regulations necessary representations and disclosures
shall govern REPOs covering government on the securities particularly the
securities, commercial papers and other following:
negotiable and non-negotiable securities or (a) Informed the clients that such
instruments of QBs as well as sale on a securities are not deposits and as such, do
without recourse basis of said securities by not benefit from any insurance otherwise
QBs. applicable to deposits such as, but not
a. Proper recording and documentation limited to, R.A. No. 3591, as amended,
of REPOs. otherwise known as the PDIC law;
QBs shall have a true and accurate (b) Informed and explained to the
account, record or statement of their daily client all the basic features of the security
transactions. As such, REPOs covering being sold on a without recourse basis,
government securities, commercial papers such as but not limited to:
and other negotiable and non-negotiable (i) issuer and its financial condition;
securities or instruments must be properly (ii) term and maturity date;
recorded and documented in accordance (iii) applicable interest rate and its
with existing BSP regulations. computation;
The absence of proper documentation (iv) tax features (whether taxable,
for REPOs is tantamount to willful omission tax paid or tax-exempt);
of entries relevant to any transaction, (v) risk factors and investment
which shall be a ground for the imposition considerations;
of administrative sanctions and the (vi) liquidity feature of the
disqualification from office of any director instrument:
or officer responsible therefor under (aa) procedures for selling the
existing laws and regulations. security in the secondary market (e.g.,
b. Responsibilities of the chief OTC or exchange);
executive officer (CEO) or officer of (bb) authorized selling agents; and
equivalent rank. (cc) minimum selling lots.
It shall be the responsibility of the CEO (vii) disposition of the security:
or the officer of equivalent rank in a QB (aa) registry (address and contact
to: numbers);
(1) Institute policies and procedures to (bb) functions of the registry; and
prevent undocumented or improperly (cc) pertinent registry rules and
documented REPOs covering government procedures.
securities, commercial papers and other (viii) collecting and paying agent of
negotiable and non-negotiable securities or the interest and principal; and
instruments; (ix) other pertinent terms and
(2) Submit a notarized certification at conditions of the security and if possible, a
the end of every semester that the QB did copy of the prospectus or information
not enter into any REPO covering sheet of the security.
government securities, commercial papers (c) Informed the client that pursuant to
and other negotiable and non-negotiable Subsecs. 4211Q.4 and 4101Q.4:

Part II - Page 4
§ 4211Q.12
05.12.31
(i) Securities sold under REPOs recourse basis” and in the event of default
shall be physically delivered, if certificated, by the issuer, the sole credit risk shall be
to a BSP accredited custodian that is borne by the client; and
mutually acceptable to the client and the (ii) The QB is not performing any
QB, or by means of book-entry transfer to advisory or fiduciary function.
the appropriate securities account of the (3) Report to the appropriate
BSP accredited custodian in a registry for department of the SES any undocumented
said securities, if immobilized or REPO within seventy-two (72) hours from
dematerialized; and knowledge of such transactions.
(ii) Securities sold on a without c. Treatment as deposit substitutes. All
recourse basis are required to be delivered sales of government securities,
physically to the purchaser, or to his commercial papers and other negotiable
designated custodian duly accredited by and non-negotiable securities or
the BSP, if certificated, or by means of instruments that are not documented in
book-entry transfer to the appropriate accordance with existing BSP regulations
securities account of the purchaser or his shall be deemed to be deposit substitutes
designated custodian in a registry for said subject to regular reserves.
securities if immobilized or d. Certification. The submission
dematerialized deadline for the required certification from
(d) Clearly stated to the client that: the CEO/officer of equivalent rank of the
(i) The QB does not guarantee the QB shall initially be 1 February 2005 using
payment of the security sold on a “without the format in Appendix Q-36-a.
(Next page is Part II - Page 5)

Part II - Page 4a
§§ 4211Q.12 - 4215Q
05.12.31
Thereafter, the required succeeding account, it shall further provide that the
certification shall be submitted within five liability of the maker/issuer of the
(5) banking days from end of reference instrument shall not be limited to the
semester using the format in Appendix Q-36. outstanding balance of said amount.
e. Sanctions. The Monetary Board c. The minimum maturity of any
may, at its evaluation and discretion, single deposit substitute transaction shall
impose any or all of the following sanctions be fifteen (15) days. Interbank borrowings
to a quasi-bank or the director/s or officer/s shall not be subject to the limitations in
found to be responsible for REPOs covering this Section.
government securities, commercial papers d. Automatic renewal from maturity of
and other negotiable and non-negotiable the instrument may be effected only under
securities or instruments that are not terms and conditions previously stipulated
documented in accordance with existing by the parties.
BSP regulations:
(1) Fine of up to P30,000 a day to the Sec. 4213Q Minimum Trading Lot. The
concerned entity for each violation from minimum size of any single deposit
the date the violation was committed up substitute transaction shall be P50,000.
to the date it was corrected; In connection with the minimum
(2) Suspension of interbank clearing trading lot rule above stated, no quasi-bank
privileges/immediate exclusion from shall issue deposit substitute instruments
clearing; in the name of two (2) or more persons or
(3) Suspension of access to BSP accounts except those falling under the
rediscounting facilities; following relationships in which cases,
(4) Suspension of lending or foreign commingling may be allowed: (a) husband
exchange operations or authority to accept and wife; (b) persons related to each other
new deposits or make new investments; within the second degree of consanguinity;
(5) Revocation of quasi-banking and (c) in trust for (ITF) arrangements.
license;
(6) Revocation of authority to perform Sec. 4214Q Interbank Borrowings. The
trust operations; and regulations on interbank loan transactions
(7) Suspension for one hundred prescribed in Sec. 4376Q shall also apply
twenty (120) days without pay of the to interbank borrowings.
directors/officers responsible for the
violation. Sec. 4215Q Borrowings from Trust
Departments or Managed Funds of Banks
Sec. 4212Q Recording; Payment; or Investment Houses. Funds borrowed by
Maturity; Renewal quasi-banks from trust departments or
a. Deposit substitutes shall be managed funds of banks or investment
recorded in the books at their respective houses are not considered as interbank
principal amounts, and reported borrowings and, therefore, are subject to
accordingly, regardless of whether the the:
interest thereon has been paid in advance a. reserve requirement on deposit
or not. substitutes;
b. If there is any stipulation that b. minimum fifteen (15)-day maturity
payment of the deposit substitute shall be period; and
chargeable against a particular deposit c. minimum trading lot rule.

Part II - Page 5
§§ 4216Q - 4217Q.1
05.12.31
Sec. 4216Q Money Market Placements c. That placements shall be

of Rural Banks. Quasi-banks shall not evidenced in all cases by promissory notes
accept money market placements from any of accepting entities/REPOs and/or
rural bank unless the latter presents a certificates of participation/assignment with
certification under oath stating: (a) that it recourse and that underlying instruments
has no overdue special time deposits; (b) shall be government securities the servicing
that it has no past due obligations with the and repayment of which are guaranteed by
BSP or other government financial the Republic of the Philippines.
institutions; (c) the amount of its current
obligations, if any, with said government § 4216Q.3 Sanctions. Violations of
financial institutions; and (d) the amount the provisions of this Section shall be
of its total outstanding money market subject to the following sanctions/penalties:
placements. However, in no case shall a. Fines
such quasi-banks sell receivables to rural First Offense - Fines of P3,000 a day,
banks without recourse. reckoned from the date placement started
up to the date when said placement was
§ 4216Q.1 Definition of terms. As withdrawn, for each violation shall be
used in this Section, the following terms assessed on the bank.
shall have the following meanings: Subsequent Offenses - Fines of P5,000
Money market placements shall a day, reckoned from the date placement
include investments in debt instruments, started up to the date placement was
including purchases of receivables with withdrawn, for each violation shall be
recourse to the lending institution, except assessed on the bank.
purchases of government securities on an b. Other Sanctions
outright basis. First Offense - Reprimand for the
Government securities shall include directors/officers who approved the
evidences of indebtedness of the Republic acceptance/placement with a warning that
of the Philippines and the BSP and other subsequent violations will be subject to
evidences of indebtedness or obligations more severe sanctions.
of government entities, the servicing and Subsequent Offenses -
repayment of which are fully guaranteed (1) Suspension for ninety (90) days
by the Republic of the Philippines. without pay for directors/officers who
approved the placement.
§ 4216Q.2 Conditions required on (2) Suspension or revocation of the
accepted placements. Placements accepted authority to engage in quasi-banking
must comply with the following conditions: functions.
a. That the total money market
placements of a rural bank, as stated in the Sec. 4217Q Bond Issues of Quasi-banks
certification, including the placement being The following guidelines shall govern the
accepted by the entity concerned, shall not bond issues of quasi-banks.
exceed the rural bank's combined capital
accounts or net worth less current § 4217Q.1 Definition of terms. For
obligations with the BSP or other purposes of this Section, the following
government financial institutions; terms shall mean:
b. The maturity of the money market a. Government securities shall refer
placement shall not exceed sixty (60) days; to the evidences of indebtedness of the
and Republic of the Philippines or its

Part II - Page 6
§§ 4217Q.1 - 4217Q.5
05.12.31
instrumentalities, or of the BSP, and must (a) individual and aggregate ceilings of ten
be freely negotiable and regularly percent (10%) and thirty percent (30%),
serviced. respectively, of the bond issue; and (b) the
b. Net book value shall refer to the condition that the investing affiliate or
acquisition cost of property or accounts, subsidiary does not have any outstanding
plus additions and improvements loan from the issuer or that it shall not
thereon, less valuation reserves, if any. incur any indebtedness from the issuer
c. Current market value shall refer during the period that the investment
to the value of the property as established remains outstanding.
by a duly licensed and independent
appraiser. § 4217Q.3 Compliance with SEC
d. Affiliate shall refer to an entity rules. QBs issuing or intending to issue
linked directly or indirectly to a QB by bonds shall comply with the new rules
means of: on the registration of long-term
(1) Ownership, control or power to commercial papers (Appendix Q-8).
vote, of ten percent (10%) or more of the
outstanding voting stocks of the entity, § 4217Q.4 Notice to Bangko Sentral
or vice-versa; Within three (3) days from approval by
(2) Interlocking directorships or the SEC of its bond issue, a QB shall
officerships; notify the appropriate department of the
(3) Common stockholders owning BSP of the approval, attaching documents
ten percent (10%) or more of the required by the SEC for the issuance and
outstanding voting securities; registration of the bond issue.
(4) Management contract or any
arrangement granting power to direct or § 4217Q.5 Minimum features. Bond
cause the direction of management and issues by QBs shall have the following
policies; minimum features:
(5) Voting trustee holding ten a. Form; issue price; denomination.
percent (10%) or more of the outstanding The trust indenture and the name of the
voting securities; indenture trustee shall be indicated on
(6) Permanent proxy or voting trust the face of the bond certificate.
constituting ten percent (10%) or more The SEC-assigned bond registration
of the outstanding voting securities. number and expiry date, if any, shall
e. Subsidiary shall refer to a likewise be indicated, stamped on the
corporation or firm more than fifty face of each bond certificate issued.
percent (50%) of the outstanding voting Bonds may be issued at face value,
stock of which is directly or indirectly at a discount, or at a premium. Minimum
owned, controlled, or held with power denomination shall be P20,000.
to vote by another. b. Term. The minimum maturity of
the bonds shall be four (4) years. No
§ 4217Q.2 Underwriting of bonds optional redemption before the fourth year
Bond issues may be underwritten by shall be allowed.
entities including those which are c. Interest; manner; form of payment
affiliates or subsidiaries of the issuer. The The bonds shall not be subject to interest
investment of affiliates or subsidiaries in rate ceilings prescribed by the Monetary
said bond issue shall be subject to: Board or Act No. 2655, as amended.

Part II - Page 7
§§ 4217Q.5 - 4246Q
08.12.31
Interest paid in advance shall not § 4217Q.6 Reserve requirement. A five

exceed the interest for one (1) year: Provided, percent (5%) reserve shall be maintained
That interest shall not be paid in kind. against all bond issues of QBs.
d. Trust indenture; collaterals; sinking The form/composition of reserves for
fund. A trust indenture shall be executed bond issues shall be in accordance with the
between the issuer and a qualified trust applicable rules on reserve against deposit
corporation as trustee, which shall neither be substitute liabilities and borrowings.
an affiliate nor a subsidiary of the issuer.
The following shall be deemed as § 4217Q.7 Inapplicability of certain
eligible collateral and shall be maintained at regulations. Secs. 4211Q and 4213Q shall
respective values indicated in relation to not apply to bonds issued under these
the face value of the bond issue: guidelines.
(1) Government securities - Aggregate current
market value of
Secs. 4218Q - 4230Q (Reserved)
100%
(2) High-grade private - Aggregate current
F. (RESERVED)
securities listed in the market value of
big board of stock 150% Secs. 4231Q - 4235Q (Reserved)
exchanges
(3) Real estate - Net book value of G. INTEREST
100%
(4) Unmatured receivables - Net book value of Sec. 4236Q Yield/Interest Rates
acquired with recourse; 150% a. Deposit substitutes of QBs shall
lease contracts recei- not be subject to yield or interest rate
vable
ceilings.
(5) Unmatured receivables - Net book value of
b. A matured and an unclaimed
acquired without recourse 200%
deposit substitute shall be payable on
Government and private securities, demand and shall earn interest or yield
certificates of title and documents evidencing from maturity to actual withdrawal or
receivables offered as security shall be renewal at a rate applicable to a deposit
physically delivered to the indenture trustee. substitute with a maturity of fifteen (15) days.
Substitution of collaterals shall be
allowed: Provided, That in no case shall the Secs. 4237Q - 4245Q (Reserved)
collateral fall below the herein-required ratios.
The issuer may, at his option, provide H. RESERVES
for the retirement at maturity of the bond
issue through a sinking fund to be deposited Sec. 4246Q Reserves Against Deposit
with and managed by the indenture trustee. Substitutes. QBs shall maintain regular
e. Bond registry. The bonds shall be reserves of eight percent (8%)1 of deposit
fully registered as to principal and interest. substitute liabilities as defined in Section 95
The issuer, its trustee, agent or underwriter of R.A. No. 7653, regardless of maturities
must maintain a bond registry duly except: (a) borrowings from the BSP through
approved by the SEC for recording, in initial the sale of government securities under repo
and subsequent transfers, the names of agreements made in connection with the
transferees, date of transfer, purchase price provisions of Sec. 4601Q; (b) deposit
and serial numbers of bonds transferred. substitutes arising from special financing
1
Under Circular No. 632 dated 19 November 2008, the reduction in regular reserves shall be effective the reserve
week starting 14 November 2008.

Part II - Page 8
§§ 4246Q - 4246Q.1
08.12.31
programs of the Government and/or (3) Poverty Eradication and Alleviation

international FIs; (c) interbank call loan Certificates (PEACe) bonds only to the
transactions under Sec. 4376Q; and (d) bonds extent of the original gross issue proceeds
under Sec. 4217Q for which the reserve determined at the time of the auction, plus
requirement shall be five percent (5%). capitalized interest on the underlying
On top of the regular reserve zero-coupon Treasury Notes as and when
requirements, an additional eleven the corresponding interest is earned over
percent (11%)1 liquidity reserves against the life of the bonds.
deposit substitute liabilities (except Items Any deficiency in the liquidity reserve
“a” to “d” above) of QBs shall be imposed shall continue to be in the forms or modes
which may be maintained in the form prescribed under existing regulations for
prescribed in Item “a” of Subsec. 4246Q.1. the composition of required reserves.
Any deficiency shall be in the form b. The balance shall be as follows:
prescribed in Item “b” of Subsec. 4246Q.1. (1) At least ten percent (10%) in the
Provided, That deposit substitutes form of deposit balances with the BSP;
evidenced by repo agreements covering (2) A maximum of seventy-five percent
government securities up to the amount (75%) in the form of government securities;
equivalent to the adjusted Tier 1 capital and
of the QB shall be subject to the statutory (3) The balance in the form of demand
reserve of two percent (2%)2: Provided, deposit accounts with banks which are not
further, That such rate shall apply only to restricted as to withdrawal or use for current
repo agreements, the documentation of operations but not with FIs which have been
which conforms with, and were delivered closed and are under receivership or
to a BSP accredited third party custodian liquidation.
as required under existing BSP For purposes of this Subsection,
regulations. government securities eligible as reserves
(As amended by Circular No. 632 dated 19 November 2008) against deposit substitute liabilities of QBs
as referred to in Item "b(2)" above shall be
§ 4246Q.1 Composition of reserves limited to bonds or other evidences of
The composition of the reserves shall be indebtedness representing direct
as follows: obligations of the government of the
a. Not more than the percentage of Republic of the Philippines having the
liquidity reserves required under Sec. following minimum features/conditions:
4246Q shall be maintained in the Reserve (i) The securities must bear an interest
Deposit Account (RDA) with the BSP or rate of not more than four percent (4%) per
may be in the form of the following: annum, must be non-negotiable and shall
Provided, That it complies with the carry BSP support; and
guidelines shown in Appendix Q-41. (ii) The instrument must expressly state
(1) Short-term market-yielding in its face the amount, maturity date and
government securities purchased directly interest rate of the obligation.
from the BSP-Treasury Department; A list of reserves-eligible and
(2) NDC Agri-Agra ERAP Bonds, non-eligible securities may be found in
regardless of maturity; and Appendix Q-9.
1
From 10% to 11% under Circular No. 491 dated 21 July 2005, effective the reserve week starting 15 July 2005.
2
The statutory reserve of two percent (2%) may not be availed of pending:
(1) the issuance of the pertinent market convention acceptable to BSP that shall govern deposit substitutes transactions
evidenced by repo agreements covering government securities; and
(2) the opening for the purpose of a separate RoSS account with the Bureau of the Treasury by the BSP-accredited third
party custodian.

Part II - Page 9
§§ 4246Q.1 - 4246Q.3
08.12.31
Other government securities being declared half-day holidays and days when
used for reserve purposes shall continue there is no clearing: Provided, That with
to be eligible as such: Provided, That reference to public special/legal holidays,
whenever said securities shall have non-business unexpected declared
matured, they shall be replaced by non-business days, declared halfday
securities carrying the above features. holidays and days when there is no
Securities held as reserves shall be clearing, the reserve position as calculated
valued at cost of acquisition, and the QB at the close of the business day
may freely alter its composition: Provided, immediately preceding such public
That any substitution or acquisition satisfies special/legal holidays, non-business days
the eligibility requirements prescribed and unexpected declared non-business
above: Provided, further, That the QB day/s and declared half-day holidays and days
notifies the BSP of any such change not later when there is no clearing, shall apply
than the reporting day following the change. thereon. For this purpose, the principal office
Securities counted as reserves which in the Philippines and all other offices located
are hypothecated or encumbered in any therein shall be treated as a single unit.
way or earmarked for any other purpose The guidelines on the computation
shall automatically lose their eligibility as of a bank's reserve position during
reserves. public sector holidays are shown in
Only the buying/lending QB in a resale Appendix Q-49.
agreement covering eligible government The required reserves in the current
securities may use such securities as period (reference reserve week) shall be
reserves against deposit substitute computed based on the corresponding
liabilities. Conversely, the selling/ levels of deposit substitute liabilities of the
borrowing QB in a repo agreement prior week.
covering eligible government securities (As amended by M-2008-025 dated 13 August 2008)
may not use such securities as reserves
against deposit substitute liabilities. § 4246Q.3 Reserve deficiencies;
The reserve eligibility of government sanctions
securities under the reverse repo a. Whenever the reserve position of
operations of the BSP shall be suspended any QB computed in the manner specified
during the term of the repo agreement. The in Subsec. 4246Q.2 is below the required
phrase non-reserve eligible shall be stamped minimum, the QB concerned shall pay the
on the face of the custodian receipt being BSP one-tenth of one percent (1/10 of 1%)
issued by the BSP to buyer FIs. per day on the amount of the deficiency
(As amended by Circular Nos. 551 dated 17 November 2006 or the prevailing ninety-one (91)- day
and 539 dated 09 August 2006) T- Bill rate plus three (3) percentage points,
whichever is higher: Provided, however,
§ 4246Q.2 Computation of reserve That the QB shall be permitted to offset
position. The reserve position of any QB any reserve deficiency occurring one (1)
and the penalty on reserve deficiency shall or more days of the week covered by the
be computed based on a seven (7)-day report against excess reserves which it
week, starting Friday and ending Thursday, may hold on other days of the same week,
including Saturdays, Sundays, public and shall be required to pay the penalty
special/legal holidays, non-business days, only on the average daily net deficiency
unexpected declared non-business days or during the week.

Part II - Page 10
§§ 4246Q.3 - 4246Q.7
05.12.31
In case of abuse, the QB shall may limit or prohibit the making of new
automatically lose the privilege of loans or investments by the QB.
offsetting reserve deficiency in the
aforesaid manner until such time that it § 4246Q.4 Exemptions. Certificates
maintains its daily reserve position at the of assignment issued with recourse by
required minimum for at least two (2) QBs under the IGLF Program are not
consecutive weeks. covered by the reserve requirements.
As used in this Subsection, abuse in
the privilege of offsetting reserve § 4246Q.5 Matured and unclaimed
deficiencies against excess reserves shall deposit substitutes. Matured and
mean having reserve deficiencies unclaimed deposit substitutes shall
occurring four (4) or more times during any continue to be subject to reserves.
given week for two (2) consecutive weeks,
whether or not resulting in net weekly § 4246Q.6 Book entry method for
deficiencies. reserve securities. Transactions
b. In cases where the QB has chronic concerning reserve-eligible securities
reserve deficiency on deposit substitute shall be entered in the respective
liabilities, the Monetary Board may (1) limit securities account of each QB with the
or prohibit the making of new loans or BSP and shall be evidenced by securities
investments by the QB concerned; (2) account debit or credit advices to be
prohibit the declaration of cash dividends; promptly furnished the institution/s
and/or (3) impose such other sanctions, as concerned. No certificates shall be
it may deem necessary. The board of issued for any purpose. Transactions with
directors of such QB shall be notified of third parties other than the BSP shall not
such chronic reserve deficiency and the be recognized.
penalties therefor, and shall be required to
immediately correct the reserve position § 4246Q.7 Interest income on
of the QB. reserve deposit with Bangko Sentral
As used in this Subsection, the Deposits maintained by QBs with the
following terms shall have the following BSP up to forty percent (40%) of their
meanings: reserve requirement (excluding the
Chronic reserve deficiency shall percentage of liquidity reserves required
mean having net reserve deficiency for on deposit substitute liabilities of QBs
two (2) consecutive weeks. under Sec. 4246Q) shall be paid interest
New loan and new investment shall at four percent (4%) per annum based on
refer to any loan and any investment the average daily balance of said deposits
involving disbursement of funds. to be credited quarterly.
c. Fines on legal reserve deficiencies The computation of quarterly interest
on deposit substitute liabilities shall be paid payments credited to the QBs’ DDAs
by the QB in accordance with Sec. 4653Q: with BSP are shown in Appendix Q-27.
Provided, That where the credit balance Effective 1 July 2003, published
of the QB's demand deposit account interest rates that will be applied on BSP’s
(DDA) with the BSP is insufficient and it Regular DDAs of QBs shall be inclusive
fails to settle the assessment within fifteen of the ten percent (10%) Value Added Tax
(15) days from receipt, the Monetary Board (VAT).

Part II - Page 11
§§ 4246Q.8 - 4281Q.1
08.12.31
§ 4246Q.8 Guidelines in calculating I. (RESERVED)

and reporting to the BSP the required
reserves on deposit substitutes Secs. 4256Q - 4275Q (Reserved)
evidenced by repurchase agreements
covering government securities J. BORROWINGS FROM THE
a. The Supervisory Data Center (SDC) BANGKO SENTRAL
shall determine the maximum allowable
amount of repo agreements covering Sec. 4276Q Repurchase Agreements with
government securities that will qualify for the Bangko Sentral. Repo agreements with
the reduced statutory reserve requirements the BSP under its open market operations
of two percent (2%). It shall be based on (OMOs) shall be governed by the provisions
the amount reported by QBs in their of Sec. 4602Q.
weekly Consolidated Daily Report of
Condition. The adjusted Tier 1 capital Sec. 4277Q (Reserved)
reported daily should approximate the
quarterly adjusted Tier 1 capital as Sec. 4278Q Enhanced Intraday Liquidity
submitted by banks in compliance with the Facility (ILF). The ILF is a smoothening
provisions of Sec. 4116Q. mechanism which is available to eligible
b. Any material differences that may participant QBs in the Philippine
be noted by the SDC between the daily Payments and Settlements System
and the quarterly report shall be considered (PhilPaSS) to support their liquidity
as erroneous reporting and shall be subject requirements and avoid payment
to the penalties under existing regulations. gridlocks in PhilPaSS. The revised
The SDC shall also make a re-run of its features of the enhanced intraday
computation of the QB’s reserve position liquidity facility are shown in Appendix
and in the event that the reserve position Q-13-B.
resulted to a reserve deficiency/ies, the (As superseded by the MOA between the BSP, BTr, BAP
corresponding penalties on reserve and Money Market Association of the Philippines dated
deficiencies shall also apply. 25 March 2008)
c. The lagged system in the
measurement of a QB’s reserve Secs. 4279Q - 4280Q (Reserved)
requirement, as provided in Subsec.
4246Q.2, shall also be adopted in the K. OTHER BORROWINGS
calculation of the two percent (2%)
statutory reserve requirements for repo Sec. 4281Q Borrowings from the
agreements covering government Government. QBs shall not borrow any
securities. fund or money from the Government and
d. Deposit substitutes evidenced by government entities, through the issuance
repo agreements covering government or sale of its acceptances, notes or other
securities in excess of the adjusted evidence of debt, except as may be
Tier 1 capital shall be treated as regular authorized by existing statutes.
deposit substitutes and shall be subject
to the regular statutory and liquidity § 4281Q.1 Definition of terms. For
reserve requirements under existing purposes of this Section, the following
regulations. terms shall have the meaning indicated
unless the context clearly indicates
Secs. 4247Q - 4255Q (Reserved) otherwise:

Part II - Page 12
§§ 4281Q.1 - 4299Q
05.12.31
a. Fund or money from the and Al-Amanah Islamic Investment Bank

Government and government entities of the Philippines, corporations which are
includes public moneys of every sort, organized as subsidiaries of GOCCs
whether pertaining to the National under the provisions of the Corporation
Government, province, city, municipality, Law (Act No. 1459, as amended) or the
or other branch or agency of the Corporation Code (BP Blg. 68) and private
Government, including government- corporations which are taken over by
owned or controlled corporations (GOCCs) GOCCs.
as defined herein, and shall comprise
"revenue funds", "trust funds", and Secs. 4282Q - 4298Q (Reserved)
"depository funds" as these terms are
defined in the Revised Administrative Sec. 4299Q General Provision on
Code of 1987, and deposits of, borrowings Sanctions. Any violation of the provisions
from, and all other liabilities to, the of this Part shall be subject to Sections 36
Government and government entities. and 37 of R.A. No. 7653.
b. GOCCs shall refer to GOCCs The guidelines for the imposition of
which are created by special laws. It shall monetary penalty for violations/offenses
exclude government FIs such as the with sanctions falling under Section 37 of
Development Bank of the Philippines R.A. No. 7653 on QBs, their directors
(DBP), Land Bank of the Philippines (LBP) and/or officers are shown in Appendix Q-39.

Part II - Page 13
§ 4301Q
05.12.31
PART THREE
LOANS, INVESTMENTS AND SPECIAL CREDITS
Section 4301Q Management of Risk of assets and liabilities and of income and
Assets/Minimum Guidelines on Lending expenditures shall be required of credit
Operations. It shall be the responsibility applicants.
of the board of directors of a quasi-bank to d. Amounts, purpose and terms of
formulate written policies on the extension credit accommodations. Loans/credit
of credit and risk diversification and to set accommodations shall be granted only in
the guidelines for evaluation of risk assets. amounts and for periods necessary for the
Well-defined lending policies and sound completion of the operations to be financed,
lending practices are essential if a quasi- and for purposes which are attuned to
bank is to perform its credit-extension government economic policies. The amount
function effectively and minimize the risk and period of the loan shall be justified by
inherent in any extension of credit. The the financial statements submitted or by
responsibility should be approached in a way specific feasibility/project studies for a
that will provide assurance to the public, the particular operation to be financed by the loan
stockholders and supervisory authorities that applied for.
timely and adequate action will be taken to e. Documentation of loans. All loans/
maintain the quality of the loan portfolio and credit extensions shall be supported by
other risk assets. evidences of indebtedness and/or loan
a. Requirement of lending policies agreements which shall contain, among
Quasi-banks shall have well-defined lending other things, a statement of the purpose of
policies which shall ensure that lending shall the loan and a program of repayment of the
be upon terms which are in the best interest obligation.
of the institution and in accordance with f. Credit files. Adequate credit files of
existing policy, rules and regulations of the borrowers shall be maintained which shall
Monetary Board. Such policies shall be in contain documents such as credit
writing to form part of the institution’s investigation reports, balance sheets,
permanent records and shall be made statements of assets and liabilities, income
available for inspection by the Bangko Sentral. and expense statements, income tax returns,
b. Lending operations, definition bank and trade checkings, and other
Lending operations refer to any credit documents/papers showing information
accommodation and purchase of which form the bases for the credit extension.
receivables and commercial papers, g. Periodic review. A periodic
including purchase of commercial papers review of the loan portfolio and the credit
in the secondary market. standing of borrowers shall be made.
c. Creditworthiness of borrowers h. Arm’s length transactions. A quasi-
Before extending credit in any form, the bank shall not relend to or purchase
quasi-bank must exercise proper caution receivables or other obligations of other
to ascertain that the debtors, co-makers, corporations, majority of the voting stock
indorsers, sureties and/or guarantors are of which is owned by subject corporation,
capable of fulfilling their commitments. unless the terms of the transactions are not
For this purpose, credit investigations must more favorable than those of other similar
be conducted and appropriate statements transactions.

Part III - Page 1
§§ 4301Q.1 - 4301Q.6
05.12.31
§§ 4301Q.1 - 4301Q.5 (Reserved) established policies must be approved by

the board.
§ 4301Q.6 Large exposures and (6) The policy on large exposures and
credit risk concentrations. The following credit risk concentrations shall, at a
guidelines shall govern managing large minimum, covers the following:
exposures and credit risk concentrations in (a) Exposure limits that are reasonable
line with the objective of strengthening risk in relation to capital and resources for –
management in the quasi-banking system. (i) Various types of borrowers/
a. General principles counterparties (e.g. government, banks
(1) A quasi-bank can be exposed to and other financial institutions, corporate
various forms of credit risk concentration and individual borrowers);
which if not properly managed may cause (ii) A group of related borrowers/
significant losses that could threaten its counterparties;
financial strength and undermine public (iii) Individual industry sectors;
confidence in the quasi-bank. (iv) Individual countries; and
(2) Credit risk concentrations may (v) Various types of investments.
arise from excessive exposures to (b) The circumstances in which the
individual counterparties, groups of related above limits can be exceeded and the
counterparties and groups of counterparties party authorized to approve such
with similar characteristics (e.g. excesses, e.g. the quasi-bank’s board of
counterparties in specific geographical directors or credit committee with
locations, economic or industry sectors). delegated authority from the board;
(3) Diversification of risk is essential (c) The delegation of credit authority
in quasi-banking. Many past quasi-bank within the quasi-bank for approving large
failures have been due to credit risk exposures;
concentrations of some kind. It is essential (d) The procedures for identifying,
for quasi-banks to prevent undue credit risk reviewing, managing and reporting large
concentrations from excessive exposures exposures of the quasi-bank;
to particular counterparties, industries, (e) The definition of exposure. Quasi-
economic sectors, regions or countries. banks should take into account the nature
(4) While concentration of credit risks of their business and the complexity of
is inherent in quasi-banking and cannot be their products. In any case, a quasi-bank’s
totally eliminated, they can be limited and exposures to a counterparty should include
reduced by adopting proper risk control its on and off-balance sheet exposures and
and diversification strategies. Safeguarding indirect exposures; and
against credit risk concentrations should (f) The criteria to be used for
form an important component of a quasi- identifying a group of related persons;
bank’s risk management system. (7) The board and senior management
(5) The board of directors of a quasi- of a quasi-bank should ensure that:
bank shall be responsible for establishing (a) Adequate systems and controls are
and monitoring compliance with policies in place to identify, measure, monitor and
governing large exposures and credit risk report large exposures and credit risk
concentrations of the quasi-bank. The board concentrations of the quasi-bank in a
should review these policies regularly (at timely manner; and
least annually) to ensure that they remain (b) Large exposures of the quasi-bank
adequate and appropriate for the quasi- are kept under regular review. “Large
bank. Subsequent changes to the exposures” shall refer to exposures to a

Part III - Page 2
§§ 4301Q.6 - 4302Q
08.12.31
counterparty or a group of related (4) Management should take prompt

counterparties equal or greater than five corrective action to address concerns and
percent (5%) of QB’s qualifying capital as exceptions raised.
defined under Section 4116Q. (5) There should also be an independent
(8) A QB should, where appropriate, compliance function to ensure that all
conduct stress testing and scenario relevant internal and prescribed
analysis of its large exposures to assess requirements and limits are complied
the impact of changes in market conditions with. Breaches of prescribed requirements
or key risk factors (e.g. economic cycles, and deviations from established policies
interest rate, liquidity conditions or other and limits should be reported to senior
market movements) on its profile and management in a timely manner.
earnings. c. Unsafe and unsound practice
(9) It is expected that QBs would Non-observance of the principles and
generally observe a lower internal single the requirements of Items “a” and “b” above
borrower’s limit than the prescribed limit may be a ground for a finding of unsafe
of twenty-five percent (25%) as a matter and unsound practice under Section 56 of
of sound practice. the General Banking Law of 2000
b. Monitoring of large exposures/ (Appendix Q-24) and may be subject to
credit risk concentrations appropriate sanction as may be determined
(1) QBs should have a central liability by the Monetary Board.
record (preferably based on automated d. Notification requirements
system) for each loan exposure. QBs A QB must inform BSP immediately
should be able to monitor such exposures where it has concerns that its large
against prescribed and internal limits on a exposures or credit risk concentrations
daily basis. have the potential to impact materially upon
(2) Every QB should have adequate its capital adequacy, along with proposed
management information and reporting measures to address these concerns.
systems that enable management to e. Reporting
identify credit risk concentrations within QB’s records on monitoring of large
the asset portfolio of the QB or of the group exposures shall be made available to the
(including subsidiaries and overseas BSP examiners for verification at any given
branches) on a timely basis. If a time. When warranted, the BSP may
concentration does exist, QBs should impose additional reporting requirements
reduce it in accordance with their on QB in relation to its large exposures and
prescribed policies. Large exposures shall credit risk concentrations.
be subject to more intensive monitoring. f. Sanction
(3) QBs should ensure that their Any failure or delay in complying with
internal or external auditors conduct at the requirements under Items “d” and “e” of
least an annual review of the quality of this Subsection shall be subject to penalty
large exposures and controls to safeguard applicable to those involving major reports.
against credit risk concentrations. Their
review should ascertain whether: Sec. 4302Q Loan Portfolio and Other Risk
(a) The QB’s relevant policies, limits Assets Review System. To ensure that
and procedures are complied with; and timely and adequate management action
(b) The existing policies and controls is taken to maintain the quality of the loan
remain adequate and appropriate for the portfolio and other risk assets and that
QB’s business. adequate loss reserves are set up and

Part III - Page 3
§§ 4302Q - 4306Q
08.12.31
maintained at a level sufficient to absorb assets and the general loan loss provision
the loss inherent in the loan portfolio and as required in Appendix Q-10 shall be set
other risk assets, QBs shall establish a up immediately.
system of identifying and monitoring
existing or potential problem loans and § 4302Q.2 Sanctions. Non-compliance
other risk assets and of evaluating credit with the requirement to book the valuation
policies vis-a-vis prevailing circumstances reserves required under the preceding
and emerging portfolio trends. Subsection shall be a ground for the imposition
Management must also recognize that loss of any or all of the following sanctions:
reserve is a stabilizing factor and that failure a. Denial of requests for authority to
to account appropriately for losses or make establish branches/offices; and
adequate provisions for estimated future b. Fine of P5,000 a day, counted as
losses may result in misrepresentation of follows:
the QB’s financial condition. (1) from the date the QB was informed
The system of identifying and that the recommendation of the appropriate
monitoring problem loans and other risk department of the SES was confirmed by
assets and setting up of allowance for the Monetary Board up to the date that said
probable losses shall include, but is not recommended valuation reserves were
limited to, the guidelines in actually booked, in case of the allowance
Appendix Q-10. for probable losses for loans and other risk
(As amended by Circular Nos. 622 dated 16 September 2008 assets classified as Substandard
and 520 dated 20 March 2006) (Unsecured), Doubtful and Loss as
required by the BSP; and
§ 4302Q.1 Provisions for losses; (2) from the dates prescribed under the
booking. The board of directors of QBs are preceding Subsection up to the date of the
responsible for ensuring that their actual booking in cases of the two percent
institutions have controls in place to (2%) general provision for probable loan
determine the allowance for probable losses losses, the twenty-five percent (25%)
on loans, other credit accommodations, allowance for probable losses on secured
advances and other assets consistent with loans classified as Substandard, and the five
the institutions’ stated policies and percent (5%) allowance for probable losses
procedures, generally accepted accounting on Loans Especially Mentioned.
principles (GAAP), the BSP rules and
regulations and the safe and sound banking Secs. 4303Q - 4305Q (Reserved)
practices. The board of directors, in fulfilling
this responsibility, shall require management A. LOANS IN GENERAL
to develop and maintain an appropriate,
systematic and uniformly applied process Sec. 4306Q Loan Limit to a Single
consistent and in compliance with existing Borrower. The total liabilities of any
BSP rules and regulations to determine the person, company, corporation or firm, to a
amount of reserves for bad debts or QB for money borrowed, excluding (a)
doubtful accounts or other contingencies. loans secured by obligations of the BSP or
The specific allowance for probable of the Philippine Government; (b) loans
losses for classified loans and other risk fully guaranteed by the government as to

Part III - Page 4
§§ 4306Q - 4306Q.3
05.12.31
the payment of principal and interest; (c) § 4306Q.1 Exclusions from loan limit
loans fully secured by US Treasury Notes In addition to those enumerated in Sec.
and other securities issued by central 4306Q, the total liabilities of a commercial
governments and central banks of foreign paper issuer for commercial papers held by
countries with the highest credit quality a quasi-bank as a firm underwriter shall not
given by any two (2) internationally be counted in determining compliance with
accepted rating agencies; (d) loans to the the SBL within a period of 180 days from the
extent covered by the hold-out on or acquisition of the commercial paper by an
assignment of, deposits maintained in the quasi-bank: Provided, That in no case shall
lending quasi-bank and held in the such liabilities exceed five percent (5%) of
Philippines; (e) loans and acceptances the net worth of the selling agent beyond the
under letters of credit to the extent covered normal applicable SBL.
by margin deposits; and (f) other loans or
credits which the Monetary Board may, § 4306Q.2 Contingent liabilities
from time to time, specify as non-risk included in loan limit. Outstanding foreign
assets, shall at no time exceed twenty-five and domestic standby and deferred letters
percent (25%) of the combined capital of credit less margin deposits, and
accounts as defined in Sec. 4106Q. outstanding guarantees, the nature of which
The total liabilities of any borrower requires the guarantor to assume the
may amount to a further fifteen percent liabilities/obligations of third parties in case
(15%) of the combined capital accounts of of their inability to pay, shall be included
such quasi-bank: Provided, That the in determining the SBL except those fully
additional liabilities are adequately secured secured by cash, hold-out on deposit
by real estate mortgage, assignment or substitutes, or government securities.
pledge of readily marketable bonds and
other high-grade debt securities, except § 4306Q.3 Sanctions. Violations of
those issued by the lending entity. the provisions of the foregoing rules shall be
For purposes of this Section, the term subject to the following sanctions/penalties:
liabilities shall mean the direct liability of a. Fines. Fines of one-tenth of one
the maker or acceptor of paper discounted percent (1/10 of 1%) of the excess but not to
with or sold to such quasi-bank and the exceed P30,000 a day for each violation,
liability of the indorser, drawer or guarantor reckoned from the date the excess started
who obtains a loan from or discounts paper up to the date when such excess was
with or sells papers under his guaranty to eliminated, shall be assessed on the quasi-
such quasi-bank and shall include in the bank.
case of liabilities of a co-partnership or b. Other sanctions
association, the liabilities of the several First Offense
members thereof and shall include, in the Reprimand for the directors/officers
case of liabilities of a corporation, all who approved the credit line or availment
liabilities of its subsidiaries: Provided, That which resulted in the excess with a warning
even in cases where the parent that subsequent violations will be subject
corporation, co-partnership or association to more severe sanctions.
has no liability to the quasi-bank, the Subsequent offenses
liabilities of subsidiary corporations or (1) For the duration of each violation,
members of the co-partnership or imposition of a fine of P500 a day for each of
association shall be combined for purposes the directors/officers who approved the credit
of the single borrower’s limit (SBL). line or availment which resulted in an excess.

Part III - Page 5
§§ 4306Q.3 - 4307Q.5
05.12.31
(2) Suspension of the quasi-bank from obtained in accordance with the provisions
branching privileges until the excess is of the rules existing as of 1 January 1989:
eliminated. Provided, however, That the parties to such
existing floating rate loan agreement are
Sec. 4307Q Interest and Other Charges not precluded from amending or modifying
The following rules shall govern the rates their loan agreements by adopting a floating
of interest on loans by quasi-banks. rate of interest determined on the basis of
TBR or other market-based reference rates.
§ 4307Q.1 Rate ceilings. The rate Where the loan agreement provides
of interest, including commissions, for a floating interest rate, the interest
premiums, fees and other charges on loan period, which shall be such period of time
transactions, regardless of maturity and for which the rate of interest is fixed, shall
whether secured or unsecured, shall not be be such period as may be agreed upon by
subject to any ceiling. the parties.
§ 4307Q.2 Floating rates of interest § 4307Q.3 Effect of prepayment. If

The rate of interest on a floating rate loan there is no agreement on the rebate of
during each interest period shall be stated interest in the event of prepayment of the
based on the Manila Reference Rate (MRR), loan, the quasi-bank is not under any legal
Treasury Bill Rate (TBR) or other market- obligation to return the interest
based reference rates, plus a margin as may corresponding to the period from date of
be agreed upon by the parties. prepayment to the stipulated maturity date
The MRRs for various interest periods of the loan. Any prepayment made by the
shall be determined and announced by the debtor should not, therefore, affect
BSP every week and shall be based on the computation of the effective rate stipulated
weighted average of the interest rates paid in the loan contract.
during the immediately preceding week
by the ten (10) commercial banks with the § 4307Q.4 Loan prepayment. The
highest combined levels of outstanding borrower of a quasi-bank shall not be
deposit substitutes and time deposits, in prohibited from prepaying a loan. A
promissory notes issued and time deposits stipulation requiring the consent of the
received by such banks, of P100,000 and lending quasi-bank to such prepayment
over per transaction account, with shall be contrary to this provision. In case
maturities corresponding to the interest of prepayment in the loan contract, such
periods for which such MRRs are being prepayment shall not be subject to penalty
determined. Such rates and the in the absence of any stipulation as to
composition of the sample commercial penalty. However, the parties may
banks shall be reviewed and determined stipulate that prepayment shall be subject
at the beginning of every calendar to penalty: Provided, That the penalty is
semester on the basis of the banks’ not excessive or unconscionable.
combined levels of outstanding deposit
substitutes and time deposits as of May 31 § 4307Q.5 Escalation clause; when
or November 30, as the case may be. allowable. Parties to an agreement
The rate of interest on floating rate pertaining to a loan or forbearance of
loans existing and outstanding as of 23 money, goods or credits may stipulate that
December 1995 shall continue to be the rate of interest agreed upon may be
determined on the basis of the MRRs increased in the event that the applicable

Part III - Page 6
§§ 4307Q.5 - 4308Q
05.12.31
maximum rate of interest is increased by b. Interest earned on an extended or

law or by the Monetary Board: Provided, renewed loans may be accrued: Provided,
That such stipulation shall be valid only if That there is no previously accrued but
there is also a stipulation in the agreement uncollected interest thereon.
that the rate of interest agreed upon shall Interest income on restructured loans
be reduced in the event that the applicable (principal plus capitalized interest thereon)
maximum rate of interest is reduced by may be accrued: Provided, That these are:
law or by the Monetary Board: Provided, (1) In current status; and
further, That the adjustment in the rate of (2) Fully secured by real estate with
interest agreed upon shall take effect on or loan value of up to sixty percent (60%) of
after the effectivity of the increase or the appraised value of the real estate
decrease in the maximum rate of interest. security and the insured improvements
thereon, and such other first class collaterals
§ 4307Q.6 Rate of interest in the as may be deemed appropriate by the
absence of stipulation. The rate of interest Monetary Board.
for the loan or forbearance of any money, c. Accrued interest earned but not
goods or credit and the rate allowed in yet collected/received shall not be
judgments, in the absence of express considered as profits and/or earnings
contract as to such rate of interest, shall be eligible for dividend declaration and/or
twelve percent (12%) per annum. profit sharing.
d. A contra account to be designated
§ 4307Q.7 Accrual of interest Allowance for Uncollected Interest on
earned on loans. Quasi-banks are allowed Loans shall be set up in accordance with
to accrue interest earned on loans, subject Appendix 10 if accrued interest receivable
to the following guidelines and/or on loans or loan installments is still
procedures. uncollected after three (3) months from the
a. No accrual of interest income is date such loans and loan installments have
allowed if a loan has become non- matured or have become non-performing.
performing as defined in Sec. 4311Q. e. The amount representing
Likewise, interest income shall not be Allowance for Uncollected Interest on
accrued for unmatured loans/receivables Loans may be chargeable against the
with indications that collectibility thereof excess of outstanding valuation reserves
has become doubtful. These indications for loans and other risk assets as appearing
include declaration of bankruptcy, in the quasi-bank’s books over those
insolvency, cessation of operations, or such recommended by the appropriate SED of
other conditions of financial difficulties or the BSP. The balance thereof, if any, shall
inability to meet financial obligations as be chargeable against operations.
they mature. Separate appropriate records f. For all purposes, the Allowance
shall be maintained for these non-accruing for Uncollected Interest on Loans shall be
unmatured loans. considered a valuation reserve/allowance
Interest on non-performing loan against the Accrued Interest Receivable
accounts shall be taken up as income only account.
when actual payments thereon are received.
Interest income on past due loans Sec. 4308Q Past Due Accounts. Past due
arising from discount amortization (and not accounts of a quasi-bank shall, as a general
from the contractual interest of the accounts) rule, refer to all accounts in its loan portfolio,
shall be accrued as provided in PAS 39. all receivable components of trading

Part III - Page 7
§§ 4308Q - 4308Q.4
05.12.31
account securities and other receivables, Provided, however, That when the total
as defined in the manual of accounts for amount of arrearages reaches twenty
non-bank financial institutions, which are percent (20%) of the total outstanding
not paid at maturity. balance of the loan/receivable, the total
outstanding balance of the loan/receivable
§ 4308Q.1 Accounts considered past shall be considered as past due, regardless
due. The following shall be considered as of the number of installments in arrears:
past due: Provided, further, That for modes of
a. Loans or receivables payable on payment other than those listed above (e.g.
demand - if not paid on the date indicated daily, weekly or semi-monthly), the entire
on the demand letter, or within three (3) outstanding balance of the loan/receivable
months from date of grant, whichever shall be considered as past due when the
comes earlier; total amount of arrearages reaches ten
b. Bills discounted and time loans, percent (10%) of the total loan/receivable
whether or not representing availments balance;
against a credit line - if not paid on the For this purpose, the term installments
respective maturity dates of the promissory shall refer to principal and/or interest
notes; amortizations that are due on several dates
c. Customers’ liability on drafts as indicated/specified in the loan
under letters of credit/trust receipts: documents.
(1) Sight Bills - if dishonored upon f. Credit card receivables - if the
presentment for payment or not paid within amount due is not paid within ten (10) days
thirty (30) days from date of original entry, from the deadline indicated in the billing
whichever comes earlier; statement; and
(2) Usance Bills - if dishonored upon g. (Deleted by Circular No. 202
presentment for acceptance or not paid on dated 27 May 1999)
due date, whichever comes earlier; and For the purpose of determining
(3) Trust Receipts - if not paid on due date. delinquency in the payment of obligations
d. Bills and other negotiable as defined in Subsec. 4143Q.1(e), any due
instruments purchased - if dishonored upon and unpaid loan installment or portion
presentment for acceptance/payment or thereof, from the time the obligor defaults,
not paid on maturity date, whichever comes shall be considered as past due.
earlier: Provided, however, That an out-of-
town check and a foreign check shall be § 4308Q.2 Renewal/extension. No
considered as past due if outstanding for loan shall be renewed nor its maturity date
thirty (30) days and forty-five (45) days, extended unless the corresponding accrued
respectively, unless earlier dishonored; interest receivable shall have been paid.
e. Loans/receivables payable in
installments - the total outstanding balance § 4308Q.3 Restructured loans. A
thereof shall be considered past due in restructured loan shall be immediately
accordance with the following schedule: classified past due in case of default of any
principal or interest payment.
Minimum Number
Mode of Payment of Installments in Arrears
Monthly 3 § 4308Q.4 Demand loans. Quasi-
Quarterly 1 banks shall, in case of non-payment of a
Semestral 1 demand loan, make a written demand
Annual 1 within three (3) months following the grant

Part III - Page 8
§§ 4308Q.4 - 4308Q.6
07.12.31
of such loan. The demand shall indicate a (3) Advances. The term advances shall
period of payment which shall not be later refer to any advance by means of an
than three (3) months from the date of said incidental or temporary overdraft, cash
demand. “vale”, any advance by means of DAUD
and any advances of unearned salary or
§ 4308Q.5 Write-off of loans as bad unearned compensation.
debts (4) Other assets. The term other
a. QBs, upon approval by their board assets shall refer to investments,
of directors, may write-off loans, other placements, ROPAs and all other asset
credit accommodations, advances and accounts that will not fall under loans and
other assets against allowance for probable other credit accommodations.
losses (valuation reserves) or current (5) Bad debts. The term bad debts
operations as soon as they are satisfied that shall refer to the definition under Subsec.
such loans, other credit accommodations, 4126Q.1.
advances and other assets are worthless c. Reporting requirements. Notice of
as follows: write-off of loans, other credit
(1) In the case of secured loans, QBs accommodations, advances and other
may write-off loans, other credit assets shall be submitted in the prescribed
accommodations and other assets in an form to the appropriate department of the
amount corresponding to the booked SES at least twenty five (25) banking days
valuation reserves: Provided, That the prior to the intended date of write-off.
balance of the secured loans, other credit The income tax expense deferred
accommodations, advances and other corresponding to the amount of loan, other
assets shall remain in the books. credit accommodation, advances and other
(2) In the cases of unsecured loans, asset written-off considered deductible for
other credit accommodations, advances and income tax purposes shall be recognized
other assets, QBs shall write-off said loans, and reversed in QB’s books.
other credit accommodations, advances and
other assets in full amount outstanding. § 4308Q.6 Updating of information
However, write-off of loans, other provided to credit information bureaus
credit accommodations, advances and QBs which have provided adverse
other assets considered transactions with information, such as the past due or
DOSRI shall be with prior approval of the litigation status of loan accounts, to credit
Monetary Board. information bureaus, or any organization
b. Definitions. For purposes of this performing similar functions, shall submit
Section, the following terms are hereby monthly reports to these bureaus or
defined as follows: organizations on the full payment or
(1) Loans. The term loans shall refer settlement of the previously reported
to all the accounts under the loan portfolio accounts within five (5) business days from
of a QB as enumerated in the Manual of the end of the month when such full
Accounts for Quasi-Banks. payment was received. For this purpose, it
(2) Other credit accommodations. The shall be the responsibility of the reporting
term other credit accommodations shall refer QBs to ensure that their disclosure of any
to exposures of QBs other than loans such as information about their borrowers/clients is
sales contract receivables, accounts with the consent of borrowers/clients
receivables, accrued interest receivables, concerned.
lease receivables, and rental receivables. (Circular No. 589 dated 18 December 2007)

Part III - Page 9
§§ 4309Q - 4309Q.1
05.12.31
Sec. 4309Q “Truth in Lending Act” foregoing, and includes the Philippine
Disclosure Requirement. QBs are required Government or any agency thereof, or
to strictly adhere to the provisions of R.A. any other government, or any of its
No. 3765, otherwise known as the “Truth political subdivisions, or any agency of the
in Lending Act”, and shall make the true and foregoing.
effective cost of borrowing an integral part b. Cash price or delivered price, in
of every loan contract. case of trade transactions, is the amount of
The following regulations shall apply money which would constitute full
to all QBs engaged in the following types payment upon delivery of the property
of credit transactions: (except money) or service purchased at the
a. Any loan, mortgage, deed of trust, QB’s place of business. In the case of
advance and discount; financial transactions, cash price represents
b. Any conditional sales contract, any the amount of money received by the debtor
contract to sell, or sale or contract of sale upon consummation of the credit
of property or services, either for present transaction, net of finance charges
or future delivery, under which part or all collected at the time the credit is extended,
of the price is payable subsequent to the if any.
making of such sale or contract; c. Down payment represents the
c. Any rental-purchase contract; amount paid by the debtor at the time of
d. Any contract or arrangement for the transaction in partial payment for the
the hire, bailment, or leasing of property; property or service purchased.
e. Any option, demand, lien, pledge, d. Trade-in represents the value of an
or other claim against, or for delivery of asset agreed upon by the QB and debtor,
property or money; given at the time of the transaction as partial
f. Any purchase, or other acquisition payment for the property or service
of, or any credit upon the security of, any purchased.
obligation or claim arising out of any of the e. Non-finance charges correspond
foregoing; and to the amounts advanced by the QB for
g. Any transaction or series of items normally associated with the
transactions having a similar purpose or ownership of the property or the availment
effect. of the service purchased which are not
The following categories of credit incidental to the extension of credit. For
transactions are outside the scope of these example, in the case of the purchase of an
regulations: automobile on credit, the QB may advance
(1) Credit transactions which do not the insurance premium as well as the
involve the payment of any finance charge registration fee for the account of the
by the debtor; and debtor.
(2) Credit transactions in which the f. Amount to be financed consists
debtor is the one specifying a definite and of the cash price plus non-finance charges
fixed set of credit terms such as bank deposits, less the amount of the down payment and
insurance contracts, sale of bonds, etc. value of the trade-in.
g. Finance charge represents the
§ 4309Q.1 Definition of terms amount to be paid by the debtor incidental
a. Person means any individual, to the extension of credit such as interest
partnership, corporation, association, or or discount, collection fee, credit
other organized group of persons, or the investigation fee, attorney’s fee and other
legal successor or representative of the service charges.

Part III - Page 10
§ 4309Q.1
05.12.31
The total finance charge represents the In the case of single payment upon
difference between (i) the aggregate maturity, the simple annual rate (R) in percent
consideration (down payment plus is determined by the following method:
installments) on the part of the debtor, and
(ii) the sum of the cash price and non- finance charge 12
R= X X100
amount to be maturity period
finance charges. financed in months
h. Simple annual rate is the uniform
percentage which represents the ratio, on In the case of the normal installment
an annual basis, between the finance type of credit of at least one (1) year in
charges and amount to be financed. duration, where installment payments of
(Next page is Part III - Page 11)

Part III - Page 10a
§§ 4309Q.1 - 4309Q.3
05.12.31
equal amount are made in regular time c. The difference between the
periods spaced not more than one (1) year amounts set forth under Items "a" and "b";
apart, the R in percent is computed by the d. The charges, individually itemized,
following method: which are paid or to be paid by such person
number of in connection with the transaction but
payments which are not incident to the extension of
finance charge in a year credit;
R=2x x x 100
amount to be total number e. The total amount to be financed;
financed of payments
f. The finance charges expressed in
plus one
terms of pesos and centavos; and
In cases where the credit matures in g. The percentage that the finance
less than one (1) year (e.g., installment charge bears to the total amount to be
payments are required every month for financed expressed as a simple annual rate
six (6) months), the same formula will on the outstanding unpaid balance of the
apply except that number of payments in obligation.
a year would refer to the number of The contract covering the credit
installment periods, as defined in the credit transaction, or any other document to be
contract, as if the credit matures in one acknowledged and signed by the debtor,
(1) year. For example, number of shall indicate the above seven (7) items of
payments in a year would be twelve (12) information. In addition, the contract or
for this purpose in cases where six (6) document shall specify additional charges,
monthly installment payments are called if any, which will be collected in case
for in the credit transaction.1 In cases certain stipulations in the contract are not
where credit terms provide for premium met by the debtor.
or penalty charges depending on, for In case the seven (7) items of
instance, the timeliness of the debtor’s information mentioned are not disclosed
payments, the annual rate to be disclosed in the contract covering the credit
in writing shall be the rate for regular transaction, all of the items, to the extent
payments, i.e., the premium and penalty applicable, shall be disclosed in another
need not be taken into account in the document in the form (Appendix Q-11)
determination of the annual rate. Such prescribed by the Monetary Board, to be
premium or penalty charges shall, however, signed by the debtor and appended to the
be indicated in the credit contract. main contract. A copy of such disclosure
statement shall be furnished to the
§ 4309Q.2 Information to be borrower.
disclosed. QBs shall furnish to each person
to whom credit is extended, prior to the § 4309Q.3 Inspection of contracts
consummation of the transaction, a clear covering credit transactions.QBs shall
statement in writing setting forth the keep in their office or place of business
following information: copies of contracts which involve the
a. The cash price or delivered price extension of credit and the payment of
of the property or service to be acquired; finance charges therefor. Such copies shall
b. The amounts, if any, to be credited be available for inspection or examination
as down payment and/or trade-in; by the appropriate department of the SES.
--------------------------------------------------------------------------------
1
This can be determined by dividing twelve, the number of months in a year, by the number or fraction of months
between installment payments.

Part III - Page 11
§§ 4309Q.4 - 4312Q.1
08.12.31
§ 4309Q.4 Posters. An abstract of R.A. § 4311Q.2 Interest accrual on past

No. 3765 (Appendix Q-12) shall be due loans. No accrual of interest income
reproduced in a format sixty (60) cm. wide is allowed if a loan has become
and seventy-five (75) cm. long and posted non-performing as defined under Subsec.
on a conspicuous place in the QB’s place(s) 4351Q.1. Interest on NPLs shall be taken
of business. up as income only when actual payment
thereon is received.
Sec. 4310Q (Reserved) Interest income on past due loans
arising from discount amortization (and not
Sec. 4311Q Non-Performing Loans from the contractual interest of the
accounts) shall be accrued as provided in
§ 4311Q.1 Accounts considered PAS 39.
non-performing; definitions
a. Non-performing loans (NPLs) shall, § 4311Q.3 Allowance for uncollected
as a general rule, refer to loan accounts interest on loans. A contra account to be
whose principal and/or interest is unpaid for designated Allowance for Uncollected
thirty (30) days or more after due date or after Interest on Loans shall be set up in
they have become past due in accordance accordance with Appendix Q-10 if accrued
with existing rules and regulations. This shall interest receivable on loans and loan
apply to loans payable in lump sum and loans installments is still uncollected after three
payable in quarterly, semi-annual or annual (3) months from the date such loans have
installments, in which case, the total become non-performing.
outstanding balance thereof shall be
considered non-performing. § 4311Q.4 Reporting requirement
b. In the case of loans payable in QBs shall report the following data at the
monthly installments, the total outstanding end of each month as additional information
balance thereof shall be considered in the monthly Consolidated Statement of
non-performing when three (3) or more Condition starting with their report as of
installments are in arrears. 31 May 1999.
c. In the case of loans payable in daily,
weekly or semi-monthly installments, the Total non-performing loans xxx
total outstanding balance thereof shall be Non -performing regular loans xxx
considered non-performing at the same Non -performing restructured loan xxx
time that they become past due in
accordance with Sec. 4308Q, i.e., the Sec. 4312Q Grant of Loans and Other
entire outstanding balance of the loan/ Credit Accommodations. The following
receivable shall be considered as past due regulations shall be observed in the grant
when the total amount of arrearages of loans and other credit accommodations.
reaches ten percent (10%) of the total loan/
receivable balance. § 4312Q.1 General guidelines
d. Restructured loans shall be Consistent with safe and sound business
considered non-performing in accordance practices, a QB shall grant loans or other
with existing rules and regulations. credit accommodations only in amounts
e. All items in litigation as defined in and for the periods of time essential for the
the Manual of Accounts shall be considered effective completion of the operation to be
NPLs. financed.

Part III - Page 12
§ 4312Q.1
08.12.31
Before granting loans or other credit other credit accommodation granted on the
accommodations, a QB must ascertain that basis of said document(s) and shall have the
the borrower, co-maker, endorser, surety right to demand immediate repayment or
and/or guarantor, if applicable, is/are liquidation of the obligation. Moreover, the
financially capable of fulfilling his/their QB may seek redress from the court for
commitments to the QB. For this purpose, any harm done by the borrower’s
a QB shall obtain adequate information on submission of spurious documents.
his/their credit standing and financial The required submission of additional
capacities. documents shall cover loans, other credit
In addition to the usual information accommodations, and credit lines granted,
sheet about the borrower, a QB shall require restructured, renewed or extended after
from the credit applicant the following: 02 November 2006 including any
a. A copy of the latest Income Tax availment and/or re-availment against
Return (ITR) of the borrower and his existing credit lines, except:
co-maker, if applicable, duly stamped as (1) Microfinance loans. This represents
received by the BIR; small loans granted to the basic sectors
b. Except as otherwise provided by such as farmer-peasant, artisanal fisherfolk,
law and in other regulations, if the workers in the formal and informal sector,
borrower is engaged in business, a copy migrant workers, indigenous peoples and
of the borrower’s latest financial cultural communities, women, differently-
statements as submitted for taxation abled persons, senior citizens, victims of
purposes to the BIR; and calamities and disasters, youth and
c. A waiver of confidentiality of client students, children, and urban poor, as
information and/or an authority of the QB defined in the Social Reform and Poverty
to conduct random verification with the BIR Alleviation Act of 1997 (R.A. No. 8425), and
in order to establish authenticity of the ITR other loans granted to poor and low-income
and accompanying financial statements households for their microenterprises and
submitted by the client. small businesses. The maximum principal
The documents under Items “a” and amount of microfinance loans shall not
”b” above shall be required to be submitted exceed P150,000 and may be amortized
annually for as long as the loan and/or credit on a daily, weekly, semi-monthly or
accommodation is outstanding. The monthly basis, depending on the cash flow
consistency of the data/figures in said ITRs conditions of the borrowers. Said loans are
and financial statements shall also be usually unsecured, for relatively short
checked and considered in the evaluation periods of time (180 days) and often
of the financial capacity and creditworthiness featuring joint and several guarantees of
of credit applicants. The waiver of one (1) or more persons;
confidentiality of client information and/or (2) Loans to registered BMBEs;
an authority of the QB to conduct random (3) Interbank loans;
verification with the BIR need not be (4) Loans secured by hold-outs on or
submitted annually since once submitted assignment of deposits or other assets
these documents remain valid unless considered non-risk by the Monetary
revoked. Board;
Should the document(s) submitted (5) Loans to individuals who are not
prove to be spurious or incorrect in material required to file ITRs under BIR regulations,
detail, the QB may terminate any loan or as follows:

Part III - Page 13
§§ 4312Q.1 - 4312Q.2
08.12.31
(a) Individuals whose gross of loan application, and financial statements

compensation income does not exceed submitted for taxation purposes to the BIR,
their total personal and additional as may be applicable, at the time the loans
exemptions, or whose compensation were granted, restructured, renewed, or
income derived from one (1) employer extended.
does not exceed P60,000 and the income For purposes of this Subsection, the
tax on which has been correctly withheld; following definitions shall apply:
(b) Those whose income has been 1. Micro and small enterprises shall be
subjected to final withholding tax; defined as any business activity or enterprise
(c) Senior citizens not required to file engaged in industry, agribusiness and/or
a return pursuant to R.A. No. 7432, as services whether single proprietorship,
amended by R.A. No. 9257, in relation to cooperative, partnership or corporation
the provisions of the National Internal whose total assets, inclusive of those arising
Revenue Code (NIRC) or the Tax Reform from loans but exclusive of the land on
Act of 1997; and which the particular business entity’s office,
(d) An individual who is exempt from plant and equipment are situated, must
income tax pursuant to the provisions of the have a value of up to P3.0 million and
NIRC and other laws, general or special; and P15.0 million respectively, or as may be
(6) Loans to borrowers, whose only defined by the SMED Council or other
source of income is compensation and the competent government agency.
corresponding taxes on which has been 2. Consumer loans is defined to include
withheld at source: Provided, That the housing loans, loans for purchase of car,
borrowers submitted, in lieu of the ITR, a household appliance(s), furniture and fixtures,
copy of their Employer’s Certificate of loans for payment of educational and hospital
Compensation Payment/Tax Withheld (BIR bills, salary loans and loans for personal
Form 2316) or their payslips for at least consumption, including credit card loans.
three (3) months immediately preceding (As amended by Circular Nos. 622 dated 16 September 2008
the date of loan application. and 549 dated 09 October 2006)
Loans to micro and small enterprises
which are not specifically exempted from § 4312Q.2 Purpose of loans and other
the additional documentary requirements credit accommodations. Before granting
specified under the third paragraph of this a loan or other credit accommodation, QBs
Subsection shall be exempted from said shall ascertain the purpose of the loan or
additional documentary requirement up to other credit accommodation which shall be
31 December 2011. clearly stated in the application and in the
Consumer loans, with original amounts contract between the QB and borrower.
not exceeding P2.0 million, are exempted The proceeds of a loan or other credit
from updating requirements or the required accommodation shall be utilized only for
annual submission of the same the purpose(s) stated in the application and
requirements forwarded during the initial contract; otherwise, the QB may terminate
submission under this Subsection but not the loan or other credit accommodation and
in their restructuring, renewal, or demand immediate repayment of the
extensions or availment/re-availment obligation. Notwithstanding the preceding
against existing credit lines: Provided, That sentence, the proceeds of a loan or other
these loans are supported by ITRs or by credit accommodation may be utilized by
BIR Form 2316 or payslips for at least three the borrower for a purpose(s) other than
(3) months immediately preceding the date that originally stated in the application and

Part III - Page 14
§§ 4312Q.2 - 4328Q
08.12.31
contract: Provided, That such other b. Ceilings. The total outstanding loans,
purpose(s) is/are among those for which the other credit accommodations and guarantees
lending QB may grant loans and other to each of the QB’s subsidiaries and affiliates
credit accommodations under existing shall not exceed ten percent (10%) of the net
laws and regulations: Provided, further, That worth of the lending QB: Provided, That the
such utilization shall be with prior written unsecured loans, other credit
approval of duly authorized officer(s)/ accommodations and guarantees to each of
committee/board of directors of the lending said subsidiaries and affiliates shall not
QB and such written approval shall form part of exceed five percent (5%) of such net worth:
the contract between the QB and the borrower. Provided, further, That the total outstanding
(Circular No. 622 dated 16 September 2008) loans, other credit accommodations and
guarantees to all subsidiaries and affiliates
§ 4312Q.3 Prohibited use of loan shall not exceed twenty percent (20%) of the
proceeds. QBs are prohibited from net worth of the lending QB: Provided, finally,
requiring their borrowers to acquire shares That these subsidiaries and affiliates are not
of stock of the lending QB out of the loan related interest of any of the director, officer,
or other credit accommodation proceeds and/or stockholder of the lending institution,
from the same QB. except where such director, officer or
(Circular No. 622 dated 16 September 2008) stockholder sits in the board of directors or is
appointed officer of such corporation as
§ 4312Q.4 Signatories. QBs shall representative of the QB.
require that loans and other credit c. Exclusions from the ceilings. Loans,
accommodations be made under the other credit accommodations and
signature of the principal borrower and, in guarantees secured by assets considered
the case of unsecured loans and other credit as non-risk under existing BSP regulations
accommodations to an individual as well as interbank call loans shall be
borrower, at least one (1) co-maker, except excluded in determining compliance with the
that a co-maker is not required when the ceilings prescribed under Item “b” above.
principal borrower has the financial d. Procedural requirements. The
capacity and a good track record of paying following provisions shall apply if a QB
his obligations. grants a loan, other credit accommodation
(As amended by Circular No. 622 dated 16 September 2008) or guarantee to any of its subsidiaries and
affiliates.
Secs. 4313Q – 4320Q (Reserved) (1) Approval of the board, when to
obtain. Except with prior written approval
B. (RESERVED) of the majority of all the members of the
board of directors, no loan, other credit
Secs. 4321Q - 4327Q (Reserved) accommodation and guarantee shall be
granted to a subsidiary or affiliate.
Sec. 4328Q Loans, Other Credit (2) Approval by the board, how
Accommodations and Guarantees manifested. The approval shall be
Granted to Subsidiaries and/or Affiliates manifested in a resolution passed by the
a. Statement of policy. Dealings of a board of directors during a meeting and
QB with its subsidiaries and/or affiliates made of record.
shall be in the regular course of business (3) Determination of majority of all the
and upon terms not less favorable to the members of the board of directors. The
institution than those offered to others. determination of the majority of all the

Part III - Page 14a
§§ 4328Q - 4336Q
08.12.31
members of the board of directors shall be The appropriate department of the SES
based on the total number of directors of may require QBs to furnish such data or
the QB as provided in its articles of information as may be necessary for
incorporation and by-laws. purposes of implementing the provisions
(4) Contents of the resolution. The of the foregoing rules.
resolution of the board of directors shall f. Sanctions. Without prejudice to the
contain the following information: criminal sanctions under Section 36 of R.A.
(a) Name of the subsidiary or affiliate; No. 7653 (The New Central Bank Act), any
(b) Nature of the loan or other credit violation of the provisions of the foregoing
accommodation or guarantee, purpose, rules shall be subject to any or all of the
amount, credit basis for such loan or other following sanctions:
credit accommodation or guarantee, (1) Restriction or prohibition on the QB
security and appraisal thereof, maturity, from declaring dividends for non-
interest rate, schedule of repayment and compliance with the herein prescribed
other terms; ceilings until the outstanding loans, other
(c) Date of resolution; credit accommodations and guarantees
(d) Names of the directors who have been reduced to within the herein
participated in the deliberation of the prescribed ceilings;
meeting; and (2) For the duration of each violation,
(e) Names in print and signatures of imposition of a fine of one tenth (1/10) of
the directors approving the resolution: one percent (1%) of the excess over the
Provided, That in instances where a ceilings per day but not to exceed P30,000
director who participated in the board a day on the following:
meeting and who approved such (a) The lending QB;
resolution failed to sign, the corporate (b) Each of the directors voting for the
secretary may issue a certification to this approval of the loan, other credit
effect indicating the reason for the failure accommodation or guarantee in excess of
of the said director to sign the resolution. any of the ceilings prescribed above.
(5) Transmittal of copy of board g. Transitory provisions. Outstanding
approval; contents thereof. A copy of the loans, other credit accommodation and
written approval of the board of directors, as guarantees to subsidiaries/affiliates that will
herein required, shall be submitted to the exceed the ceilings mentioned above shall
appropriate department of the SES within not be subject to penalty until 9 April 2007
twenty (20) business days from the date of or until said accommodations become past
approval. The copy may be a duplicate of due, or are extended, renewed or
the original, or a reproduction copy showing restructured, whichever comes later.
clearly the signatures of the approving (Circular No. 560 dated 31 January 2007)
directors: Provided, That if a reproduction
copy is to be submitted, it shall be duly Secs. 4329Q - 4335Q (Reserved)
certified by the corporate secretary that it is a
reproduction of the original written approval. C. UNSECURED LOANS
e. Reportorial requirements. Each QB
shall maintain a record of loans, other credit Sec. 4336Q Loans Against Personal
accommodations and guarantees covered Security. The grant, renewal, restructuring
by these regulations in a manner and form or extension of unsecured loans shall, in
that will facilitate verification of such addition to the requirements of Sec.
transactions by BSP examiners. 4312Q, be made under the signature of

Part III - Page 14b
§§ 4336Q - 4337Q.1
08.12.31
the principal borrower and, at least one (1) existing for the purpose of obtaining
co-maker, except that a co-maker is not money, property, labor or services on
required when the principal borrower has credit.
the financial capacity and a good track b. Credit card receivables. Represents
record of paying his obligations. the total outstanding balance of credit
(As amended by Circular No. 622 dated 16 September 2008) cardholders arising from purchases of
goods and services, cash advances,
§ 4336Q.1 General guidelines annual membership/renewal fees as well
(Deleted by Circular No. 622 dated as interest, penalties, insurance fees,
16 September 2008) processing/service fees and other
charges.
§ 4336Q.2 Proof of financial capacity c. M i n i m u m a m o u n t d u e o r
of borrower minimum payment required. Means
(Deleted by Circular No. 622 dated the minimum amount that the credit
16 September 2008) cardholder needs to pay on or before
the payment due date for a particular
§ 4336Q.3 Signatories billing period/cycle as defined under
(Deleted by Circular No. 622 dated the terms and conditions or reminders
16 September 2008) stated in the statement of account/
billing statement which may include:
§ 4336Q.4 (Reserved) (1) total outstanding balance multiplied
by the required payment percentage or
Sec. 4337Q Credit Card Operations; a fixed amount whichever is higher;
General Policy. The BSP shall foster the (2) any amount which is part of any
development of consumer credit through fixed monthly installment that is
innovative products such as credit cards charged to the card; (3) any amount in
under conditions of fair and sound excess of the credit line; and (4) all past
consumer credit practices. The BSP due amounts, if any.
likewise encourages competition and d. Default or delinquency. Shall mean
transparency to ensure more efficient non-payment of, or payment of any amount
delivery of services and fair dealings with less than, the “Minimum Amount Due” or
customers. “Minimum Payment Required” within two
Towards this end, the following rules (2) cycle dates, in which case, the “Total
and regulations shall govern the credit card Amount Due” for the particular billing
operations of QBs and subsidiary/affiliate period as reflected in the monthly
credit card companies, aligned with global statement of account may be considered
best practices. in default or delinquent.
e. Acceleration clause. Shall mean
§ 4337Q.1 Definition of terms any provision in the contract between
a. Credit card. Means any card, plate, the QB and the cardholder that
coupon book or other credit device gives the QB the right to demand the

Part III - Page 14c
§§ 4337Q.1 - 4337Q.3
05.12.31
obligation in full in case of default or non- Written policies, procedures and

payment of any amount due or for internal control guidelines shall be
whatever valid reason. established on the following aspects of
f. Subsidiary refers to a corporation credit card operations:
or firm more than fifty percent (50%) of the a. Requirements for application;
outstanding voting stock of which is directly b. Solicitation and application
or indirectly owned, controlled or held with processing;
the power to vote by a quasi-bank or other c. Determination and approval of
financial institution. credit limits;
g. Affiliate refers to an entity linked d. Pre-approved cards;
directly or indirectly to a quasi-bank or e. Issuance, distribution and
other financial institution through any one activation of cards;
or a combination of any of the following: f. Supplementary or extension cards;
(1) Ownership, control or power to g. Cash advances;
vote, whether by permanent or temporary h. Billing and payments;
proxy or voting trust, or other similar i. Deferred payment program or
contracts, by a quasi-bank or other financial special installment plans;
institution of at least ten percent (10%) or j. Collection of past due accounts;
more of the outstanding voting stock of the k. Handling of accounts for write-off;
entity, or vice-versa; l. Suspension, cancellation and
(2) Interlocking directorship or withdrawal or termination of card;
officership, except in cases involving m. Renewal of cards, upgrade or
independent directors as defined under downgrade of credit limit;
existing regulations; n. Lost or stolen cards and their
(3) Common stockholders owning at replacement;
least ten percent (10%) of the outstanding o. Accounts of DOSRI and
voting stock of each financial institution and employees;
the entity; or p. Disposition of errors and/or
(4) Management contract or any questions about the billing statement/
arrangement granting power to the quasi- statement of account and other customers’
bank or other financial institution to direct complaints; and
or cause the direction of management and q. Dealings with marketing agents/
policies of the entity, or vice-versa. collection agents.
§ 4337Q.2 Risk management system § 4337Q.3 Minimum requirements

To safeguard their interests, quasi-banks Before issuing credit cards, quasi-banks
and subsidiary/affiliate credit card and/or their subsidiary/affiliate credit card
companies are required to establish an companies must exercise proper diligence
appropriate system for managing risk by ascertaining that applicants possess
exposures from credit card operations good credit standing and are financially
which shall be documented in a complete capable of fulfilling their credit
and concise manner. The risk management commitments. The net take home pay of
system shall cover the organizational set- applicants who are employed, the net
up, records and reports, accounting, monthly receipts of those engaged in trade
policies and procedures and internal or business, or the net worth or cash flow
control. inferred from deposits of those who are

Part III - Page 15
§§ 4337Q.3 - 4337Q.4
05.12.31
neither employed nor engaged in trade or e. the default, late payment/penalty

business or the credit behavior exhibited fees or similar delinquency-related
by the applicant from his other existing charges payable in the event of late
credit cards, or other lifestyle indicators payments;
such as but not limited to club f. the conditions under which
memberships, ownership and location of interest may be imposed, including the
residence and motor vehicle ownership time period, within which any credit
shall be determined and used as basis for extended may be repaid without
setting credit limits. The gross monthly interest;
income may also be used provided g. the method of determining the
reasonable deductions are estimated for balance upon which interest and/or
income taxes, premium contributions, loan delinquency charges may be imposed;
amortizations and other deductions. h. the method of determining the
All credit card applications, especially amount of interest and/or delinquency
those solicited by third party representatives/ charges, including any minimum or fixed
agents, shall undergo a strict credit risk amount imposed as interest and/or
assessment process and the information delinquency charge;
stated thereon validated and verified by i. where one (1) or more periodic
persons other than those handling marketing. rates may be used to compute interest,
each such rate, the range of balances to
§ 4337Q.4 Information to be which it is applicable, and the
disclosed. Quasi-banks or their corresponding simple annual rate;
subsidiaries/affiliate credit card companies j. other fees, such as membership/
shall disclose to each person to whom the renewal fees, processing fees, collection
credit card privilege is extended in the fees, credit investigation fees and
agreement, contract or any equivalent attorney’s fees; and
document governing the issuance or use k. for transactions made in foreign
of the credit card or any amendment currencies and/or outside the Philippines,
thereto or in such other statement furnished for dual currency accounts (peso and
to the cardholder from time to time, prior to dollar billings), as well as payments made
the imposition of the charges and to the extent by credit cardholders in any currency
applicable, the following information: other than the billing currency: the
a. non-finance charges, individually application of payments; the manner of
itemized, which are paid or to be paid by conversion from the transaction currency
the cardholder in connection with the and payment currency to Philippine pesos
transaction but which are not incident to or billing currency; definition or general
the extension of credit; description of verifiable blended
b. the percentage that the interest exchange/conversion rates (e.g.,
bears to the total amount to be financed MASTERCARD and/or VISA International
expressed as a simple monthly or annual rates on the day the item was processed/
rate, as the case may be, on the outstanding posted to the billing statement, plus mark-
balance of the obligation; up, if any) including conversion
c. the effective interest rate per annum; commission; and/or other currency
d. for installment loans, the number conversion charges and costs arising from
of installments, amount and due dates or the purchase by the card company of
periods of payment schedules to repay the foreign currency to settle the customer’s
indebtedness; transactions shall also be disclosed.

Part III - Page 16
§§ 4337Q.5 - 4337Q.11
05.12.31
§ 4337Q.5 Accrual of interest earned a. disclosure of information is with the

Interest accrued and/or booked shall be consent of the cardholder or consumer;
reversed and no accrual of interest shall b. release, submission or exchange of
be allowed ninety (90) days after the credit customer information with other financial
card receivable has become past due as institutions, credit information bureaus,
defined in Subsec. 4308Q.1. credit card issuers, their subsidiaries and
affiliates;
§ 4337Q.6 Finance charges. The c. upon orders of court of competent
amount of finance charges in connection jurisdiction or any government office or
with any credit card transaction shall refer agency authorized by law, or under such
to interest charged to the cardholder. conditions as may be prescribed by the
Monetary Board;
§ 4337Q.7 Deferral charges. The d. disclosure to collection agencies,
quasi-bank and the cardholder may, prior counsels and other agents of the quasi-bank
to the consummation of the transaction, or card company to enforce its rights
agree in writing to a deferral of all or part against the cardholder;
of one (1) or more unpaid installments and e. disclosure to third party service
the quasi-bank may collect a deferral charge providers solely for the purpose of assisting
which shall not exceed the rate previously or rendering services to the quasi-bank or
disclosed pursuant to the provisions on card company in the administration of its
disclosure. credit card business; and
f. disclosure to third parties such as
§ 4337Q.8 Late payment/penalty insurance companies, solely for the
fees. No late payment or penalty fee shall purpose of insuring the quasi-bank from
be collected from cardholders unless the cardholder default or other credit loss, and
collection thereof is fully disclosed in the the cardholder from fraud or unauthorized
contract between the issuer and the charges.
cardholder: Provided, That late payment or
penalty fees shall be based on the unpaid § 4337Q.10 Suspension, termination
minimum amount due or a prescribed of effectivity and reactivation. Quasi-
minimum fixed amount: Provided, further, banks or their subsidiary/affiliate credit card
That said late payment or penalty fees may companies shall formulate criteria or
be based on the total outstanding balance parameters for suspension, revocation and
of the credit card obligation, including reactivation of the right to use the card and
amounts payable under installment terms shall include in their contract with
or deferred payment schemes, if the cardholders a provision authorizing the
contract between the issuer and the issuer to suspend or terminate its
cardholder contains an “acceleration clause” effectivity, if circumstances warrant.
and the total outstanding balance of the credit
card is classified and reported as past due. § 4337Q.11 Inspection of records
covering credit card transactions. Quasi-
§ 4337Q.9 Confidentiality of banks or their subsidiary/affiliate credit card
information. Quasi-banks and subsidiary/ companies shall make available for
affiliate credit card companies shall keep inspection or examination by the
strictly confidential the data on the appropriate SED of the BSP complete and
cardholder or consumer, except under the accurate files on card applicant/cardholder
following circumstances: to support the consideration for approval

Part III - Page 17
§§ 4337Q.11 - 4337Q.14
05.12.31
of the application and determination of the investigation. Nothing in this Subsection

credit limit which shall be in accordance shall be construed to prohibit any action
with the verified debt repayment ability by the quasi-bank/subsidiary credit card
and/or net worth of the card applicant/ company to collect any amount which has
cardholder. not been indicated by the cardholder to
contain a billing error or apply against the
§ 4337Q.12 Offsets. For purposes of credit limit of the cardholder the amount
transparency and adequate disclosure, the indicated to be in error.
credit card issuer shall inform/notify the
credit cardholder in the agreement, § 4337Q.14 Unfair collection
contract or any equivalent document practices. Quasi-banks, subsidiary/ affiliate
governing the issuance or use of the credit credit card companies, collection agencies,
card that, pursuant to the provisions of counsels and other agents may resort to
Articles 1278 to 1290 of the New Civil all reasonable and legally permissible
Code of the Philippines, as amended the means to collect amounts due them under
use of his credit card will subject his the credit card agreement: Provided, That
deposit/s with the quasi-bank to offset in the exercise of their rights and
against any amount/s due and payable on performance of duties, they must observe
his credit card which have not been paid good faith and reasonable conduct and
in accordance with the terms of the refrain from engaging in unscrupulous or
agreement/contract. untoward acts. Without limiting the
general application of the foregoing, the
§ 4337Q.13 Handling of complaints following conduct is a violation of this
Quasi-banks or subsidiary/affiliate credit Subsection:
card companies shall give cardholders at a. the use or threat of violence or
least twenty (20) calendar days from other criminal means to harm the physical
statement date to examine charges posted person, reputation, or property of any
in his/her statement of account and inform person;
the quasi-bank/subsidiary credit card b. the use of obscenities, insults, or
companies in writing of any billing error profane language which amount to a
or discrepancy. Within ten (10) calendar criminal act or offense under applicable
days from receipt of such written notice, laws;
the quasi-bank/subsidiary credit card c. disclosure of the names of credit
company shall send a written cardholders who allegedly refuse to pay
acknowledgement to the cardholder unless debts, except as allowed under Subsec.
the action required is taken within such ten 4337Q.9;
(10)-day period. d. threat to take any action that cannot
Not later than two (2) billing cycles or legally be taken;
two (2) months which in no case shall e. communicating or threat to
exceed ninety (90) days after receipt of the communicate to any person credit
notice and prior to taking any action to information which is known to be false,
collect the contested amount, or any part including failure to communicate that a
thereof, quasi-banks/subsidiary credit card debt is being disputed;
companies shall make appropriate f. any false representation or
corrections in their records and/or send a deceptive means to collect or attempt to
written explanation or clarification to the collect any debt or to obtain information
cardholder after conducting an concerning a cardholder; and

Part III - Page 18
§§ 4337Q.14 - 4351Q.1
05.12.31
g. making contact at unreasonable/ obligations, taking into account their

inconvenient times or hours which shall capacity to pay.
be defined as contact before 6:00 A.M. or
after 10:00 P.M., unless the account is past § 4351Q.1 Definition; when to
due for more than sixty (60) days or the consider performing/non-performing
cardholder has given express permission Restructured loans are loans the principal
or said times are the only reasonable or terms and conditions of which have been
convenient opportunities for contact. modified in accordance with a
restructuring agreement setting forth a new
§ 4337Q.15 Sanctions. Violations of plan of payment or a schedule of payment
the provisions of this Section shall be on a periodic basis. The modification may
subject to any or all of the following include, but is not limited to, change in
sanctions depending upon their severity: maturity, interest rate, collateral or increase
a. Disqualification of the quasi-bank in the face amount of the debt resulting
concerned from the credit facilities of the from the capitalization of accrued interest/
BSP except as may be allowed under accumulated charges. Items in litigation
Section 84 of R.A. No. 7653; and loans subject of judicially-approved
b. Prohibition of the quasi-bank compromise, as well as those covered by
concerned from the extension of additional petitions for suspension or for new plans
credit accommodation against personal of payment approved by the court or the
security; and SEC, shall not be classified as restructured
c. Penalties and sanctions provided loans.
under Sections 36 and 37 of R.A. No. 7653. A loan which is restructured shall be
considered non-performing except:
Secs. 4338Q - 4350Q (Reserved) (1) When the loan is current and
performing (i.e., with updated principal
D. RESTRUCTURED LOANS and interest payments) on the date of
restructuring, in which case, the loan shall
Sec. 4351Q Restructured Loans; General retain its performing status; and
Policy. Quasi-banks shall have full (2) Fully secured by real estate with
discretion in the restructuring of loans in loan value of up to sixty percent (60%) of
order to provide flexibility in arranging the the appraised value of the real estate
repayment of such loans without impairing security and the insured improvements
or endangering the lending quasi-bank’s thereon, and such other first class
financial interest, except in special cases collaterals as may be deemed appropriate
approved by the Monetary Board such as by the Monetary Board: Provided, That a
loans funded partly or wholly by foreign restructured loan, with or without
currency obligations. However, the capitalized interest, must be yielding a rate
restructuring of loans granted to DOSRI of interest equal to or greater than the
shall be upon terms not less favorable to quasi-bank’s average cost of funds at the
the quasi-bank than those offered to others. date of restructuring, otherwise, it shall
While agreements on loan restructuring be considered non-performing.
should be considered as management tools The restoration to a performing loan
to maintain or improve the soundness of shall only be effective after a satisfactory
the quasi-bank’s lending operations, these track record of payments of the required
should be drawn mainly to assist borrowers amortizations of principal and/or interest
towards the settlement of their loan has been established.

Part III - Page 19
§§ 4351Q.1 - 4351Q.2
05.12.31
For this purpose, a satisfactory track board as provided under existing rules and
record of payments of principal and/or regulations. Loans restructured other than
interest shall mean three (3) consecutive those approved by the board shall be
payments of the required amortizations of reported to it for confirmation.
principal and/or interest have been made. b. A second restructuring of a loan
However, in the case of a restructured loan shall be allowed only if there are
with capitalized interest but not fully reasonable justifications: Provided that it
secured by real estate with loan value of shall be considered a non-performing loan
up to sixty percent (60%) of the appraised and classified, at least, “Substandard”. The
value of the real estate security and the restoration to a performing loan status and/
insured improvements thereon or other or the upgrading of loan classification, e.g.,
first class collaterals, six (6) consecutive from “Substandard” to “Loans Especially
payments of the required amortizations of Mentioned”, if circumstances warrant an
principal and/or interest must have been upgrading in accordance with the criteria
made. under Appendix Q-10, shall only be
A restructured loan which has been allowed after a satisfactory track record of
restored to a performing loan status shall at least six (6) consecutive payments of the
be immediately considered non- required amortization of principal and/or
performing in case of default of any interest has been established.
principal or interest payment in c. In the restructuring process, the
accordance with Sec. 4308Q. quasi-bank shall encourage the borrower
to improve the quality of the loan either
§ 4351Q.2 Procedural requirements by strengthening financial capacity or
a. A loan may be restructured subject providing additional collateral.
to the approval of the quasi-bank’s board The real estate security and/or other
of directors in a resolution which shall first class collaterals offered shall be
embody, among other things: appraised at the time of restructuring to
(1) the basis of or justification for the ensure that current market values are being
approval; used. Real estate security shall be
(2) determination of the borrower’s appraised by an independent appraisal
capacity to pay, such as viability of the company acceptable to the BSP and shall
business; and be reappraised every year thereafter.
(3) the nature and extent of protection The term “first class collaterals” refers
of the quasi-bank’s exposure. to assets and securities which have
The authority to approve the relatively stable and clearly definable
restructuring of loans may be delegated value and/or greater liquidity and are free
by the quasi-bank’s board of directors to a from lien/ encumbrance, such as:
committee or officer(s): Provided, That (1) Real estate;
there are board-prescribed guidelines (2) Evidences of indebtedness of the
specifically on restructuring of loans: Republic of the Philippines and of the BSP,
Provided, further, That said guidelines shall and other evidences of indebtedness or
be submitted to the appropriate SED of the obligations the servicing and repayment
BSP within thirty (30) days following the of which are fully guaranteed by the
date of approval thereof. However, loans Republic of the Philippines;
previously approved by the executive (3) Hold-out on and/or assignment of
committee as well as those granted to deposit substitutes maintained in the
DOSRI shall be subject to approval by the lending institutions;

Part III - Page 20
§§ 4351Q.2 - 4356Q.1
05.12.31
(4) “Blue chip” shares of stocks, except However, in the case of a restructured loan
those issued by the lending entity or by its with capitalized interest but not fully
parent company which owns more than secured by real estate with loan value of
fifty percent (50%) of its outstanding shares up to sixty percent (60%) of the appraised
of stocks. For this purpose, the issuer value of the real estate security and the
corporation must be a listed corporation insured improvements thereon or other first
with a net worth of at least P1.0 billion and class collaterals, six (6) consecutive
with annual net earnings during the payments of the required amortizations of
immediately preceding five (5) years; and principal and/or interest must have been
(5) Such other collaterals that the made.
Monetary Board may declare as first class
collaterals from time to time. Secs. 4352Q - 4355Q (Reserved)
It is understood that the loan value to
be assigned the collateral shall be as E. LOANS/CREDIT
prescribed under existing regulations. ACCOMMODATIONS TO DIRECTORS,
OFFICERS, STOCKHOLDERS AND
§ 4351Q.3 Classification. The THEIR RELATED INTERESTS
classification of a loan prior to restructuring,
e.g., “Loans Especially Mentioned”, Sec. 4356Q General Policy. Dealings of
“Substandard” or “Doubtful” shall be a quasi-bank with any of its DOSRI shall
retained: Provided, That a loan that is not be in the regular course of business and
classified but which is non-performing prior upon terms not less favorable to the quasi-
to restructuring shall be classified, at least, bank than those offered to others.
“Loans Especially Mentioned”: Provided, No quasi-bank shall grant, renew or
further, That restructured loans with extend any credit accommodation to its
capitalized interest shall be classified, at DOSRI whenever its combined capital
least, “Substandard” and the required accounts is deficient relative to risk assets
valuation reserves shall be set up held under Sec. 4116Q, or whenever its
accordingly: Provided, finally, That a more paid-in capital is deficient relative to the
adverse classification may be given, i.e., required minimum capitalization. Neither
“Substandard", "Doubtful" or "Loss”, if the shall it grant, renew or extend any credit
circumstances warrant it as provided under accommodation to any of its DOSRI who
Appendix Q-10. has past due credit accommodations with
The upgrading of loan classification, the quasi-bank.
e.g., from “Substandard” to “Loans
Especially Mentioned”, if circumstances § 4356Q.1 Definitions. For purposes
warrant an upgrading in accordance with of these regulations, the following
the criteria in Appendix Q-10, shall only definitions shall apply.
be effective after a satisfactory track record a. Directors shall refer to quasi-bank
of payments of the required amortizations directors as defined in Sec. 4141Q.
of principal and/or interest has been b. Officers shall refer to quasi-bank
established. officers as defined in Sec. 4142Q.
For this purpose, a satisfactory track c. Stockholder shall refer to any
record of payments of principal and/or stockholder of record in the books of the
interest shall mean three (3) consecutive quasi-bank/trust entity, acting personally, or
payments of the required amortizations of through an attorney-in-fact; or any other
principal and/or interest have been made. person duly authorized by him or through

Part III - Page 21
§ 4356Q.1
05.12.31
a trustee designated pursuant to a proxy or mortgage on tangible assets, standby

voting trust or other similar contracts, letters of credit issued by foreign banks,
whose stockholdings in the lending quasi- assignments of or hold-out on deposit
bank/trust entity, individual and/or substitutes issued by the lending entity,
collectively with the stockholdings of: (i) cash margin deposits, assignment or
his spouse and/or relative within the first pledge of government securities or
degree by consanguinity or affinity or legal readily marketable bonds and other high-
adoption; (ii) a partnership in which the grade debt securities except those issued
stockholder and/or the spouse and/or any by the lending entity, or by its parent
of the aforementioned relatives is a general company which owns more than fifty
partner; and (iii) corporation, association or percent (50%) of its outstanding shares of
firm of which the stockholder and/or his stocks, or receivables arising from
spouse and/or the aforementioned financial leases to the extent of the
relatives own more than fifty percent (50%) guaranty deposit plus sixty percent (60%)
of the total subscribed capital stock of such of the remaining value of the leased
corporation, association or firm, amount to equipment. For this purpose, the
one percent (1%) or more of the total remaining value of the equipment under
subscribed capital stock of the quasi-bank/ lease shall be determined by dividing the
trust entity. acquisition cost by the original term of the
d. Outstanding loans to and lease and multiplying the resulting ratio
placements with the quasi-bank shall refer by the unexpired portion of the term.
to loans to and deposit substitutes of the For investment houses with quasi-
quasi-bank which are not subject of an banking functions, a secured loan,
assignment or hold-out agreement. borrowing or credit accommodation shall
e. Book value of the paid-in capital likewise include:
contribution shall mean the proportional (1) Customer’s liability under import
amount of the quasi-bank’s total capital bills outstanding for not more than thirty
accounts (net of such unbooked valuation (30) days from date of original entry;
reserves and other capital adjustments as (2) Sales contract receivable arising
may be required by the BSP) as the out of sale of real property on credit
corresponding paid-in capital contribution wherein title to the property is retained
of each director, officer or stockholder by the quasi-bank; and
concerned bears to the total paid-in capital (3) Customer’s liability-import bills
of the quasi-bank: Provided, That as a basis under trust receipts outstanding for not
for determining the individual ceiling more than thirty (30) days from date of
referred to in Sec. 4360Q, corresponding booking: Provided, That the booking
book value of the shares of stock of such under trust receipts shall have been made
director, officer or stockholder which are not later than the thirty-first (31st) day from
the subject of pledge, assignment or any the date of original entry referred to in Sub-
other encumbrance shall be deducted item (1) above.
therefrom. g. Unsecured loan, borrowing or
f. Secured loan, borrowing, or credit credit accommodation shall refer to any
accommodation shall refer to any loan, loan, discount, credit or advance, or
discount, credit or advance, or portion portion thereof referred to in Sec. 4357Q
thereof referred to in Sec. 4357Q which is which is not secured in accordance with
secured by real estate mortgage, chattel Item "f" above.

Part III - Page 22
§§ 4357Q - 4358Q
05.12.31
Sec. 4357Q Transactions Covered. The used herein shall not refer to the following
terms loan, borrow, money borrowed and transactions:
credit accommodations as used herein shall a. Advances against accrued
refer to transactions which involve the compensation, or for the purpose of
grant, renewal, extension or increase of any providing payment of authorized travel,
loan, discount, credit or advance in any legitimate expenses or other transactions
form whatsoever, and shall include: for the account of the quasi-bank or for
a. Outstanding availments under an utilization of maternity and other leave
established credit line; credits;
b. Drawings against an existing letter b. The increase in the amount of
of credit; outstanding credit accommodation as a
c. The acquisition by discount, result of additional charges or advances
purchase, exchange or otherwise of any made by the quasi-bank to protect its
note, draft, bill of exchange or other interests such as taxes, insurance, etc.;
evidence of indebtedness upon which a c. The discount of bills of exchange
director, officer or stockholder may be drawn in good faith against actually existing
liable as a maker, drawer, acceptor, values, and the discount of commercial or
indorser, guarantor, or surety; business paper actually owned by the
d. Any advance of unearned salary person negotiating the same, including, but
or unearned compensation for periods in not limited to, the acquisition of export bills
excess of thirty (30) days; from any of its DOSRI which are drawn in
e. Loans or other credit accommo- accordance with the terms and conditions
dations granted by another financial of the covering letters of credit: Provided,
institution to such director, officer or That the transaction shall automatically be
stockholder from funds of the quasi-bank subject to the ceiling as herein provided
invested in the other institution’s trust or once the DOSRI who is a party to the
other department when there is a clear transaction becomes directly liable to the
relationship between the transactions; quasi-bank;
f. The increase of an existing in- d. Transactions with a foreign bank
debtedness, as well as additional or other financial institution which has
availments under a credit line or additional stockholding in the quasi-bank where the
drawings against a letter of credit; foreign bank or other financial institution
g. The sale of assets, such as shares acts as guarantor through the issuance of
of stock, on credit; letters of credit, guarantee letters or
h. Leasing transactions under R.A. assignment of a deposit in a currency
No. 5980, as amended; and eligible as part of the international reserves
i. Any other transaction as a result and held in a bank in the Philippines to
of which a director, officer or stockholder secure credit accommo-dations granted to
becomes obligated or may become another person or entity: Provided, That
obligated to the lending quasi-bank, the foreign bank stockholder shall
directly or indirectly, by any means automatically be subject to the ceilings as
whatsoever to pay money or its herein provided in the event that its
equivalent. contingent liability as guarantor becomes
a real liability; and
Sec. 4358Q Transactions Not Covered e. Deposits of a quasi-bank with a
The terms loan, borrow, money bank, whether domestic or foreign, which
borrowed or credit accommodation as has stockholdings in the quasi-bank.

Part III - Page 23
§§ 4358Q.1 - 4359Q
05.12.31
§ 4358Q.1 Applicability to credit card (1) Spouse or relative within the first
operations. The credit card operations of degree of consanguinity or affinity, or
quasi-banks shall not be subject to these relative by legal adoption of a director,
regulations where the credit cardholder is officer or stockholder of the quasi-bank;
a director, officer or stockholder of the (2) Partnership of which a director,
quasi-bank or their related interests officer, or stockholder or his spouse or
(DOSRI): Provided, That (a) the privilege relative within the first degree of
of becoming a credit cardholder is open to consanguinity or affinity, or relative by
all qualified persons on the basis of legal adoption, is a general partner;
selective criteria which are applied by the (3) Co-owner with the director, officer,
quasi-bank to all applicants thereof; and (b) stockholder or his spouse or relative within
the director, officer or stockholder/related the first degree of consanguinity or affinity,
interest concerned reimburses/pays the or relative by legal adoption, of the
quasi-bank for the billed amount in full on property or interest or right mortgaged,
or before the payment due date in the pledged or assigned to secure the loans or
billing or statement of account, as set by credit accommodations, except when the
the quasi-bank for all other qualified credit mortgage, pledge or assignment covers
cardholders on availments made for the same only said co-owner’s undivided interest;
period on their credit cards. However, the (4) Corporation, association, or firm of
transaction shall be subject to applicable which a director or officer of the quasi-
DOSRI regulations if the director, officer, or bank, or his spouse is also a director or
stockholder/related interest concerned: officer of such corporation, association or
a. fails to reimburse/pay the quasi- firm, except (i) where the securities of
bank within the period mentioned herein; such corporation, association or firm are
or listed and traded in the domestic stock
b. on the outset, opts for deferred exchange and less than fifty percent (50%)
payment scheme, and the availment is of the voting stock thereof is owned by
booked by the quasi-bank. any one (1) person or by persons related
to each other within the third degree of
Sec. 4359Q Direct or Indirect consanguinity or affinity; or (ii) where the
Borrowings. For purposes of this Section, director, officer or stockholder of the
a credit accommodation shall be lending quasi-bank sits as a representative
considered a direct or indirect borrowing of the quasi-bank in the board of directors
in accordance with the following criteria. of such corporation: Provided, That the
a. Direct borrowing - If the director, quasi-bank representative shall not have
officer or stockholder of the lending quasi- any equity interest in the borrower
bank is a party to any of the transactions corporation except for the minimum
enumerated in Sec. 4357Q for himself or shares required by law, rules and
as a representative or agent of others, or if regulations, or by the by-laws of the
he acts as a guarantor, indorser or surety corporation, to qualify a person as director
for loans from the quasi-bank, or if the loan of the corporation: Provided, further, That
or credit accommodation to another party the borrowing corporation under (i) or
is secured by a property interest or right of (ii) is not among those mentioned in Items
the director, officer or stockholder. "b(5)" and "b(6)" of this Section;
b. Indirect borrowing - If in any of the (5) Corporation, association or firm
transactions in Sec. 4357Q the borrower, of which any or a group of directors,
guarantor, indorser, or surety is a: officers, stockholders of the lending quasi-

Part III - Page 24
§§ 4359Q - 4362Q
05.12.31
bank and/or their spouses or relatives stockholders or their related interests shall
within the first degree of consanguinity or not exceed the SBL prescribed for quasi-
affinity or relative by legal adoption, hold/ banks.
own more than twenty percent (20%) of the
subscribed capital of such corporation, or of Sec. 4361Q Aggregate Ceiling; Ceiling
the equity of such association or firm; or On Unsecured Loans. Except with prior
(6) Corporation, association or firm approval of the Monetary Board, the total
wholly or majority-owned or controlled by outstanding borrowings of directors,
any or a group of related entities mentioned officers, or stockholders, whether direct or
in Items "b(2)", "b(4)" and "b(5)" of this indirect,shall not exceed 100% of
Section. combined capital accounts, net of deferred
Other cases of direct/indirect income tax as defined in Item "i" of Subsec.
borrowing shall be resolved on a case-to- 4116Q.1 and such unbooked valuation
case basis. reserves and other capital adjustments as
It shall be the responsibility of the may be required by the BSP: Provided,
quasi-bank concerned to ascertain whether That in no case shall the total unsecured
the borrower, guarantor, representative, direct and indirect borrowings of
indorser or surety is related to persons directors, officers, and stockholders exceed
mentioned in Item "b(1)" of this Section or thirty percent (30%) of the aggregate
connected with any of the directors, officers ceiling or the outstanding direct/indirect
or stockholders of the quasi-bank in any of loans thereto, whichever is lower. For the
the capacities mentioned in Items "b(2)", purpose of determining compliance with
"b(3)", "b(4)", "b(5)" and "b(6)" of this Section. the ceiling on unsecured loans, quasi-banks
In determining indirect borrowings as shall be allowed to average their ceiling
enumerated above, only those cases on unsecured loans and their outstanding
involving living relatives shall be unsecured loans every week.
considered. In evaluating requests for extension
of loans in excess of the aggregate ceiling,
Sec. 4360Q Individual Ceiling; Single- the BSP shall consider the credit standing
Borrower Limit. The total outstanding of the borrower, viability of the projects
direct credit accommodations to each of financed by such loans in relation to
the quasi-bank’s directors, officers or national objectives, collateral or security
stockholders, excluding those granted and other pertinent considerations.
under officers’ fringe benefit plans, shall
not exceed, at any time, an amount Sec. 4362Q Exclusions from Aggregate
equivalent to the unencumbered portion Ceiling. The following credit accommodations
of his loans to, and placements with, the shall be excluded in determining compliance
quasi-bank and the book value of his paid- with the aggregate ceiling:
in capital contribution in the lending quasi- a. Credit accommodations to the
bank: Provided, That unsecured credit extent covered by a hold-out on, or
accommodations to each of the quasi- assignment of, deposit substitutes in the
bank’s directors, officers or stockholders lending quasi-bank, or covered by cash
shall not exceed thirty percent (30%) of his margin deposits or secured by evidences
total credit accommodations. of indebtedness of the Republic of the
Notwithstanding the provisions of this Philippines or of the Bangko Sentral, or by
Section, credit accommodations of a quasi- other evidences of indebtedness or
bank to any one of its directors, officers, obligations, the servicing and repayment

Part III - Page 25
§§ 4362Q - 4364Q
05.12.31
of which are fully guaranteed by the accommodation shall be granted nor any
Republic of the Philippines; of the transactions under Sec. 4357Q be
b. Credit accommodations to a entered into.
corporate stockholder which meets all the b. Approval by the board; how
following conditions: manifested. The approval shall be
(1) The corporation is a non-financial manifested in a resolution passed by the
institution; board of directors duly assembled during a
(2) Its shares are listed and traded in regular or special meeting for the purpose
the domestic stock exchanges; and made of record.
(3) Its stockholdings in the lending c. Majority of the directors;
quasi-bank do not exceed thirty percent computation of. The computation of the
(30%) of the voting stock of the quasi-bank; majority of the directors, excluding the
and director concerned, shall be based on the
(4) No person or group of persons total number of directors of the quasi-bank,
related within the first degree of as provided in its articles of incorporation
consanguinity or affinity holds/owns more and by-laws.
than twenty percent (20%) of the subscribed d. Contents of the resolution. The
capital of the corporation; and resolution of the board of directors shall
c. Credit accommodations granted contain the following information:
under officers’ fringe benefit plans. (1) Name of the director or officer
concerned and his relationship as regards
Sec. 4363Q Credit Accommodations the credit accommodation, such as
Under Officers’ Fringe Benefit Plans. The principal, indorser, spouse of borrower,
aggregate outstanding liabilities to a quasi- etc.;
bank of its officers, extended under officers’ (2) Nature of the loan or other credit
fringe benefit plans for the purpose of accommodation, purpose, amount, credit
house, car, and appliance financing, and basis for such loan or credit
meeting educational, medical, hospital, accommodation, security and appraisal
and other similar expenses, shall not thereof, maturity, interest rate, schedule of
exceed thirty percent (30%) of the repayment, and other terms of the loan or
combined capital accounts of the lending credit accommodation;
entity: Provided, That quasi-banks shall (3) Date of the resolution;
submit, for record purposes, copies of their (4) Names of the directors who were
officers’ fringe benefit plans to the present and who participated in the
appropriate department of the BSP. deliberations of the meeting;
(5) Names in print and signatures of
Sec. 4364Q Procedural Requirements the directors approving the resolution:
The following provisions shall apply if a Provided, That the corporate secretary may
director or officer is a party, directly or sign, under a power-of-attorney, in behalf
indirectly, to, or acts as the representative of a director who was present in the board
or agent of, others in any of the transactions meeting and who approved such
under Sec. 4357Q. resolution, in instances where such
a. Approval of the board of directors; signature is necessary, to indicate that such
when to obtain. Except with the prior resolution was approved by a majority of
written approval of the majority of the the directors; and
directors, excluding the director (6) Such other information as may be
concerned, no loan or other credit required by the appropriate SED of the BSP.

Part III - Page 26
§§ 4364Q - 4366Q
08.12.31
e. Transmittal of copy of board of percent (1/10 of 1%) of the excess over the
directors’ approval; contents thereof. A ceilings per day but not to exceed P30,000
copy of the written approval of the board a day on (1) the lending QB and the
of directors, as herein required, shall be director, officer, or stockholder whose
submitted to the appropriate department borrowing exceeds his individual ceiling
of the SES within twenty (20) business days and (2) each of the directors voting for the
from the date of approval. The copy may approval of the loan or credit
be a duplicate of the original, or a accommodation in excess of any of the
reproduction copy showing clearly the ceilings prescribed in Secs. 4360Q and
signatures of the approving directors: 4361Q.
Provided, That if a reproduction copy is to The penalty for exceeding the
be submitted, it shall contain, on its face individual ceiling, aggregate ceiling and
or reverse side, a signed certification by ceiling on unsecured loans shall be
the secretary that it is a reproduction of the computed on the average amount of loans
original written approval. in excess of said ceilings during the same
week.
Sec. 4365Q Sanctions. Any violation of
the provisions of the foregoing rules shall Sec. 4366Q Bank DOSRI Rules and
be subject to any or all of the following Regulations Applicable to Government
sanctions: Borrowings in Government-Owned or -
a. Restriction or prohibition on the QB Controlled QB. The provisions of Secs.
from declaring dividends until the X326 to X337 of the Manual of Regulations
outstanding loans and other credit for Banks (MORB), to the extent applicable,
accommodations have been reduced to shall also apply to loans, other credit
within the herein prescribed ceilings; accommodations, and guarantees
b. Disqualification of the directors granted to the National Government or
voting for the approval of the loan or credit Republic of the Philippines, its political
in excess of any of the ceilings prescribed subdivisions and instrumentalities as well
in Secs. 4360Q and 4361Q from as GOCCs, subject to the following
participating in the approval of loans or clarifications:
credit to officers, directors, and a. Loans, other credit accommodations,
stockholders of the QB: Provided, and guarantees to the Republic of the
however, That the disqualification may be Philippines and/or its agencies/
lifted by the BSP, as the circumstances departments/bureaus shall be considered:
warrant; (1) non-risk; and (2) not subject to any
c. Application of (1) the borrowing ceiling;
director’s or officer’s share in the QB’s b. Loans, other credit accommodations,
profit sharing program and (2) the share of and/or guarantees to: (1) GOCCs; and (2)
the director voting for the approval of the corporations where the Republic of the
loan or credit accommodation against the Philippines, its agencies/departments/
excess of such loan or credit bureaus, and/or GOCCs own at least twenty
accommodation over any of the herein percent (20%) of the subscribed capital
prescribed ceilings for such period of time stock shall be considered indirect
as may be approved by the Monetary borrowings of the Republic of the
Board; and Philippines and shall form part of the
d. For the duration of each violation, individual ceiling as well as the aggregate
imposition of a fine of one-tenth of one ceiling: Provided, That the following loans,

Part III - Page 27
§§ 4366Q - 4370Q
08.12.31
other credit accommodations, and/or e. LGUs shall be considered separate

guarantees to GOCCs and corporations from the Republic of the Philippines, other
where the Republic of the Philippines, its government entities, and from one another
agencies/departments/bureaus, and/or due to the full autonomy in the exercise of
GOCCs own at least twenty percent (20%) their proprietary functions and in the
of the subscribed capital stock, shall be management of their economic enterprises
excluded from the thirty percent (30%) granted to them under the Local
ceiling on unsecured loans under Secs. Government Code of the Philippines,
X330 and X331 of the MORB: subject to certain limitations provided by
(1) Loans, other credit accommodations, law, hence, not a related interest of the
and/or guarantees for the purpose of Republic of the Philippines and/or its
undertaking priority infrastructure projects agencies/departments/bureaus;
consistent with the Medium-Term f. Local Water Districts (LWDs),
Development Plan/Medium-Term Public although GOCCs, shall be considered
Investment Program of the National separate from the Republic of the
Government, duly certified as such by the Philippines, other government entities, and
Secretary of Socio-Economic Planning; from one another due to their fiscal
(2) Loans, other credit accommodations, independence from the national
and/or guarantees granted to participating government, hence, not related interests
financial institutions (PFIs) in the lending of the Republic of the Philippines and/or
programs of the government wherein the its agencies/department/bureaus, for
funds borrowed are intended for relending purposes of these regulations;
to other PFIs or end-user borrowers; and g. A director who acts as a government
(3) Loans, other credit accommodations, representative in the lending institution
and/or guarantees granted for the purpose shall not be excluded in the deliberation
of providing (i) wholesale and retail loans as well as in the determination of majority
to the agricultural sector, and micro, small of the directors in cases of loans, other
and medium enterprises (MSMEs); and/or credit accommodations, and guarantees to
(ii) rediscounting and guarantee facilities for the Republic of the Philippines and/or its
loans granted to the said sector or agencies/departments/bureaus; and
enterprises. h. A director of the lending institution
c. Loans, other credit accommodations, shall be excluded in the deliberation as
and/or guarantees granted to state well as in the determination of majority of
universities and colleges (SUCs) shall be the directors in cases of loans, other credit
excluded from the thirty percent (30%) accommodations, and guarantees to the
ceiling on unsecured loans under Secs. borrowing government entity other than
X330 and X331 of the MORB. the Republic of the Philippines, its
d. In view of the fiscal autonomy agencies, departments or bureaus where
granted under R.A. No. 7653 and the said director is also a director, officer or
independence prescribed under the stockholder under existing DOSRI
Constitution, the BSP shall be considered regulations.
an independent entity, hence, not a (Circular No. 514 dated 06 March 2006 as amended by Circular
related interest of the Republic of the Nos. 635 dated 10 November 2008, 616 dated 30 July 2008,
Philippines and/or its agencies/ 580 dated 09 September 2007)
departments/bureaus. Loans, other credit
accommodations and guarantees of the Secs. 4367Q - 4370Q (Reserved)
BSP shall be considered: (1) non-risk; and
(2) not subject to any ceiling; F. (RESERVED)

Part III - Page 28
§§ 4371Q - 4381Q
08.12.31
Secs. 4371Q - 4375Q (Reserved) corresponding ticket debitings its Due from
BSP account in its books and, in the case of
G. SPECIAL TYPES OF LOANS the lending QB, to the same ticket passed in
its books on the day payment is made.
Sec. 4376Q Interbank Loans. Interbank b. IBCL transactions shall be recorded
loan transactions shall include, among by the borrowing QB as Bills Payable -
other things, (a) interbank call loan (IBCL) Interbank Call Loans.
transactions; (b) borrowings evidenced by c. QBs shall reconcile their demand
deposit substitute instruments; and (c) deposit accounts with the BSP against
purchases of receivables with recourse: monthly statements of account to be
Provided, however, That only IBCL furnished by the BSP Comptrollership
transactions which are evidenced by Department.
interbank loan advices or repayment
transfer tickets the settlement of which is § 4376Q.3 Transfer of excess funds
effected by the BSP in the QBs’ respective The prescribed “Authority to Debit Slip”
demand deposit accounts with the BSP shall be used by QBs in the transfer of
shall be eligible to one percent (1%) their excess funds which are not
reserve: Provided, further, That funds otherwise lent out in the interbank loan
borrowed by QBs from trust departments market from their BSP reserve accounts
of banks/investment houses shall be to their operating accounts with their
excluded from the herein definition of depository banks.
interbank loan transactions. The “Authority to Debit Slip” shall have
Interbank loan transactions not a standard size of 4 3/4" x 8 1/2" and shall
evidenced by interbank loan advice or be orange in color. It shall contain the
repayment transfer tickets and submitted minimum data or information as required
to the BSP Comptrollership Department and shall be accomplished and submitted
shall be reported to the BSP in the to the BSP Comptrollership Department in
prescribed form. duplicate after having been duly signed
and/or authenticated by authorized officers
§ 4376Q.1 Systems and procedures of the QB.
for interbank call loan transactions. IBCL
transactions of QBs shall be governed by § 4376Q.4 Settlement procedures
the Agreement for the PhilPaSS executed Interbank loan transactions (call and term)
between the BSP and the Investment among QBs shall be settled in accordance
Houses Association of the Philippines with the provisions of the Agreement for
(IHAP) on 12 December 2002 and any the PhilPaSS executed between the BSP
subsequent amendments thereto. and the IHAP on 12 December 2002 and
(As superseded by the agreement between the BSP and any subsequent amendments thereto.
IHAP dated 12 December 2002) (As superseded by the agreement between the BSP and
IHAP dated 12 December 2002)
§ 4376Q.2 Accounting procedures
a. QBs shall immediately pass the Secs. 4377Q - 4380Q (Reserved)
corresponding entries in their books and,
upon receipt of a copy of the transfer H. EQUITY INVESTMENTS
instruction reported as matched in the
expanded MultiTransaction Interbank Sec. 4381Q Investment in Non-Allied
Payment System (MIPS2 Plus), the Undertakings. In order to avoid undue
borrowing QB shall attach the same to the concentration of economic power, the total

Part III - Page 29
§§ 4381Q - 4391Q.2
05.12.31
equity investments in any single non-allied § 4391Q.1 Yield on purchase of

enterprise or industry of QBs, UBs and their receivables. The rate of yield, including
subsidiaries, whether or not the parent commissions, premiums, fees and other
financial intermediaries have equity charges from the purchase of receivables
investments in the enterprise, shall, in any and other obligations, regardless of
case, remain a minority in that enterprise, maturity, that may be charged or received
except as may be otherwise approved by by QBs shall not be subject to any
the President of the Philippines. Non-allied regulatory ceiling.
enterprises are those allowed for UBs in Receivables and other obligations
the MORB. shall include claims collectible in money
Equity investments as of 1 April 1980, of any amount and maturity from
which exceed the limitation under this domestic and foreign sources. The
Section, may be retained but shall not be Monetary Board shall determine in
increased percentage-wise, and whenever doubtful cases whether a particular claim
reduced, shall not thereafter be increased is included within said phrase.
beyond the prescribed limitation.
§ 4391Q.2 Purchase of commercial
Sec. 4382Q Investments Abroad. Except paper. Before purchasing registered
as may be authorized by the Monetary commercial paper, QBs shall:
Board, the total equity investments in and/ a. Require the issuing entity to submit
or loans to any single enterprise abroad by a duly certified true copy of its Certificate
any QB shall not at any time exceed fifteen of Registration and Authority to Issue
percent (15%) of the net worth of the Commercial Paper; and
investing QB. b. Ascertain that the registration
number and expiry date indicated in the
Sec. 4383Q Underwriting Exempted. The commercial paper are the same as those
limitations on equity investments under in the Certificate of Registration submitted.
Sec. 4381Q shall not apply to inventories No QB shall sell, discount, assign,
of equity securities arising out of firm negotiate, in whole or in part such as thru
underwriting commitments of investment syndications, participations and other
houses: Provided, That such equity similar arrangements, any note,
holding shall be disposed of within two receivable, loan, debt instrument and
(2) years from acquisition by the any type of financial asset or claim,
investment house. except government securities, on a
without recourse basis, or be a party in any
Secs. 4384Q - 4385Q (Reserved) capacity in any such transactions on a
without recourse basis, unless such
I. (RESERVED) receivable, note, loan, debt instrument and
financial asset or claim is registered with
Secs. 4386Q - 4390Q (Reserved) the SEC. This prohibition includes
transactions between an investment house
J. OTHER OPERATIONS and its trust department.
Unregistered commercial papers
Sec. 4391Q Purchase of Receivables and may be sold, discounted, assigned or
Other Obligations. The following rules negotiated by QBs to other financial
shall govern the purchase of receivables intermediaries with quasi-banking
and other obligations. functions.

Part III - Page 30
§§ 4391Q.2 - 4394Q.1
08.12.31
Any violation of the above rules and Sec. 4393Q (Reserved)

regulations shall be subject to any or all of
the following sanctions: Sec. 4394Q Acquired Assets in Settlement
a. Suspension of quasi-banking of Loans. The following rules shall govern
authority for a period of six (6) months; and assets acquired in settlement of loans.
b. Monetary penalty of P500 per
day per transaction for each and every § 4394Q.1 Booking
officer of the QB involved in any a. ROPA in settlement of loans through
capacity in any transaction violative of foreclosure or dation in payment shall be
these regulations. booked under the ROPA account as follows:
(1) Upon entry of judgment in case of
§ 4391Q.3 Investments in debt and judicial foreclosure;
marketable equity securities. The (2) Upon execution of the Sheriff’s
classification, accounting procedures, Certificate of Sale in case of extrajudicial
valuation, sales and transfers of foreclosure; and
investments in debt securities and (3) Upon notarization of the Deed of
marketable equity securities shall be in Dacion in case of dation in payment
accordance with the guidelines in (dacion en pago). ROPA shall be booked
Appendices Q-20 and Q-20-a. initially at the carrying amount of the loan
Penalties and sanctions. The (i.e., outstanding loan balance adjusted for
following penalties and sanctions shall any unamortized premium or discount less
be imposed on FIs and concerned allowance for credit losses computed based
officers found to violate the provisions on PAS 39 provisioning requirements, which
of these regulations: take into account the fair value of the
a. Fines of P2,000/day to be imposed collateral) plus booked accrued interest less
on NBFIs for each violation, reckoned allowance for credit losses (computed based
from the date the violation was committed on PAS 39 provisioning requirements) plus
up to the date it was corrected; and transaction costs incurred upon acquisition
b. Sanctions to be imposed on (such as non-refundable capital gains tax and
concerned officers: documentary stamp tax paid in connection
(1) First offense – reprimand the with the foreclosure/purchase of the
officers responsible for the violation; and acquired real estate property): Provided,
(2) Subsequent offenses – suspension That if the carrying amount of ROPA
of ninety (90) days without pay for officers exceeds P5.0 million, the appraisal of the
responsible for the violation foreclosed/purchased asset shall be
(As amended by Circular Nos. 628 dated 31 October 2008, conducted by an independent appraiser
626 dated 23 October 2008 and 585 dated 15 October 2007, acceptable to the BSP.
M-2007-006 dated 28 February 2007, Circular Nos. 558 dated b. The carrying amount of ROPA shall
22 January 2007, 546 dated 17 November 2006 and 509 dated be allocated to land, building, other
01 February 2006) non-financial assets and financial assets
(e.g., receivables from third party or equity
Sec. 4392Q Reverse Repurchase interest in an entity) based on their fair
Agreements with the Bangko Sentral values, which allocated carrying amounts
Reverse repo agreements may be effected shall become their initial costs.
with the BSP under its open market c. The non-financial assets portion of
operations, subject to the terms and ROPA shall remain in ROPA and shall be
conditions in Subsec. 4602Q.1. accounted for as follows:

Part III - Page 31
§§ 4394Q.1 - 4394Q.2
07.12.31
(1) Land and buildings shall be appraised to determine its true economic
accounted for using the cost model under value. If the amount of ROPA to be booked
PAS 40 “Investment Property”; exceeds P5.0 million, the appraisal must
(2) Other non-financial assets shall be be conducted by an independent
accounted for using the cost model under appraiser acceptable to the BSP. An in-
PAS 16 “Property Plant and Equipment”; house appraisal of all ROPAs shall be
(3) Buildings and other non-financial made at least every other year: Provided,
assets shall be depreciated over the That immediate re-appraisal shall be
remaining useful life of the assets, which conducted on ROPAs which materially
shall not exceed ten (10) years and three decline in value.
(3) years from the date of acquisition, h. Non-cash payment for interest FIs
respectively; and that accept non-cash payments for interest
(4) Land, buildings and other on their borrowers’ loans shall book the
non-financial assets shall be subject to the acquired assets as ROPA. The amount to
impairment provisions of PAS 36 be booked as ROPA shall be the booked
“Impairment”. accrued interest less allowance for credit
d. Financial assets, shall be losses (computed based on PAS 39
reclassified and booked according to provisioning requirements): Provided,
intention under HFT, DFVPL, AFS, HTM, That if the carrying amount of ROPA
INMES, Unquoted Debt Securities exceeds P5.0 million, the appraisal of the
Classified as Loans or Loans and foreclosed/purchased asset shall be
Receivable and accounted for in conducted by an independent appraiser
accordance with the provisions of PAS 39, acceptable to the BSP. The carrying
except interests in subsidiaries, associates amount of ROPA shall be allocated in
and joint ventures, which shall be booked accordance with Item “b” and shall be
under Equity Investments in Subsidiaries, subsequently accounted for in accordance
Associates and Joint Ventures and with Item “c” of this Subsection.
accounted for in accordance with the The provisions of this Subsection shall
provisions of PAS 27, 28 and 31, be applied retroactively to all outstanding
respectively. ROPAs and sales contract receivables:
e. ROPAs that comply with the Provided: That for properties acquired
provisions of PFRS 5 “Non-Current Assets before 1 January 2005, the carrying
Held for Sale” shall be reclassified and amount of the acquired properties when
accounted for as such. initially booked under ROPA shall be the
f. Claims arising from deficiency cost subject to depreciation and
judgments rendered in connection with the impairment testing, which shall be
foreclosure of mortgaged properties shall reckoned from the time of acquisition.
be lodged under the real account (As amended by Circular Nos. 555 dated 12 January 2007 and
“Deficiency Judgment Receivable”; while 520 dated 20 March 2006)
probable claims against the borrower
arising from the foreclosure of mortgaged § 4394Q.2 Sales contract receivable
properties shall be lodged under the a. Sales Contract Receivable (SCR)
contingent account “Deficiency Claims shall be recorded based on the present
Receivable”. value of the installment receivables
g. Appraisal of properties. Before discounted at the imputed rate of interest.
foreclosing or acquiring any property in Discount shall be accreted over the life of
settlement of loans, it must be properly the SCR by crediting interest income using

Part III - Page 32
§ 4394Q.2
06.12.31
the effective interest method. Any already amounted to at least twenty

difference between the present value of percent (20%) of the agreed selling price;
the SCR and the derecognized assets shall (2) That payment of the principal must
be recognized in profit or loss at the date be in equal installments or in diminishing
of sale in accordance with the provisions amounts and with maximum intervals of
of PAS 18 “Revenue” Provided, one (1) year;
furthermore, That SCR shall be subject to (3) That any grace period in the
impairment provision of PAS 39. payment of principal shall not be more than
The provisions of this Section shall be two (2) years; and
applied retroactively to all outstanding (4) That there is no installment payment
ROPAs and SCRs: Provided: That for in arrear either on principal or interest.
properties acquired before 1 January 2005, Provided, That a “Sales Contract
the carrying amount of the acquired Receivable” account shall be automatically
properties when initially booked under classified “Substandard” and considered
ROPA shall be the cost subject to non-performing in case of non-payment of
depreciation and impairment testing, any amortization due: Provided, further, That
which shall be reckoned from the time of a “Sales Contract Receivable” which has
acquisition. been classified “Substandard” and
b. SCRs which meet all the considered non-performing due to non-
requirements/conditions enumerated below payment of any amortization due may only
are hereby considered performing assets be upgraded/restored to unclassified and/or
and therefore, not subject to classification: performing status after a satisfactory track
(1) That there has been a down-payment record of at least three (3) consecutive
of at least twenty percent (20%) of the agreed payments of the required amortization of
selling price or in the absence thereof, the principal and/or interest has been established.
installment payments on the principal had (As amended by Circular No. 520 dated 20 March 2006)

Part III - Page 32a
§§ 4394Q.3 - 4394Q.15
06.12.31
§§ 4394Q.3 - 4394Q.14 (Reserved) or other entity, or a financial structure that

is separate from the QB and the developer
§§ 4394Q.15 Joint venture of quasi- themselves. Under this form of joint
banks with real estate development venture, the rights and obligations of the
companies QB and the developer shall be governed
a. Statement of policy. It is the policy primarily by their contract that must clearly
of the BSP to encourage QBs to dispose of specify the following:
their ROPA in settlement of loans and other (a) authority of the developer to
advances either through foreclosure or develop/subdivide the property and
dacion en pago as well as other properties subsequently, to sell the individual lots under
acquired as a consequence of a merger/ a special power of attorney;
consolidation which are no longer necessary (b) sharing in the sales proceeds of the
for their quasi-banking operations. Towards developed ROPAs or in the developed lots;
this end, QBs are hereby authorized to (c) sharing in taxes;
enter into Joint Venture Agreements (JVA) (d) sharing in the assets of the joint
with real estate development companies venture particularly in the developed/
for the development of said properties, subdivided lots should there still be unsold
subject to the requirements prescribed lots at the time of termination of the joint
under this Subsection. venture; and
b. For purposes of this Subsection, (e) name under which the subdivided
joint venture shall refer to a contractual lots shall be registered pending their sale.
arrangement/undertaking between a QB (2) A jointly-controlled entity, which
and a duly registered real estate development involves the establishment of a new juridical
company (developer) for the purpose of entity, preferably a corporation that is
developing the abovementioned properties separate and distinct from the QB and the
of the QB. The QB contributes said developer. A jointly controlled corporation
properties to the undertaking while the may be established either for the purpose of
developer contributes all the development developing properties of QBs for immediate
funds, resources, technical expertise, sale or converting them into earning assets
equipment, personnel and all other such as hotels and shopping malls.
requirements desired or needed for the d. Requirements and limitations in a
implementation and completion of the joint venture. A QB desiring to enter into
undertaking including marketing, where a JVA with a developer for the purpose of
applicable. The QB and the developer shall developing its ROPAs and/or other
be bound by the contract that establishes joint properties acquired as a consequence of
control of the undertaking. Although the merger/consolidation shall comply with the
developer may be designated as operator or following:
manager of the undertaking, it does not, (1) The JVA shall be approved by the
however, absolutely control the undertaking board of directors of the QB.
but only acts in accordance with the (2) The QB’s contribution to the joint
authorities granted to him under the JVA. venture, in whatever form undertaken,
c. Forms of a joint venture. A QB and shall be limited to ROPAs and properties
a developer may undertake a joint venture acquired as a consequence of the QB’s
under the following forms: merger/consolidation with another QB/
(1) A jointly-controlled operation/ financial institution.
undertaking, which does not involve the (3) The QB shall not recognize income
establishment of a corporation, partnership out of its contribution to the joint venture,

Part III - Page 33
§ 4394Q.15
06.12.31
regardless of the agreed valuation of said in real estate development as a non-

properties. financial allied undertaking, subject to the
(4) The QB shall not provide funds to following conditions:
the joint venture either as a loan or capital (1) Investments shall be limited to
contribution. ROPAs and other properties acquired as a
(5) The JVA or contractual arrangement consequence of a QB’s merger/
shall clearly stipulate the rights and consolidation with another QB/FI;
obligations of the QB and the developer. (2) Investments shall be subject to
(6) The QB shall secure prior Monetary existing BSP requirements applicable to
Board approval of the JVA. investments in non-financial allied
e. Application for authority to enter into undertakings; and
JVA. A QB desiring to enter into a JVA with (3) If there is already an existing
a developer for the purpose of developing subsidiary or affiliate relationship between
its ROPAs and other properties acquired as the QB and the investee corporation prior
a consequence of its merger/ consolidation to the investment, the QB shall not
with another QB/FI shall secure prior recognize income out of its invested
Monetary Board approval of said properties. The excess of the value of the
agreement. For that purpose, the capital stock received by the QB over the
concerned QB shall submit an application book value of its invested properties shall
for Monetary Board approval to the be booked as “Deferred Credits”.
appropriate department of the SES. The g. Accounting treatment. Accounting
application shall be signed by the QB’s treatment of the properties contributed by
president or officer of equivalent rank and a QB to a joint venture or invested in the
shall be accompanied by the following equities of developers.
documents/information: (1) In a joint venture in the form of a
(1) The name of the developer; jointly controlled operations/undertaking,
(2) Name of the principal stockholders which does not involve the establishment
and officers as well as members of the board of a corporation or other entity, the QB shall
of directors of said company; continue to recognize in its books the
(3) Relationship of the QB with the properties contributed to the undertaking.
developer, if any; However, the regular provisioning against
(4 List and brief description of the probable losses required under existing
properties to be contributed by the QB regulations may be discontinued upon
including their market values, book values execution and implementation of the JVA.
and the valuation agreed upon under the (2) In a joint venture in which a
proposed JVA; corporation is created, the QB shall book the
(5) Certification by the QB’s president properties contributed to the undertaking
or officer of equivalent rank that the JVA is as investment pursuant to the provisions
strictly in compliance or will strictly comply of PAS 31. It shall also recognize its interest
with the requirements of this Subsection; in the corporation using the proportionate
and consolidation method or the equity method
(6) Such other documents/information as long as it continues to have joint control
that the concerned department of the SES over the corporation: Provided, That the QB
may require. shall not recognize income out of its
f. Non-financial allied undertaking contribution to the joint venture. The
All types of QBs are hereby authorized to excess of the value of the capital stock
invest in the equities of companies engaged received by the QB over the book value

Part III - Page 34
§§ 4394Q.15 - 4399Q
08.12.31
of the contributed properties shall be K. MISCELLANEOUS PROVISIONS

credited to the account “Deferred
Credits”. Sec. 4396Q Transfer/Sale of Non-
(3) Properties invested in equities Performing Assets to a Special Purpose
of developers shall be booked in Vehicle or to an Individual. The procedures
accordance with the PAS: Provided, governing the transfer/sale of non-performing
That the QB shall not recognize assets (NPAs) to a Special Purpose Vehicle
income out of the properties invested (SPV) or to an individual that involves a single
if there is already an existing family residential unit, or transactions
subsidiary or affiliate relationship involving dacion en pago by the borrower
between the QB and the investee or third party of a non-performing loan (NPL),
corporation prior to the investment, for the purpose of obtaining the Certificate of
regardless of the agreed valuation of Eligibility (COE) which is required to avail of
said properties. The excess of the the incentives provided under R.A. No. 9182
agreed valuation of said properties are presented in Appendix Q-28.
over their book value shall be booked The accounting guidelines on the sale of
as “Deferred Credits”. NPAs to SPVs and to qualified individuals for
h. Coverage. The provisions of this housing under the SPV Act of 2002 are
Subsection shall apply to ROPAs presented in Appendix Q-28-a.
existing, as well as those which may be The significant timelines relative to the
acquired by QBs in settlement of implementation of R.A. No. 9182, also
non-performing or past due loans and known as the “Special Purpose Vehicle
advances outstanding, as of 09 March Act”, as amended by R.A. No. 9343 are
2006 and to properties acquired as a presented in Appendix Q-28b.
consequence of merger or consolidation (As amended by M-2008-014 dated 17 March 2008, M-2008-005
which are outstanding in the books of dated 04 February 2008, M-2007-013 dated 11 May 2007 and
QBs as of said date. M-2006- 001 dated 11 May 2006)
i. Sanctions. Any violation of the
provisions of this Subsection and/or any Secs. 4397Q - 4398Q (Reserved)
misrepresentation in the certification
and information required to be Sec. 4399Q General Provision on Sanctions
submitted to the BSP under this Unless otherwise provided for, any
Subsection shall subject the QB and the violation of the provisions of this Part shall
officer or officers responsible be subject to Sections 36 and 37 of
therefore, to the penalties provided R.A. No. 7653.
under Sections 35, 36 and 37 of R. A. The guidelines for the imposition of
No. 7653. monetary penalty for violations/offenses with
(Circular No. 518 dated 09 March 2006) sanctions falling under Section 37 of R. A.
No. 7653 on QBs, their directors and/or
Sec. 4395Q (Reserved) officers are shown in Appendix Q-39.

Part III - Page 35
§§ 4401Q - 4403Q
08.12.31
PART FOUR
TRUST, OTHER FIDUCIARY BUSINESS

AND INVESTMENT MANAGEMENT ACTIVITIES
Section 4401Q Statement of Principles fiduciary business and investment

The cardinal principle common to all trust management activities (as these terms are
and other fiduciary relationships is fidelity. defined in Sec. 4403Q) of NBFIs (e.g.,
Policies predicated upon this principle are investment houses (IHs) and trust
directed towards confidentiality, scrupulous corporations) allowed by law to perform
care, safety and prudent management of such operations.
property including reasonable probability of The regulations are divided into three
income with proper accounting and (3) Sub-Parts where:
appropriate reporting thereon. Practices are A. Trust and Other Fiduciary Business
designed in accordance with the basic standards shall apply to institutions authorized to
for trust, other fiduciary and investment engage in trust and other fiduciary business
management accounts (IMAs) in Appendix including investment management activities;
Q-48 to promote efficiency in administration B. Investment Management Activities
and operation; to adhere and conform to the shall apply to institutions without trust authority
terms of the instrument or contract; and to but engaged in investment management
maintain absolute separation of property free activities; and
from any intrusion of conflict of interest. C. General Provisions shall apply to both.
An institution incorporated or authorized
to engage in trust and fiduciary business is Sec. 4403Q Definitions. For purposes of
under no obligation, either legal or moral, to regulating the operations of trust and other
accept any such business being offered nor fiduciary business and investment
has it the right to accept if the same is contrary management activities, unless the context
to law, rules, regulations, public order and clearly connotes otherwise, the following
public policy. It shall advertise its services in shall have the meaning indicated.
a dignified manner and enter such business a. Trust business shall refer to any
only when demand for such service is activity resulting from a trustor-trustee
evident, when specially equipped to render relationship (trusteeship) involving the
such service and upon full appreciation of appointment of a trustee by a trustor for
the responsibilities involved. It shall be ready the administration, holding, management
and willing to give full disclosure of the of funds and/or properties of the trustor by
services being offered and shall conduct its the trustee for the use, benefit or advantage
dealing with transparency. Harmonious of the trustor or of others called
relationship shall likewise be pursued with beneficiaries.
other professions to achieve the common b. Other fiduciary business shall refer
goal of mutual service to the public and to any activity of trust-licensed institutions
protection of its interest. resulting from a contract or agreement
(As amended by Circular No. 618 dated 20 August 2008) whereby the institution binds itself to render
services or to act in a representative capacity
Sec. 4402Q Scope of Regulations. These such as in an agency, guardianship,
regulations shall govern the grant of administratorship of wills, properties and
authority to and the management, estates, executorship, receivership and other
administration and conduct of trust, other similar services which do not create or result

Part IV - Page 1
§§ 4403Q
05.12.31
in a trusteeship. It shall exclude collecting or k. Principal shall refer to the person

paying agency arrangements and similar who grants authority to another person
fiduciary services which are inherent in the called an agent, under a contract to enter
use of the facilities of the other operating into transactions in his behalf.
departments of such institution. Investment l. Agent shall refer to a person who
management activities, which are acts in representation or on behalf of another
considered as among other fiduciary person with the latter's authority.
business, shall be separately defined in the m. Trust Department shall refer to the
succeeding item to highlight its being a department, office, unit, group, division or
major source of fiduciary business. any aggrupation which carries out the trust
c. Investment management activity and other fiduciary business of an institution.
shall refer to any activity resulting from a n. Trust Officer shall refer to the
contract or agreement primarily for financial designated head or officer-in-charge of the
return whereby the institution (the trust department.
investment manager) binds itself to handle o. Trust account shall refer to an
or manage investible funds or any account where transactions arising from a
investment portfolio in a representative trusteeship are kept and recorded.
capacity as financial or managing agent, p. Common Trust Fund (CTF) shall refer
adviser, consultant or administrator of to a fund maintained by an institution
financial or investment management, authorized to perform trust functions under
advisory, consultancy or any similar a written and formally established plan,
arrangement which does not create or result exclusively for the collective investment and
in a trusteeship. reinvestment of certain money representing
d. Trust is a relationship or an participations in the plan received by it in
arrangement whereby a person called a its capacity as the trustee.
trustee is appointed by a person called a q. Fiduciary account shall refer to an
trustor to administer, hold and manage account where transactions arising from
funds and/or property of the trustor for the any of the other fiduciary businesses are
benefit of a beneficiary. kept and recorded.
e. Trust agreement is an instrument in r. Investment Manager shall refer to
writing covering the terms and conditions any person or entity engaged in investment
of the trust. management activities as herein defined.
f. Trustee is any person who holds legal s. Investment Management
title to the funds and/or property of a trust. Department shall refer to the department,
g. Trustor is any person who creates unit, group, division or any aggrupation
a trust. which carries out the investment
h. Beneficiary is any person for whose management activities of an institution that
benefit a trust is created. does not have an authority to engage in trust
i. Fiduciary shall refer to any person and other fiduciary business.
or entity engaged in any of the other t. Investment Management Officer
fiduciary business as herein defined where shall refer to the designated head or officer-
no trustor-trustee relation exists. in-charge of the investment management
j. Agency shall refer to a contract department of an institution which does not
whereby a person binds himself to render have the authority to engage in trust and
some service or to do something in other fiduciary business.
representation or on behalf of another, with u. Investment management account
the consent or authority of the latter. shall refer to an account where transactions

Part IV - Page 2
§§ 4403Q - 4404Q.1
08.12.31
arising from investment management import, without having obtained the

activities are kept and recorded. required authority to do so.
Starting year 2001, IHs authorized to
A. TRUST AND OTHER FIDUCIARY engage in trust and other fiduciary business
BUSINESS shall renew their existing licenses yearly,
subject to the implementing guidelines to
Sec. 4404Q Authority to Perform Trust be issued thereon.
and Other Fiduciary Business. With prior (As amended by CL-2008-078 dated 15 December 2008,
approval of the Monetary Board, trust CL-2008-053 dated 21 August 2008 and CL-2008-007 dated
corporations and IHs may engage in trust 21 January 2008)
and other fiduciary business under Chapter
IX of R.A. No. 8791, as amended and § 4404Q.1 Prerequisites for engaging
Section 7 of P.D. No. 129, as amended. in trust and other fiduciary business. An
Entities whose articles of incorporation1 institution, before it may engage in trust and
or any amendments thereto, include the other fiduciary business, shall comply with
purpose or power to engage in trust and the following requirements:
other fiduciary business, shall secure the a. The applicant has combined capital
prior favorable recommendation of the accounts of not less than P250 million or
Monetary Board pursuant to Section 17 of the such amount as may be required by the
Corporation Code. Monetary Board or other regulatory agency.
If an entity is found to be engaged in For this purpose, combined capital
unauthorized trust and other fiduciary accounts shall have the same meaning as
business and/or investment management in Sec. 4106Q;
activities, whether as its primary, b. The applicant has been duly
secondary or incidental business, the licensed or incorporated as an FI by the
Monetary Board may impose appropriate government agency or created
administrative sanctions against such by special law or charter;
entity or its principal officers and/or c. The articles of incorporation or
majority stockholders or proceed against charter of the institution shall include
them in accordance with law. among its powers or purposes, acting as
The Monetary Board may take such trustee or administering any trust or holding
action as it may deem proper such as, but property in trust or on deposit for the use,
may not be limited to, requiring the or in behalf of others;
transfer or turnover of any trust and other d. The by-laws of the institution shall
fiduciary and/or IMA to duly incorporated include, among other things, provisions on
and licensed entities of the choice of the the following:
trustor, beneficiary or client, as the case (1) The organization plan or structure
may be. of the department, office, or unit which
No entity shall advertise or represent shall conduct the trust and other fiduciary
itself as being engaged in trust and other business;
fiduciary business or in investment (2) The creation of a trust committee, the
management activities or represent itself appointment of a trust officer and subordinate
as trustee or investment manager or use officers of the trust department; and
words of similar import and/or use in (3) A clear definition of the duties and
connection with its business title, the responsibilities as well as the line and staff
words trust, trust corporation, trust functional relationships of the various units,
company, trust plan or words of similar officers and staff within the organization.
1
SEC Memorandum Circular Nos. 5 dated 17 July 2008, 3 dated 16 February 2006 and 14 dated 24 October 2000.

Part IV - Page 3
§§ 4404Q.1 - 4404Q.2
05.12.31
e. Where the applicant is authorized BSP and it has not been cited for serious
to engage in quasi-banking functions, it shall violations or exceptions affecting its
also meet the following additional solvency, liquidity and profitability.
requirements: Where the applicant is not authorized
(1) Its operations during the year to engage in quasi-banking functions:
immediately preceding the filing of the (i) The adoption of a formula or
application have been profitable, i.e., its criteria for QBs in the determination of
rate of return on equity is at least ten compliance with the capital-to-risk assets
percent (10%); ratio and ceilings on loans to DOSRI; and
(2) It has continuously complied with (ii) The substitution of the reserve and
its net worth-to-risk assets ratio, liquidity liquidity floor requirements with the cash
floor and ceilings on DOSRI loans during ratio, as follows:
the last six (6) months immediately (a) Primary reserves to Bills Payable; and
preceding the date of application; (b) Primary and secondary reserves to
(3) It has not incurred net weekly reserve Bills Payable; where primary reserves
deficiency against deposit substitutes during consist of cash on hand, cash in vault,
the last six (6) months immediately COCIs, due from the BSP and due from
preceding the date of application; banks; and where secondary reserves
(4) The ratio of its total NPLs to its gross consist of BSP supported government
loan portfolio as of the date of filing of securities, T-Bills and other government
application does not exceed the industry securities.
average as of the end of the quarter Compliance with the foregoing, as well
immediately preceding the date of as with other requirements under existing
application; regulations, shall be maintained up to the
(5) It does not have any past due time the trust license is granted. An
obligation with the BSP or with any applicant that fails in this respect shall be
government or non-government FI; required to show compliance for another
(6) It has not engaged in unsafe and test period of the same duration.
unsound practice/s during the year
immediately preceding the date of § 4404Q.2 Pre-operating requirements
application; An institution authorized to engage in trust
(7) It has corrected as of the date of and other fiduciary business shall, before
application the violations noted in its latest engaging in actual operations, submit to the
examination related to the single borrower’s BSP the following:
loan limit and all other ceilings prescribed a. Government securities acceptable
by the BSP; to the BSP amounting to P500,000 as
(8) It does not have float items minimum basic security deposit for the
outstanding for more than sixty (60) faithful performance of trust and other
calendar days in the “Due From/To Head fiduciary duties required under Subsec.
Office/Branches” accounts and the “Due 4405Q.1;
from Bangko Sentral” account exceeding b. Organization chart of the trust
one percent (1%) of its total resources as of department which shall carry out the trust
the end of the month immediately and other fiduciary business of the
preceding the date of application; and institution; and
(9) It has shown substantial compliance c. N a m e s a n d p o s i t i o n s o f
with other pertinent laws, rules and individuals designated as chairman and
regulations, policies and instructions of the members of the trust committee, trust

Part IV - Page 4
§§ 4404Q.2 - 4405Q.2
06.12.31
officer and other subordinate officers of b. NDC Agri-Agra ERAP Bonds,

the trust department with their respective regardless of remaining maturities;
bio-data and statement of duties and c. Five (5) - and Ten (10) - year Special
responsibilities. Purpose Treasury Bonds (SPTBs) provided
such bonds shall not be hypothecated in
Sec. 4405Q Security for the Faithful any way or earmarked for any other purpose
Performance of Trust and Other Fiduciary and they meet the three (3)-year remaining
Business maturity requirement to ensure that such
bonds are liquid;
§ 4405Q.1 Basic security deposit. An d. Securities backed by the unreleased
institution authorized to engage in trust Internal Revenue Allotments (IRA) of LGUs
and other fiduciary business shall deposit (issued by a Special Purpose Trust
with the BSP eligible government administered by the DBP under the IRA
securities as security for the faithful Monetization Program of the Union of
performance of its trust and other fiduciary Local Authorities of the Philippines) the
duties equivalent to at least one percent release of which IRA on scheduled date of
(1%) of the book value of the total volume payment has been certified by the DBM as
of trust, other fiduciary and investment not being subject to any conditionalities:
management assets: Provided, That at no Provided, That such securities shall be
time shall such deposit be less than eligible only to the extent of the present
P500,000. value of the bond computed using the
Scripless securities under Registry of original yield to maturity (as of auction/issue
Scripless Securities (RoSS) system of the date): Provided, further, That for reserve for
Bureau of Treasury (BTr) may be used as trust and other fiduciary duties, the
basic security deposit for trust duties using remaining maturities of the securities shall not
the guidelines in Appendix Q-21. exceed three (3) years; and
e. Zero Coupon Bond Issue by the
§ 4405Q.2 Eligible securities HGC of up to P7.0 billion five (5)-year
Government securities which shall be regular series and up to P3.0 billion seven
deposited in compliance with the above (7)-year special series to finance its guaranty
basic security deposit shall consist of: servicing of socialized and low-cost
a. Evidences of indebtedness of the housing projects: Provided, That they meet
Republic of the Philippines and of the BSP the three (3)-year remaining maturity
and any other evidences of indebtedness requirement to ensure that such bonds are
or obligations the servicing and repayment liquid: Provided, further, That such bonds
of which are fully guaranteed by the shall qualify as eligible reserve for trust and
Republic of the Philippines; and such other fiduciary duties only to the extent of
other kinds of securities which may be the present value of the bond computed
declared eligible by the Monetary Board: using the original yield to maturity (as of
Provided, That such securities shall be free, auction/issue date).
unencumbered, and not utilized for any f. Tobacco Excise Tax Receivable
other purpose: Provided, further, That Monetization Program Investment Certificates
such securities shall have remaining (TEXTR Certificates) backed by receivables
maturities of not more than three (3) years representing the unreleased portion of the
from the date of deposit with the BSP; obligation of the National Government to

Part IV - Page 5
§§ 4405Q.2 - 4405Q.4
08.12.31
its LGUs for their share of the Tobacco a. On the QB:

Excise Taxes under R.A. No. 7171 i. Monetary penalty/ies:
amounting to P1.85 billion and covering
the years 2001 and 2002: Provided, That Offense Third and
such securities shall be eligible only to the Trust First Second subsequent
extent of the present value of the securities Asset Size offense(s)
computed using the original yield to Up to
maturity as of auction/issue date. P500 P600.00 P700.00 P800.00
g. Securities received, pursuant to the million
Domestic Debt Exchange Offer of the Above
Republic of the Philippines, in exchange for P500
QBs with Full Trust Authority and with Trust Assets of
securities that are eligible reserves for trust duties. million P1,000.00 P1,250.00 P1,500.00
Penalty per Calendar Day
(As amended by Circular No. 509 dated 01 February 2006) but not
exceeding
§ 4405Q.3 Valuation of securities and P1 billion
basis of computation of the basic security Above
deposit requirement. For purposes of P1 billion
determining compliance with the basic but not P2,000.00 P3,000.00 P4,000.00
security deposit under this Section, the exceeding
amount of securities so deposited shall be P10 billion
based on their book value, that is, cost as Above
increased or decreased by the P10 billion
corresponding discount or premium but not P5,000.00 P6,000.00 P7,000.00
amortization. exceeding
The base amount for the basic security P50 billion
deposit shall be the average of the Above
month-end balances of total trust, P50 billion P8,000.00 P9,000.00 P10,000.00
investment management and other
fiduciary assets of the immediately ii. Non-monetary penalty beginning
preceding calendar quarter. with the third offense (all QBs) - Prohibition
against the acceptance of new trust and
§ 4405Q.4 Compliance period; other fiduciary accounts, and from
sanctions. The trustee or fiduciary shall renewing expiring trust and other fiduciary
have thirty (30) calendar days after the end contracts up to the time the violation is
of every calendar quarter within which to corrected.
deposit with the BSP the securities required b. On the trust officer and/or other
under this Section. officer(s) responsible for the deficiency/
The following sanctions shall be non-compliance:
imposed for any deficiency in the basic (1) First offense - warning that
security deposit for the faithful performance subsequent violations shall be dealt with
of trust and other fiduciary duties: more severely;

Part IV - Page 6
§§ 4405Q.4 - 4405Q.5
08.12.31
(2) Second offense - written reprimand (a) The funds are composed of
with a stern warning that subsequent contributions from two (2) or more investors;
violations shall be subject to suspension; (b) The funds are managed/administered
(3) Third offense - thirty (30) calendar as a vehicle for collective investment and
day-suspension without pay; and reinvestment;
(4) Subsequent offense(s) - sixty (60) (c) The trustee/administrator/agent has
calendar day-suspension without pay. the exclusive management and control over
For purposes of determining the the funds and the sole right at any time to
frequency of the violation, the QB's sell, convert, invest, exchange, transfer or
compliance profile for the immediately otherwise change or dispose of the assets
preceding three (3) years or twelve (12) comprising the funds; and
quarters will be reviewed: Provided, That (d) Investments/contributions to, or
for purposes of determining appropriate withdrawals from, the funds are being
penalty on the trust officer and/or other allowed at anytime or as of a fixed date in
responsible officer(s), any offense the future, and/or the income, net of all
committed outside the preceding three (3) expenses incurred in the management of the
year or twelve (12) quarter-period shall be fund plus the fee of the trustee/administrator/
considered as the first offense: Provided, agent, are being distributed among the
further, That in the case of trust officer, all participants of the funds, without the need
offenses committed by him in the past as to liquidate all assets of the funds.
trust officer of other institution(s) shall also The reserves to be maintained shall be
be considered: Provided, finally, That if the as follows:
offense cannot be attributed to any other (i) Regular reserves 10%1
officer of the QB, the trust officer shall be (ii) Liquidity reserves 11%2
automatically held responsible since the The liquidity reserve shall be maintained
ultimate responsibility for ensuring in the RDA with the BSP, or may be in the
compliance with the regulation rests upon form of the following: Provided, That it
him, as evidence may warrant. complies with the guidelines shown in
(As amended by Circular Nos. 617 dated 30 July 2008 and Appendix Q-41.
585 dated 15 October 2007) (i) Short-term market-yielding
government securities purchased directly
§ 4405Q.5 Reserves against peso- from the BSP-Treasury Department (TD);
denominated Common Trust Funds (CTFs) (ii) NDC Agri-Agra ERAP Bonds,
and Trust and Other Fiduciary Accounts regardless of maturity. The requirement that
(TOFA) - Others the securities used shall have a term of not
a. Reserves against peso-denominated more than one (1) year shall not apply; and
CTFs. In addition to the basic security deposit, (iii) Poverty Eradication and Alleviation
an institution authorized to engage in trust Certificates (PEACe) bonds only to the extent
and other fiduciary business shall maintain of the original gross issue proceeds
reserves on - determined at the time of the auction, plus
(1) peso-denominated CTF; and capitalized interest on the underlying
(2) such other managed peso funds zero-coupon Treasury Notes as and when the
which partake the nature of collective corresponding interest is earned over the life
investment of a peso-denominated CTF as of the bonds.
may be indicated by the presence of the Any defiency in the liquidity reserves
following features: shall continue to be in the forms or modes
1
From 6% to 9% regular reserve effective the reserve week starting 7 January 2005 under MAB dated 29 December 2004
and from 9% to 10% regular reserve effective the reserve week starting 15 July 2005 under Circular 491 dated 12 July 2005
2
From 10 % to 11% under Circular 491 dated 12 July 2005, effective the reserve week starting 15 July 2005.

Part IV - Page 7
§§ 4405Q.5 - 4405Q.6
06.12.31
prescribed under existing regulations for the The reserves on TOFA-Others shall be
composition of required reserves. provided by the institution out of said funds.
The reserves on peso-denominated (As amended by Circular Nos. 551 dated 17 November 2006
CTFs and such other managed peso funds and 539 dated 09 August 2006)
shall be provided out of said funds.
b. Reserves against TOFA-Others. In § 4405Q.6 Composition of reserves
addition to the basic security deposit, an a. The provisions of Subsec. 4246Q.1
institution authorized to engage in trust and shall govern the composition of reserves
other fiduciary business shall maintain against peso-denominated CTFs and such
reserves on TOFA-Others, except accounts other managed peso funds as well as
held under (1) Administratorship; (2) Bond TOFA-Others of institutions authorized to
Issues/Other Obligations Under Deed of engage in trust and other fiduciary business.
Trust or Mortgage; (3) Custodianship and For purposes of this Subsection, a special
Safekeeping; (4) Depository and deposit account shall be maintained by the
Reorganization; (5) Employee Benefit Plans institutions with the BSP exclusively for
Under Trust; (6) Escrow; (7) Personal Trust trust reserves which deposits up to forty
(testementary and living trust); percent (40%) of the required reserves
(8) Executorship; (9) Guardianship; (10) Life against peso-denominated CTFs and such
Insurance Trust; and (11) Pre-need Plans other managed peso funds (less the
(institutional/individual). percentage allowed to be maintained in the
The reserves to be maintained shall be form of short-term market-yielding
as follows: government securities), as well as the
(i) Regular reserves 6%1 required reserves against TOFA-Others (less
(ii) Liquidity reserves 11%2 the percentage allowed to be maintained
The liquidity reserves shall be in the form of short-term market-yielding
maintained in the RDA with the BSP, or may government securities), shall be paid
be in the form of the following: Provided, interest at four percent (4%) per annum,
That it complies with the guidelines shown based on the average daily balance of said
in Appendix Q-41. deposits to be credited quarterly.
(i) Short-term market-yielding Likewise, institutions may also maintain
government securities purchased directly a special demand deposit account with
from the BSP-TD. local banks exclusively for trust duties.
(ii) NDC Agri-Agra ERAP Bonds, Effective 1 July 2003, published interest
regardless of maturity; and rates that will be applied on BSP’s Special
(iii) PEACe bonds only to the extent of Deposit Accounts of QBs shall be inclusive
the original gross issue proceeds of the ten percent (10%) VAT.
determined at the time of the auction, plus b. The portion of reserves that may be
capitalized interest on the underlying maintained in the form of short-term
zero-coupon Treasury Notes as and when market-yielding government securities
the corresponding interest is earned over refers to government securities shall be
the life of the bonds. purchased directly from the BSP Treasury
Any deficiency in the liquidity reserves Department at one-half percent (1/2%)
shall continue to be in the forms or modes below the prevailing market rate for an
prescribed under existing regulations for the equivalent term and volume and subject
composition of required reserves. to BSP’s firm commitment to buy back at
1
From 6% to 9% regular reserve effective the reserve week starting 7 January 2005 under MAB dated 29 December 2004
and from 9% to 10% regular reserve effective the reserve week starting 15 July 2005 under Circular 491 dated 12 July 2005
2
From 10 % to 11% under Circular 491 dated 12 July 2005, effective the reserve week starting 15 July 2005.

Part IV - Page 8
§§ 4405Q.6 - 4406Q.1
06.12.31
any time at prevailing market rates. Such TOFA-Others, the term value per books
reserves in the form of short-term market- shall refer to the total volume of CTFs, other
yielding government securities shall be in managed peso funds, as well as TOFA-
addition to other forms of eligible reserves Others less booked “Allowance for
such as cash in vault or on deposit with Probable Losses”.
the BSP. (As amended by Circular No. 535 dated 04 July 2006)
All purchases of said government
securities shall be under the RoSS system § 4405Q.8 Reserve deficiencies;
of the BTr. Transactions covering said sanctions. The provisions of Subsec.
securities shall be recorded in accordance 4246Q.3 shall govern the computation of
with the guidelines in Appendix Q-21. reserve deficiencies for peso-denominated
CTFs and such other managed peso funds,
§ 4405Q.7 Computation of reserve as well as for TOFA-Others, of institutions
position. An institution authorized to authorized to engage in trust and other
engage in trust and other fiduciary business fiduciary business, including the sanctions
shall calculate daily the required and provided in said Subsection.
available reserves on the value per books
of its peso-denominated CTFs and such § 4405Q.9 Report of compliance
other managed peso funds, as well as on Every institution shall make a weekly
TOFA-Others, based on the seven-day report to the BSP of its daily required and
week, starting Friday and ending Thursday available reserves on peso-denominated
including Saturdays, Sundays, holidays, CTFs and such other managed peso funds,
non-business days and days when there is as well as on TOFA-Others, to be
no clearing: Provided, That with reference submitted not later than the close of the
to holidays, non-business days and days third business day following the reference
where there is no clearing, the reserve week.
position at the close of business day
immediately preceding such holidays, Sec. 4406Q Organization and Management
non-business days and days where there is
no clearing, shall apply thereon. For the § 4406Q.1 Organization. An institution
purpose of computing reserve position, the authorized to engage in trust and other
principal office in the Philippines and all fiduciary business shall, pursuant to Subsec.
branches and agencies located therein shall 4404Q.1, include in its by-laws, provisions
be treated as a single unit. on the organization plan or structure of the
The required reserves in the current department, office or unit which shall
period (reference reserve week) shall be conduct such business. The by-laws shall
computed based on the corresponding also include provisions on the creation of a
levels of peso-denominated CTFs and such trust committee, the appointment of a trust
other managed peso funds, as well as officer and other subordinate officers and a
TOFA-Others of the prior week. clear definition of their duties and
For purposes of computing the required responsibilities as well as their line and staff
and available statutory and liquidity functional relationships within the
reserves for peso-denominated CTFs and organization which shall be in accordance
such other managed peso funds, as well as with the following guidelines.

Part IV - Page 8a
§ 4406Q.1
05.12.31
a. Trust and other fiduciary business and distinct from the other departments
of an institution shall be carried out through and/or businesses of the institution.
a trust department which shall be An institution which is also engaged
organizationally, operationally, in investment management activities shall
administratively and functionally separate conduct the same only through its trust
(Next Page is Part IV - Page 9)

Part IV - Page 8b
§§ 4406Q.1 - 4406Q.3
05.12.31
department and the responsibilities of the available in the review of proposed and/or
board of directors, trust committee and trust existing trust and fiduciary agreements and
officer shall be construed to include the documents and in the handling of legal and
proper administration and management of tax matters related thereto.
investment management activities.
No institution shall undertake any of § 4406Q.2 Composition of trust
the trust and other fiduciary business and, committee. The trust committee shall be
whenever applicable, investment composed of at least five (5) members
management activities outside the direct including the president, the trust officer and
control, authority and management of the directors who are appointed by the board
trust department or through any department of directors on a regular rotation basis and
or office which is involved in the other who are not officers of the institution
businesses of the institution, such as the proper. No member of the audit committee,
Treasury, Funds Management or any similar if the institution has any, shall be
department; otherwise, any such business concurrently designated as a member of the
shall be considered part of the institution's trust committee: Provided, That in the case
real liabilities. of a trust committee composed of more than
The institution proper and the trust five (5) members, the appointment therein
department may share the following of an operating officer may be allowed only
activities: (1) electronic data processing; (2) if the required balance in the membership
credit investigation; (3) collateral appraisal; of at least three (3) members of the board for
and (4) messengerial, janitorial and security every operating officer shall be maintained.
services. For purposes of this Subsection, the term
b. The trust department, trust officer officer shall include the president, executive
and other subordinate officers of the trust vice president, general manager, corporate
department shall only be directly secretary, treasurer and others mentioned
responsible to the institution's trust as officers of the institution, or those whose
committee which shall, in turn, be only duties as such are defined in the by-laws,
directly responsible to the institution's or are generally known to be officers of the
board of directors. institution (or any of its branches and offices
No director, officer or employee other than the Head Office) either through
taking part in the management of trust and announcement, representation, publication
other fiduciary accounts shall perform or any kind of communication made by the
duties in other departments or the audit institution.
committee of the institution and vice versa. The board of directors shall duly note
However, branch managers duly in the minutes the committee members and
authorized by the board of directors may, designate the chairman who shall be one
for or on behalf of the officer, sign predrawn of the directors referred to above.
trust instruments such as CTFs.
c. The organization structure and § 4406Q.3 Qualifications of committee
definition of duties and responsibilities of members, officers and staff.The institution's
the trust committee, officers and employees trust department shall be staffed by persons
of the trust department shall reflect of competence, integrity and honesty.
adherence to the minimum internal control Directors, committee members and officers
standards prescribed by the BSP. charged with the administration of trust and
d. Provisions shall be made by the other fiduciary activities shall, in addition to
institution to have legal assistance readily meeting the qualification standards

Part IV - Page 9
§§ 4406Q.3 - 4406Q.4
05.12.31
prescribed for directors and officers of Likewise, it shall make a review of the trust
financial institutions, possess the necessary and/or fiduciary assets at least once every
technical expertise in such business: twelve (12) months to determine the
Provided, That trust officers who shall be advisability of retaining or disposing of such
appointed shall have at least two (2) years of assets;
actual experience or training in trust operations. (5) It shall be responsible for taking
appropriate action on the examination
§ 4406Q.4 Responsibilities of reports of supervisory agencies, internal
administration and/or external auditors on the institution's
a. Board of Directors. The board of trust and other fiduciary business and
directors is responsible for the proper recording such actions thereon in the
administration and management of trust and minutes;
other fiduciary business. Funds and (6) It shall designate the members of
properties held in trust or in any fiduciary the trust committee, the trust officer and
capacity shall be administered with the skill, subordinate officers of the trust department
care, prudence and diligence necessary and shall be responsible for requiring
under the circumstances then prevailing reports from said committee and officers
that a prudent man, acting in like capacity and recording its actions thereon in the
and familiar with such matters, would minutes; and
exercise in the conduct of an enterprise of (7) It shall establish an appropriate
like character and with similar aims. staffing pattern and adopt operating
The responsibilities of the board of budgets that shall enable the trust
directors shall include, but need not be department to effectively carry out its
limited to the following: functions. It shall likewise be responsible
(1) It shall determine and formulate for providing the officers and staff of the
general policies and guidelines on the: (a) institution with appropriate training
acceptance, termination, or closure of trust programs in the administration and
and other fiduciary accounts; (b) proper operation of all phases of trust and other
administration and management of each fiduciary business.
trust and other fiduciary accounts; and (c) The board of directors may, by action
investment, reinvestment and disposition duly entered in the minutes, delegate its
of funds or property held in its capacity as authority for the acceptance, termination,
trustee or fiduciary; closure or management of trust and other
(2) It shall direct and review the fiduciary accounts to the trust committee
actions of the trust committee and all or to the trust officer, subject to certain
officers and employees designated to guidelines approved by the board.
manage the trust and other fiduciary b. Trust Committee. The trust
accounts, especially accounts without committee duly constituted and authorized
specific agreements on investments or by the board of directors shall act within
discretionary accounts; the sphere of authority which may be
(3) It shall approve or confirm the provided in the by-laws and/or as may be
acceptance, termination or closure of all delegated by the board, such as, but not
trust and other fiduciary accounts and shall limited to, the following:
record such in its minutes; (1) The acceptance and closing of
(4) Upon the acceptance of an trust and other fiduciary accounts;
account, it shall immediately review all (2) The initial review of assets placed
non-cash assets received for management. under the trustee's or fiduciary's custody;

Part IV - Page 10
§§ 4406Q.4 - 4407Q
07.12.31
(3) The investment, reinvestment and and investment management activities are
disposition of funds or property; covered by the requirement of prior BSP
(4) The review and approval of approval for outsourcing services under
transactions between trust and/or fiduciary Appendix Q-37.
accounts; and (M-2007-009 dated 22 March 2007)
(5) The review of trust and other
fiduciary accounts at least once every Sec. 4407Q Non-Trust, Non-Fiduciary
twelve (12) months to determine the and/or Non-Investment Management
advisability of retaining or disposing of the Activities. The basic characteristic of trust,
trust or fiduciary assets, and/or whether the other fiduciary and investment
account is being managed in accordance management relationship is the absolute
with the instrument creating the trust or non-existence of a debtor-creditor
other fiduciary relationship. relationship, thus, there is no obligation
For this purpose, the trust committee on the part of the trustee, fiduciary or
shall meet whenever necessary and keep investment manager to guarantee returns
minutes of its actions and make periodic on the funds or properties regardless of the
reports thereon to the board. results of the investment. The trustee,
c. Trust Officer. The trust officer fiduciary or investment manager is entitled
designated by the board of directors as head to fees/commissions which shall be
of the Trust Department shall act and stipulated and fixed in the contract or
represent the institution in all trust and indenture and the trustor or principal is
other fiduciary matters within the sphere entitled to all the funds or properties and
of his authority as may be provided in the earnings less fees/commissions, losses and
by-laws or as may be delegated by the other charges. Any agreement/
board. His responsibilities shall include, arrangement that does not conform to
but need not be limited to, the following: these shall not be considered as trust, other
(1) The administration of trust and fiduciary or investment management
other fiduciary accounts; relationship.
(2) The implementation of policies and The following shall not constitute a
instructions of the board of directors and trust, other fiduciary and/or investment
the trust committee; management relationship:
(3) The submission of reports on a. When there is a preponderance of
matters which require the attention of the purpose or of intent that the arrangement
trust committee and the board of directors; creates or establishes a relationship other
(4) The maintenance of adequate than a trust, fiduciary and/or investment
books, records and files for each trust or management;
other fiduciary account; and b. When the agreement or contract is
(5) The maintenance of necessary itself used as a certificate of indebtedness
controls and measures to protect assets in exchange for money placement from
under his custody and held in trust or other clients and/or as the medium for
fiduciary capacity. confirming placements and investment
thereof;
§ 4406Q.5 – 4406Q.8 (Reserved) c. When the agreement or contract of
an account is accepted under the
§ 4406Q.9 Outsourcing services in signature(s) of those other than the trust
trust departments. Trust departments of QBs officer or subordinate officer of the trust
performing trust and other fiduciary business department or those authorized by the

Part IV - Page 11
§§ 4407Q - 4408Q
05.12.31
board of directors to represent the trust foregoing which are accepted, renewed or
officer; extended after 16 October 1990 shall be
d. Where there is a fixed rate or reported as deposit substitutes and shall
guaranty of interest, income or return in be subject to the reserve requirement for
favor of its client or beneficiary: Provided, deposit substitutes from the time of
however, That where funds are placed in inception, without prejudice to the
fixed income-generating investments, a imposition of the applicable sanctions
quotation of income expectation or like provided for in Sections 36 and 37 of R.A.
terms, shall neither be considered as No. 7653, and Sections 12 and 16 of P.D.
arrangements with a fixed rate nor a No. 129, as amended.
guaranty of interest, income or return when
the agreement or indenture categorically Sec. 4408Q Unsafe and Unsound
states in bold letters that the quoted income Practices. Whether a particular activity may
expectation or like terms is neither assured be considered as conducting business in
nor guaranteed by the trustee or fiduciary an unsafe or unsound manner, all relevant
and it does not, therefore, entitle the client facts must be considered. An analysis of
to a fixed interest or return on his the impact thereof on the QB’s/trust entity’s
investments: Provided, further, That any of operations and financial conditions must
the following practices or practices similar be undertaken, including evaluation of
and/or tantamount thereto shall be capital position, asset condition,
construed as fixing or guaranteeing the rate management, earnings posture and
of interest, income or return: liquidity position.
(1) Issuance of certificates, side In determining whether a particular act
agreements, letters of undertaking, or other or omission, which is not otherwise
similar documents providing for fixed rates prohibited by any law, rule or regulation
or guaranteeing interest, income or return; affecting QBs/trust entities, may be deemed
(2) Paying trust earnings based on as conducting business in an unsafe or
indicated or expected yield regardless of unsound manner, the Monetary Board,
the actual investment results; upon report of the head of the SES based
(3) Increasing or reducing fees in order on findings in an examination or a
to meet a quoted or expected yield; and complaint, shall consider any of the
(4) Entering into any arrangement, following circumstances:
scheme or practice which results in the a. The act or omission has resulted or
payment of fixed rates or yield on trust may result in material loss or damage, or
investments or in the payment of the abnormal risk or danger to the safety,
indicated or expected yield regardless of stability, liquidity or solvency of the
the actual investment results; and institution;
e. Where the risk or responsibility is b. The act or omission has resulted or
exclusively with the trustee, fiduciary or may result in material loss or damage or
investment manager in case of loss in the abnormal risk to the institution’s
investment of trust, fiduciary or investment depositors, creditors, investors,
management funds, when such loss is not stockholders, or to the BSP, or to the public
due to the failure of the trustee or fiduciary in general;
to exercise the skill, care, prudence and c. The act or omission has caused any
diligence required by law. undue injury, or has given unwarranted
Trust, other fiduciary and investment benefits, advantage or preference to the
management activities involving any of the QB/trust entity or any party in the discharge

Part IV - Page 12
§§ 4408Q - 4408Q.9
05.12.31
by the director or officer of his duties and § 4408Q.9 Sanctions. The Monetary
responsibilities through manifest partiality, Board may, at its discretion and based on
evident bad faith or gross inexcusable the seriousness and materiality of the acts
negligence; or or omissions, impose any or all of the
d. The act or omission involves following sanctions provided under
entering into any contract or transaction Section 37 of R.A. No. 7653 and Section
manifestly and grossly disadvantageous to 56 of R.A. No. 8791, whenever a QB/trust
the QB/trust entity, whether or not the entity conducts business in an unsafe and
director or officer profited or will profit unsound manner:
thereby. a. Issue an order requiring the QB/
The list of activities which may be trust entity to cease and desist from
considered unsafe and unsound is shown conducting business in an unsafe and
in Appendix Q-24. unsound manner and may further order
In line with the statement of principles that immediate action be taken to correct
governing trust and other fiduciary the conditions resulting from such unsafe
business under Sec. 4401Q, the trustee, or unsound practice;
fiduciary or investment manager shall desist b. Fines in amounts as may be
from the following unsound practices: determined by the Monetary Board to be
a. Entering in an arrangement appropriate, but in no case to exceed
whereby the client is at the same time the P30,000 a day on a per transaction basis
borrower of his own fund placement, or taking into consideration the attendant
whereby the trustor or principal is a circumstances, such as the gravity of the
borrower of other trust, fiduciary or act or omission and the size of the QB/
investment management funds belonging trust entity, to be imposed on the QB/trust
to the same family or business group of entity, their directors and/or responsible
such trustor or principal; officers;
b. Granting loans or accommodations c. Suspension of lending or foreign
to any trust committee member, officer and exchange operations or authority to
employee of the trust department except accept new deposit substitutes and/or
where such loans are obtained by said new trust accounts or to make new
persons as members of an employee investments;
benefit fund of the trustee's own d. Suspension of responsible
institution; directors and/or officers;
c. Borrowing from, or selling trust, e. Revocation of quasi-banking
other fiduciary and/or investment license and/or trust authority; and/or
management assets to, the trust corporation f. Receivership and liquidation
or IH proper to cover portfolio losses and/ under Section 30 of R.A. No. 7653.
or to guarantee the return of principal or All other provisions of Sections 30 and
income; 37 of R.A. No. 7653, whenever
d. Granting new loans to any appropriate, shall also be applicable on
borrower who has a past due and/or the conduct of business in an unsafe or
classified loan account with the institution unsound manner.
itself or its trust department; and The imposition of the above sanctions
e. Requiring clients to sign is without prejudice to the filing of
documents in blank. appropriate criminal charges against
culpable persons as provided in Sections
§§ 4408Q.1 - 4408Q.8 (Reserved) 34, 35 and 36 of R.A. No. 7653.

Part IV - Page 13
§§ 4409Q - 4409Q.2
07.12.31
Sec. 4409Q Trust and Other Fiduciary (10) The amount or rate of the
Business. The conduct of trust and other compensation of trustee or fiduciary;
fiduciary business shall be subject to the (11) A statement in noticeable print
following regulations. to the effect that trust and other fiduciary
business are not covered by the PDIC and
§ 4409Q.1 Minimum documentary that losses, if any, shall be for the account
requirements. Each trust or fiduciary of the client; and
account shall be covered by a written (12) Disclosure requirements for
document establishing such account, as transactions requiring prior authority and/
follows: or specific written investment directive
a. In the case of accounts created from the client, court of competent
by an order of the court or other competent jurisdiction or other competent authority.
authority, the written order of said court or
authority. § 4409Q.2 Lending and investment
b. In the case of accounts created disposition. Assets received in trust or in
by corporations, business firms, other fiduciary capacity shall be
organizations or institutions, the voluntary administered in accordance with the terms
written agreement or indenture entered into of the instrument creating the trust or other
by the parties, accompanied by a copy of fiduciary relationship.
the board resolution or other evidence When a trustee or fiduciary is granted
authorizing the establishment of, and discretionary powers in the investment
designating the signatories to, the trust or disposition of trust or other fiduciary funds
other fiduciary account. and unless otherwise specifically
c. In the case of accounts created enumerated in the agreement or indenture
by individuals, the voluntary written and directed in writing by the client, court
agreement or indenture entered into by the of competent jurisdiction or other
parties. competent authority, loans and investments
The voluntary written agreement or of the fund shall be limited to:
indenture shall include the following a. Evidences of indebtedness of the
minimum provisions: Republic of the Philippines and of the BSP,
(1) Title or nature of contractual and any other evidences of indebtedness
agreement in noticeable print; or obligations the servicing and repayment
(2) Legal capacities, in noticeable of which are fully guaranteed by the
print, of parties sought to be covered; Republic of the Philippines or loans against
(3) Purposes and objectives; such government securities;
(4) Funds and/or properties subject b. Loans fully guaranteed by the
of the arrangement; Republic of the Philippines as to the
(5) Distribution of the funds and/or payment of principal and interest;
properties; c. Loans fully secured by a hold-out
(6) Duties and powers of trustee or on, assignment or pledge of deposit
fiduciary; substitutes of the institution or deposits
(7) Liabilities of the trustee or with other banks, or mortgage and chattel
fiduciary; mortgage bonds issued by the trustee or
(8) Reports to the client; fiduciary;
(9) Termination of contractual d. Loans fully secured by real estate
arrangement and, in appropriate cases, or chattels in accordance with Section 78
provision for successor-trustee or fiduciary; of R.A. No. 337, as amended, and subject

Part IV - Page 14
§§ 4409Q.2 - 4409Q.3
07.12.31
to the requirements of Sections 75, 76 and (2) The borrower's name;

77 of R.A. No. 337, as amended; and (3) Amount involved; and
e. Investment in the BSP special (4) Collateral security(ies), if any.
deposit account (SDA) facility made in (As amended by M-2007-038 dated 29 November 2007 and
accordance with the guidelines in M-2007-011 dated 08 May 2007)
Appendix Q-46.
The specific directives required under § 4409Q.3 Transactions requiring
this Subsection shall consist of the prior authority. A trustee or fiduciary shall
following information: not undertake any of the following
(1) The transaction to be entered into; transactions for the account of a client,
(Next page is Part IV - Page 15)

Part IV - Page 14a
§§ 4409Q.3 - 4409Q.6
05.12.31
unless prior to its execution, such such under existing regulations on loans
transaction has been fully disclosed and to DOSRI in Part III-E of this Manual. The
specifically authorized in writing by the procedural and reportorial requirements in
client, beneficiary, other party-in-interest, said regulations shall also apply.
court of competent jurisdiction or other The disclosure required under this
competent authority: Subsection shall consist of the following
a. Lend, sell, transfer or assign money minimum information:
or property to any of the departments, (1) The transactions to be entered into;
directors, officers, stockholders or (2) Identities of the parties involved in
employees of the trustee or fiduciary, or the transactions and their relationships
relatives within the first degree of (shall not apply to Item d of this
consanguinity or affinity, or the related Subsection);
interests of such directors, officers and (3) Amount involved; and
stockholders; or to any corporation where (4) Collateral security(ies), if any.
the trustee or fiduciary owns at least fifty The above information shall be made
percent (50%) of the subscribed capital or known to clients in a separate instrument
voting stock in its own right and not as or in the very instrument creating the trust
trustee nor in a representative capacity; or fiduciary relationship.
b. Purchase or acquire property or debt
instruments from any of the departments, § 4409Q.4 Ceilings on loans. Loans
directors, officers, stockholders, or funded by trust accounts shall be subject
employees of the trustee or fiduciary, or to the single borrower's loan limit and
relatives within the first degree of DOSRI ceilings imposed on QBs under Part
consanguinity or affinity, or the related III - A and - E of this Manual. For purposes
interest of such directors, officers and of determining compliance with said
stockholders; or from any corporation ceilings, the total amount of said loans
where the trustee or fiduciary owns at least granted by the institution and its trust
fifty percent (50%) of the subscribed department to the same person, firm or
capital or voting stock in its own right and corporation shall be combined.
not as trustee nor in a representative
capacity; § 4409Q.5 Funds awaiting investment
c. Invest in equities of, or in or distribution. Funds held by the trustee
securities underwritten by, the trustee or or fiduciary awaiting investment or
fiduciary or a corporation in which the distribution shall not be held uninvested
trustee or fiduciary owns at least fifty or undistributed any longer than is
percent (50%) of the subscribed capital reasonable for the proper management of
or voting stock in its own right and not as the account.
trustee nor in a representative capacity; and
d. Sell, transfer, assign, or lend § 4409Q.6 Other applicable
money or property from one trust or regulations on loans and investments. The
fiduciary account to another trust or loans and investments of trust and other
fiduciary account except where the fiduciary accounts shall be subject to
investment is in any of those enumerated pertinent laws, rules and regulations for
in Items a to d of Subsec. 4409Q.2. banks and QBs that shall include, but need
Directors, officers, stockholders, and not be limited to, the following:
their related interest covered by this a. Requirements of Sections 76 and
Subsection shall be those considered as 77 of R.A. No. 337, as amended;

Part IV - Page 15
§§ 4409Q.6 - 4409Q.9
06.12.31
b. Provisions of Section 4(e) of the trustor and third person(s) or third

New Rules on Registration of Short-Term person(s) only. However, the trustor/s
Commercial Papers and Section 7(f) of the cannot create a trust with himself/
New Rules on the Registration of Long- themselves as the sole beneficiary/(ies).
Term Commercial Papers issued by the SEC The functions and authorities of the
(Appendices Q-7 and Q-8). trustee as defined in the agreement shall
c. Criteria for past due accounts; and include:
d. Qualitative appraisal of loans, (1) the purpose or intention of the
investments and other assets that may trust;
require provisions for probable losses in (2) the nature and value of the property
accordance with the criteria set in Appendix or sum of money that comprise the trust;
Q-10; and the corresponding allowance for (3) the trustee’s investment powers;
probable losses booked in accordance with (4) the name(s) of the beneficiaries; and
the Manual of Accounts for Trust and Other (5) the terms and conditions under
Fiduciary Business and Investment which the income and/or principal of the
Management Activities. trust is to be paid or to be disposed of
during the lifetime and ultimately, upon
§ 4409Q.7 Operating and accounting the death of the trustor or upon the
methodology. Trust and other fiduciary occurrence of a specified event(s).
accounts shall be operated and accounted A living trust may either be revocable
for in accordance with the following: or irrevocable.
a. The trustee or fiduciary shall b. Minimum criteria. In line with such
administer, hold or manage the fund or definition, transactions considered as living
property in accordance with the trust accounts should meet the following
instrument creating the trust or other minimum criteria:
fiduciary relationship; and (1) Minimum entry amount and
b. Funds or property of each client maintaining balance shall at least be
shall be accounted separately and distinctly P100,000: Provided, That living trust
from those of other clients herein referred accounts with balances of up to P500,000
to as individual account accounting. shall only be invested in deposits and
government securities;
§ 4409Q.8 (Reserved) (2) Living trust accounts shall be
maintained for a minimum period of six
§ 4409Q.9 Living trust accounts (6) months. The termination of the living
The guidelines on living trust accounts are trust agreement, for any cause, within the
as follows: minimum holding period shall render the
a. Definition. Living Trust is defined trustor ineligible from opening a new
under the Manual of Accounts for Trust, as living trust account within a period of one
a personal trust created by agreement. It (1) year from termination date;
becomes operational during the lifetime of (3) Reversion of any part of the
the trustor as soon as the agreement is principal to the trustor, except in cases
accomplished. provided under the dispositive portion, shall
Under a living trust, the trustor (also be allowed only upon termination of the
known as settlor) conveys property or a sum living trust agreement: Provided, That in
of money to be managed by the trustee, as no case can there be a complete or
the agreement dictates, for the benefit of the substantial reversion of the principal

Part IV - Page 16
§§ 4409Q.9 - 4409Q.15
06.12.31
pursuant to the dispositive portion within proceeds shall be payable. Redemption of

the minimum holding period nor can the funds shall strictly be in accordance with
principal fall below P100,000; the said terms and conditions; and
(4) Any living trust account that does (6) A living trust account may be
not meet the requirement on the minimum opened jointly under one (1) living trust
entry and minimum maintaining balance or agreement by related individuals up to the
is not invested in qualified outlets shall be second degree of consanguinity or affinity:
considered as other fiduciary accounts Provided, That the requirements under Item
subject to applicable reserve and other “5” above are fully complied with. Unrelated
requirements; individuals or those beyond the second degree
(5) Pre-printed living trust agreements of consanguinity or affinity may likewise open
may be allowed for expediency: Provided a joint living trust account under one (1)
That the sections for the trust purpose and living trust agreement: Provided, That the
the dispositive provision are left blank and minimum contribution of each individual
shall only be filled-up upon the client’s is at least P100,000: Provided further, That
signing thereof. The purpose shall the trust is for a common purpose and:
categorically state the real intention of the Provided finally, That the requirements
trustor, which may include, but need not under Item “5” are fully complied with.
be limited to: c. Marketing. Officers and personnel of
(a) providing his/her and beneficiary/ the institution proper, including branch
(ies) present and/or future financial support; managers, shall not be allowed to market
(b) protecting his/her beneficiary/(ies) living trust products and sign pre-printed living
against his/her inexperience in business trust agreements. However, branch
matters; managers/officers may be allowed to refer
(c) preventing him/her from making clients to the Trust Department and give
imprudent expenditures; short introduction on the living trust
(d) prevent the beneficiary/(ies) from products to prospective clients.
living beyond their means in case of outright d. Transitory Provision. Outstanding
disposition of assets in their favor; living trust accounts that do not meet the
(e) protecting the beneficiary/(ies) foregoing additional requirements shall be
against unforeseen contingencies such as given twelve (12) 1 months from 11 April
incompetency, incapacity, physical 2006 to comply with the aforestated
disability or similar misfortune; and requirements; otherwise, such accounts
(f) setting aside and segregating shall be considered as Other Fiduciary
particular assets, proceeds or payments for Accounts subject to applicable reserve
administration and distribution pursuant to requirements.
a court decree or by agreement. e. Sanctions. Any violation of the
The dispositive provision should provisions of this Subsection shall be subject
clearly and specifically define the terms to the sanctions provided under Section 37
and conditions under which the principal of R.A. No. 7653 (The New Central Bank
and/or income shall be distributed in Act).
order to accomplish such purpose/(s), by (Circular Nos. 553 dated 22 December 2006 and 521 dated 21
taking into consideration the frequency March 2006)
of redemption; the respective interests of
each beneficiary; and to whom the §§ 4409Q.10 - 4409Q.15 (Reserved)
1
Original 6 months transitory period under Cir. No. 521 extended by another 6 months under Cir No. 553.

Part IV - Page 17
§ 4409Q.16
05.12.31
§ 4409Q.16 Qualification and e. Investment and management of the

accreditation of quasi-banks acting as funds. A domestic QB designated as trustee
trustee on any mortgage or bond issuance of a mortgage or bond issuance may hold
by any municipality, government-owned and manage, in accordance with the
or controlled corporation, or any body provisions of the trust indenture or
politic agreement, the proceeds of the mortgage
a. Applicability. QBs duly accredited or bond issuance and such assets and funds
by the BSP may act as trustee on any of the issuing municipality, corporation, or
mortgage or bond issued by any body politic as may be required to be
municipality, GOCC, or any body politic. delivered to the trustee under the Trust
b. Application for accreditation. A QB indenture/agreement, subject to the
desiring to act as trustee on any mortgage following conditions/restrictions:
or bond issued by any municipality, (1) Pending the utilization of such
GOCC, or any body politic shall file an funds pursuant to the provisions of the trust
application for accreditation with the indenture/agreement, the same shall only
appropriate department of the SES. The be (i) deposited in a bank authorized to
application shall be signed by the president accept deposits from the Government or
or officer of equivalent rank of the QB and government entities: Provided, That the
shall be accompanied by the following depository bank is not a subsidiary or
documents: affiliate of the trustee QB, or (ii) invested
(1) certified true copy of the resolution in peso-denominated treasury bills
of the institution’s board of directors acquired/purchased from any securities
authorizing the application; dealer/entity, other than the trustee or any
(2) a certification signed by the of its unit/department, its subsidiary or
president or officer of equivalent rank that affiliate.
the institution has complied with all the (2) Investments of funds constituting
qualification requirements for or forming part of the sinking fund created
accreditation. as the primary source for the payment of
c. Qualification requirements. A QB the principal and interests due the
applying for accreditation to act as trustee mortgage or bonds shall also be limited to
on any mortgage or bond issued by any deposits in any bank authorized to accept
municipality, GOCC, or any body politic deposits from the Government or
must comply with the requirements in government entities and investments in
Appendix Q-31. government securities that are consistent
d. Independence of the trustee. A QB with such purpose which must be
is prohibited from acting as trustee of a acquired/purchased from any securities
mortgage or bond issuance if any elective dealer/entity, other than the trustee or any
or appointive official of the LGU, GOCC, of its unit/department, its subsidiary or
or body politic which issued said mortgage affiliate.
or bond and/or his related interests own f. Waiver of confidentiality. A QB
such number of shares of the QB that will designated as trustee of any mortgage or
allow him or his related interests to elect bond issued by any municipality, GOCC,
at least one (1) member of the board of or any body politic shall submit to the
directors of such QB or is directly or appropriate department of the SES a
indirectly the registered or beneficial owner waiver of the confidentiality of
of more than ten percent (10%) of any class information under Sections 2 and 3 of
of its equity security. R.A. No. 1405, as amended, duly

Part IV - Page 18
§§ 4409Q.16 - 4409Q.17
06.12.31
executed by the issuer of the mortgage or reckoned from the date the violation was
bond in favor of the BSP. committed up to the date it was
g. Reportorial requirements. A QB corrected;
authorized by the BSP to act as trustee of the (b) Suspension or revocation of the
proceeds of mortgage or bond issuance of a trust license;
municipality, GOCC, or body politic shall (c) Suspension for 120 days without
comply with reportorial requirements that pay of the directors/officers responsible for
may be prescribed by the BSP. the violation.
h. Applicability of the rules and
regulations on Trust, Other Fiduciary § 4409Q.17 Trust fund of pre-need
Business and Investment Management companies. The following rules and
Activities. The provisions of the Rules and regulations shall govern the acceptance,
Regulations on Trust, Other Fiduciary management and administration of the
Business and Investment Management trust funds of pre-need companies by
Activities not inconsistent with the entities authorized to perform trust and
provisions of this Subsection shall form part other fiduciary functions.
of these rules. a. Administration of trust fund. In
i. Sanctions. Without prejudice to the line with the policy of providing greater
penal and administrative sanctions protection to pre-need planholders,
provided for under Sections 36 and 37, prudential measures are hereby laid out
respectively, of the R.A. No. 7653, in the administration of trust funds of pre-
violation of any provision of this Subsection need companies. The trust fund, inclusive
shall be subject to the following sanctions/ of earnings, shall be administered and
penalties depending on the gravity of the managed by the trustee with the skill,
offense: care, prudence and diligence necessary
(1) First offense – under the circumstances then prevailing
(a) Fine of up to P10,000 a day for the that a prudent man, acting in the same
institution for each violation reckoned from capacity and familiar with such matters,
the date the violation was committed up would exercise in the conduct of an
to the date it was corrected; and enterprise of a like character and similar
(b) Reprimand for the directors/ aims.
officers responsible for the violation. The trustee shall have exclusive
(2) Second offense – management and control over the trust
(a) Fine of up to P20,000 a day for the fund and the right at any time to sell,
institution for each violation reckoned from convert, invest, change, transfer or
the date the violation was committed up otherwise dispose of the assets comprising
to the date it was corrected; the funds.
(b) Suspension for ninety (90) days b. Trustee. No trust entity shall act
without pay for directors/officers as a trustee or administer or hold a trust
responsible for the violation; and fund established by a pre-need company,
(c) Revocation of the authority to act which is a subsidiary or affiliate, as defined
as trustees on any mortgage or bond under existing BSP regulations, of such
issuance by any municipality, GOCCs, or trust entity. Trust entities currently holding
body politic. or administering trust funds of an affiliate
(3) Subsequent offense – pre-need company may continue to act as
(a) Fine of up to P30,000 a day for trustee of such funds after the transition
the institution for each violation period provided under Item “g” only upon

Part IV - Page 18a
§ 4409Q.17
06.12.31
prior approval of the Monetary Board on d. Transactions with DOSRI. The

the basis of a clear showing that no trustee shall not, for the account of the
potential conflict of interest will arise. An trustor or the beneficiary of the trust,
absence of any exception or finding on purchase or acquire property from, or sell,
conflicts of interest during an examination transfer, assign or lend money or property
of the trust entity shall be deemed as prima to, or purchase debt instruments of, any of
facie evidence that no potential conflict the departments, directors, officers,
of interest will arise. stockholders, employees, subsidiaries and
c. Investment of the trust fund. affiliates of the trustee and/or the trustor,
Unless otherwise allowed under existing and relatives within the first degree of
laws or regulations issued by the agency consanguinity or affinity, or the related
having jurisdiction and supervision over interests, of such directors, officers and
pre-need companies, or with prior written stockholders, without prejudice to any rule
approval by said agency, loans and that may be issued by the agency having
investments of the trust funds shall be jurisdiction and supervision over such pre-
limited to: need company allowing such transaction
(1) Evidences of indebtedness of the with the prior written approval of such
Republic of the Philippines and of the BSP, agency. Such written approval shall clearly
and any other evidences of indebtedness specify the amount of the loan and/or
or obligations wherein the servicing and investment including the name of the
repayment of which are fully guaranteed concerned director, officer, stockholder
by the Republic of the Philippines or and their related interests.
loans against such government e. Applicability of the Rules and
securities; Regulations on Trust, Other Fiduciary
(2) Commercial papers duly registered Business and Investment Management
with the SEC with a credit rating of one Activities (Trust Rules). The provisions of
(1) for short term and “AAA” for long-term the Trust Rules consistent with the
or their equivalent; provisions of this Subsection shall
(3) Loans fully guaranteed by the supplementarily apply to trust funds of pre-
Republic of the Philippines, as to the need companies.
payment of principal and interest; f. Penalties and sanctions. Any
(4) Loans fully secured by a hold-out violation of the provisions of this
on, assignment or pledge of deposits Subsection shall be a ground for
maintained with banks, and/or of deposit prohibiting the concerned entity from
substitutes or of mortgage and chattel accepting, managing and administering
mortgage bonds issued by the trustee/ trust funds of pre-need companies without
fiduciary or by banks; prejudice to the imposition of the
(5) Loans fully secured by real estate applicable sanctions prescribed or allowed
in accordance with Section 37 and subject under the Trust Rules.
to the requirements of Sections 39 and 40 g. Transitory provisions. Institutions
of R.A. No. 8791 and their implementing performing trust and other fiduciary
regulations; and business which are presently administering
(6) Loans fully secured by and managing trust funds of pre-need
unconditional payment guarantees (such companies are hereby given a period of
as standby letters of credit and letter of one (1) year from 25 April 2006 to comply
indemnity) issued by banks/multilateral with the requirements hereof.
FIs. (Memorandum to All Banks and NBFIs dated 28 March 2006)

Part IV - Page 18b
§§ 4410Q - 4410Q.5
05.12.31
Sec. 4410Q Unit Investment Trust Funds/ of each UIT Fund under its administration,
Common Trust Funds1. The following rules and the sole right at any time to sell,
and regulations shall govern the creation, convert, reinvest, exchange, transfer or
administration and investment/s of Unit otherwise change or dispose of the assets
Investment Trust (UIT) Funds. comprising the fund: Provided, That no
The rules and regulations on Common participant in a UIT Fund shall have or be
Trust Funds (CTFs) are in Appendix Q-32. deemed to have any ownership or interest
in any particular account or investment in
§ 4410Q.1 Definition the UIT Fund but shall have only its
a. Unit Investment Trust Funds. Unit proportionate beneficial interest in the fund
Investment Trust Funds are open-ended as a whole.
pooled trust funds denominated in pesos
or any acceptable currency, which are § 4410Q.4 Relationship of trustee with
operated and administered by a trust entity Unit Investment Trust Fund. A trustee
and made available by participation. The administering a UIT Fund shall not have
term Unit Investment Trust Fund is any other relationship with such fund other
synonymous to CTFs. As an open-ended than its capacity as trustee of the UIT Fund:
fund, participation or redemption is Provided, however, That a trustee which
allowed as often as stated in its plan rules. simultaneously administers other trust,
UIT Funds shall not include long term fiduciary or investment management funds
funds designed for the primary purpose of may invest such funds in the trustee’s UIT
availing the tax incentives/exemption under Fund, if allowed under a policy approved
Section 24(B)(1) of R.A. No. 8424 (The Tax by the board of directors.
Reform Act of 1997).
b. Trust entity. Any bank, IH or a stock § 4410Q.5 Operating and accounting
corporation duly authorized by the Monetary methodology. A UIT Fund shall be
Board to engage in trust, investment operated and accounted for in accordance
management and fiduciary business. with the following:
c. Board of directors. For this purpose, a. The total assets and accountabilities
the term shall include a trust entity’s duly of each fund shall be accounted for as a
constituted board of directors or its single account referred to as pooled-fund
functional oversight equivalent which shall accounting method.
include the country head in the case of b. Contributions to each fund by clients
foreign institutions. shall always be through participation in units
of the fund and each unit shall have uniform
§ 4410Q.2 Establishment of a Unit rights or privileges, as any other unit.
Investment Trust Fund. Any trust entity c. All such participations shall be
authorized to perform trust functions may pooled and invested as one (1) account
establish, administer and maintain one (1) (referred to as collective investments).
or more UIT Funds subject to applicable d. The beneficial interest of each
provisions under this Section. participation unit shall be determined
under a unitized net asset value per unit
§ 4410Q.3 Administration of a Unit (NAVPu) valuation methodology defined
Investment Trust Fund. The trustee shall in the written plan of the UIT Fund, and
have exclusive management and control no participation shall be admitted to, or
1
The regulations on common trust funds (CTFs) were relocated to Appendix Q-32. UIT Funds regulations took effect on 01
October 2004 (effectivity of Circular 447 dated 03 September 2004).

Part IV - Page 18c
§§ 4410Q.5 - 4410Q.6
08.12.31
redeemed from, the fund except on the e. The unitized NAVPu valuation
basis of such valuation. To arrive at a fund’s methodology as prescribed under Subsec.
NAVPu, the fund’s total Net Assets is 4410Q.5.d shall be employed.
divided by the total outstanding units. Total f. Terms and conditions governing the
Net Assets is a summation of the market admission or redemption of units of
value of each investment less fees, taxes, participation in the fund. The Plan rules
and other qualified expenses, as defined shall state that the trustee, prior to
under the plan rules. admission of a client’s initial participation
in the UIT Fund, shall conduct a client
§ 4410Q.6 Plan rules. Each UIT Fund suitability assessment to profile the
shall be established, administered and risk-return orientation and suitability of the
maintained in accordance with a written client to the specific type of fund. If the
trust agreement drawn by the trustee, frequency of admission or redemption is
referred to as the “Plan” which shall be other than daily; that is, any business day,
approved by the board of directors of the the same should be explicitly stated in the
trustee and a copy of which shall be Plan rules: Provided, That the admission
submitted to the BSP for processing and and redemption shall be based on the end
approval prior to its implementation. of day NAVPu of the fund computed after
Each new UIT Fund Plan filed for the cut-off time for fund participation and
approval shall be charged a processing redemption for that reference day, in
fee of P10,000.00. accordance with existing BSP regulations
The Plan shall contain the following on mark to market valuation of investment
minimum elements: securities.
a. Title of the Plan. This shall g. Aside from the regular audit
correspond to the product/brand name by requirement applicable to all trust
which the UIT Fund is proposed to be known accounts, an external audit of each UIT
and made available to its clients. The Plan Fund shall be conducted annually by an
rules shall state the classification of the UIT independent auditor acceptable to the BSP
Fund (e. g., money market fund, bond fund, and the results thereof made available to
balanced fund and equity fund). participants. The external audit shall be
b. Manner by which the fund is to be conducted by the same external auditor
operated. A statement of the fund’s engaged for the audit of the trust entity.
investment objectives and policies h. Basis upon which the fund may be
including limitations, if any. terminated. The Plan rules shall state the rights
c. Risk disclosure. The Plan rules shall of participants in case of termination of the
state both the general risks and risks specific fund. Termination of the fund shall be duly
to the type of fund. approved by the trustee’s board of directors
d. Investment powers of the trustee and a copy of the resolution submitted to the
with respect to the fund, including the appropriate department of the BSP.
character and kind of investments, which i. Liability clause of the trustee. There
may be purchased, by the fund. There must must be a clear and prominent statement
be an unequivocal statement of the full adjacent to where a client is required to
discretionary powers of the trustee as far sign the participating trust agreement that
as the fund’s investments are concerned. (1) the UIT Fund is a trust product and not
These powers shall be limited only by the a deposit account or an obligation of, or
duly stated investment objective and guaranteed, or insured by the trust entity
policies of the fund. or its affiliates or subsidiaries; (2) the UIT Fund

Part IV - Page 19
§§ 4410Q.6 - 4410Q.7
08.12.31
is not insured or governed by the PDIC; rights and benefits of persons having
(3) due to the nature of the investment, yields interest in such participation, as
and potential yields cannot be guaranteed; beneficiaries or otherwise. The Plan may
(4) any loss/income arising from market be amended by a resolution of the board
fluctuations and price volatility of the of directors of the trustee: Provided,
securities held by the UIT Fund, even if however, That participants in the fund shall
invested in government securities, is for the be immediately notified of such
account of the client/participant; (5) as such, amendments and shall be allowed to
the units of participation of the investor in the withdraw their participations within a
UIT Fund, when redeemed, may be worth reasonable time but in no case less than thirty
more or be worth less than his/her initial (30) calendar days after the amendments are
investment/contributions; (6) historical approved, if they are not in conformity with
performance, when presented, is purely for the amendments made thereto: Provided
reference purposes and is not a guarantee of further, That amendments to the Plan shall
similar future result; and (7) the trustee is not be submitted to the BSP within ten (10)
liable for losses unless upon willful default, business days from approval of the
bad faith or gross negligence. amendments by the board of directors. For
j. Amount of fees/commission and purposes of imposing monetary penalties
other charges to be deducted from the provided under Subsec. 4162Q.3 for delayed
fund. The amount of fees that shall be submission of reports, the amendments to the
charged to a fund shall cover the fund’s Plan shall be considered as “Category
fair and equitable share of the routine A-3” report. The amendments shall be
administrative expenses of the trustee such deemed approved after thirty (30) business
as salaries and wages, stationery and days from date of completion of
supplies, credit investigation, collateral requirements.
appraisal, security, messengerial and A copy of the Plan shall be available at
janitorial services, EDP expenses, BSP the principal office of the trustee during
supervision fees and internal audit fees. regular office hours, for inspection by any
However, the trustee may charge a UIT person having an interest in the fund or by
Fund for special expenses in case such his authorized representative. Upon
expenses are (1) necessary to preserve or request, a copy of the Plan shall be
enhance the value of the fund, (2) payable furnished such interested person.
to a third party covered by a separate (As amended by Circular No. 593 dated 08 January 2008)
contract, and (3) disclosed to participants.
The trustee shall secure prior BSP approval § 4410Q.7 Minimum disclosure
for outsourcing services provided under requirements
existing regulations. No other fees shall a. Disclosure of UIT Fund
be charged to the fund. investments. A list of prospective and
Marketing or other promotional related outstanding investment outlets shall be
expenses shall be for the account of the made available by the trustee for the review
trustee and shall be presumed covered by of all UIT Fund clients. Such disclosure
the trust fee. shall be substantially in the form as shown
k. Such other matters as may be in Appendix Q-34. The list of investment
necessary or proper to define clearly the outlets shall be updated quarterly.
rights of participants in the UIT Fund. The b. Distribution of investment units
provisions of the Plan shall govern The trustee may issue such conditions or
participation in the fund including the rules, as may affect the distribution of

Part IV - Page 20
§ 4410Q.7
08.12.31
investment units subject to the minimum notify the trustee or its UIT Fund marketing
conditions enumerated hereunder. personnel of any change in their
(1) Marketing materials. All printed characteristics, preferences or
marketing materials related to the sale of a circumstances to enable the trustee to
UIT Fund shall clearly state: update client’s profile at least every three
(a) The designated name and (3) years.
classification of the fund and the fund’s (c) The participation is not a “deposit
trustee. account” but a trust product; and that any
(b) Minimum information regarding: loss/income is for the account of the
(i) The general investment policy and participant; that the trustee is not liable for
applicable risk profile. There shall be a losses unless upon willful default, bad faith
clear description/explanation of the or gross negligence.
general risks attendant with investing in a (d) A balanced assessment of the
UIT Fund, including risk specific to a type possible gains and losses of the UIT Fund
of fund. Technical terms should likewise and that the participation does not carry any
be defined in laymen’s terms1. guaranteed rate of return, and is not insured
(ii) Particulars or administrative and by the PDIC.
marketing details like pricing and cut-off (e) An advisory that the investor must
time. read the complete details of the fund in the
(iii) All charges made/to be made Plan Rules, make his/her own risk
against the fund, including trust fees, other assessment, and when necessary, he/she
related charges. must seek independent/professional
(iv) The availability of the Plan rules opinion, before making an investment.
governing the fund, upon the client’s (2) Evidence of participation. Every
request. UIT Fund participant shall be given -
(v) Client and Product Suitability (a) A participating trust agreement.
Standards. Prior to admission, the trustee Such agreement shall clearly indicate that
shall perform a client profiling process for (1) the UIT Fund is a trust product and not
all UIT Fund participants under the general a deposit account or an obligation of, or
principles on client suitability assessment guaranteed, or insured by the trust entity
to guide the client in choosing investment or its affiliates or subsidiaries; (2) the UIT
outlets that are best suited to his objectives, Fund is not insured or governed by the
risk tolerance, preferences and PDIC; (3) due to the nature of the
experience. The profiling process shall, investment, yields and potential yields
at the minimum, require the trustee to cannot be guaranteed; (4) any loss/income
obtain client information through the arising from market fluctuations and price
Client Suitability Assessment (CSA) form, volatility of the securities held by the UIT
classify the client according to his financial Fund, even if invested in government
sophistication and communicate the CSA securities, is for the account of the client/
results to the subject client. The general participant; (5) as such, the units of
principles on CSA shall also require the participation of the investor in the UIT
trustee to adopt a notice mechanism Fund, when redeemed, may be worth more
whereby clients are advised and/or or be worth less than his/her initial
reminded of the explicit requirement to investment/contributions; (6) historical
1
Example: “Fixed income securities” does not really mean a guarantee of fixed earnings on the investor's participation;
“Risk-free” government securities which may be sovereign “risk-free” but not interest rate “risk-free”.

Part IV - Page 21
§§ 4410Q.7 - 4410Q.8
08.12.31
performance, when presented, is purely for (3) A participating trust agreement or

reference purposes and is not a guarantee confirmation of contribution/redemption
of similar future result; and (7) the trustee is need not be manually signed by the trustee
not liable for losses unless upon willful or his authorized representative if the same
default, bad faith or gross negligence. is in the form of an electronic document
In addition to the agreement, every UIT that conforms with the implementing rules
Fund participant shall be provided with – and regulations of R.A. No. 8792,
(1) CSA form to be accomplished otherwise known as the E-Commerce Act.
during the profiling process required c. Regular publication/computation/
under the general principles on CSA. This availability of the fund’s NAVPu. Trust
is designed to ensure that based on entities managing a UIT Fund shall cause
relevant information about the client, his at least the weekly publication of the
investment profile is matched against the NAVPu of such fund in one (1) or more
investment parameters of the UIT Fund. newspaper of national circulation:
At the minimum, client information shall Provided, That a pooled weekly
include personal or institutional data, publication of such NAVPu shall be
investment objective, investment considered as substantial compliance with
horizon, investment experience, and risk this requirement. The said publication, at
tolerance; and the minimum, shall clearly state the name of
(2) Risk disclosure statement, which in the fund, its general classification, the fund’s
reference to Subsec. 4410Q.6c, shall NAVPu and the moving return on investment
describe the attendant general and specific (ROI) of the fund on a year-to-date (YTD) and
risks that may arise from investing in the year-on-year (YOY) basis.
UIT Fund. Such statement shall be NAVPu shall be computed daily and
substantially similar to the form in Annex shall be made available to participants and
A of Appendix Q-34. prospective participants upon request.
Both documents shall be signed by the d. Marketing personnel. To ensure
client/participant and the UIT marketing the competence and integrity of all duly
personnel who assessed and explained to designated UIT marketing personnel, all
the concerned client his/her ability to bear personnel involved in the sales of these
the risks and potential losses. funds shall be required to undergo
(b) A confirmation of participation and standardized training program in
redemption made to/from the fund that accordance with the guidelines of this
shall contain the following information: Subsection. This training program may
(i) NAVPu of the fund on day of be conducted by their respective trust
purchase /redemption; entities in accordance with the minimum
(ii) Number of units purchased/ training program guidelines provided by
redeemed; and the Trust Officers Association of the
(iii) Absolute peso or foreign currency Philippines (TOAP). Such training
value. program shall however be regularly
No indicative rates of return shall be validated by TOAP.
provided in the trust participating (As amended by Circular No. 593 dated 08 January 2008)
agreement. Marketing materials may
present relevant historical performance § 4410Q.8 Exposure limit to single
purely for reference and with clear person/entity. The combined exposure of
indication that past results do not guarantee the UIT Fund to any entity and its related
similar future results. parties shall not exceed fifteen percent

Part IV - Page 22
§§ 4410Q.8 - 4410Q.11
07.12.31
(15%) of the market value of the UIT Fund: regularly occurring market transactions on
Provided, That, a UIT Fund invested, partially an arm’s length basis.
or substantially, in exchange traded equity The UIT Fund may avail itself of
securities shall be subject to the fifteen financial derivatives instruments solely for
percent (15%) exposure limit to a single the purpose of hedging risk exposures of
entity/issuer: Provided, further, That, in the the existing investments of the Fund,
case of an exchange traded equity security provided these are accounted for in
which is included in an index and tracked accordance with existing BSP hedging
by the UIT Fund, the exposure of the UIT guidelines as well as the trust entity’s risk
Fund to a single entity shall be the actual management and hedging policies duly
benchmark weighting of the issuer or fifteen approved by the Trust Committee and
percent (15%), whichever is higher. disclosed to participants.
This limitation shall not apply to The use of hedging instruments shall
non-risk assets as defined by the BSP. also be disclosed in the “Plan” as provided
In case the limit is breached due to the in Item “c” of Subsec. 4410Q.6 and
marking-to-market of certain investment/s specified in the quarterly “list of investment
or any extraordinary circumstances, e.g., outlets” as provided in Item “a” of Subsec.
abnormal redemptions which are beyond 4410Q.7.
the control of the trustee, the trustee shall
be given thirty (30) days from the time the § 4410Q.10 Other related guidelines
limit is breached to correct the same. on valuation of allowable investments
(As amended by Circular No. 577 dated 17 August 2007) a. In pricing debt securities,
interpolated yields shall be used for
§ 4410Q.9 Allowable investments and securities with odd or off-the-run tenors
valuation. UIT Fund investments shall be using the straight-line basis and generally
limited to bank deposits and the following accepted market convention.
financial instruments: b. In case outstanding UIT Fund
(a) Securities issued by or guaranteed investments may deteriorate in quality,
by the Philippine government, or the i.e., no longer tradable as defined under
BSP; Subsec. 4410Q.9, the trustee shall
(b) Tradable securities issued by the immediately provision to reflect fair value
government of a foreign country, any in accordance with generally accepted
political subdivision of a foreign country accounting principles or as may be
or any supranational entity; prescribed by the BSP. If no fair value is
(c) Exchange-listed securities, available, the instrument shall be assumed
(d) Marketable instruments that are to be of no market value.
traded in an organized exchange;
(e) Loans traded in an organized § 4410Q.11 Unit Investment Trust
market; and Fund administration support
(f) such other tradable investments a. Backroom operations. Administrative
outlets/categories as the BSP may allow: rules on backroom under Sec. 4421Q shall
Provided, That a financial instrument is be applicable to UIT Fund. Adequate systems
regarded as tradable if quoted two-way to support the daily marking-to-market of
prices are readily and regularly available the fund’s financial instruments shall be
from an exchange, dealer, broker, industry in place at all times. In this respect, a daily
group, pricing service or regulatory agency, reconcilement of the fund’s resultant
and those prices represent actual and marked-to-market value with the

Part IV - Page 22a
§§ 4410Q.11 - 4410Q.14
05.12.31
unrealized market losses and gains b. Accreditation of counterparties The

(respective contra asset balance) versus Fund shall only invest with approved
the book value of the fund for counterparties qualified in accordance with
investments in financial instruments the policy duly approved by the Trust
shall be done and all differences Committee. Counterparties shall be subject
resolved within the day. to appropriate limits in accordance with
b. Custody of securities. Investments sound risk management principles.
in securities of a UIT Fund shall be held
for safekeeping by BSP accredited third § 4410Q.13 Foreign currency-
party custodians which shall perform denominated Unit Investment Trust Funds
independent marking-to-market of such UIT Fund denominated in any acceptable
securities. foreign currency provided under existing BSP
rules and regulations may be established.
§ 4410Q.12 Counterparties Such fund may only be invested in allowable
a. Dealings with related interests/QB investments denominated in pesos or any
proper/holding company/subsidiaries/ acceptable foreign currency as expressly
affiliates and related companies. A allowed under the fund’s Plan rules and
trustee of a UIT Fund shall be transparent properly disclosed to fund participants.
at all times and maintain an audit trail
for all transactions with related parties or § 4410Q.14 Exemptions from
entities. The trustee shall observe the statutory and liquidity reserves, single
principle of best execution and no borrowers limit, DOSRI. The provisions on
purchase/sale shall be made with related reserves, single borrower’s limit and DOSRI
counterparties without considering at ceilings under Secs. 4360Q and 4361Q,
least two (2) competitive quotes from respectively, applicable to trust funds in general
other sources. shall not be made applicable to UIT Funds.

Part IV - Page 22b
§§ 4411Q - 4411Q.3
05.12.31
Sec. 4411Q Investment Management investments can fall as well as rise

Activities. The conduct of investment depending on prevailing market conditions;
management activities shall be subject to and
the following regulations. (c) The investment management
agreement is not covered by the PDIC and
§ 4411Q.1 Minimum documentary that losses, if any, shall be for the account
requirements. An investment management of the client;
account shall be covered by a written (7) Duties and powers of the
document establishing such account, as investment manager;
follows: (8) Liabilities of the investment
a. In the case of accounts created by manager;
corporations, business firms, organizations (9) Reports to the client;
or institutions, the voluntary written (10) The amount or rate of the
agreement or indenture entered into by the compensation of the investment manager;
parties, accompanied by a copy of the (11) Terms and conditions governing
board resolution or other evidence withdrawals from the account;
authorizing the establishment of, and (12) Termination of contractual
designating the signatories, to the arrangement; and
investment management account. (13) Disclosure requirements for
b. In the case of accounts created by transactions requiring prior authority and/
individuals, the voluntary written agreement or specific written investment directives
or indenture entered into by the parties. from the client.
The voluntary written agreement or A sample investment management
contract shall include the following agreement which conforms to the foregoing
minimum provisions: requirements is shown as Appendix Q-14.
(1) Prenumbered contractual
agreement form; § 4411Q.2 Minimum size of each
(2) Title or nature of contractual investment management account. No
agreement in noticeable print; investment management account shall be
(3) Legal capacities, in noticeable print, accepted or maintained for an amount less
of parties sought to be covered; than P1.0 million. An investment
(4) Purposes and objectives; management account reduced to less than
(5) The initial amount of funds and/or P1.0 million due to investment losses shall
value of securities subject of the be exempt from this requirement.
arrangement delivered to the investment
manager; § 4411Q.3 Commingling of funds
(6) Statement in underlined noticeable Two (2) or more individual investment
print that: management accounts shall not be
(a) The agreement is an agency and commingled except for the purpose of
not a trust agreement. As such, the client investing in government securities or in
shall at all times retain legal title to funds duly registered commercial papers:
and properties subject of the arrangement; Provided, That the participation of each of
(b) The arrangement does not guaranty the aforementioned accounts in the
a yield, return or income by the investment commingled account shall not be less than
manager. As such, past performance of the P1 million: Provided, further, That such
account is not a guaranty of future commingling has been fully disclosed and
performance and the income of specifically agreed in writing by the clients.

Part IV - Page 23
§§ 4411Q.4 - 4411Q.5
05.12.31
§ 4411Q.4 Lending and investment unless prior to its execution, such transaction
disposition. Assets received in investment has been fully disclosed and specifically
management capacity shall be authorized in writing by the client:
administered in accordance with the terms a. Lend, sell, transfer or assign money
of the instrument creating the investment or property to any of the departments,
management relationship. directors, officers, stockholders, or
When an investment manager is employees of the investment manager, or
granted discretionary powers in the relatives within the first degree of
investment disposition of investment consanguinity or affinity, or the related
management funds and unless otherwise interests of such directors, officers and
specifically enumerated in the agreement stockholders; or to any corporation where
or indenture and directed in writing by the the investment manager owns at least fifty
client, loans and investments of the fund percent (50%) of the subscribed capital or
shall be limited to: voting stock in its own right and not as
a. Evidences of indebtedness of the trustee nor in a representative capacity;
Republic of the Philippines and of the BSP, b. Purchase or acquire property or
and any other evidences of indebtedness debt instruments from any of the
or obligations the servicing and repayment departments, directors, officers,
of which are fully guaranteed by the stockholders, or employees of the
Republic of the Philippines or loans against investment manager, or relatives within the
such government securities; first degree of consanguinity or affinity, or
b. Loans fully guaranteed by the the related interests of such directors,
Republic of the Philippines as to the officers and stockholders; or from any
payment of principal and interest; corporation where the investment manager
c. Loans fully secured by a hold-out owns at least fifty percent (50%) of the
on, assignment or pledge of deposit subscribed capital or voting stock in its own
substitutes maintained with the institution right and not as trustee nor in a
or deposits with banks, or mortgage and representative capacity;
chattel mortgage bonds issued by the c. Invest in equities of or in securities
investment manager; and underwritten by the investment manager
d. Loans fully secured by real estate or a corporation in which the investment
or chattels in accordance with Section 78 manager owns at least fifty percent (50%)
of R.A. No. 337, as amended, and subject of the subscribed capital or voting stock in
to the requirements of Sections 75, 76 and its own right and not as trustee, nor in a
77 of R.A. No. 337, as amended. representative capacity; and
The specific directives required under d. Sell, transfer, assign or lend money
this Subsection shall consist of the or property from one trust fiduciary or
following information: investment management account to
(1) The transaction to be entered into; another trust, fiduciary or investment
(2) Borrower's name; management account except where the
(3) Amount involved; and investment is in any of those enumerated
(4) Collateral security(ies), if any. in Items a to d of Subsec. 4411Q.4.
Directors, officers, stockholders and
§ 4411Q.5 Transactions requiring their related interest covered by this
prior authority. An investment manager Subsection shall be those considered as
shall not undertake any of the following such under existing regulations on loans
transactions for the account of a client, to DOSRI under Part III - E of this Manual.

Part IV - Page 24
§§ 4411Q.5 - 4414Q
08.12.31
The procedural and reportorial requirements in b. Funds or property of each client

said regulations shall also apply. shall be accounted separately and distinctly
The disclosure required under this from those of other clients herein referred
Subsec. shall consist of the following to as individual account accounting.
minimum information:
(1) The transactions to be entered into; Sec. 4412Q (Reserved)
(2) Identities of the parties involved in
the transaction and their relationships (shall Sec. 4413Q Required Retained Earnings
not apply to Item "d" of this Subsec.); Appropriation. An institution authorized to
(3) Amount involved; and engage in trust and other fiduciary business
(4) Collateral security(ies), if any. shall, before the declaration of dividends,
The above information shall be made carry to retained earnings appropriated for
known to clients in a separate instrument trust business at least ten percent (10%) of
or in the very instrument creating the its net profits realized out of its trust,
investment management relationship. investment management and other fiduciary
business since the last preceding dividend
§ 4411Q.6 Title to securities and declaration until the retained earnings shall
other properties. Securities such as amount to twenty percent (20%) of its
promissory notes, shares of stocks, bonds authorized capital stock and no part of such
and other properties of the portfolio shall retained earnings shall at any time be paid
be issued or registered in the name of the out in dividends but losses accruing in the
principal or of the investment manager: course of its business may be charged
Provided, That in case of the latter, the against surplus.
instrument shall indicate that the investment
manager is acting in a representative B. INVESTMENT MANAGEMENT
capacity and that the principal's name is ACTIVITIES
disclosed thereat.
Sec. 4414Q Authority to Perform
§ 4411Q.7 Ceilings on loans. Loans Investment Management. An IH may act
funded by investment management as financial consultant, investment adviser
accounts shall be subject to the DOSRI ceilings or portfolio manager under Section 7 of
imposed on QBs in Part III - E of this Manual. P.D. No. 129, as amended. However, this
For purposes of determining compliance with shall not be construed as authority to
said ceilings, the total amount of said loans engage in trust and other fiduciary business.
granted by the institution and its trust Entities whose articles of incorporation 1
department to the same person, firm or or any amendments thereto, include the
corporation shall be combined. purpose or power to act as financial
consultant, investment adviser or portfolio
§ 4411Q.8 Operating and accounting manager shall secure the prior favorable
methodology. Investment management recommendation of the Monetary Board before
accounts shall be operated and accounted the filing of said articles of incorporation or
for in accordance with the following: amendments thereto with the SEC.
a. The investment manager shall If an entity is found to be engaged in
administer, hold or manage the fund or unauthorized investment management
property in accordance with the instrument activities, whether as its primary, secondary
creating the investment management or incidental business, the Monetary Board
relationship; and may impose administrative sanctions
1
SEC Memorandum Circular Nos. 5 dated 17 July 2008, 3 dated 16 February 2006 and 14 dated 24 October 2000.

Part IV - Page 25
§§ 4414Q - 4414Q.1
08.12.31
against such entity or its principal officers (3) A clear definition of the duties and
and/or majority stockholders or proceed responsibilities, as well as the line and staff
against them in accordance with law. functional relationships, of the various units,
The Monetary Board may take such officers and staff within the organization.
action as it may deem proper such as, but d. Where the applicant is authorized
may not be limited to, requiring the transfer to engage in quasi-banking functions, the
or turnover of any IMA to duly applicant shall also meet the following
incorporated and licensed entities of the additional requirements:
choice of the client. (1) It has continuously complied with
An entity not authorized to engage in the capital-to-risk assets ratio, reserve
investment management activities shall not requirements against deposit substitutes,
advertise or represent itself as being liquidity floor, and ceilings on DOSRI loans
engaged in investment management for the last sixty (60) days immediately
activities or represent itself as investment preceding the date of application;
manager or use words of similar import. (2) It has not incurred net weekly
Starting year 2001, IHs authorized to reserve deficiencies against deposit
engage in investment management substitutes during the last eight (8) weeks
activities shall renew their existing licenses immediately preceding the date of
yearly, subject to the implementing application; and
guidelines to be issued thereon. (3) It has shown substantial compliance
(As amended by CL-2008-078 dated 15 December 2008, with other pertinent laws, rules and
CL-2008-053 dated 21 August 2008 and CL-2008-007 dated regulations, policies and instructions of the
21 January 2008) BSP and has not been cited for serious/
major violations or exceptions affecting its
§ 4414Q.1 Prerequisites for engaging solvency, liquidity and profitability.
in investment management activities. An Where the applicant is not authorized
entity before it may engage in investment to engage in quasi-banking functions:
management activities shall comply with (a) The adoption of a formula/criteria
the following requirements: for QBs in the determination of compliance
a. It has been duly licensed by the with the capital-to-risk assets ratio and
appropriate government agency or created ceilings on loans to DOSRI; and
by special law or charter. (b) The substitution of the reserve and
b. The articles of incorporation or liquidity floor requirements with the cash
charter of the institution shall include among ratio, as follows:
its powers or purposes the authority to (i) Primary reserves to Bills Payable; and
engage in investment management activities. (ii) Primary and secondary reserve to
c. The by-laws of the institution shall Bills Payable:
include, among other things: where primary reserves consist of cash
(1) The organization plan or structure on hand, cash in vault, checks and other
of the department, office or unit which cash items, due from the BSP and due from
shall conduct the investment management banks; and where secondary reserves
activities of the institution; consist of BSP-supported government
(2) The creation of an investment securities, T- Bills and other government
management committee, the appointment securities.
of an investment management officer and Compliance with the foregoing, as well
subordinate officers of the investment as with other requirements under existing
management department; and regulations, shall be maintained up to the

Part IV - Page 26
§§ 4414Q.1 - 4415Q.4
08.12.31
time the authority is granted. An Scripless securities under the RoSS

applicant that fails in this respect shall system of the BTr may be used as basic
be required to show compliance for security deposit for the faithful
another test period of the same duration. performance of investment management
activities using the guidelines in
§ 4414Q.2 Pre-operating Appendix Q-21.
requirements. An institution authorized
to engage in investment management § 4415Q.2 Eligible securities
activities shall, before engaging in actual Securities enumerated in Subsec.
operations, submit to the BSP the 4405Q.2 shall be eligible as security
following: deposit for faithful performance of
a. Government securities investment management activities.
acceptable to the BSP amounting to
P500,000 as minimum basic security § 4415Q.3 Valuation of
deposit for the faithful performance of securities and basis of computation
investment management duties required of the basic security deposit
under Subsec. 4415Q.1; requirement. For purposes of
b. Organization chart of the investment determining compliance with the
management department which shall carry basic security deposit under this
out the investment management activities of Section, the amount of securities so
the institution; and deposited shall be based on their
c. Names and positions of book value, that is, cost as increased
individuals designated as chairman and or decreased by the corresponding
members of the investment management discount or premium amortization.
committee, investment management The base amount for the basic
officer and other subordinate officers of security deposit shall be the average
the investment management department. of the month-end balances of the total
assets of investment management
Sec. 4415Q Security for the Faithful funds of the immediately preceding
Performance of Investment calendar quarter.
§ 4415Q.4 Compliance period;
§ 4415Q.1 Basic security deposit sanctions. The investment manager
An institution authorized to engage in shall have thirty (30) calendar days
investment management activities shall after the end of every calendar
deposit with the BSP eligible quarter within which to deposit with
government securities as security for t h e B S P s e cu r i t i e s r e q u i r e d u n d e r
the faithful performance of its this Section.
investment management activities The following sanctions shall be
equivalent to at least one percent (1%) imposed for any deficiency in the
of the book value of the total volume basic security deposit for the faithful
of investment management assets: performance of investment management
Provided, That at no time shall such activity:
deposit be less than P500,000. a. On the QB:

Part IV - Page 27
§§ 4415Q.4 - 4416Q
08.12.31
i. Monetary penalty/ies: (4) Subsequent offense(s) - sixty (60)

calendar day-suspension without pay.
Offense Third and For purpose of determining the
Trust First Second subsequent frequency of the violation the QB's
Asset Size offense(s) compliance profile for the immediately
Up to preceding three (3) years or twelve (12)
P500 P600.00 P700.00 P800.00 quarters will be reviewed: Provided, That
million for purposes of determining appropriate
Above penalty on the head of the Investment
QBs with Full Trust Authority and with Trust Assets of
P500 Management Department and/or other

million P1,000.00 P1,250.00 P1,500.00 responsible officer(s), any offense
Penalty per Calendar Day
but not committed outside the preceding three (3)

exceeding year or twelve (12) quarter-period shall be
P1 billion considered as the first offense: Provided,
Above further, That in the case of the head of the
P1 billion Investment Management Department, all
but not P2,000.00 P3,000.00 P4,000.00 offenses committed by him in the past as
exceeding the head of the Investment Management
P10 billion Department of other institution(s) shall also
Above be considered: Provided, finally, That if the
P10 billion offense cannot be attributed to any other
but not P5,000.00 P6,000.00 P7,000.00 officer of the QB, the head of the
exceeding Investment Management Department shall
P50 billion be automatically held responsible since the
Above ultimate responsibility for ensuring
P50 billion P8,000.00 P9,000.00 P10,000.00 compliance with the regulation rests upon
him, as evidence may warrant.
ii. Non-monetary penalty beginning (As amended by Circular Nos. 617 dated 30 July 2008 and
with the third offense (all QBs) - Prohibition 585 dated 15 October 2007)
against the acceptance of new investment
management accounts, and from renewing Sec. 4416Q Organization and Management
expiring investment management contracts The provisions under Sec. 4406Q up to
up to the time the violation is corrected. Subsec. 4406Q.9 shall govern the
b. On the Head of the Investment organization and management of institutions
Management Department and/or other without trust license which are engaged in
officer(s) responsible for the deficiency/ investment management activities only. The
non-compliance: following terms shall, however, be used:
(1) First offense - warning that a. Investment management activities in
subsequent violations shall be dealt with lieu of trust and other fiduciary business;
more severely; b. IMAs in lieu of trust and other
(2) Second offense - written reprimand fiduciary accounts;
with a stern warning that subsequent c. Investment management committee
violations shall be subject to suspension; in lieu of trust committee;
(3) Third offense - thirty (30) calendar d. Investment management officer in
day-suspension without pay; and lieu of trust officer; and

Part IV - Page 28
§§ 4416Q - 4421Q
07.12.31
e. Investment management department authorized capital stock and no part of such

in lieu of trust department. retained earnings shall at any time be paid
(As amended by M-2007-009 dated 22 March 2007) out in dividends, but losses accruing in the
course of its business may be charged
Sec. 4417Q Non-Investment Management against retained earnings.
Activities. The provisions of Sec. 4407Q
shall apply in determining non-investment C. GENERAL PROVISIONS
management activities except that the terms
trust, other fiduciary, trustee and fiduciary Sec. 4421Q Books and Records. The
shall be disregarded. institution's trust department or investment
management department shall keep books
Sec. 4418Q Unsound Practices. The and records on trust, other fiduciary and
provisions of Sec. 4408Q shall govern the IMAs separate and distinct from the books
unsound practices for IMAs. and records of its other businesses and shall
follow the Manual of Accounts for Trust
Sec. 4419Q Conduct of Investment and Other Fiduciary Business and
Management Activities. The provisions of Investment Management Activities
Sec. 4411Q shall govern the conduct of prescribed by the BSP.
investment management activities of an Each trust, other fiduciary or IMA shall
institution without trust license that is have a record separate from all other
engaged in investment management accounts except only in the case of CTFs
activities. where the trustee can maintain common
records utilizing pooled fund accounting
Sec. 4420Q Required Retained Earnings method for each fund: Provided, That the
Appropriation. An institution authorized trustee shall clearly indicate in the records
to engage in investment management the trustors owning participation in the CTF
activities shall, before the declaration of and the extent of the interest of such
dividends, carry to retained earnings trustors.
appropriated for trust business at least ten Books and records shall contain full
percent (10%) of its net profits realized out information relative to each trust, other
of its investment management activities fiduciary or IMA and shall be supported
since the last preceding dividend by duplicate signed copies of related
declaration until the retained earnings shall documents. Said records and duplicate
amount to twenty percent (20%) of its signed copies or related documents shall

Part IV - Page 28a
§§ 4421Q - 4424Q
06.12.31
be compiled and kept as to allow No trustee, fiduciary or investment

inspection by BSP examiners and manager shall solicit or receive rebates on
submission of information or reports as may commissions, fees and other payments for
be required by competent authorities. the services rendered to the trust, other
fiduciary or investment management
Sec. 4422Q Custody of Assets. All account or beneficiaries of the trust, other
monies, properties or securities received by fiduciary or investment management account
an institution in its capacity as trustee, by stockbrokers, real estate brokers, insurance
fiduciary, or investment manager shall be agents and similar persons or entities unless
kept physically separate and distinct from the rebates, fees and other payments shall
the assets of its other businesses and shall accrue to the benefit of the trust, other
be under the joint custody of at least two fiduciary or investment management account
(2) persons, one of whom shall be an or the beneficiaries thereof.
officer of the trust or investment Officers and employees of the trust
management department, designated for department or investment management
that purpose by the board of directors. department of institutions, while serving as
The investment of each trust, other such, shall be prohibited from retaining any
fiduciary or investment management compensation for acting as co-trustee or
account shall be kept physically separated fiduciary in the administration of a trust, other
from those of other trust, other fiduciary or fiduciary or investment management account.
investment management accounts, and No institution shall collect, for its own
adequately identified as the assets or account, referral and/or arrangement fees,
property of the relevant account. or any other fees that take the nature of
payment to the institution from whatever
Sec. 4423Q Fees and Commissions. An source, in connection with loans sourced
institution acting as trustee, fiduciary or from trust funds managed by its trust
investment manager shall be entitled to department: Provided, That if such fees are
reasonable fees and commissions which collected, the same shall be properly
shall be determined on the basis of the cost disclosed to the trustor, and shall accrue to
of services rendered and the responsibilities the benefit of the trust, in accordance with
assumed: Provided, That where the trustee, the provisions of Secs. 4401Q and 4407Q.
fiduciary or investment manager is acting (As amended by Circular No. 541 dated 30 August 2006)
as such under appointment by a court, the
compensation shall be that allowed or Sec. 4424Q Taxes. The terms and
approved by the court: Provided, further, conditions of trust, other fiduciary or
That in the case of CTFs, the fee which a investment management agreements,
trustee may charge each participant shall including CTF plans, shall contain
be fully disclosed by the trustee in the CTF provisions regarding the applicability of
plan, prospectus, flyers, posters and all regulations governing taxation on the
forms of advertising materials to market the income of trust, other fiduciary or
fund and in the documents given to clients investment management accounts. For this
as proof of participation in the fund. In no purpose, the trustee, fiduciary or investment
case shall such fees and commissions be manager shall maintain adequate records
based on the excess of the income of the and shall include information such as the
trust, other fiduciary or investment amount of final income tax withheld at
management funds over a certain amount source and the amount withheld by the
or percentage. trustee, fiduciary or investment manager in

Part IV - Page 29
§§ 4424Q - 4426Q.2
05.12.31
the periodic reports submitted to trustors, reports prescribed by the appropriate

beneficiaries, principals and other parties department of the SES on the institution's
in interest. trust and other fiduciary business and
investment management activities within
Sec. 4425Q Reports Required the deadline indicated in Appendix Q-3.
§ 4425Q.1 To trustor, beneficiary, Sec. 4426Q Audits

principal. Every institution acting as trustee,
fiduciary or investment manager shall § 4426Q.1 Internal audit. The
render reports on the trust, other fiduciary institution's internal auditor shall include
or investment management accounts to the among his functions, the conduct of
trustor, beneficiary, principal or other party periodic audits of the trust department or
in interest or the court concerned or any party investment management department at
duly designated by the court order, as the least once every twelve (12) months. The
case may be, under the following guidelines: board of directors, in a resolution entered
a. The reports shall be in such forms in its minutes, may also require the internal
as to apprise the party concerned of the auditor to adopt a suitable continuous audit
significant developments in the system to supplement and/or to replace the
administration of the account and shall periodic audit. In any case, the audit shall
consist of: ascertain whether the institution's trust and
(1) A balance sheet; other fiduciary business and investment
(2) An income statement; management activities have been
(3) A schedule of earning assets of the administered in accordance with laws, BSP
account; and rules and regulations, and sound trust or
(4) An investment activity report; fiduciary principles.
b. Items (3) and (4) above shall include
at least the following: § 4426Q.2 External audit. The trust
(1) Name of issuer or borrower; and other fiduciary business and
(2) Type of instrument; investment management activities of an
(3) Collateral, if any; institution shall be included in the annual
(4) Amount invested; financial audit by independent external
(5) Earning rate or yield; auditors required under Sec. 4172Q.
(6) Amount of earnings; The audit of the assets and
(7) Transaction date; and accountabilities of the trust department/
(8) Maturity date; investment management department of an
c. The reports shall be prepared in NBFI authorized to engage in trust and
such frequency as required under the other fiduciary business/investment
agreement but shall not in any case be management activities, which shall cover at
longer than once every quarter; and the minimum a review of the trust/investment
d. The reports shall be made available management operations, practices and
to clients not later than twenty (20) calendar policies, including audit and internal
days from the end of the reference date/ control system, shall be subject to auditing
period in Item "c" above. standards to the extent necessary to express
an opinion on the financial statements.
§ 4425Q.2 To the Bangko Sentral The audit of the trust/investment
An institution acting as trustee, fiduciary or management department of an institution
investment manager shall submit periodic authorized to engage in trust and other
Q Regulations Manual of Regulations for Non-Bank Financials Institution

Part IV - Page 30
§§ 4426Q.2 - 4441Q
07.12.31
fiduciary business/investment management business or in investment management

activities shall be covered by a separate activities, the receiver shall, pursuant to the
supplemental audit report to be submitted to instructions of the Monetary Board,
the institution's board of directors and to the proceed to close the trust, other fiduciary
BSP within the prescribed period containing, and investment management accounts
among other things, the statements of promptly and/or transfer all other accounts
condition of trust funds and managed funds to substitute trustees, fiduciaries or
and the related statements of earnings of investment managers acceptable to the
both funds presented separately, as well as trustors, beneficiaries, principals or other
the auditor's letter of comments/findings and parties in interest: Provided, That where
recommendations. the trustee, fiduciary or investment manager
is acting as such under appointment by a
§ 4426Q.3 Board action. A report of court, the receiver shall proceed pursuant
the foregoing audits, together with the to the instructions of said court.
actions thereon, shall be noted in the minutes
of the board of directors of the institution. Sec. 4429Q Surrender of Trust or
Investment Management License. Any
Sec. 4427Q Authority Resulting from NBFI which has been authorized to engage
Merger or Consolidation. In merger of FIs, in trust and other fiduciary business or in
the authority to engage in trust and other investment management activities and
fiduciary business and in investment which intends to surrender said authority
management activities shall continue to be shall file with the BSP a certified copy of
in effect if the surviving institution has such the resolution of its board of directors
authority and the same has not been manifesting such intention. The
withdrawn by the BSP. In case the surviving appropriate department of the SES shall then
institution does not have previous authority conduct an examination of the institution's
but desires to engage in trust and other trust, other fiduciary business and
fiduciary business and in investment investment management activities. If the
management activities, it shall secure the institution is found to have satisfactorily
prior approval of the Monetary Board to discharged its duties and responsibilities as
engage in such business as part of its trustee, fiduciary or investment manager,
application for merger to enable it to and has provided for the orderly closure or
incorporate such among its powers or transfer of its trust, fiduciary or investment
purpose clause in its articles of management accounts, the Monetary
incorporation, articles of merger, by-laws Board, on the basis of the recommendation
and such other pertinent documents. of the examining department, shall order
In the consolidation of FIs where the the withdrawal of the institution's authority
resulting entity is an entirely new one, it to engage in trust and other fiduciary
shall secure from the Monetary Board an management activities.
authority to engage in trust and other
fiduciary business or in investment Secs. 4430Q - 4440Q (Reserved)
management activities before it may engage
in such business. Sec. 4441Q Securities Custodianship and
Securities Registry Operations. The
Sec. 4428Q Receivership. Whenever a following rules and regulations shall
receiver is appointed by the Monetary govern securities custodianship and
Board for an institution that is authorized securities registry operations of QBs/trust
to engage in trust and other fiduciary entities.

Part IV - Page 31
§§ 4441Q - 4441Q.5
07.12.31
The guidelines to implement the § 4441Q.4 Application for authority

delivery by the seller of securities to the A QB/trust entity desiring to act as securities
buyer or to his designated third party custodian and/or registry shall file an
custodian are shown in Appendix Q-38. application with the appropriate
Violation of any provision of the department of the SES. The application
guidelines in Appendix Q-38 shall be shall be signed by the highest ranking
subject to the sanctions/penalties under officer of the institution and shall be
Subsec. 4441Q.29. accompanied by a certified true copy of the
(As amended by M-2007-002 dated 23 January 2007; resolution of its board of directors
M-2006-009 dated 06 July 2006, M-2006-002 dated 05 June authorizing the institution to engage in
2006 and Circular No. 524 dated 31 March 2006) securities custodianship and/or registry.
§ 4441Q.1 Statement of policy. It is the §4441Q.5 P r e - q u a l i f i c a t i o n

policy of the BSP to promote the protection requirements for a securities custodian/
of investors in order to gain their confidence registry
and encourage their participation in the a. It must be a QB or a trust entity;
development of the domestic capital b. It must have complied with the
market. Therefore, the following rules and minimum capital accounts required under
regulations are promulgated to enhance existing regulations not lower than an
transparency of securities transactions with adjusted capital of P300 million or such
the end in view of protecting investors. amounts as may be required by the
Monetary Board in the future;
§ 4441Q.2 Applicability of this c. It must have a CAMELS composite
regulation. This regulation shall govern rating of at least “4” (as rounded off) in the
securities custodianship and securities last regular examination;
registry operations of banks and NBFIs d. It must have in place a
under BSP supervision. It shall cover all their comprehensive risk management system
transactions in securities as defined in approved by its board of directors
Section 3 of the Securities Regulation Code appropriate to its operations characterized
(SRC), whether exempt or required to be by a clear delineation of responsibility for
registered with the SEC, that are sold, risk management, adequate risk
borrowed, purchased, traded, held under measurement systems, appropriately
custody or otherwise transacted in the structured risk limits, effective internal
Philippines where at least one (1) of the control and complete, timely and efficient
parties is a bank or an NBFI under BSP risk reporting systems. In this connection,
supervision. However, this regulation shall a manual of operations (which includes
not cover the operations of stock and custody and/or registry operations) and
transfer agents duly registered with the SEC other related documents embodying the
pursuant to the provisions of SRC Rule 36- risk management system must be
4.1 and whose only function is maintain the submitted to the appropriate department
stock and transfer book for shares of stock. of the SES at the time of application for
authority and within thirty (30) days from
§ 4441Q.3 Prior Bangko Sentral updates;
approval. QBs/trust entities may act as e. It must have adequate
securities custodian and/or registry only technological capabilities and the
upon prior Monetary Board approval. necessary technical expertise to ensure
Q Regulations Manual of Regulations for Non-Bank Financials Institution

Part IV - Page 32
§ 4441Q.5
05.12.31
the protection, safety and integrity of (c) provide for audit trail of
client assets, such as: transactions.
(1) It can maintain an electronic f. It has complied, during the period
registry dedicated to recording of immediately preceding the date of
accountabilities to its clients; and application, with the following:
(2) It has an updated and (1) ceilings on credit accommodation
comprehensive computer security system to DOSRI; and
covering system, network and (2) single borrower’s limit.
telecommunication facilities that will: g. It has no reserve deficiencies during
(a) limit access only to authorized users; the eight (8) weeks immediately preceding
(b) preserve data integrity; and the date of application;

Part IV - Page 32a
§§ 4441Q.5 - 4441Q.8
05.12.31
h. It has set up the prescribed e. Confirms tax withheld;

allowances for probable losses, both f. Represents clients in corporate
general and specific, as of date of actions in accordance with the direction
application; provided by the securities owner;
i. It has not been found engaging in g. Conducts mark-to-market valuation
unsafe and unsound practices during the and statement rendition;
last six (6) months preceding the date of h. Does earmarking of encumbrances
application; or liens such as, but not limited to, Deeds
j. It has generally complied with laws, of Assignment and court orders; and
rules and regulations, orders or instructions In addition to the above basic
of the Monetary Board and/or BSP functions, it may perform the following
Management; value-added service to clients:
k. It has submitted additional i. Acts as a collecting and paying
documents/information which may be agent: Provided, That the management of
requested by the appropriate SED, such as, funds that may be collected shall be clearly
but not limited to: defined in the custody contract or in a
(1) Standard custody/registry separate document or agreement attached
agreement and other standard documents; thereto: Provided, further, That the
(2) Organizational structure of the custodian shall immediately make known
custody/registry business; to the securities owner all payments made
(3) Transaction flow; and and collections received with respect to the
(4) For those already in the custody or securities under custody;
registry business, a historical background j. Securities borrowing and lending
for the past three (3) years; operations as agent.
l. It shall be conducted in a separate
unit headed by a qualified person with at § 4441Q.7 Functions and
least two (2) years experience in custody/ responsibilities of a securities registry
registry operations; and a. Maintains an electronic registry
m. It can interface with the clearing and book;
settlement system of any recognized b. Delivers confirmation of
exchange in the country capable of achieving transactions and other documents within
a real time gross settlement of trades. agreed trading periods;
c. Issues registry confirmations for
§ 4441Q.6 Functions and transfers of ownership as it occurs;
responsibilities of a securities custodian d. Prepares regular statement of
A securities custodian shall have the securities balances at such frequency as
following basic functions and may be required by the owner on record but
responsibilities: not less frequent than every quarter; and
a. Safekeeps the securities of the e. Follows appropriate legal
client; documentation to govern its relationship
b. Holds title to the securities in a with the Issuer.
nominee capacity;
c. Executes purchase, sale and other § 4441Q.8 Protection of securities of
instructions; the customer. A custodian must
d. Performs at least a monthly incorporate the following procedures in the
reconciliation to ensure that all positions discharge of its functions in order to protect
are properly recorded and accounted for; the securities of the customer:

Part IV - Page 33
§§ 4441Q.8 - 4441Q.9
05.12.31
a. Accounting and recording for (7) Other information, which may be

securities. Custodians must employ requested by the parties.
accounting and safekeeping procedures that d. Periodic reporting. The custodian
fully protect customer securities. It is shall prepare at least quarterly (or as
essential that custodians segregate customer frequent as the owner of securities will
securities from one another and from its require) securities statements delivered to
proprietary holdings to protect the same the registered owner’s address on record.
from the claims of its general creditors. Said statement shall present detailed
All securities held under custodianship information such as, but not limited to,
shall be recorded in the books of the inventory of securities, outstanding
custodian at the face value of said securities balances, and market values.
in a separate subsidiary ledger account
“Securities Held Under Custodianship” if § 4441Q.9 Independence of the
booked in the Bank Proper or the subsidiary registry and custodian. A BSP-accredited
ledger account “Safekeeping and securities registry must be a third party with
Custodianship – Securities Held Under no subsidiary/affiliate relationship with the
Custodianship”, if booked in the Trust issuer of securities while a BSP-accredited
Department: Provided, That securities held custodian must be a third party with no
under custodianship where the custodian subsidiary/affiliate relationship with the
also performs securities borrowing and issuer or seller of securities. A quasi-bank/
lending as agent shall be booked in the trust entity accredited by BSP as securities
Trust Department. custodian may, however, continue holding
b. Documentation. The appropriate securities it sold under the following cases:
documentation for custodianship shall be a. where the purchaser is a related
made and it shall clearly define, among entity acting in its own behalf and not as
others, the authority, role, responsibilities, agent or representative of another;
fees and provision for succession in the b. where the purchaser is a non-resident
event the custodian can no longer discharge with existing global custody agreement
its functions. It shall be accepted in writing governed by foreign laws and conventions
by the counterparties. wherein the institution is designated as
The governing custodianship custodian or sub-custodian; and
agreement shall be pre-numbered and this c. upon approval by the BSP, where
number shall be referred to in all the purchaser is an insurance company
amendments and supplements thereto. whose custody arrangement is either
c. Confirmation of custody. The governed by a global custody agreement
custodian shall issue a custody confirmation where the quasi-bank/trust entity is
to the purchaser or borrower of securities designated as custodian or sub-custodian
to evidence receipt or transfer of securities or by a direct custody agreement with
as they occur. It shall contain, as a features at par with the standards set under
minimum, the following information on the this Subsection drawn or prepared by the
securities under custody: parent company owning more than fifty
(1) Owner of securities; percent (50%) of the capital stock of the
(2) Issuer; purchaser and executed by the purchaser
(3) Securities type; itself and its custodian.
(4) Identification or serial numbers; Purchases by non-residents and
(5) Quantity; insurance companies that are exempted
(6) Face value; and from the independence requirement of this

Part IV - Page 34
§§ 4441Q.9 - 4441Q.14
05.12.31
Section shall, however, be subject to all law and its implementing rules and
other provisions of this Subsection. regulations.
A BSP accredited custodian must
§ 4441Q.10 Registry of scripless maintain accounts only in the true and full
securities of the Bureau of the Treasury name of the owners of the security.
The Registry of Scripless Securities (RoSS), However, said securities owners may be
operated by the Bureau of the Treasury, identified by number or code in reports and
which is acting as a registry for government correspondences to keep his identity
securities is deemed to be automatically confidential.
accredited for purposes of this Section and Securities subject of pledge and/or deed
is likewise exempted from the of assignment as of 14 October 2004 (date
independence requirement under Subsec. of Circular 457), may be held by a lending
4441Q.9. However, securities registered quasi-bank up to the original maturity of
under the RoSS shall only be considered the loan or full payment thereof, whichever
delivered if said securities were transferred comes earlier.
by means of book entry to the appropriate
securities account of the purchaser or his § 4441Q.13 Basic security deposit
designated custodian. Book entry transfer Securities held under custodianship
to a sub-account for clients under the whether booked in the Trust Department
primary account of the seller shall not or carried in the regular books of the quasi-
constitute delivery for purposes of this bank/trust entity shall be subject to a
Section and of Subsec. 4211Q.4. security deposit for faithful performance of
duties at the rate of 1/25 of one percent
§ 4441Q.11 Confidentiality. A BSP- (1%) of the total face value or P500,000
accredited securities custodian/registry shall whichever is higher.
not disclose to any unauthorized person However, securities held under
any information relative to the securities custodianship where the custodian also
under its custodianship/registry. The performs securities borrowing and lending
management shall likewise ensure the as agent shall be subject to a higher basic
confidentiality of client accounts of the security deposit of one percent (1%) of the
custody or registry unit from other units total face value. For this purpose, the
within the same organization. following subsidiary ledger account shall
be created in the Trust Department Books:
§ 4441Q.12 Compliance with anti- “Safekeeping and Custodianship -
money laundering laws/regulations. For Securities Held Under Custodianship with
purposes of compliance with the Securities Borrowing and Lending As Agent”
requirements of R.A. No. 9160, otherwise Compliance shall be in the form of
known as the “Anti-Money Laundering Act government securities deposited with the BSP
of 2001,” as amended, particularly the eligible pursuant to existing regulations
provisions regarding customer governing security for the faithful
identification, record keeping and reporting performance of trust and other fiduciary
of suspicious transactions, a BSP-accredited business.
custodian may rely on referral by the seller/
issuer of securities: Provided, That it § 4441Q.14 Reportorial requirements
maintains a record of such referral together An accredited securities custodian shall
with the minimum identification, comply with reportorial requirements that
information/ documents required under the may be prescribed by the BSP, which shall

Part IV - Page 35
§§ 4441Q.14 - 4499Q
05.12.31
include as a minimum, the face and market the violation was committed up to the date
value of securities held under it was corrected;
custodianship. (2) Suspension or revocation of the
authority to act as securities custodian
§§ 4441Q.15 - 4441Q.28 (Reserved) and/or registry; and
(3) Suspension for one hundred
§ 4441Q.29 Sanctions. Without twenty (120) days without pay of the
prejudice to the penal and administrative directors/officers responsible for the
sanctions provided for under Sections 36 violation.
and 37, respectively, of the R.A. No. 7653,
violation of any provision of this Section Secs. 4442Q - 4498Q (Reserved)
shall be subject to the following sanctions/
penalties: Sec. 4499Q Sanctions. Any violation of
a. First offense – the provisions of this Part shall be subject
(1) Fine of up to P10,000 a day for the to Sections 36 and 37 of R.A. No. 7653,
institution for each violation reckoned from without prejudice to the imposition of
the date the violation was committed up other sanctions as the Monetary Board
to the date it was corrected; and may consider warranted under the
(2) Reprimand for the directors/officers circumstances that may include the
responsible for the violation. suspension or revocation of an
b. Second offense - institution's authority to engage in trust
(1) Fine of up to P20,000 a day for the and other fiduciary business or in
institution for each violation reckoned from investment management activities, and
the date the violation was committed up such other sanctions as may be provided
to the date it was corrected; and by law.
(2) Suspension for ninety (90) days The guidelines for the imposition of
without pay of directors/officers monetary penalty for violations/offenses
responsible for the violation. with sanctions falling under Section 37
c. Subsequent offenses – of R. A. No. 7653 on quasi-banks, their
(1) Fine of up to P30,000 a day for the directors and/or officers are shown in
institution for each violation from the date Appendix Q-39.

Part IV - Page 36
§§ 4501Q - 4505Q
05.12.31
PART FIVE
FOREIGN EXCHANGE OPERATIONS
Section 4501Q Authority; Coverage.With worth, except as may otherwise be

prior approval of the Monetary Board, and specifically authorized by the Monetary
subject to the provisions of Article III, Board;
Chapter IV of R.A. No. 7653 and Section c. Holding foreign currency
7(13) of P.D. No. 129, as amended, an IH balances with foreign correspondents in
may engage in foreign exchange connection with export-related services but
operations which shall be limited to the in no case for speculative purposes;
servicing of project or program d. Entering into forward foreign
requirements of the following enterprises: exchange contracts with the BSP in
a. BSP-certified export-oriented connection with the foregoing activities;
firms; and/or
b. Board of Investments-registered e. Such other related foreign
export-oriented firms; and exchange activities as may be approved
c. Construction or service firms by the Monetary Board.
with overseas contracts approved by the
Department of Labor and Employment. Sec. 4503Q Separate Department. Any
IH that may be authorized to engage in
Sec. 4502Q Specific Foreign Exchange foreign exchange operations shall set up a
Activities. The specific foreign exchange separate department/unit to handle such
operations which IHs may undertake in operations.
connection with the preceding Section are:
a. Arranging or contracting of Sec. 4504Q Applicability of Pertinent
foreign loans for the account of the client Bangko Sentral Rules. The foreign
firm, or contracting of foreign loans for the exchange operations of an IH are subject
account of the IH for relending to the client to all applicable BSP rules and regulations
firm, subject to pertinent BSP rules and on foreign exchange operations, including
regulations; modifications thereof, considering the
b. Providing import- and export- special nature of IH operations, and the
related services to said firms such as letters sanctions in connection therewith.
of credit and other acceptable modes of
payment, and the discounting of export Sec. 4505Q Aggregate Ceiling on
drafts: Provided, That the total amount of Issuance of Guarantees. Total standby
foreign exchange transactions IHs may letters of credit, foreign and domestic,
deal in shall not exceed the amount of the including guarantees, the nature of which
financing arranged or provided by the IH requires the guarantor to assume the
which involves the importation and liabilities/obligations of third parties in case
exportation of related goods and services: of their inability to pay, that may be issued
Provided, further, That the amount of letters by quasi-banks and outstanding at any
of credit outstanding of an IH shall not given time, shall not exceed fifty percent
exceed, at any given time, twice its net (50%) of the quasi-bank’s net worth, except

Part V - Page 1
§§ 4505Q - 4599Q
05.12.31
those fully secured by cash, hold-out on of this Part shall be subject to Sections 36
deposits/deposit substitutes on government and 37 of R.A. No. 7653.
securities. The guidelines for the imposition of
monetary penalty for violations/offenses
Secs. 4506Q - 4598Q (Reserved) with sanctions falling under Section 37 of
R. A. No. 7653 on quasi-banks, their
Sec. 4599Q General Provision on directors and/or officers are shown in
Sanctions. Any violation of the provisions Appendix Q-39.

Part V - Page 2
§§ 4601Q - 4602Q
08.12.31
PART SIX
MISCELLANEOUS
A. OTHER OPERATIONS such, its outstanding repo agreement shall

immediately become due and payable.
Sec. 4601Q Open Market Operations If settlement of the amount due is not made
The following rules and regulations shall within three (3) days from the date of its
govern the buying and selling of disqualification, the BSP shall proceed to
government securities in the open collect said amount in accordance with the
market pursuant to Section 91 of preceding paragraph.
R.A. No. 7653: d. Reverse repo agreements
a. The BSP may buy and sell in the covering the sale of portion of the security
open market for its own account: holdings of the BSP portfolio may be
(1) Evidences of indebtedness issued made under the terms provided for in
directly by the Government of the Philippines Subsec. 4602Q.1.
or by its political subdivisions; and
(2) Evidences of indebtedness issued § 4601Q.1 Settlement procedures
by government instrumentalities and fully Purchase and sale of government
guaranteed by the Government. securities under repo agreements
The above evidences of indebtedness (GS/repo agreements) between and among
must be freely negotiable and regularly banks and QBs and BSP in connection with
serviced and must be available to the the latter’s open market operations shall
general public through banks, QBs and be settled in accordance with the
accredited government securities dealers. provisions of the agreement for the
b. Outright purchases and sales of PhilPaSS executed on 12 December 2002
government securities shall be effected on between the BSP and IHAP and any
the basis of the lowest price offered or the subsequent amendments thereto.
highest price bid. (As superseded by the agreement between the BSP and IHAP
c. Repo agreements shall be open to dated 12 December 2002)
banks (except RBs), QBs and accredited
government securities dealers and shall be §§ 4601Q.2 - 4601Q.5 (Reserved)
made under the terms provided for in
Sec. 4602Q and the following: § 4601Q.6 - BSP trading windows and
(1) The repo agreement may be paid services during public sector holidays. The
at any time before maturity at the option guidelines on BSP’s trading windows and
of the issuer of the repo agreement; services during public sector holidays are
(2) In the event the securities covered shown in Appendix Q-50.
by the repo agreement are not repurchased (M-2008-025 dated 13 August 2008)
by the issuer of such agreement, they may
be sold in the open market or transferred to Sec. 4602Q Repurchase Agreements
the BSP Portfolio; and with the Bangko Sentral. Repo agreements
(3) Should an issuer of a repo may be effected with the BSP subject to
agreement become no longer qualified as the following terms and conditions:

Part VI - Page 1
§§ 4602Q - 4602Q.1
08.12.31
a. Rate. The rates on the repurchase a. Rate. The rates shall be set by the
facility shall be set by the Treasury Treasury Department, with the
Department, with the concurrence of the concurrence of the Governor, taking into
Governor, taking into account prevailing account the prevailing liquidity/market
liquidity/market conditions. conditions.
b. Term. At the option of the Treasury b. Term. At the option of the Treasury
Department, availments may be for a Department, availments may be for a
minimum of one (1) day (overnight) and a minimum of one (1) day (overnight) and a
maximum of ninety-one (91) days. maximum of 364 days.
c. Security. Only obligations of the c. Security. The collateral shall
National Government and its consist of obligations of the National
instrumentalities and political subdivisions, Government and other freely negotiable
which are fully guaranteed by the securities in the BSP portfolio valued
Government, with a remaining maturity of at 100%.
not more than ten (10) years and which are d. Delivery. No delivery of the
freely negotiable and regularly serviced, collateral shall be made, but a custody
shall be eligible as underlying instruments receipt shall be issued instead.
for repo agreements, subject to the collateral e. Reservation. Prepayment may be
requirement prescribed by the BSP. made by the BSP at its option anytime
d. Delivery. Delivery of the underlying before maturity.
instruments shall be made to the BSP at the Effective 01 July 2003, published
prescribed time. For overnight repo interest rates that will be applied on BSP’s
agreements, delivery of the underlying reverse repo agreements shall be
instruments shall be made not later than inclusive of Value Added Tax (VAT).
12:00 noon of the date of transaction. Reverse repo agreements entered
Government securities which are held into by the BSP with any authorized
by the issuer of the repo agreement under agent bank (AAB) are included in the
the book-entry system with the BSP may definition of the term “deposit
be used as underlying instruments only substitutes” under Sec. 22 (y) Chapter
with the conformity of the BSP. 1 of the National Internal Revenue
e. Upon termination of the repo Code of 1997.
agreement, the issuer of such agreement The BSP shall withhold twenty percent
shall claim and take delivery of the (20%) Final Withholding Tax (FWT) on its
underlying instruments at the Treasury overnight reverse repo agreements
Department, BSP. Failure to claim and starting January 1, 2008, under the
take delivery of the underlying instruments following guidelines:
immediately upon such termination shall (1) A l l o v e r n i g h t r e v e r s e r e p o
relieve the BSP of any liability or agreements with the BSP shall be
responsibility for the loss or misplacement subject to the twenty percent (20%)
of said instruments. FWT in the same manner as term
reverse repo agreements, which tax
§ 4602Q.1 Reverse repurchase is deducted on each maturity date and
agreements with Bangko Sentral. Reverse remitted to the BIR;
repo agreements may be effected with the (2) The total twenty percent (20%)
BSP subject to the following terms and FWT on the overnight reverse repo
conditions: agreements due starting 01 January 2008

Part VI - Page 2
§§ 4602Q.1 - 4603Q
08.12.31
until 08 September 2008 shall be divided agreements with the BSP mentioned in
equally in the remaining months of taxable Item “2” above.
year 2008. The installments due will be (As amended by Circular Nos. 636 dated 17 December 2008 and
deducted every end of the month from the 619 dated 22 August 2008)
RDDA of concerned banks; and
(3) Concerned banks shall issue the Sec. 4603Q Derivatives. QBs and/or their
corresponding debit authority to the BSP subsidiaries/affiliates may engage in
to cover the twenty percent (20%) FWT financial derivatives activities upon prior
on their overnight reverse repo approval of the BSP.
(Next Page is Part VI-Page 3)

Part VI - Page 2a
§ 4603Q.1
05.12.31
§ 4603Q.1 Scope and pre-qualification (v) Fully documented and independently

requirements. The following provisions validated.
shall govern the scope and pre-qualification (d) The ability to monitor counterparty
requirements for the grant of authority to risks on outstanding contracts through a
engage in derivatives activities. methodology that reflects changes in credit
a. For regular derivatives authority exposure as market rates change;
(1) Scope. Financial institutions (FIs) (e) The technical competence of key
supervised by the BSP may apply for a officers/traders responsible for the
regular derivatives license. A licensed FI derivatives products; and
may sell derivatives products to its (f) The procedures for evaluating
customers: Provided, That the FI shall client suitability.
hedge such derivatives: Provided, further, (3) Other requirements. BSP shall
That the risk being hedged is already evaluate quasi-bank’s and other BSP
existing with the FI itself. supervised FI’s financial soundness and
(2) Pre-qualification requirements. An track record of compliance with major
application to engage in a regular derivatives prudential requirements, such as, but not
activities may be granted upon determination limited to:
by the BSP that the applicant possesses: (a) CAMELS composite rating of at
(a) The ability to account for its currency least “3” in the last regular examination;
exposures on a per currency basis through (b) Minimum applicable capital
its Multi-Currency Subsidiary Ledger; adequacy ratio;
(b) The ability to account for swaps and (c) Minimum reserves against deposit
forwards either through the accrual or net liabilities/deposit substitutes, CTFs, and
present value basis. Swaps and forwards TOFA-Others; and
designated as hedge only at inception may (d) Maximum allowable open foreign
be accounted for using the accrual method. exchange position.
Forwards designated as trading shall be b. For engaging in derivatives
marked-to-market daily using the net transactions as end-users
present value methodology; (1) Scope. FIs may engage in
(c) The ability to manage and monitor derivatives transactions purely as end-users
price risks for the whole derivatives and do not need a license for such
portfolio to ensure continuous assessment activities.
of the effectiveness of the hedge. While (2) Requirements. The FIs shall show
the ideal method of measuring these risks proof of approval by their board of directors
is through "value-at-risk” methodology, to use derivatives. Such approval must
alternative systems are acceptable: clearly specify the following as minimum
Provided, That these are: guidelines:
(i) Capable of measuring and (a) Derivatives products to be used
aggregating risks across trading and non- and the type of transactions to be hedged
trading activities; shall be specified;
(ii) Approved by the FI’s board of (b) Transactions shall be limited to
directors; hedging purpose only; there shall be no
(iii) Consistent with board-approved speculative activity;
risk appetite; (c) Dealings shall only be with
(iv) Consistent with the level and licensed/authorized counterparties; and
complexity of the institution’s trading (d) Transactions shall be reported
activities; and regularly to the board of directors.

Part VI - Page 3
§§ 4603Q.2 - 4603Q.7
05.12.31
§ 4603Q.2 Transactions between § 4603Q.4 Risk management

parent and subsidiary. All derivatives guidelines. Quasi-banks and/or their
transactions between parent quasi-bank subsidiaries/ affiliates authorized to engage
and subsidiary (e.g., Forex Corporation) in derivatives activities shall adopt a policy
shall be with prior BSP approval. manual that contains the minimum
features and principles embodied in the
§ 4603Q.3 Renewals. The license to Risk Management Guidelines for
engage in derivatives activities shall be for Derivatives (Appendix Q-15).
a period of one (1) year. Risk disclosure statements, which
a. The following guidelines shall be should at least contain the disclosure
observed for the annual renewal of statements in Appendix Q-16, shall be
derivatives licenses of quasi-banks: provided to the clients/customers of quasi-
(1) For derivatives granted before 17 banks and/or their subsidiaries/affiliates in
September 2001, the licenses are order to advise the former of the risks
operative only until 17 September 2002. involved in derivatives activities.
Said licenses shall be renewed on or before A detailed statement on the position
said date. Subsequently, the licenses shall of the clients/customers must be sent to
be renewed on or before 17 September of them periodically.
each year;
(2) For derivatives granted after 17 § 4603Q.5 Accounting guidelines. In
September 2001, the licenses are operative recording derivatives activities in the
for a period of one (1) year reckoned from books, quasi-banks and/or their
the date of approval. The licenses therefore, subsidiaries/affiliates shall observe the
shall be renewed on or before the end of the guidelines enumerated in Appendix Q-17.
one (1)-year period; and
(3) Quasi-banks shall submit a written § 4603Q.6 Reporting requirements
request to renew their derivatives licenses Aside from the daily/monthly FX position
at least forty-five (45) calendar days before reports, a monthly report on transactions/
the expiration of the existing licenses. The outstanding derivatives transactions shall
quasi-banks will be notified of the BSP action also be required for quasi-banks which
on their request. Until such notice is enter into derivatives contracts as end-user.
received, quasi-banks can continue to enter
into new derivatives contracts as allowed § 4603Q.7 Sanctions. Monetary
under their previously approved licenses. penalties prescribed under Sections 35, 36
Failure to submit said written request and 37 of R.A. No. 7653 and/or suspension
within the prescribed period shall be of foreign exchange operations, shall be
presumed not renewing said licenses. imposed on any quasi-bank, its
b. The license may be renewed subsidiaries/affiliates (including directors
subject to compliance with the following: or officers) that engage in derivatives
(1) BSP standard of financial soundness activities without prior BSP approval.
and track record of compliance with major If the quasi-bank submits an erroneous
prudential regulations; written representation or certification, a
(2) Adequate risk management cease and desist order shall be imposed,
systems; and in addition to a monetary penalty of
(3) Adequate internal control system P10,000 per transaction. The quasi-bank’s
and procedures including record keeping derivatives operations may only be
for derivatives activities. resumed after the appropriate SED has

Part VI - Page 4
§§ 4603Q.7 - 4603Q.15
07.12.31
made a thorough validation of the QB’s (NBBSEs) not authorized to engage in FX

compliance with requirements. forwards and swaps as dealers;
(2) resident non-bank entities; and
§§ 4603Q.8 - 4603Q.13 (Reserved) (3) non-residents, both banks and non-
banks.
§ 4603Q.14 Forward and swap b. Foreign exchange obligation shall
transactions refer to an actual commitment to repatriate
Statement of policy. It is the policy of or pay to a non-resident or any AAB a
the BSP to support the deepening of the specific amount of foreign currency on a pre-
Philippine financial markets. In line with agreed date.
this policy, customers may, thru FX c. Foreign exchange exposure shall refer
forwards, hedge their market risks arising to an FX risk arising from an existing
from FX obligations and/or exposures: commitment which will lead to an actual
Provided, That forward sale of FX payment of FX to, or receipt of FX assets from,
(deliverable and non-deliverable) may non-residents or any AAB based on verifiable
only be used when the underlying documents on deal date. FX risks arising from
transaction is eligible for servicing by the BSP-registered foreign investments without
banking system under Circular No. 1389 specific repatriation dates are considered FX
dated 13 April 1993, as amended. exposures.
Customers may, likewise, cover their d. Resident shall refer to -
funding requirements thru FX swaps. (1) An individual citizen of the
QBs may only engage in FX forwards Philippines residing therein; or
and swap transactions with customers if the (2) An individual who is not a citizen
latter is hedging market risk or covering of the Philippines but is permanently
funding requirements. There shall be no residing therein; or
double/multiple hedging such that at any (3) A corporation or other juridical
given point in time, the total notional person organized under the laws of the
amount of the FX derivatives transaction/s Philippines; or
shall not exceed the amount of the (4) A branch, subsidiary, affiliate,
underlying FX obligation/exposure. extension office or any other unit of
The customer shall no longer be corporations or juridical persons which are
allowed to buy FX from the banking organized under the laws of any country and
system for FX obligations/exposures that operating in the Philippines, except offshore
are fully covered by deliverable FX banking units (OBUs).
forwards and FX swaps. e. Non-resident shall refer to an
The following guidelines, as well as individual, a corporation or other juridical
minimum documentary requirements, person not included in the definition of
shall cover FX forward and swap resident.
transactions involving the Philippine f. Foreign exchange swap shall refer
peso between authorized dealer QBs and to a transaction involving the actual
their customers. exchange of two (2) currencies (principal
(As amended by Circular No. 591 dated 27 December 2007) amount only) on a specific date at a rate
agreed on deal date (the first leg), and a
§ 4603Q.15 Definition of terms reverse exchange of the same two (2)
a. Customers shall refer to: currencies at a date further in the future (the
(1) resident banks (other than KBs and second leg) at a rate (different from the rate
UBs) and non-bank BSP-supervised entities applied to the first leg) agreed on deal date.

Part VI - Page 5
§§ 4603Q.15 - 4603Q.18
07.12.31
g. Foreign exchange forward shall refer maturity shall be co-terminus with the
to a contract to purchase/sell a specified maturity of the underlying obligation or the
amount of currency against another at a approximate due date or settlement of the
specified exchange rate for delivery at a FX exposure. This shall not preclude
specified future date three (3) or more pretermination of the contract due to
business days after deal date. prepayment of the underlying obligation or
h. Non-deliverable forward (NDF) exposure: Provided, That for foreign currency
shall refer to an FX forward contract where loans, prior BSP approval has been obtained
only the net difference between the for the prepayment and a copy of such
contracted forward rate and the market rate approval is presented to the QB counterparty.
at maturity (i.e., the fixing rate) shall be b. FX Swaps- No restriction on tenor.
settled on the forward date. c. Settlement of NDFs- All NDF
(As amended by Circular No. 591 dated 27 December 2007) contracts with residents shall be settled in
pesos.
§ 4603Q.16 Documentation. Minimum d. Remittance of FX proceeds of
documentary requirements for FX forward deliverable forward and swap contracts.
and swap transactions in Appendix Q-29 FX proceeds of deliverable forward and
shall be presented on or before deal date to swap contracts shall be delivered by the QB
the QBs unless otherwise indicated. counterparty directly to the beneficiaries
FX selling QBs shall stamp the concerned except for foreign investments
supporting documents upon presentation by where said FX proceeds are reconverted to
customers as follows: Philippine pesos and re-invested in eligible
a. For hedging transactions: “FX peso instruments such as those listed in Item
HEDGED/DELIVERABLE” or “FX HEDGED/ “A.2.2” of Appendix Q-29. For this purpose,
NON-DELIVERABLE”; beneficiaries shall refer to the FCDU of a
b. For funding transactions: “FX SOLD”, QB or a non-resident entity (e.g., creditor,
supplier, investor) to whom the customer is
indicating the contract date and amount committed to pay/remit FX.
involved, and signed by the QB’s (As amended by Circular No. 591 dated 27 December 2007)
authorized officer. Copies of all duly
marked supporting documents shall be § 4603Q.18 Cancellations, roll overs
retained by the QBs and made available to or non-delivery of FX forward and swap
the BSP for verification. The retained copies contracts. All cancellations, roll-overs or
shall also be marked “DOCUMENTS non-delivery of all FX deliverable forward
PRESENTED AS REQUIRED” and signed by contracts and the forward leg of swap
the QB’s authorized officer. contracts shall be subject to the following
(As amended by Circular No. 591 dated 27 December 2007) guidelines to determine the validity thereof:
a. Eligibility test - Contracts must be
§ 4603Q.17 Tenor/maturity and supported by documents listed in
settlement Appendix Q-29 hereof.
a. Forward sale of FX (whether b. Frequency test - the reasonableness
deliverable or non-deliverable). The tenor/ of the cancellation, roll-over or non-delivery
maturity of such contracts shall not be longer shall be based on the results of the evaluation
than: (i) the maturity of the underlying FX of the justification/explanation submitted by
obligation; or (ii) the approximate due date QBs as evidenced by appropriate documents.
or settlement of the FX exposure. For c. Counterparty test – the cancellation
deliverable FX forward contracts, the tenor/ or roll-over of contracts must be duly

Part VI - Page 6
§§ 4603Q.18 - 4603Q.26
07.12.31
acknowledged by the counterparty to the The reports shall be transmitted to the

contract as shown in documents submitted International Department at
by QBs, e.g., there should be conforme of iod@bsp.gov.ph, copy furnished the SDC.
counterparty as evidenced by the counterparty (As amended by Circular No. 591 dated 27 December 2007)
signature on pertinent documents.
d. Mark-to-Market test– the booking §§ 4603Q.22 - 4603Q.25 (Reserved)
or recording in the books of accounts of
the profit or loss on contracts and cash § 4603Q.26 Sanctions. Violations of
flows/settlement to counterparties must be Subsecs. 4603Q.14 to 4603Q.21 shall be
fully supported by appropriate documents subject to the penalty provisions under R.A.
such as authenticated copy of debit/credit No. 7653 (The New Central Bank Act) and
tickets, schedules showing among others, other existing banking laws and regulations.
mark-to-market valuation computation,
etc. a. Monetary Penalties
(As amended by Circular No. 591 dated 27 December 2007) Per Calendar Month Daily Penalty
1 st business day P 10,000
2 nd business day 20,000
§ 4603Q.19 Non-deliverable forward 3rd business day of
contracts with non-residents. Only banks violation, and onwards,
with expanded derivatives license may enter or if the excess FX
into NDF contracts to sell FX to non- position is 30% or more
of the allowable limits in
residents. any business day,
regardless of whether a
§ 4603Q.20 Compliance with Anti- quasi-bank is in the first,
Money Laundering rules. All transactions second, third or more
days of violation
under Subsecs. 4603Q.14 to 4603Q.21 shall 30,000
comply with existing regulations on anti- b. In addition, the following non-
money laundering under Sec. 4691Q. monetary sanctions shall be imposed on
(As amended by Circular No. 591 dated 27 December 2007) the QB committing violations considered
as:
§ 4603Q.21 Reporting requirements (1) chronic, i.e., when the violation
QBs duly authorized to engage in continues beyond three (3) business days
derivatives transactions shall continue to within a calendar month, but the excess
be covered by the BSP’s existing reporting position is less than thirty percent (30%) of
requirements on financial derivatives. the allowable limit; and
Cancellations, roll-overs or non-delivery of (2) abusive, i.e., when the violation
deliverable FX forward contracts and continues beyond three (3) business days
under the forward leg of swap contracts within a calendar month and excess position
shall be reported electronically in excel is thirty percent (30%) or more of the
format to the BSP not later than five (5) allowable limit.
business days after reference month as "Chronic" Suspension of the QB’s cash
indicated in Appendix Q-3. violation dividend declaration and branching
privileges until the violation is
Swap contracts with counterparties corrected but in no case shall such
involving purchase of FX by QBs at the suspension be less than thirty (30)
initial leg shall likewise be reported calendar days.
electronically in excel format to the BSP " Abusive" Suspension of the QB's cash dividend
violation declaration and branching privileges
not later than five (5) business days after
until the violation is corrected but in
reference month as indicated in Appendix no case shall such suspension be less
Q-3. than sixty (60) calendar days.

Part VI - Page 7
§§ 4603Q.26 - 4626Q.1
07.12.31
c. The Monetary Board may impose of business of the originator and may
other non-monetary sanctions on a QB for include mortgage loans, consumption
violations determined by BSP as “chronic” loans, trade receivables, lease receivables,
or “abusive” on a case-to-case basis, credit card receivables and other similar
pursuant to Section 37 of R.A. No. 7653. financial assets.
d. QBs shall be duly advised by the b. Asset-backed securities shall refer
BSP of their violations and the to the certificates issued by a special
corresponding sanctions imposed for such purpose trust (SPT) representing undivided
violations. ownership interest in the asset pool.
e. A monetary penalty imposed on a c. Asset pool shall mean a group of
QB shall be paid to the BSP Cash identified, self-amortizing assets that is
Department, within three (3) business days conveyed to the SPT issuing the ABS and
from the receipt of advice of said penalty such other assets acquired as a
imposition. consequence of the securitization.
For purposes of imposing sanctions for d. Clean-up call shall refer to an
delayed, erroneous or unsubmitted reports, option granted to the seller to purchase the
reports required under Subsec. 4603Q.21 remaining assets in the asset pool.
are classified as Category B reports and e. Credit enhancement shall refer to
subject to corresponding penalties. any legally enforceable scheme that is
Counterparties that habitually cancel intended to enhance the marketability of
deliverable forwards without proper the ABS and increase the probability that
justification may be subject of a BSP investors receive payment of amounts due
watchlist. them.
(As amended by Circular No. 591 dated 27 December 2007) f. Guarantor shall refer to an entity
that guarantees the repayment of principal
Sec. 4604Q Underwriting by Investment and interests on loans or receivables
Houses. Underwriting commitments and included in the asset pool in the event of
fees of IHs shall be subject to the rules default by the borrower.
issued by the SEC to implement the g. Investible funds shall refer to the
provisions of P.D. No. 129, as amended proceeds of collection of loans or
(Appendix Q-18). receivables included in the asset pool
which are not yet due for distribution to
Secs. 4605Q - 4625Q (Reserved) investors.
h. Issuer shall refer to the SPT that
Sec. 4626Q Asset-Backed Securities. The issues the ABS.
following regulations shall govern the i. Originator shall refer to a QB and/
origination, issuance, sale, servicing and or its subsidiary or affiliate engaged in
administration of asset-backed securities allied activities that grants or purchases
(ABS) by any QB including its subsidiaries loans or receivables and assembles them
and affiliates engaged in allied activities, into a pool for securitization.
which are domiciled in the Philippines. j. Residual certificates shall refer to
certificates issued representing claims on
§ 4626Q.1 Definition of terms the remaining value of the asset pool after
a. Assets shall mean loans or all ABS holders are paid.
receivables existing in the books of the k. Seller shall refer to the entity
originator prior to securitization. Such which conveys to the SPT the assets that
assets are generated in the ordinary course constitute the asset pool.

Part VI - Page 8
§ 4626Q.1
05.12.31
l. Servicer shall refer to the entity excluding asset management or

designated by the issuer primarily to administration.
collect and record payments received on m. Special purpose trust shall refer to
the assets, to remit such collections to the a trust administered by a trustee and
issuer and perform such other services as created solely for the purpose of issuing
may be specifically required by the issuer and administiring an ABS.
(Next page is Part VI - Page 9)

Part VI - Page 8a
§§ 4626Q.1 - 4626Q.5
05.12.31
n. Trustee shall refer to the entity The trust indenture shall include as
designated to administer the SPT. annexes the servicing agreement between
o. Underwriter shall refer to the the trustee and the servicer and the
entity engaged in the act or process of underwriting agreement between the
distributing and selling of the ABS either seller and the underwriter.
on guaranteed or best-efforts basis. b. Prospectus. As a minimum
requirement, it shall contain the following:
§ 4626Q.2 Authority. Any quasi- (1) Summary of the contents of the
bank including its subsidiaries and affiliates prospectus;
engaged in allied activities, may securitize (2) Description of each class of
its assets upon prior approval of the BSP. certificates, including such matters as
probable yields, payment dates and priority
§ 4626Q.3 Management oversight of payments;
The originator/seller shall have the (3) Description of the assets
securitization program approved by its comprising the asset pool as well as the
board of directors. The originator/seller representations and warranties set forth by
shall integrate such securitization program the originator and/or seller;
into its corporate strategic plan. The board (4) Assumptions underlying the cash
of directors shall ensure that the flow projections for each class of certificate;
securitization of assets is consistent with (5) Description of any credit
such program. enhancement;
(6) Identity of the servicer; and
§ 4626Q.4 Minimum documents (7) Disclosure statements as required
required. The application to securitize under Subsec. 4626Q.6.
must be accompanied by the following c. Specimen of application to
documents as a minimum requirement: purchase ABS. It shall include the terms
a. Trust indenture evidencing the and conditions of the purchase and the
conveyance of the assets from the seller disclosures required under Subsec.
to the issuer or SPT, the features of which 4626Q.6.
shall include the following: d. Specimen of certificate. It shall
(1) Title or nature of the contract in indicate the features of the ABS and the
noticeable print; disclosures required under Subsec.
(2) The parties involved, indicating 4626Q.6.
in noticeable print, their respective legal
capacities, responsibilities and functions; § 4626Q.5 Minimum features of
(3) Features and amount of ABS; asset-backed securities. The ABS shall be
(4) Purposes and objectives; pre-numbered and printed on security
(5) Description and amount of assets paper. The ABS shall be signed and
comprising the asset pool; authenticated by the trustee. They are
(6) Representation and warranties; transferable by endorsement of the
(7) Credit enhancements; certificate. The transfer shall be recorded
(8) Distribution of funds; in the books of the trustee, indicating the
(9) Authorized investment of names of the parties to the transaction, the
investible funds; date of the transfer and the number of the
(10)Rights of the investor; certificate transferred.
(11)Reports to investors; and The minimum denomination of any
(12)Termination and final settlement. ABS shall be P10,000.

Part VI - Page 9
§§ 4626Q.6 - 4626Q.8
05.12.31
§ 4626Q.6 Disclosures. The For accounting purposes, the transfer shall

following disclosures must be provided in only be considered a true sale if the
a conspicuous manner in any document following three (3) conditions have been
inviting investment, application to purchase satisfied:
ABS and in the certificate itself: (1) the transferred assets have been
a. The ABS do not represent deposit isolated and put beyond the reach of the
substitutes or liabilities of the originator, seller and its creditor;
servicer or trustee and that they are not (2) the SPT has the right to pledge or
insured with PDIC; exchange its interest in the assets; and
b. The investor has investment risks; (3) the seller does not effectively maintain
c. The trustee does not guarantee the control over the transferred assets by any
capital value of the ABS or the collectibility concurrent agreement.
of the asset pool; and e. All expenses incidental to
d. The rights of an investor. underwriting, conveyance of the asset pool
The investors shall be required to sign including expenses for credit enhancement
an acknowledgment indicating that they may be paid by the originator/seller:
have read and understood the disclosures. Provided, That no further expenses shall
be borne by the originator/seller after the
§ 4626Q.7 Conveyance of assets asset pool has been conveyed to the SPT.
a. The conveyance of the assets
comprising the asset pool shall be done § 4626Q.8 Representations and
within the context of a true sale and, for warranties
this purpose, the seller may not retain in a. Standard representations and
its books the ABS, except the residual warranties refer to an existing state of facts
certificate, if any. that the originator, seller or servicer can
b. The seller shall have no obligation to either control or verify with reasonable due
repurchase or substitute an asset or any part diligence at the time the assets are sold.
of the asset pool at any time, except in Any breach of representation or warranty
cases of a breach of representation or may give rise to legal recourse.
warranty, or under a revolving structure, b. The representations or warranties shall
to replace performing assets which have be clear and explicit and, in particular, shall
been paid out in part or in full. not relate to the future creditworthiness of
c. The seller shall be under no obligation the assets in the asset pool or the
to provide additional assets to the SPT to performance of the SPT or the securities
maintain a coverage ratio of collateral to issued.
outstanding ABS. A breach of this c. Any agreement to pay damages
requirement will be considered a credit as a result of breach of warranties and
enhancement and should be charged representations shall hold only where:
against capital. However, this will not (1) there is a well-documented
apply to an asset pool conveyed under a negotiation of the agreement in good faith;
revolving structure such as the (2) the burden of proof for a breach
securitization of credit card receivables. of representation or warranty rests with the
d. Securitized assets shall be considered other party;
the subject of a true sale between the seller (3) damages are limited to the loss
and the SPT. Sold assets shall be taken off incurred as a result of the breach; and
the books of the seller and shall be (4) there is a written notice of claim
transferred to the books of the SPT. specifying the basis for the claim.

Part VI - Page 10
§§ 4626Q.8 - 4626Q.13
05.12.31
The BSP shall be notified of any and/or fully guaranteed by the government
instance where a quasi-bank or its of the Republic of the Philippines or by the
subsidiaries/affiliates has agreed to pay BSP and such other high-grade readily
damages arising out of any breach of marketable debt securities as the BSP may
representation or warranty. approve.
f. The trustee shall designate a
§ 4626Q.9 Third party review. A replacement of the servicer if the latter fails
due diligence review by an independent to satisfactorily perform its duties and
entity mutually agreed upon by the seller responsibilities according to the terms and
and the issuer shall be done before the conditions of the servicing agreement.
assets are sold.
§ 4626Q.12 Servicer
§ 4626Q.10 Originator and seller a. The servicer shall perform its
a. The seller may itself be the originator, duties according to the terms and
and may likewise be designated as the conditions of the servicing agreement and
servicer. such other written instructions as the trustee
b. The seller or originator shall may issue on a case-by-case basis.
deliver to the trustee all original documents Collections made by the servicer shall be
or instruments with respect to each asset remitted promptly to the trustee or as may
sold. be agreed upon by the parties in the
servicing agreement, but in no case shall
§ 4626Q.11 Trustee and issuer the remittance period be longer than one
a. The trustee shall be the trust (1) month.
department of a bank licensed to do b. The servicer shall prepare
business in the Philippines. periodic reports as may be required by the
b. The trustee shall have the right to trustee.
manage or administer the asset pool. The c. The servicer shall report to the
trustee shall see to it that necessary measures trustee within thirty (30) days any borrower
are taken to protect the asset pool. which fails to pay its debt at maturity date
c. The trustee shall undertake a or any adverse development that may
performance review of the asset pool at affect the collectibility of any loan account
least quarterly and shall prepare a report or receivable comprising the asset pool.
to investors indicating, among others, d. The servicer shall have no authority
collections, fees and other expenses as to waive penalties and charges except with
well as defaults, which report shall be a written authority from the trustee.
made available to the investors at anytime
after thirty (30) days from end of the § 4626Q.13 Underwriter
reference quarter. a. A UB or IH shall have written
d. The trustee shall initiate all civil policies and procedures on underwriting
actions including foreclosure of of ABS.
mortgaged properties to effect collection b. The underwriter shall perform its
of receivables in the asset pool. The functions according to the terms and
servicer or any other party may be conditions of the underwriting agreement.
designated by the trustee to perform such c. An underwriter may deal in ABS,
function on a case-by-case basis. except those administered by its trust
e. The trustee may invest the department, the trust departments of its
investible funds only in obligations issued subsidiaries/affiliates, the trust department

Part VI - Page 11
§§ 4626Q.13 - 4626Q.16
05.12.31
of its parent bank or the trust department of subsidiary/affiliate, its parent bank or the
its parent bank’s subsidiaries/affiliates. parent bank’s subsidiary/affiliate, and
d. A UB/IH may act as underwriter, trustee or its subsidiary/affiliate.
on a firm basis, of ABS except those d. Overcollateralization provided by
administered by its trust department, the the originator/seller wherein the assets
trust departments of its subsidiaries/ conveyed to the SPT exceed the amount
affiliates, the trust department of its parent of securities to be issued.
bank or the trust department of its parent Losses arising from overcollateralization
bank’s subsidiaries/affiliates. shall be recognized by the originator/seller
e. The underwriter may not extend upfront. Such losses shall be treated as
credit for the purpose of purchasing the ABS capital charges.
which such UB/IH underwrites or that e. Spread account wherein the
which is underwritten by its subsidiaries/ income from the underlying pool of
affiliates, its parent bank or its parent bank’s receivables is made available to cover any
subsidiaries/affiliates. shortfall in the repayment of ABS. The
spread account shall be handled by the
§ 4626Q.14 Guarantor trustee which shall account for it separately.
a. Only an entity the regular business If not needed, this “spread” generally
of which includes the issuance of guarantees reverts to the holder of the residual
or similar undertaking may act as guarantor. certificate.
b. The guarantor must have the f. Subordinated securities that are
financial capacity to perform its lower ranking, or junior to other obligations
responsibilities in accordance with the and are paid after claims to holders of senior
terms and conditions of the guarantee securities are satisfied.
agreement. It shall submit to the trustee at g. Other credit enhancements as
least once in every six (6) months such may be approved by the Monetary Board.
financial reports as the trustee may require. To be consistent with the concept of
c. The originator or seller may not a true sale, subordinated securities shall be
issue a counter-guarantee in favor of the sold to third party investors other than the
guarantor. originator’s/seller’s parent company or its
subsidiary/affiliate and the trustee or its
§ 4626Q.15 Credit enhancement subsidiary/affiliate or, if held by the seller,
Credit enhancement may be provided in capital charges should be booked upfront.
any of the following manner: Otherwise, the subordinated securities
a. Standby letter of credit issued by shall be treated as deposit substitute subject
an UB/KB other than the originator’s/seller’s to legal reserves.
subsidiary/affiliate, parent bank or the
parent bank’s subsidiary/affiliate, and § 4626Q.16 Clean-up call. A clean-
trustee or its subsidiary/affiliate. up call may be exercised by the seller
b. Surety bond issued by any once the outstanding principal balance of
insurance company other than the the receivable component of the asset pool
originator’s/seller’s subsidiary or affiliate, falls to ten percent (10%) or less of the
the subsidiary or affiliate of the originator’s/ original principal balance of the asset pool.
seller’s parent bank and the trustee or its Where the asset pool includes foreclosed
subsidiary/affiliate. and other assets, such assets shall be
c. Guarantee issued by any entity included in the clean-up call and the
other than the originator/seller or its consideration thereof shall be at current

Part VI - Page 12
§§ 4626Q.16 - 4651Q.1
06.12.31
market value. Such a clean-up call shall § 4626Q.19 Miscellaneous provision

not be considered recourse or in violation Without prior approval of the BSP, any entity
of Subsec. 4626Q.7 on conveyance of supervised by the BSP authorized to engage
assets. in trust and fiduciary business may act as
trustee or servicer in a securitization scheme
§ 4626Q.17 Prohibited activities originated by an entity not supervised by the
a. The seller may not, under any BSP: Provided, That the assets which are the
circumstance, designate its trust subject of such securitization are existing in
department, the trust department of its the books of the entity prior to securitization:
subsidiaries/affiliates, the trust department Provided, further, That such entity acting as
of its parent bank or the trust department trustee or servicer is not a subsidiary/
of its parent bank’s subsidiaries/affiliates affiliate of the originator/seller, its parent
as trustee. bank or the parent bank’s subsidiaries/
b. Any director, officer or employee affiliates or vice versa: Provided, finally,
of the originator, seller or servicer may not That such entity acting as trustee may not
serve as a member of the board of directors designate its subsidiaries/affiliates, its parent
or trust committee of the trustee or vice or the parent’s subsidiaries/affiliates as
versa for the duration of the securitization. servicer or vice versa.
c. The trust indenture shall not
contain any stipulation whereby the seller, § 4626Q.20 Report to Bangko Sentral
its subsidiaries/affiliates, its parent bank or The trustee shall submit a report of every
the parent bank’s subsidiaries/affiliates securitization scheme in formats to be
shall commit to extend any credit facility prescribed by the BSP. The report shall be
to the issuer and/or trustee. submitted to the appropriate department of
d. The ABS shall not be eligible as the SES, within fifteen (15) business days
collateral for a loan extended by a QB after the end of every reference quarter.
which originated/sold the underlying Such report shall be considered a Category
assets of such ABS. A report for purposes of implementing fines
e. The trust department of a bank that in the submission of required reports
has discretion in the management of any pursuant to existing regulations.
trust or investment management account
may not purchase for said trust/investment Secs. 4627Q - 4650Q (Reserved)
management account ABS administered
by the trust department of the same bank, B. SUNDRY PROVISIONS
the trust department of such trustee’s
subsidiaries/affiliates, the trust department Sec. 4651Q Quasi-Bank Premises and
of such trustee’s parent bank and the trust Other Fixed Assets. The following rules
department of the parent bank’s shall govern the premises and other fixed
subsidiaries/affiliates. assets of QBs.
The trustee may not designate its
subsidiary/affiliate, its parent or the § 4651Q.1 Appreciation or increase
parent’s subsidiaries/affiliates as servicer in book value. QB premises, furniture,
or vice versa. fixtures and equipment shall be accounted
for using the cost model under PAS 16
§ 4626Q.18 Amendment. Any “Property, Plant and Equipment.”
amendment to the trust indenture shall Outstanding appraisal increment as of
require the prior approval of the BSP. 13 October 2005 arising from mergers and

Part VI - Page 13
§§ 4651Q.1 - 4652Q
06.12.31
consolidation and other cases approved by renovation of public and private buildings for
the Monetary Board, shall be deemed part public use, educational institutions, airports,
of the cost of the assets. However, appraisal sports and recreation centers and complexes,
increment previously allowed to be shopping centers or establishments, public
booked shall be reversed. parking places, workplaces, public utilities,
Accordingly, the booking of shall be granted or issued unless the owner
appreciation or increase in the book value or operator thereof shall install and
of QB premises and other fixed assets in incorporate in such building, establishment
cases where the market value of the or public utility, such architectural facilities
property has greatly increased since the or structural features as shall reasonably
original purchase is no longer allowed. enhance the mobility of disabled persons
(As amended by Circular No. 520 dated 20 March 2006) such as sidewalks, ramps, railings and the
like. If feasible, all such existing buildings,
§ 4651Q.2 (Reserved) institutions, establishments, or public
utilities may be renovated or altered to
§ 4651Q.3 Reclassification of real and enable the disabled persons to have access
other properties owned or acquired as to them.
quasi-bank premises. ROPA reclassified
either as Real Property-Land or Real Sec. 4652Q Annual Fees on Quasi-Banks
Property- Building shall be booked at their QBs shall contribute to the BSP an annual
ROPA balance, net of any valuation fee to help defray the cost of maintaining
reserve: Provided, That only such acquired the appropriate department of the SES.
asset or a portion thereof that will be For purposes of computing the annual
immediately used or earmarked for future fees chargeable against QBs, the term Total
use may be reclassified and booked as Real Assessable Assets shall be the amount
Property- Land/Building. referred to as the total assets under Section
QBs, prior to the reclassification of their 28 of R.A. No. 7653 (end-of-quarter total
ROPA accounts to Real Property- Land/ assets per balance sheet, after deducting
Building, shall first secure prior BSP approval cash on hand and amounts due from banks,
before effecting the reclassification and shall including the BSP and banks abroad) plus
submit, in case of future use, justification Trust Department accounts.
and plans for expansion/use. Average Assessable Assets shall be the
summation of end-of-quarter total
§§ 4651Q.4 - 4651Q.8 (Reserved) assessable assets divided by the number
of quarters in operation during the
§ 4651Q.9 Batas Pambansa Blg. 344 particular assessment period.
– An Act to Enhance the Mobility of The annual fees for QBs for the
Disabled Persons by Requiring Certain assessable years 2000, 2001 and 2002 shall
Buildings, Institutions, Establishments and be one twenty-eighth (1/28) of one percent
Public Utilities to Install Facilities and (1%) multiplied by their AAAs for 2000,
Other Devices. In order to promote the 2001 and 2002 respectively.
realization of the rights of disabled persons Annual fees to be collected from QBs
to participate fully in the social life and the shall be debited from their respective
development of the societies in which they deposits with the BSP by the BSP
live and the enjoyment of the opportunities Comptrollership Department upon receipt
available to other citizens, no license or of the notice of the assessment from the
permit for the construction, repair or appropriate department of the SES.

Part VI - Page 14
§§ 4652Q - 4653Q.1
07.12.31
Where the deposit account is one-time monetary penalty on a per

insufficient to cover the assessment fee, the transaction basis.
BSP shall bill the quasi-bank for the full (3) Continuing penalty refers to the
amount of the annual fee or for the balance monetary penalty imposed on continuing
thereof not covered by its deposit account, offenses/violations on a per calendar day
as the case may be. basis reckoned from the time the offense/
Within thirty (30) calendar days from violation occurred or was committed until
receipt of the bill, the quasi-bank shall the same was corrected/rectified.
make the corresponding remittance to the (4) Transactional penalty refers to a
BSP. Failure to pay the bill within the one (1)-time penalty imposed on a
prescribed period shall subject the quasi- transactional offense/violation.
bank to administrative sanctions. b. Basis for the computation of the
period or duration of penalty. The
Sec. 4653Q Payment of Fines and Other computation of the period or duration of all
Charges. The following regulations shall penalties shall be based on calendar days.
govern the payment of fines and other For this purpose the terms “per banking
charges by quasi-banks. day”, “per business day”, “per day” and/
or “a day” as used in the Manual, and other
§ 4653Q.1 Guidelines on the BSP rules and regulations shall mean “per
imposition of monetary penalties. The calendar day” and/or “calendar day” as the
following are the guidelines on the case may be.
imposition of monetary penalties on QBs, c. Additional charge for late payment
their directors and/or officers. of monetary penalty. Late payment of
a. Definition of terms. For purposes monetary penalty shall be subject to an
of the imposition of monetary penalties, additional charge of six percent (6%) per
the following definitions are adopted: annum to be computed from the time said
(1) Continuing offenses/ violations are penalty becomes due and payable up to
acts, omissions or transactions entered into, the time of actual payment. The penalty
in violation of laws, BSP rules and shall become due and payable fifteen (15)
regulations, Monetary Board directives, calendar days from receipt of the Statement
and orders of the Governor which persist of Account from the BSP. For QBs which
from the time the particular acts were maintain DDA with the BSP, penalties
committed or omitted or the transactions which remain unpaid after the lapse of the
were entered into until the same were fifteen-day period shall be automatically
corrected/rectified by subsequent acts or debited against their corresponding DDA on
transactions. They shall be penalized on a the following business day without additional
per calendar day basis from the time the charge. If the balance of the concerned QB’s
acts were committed/omitted or the DDA is insufficient to cover the amount of
transactions were effected up to the time the penalty, said penalty shall already be
they were corrected/rectified. subject to an additional charge of six percent
(2) Transactional offenses/violations (6%) per annum to be reckoned from the
are acts, omissions or transactions entered business day immediately following the end
into in violation of laws, BSP rules and of said fifteen (15)-day period up to the day
regulations, Monetary Board directives, of actual payment.
and orders of the Governor which cannot d. Appeal or request for
be corrected/rectified by subsequent acts reconsideration. A one (1)-time appeal or
or transactions. They shall be meted with request for reconsideration on the

Part VI - Page 15
§§ 4653Q.1 - 4654Q
07.12.31
monetary penalty approved by the fines shall be paid not later than the
Governor/Monetary Board to be imposed following business day. For the purpose
on the QB, its directors and/or officers shall of this Section, business day means a day
be allowed: Provided, That the same is filed on which the BSP head office and the head
with the appropriate department of the SES office of the quasi-bank are open for
within fifteen (15) calendar days from business.
receipt of the Statement of Account/billing (As amended by Circular No. 585 dated 15 October 2007)
letter. The appropriate department of the
SES shall evaluate the appeal or request § 4653Q.3 Check/demand draft
for reconsideration of the QB/individual and payments to the Bangko Sentral. Quasi-
make recommendations thereon within banks shall make all check and demand
thirty (30) calendar days from receipt draft payments for legal reserve,
thereof. The appeal or request for supervisory fees, fines or penalties and
reconsideration on the monetary penalty collections or repayments of notes used as
approved by the Governor/Monetary Board collateral for loans, payable either to the
shall be elevated to the Monetary Board Cash Department, Bangko Sentral ng
for resolution/decision. The running of the Pilipinas, Mabini St., Malate, Manila or
penalty period in case of continuing directly to the BSP Regional Cash Units.
penalty and/or the period for computing Such payments shall be accompanied by
additional charge shall be interrupted from the appropriate form as shown in Appendix
the time the appeal or request for Q-22. Payments not accompanied by the
reconsideration was received by the required payment forms shall be presumed
appropriate department of the SES up to to be additions to reserves and shall be
the time that the notice of the Monetary credited to the demand deposit account of
Board decision was received by the QB/ the paying quasi-bank.
individual concerned. Check payments shall be value-dated
(As amended by Circular No. 585 dated 15 October 2007) when the check is cleared.
(As amended by Circular No. 585 dated 15 October 2007)
§ 4653Q.2 Payment of fines. Quasi-
banks shall, within fifteen (15) calendar Sec. 4654Q Examination by the Bangko
days from receipt of the statement of Sentral. The BSP shall have supervision
account from the BSP, pay the fines for over, and conduct periodic or special
reserve deficiency, reportorial delay/ examinations of quasi-banks, including
deficiency, refusal to permit examination, their subsidiaries and affiliates in allied
or failure to comply with, or violation of, any activities.
law or any order, instruction or regulation The head and examiners of the
issued by the Monetary Board, or any order, appropriate department of the SES ar e
instruction or ruling by the Governor. a uthorized to administer oaths to any
For quasi-bank s which maintain director, officer, or employee of quasi-
demand deposit accounts with the BSP, banks, inclu ding their subsidiaries and
fines which are unpaid after the lapse of affiliates engaged in allied activities, and
the fifteen (15)-day period shall be to compel the presentation of all books,
automatically debited against the documents, papers or records necessary in
corresponding demand deposit account of their judgment to ascertain the facts relative
the quasi-bank concerned: Provided, That to the true condition of the institution as well
if the balance of the entity's account is as the books and records of persons and
insufficient to cover the fines due, such entities relative to or in connection with

Part VI - Page 16
§§ 4654Q - 4656Q
07.12.31
the operations, activities or transactions of the activities as the Monetary Board may
institution under examination, subject to the declare as appropriate from time to time.
provision of existing laws protecting or d. Non-financial allied undertakings
safeguarding the secrecy or confidentiality may include, but not limited to,
of investments of private persons, natural or warehousing companies, storage
juridical, in debt instruments issued by the companies, safe deposit box companies,
Government. companies engaged in the management of
mutual funds but not in the mutual funds
§ 4654Q.1 Definitions themselves, management corporations
a. Subsidiary is a corporation more engaged or to be engaged in activities
than fifty percent (50%) of the outstanding similar to the management of mutual funds,
voting stock of which is directly or insurance agencies, companies engaged in
indirectly owned, controlled, or held with home building and home development and
power to vote by a quasi-bank. companies providing drying and/or
b. Affiliate is an entity linked directly including facilities for agricultural crops
or indirectly to a quasi-bank by means of: such as rice and corn and such other similar
(1) Ownership, control or power to activities as the Monetary Board may
vote, of ten percent (10%) or more of the declare as appropriate from time to time.
outstanding voting stock of the entity, or
vice-versa;
Sec. 4655Q Applicability of Rules
(2) Interlocking directorship or
Governing Universal Banks to Quasi-
officership;
Banks. In case of conflict between rules
(3) Common stockholders owning ten
applicable to banks with universal
percent (10%) or more of the outstanding
banking authority and those applicable
voting stock of each of the financial
to quasi-bank s in activities where they
intermediary and the entity;
perform the same functions, the rules
(4) Management contract or any
governing banks with universal banking
arrangement granting power to the financial
authority shall prevail.
intermediary to direct or cause the
direction of management and policies of
the entity, or vice-versa; or Sec. 4656Q Basic Laws Governing
(5) Permanent proxy or voting trust in Investment Houses and Financing
favor of the financial intermediary Companies. The following are the basic
constituting ten percent (10%) or more of laws governing IHs and financing
the outstanding voting stock of the entity, companies:
or vice-versa. a. Investment houses. P.D. No. 129, as
c. Financial allied undertakings amended, known as The Investment Houses
refer to enterprises or firms with Law, governs the establishment, operation
homogeneous or similar activities/ and regulation of IHs. To effectively carry out
business/functions with the financial the provisions of this Decree, the SEC ,
intermediary and may include, but not pursuant to the powers vested in it by said
limited to, leasing companies, banks, Decree, promulgated basic rules and
IHs, financing companies, credit card regulations (Appendix Q-18) to implement
operations, financial institutions the provisions of the Decree.
addressed/catering to small and medium b. Financing companies. R.A. No.
scale industries, and such other similar 8556, known as The Financing Company

Part VI - Page 16a
§§ 4656Q - 4657Q
05.12.31
Act of 1998, regulates the organization and Sec. 4657Q Recognition and Derecognition
operation of financing companies. To of Domestic Credit Rating Agencies for
effectively carry out the provisions of this Quasi-Bank Supervisory Purposes. The
Act, the SEC, pursuant to the powers vested following regulations shall govern the
in it under said Act, promulgated basic rules recognition and derecognition of domestic
and regulations to implement the provisions credit rating agencies (CRAs) for quasi-bank
of the Act (Appendix Q-19). supervisory purposes.
(Next Page is Part VI-Page 17)

Part VI - Page 16b
§§ 4657Q.1 - 4657Q.2
05.12.31
§ 4657Q.1 Statement of policy. The in the rating business, majority of whom

introduction in the financial market of new must have at least five (5) years experience
and innovative products create increasing in credit rating business;
demand for and reliance on CRAs by the (d) The directors of the CRA must possess
industry players and regulators as well. As a high degree of competency equipped with
a matter of policy, the BSP wants to ensure the appropriate education and relevant
that the reliance on credit ratings is not experience in the rating business;
misplaced. The following rules and (e) The directors, officers, members of
regulations that shall govern the the rating committee and professional
recognition/derecognition of domestic analytical staff of the CRA have not at any
CRAs for quasi-bank supervisory purposes. time been convicted of any offense
involving moral turpitude or violation of the
§ 4657Q.2 Minimum eligibility Securities Regulation Code; and
criteria. Only ratings issued by CRAs (f) The directors, officers, members of
recognized by the BSP shall be considered the rating committee and professional
for BSP quasi-bank supervisory purposes. analytical staff of the CRA are not currently
The BSP, through the Monetary Board, may involved as a defendant in any litigation
officially recognize a credit rating agency connected with violations of the Securities
upon satisfaction of the following Regulation Code nor included in the BSP
requirements: watchlist.
a. Organizational structure (2) Financial resources
(1) A domestic CRA must be a duly (a) The CRA must have the financial
registered company under the Securities capability to invest in the necessary
and Exchange Commission (SEC); and technological infrastructure to ensure
(2) A domestic CRA must have at least speedy acquisition and processing of data/
five (5) years track record in the issuance information and timely release of reliable
of reliable and credible ratings. In the case and credible ratings; and
of new entrants, a probationary status may (b) The CRA must have financial
be granted: Provided, That the CRA independence that will allow it to operate
employs professional analytical staff with free from economic and political pressures.
experience in the credit rating business. c. Objectivity
b. Resources (1) The CRA must use a rigorous and
(1) Human Resources systematic assessment methodology that
(a) The size and quality of the CRA’s has been established for at least one (1) year;
professional analytical staff must have the however, a three (3)-year period is
capability to thoroughly and competently preferable;
evaluate the assessed/rated entity’s (2) The assessment methodology of the
creditworthiness; CRA must be based both on qualitative and
(b) The size of the CRA’s professional quantitative approaches; and
analytical staff must be sufficient to allow (3) The CRA must use an assessment
substantial on-going contact with senior methodology that is subject to on-going
management and operational levels of review and is responsive to changes in the
assessed/rated entities as a routine operations of assessed/rated entities.
component of the surveillance process; d. Independence
(c) The CRA shall establish a Rating (1) The CRA must be free from control
Committee composed of adequately of and undue influence by the entities it
qualified and knowledgeable individuals assesses/rates;

Part VI - Page 17
§ 4657Q.2
05.12.31
(2) The assessment process must be g. Credibility

free from ownership pressures to allow (1) The CRA must have a general
management to exercise independent reputation of high standards of integrity
professional judgement; and fairness in dealing with its clients
(3) Persons directly involved in the and conducts its business in an ethical
assessment process of the CRA are free from manner;
conflicts of interest with assessed/rated (2) The CRA is generally accepted by
entities, and predominant users in the market (i.e.,
(4) The CRA does not assess/rate an issuers, investors, bankers, financial
associate entity. institutions, securities traders); and
e. Transparency (3) The CRA must carry out its rating
(1) A general statement of the activities with due diligence to ensure
assessment methodology used by the CRA ratings are fair and appropriate.
should be publicly available; For purposes of this Section, a
(2) The CRA shall disseminate to the subsidiary refers to a corporation, more
public thru a well-circularized publication, than fifty percent (50%) of the voting stock
all assigned ratings disclosing whether the of which is owned or controlled directly
rating issued is solicited or unsolicited; or indirectly by the CRA while an affiliate
(3) The rationale of ratings issued and refers to a corporation, not more than fifty
risk factors considered in the assessment percent (50%) but not less than ten
should be made available to the public; percent (10%) of the voting stock of which
(4) The ratings issued by the CRA should is owned or controlled directly or
be available both to domestic and foreign indirectly by the CRA.
institutions with legitimate interest; and Control exists when the parent owns
(5) Publication of changes in ratings directly or indirectly through subsidiaries
together with the basis for the change more than one-half of the voting power
should be done on a timely basis. of an enterprise unless, in exceptional
f. Disclosure requirements circumstance, it can be clearly
(1) Qualitative disclosures demonstrated that such ownership does
(a) Definition of ratings along with not constitute control. Control may also
corresponding symbols; exist even when ownership is one-half
(b) Definition of what constitutes a or less of the voting power of an
default, time horizon within which a default enterprise when there is:
is considered and measure of loss given a (a) power over more than one-half
default; (½) of the voting rights by virtue of an
(c) Material changes within the CRA agreement with other stockholders;
(i.e., changes in management or (b) power to govern the financial and
organizational structure, rating personnel, operating policies of the enterprise under
modifications of rating practices, financial a statute or an agreement;
deterioration) that may affect its ability to (c) power to appoint or remove the
provide reliable and credible ratings. majority of the members of the board of
(2) Quantitative disclosures directors or equivalent governing body;
(a) Actual default rates experienced in (d) power to cast the majority votes
each rating category; and at meetings of the board of directors or
(b) Rating transitions of assessed/ rated equivalent governing body; or
entities over time (i.e., likelihood of an AAA (e) any other arrangement similar to
credit rating transiting to AA etc. over time). any of the above.

Part VI - Page 18
§§ 4657Q.2 - 4657Q.5
05.12.31
h. Internal compliance procedures analytical staff of the CRA; including their

(1) The CRA must have the necessary qualifications, experience related to rating
internal procedures to prevent misuse or activities, directorship and shareholdings in
unauthorized disclosure of confidential/ the CRA and in other companies, if any;
non-public information; and (6) List of subsidiaries and affiliates
(2) The CRA must have rules and including their line of business and the
regulations that prevent insider trading and nature of interest of the CRA in these
other conflict of interest situations. companies;
(7) Details of the denial of a previous
§ 4657Q.3 Pre-qualification request for recognition, if any (i.e.,
requirements. The application of a application date, date of denial, reason for
domestic CRA for BSP recognition shall be denial, etc.); and
submitted to the appropriate department (8) Details of all settled and pending
of the SES together with the following litigations connected with the securities
information/documents: market against the CRA, its directors,
a. An undertaking officers, stockholders, members of the
(1) That the CRA shall comply with rating committee and professional
regulations, directives and instructions analytical staff, if any.
which the BSP or other regulatory agency/
body may issue from time to time; and § 4657Q.4 Inclusion in BSP list. The
(2) That the CRA shall notify the BSP BSP will regularly circularize to all banks
in writing of any material changes within and NBFIs an updated list of recognized
the organization (i.e., changes in CRAs. The BSP, however, shall not be liable
management or organizational structure, for any damage or loss that may arise from
rating personnel, modifications of its rating its recognition of CRAs to be engaged by
practices, financial deterioration) that may users.
affect its ability to provide reliable and
credible ratings. § 4657Q.5 Derecognition of credit
b. Other documents/information: rating agencies
(1) Brief history of the CRA, major a. Grounds for derecognition. CRAs
rating activities handled including may be derecognized from the list of BSP
information on the name of the client, type recognized CRAs under the following
of instruments rated, size and year of issue; circumstances:
(2) Audited financial statements for the (1) Failure to maintain compliance
past three (3) years and such other with the requirements under Subsec.
information as the Monetary Board may 4657Q.2 or any willful misrepresentation
consider necessary for selection purposes; in the information/documents required
(3) For new entrants, employment of under Subsec. 4657Q.3;
professional analytical staff with experience (2) Involvement in illegal activities
in the credit rating business; such as ratings blackmail; creation of a false
(4) List of major stockholders/partners market or insider trading; divulging any
[owning at least ten percent (10%) of the confidential information about a client
voting stocks of the CRA directly or along without prior consent to a third party
with relatives within the 1st degree of without legitimate interest; indulging in
consanguinity or affinity]; unfair competition (i.e., luring clients of
(5) List of directors, officers, members another rating agency by assuring higher
of the rating committee and professional ratings, etc.); and

Part VI - Page 19
§§ 4657Q.5 - 4660Q
06.12.31
(3) Any violation of applicable laws, determining appropriate risk weights in

rules and regulations. ascertaining compliance with existing rules
b. Procedure for derecognition. A CRA and regulations on risk-based capital
shall only be derecognized upon prior requirements.
notice and after being given the opportunity
to defend itself. Sec. 4660Q Disclosure of Remittance
Charges and Other Relevant Information
§ 4657Q.6 Recognition of PhilRatings It is the policy of the BSP to promote the
as domestic credit rating agency for bank efficient delivery of competitively-priced
supervisory purposes. Credit ratings remittance services by banks and other
assigned by Philippine Rating Services remittance service providers by promoting
Corporation (PhilRatings) may be used, competition and the use of innovative
among others, for determining appropriate payment systems, strengthening the
risk weights in ascertaining compliance financial infrastructure, enhancing access
with existing rules and regulations on risk- to formal remittance channels in the source
based capital requirements. and destination countries, deepening the
financial literacy of consumers, and
Secs. 4658Q (Reserved) improving transparency in remittance
transactions, consistent with sound
Sec. 4659Q Internationally Accepted practices.
Credit Rating Agencies. Internationally Towards this end, NBFIs under BSP
accepted CRAs are recognized for bank supervision, including FXDs/MCs and RAs,
supervisory purposes to undertake local and providing overseas remittance services
national ratings: Provided, That said CRAs shall disclose to the remittance sender and
shall have at least a representative office to the recipient/beneficiary, the following
in the Philippines. Accordingly, credit minimum items of information regarding
ratings assigned by said CRAs may be used, remittance transactions, as defined herein:
among others, as basis for determining a. Transfer/remittance fee – charge
appropriate risk weights in ascertaining for processing/sending the remittance from
compliance with existing rules and the country of origin to the country of
regulations on risk-based capital destination and/or charge for receiving the
requirements. remittance at the country of destination;
b. Exchange rate – rate of conversion
§§ 4659Q.1 – 4659Q.5 (Reserved) from foreign currency to local currency,
e.g., peso-dollar rate;
§ 4659Q.6 Recognition of FITCH c. Exchange rate differential/spread
SINGAPORE PTE LTD as international –foreign exchange mark-up or the
credit rating agency for bank supervisory difference between the prevailing BSP
purposes. The national or domestic credit reference/guiding rate and the exchange/
ratings of FITCH SINGAPORE PTE LTD., a conversion rate;
BSP-recognized international CRA with d. Other currency conversion charges-
representative office in the Philippines, is commissions or service fees, if any;
hereby recognized by the BSP for bank e. Other related charges – e.g.,
supervisory purposes. Accordingly, surcharges, postage, text message or
national or domestic credit ratings assigned telegram;
by FITCH SINGAPORE PTE LTD. may be f. Amount/currency paid out in the
used, among others, as basis for recipient country - exact amount of money

Part VI - Page 20
§§ 4660Q - 4691Q.9
08.12.31
the recipient should receive in local Special examination may be conducted

currency or foreign currency; and earlier, or at a shorter interval, when
g. Delivery time to recipients/ authorized by the Monetary Board by an
beneficiaries - delivery period of affirmative vote of five (5) members.
remittance to beneficiary stated in number In the full exercise of the supervisory
of days, hours or minutes. powers of the BSP, examination by the BSP
Non-bank remittance service providers of institutions shall be complemented by
shall likewise post said information in their overseeing thereof. In this regard, the term
respective websites and display them overseeing shall refer to a limited
prominently in conspicuous places within investigation of an institution, or any
their premises and/or remittance/service investigation/s that is limited in scope,
centers. conducted to inquire into a particular
(Circular No. 534 dated 26 June 2006) area/aspect of an institution’s operations,
for the purpose of overseeing that laws
Sec. 4661Q Examination by the BSP. The and regulations are complied with,
term “examination” shall, henceforth, refer inquiring into the solvency and liquidity
to an investigation of an institution under of the institution, enforcing prompt
the supervisory authority of the BSP to corrective action, or such other matters
determine compliance with laws and requiring immediate investigation:
regulations. It shall include determination Provided, That (i) specific authorizations
that the institution is conducting its business be issued by the Deputy Governor, SES,
on a safe and sound basis. Examination and (ii) periodic summary reports on
requires full and comprehensive looking overseeings made be submitted to the
into the operations and books of Monetary Board.
institutions, and shall include, but need not
be limited to, the following: Secs. 4662Q - 4690Q (Reserved)
a. Determination of the QB’s
solvency and liquidity position; Sec. 4691Q Anti-Money Laundering
b. Evaluation of asset quality as well Regulations. Banks, OBUs, QBs, trust
as determination of sufficiency of valuation entities, NSSLAs, pawnshops, and all other
reserves on loans and other risk assets; institutions, including their subsidiaries and
c. Review of all aspects of QB affiliates supervised and/or regulated by
operations; the BSP, otherwise known as “covered
d. Assessment of risk management institutions” shall comply with the provisions
system, including the evaluation of the of R.A. No. 9160, as amended, otherwise
effectiveness of the QB management’s known as the “Anti-Money Laundering Act
oversight functions, policies, procedures, of 2001” and its Revised Implementing
internal control and audit; Rules and Regulations (IRRs) in Appendix
e. Appraisal of overall management Q-25 and those in Appendix Q-23.
of the QB; (As amended by Circular Nos. 612 dated 13 June 2008,
f. Review of compliance with 564 dated 03 April 2007)
applicable laws, rules and regulations; and
g. Any other activities relevant to the §§ 4691Q.1 - 4691Q.8 (Reserved)
above.
Regular or periodic examination shall be § 4691Q.9 Sanctions and penalties
done once a year, with an interval of twelve a. Whenever a covered institution
(12) months from the last date thereof. violates the provisions of Section 9 of

Part VI - Page 21
§§ 4691Q.9 - 4695Q
08.12.31
R.A. No. 9160, as amended, or of this (4) Private entities or institutions

Section, the officer(s) or other persons registered with or supervised or regulated
responsible for such violation shall be either by the BSP or SEC or IC.
punished by a fine of not less than P50,000 Valid IDs include the following:
nor more than P200,000 or by (a) Passport
imprisonment of not less than two (2) (b) Driver’s license
years nor more than ten (10) years, or (c) PRC ID
both, at the discretion of the court pursuant (d) NBI clearance
to Section 36 of R.A. No. 7653. (e) Police clearance
b. Without prejudice to the criminal (f) Postal ID
sanctions prescribed above against the (g) Voter’s ID
culpable persons, the Monetary Board (h) Barangay certification
may, at its discretion, impose upon any (i) GSIS e-Card
covered institution, its directors and/or (j) SSS card
officers for any violation of Section 9 of (k) Senior Citizen card
R.A. No. 9160, as amended, the (l) OWWA ID
administrative sanctions provided under (m) OFW ID
Section 37 of R.A. No. 7653. (n) Seaman’s Book
(o) Alien Certification of Registration/
Secs. 4692Q - 4694Q (Reserved) Immigrant Certificate of Registration
(p) Government office and GOCC ID,
Sec. 4695Q Valid Identification (ID) Cards (e.g., AFP, HDMF IDs)
for Financial Transactions. The following (q) Certification from the NCWDP
guidelines govern the acceptance of (r) DSWD certification
valid ID cards for all types of financial (s) IBP ID; and
transactions by QBs, including financial (t) Company IDs issued by private
transactions involving overseas Filipino entities or institutions registered with or
workers (OFWs), in order to promote supervised or regulated either by the BSP,
access of Filipinos to services offered by SEC or IC.
formal FIs, particularly those residing in b. Students who are beneficiaries of
the remote areas, as well as to encourage remittances/fund transfers and who are not
and facilitate remittances of OFWs yet of voting age, may be allowed to present
through the banking system: the original and submit a clear copy of one
a. Clients who engage in a financial (1) valid photo-bearing school ID duly signed
transaction with covered institutions for the by the principal or head of the school.
first time shall be required to present the c. QBs shall require their clients to
original and submit a clear copy of at least submit a clear copy of the one (1) valid ID
one (1) valid photo-bearing ID document on a one-time basis only, or at the
issued by an official authority. commencement of a business relationship.
For this purpose, the term official They shall require their clients to submit an
authority shall refer to any of the following: updated photo and other relevant information
(1) Government of the Republic of the whenever the need for it arises.
Philippines; The foregoing shall be in addition to
(2) Its political subdivisions and the customer identification requirements
instrumentalities; under Rule 9.1.c of the Revised IRRs of
(3) GOCCs; and R.A. No. 9160, as amended (Appendix Q-25).

Part VI - Page 22
§§ 4695Q - 4699Q
08.12.31
For purposes of this Section, financial Secs. 4696Q - 4698Q (Reserved)

transactions may include remittances,
among others, as falling under the definition Sec. 4699Q General Provision on Sanctions
of transaction. Under the Anti-Money Unless otherwise provided, any violation
Laundering Act of 2001, as amended, a of the provisions of this Part shall be
financial transaction is any act establishing subject to Sections 36 and 37 of
any right or obligation or giving rise to any R.A. No. 7653.
contractual or legal relationship between the The guidelines for the imposition of
parties thereto. It also includes any movement monetary penalty for violations/offenses
of funds by any means with a covered institution. with sanctions falling under Section 37 of
(Circular No. 564 dated 03 April 2007 as amended by Circular No. R.A. No. 7653 on QBs, their directors
608 dated 20 May 2008) and/or officers are shown in Appendix Q-39.

Part VI - Page 23
A PP. Q-1
05.12.31
GUIDELINES TO EVALUATE INVESTMENT HOUSES

(Appendix to Sec. 4105Q)
a. Capital - The requirement is a (c) Fund usage. Support of priority

minimum paid-in capital of P200.0 million investment areas of the Government and
for an investment house to be established other projects which may be determined
in Metro Manila and P100.0 million for all by the BSP shall be emphasized. Funds
others. Foreign equity, if any, shall be placed on maturities beyond one (1) year
registered with and approved by the Board shall be preferred.
of Investments and the BSP.
(d) Planned distribution of portfolio
b. Citizenship - Majority (51%) of the Activities indicating money-market
voting stock shall be owned by Filipinos. services and investment in subsidiaries and
affiliates, while necessary to sustain the
c. Directorship/Officership - Majority investment house, shall be subordinated
of the board members shall be Filipinos. to the preferred activities above-indicated.
Resident foreign directors and technicians Other activities as financial management,
shall register with the Bureau of counseling, distribution of equity and
Immigration and Deportation. Compliance debentures for "public" ownership, etc.,
with the prohibition on interlocking shall be considered.
directorship/officership between banks and (2) The one (1)-year investment
investment houses and between quasi- program of the investment house shall be
banks shall be observed. related to the government development
plan by indicating the portion of the
d. Promotion of Public Interest and investment and savings targets in the plan
Economic Growth - which would be supported by the
(1) Submission of a one (1)-year investment house industry.
investment program indicating: (3) A one (1)-year projected income
(a) Underwriting and distribution statement showing major sources of
activities. These shall show in details the income and expense items.
various stages leading to the completion (4) Operational agreement with other
of an agreement. Target dates for each financial institutions.
stage in the underwriting process shall be (5) A statement justifying the
indicated which should serve as reference operation of the investment house as not
points in the event that an investment house in conflict with public interest and
is unable to bring the program and its economic growth, taking into account the
components to fruition. Target volume of existing number of investment houses,
underwriting would be set initially at indicating:
twenty-five percent (25%) of paid-in capital. (a) record of underwriting;
(b) Fund mobilization. Emphasis (b) evidence of medium and long-
shall be on maturities beyond one (1) term loans;
year. Domestic and foreign sources shall (c) evidence of obtaining funds with
be indicated and the latter shall be maturity beyond one (1) year; and
evaluated in terms of pertinent BSP (d) equity investments which were
regulations. subsequently distributed to the public.

Appendix Q-1 - Page 1
A PP. Q-1
05.12.31
e. Organization, Direction and (3) Absence of administrative or

Administration - The organizational/ criminal conviction; and
functional chart should match the organization (4) Affiliation with professional
framework with operational objectives. The organizations.
management of the company, board of
directors and the managerial staff, must be g. Branching - The rate at which
firmly designated before it can be granted a branch offices are to be established shall
license to operate as an investment house. depend upon the ability of the company
to conduct operations from headquarters/
f. Integrity, Experience and Expertise head offices as well as on correspondent
of Board and Management Staff (banking) arrangements.
(1) Formal training, academic or others; Other factors to be considered are the
(2) Experience along financial following:
management, securities dealing, fund (1) Reserve and liquidity position; and
management, project evaluation and (2) Profitability and capacity to absorb
feasibility studies; losses.

APP. Q-2
05.12.31
DETERMINATION OF AMOUNT OF ADDITIONAL CAPITAL

THE ENTITY MUST PUT UP
(PROJECTION BASE - LATEST AVAILABLE REPORT)
(in thousand pesos)
(Appendix to Subsec. 4151Q.2)
(Name of Entity)
A. 1. Estimated Amount of Risk Assets of Present

Office for the Next 12 Months
a. Actual Risk Assets P xxx

b. Add: xx% of (a) xxx
Risk Assets - (Base Period) P xxx
Risk Assets - (Previous Year) xxx
Increase P xxx
Rate of Increase = increase = xx%
actual risk assets
c. Total of (a) and (b) P xxx
2. Maximum Possible Level of Risk Assets Based

on the Base Period Figures:
a. Net worth Less 30% of Paid-in

Capital (Pxxx - xxx) P xxx
b. 100% of Borrowings (Bills Payable) xxx
c. 80% of Unutilized Acceptances or
Credit Line with Foreign Bank(s) xxx P xxx
B. Estimated Risk Assets for the First 12

Months of Operation:
1. Branch Approved but not yet Opened: P xxx
2. Branch Being Applied for: xxx
Add: Lower of A.1 or A.2 xxx
C. Total Estimated Risk Assets for 12 Months P xxx
D. 10% of C (Minimum Paid-in Capital Required) P xxx

APP. Q-2
05.12.31
E. Less:
Present Combined Capital Accounts P xxx
(Base Period Figures)
Add: xx% of above xxx xxx
Capital Accounts - (Base Period) P xxx

Capital Accounts - (Previous Year) xxx
Increase P xxx
*Rate of Increase = Increase = xx%

Capital Accounts of
Previous Year
F. Estimated Excess of Capital over Minimum Capital

Required or Additional Amount of Capital Applicant
Must Put Up, as the case may be P xxx
*The computation to arrive at the "rate of increase" in capital accounts shall only be considered if
there is sufficient indication or evidence that the NBQB will continue to follow the same amount of
increase in capital accounts for the succeeding year. If no evidence is found that the NBQB will
continue to increase its capital accounts for the same amount for the succeeding year, then computations
should consider only the amount of net profits (after dividends) plowed into the business for the year
immediately preceding the date of application plus the amount of capital that the NBQB promised to
put up per its schedule or program submitted to the Bangko Sentral. If no such schedule or program
was submitted, then only the amount of net profits (after dividends) for the year immediately preceding
the date of application should be considered.

Manual of Regulations for Non-Bank Financial Institutions
LIST OF REPORTS REQUIRED FROM QUASI-BANKS
Submission Submission
Category Form No. MOR Ref. Report Title Frequency Deadline Procedure
A-1 Unnumbered 4116Q Computation of the Adjusted Risk-Based Capital Quarterly Original copy to
(Cir. 574 Adequacy Ratio Covering Combined Credit Risk, CPCD/ISD
dated Market Risk and Operational Risk1
07.10.07)
-
solo basis (Head Office and branches) - 15th business day after
end of reference quarter
- consolidated basis (Parent QB plus subsidiary -30th business day after
financial allied undertakings but excluding insurance end of reference quarter
companies)
A-2 Computation of the Risk-Based Capital Adequacy ratio Quarterly - 15th business day after Appropriate
Covering credit Risks end of reference quarter department of the SES
-30th business day after
- solo basis (Head Office and branches) end of reference quarter
- consolidated basis (Parent QB plus subsidiary

financial allied undertakings but excluding insurance
companies)
A-1 4181Q Copy of Published Statement of Condition with Quarterly 5th business day from Original - Appropriate
Publisher's Certificate publication date department of the SES
A-2 Unnumbered 4141Q.9 Acknowledgment receipt of copies of specific duties Annual or 30th business day Appropriate
(no prescribed and responsibilities of the board of directors and of a as directors after date of election department of the SES
form) director and certification that they fully understand are elected
the same
Q Regulations
APP. Q-3
08.12.31
1
For QBs which are subsidiaries of UBs and KBs
Q Regulations
08.12.31
APP. Q-3
A-2 BSP-7-26-02-A/B 4162Q Consolidated Statement of Condition Monthly Separate report for Head
15th business day after Office and each Branch;
Schedules: end of reference month and a Consolidated Report
for Head Office and
Branches; to be submitted
via electronic mail to SDC
A-2 BSP-7-26-02-A 4162Q Loans/Receivables, Trading Account Securities (TAS)

Schedule 1 - Loans Underwritten Debt Securities
(IHs only)
A-2 BSP-7-26-02-B 4162Q Loans/Receivables and Trading Account Securities

Schedule 1 (TAS) - Loans
(FCs only)
A-2 BSP-7-26-02-A 4162Q Bills Payable and Bonds Payable

Schedule 5
(For IHs)
A-2 BSP 7-26-02-B 4162Q Bills Payable and Bonds Payable

Schedule 5
(For FCs)
A-2 BSP-7-26-02-A/B 4162Q Remaining Maturities of Selected Accounts

Schedule 4 Interest Rate and Maturity Matching
A-2 BSP-7-26-02-A/B 4162Q Interest Rate and Maturity Matching

Schedule 3
A-2 BSP-7-26-02-A 4162Q Underwritten Securities, Trading Account Securities -

Schedule 2 Investments, Available for Sale Securities and
(For IHs) Investments in Bonds & Other Debt Instruments
A-2 BSP-7-26-02-B 4162Q Trading Account Securities Investments, Available for

Schedule 2 Sale Securities and Investments in Bonds & Other Debt
(For FCs) Instruments

A-2 BSP-7-26-02-A 4162Q Underwritten Securities, Trading Account Securities -

Schedule 2.1 Investments, Available for Sale Securities and
(For IHs) Investments in Bonds & Other Debt Instruments
(Government Issue - Local Government Units)
A-2 BSP-7-26-02-B 4162Q Trading Account Securities - Investments, Available

Schedule 2.1 for Sale Securities and Investments in Bonds & Other
(For FCs) Debt Instruments (Government Issue - Local
Government Units)
A-2 BSP-7-26-02-A 4162Q Loans/Receivables, Trading Account Securities - Loans

Schedule 1 and Underwritten Debt Securities
(For IHs)
A-2 BSP-7-26-02-B 4162Q Loans/Receivables and Trading Account Securities -

Schedule 1 Loans
(For FCs)
A-2 BSP-7-26-02-B 4162Q Loans/Receivables and Trading Account Securities -

Schedule 1.1 Loans (Borrowing of Local Government Units)
(For FCs)
A-2 BSP-7-26-02-A 4162Q Loans/Receivables, Trading Account Securities - Loans

Schedule 1.1 and Underwritten Debt Securities (Borrowings of Local
(For IHs) Government Units)
A-2 BSP-7-26-02-B 4162Q Data on Firm's Businesses

Schedule 6
(FCs only)
A-2 BSP-7-26-24 4162Q Credit and Equity Exposures to Individuals/Companies/ Quarterly 15th business day from Electronic submission/
(As Groups Aggregating P1 million and above end of reference diskette - SDC
amended quarter
Q Regulations
by CL
dated Notarized Control Prooflist Fax to SDC
APP. Q-3
08.12.31
08.06.03)
08.12.31
APP. Q-3
Q Regulations
A-2 BSP-7-26-03-A/B 4162Q Consolidated Statement of Income and Expenses Monthly 15th business day Separate report for Head
following end of Office and each branch;
reference month and a Consolidated
Report for Head Office
and Branches; to be
submitted via electronic
mail
A-2 BSP-7-26-05 4246Q Consolidated Report on Required and Available Weekly 4th business day cc: mail or e-mail to
(As Reserves Against Deposit Substitutes and Special following end of SDC, hard copy to
amended Financing reference week appropriate department
by MAB of the SES
dated
02.24.05)
A-2 BSP-7-26-05.1 4246Q Components of Deposit Substitutes with Original -do- -do- Separate report for Head
Maturities of 730 Days or Less Office and each branch;
and a Consolidated Report

BSP-7-26-05 4246Q Components of Deposit Substitutes with Original for Head Office and
Maturities of more than 730 days Branches; to be submitted
via electronic mail
A-2 BSB-7-26-05.3 4246Q Eligible Philippine Government Securities Utilized as -do- -do- -do-
Reserves against Deposit Substitutes
A-2 BSP-7-26-06 4116Q Statement of Capital Required and Capital Accounts Semi- 7th business day after E-mail to SDC:
Monthly 15 and end of month srsobqb@bsp.gov.ph
4116Q Control Prooflist duly signed by the authorized officer Fax to SDC @ 523-3461
of the institution

A-2 BSP-7-26-23TR 4425Q.2 Report on Trust and Other Fiduciary Business and Quarterly 10th business day after SDC
(IH with Trust only) (As Investment Management Activities with prescribed end of reference
amended schedules quarter
by CL
dated Schedules:
01.27.03) Investment in Other Securities and Debt Instruments
(Item 1.A.2)
Loans and Discounts (Item 1.A.4)
Investment in Common Trust Funds (Item 1.A.5)
Deposits in Banks (Item 1.A.13)
CTF Revaluation Account (Item 1.A.20)
Allowance for Probable Losses (Item 1.A.21)
Accumulated Market Gains/(Losses) (Item 1.A.23)
Exposures to Directors, Officers, Stockholders and

Their Related Interest
Government Funds Held in Trust
Tax-Exempt Accountabilities (Items 1.B.1)
A-2 Unnumbered 4217Q.4 Notice to BSP on SEC's approval of bond issue together As 3rd business day from Original - Appropriate
(no prescribed form) with the documents required by the SEC for the creation approved approval by SEC department of the SES
and registration of the bond issue
A-2 Unnumbered 4691Q Report on Suspicious Transactions As 10th business day from Original and duplicate -
(Rev. May transaction date of transaction/ Anti-Money Laundering
2002 occurs knowledge Council (AMLC)
Q Regulations
as
amended
APP. Q-3
08.12.31
by Cir. No.
612 dated
06.03.08)

Q Regulations
08.12.31
APP. Q-3
A-2 Unnumbered 4691Q Report on Covered Transactions -do- -do- -do-
A-2 Unnumbered 4691Q Certification of compliance with existing anti-money Annually 20th business day after To be submitted to the
(no prescribed form) laundering regulations date of election appropriate department
of the SES
A -2 Unnumbered (Cir. 609 Financial Reporting Package for Trust Institutions Quarterly 20th banking day after SDC
dated end of reference sdcnbfi-frpti@bsp.gov.ph
05.26.08 Schedules: quarter
as
amended Balance Sheet
by
M-2008- A1 to A2 Main Report
022
dated B to B2 Details of Investments in Debt and Equity
06.26.08) Securities
C to C2 Details of Loans and Receivables
D to D2 Wealth/Asset/Fund Management - UITF
E Fiduciary Accounts
E1 to E1B Other Fiducirary Services - UITF
Income Statment
Control Prooflist -do- -do- -do-
A-3 BSP-7-26-18DF 4356Q Consolidated Monthly Report on Credit Monthly 15th calendar day from -do-
Accommodations to Directors, Officers, Stockholders end of reference month
and Their Related Interests
A-3 BSP-7-26-18.1 4356Q Credit Accommodations to Directors, Officers, -do- -do- Original CPCD/ISD
Stockholders, and Their Related Interests

A-3 Unnumbered 4162Q Report on Borrowings of BSP Personnel Quarterly 15th business days Original to SDC
(CL-050 after end of reference
dated quarter
10.04.07
and
CL-059
dated
11.28.07)
A-3 Unnumbered 4603Q.6 Outstanding Derivatives Contracts Monthly 5th business day from Original - Appropriate
end of reference month department of the SES
A-3 Unnumbered 4603Q.6 Report on Trading Gains/Losses on Derivatives -do- -do- -do-
Transactions
A-3 Unnumbered 4603Q.6 Outstanding Peso Derivatives Contracts -do- -do- -do-
A-3 Unnumbered 4364Q Copy of Written Approval of Board of Directors on As 20th business day from -do-
Credit Accommodations to Directors, Officers, Approved date of approval
Stockholders, and Their Related Interests
A-3 Unnumbered 4328Q Transmittal of Board Resolution/Written Approval on As loan to 20th banking days after Original and
(Cir. 560 Credit Accomodations to Subsidiaries and/or Affiliates subsidiaries date of approval or duplicate appropriate
dated and/or director department of the SES
01.31.07) affiliates is
approved
B BSP 7-26-01 4162Q Information Sheet Annually January 31st Appropriate

department of the SES
B Unnumbered 4141Q.4 Notice of Election/Appointment of Members of Board As change 10th day from election/ Original - Appropriate
of Directors and Committees occurs assumption of office department of the SES
Q Regulations
B Unnumbered 4141Q.4 Change of List of Directors/Officers/Employees As change Immediately after -do-

(no prescribed occurs change
APP. Q-3
08.12.31
form)

Q Regulations
08.12.31
APP. Q-3
B Unnumbered 4143Q.4 Report on Disqualification of Director/Officer As Within 72 hours from Appropriate

(no prescribed disqualification receipt of report by department of the SES
form) occurs board of directors
B BSP-7-26-13 4308Q Past Due Receivables, Loans and/or Commercial Quarterly 15th calendar day after Original - Appropriate
Papers/Private Securities end of reference department of the SES
quarter
B BSP-7-26-10 4309Q Information Sheet and "Truth in Lending Act" Creditor's As needed - -do-
Certification
B BSP-7-26-14 4162Q Rolled-Over Loans and/or Commercial Papers (Above -do- 15th calendar day after -do-
P100,000) end of reference
quarter
B BSP-7-26-15 4162Q Report on Underwriting Activities -do- End of month -do-

(IH only) following each quarter
B BSP-7-26-20 4381Q Report on Equity Investments in Non-Allied Semestrally 15th business day -do-
Undertakings following end of
reference semester
B BSP-7-26-21 4103Q Borrowing-Investment Program Annually on or before Nov. 30 See Annex Q-3-a for
(As details of the report
amended
by Cir.
No. 557
dated
01.12.07)
B BSP-7-26-22 4162Q Annual Underwriting Program -do- 1st working day of Original - Appropriate
(IH only) March of reference department of the SES
year

B BSP-7-26-23IM 4425Q.2 Report on Investment Management Activities with Quarterly 10th business day after Original - Appropriate
(IH with IMA prescribed schedules end of reference quarter department of the SES
only)
Schedules:
Investment in Other Securities and Debt Instruments
(Item 1.A.2)
Loans and Discounts (Item 1.A.4)
Investment in Common Trust Funds (Item 1.A.5)
Deposits in Banks (Item 1.A.12)
Allowance for Probable Losses (Item 1.A.17)
Accumulated Market Gains/(Losses) (Item 1.A.19)
Exposures to Directors, Officers, Stockholders and

Their Related Interest
Tax-Exempt Accountabilities (Item 1.B.1)
B BSP-7-26-25 4126Q.3 Dividends Declared As dividends 10th business day from Original - Appropriate
are declared approval of declaration department of the SES
by the board of directors
B BSP-7-26-26 4181Q Statement of Condition for Publication Quarterly 20th business day from See Sec. 4181Q fpr
receipt of call requirement on
publication of names of
directors/officers
Control Prooflist duly signed by the authorized officer E-mail to SDC:

of the institution srso-nbqb@bsp.gov.ph
Q Regulations
Fax to SDC@
APP. Q-3
08.12.31
523-3461

Q Regulations
08.12.31
APP. Q-3
B Unnumbered 4214Q Daily Report on Interbank Borrowings not Effected Daily Noon of business day Original - Appropriate
Through Clearing Account with BSP (only when following date of report department of the SES
there are
transactions
covered)
B Unnumbered 4162Q Securities Brokering Without Recourse Transactions Weekly 4th business day after -do-
(IH only) for P50,000 and Above end of reference week
For institutions authorized to engage in derivatives -do-

activities:
B Unnumbered 4172Q Consolidated Annual Financial Statements of Annually 120th calendar day after
Financial Intermediaries and Their Allied end of reference year
Undertakings/Affiliates/Subsidiaries supported by
Individual Annual Undertakings/Affiliates/Subsidiaries
and their Audited Financial Statements
Refer to 4181Q for guidelines on consolidation of

statements
B Unnumbered 4162Q Quarterly Report on Operations (signed by the Quarterly 30th day after end of Original - Appropriate
(no prescribed form) President) reference quarter department of the SES
B Unnumbered 4162Q Annual Report of Management to Stockholders Annually As soon as available -do
(no prescribed form) Covering Results of Operations for the Previous Year
B Unnumbered 4172Q Audited Financial Statements for Previous Year Annually 90th day after the start -do-
(no prescribed form) Prepared by the External Auditor and the of audit
Corresponding Auditor's Letter of Comments
B Unnumbered 4162Q Report on Crimes/Losses for Head Office/Branches As crime or 48th hour from See annex Q-3-c for
incident knowledge of crime/ reporting guidelines
See Annex Q-3-c for reporting guidelines occurs incident Original-Appropriate
B Unnumbered 4162Q Report on Outstanding Loans Secured by Shares of Monthly 10th business day after Original - Appropriate
Stocks of Other Banks/QBs end of reference month department of the SES

B Unnumbered 4162Q Certification under oath for "No transaction" (no Quarterly 5th business day from -do-
interbank borrowings) dates during calendar quarter end of reference
quarter
B Unnumbered (no 4162Q Amendments to Articles of Incorporation/By-Laws/ As changes 15th calendar day -do-
prescribed form) material documents required to be submitted to BSP occur following change/
approval of change by
proper authorities
B Unnumbered 4162Q.1 Board resolution on quasi-bank's signatories of report As 3rd day from date of -do-
submitted to BSP authorized resolution
B Unnumbered 4162Q Documentary requirements on directors/officers/major Continuing Original - Appropriate

individual stockholders owning 10% or more of the requirements BSP department of the
outstanding voting securities for any new SES
director/
See Annex Q-3-d for list of documentary officer
requirements elected/
appointed
for the first
time in QBs
unless such
information
is on file
with the BSP
for not more
than
5 years
B Unnumbered 4162Q Documentary requirements/information on Upon 15th calendar day from Original - Appropriate
organizational structure and operational policies submission of change/issuance department of the SES
application
See Annex Q-3-e for documentary requirements/ to engage in
Q Regulations
information required QBF
APP. Q-3
As changes
08.12.31
occurs

Q Regulations
08.12.31
APP. Q-3
B Unnumbered 4162Q Corporate Secretary's Certification under oath on list As change in Immediately after Original - Appropriate
(no prescribed of stockholders and/or groups of stockholders composition change department of the SES
form) of stockhol-
ders occurs
B Unnumbered 4162Q Certification under oath that it has not granted any In case of 4th business day -do-
(no prescribed new loan or made any new investment during the chronic following end of
form) period covered by the suspension reserve reference week
deficiency
B Unnumbered 4425Q.2 Report on Required and Available Reserves on Peso- Weekly 3rd business day To be submitted by
(no prescribed Denominated CTFs, Such Other Managed Peso Funds following reference institutions with trust
form) and TOFA-Others week operations
Original - Appropriate
Control Prooflist duly signed by the authorized Monthly 7th business day from E-mail to SDC:
officer of the institution receipt of BSP srso-nbqb@bsp.gov.ph
statement of account
Fax to SDC @523-3461
Reconciliation statement on demand deposit with BSP Original to be submitted

to BSP Comptrollership
Department; one copy to
appropriate department of
the SES
B Unnumbered 4691Q Plan of Action to comply with Anti-Money Laundering - 30th business day from To be submitted to the
requirements 31 July 2000 or from appropriate department
opening of the of the SES
institution

B Unnumbered 4603Q.6 Report on Transactions/Outstanding Derivatives Monthly - To be submitted to the

(noprescribed Transactions as End-User appropriate
form) department of the SES
B Unnumbered 4603Q.21 Report on FX Swaps with Customers1 where 1st Leg is Monthly 5th business days after ID @ e-mail:
(Rev. Dec. a Purchase of FX Against Pesos (For QBs with end of reference month iod@bsp.gov.ph
2007per Cir derivatives license) cc: mail SDC
591 dated
12.27.07)
B Unnumbered 4603Q.21 Report on Cancellations, Roll-overs and Non-Delivery Monthly 5th business days after -do-
of FX Forwards Purchase-Sales Contracts and Forward end of reference month
Leg of Swap Contracts1 (For QBs with derivatives
license)
Unnumbered 4162Q Audit Engagement Contract As contract 15th calendar day from Appropriate
(no prescribed is signed date of signing of department of the SES
form) contract
B SES Form 6H 4308Q.5 Notice/Application for Write-off of Loans, Other Credit As write-off 25th business day prior Original and duplicate
(CBP-7-16-21), Accommodations, Advances and Other Assets occurs to the intended date of - Appropriate
revised write-off department of the SES
Waiver of the Confidentiality of Information under As

Sections 2 and 3 of R.A. No. 1405, as amended transaction
occurs
B SEC Form MAB dated General Information Sheet Annual 30th day from date of Drop box - SEC Central
09.02.05 Annual Stockholders' Receiving Section
Appendix Q-3 - Page 12a
meeting or if changes
occur, 7th day from
date of change
Q Regulations
M-2008-005 Disclosure Statement on SPV Transactions Quarterly 15th banking day after SDC
dated 02.04.08 end of reference
APP. Q-3
08.12.31
quarter
1
Excluding cross currency swaps
08.12.31
APP. Q-3
Appendix Q-3 - Page 12b
Q Regulations
M-2008-019 Report on NDF transactions wirh non-resident Weekly 2nd banking day after Email to SDC
end of reference sdc-ndf@bsp.gov.ph
week cc: Treasury Dept.
fx-omo@bsp.gov.ph
Control Prooflist Fax to SDC

@ (632) 523-3461 or
5230230
B Unnumbered 4211Q.12 Report on the Undocumented Repurchase -do- Within 72 hours from Appropriate department
(Cir. 467 Agreements knowledge of of the SES
dated transactions
01.10.05)
B Unnumbered 4211Q.12 Notarized certification that the bank did not enter in Semestral 5th banking days after -do-
(Cir. 467 Repurchase Agreement covering Government end of every semester
dated Securities, Commercial Papers and other Non-

01.10.05) Negotiable Securities or Instruments that are not
documented
B SES II Form 15 4142Q Biographical Data of Diretors/Officers After 7th banking day from Email to SDC or
(NP08-TB) As amended - If submitted in diskette form - Notarized first page of election or the date of the meeting hardcopy - Appropriate
by M-2008- each of the directors'/officers' bio-data saved in diskette appointment of the board of department of the SES
024 dated and control prooflist and as directors in which the cc: SDC
07.31.08 - If sent by electronic mail - Notarized first page of changes directors/officers are
Biographical Data or Notarized list of names of occur elected or appointed
Directors/Officers whose Biographical Data were
submitted thru electronic mail to be faxed to SDC
(CL dated 01.09.01)
MAB dated Certification under oath of independent directors that

09.02.05 he/she is an independent directors as defined under
section X141.10 and that all the information thereby
supplied are true and correct
Cir. 513 dated Verified statement of directors/officers that he/she has

02.10.06 all the aforesaid qualifications and none of the
disqualifications
(Next page is Page 13)

APP. Q-3
05.12.31
Annex Q-3-a
INFORMATION ON ONE-YEAR BORROWING-INVESTMENT PROGRAM

TO BE SUBMITTED BY QUASI BANKS
(Annex to Appendix Q-3)
1. Investment areas indicating submitted identifying debt and equity

industry direction of the corporation issues.
engaged in quasi-banking, indicating as a
minimum, the following: 2. Borrowing operations to support the
(a) money market operations; investment program indicating among others:
(b) investments in stocks and bonds; (a) Maturity - short-term: less than a
(c) investments in government year
securities; - medium-term: one (1)
(d) receivables financing; year to five (5) years
(e) leasing activities; and - long-term: more than
(f) direct loaning operations. five (5) years
Likewise to be disclosed are the (b) Interest rate per annum for the
other preferred areas of investment, e.g., above three types of borrowings (more
real estate, condominium, and those indicatory than fixed).
related to the government programs and Individual or institutional source of funds;
other projects which may be determined whether domestic or foreign, governmental
by the BSP. or private, financial or non-financial.
For investment houses with quasi-
banking functions, the proposed 3. Preference shall be given to fund
underwriting program, as well as the usage and mobilization at terms beyond
previous year's activities, shall also be one (1) year.

APP. Q-3
05.12.31
Annex Q-3-b
GUIDELINES GOVERNING THE CONSOLIDATION OF FINANCIAL

STATEMENTS OF FINANCIAL INTERMEDIARIES AND THEIR ALLIED
UNDERTAKINGS/SUBSIDIARIES/AFFILIATES
(deleted by Cir. 494 dated 20 September 2005)

APP. Q-3
05.12.31
Annex Q-3-c
REPORTING GUIDELINES ON CRIMES/LOSSES

1. Quasi-banks shall report on the a crime, when the amount involved per
following matters through the appropriate incident is P100,000 or more.
SED: 2. The following guidelines shall be
a. Crimes whether consummated, observed in the preparation and
frustrated or attempted against property/ submission of the report.
facilities (such as robbery, theft, swindling a. The report shall be prepared in two
or estafa, forgery and other deceits) and (2) copies and shall be submitted within
other crimes involving loss/destruction of five (5) business days from knowledge of
property of the quasi-banks when the the crime or incident, the original to the
amount involved in each crime is P20,000 appropriate SED and the duplicate to the
or more. BSP Security Coordinator, thru the
Crimes involving quasi-bank Director, Security Investigation and
personnel, regardless of whether or not Transport Department.
such crimes involve the loss/destruction of b. Where a thorough investigation
property of the quasi-bank, even if the and evaluation of facts is necessary to
amount involved is less than those above complete the report, an initial report
specified, shall likewise be reported to the submitted within the five (5)-business day
BSP. deadline may be accepted: Provided,
b. Incidents involving material loss, That a complete report is submitted not
destruction or damage to the institution's later than fifteen (15) business days from
properties/facilities, other than arising from termination of investigation.

APP. Q-3
05.12.31
Annex Q-3-d
DOCUMENTARY REQUIREMENTS ON DIRECTORS/OFFICERS/

MAJOR INDIVIDUAL STOCKHOLDERS
I. Directors and/or major individual II. Directors/Officers:

stockholders owning 10% or more of the (a) Bio-data sheet in the prescribed
outstanding voting securities: form accomplished under oath;
(a) Statement of financial condition (b) Clearances from the Criminal
as of latest date under oath or certified Investigation Services of the Philippine
by an independent CPA . Appropriate Constabulary, the National Intelligence and
disclosures shall be made when Security Authority, and such other relevant
necessary, specifically on encumbered investigating agency as might be
assets and names of creditors; determined by the appropriate SED; and
(b) Income Tax Return for the (c) Certification under oath by each
preceding year; director/officer to the effect that he/she
(c) Tax clearance for business is not disqualified under Sec. 4143Q.
purposes;
(d) Information on integrity, credit III. Non-resident foreign directors shall
standing and business experience from be exempted from the documentary
banking institutions in Manila/locality requirements enumerated above, except
where firm operates and in places of for the following:
residences or birth; and (a) Bio-data sheet in the prescribed
(e) Affidavit of two (2) persons of form accomplished under oath;
good standing other than the present (b) Clearance from the National
employer or relatives within the third Bureau of Investigation ( NBI ) or the
degree of affinity or consanguinity. For Department of Foreign Affairs; and
stockholders, information on credit (c) Certification under oath that the foreign
standing is sufficient. director is not disqualified under Sec. 4143Q.

APP. Q-3
05.12.31
Annex Q-3-e
DOCUMENTS/INFORMATION ON ORGANIZATIONAL
STRUCTURE AND OPERATIONAL POLICIES
I. Documents on organizational (d) Names of corporations where they

structure and operational policies serve as Chairman of the Board or as
1. Chart of the firm's organizational President and names of other business
structure or any substitute therefor; enterprises of which they are proprietors
2. Name of departments/units/offices or partners
with their respective duties and (e) For the Corporate Secretary,
responsibilities; indicate if he is also a Director
3. Designations of positions in each (f) Date of annual election of directors
department/unit/office with the respective per By-Laws
duties and responsibilities; 6. Executive officers including Auditor:
4. Manual of Instructions or the like (a) Names and titles
embodying the operating policies/ (b) Telephone number of each officer
procedures of each department/unit/office, (office)
covering such areas as: (c) For the Executive Vice-President,
(a) Signing/delegated authority; state the names of corporations where he
(b) Procedure/flow of paper work; and serves as Chairman of the Board and names
(c) Other matters. of other business enterprises where he is
5. Memoranda-Circulars or the like proprietor or partner
issued covering organizational and (d) For Vice-Presidents and other
operational and operation policies; officers with non-descriptive titles, indicate
6. Sample copies of each of the area of responsibility, e.g. Vice-President
forms/reports used by each office/unit/ for Operations or Vice-President,
department other than those submitted to International Department
the BSP; and (e) Include officers from President to
7. Such other documents/information Vice-President
which may be required from time to time. 7. Branches, agencies and extension
offices:
II. Other Data (a) Name of branch, agency or
1. Name of Institution extension office, e.g. Quiapo Branch or
2. Address Makati Agency
3. P.O. Box number (b) Address
5. Board of Directors including (c) Names and telephone number of:
Corporate Secretary: (1) Manager
(a) Names of Chairman, Vice- (2) Cashier
Chairman and Directors (3) Accountant
(b) Number of directors per By-Laws (d) For agencies and extension offices,
(c) Number of vacancies in the Board indicate name of mother branch.

APP. Q-3
05.12.31
Annex Q-3-f
GUIDELINES ON CALCULATINGADDITIONAL INFORMATION REQUIRED IN

PUBLISHED STATEMENT OF CONDITION
In calculating the additional information required to be disclosed in the Statement of

Condition for publication, the following guidelines shall be observed:
1. All amounts and ratios to be reported shall be as of the same call date. However, the
basis for computing the Return on Average Equity shall be the latest quarter immediately
preceding the call date.
2. Return on Average Equity shall be computed as follows:
Return on Average Net Income/(Loss) After Income Tax x 100

=
Equity (%) Average Total Capital Accounts
Where Net Income After Tax and Average Total Capital Accounts shall be:
Net Income After Tax Average Total Capital

Accounts
March Quarter End Net Income Sum of end-month Capital
After Tax Multiplied by 4 Accounts (December-March)
divided by 4.
June Semester End Net Income Sum of end-month Capital
After Tax Multiplied by 2 Accounts (December - June)
divided by 7.
September Nine (9) months Ended Sum of end-month Capital
Net Income After Tax Accounts (December -
multiplied by 1.333333 September) divided by 10.
December Year Ended Net Income Sum of end-month Capital
After Tax Accounts (December -
December) divided by 13.
Q Regulations Manual of Regulations for Non-Banks Financial Institutions

APP. Q-4
05.12.31
GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES

AND SIGNATORY AUTHORIZATION
(Appendix to Subsec. 4162Q.1 )
Category A-1 reports shall be signed by managers/officers in-charge. Likewise, the

the chief executive officer, or in his absence, signing authority in this category shall be
by the executive vice president, and by the contained in a resolution approved by the
comptroller, or in his absence, by the chief board of directors in the format prescribed
accountant, or by officers holding equivalent in Annex Q-4-b.
positions. The designated signatories in this
category, including their specimen Categories A-3 and B reports shall be
signatures, shall be contained in a resolution signed by officers or their alternates, who
approved by the board of directors in the shall be duly designated in a resolution
format prescribed in Annex Q-4-a. approved by the board of directors in the
format as prescribed in Annex Q-4-c.
Category A-2 reports of head offices
shall be signed by the president, executive Copies of the board resolutions on the
vice-presidents, vice-presidents or officers report signatory designations shall be
holding equivalent positions. Such reports submitted to the appropriate SED of the
of other offices/units (such as branches) BSP within three (3) days from the date of
shall be signed by their respective resolution.

APP. Q-4
05.12.31
Annex Q-4-a
FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS
Resolution No. _____
Whereas, it is required under Subsec. 4162Q.1 that Category A-1 reports be signed by the
Chief Executive Officer, or in his absence, by the Executive Vice-President, and by the
comptroller, or in his absence, by the Chief Accountant, or by officers holding equivalent positions.
Whereas, it is also required that aforesaid officers of the institution be authorized under
a resolution duly approved by the institution's Board of Directors;
Whereas, we, the members of the Board of Directors of (Name of Institution) ,
are conscious that, in designating the officials who would sign said Category A-1 reports,
we are actually empowering and authorizing said officers to represent and act for or in behalf
of the Board of Directors in particular and (Name of Institution) in general;
Whereas, this Board has full faith and confidence in the institution's Chief Executive
Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be,
and, therefore, assumes responsibility for all the acts which may be performed by aforesaid
officers under their delegated authority;
Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby
resolved that:
1. Mr.____________ President _________________
Specimen Signature
or
Executive
2. Mr.____________ Vice-President _________________
Specimen Signature
and
3. Mr.____________ Comptroller _________________
Specimen Signature
or
Chief
4. Mr.____________ Accountant _________________
Specimen Signature
are hereby authorized to sign Category A-1 reports of (Name of Institution) .
Done in the City of ________________ Philippines, this ____day of ____, 20____.
CHAIRMAN OF THE BOARD

___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
CORPORATE SECRETARY

APP. Q-4
05.12.31
Annex Q-4-b
Whereas, it is required under Subsec. 4162Q.1 that Category A-2 reports of head offices
be signed by the President, Executive Vice-Presidents, Vice-Presidents or officers holding
equivalent positions, and that such reports of other offices be signed by the respective
managers/officers-in-charge;
Whereas, we, the members of the Board of Directors of (Name of Institution) , are
conscious that, in designating the officials who would sign said Category A-2 reports, we are
actually empowering and authorizing said officers to represent and act for or in behalf of the
Board of Directors in particular and (Name of Institution) in general;
Whereas, this Board has full faith and confidence in the institution's President (and/or
the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility
for all the acts which may be performed by aforesaid officers under their delegated authority;
resolved that:
Name of Officer Specimen Signature Position Title Report No.
_____________ ________________ __________ _________
are hereby authorized to sign the Category A-2 reports of (Name of Institution) .
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
CORPORATE SECRETARY

APP. Q-5
05.12.31
MINIMUM INTERNAL CONTROL STANDARDS FOR QUASI-BANKS

I. Proper Accounting Records custodians. Verification should include

1. Quasi-banks should maintain both the physical inventory of securities
proper and adequate accounting records. and the record checking.
2. These records should be kept e. Periodic verification of the accuracy
currently posted and should contain of the interest credits and payments to
sufficient detail so that an audit trail is deposit substitute liabilities accounts.
established. 3. All exceptions in the reconciliation/
3. All entries should bear official verification should be followed up
approval and should be initialed by the immediately until satisfactorily corrected.
person originating and another person
checking them. III. Division of Duties and Responsibilities
1. The duties of all the officers and
II. Independent Balancing employees should be segregated, clearly
1. Independent balancing shall mean defined, understood, documented and
that records posted by a person or cash held manualized if possible. No individual shall
by a cashier shall be balanced or counted have complete authority and responsibility
by another person. for handling all phases of any transaction
2. The minimum independent from beginning to end.
balancing procedures which should be 2. The physical handling of a
adopted are the following: transaction should be separated from its
a. Monthly reconcilement of general recording and supervision as follows:
ledger balances against their respective a. A person handling cash should not
subsidiary and supporting records and be permitted to post the ledger records nor
documentations by someone other than the should posting of the general ledger be
bookkeeper, the person handling the performed by an employee who posts the
records, or the person directly connected investor's/creditor's subsidiary ledgers;
with processing the transactions. b. A loaning officer should never be
b. Irregular and unannounced count allowed to disburse proceeds of notes,
of cashier's cash and checks and other cash accept note payment nor process loan
items at least twice a month by the auditor/ ledgers;
control officer or by an officer not c. The functions of issuing, recording
connected with the treasurer's/cashier's and signing of checks should be separated;
office or its equivalent. d. The receipt of statements from
c. Monthly reconcilement of cash in depository banks should be assigned to an
banks accounts (domestic and foreign) and employee other than the one connected
due from/to head office/branches by with the preparation, recording and signing
someone other than the check custodian, of checks;
the person posting the general ledger e. Custodians of securities should not
entries or the authorized signatory of the be allowed to handle security transactions;
bank account. f. Collateral appraisals should be done
d. Periodic verification of securities by an employee/officer other than the ones
and collaterals by someone other than their approving the loans;

APP. Q-5
05.12.31
g. Incoming checks and other cash d. Securities

items should be recorded chronologically e. Documents of title and/or
in a register by an employee other than ownership of properties or fixed assets
the bookkeeper; f. Safekeeping items
h. Credit reports should be obtained g. Vault doors and safe combinations.
by someone other than lending officers;
i. Mailing of client's statements and V. Signing Authorities
delinquent notices should be done by an Signing authorities for the different
employee other than the one who granted levels of officers to sign for and in behalf
the loan or the one handling the records; of the institutions should be approved by
and the board of directors and the extent of
j. Paid checks/drafts should be each level of authority should be clearly
controlled and maintained by an officer/ defined. These signing authorities should
employee other than the authorized include but need not be limited to the
signatory or the cashier. following:
3. Extensive background checking of a. Lending;
persons intended to be assigned to handle b. Borrowing;
cash and securities should be conducted. c. Investments;
Frequent follow-up checking after their d. Approval of expenses;
employment should also be made. e. Various supervisory reports; and
f. Checks.
IV. Joint Custody
1. Joint custody shall mean the VI. Dual Control
processing of transactions in the presence 1. Dual control shall mean the work
of and under the direct observation of a of one (1) person is to be verified by a
second person. Both persons shall be second person to determine (a) that
equally accountable for the physical proper authority has been given to
protection of the items and records handle the transaction, (b) that the
involved. transaction is properly recorded, and (c)
2. Physical protection should be that proper settlement of the transaction
deemed established through the use of two is made.
(2) locks or combinations on a file chest or 2. The routine of each transaction
vault compartment. should be designed so that at least two (2)
3. Two (2) or more persons should be or more individuals are involved in the
assigned to each half of the control so that completion of every transaction.
operating efficiency is not impaired if one 3. The following accounts/transactions
person is not immediately available. should be under dual control:
4. Persons who are related to each a. Checks - The signature of at least
other within the third degree of two (2) officers should be required in the
consanguinity or affinity should not be issuance of checks.
made joint custodians. b. Borrowing - The signature of at
5. The following should be under joint least two (2) authorized officers should be
custody: required.
a. Cash on hand or in vault c. All transactions giving rise to "due
b. All accountable forms to" or "due from" account and all
c. Collaterals instruments of remittances evidencing

APP. Q-5
05.12.31
these transactions particularly those X. Direct Verification

involving substantial amounts, should be 1. Direct verification shall mean the
approved by two (2) authorized officers. confirmation of account or records by direct
correspondence/visits with the institution's
VII. Number Control customers.
1. Sequence number controls should 2. The following accounts, among
be incorporated in the accounting systems others, should be subject to direct verification
and should be used in registering notes, by the internal auditing staff at least once a
in issuing official checks and in other year:
similar situations. Number control should a. Balances of loans and credit
be policed by a person designated by accommodations of borrowers;
senior management who should be b. Outstanding balances of borrowings
detached from the particular operations and other liabilities;
involved. c. Outstanding balances of receivables/
2. The following are the forms, payables; and
instruments and accounts that should be d. Collaterals securing said accounts.
number-controlled:
a. Checks; XI. Other Internal Control Standards
b. Promissory notes and other 1. Investments
commercial papers; a. Investment limits and a list of
c. Official and provisional receipts; accredited companies as approved by the
d. Certificate of stocks; Board of Directors or by its Credit Committee
e. Loan accounts; and should be established as a guide for investing
f. Expense vouchers. in any financial institution engaged in money
market trading.
VIII. Rotation of Duties b. Investments should be secured by
1. The duties of personnel handling assets approved by the Board of Directors
cash, securities and bookkeeping records or by its Credit Committee.
should be rotated. c. Checks representing placements of
2. Rotation assignment should be investments should be released only upon
irregular, unannounced and long enough receipt of either the deposit substitute
to permit disclosure of irregularities or instrument or the underlying securities or
manipulations. documents of title.
2. Miscellaneous
IX. Independence of the Internal Auditor a. Loan applications and related
1. The position of internal auditor documents should be spot-checked to insure
should be provided for in the by-laws their authenticity, including verification of
together with the duties and name, residence, employment and current
responsibilities, scope and objectives of reputation of the borrowers.
internal auditing. b. No employee should be permitted
2. The internal auditor should report to process transaction affecting his own
directly to the Audit Committee. account.
3. The internal auditor should not c. Cashiers and other employees
install nor develop procedures, prepare having contact with customers should be
records or engage in other activities which prohibited from preparing deposit substitute
he normally reviews or appraises. tickets or other records for the customers.

APP. Q-5
05.12.31
d. Quasi-banks should have a sound (1) Insurance coverage - for losses

recruitment policy since internal control arising from calamities and theft/
begins from point of hiring. robberies.
e. Quasi-banks should secure (2) Fidelity bonds - for losses arising
adequate insurance coverages, fidelity and from dishonest, fraudulent and criminal
other indemnity protection, viz: acts of accountable officers/employees.

APP. Q-6
05.12.31
STANDARDIZED DEPOSIT SUBSTITUTE INSTRUMENTS

Serial No.
(Name of Quasi-Bank)
PROMISSORY NOTE
Issue Date : , 20
Maturity Date : , 20
FOR PESOS (P )
(Present Value/Principal)
RECEIVED, promises to pay

(Name of Issuer/Maker)
or order, the sum

(Name/Account Number of Payee)
of PESOS (P )
(Maturity Value/Principal & Interest)
subject to the terms and conditions on the reverse side hereof.
(Duly Authorized Officer)
NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

APP. Q-6
05.12.31
TERMS AND CONDITIONS OF A PROMISSORY NOTE
1. Computation of Yield
Interest is hereby stipulated/computed at % per annum, compounded
( ) monthly ( ) quarterly ( ) semi-annually ( ) others.
2. No Pretermination
This promissory note shall not be honored or paid by the issuer/maker before the maturity
date indicated on the face hereof.
3. Liquidated Damages
In case of default, issuer/maker shall pay, in addition to stipulated interest, liquidated
damages of (Amount or %) , plus attorney's fees of (Amount or %) and costs
of collection in case of suit.
4. Renewal
( ) No automatic renewal.
( ) Automatic renewal under the following terms:
5. Collateral/Delivery
( ) No collateral
( ) Collateral/secured by (describe collateral)
( ) Physically delivered to Payee
( ) Evidenced by Custodian Receipt No. dated
issued by
( ) Collateralized/secured by (fraction or %)
share of (describe collateral) as evidenced
by Custodian Receipt No. dated
issued by .
6. Substitution of Securities
( ) Not acceptable to Payee
( ) Acceptable to Payee, however, actual substitution shall be with prior written consent
of payee.
7. Separate Stipulations
( ) This Agreement is subject to the terms and conditions of
(describe document) dated
executed by (name of party/ies) and
made an integral part hereof.

APP. Q-6
05.12.31
Serial No.
REPURCHASE AGREEMENT
Issue Date : , 20
Repurchase Date : , 20
FOR AND IN CONSIDERATION OF PESOS (P )

Vendor, (name of Quasi-Bank hereby sells, transfers and conveys in favor of Vendee,
(name of Vendee) the security(ies) described below, it being mutually
agreed upon that the same shall be resold by Vendee and repurchased by Vendor on
the repurchase date indicated above at the price of PESOS (P ),
subject to the terms and conditions stated on the reverse side hereof.
(Description of Securities)
Issuer Serial Number/s Maturity Date/s Face Value Interest/Yield
P P
TOTAL P P
CONFORME:
(Signature of Vendee)

APP. Q-6
05.12.31
TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT
1. Computation of Yield
Yield is hereby stipulated/computed at % per annum, compounded
( ) monthly ( ) quarterly ( ) semi-annually ( ) others.
Vendor shall not repurchase subject security/ies before the repurchase date stipulated
on the face of this document.
In case of default, the Vendor shall be liable, in addition to stipulated yield, for liquidated
damages of (Amount or %) , plus attorney's fees of (Amount or %) ,
and costs of collection in case of suit.
4. Renewal
( ) No automatic renewal
( ) Automatic renewal under the following terms:
5. Delivery/Custody of Securities
( ) Physically delivered to Payee
( ) Evidenced by Custodian Receipt No. dated,
issued by
6. Substitution of Securities
( ) Not acceptable to Payee
( ) Acceptable to Payee, however, actual substitution shall be with prior written consent
of payee.
( ) This Agreement is subject to the terms and conditions of (describe document)
dated , executed by (name of Party/ies)
and made an integral part hereof.

APP. Q-6
05.12.31
Serial No.
CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Issue Date: , 20
FOR AND IN CONSIDERATION OF PESOS (P )

(name of Assignor) hereby assigns, conveys, and transfers
with recourse to (name of Assignee) the debt of (name of Principal Debtor)
to the Assignor, specifically described as follows:
(Description of Debt Securities)
Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield
P P
TOTAL P P
and Assignor hereby undertakes to pay, jointly and severally with the Principal Debtor, the
face value of, and the interest/yield on, said debt securities. The assignment shall be subject
to the terms and conditions on the reverse side hereof.
CONFORME:
(Signature of Assignee)

APP. Q-6
05.12.31
TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT

WITH RECOURSE
Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof.
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (Amount or %) plus attorney's fees of (Amount or %) ,
( ) Physically delivered to Assignee
( ) Evidenced by Custodian Receipt No. dated ,
issued by .
( ) This Agreement is subject to the terms and conditions of ,
dated executed by (name of Party/ies)
and made an integral part hereof.

APP. Q-6
05.12.31
Serial No.
CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Issue Date: , 20
FOR AND IN CONSIDERATION OF PESOS (Present Value/Principal) (P ),

(name of Assignor) hereby assigns, conveys, and transfers with recourse to
(name of Assignee) the debt of (name of Principal Debtor) to the Assignor, specifically
described as follows:
P P
TOTAL P P
and hereby undertakes that in case of default of the Principal Debtor, Assignor shall pay
the face value of, and the interest/yield on, said debt securities, subject to the terms and
conditions on the reverse side hereof.
CONFORME:
(Signature of Assignee)

APP. Q-6
05.12.31
TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT

WITH RECOURSE
Assignor shall not pay nor repurchase subject security/ies before the maturity date
thereof.
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (Amount or %) plus attorney's fees of (Amount or %) ,
( ) Physically delivered to Assignee
issued by
( ) This Agreement is subject to the terms and conditions of ,
dated executed by (name of Party/ies) and
made an integral part hereof.

APP. Q-6
05.12.31
Serial No:
CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issue Date: , 20
FOR AND IN CONSIDERATION OF PESOS (P ),

this certificate of participation is hereby issued to evidence the (Fraction or %)
share of (name of Participant) in the loan/s of granted by/
assigned to the herein Issuer, specifically described as follows:
P P
TOTAL P P
The issuer shall pay, jointly and severally with the Principal Debtor, (Fraction or %) share
of the face value of, and the interest/yield on, said debt security(ies), subject to the
terms and conditions on the reverse side hereof.
CONFORME:
(Signature of Participant)

APP. Q-6
05.12.31
TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION

WITH RECOURSE
Issuer shall not pay nor repurchase the participation before the maturity date of
subject security(ies).
In case of default, the Issuer of this instrument shall be liable, in addition to interest, for
liquidated damages of (Amount or %) , plus attorney's fees of (Amount or %) ,
( ) Physically delivered to Participant
issued by
( ) This Agreement is subject to the terms and conditions of (describe document) ,
dated executed by (name of Party/ies) and made
an integral part hereof.

APP. Q-6
05.12.31
Serial No:
CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issue Date: , 20
FOR AND IN CONSIDERATION OF PESOS , (P )

this certificate of participation is hereby issued to evidence the (Fraction or %) share
of (Participant) in the loan/s of granted by/assigned
to the herein Issuer, specifically described as follows:
P P
TOTAL P P
In case of default of the Principal Debtor, the Issuer shall pay the (Fraction or %) share
of the face value of, and the interest/yield on, said debt security(ies), subject to the terms
and conditions on the reverse side hereof.
CONFORME:
(Signature of Participant)

APP. Q-6
05.12.31
TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION

WITH RECOURSE
Issuer shall not pay nor repurchase the participation before the maturity date of subject
security(ies).
In case of default, the Issuer of this instrument shall be liable, in addition to interest, for
liquidated damages of (Amount or %) , plus attorney's fees of (Amount or %) ,
( ) Physically delivered to Participant
issued by .
( ) This Agreement is subject to the terms and conditions of (describe document)
dated executed by (name of Party/ies) and made an
integral part hereof.

APP. Q-7
05.12.31
NEW RULES ON REGISTRATION OF SHORT-TERM COMMERCIAL PAPERS

Pursuant to Presidential Decree No. the aggregate amount to be applied for, (c)
678, as amended by Presidential Decree providing that the registration statement
No. 1798, and other existing applicable shall be signed by the principal executive
laws, the Securities and Exchange officer, the principal operating officer, the
Commission (SEC) hereby promulgates the principal financial officer, the comptroller,
following new Rules and Regulations or principal accounting officer, or persons
governing short-term commercial papers, performing similar functions, and (d)
in the interest of full disclosure and designating at least two senior officers with
protection of investors and lenders, in a rank of vice-president or higher, or their
accordance with the monetary and credit equivalent, to sign the commercial paper
policies of the BSP. instrument to be issued;
(3) The latest audited financial
Sec. 1. Scope. These Rules and statements; and should the same be as of a
Regulations shall apply to short-term date more than three (3) months prior to
commercial papers issued by corporations. the filing of the registration statement, an
unaudited financial statement as of the end
Sec. 2. Definition. For the purpose of the immediately preceding month:
of these Rules, the following definitions Provided, however, That such unaudited
shall apply: financial statement shall be certified under
(a) Commercial paper is an evidence oath by the accountant and the senior
of indebtedness of any corporation to any financial officer of the applicant, duly
person or entity with a maturity of 365 days authorized for the purpose, and substituted
or less. with an audited financial statement within
(b) Interbank loan transactions shall 120 days after the end of the applicant's
refer to borrowings between and among fiscal year.
banks and non-bank financial (4) Schedules A to L, based on sub-
intermediaries duly authorized to perform section (3) above, in the form attached as
quasi-banking functions. Annex "A";
(c) Issue means creation of a (5) A committed credit line
commercial paper and its actual or agreement with a bank, or any financial
constructive delivery to the payee. institution which may be qualified
subsequently by the BSP, earmarked
Sec. 3. Registration of Commercial specifically for repayment of aggregate
Papers. Any corporation desiring to issue outstanding commercial paper issues on a
commercial paper shall apply for pro-rata basis, with the following features:
registration with, and submit to, the SEC (i) A firm, irrevocable commitment to
the following: make available funds to cover at least 20%
(a) Ordinary Registration; of the aggregate commercial papers
(1) Sworn Registration Statement in the outstanding at any time: Provided, That if
prescribed form; the commitment is extended by a group,
(2) Board resolution signed by there shall be a lead bank or any financial
majority of its members (a) authorizing the institution which may be qualified
issue of commercial paper, (b) indicating subsequently by the BSP acting for the group;

APP. Q-7
05.12.31
(ii) The commitment shall be effective 2) Average solvency position shall be

for as long as the issues are outstanding and one whereby total assets must not be less
may be renewed by the bank or any than total liabilities;
financial institution which may be qualified 3) Average net profit margin shall be
subsequently by the BSP; at least 3% computed as follows:
(iii) The request for drawdown shall be
addressed to the bank or any financial Net income after income tax,
corporate development
institution which may be qualified
taxes, and other non-cash
subsequently by the BSP, which request charges
shall be duly signed by a member of the Net profit margin=
Net sales or revenues
board of directors and a senior financial
officer of the commercial paper issuer, duly OR
authorized for the purpose by an Average annual return on equity shall
appropriate board resolution, which shall be at least 8% computed as follows:
also provide for the designation of the
alternate signatories (likewise a member Net income after income tax,
of the board of directors and a senior corporate development
financial officer); taxes, and other non-cash
Return on equity=
(iv) A provision that availments shall be Total stockholders' equity
allowed only for repayment of commercial
papers which are due and payable in 4) Average interest service coverage
accordance with the terms of the ratio shall be at least 1.2:1 computed as
commercial paper; follows:
Net income-before-interest
(v) Notwithstanding the foregoing expense, income tax,
requirements for a committed credit line corporate development
with a bank, or any financial institution taxes, and other non-cash
which may be qualified subsequently by Interest service charges
=
coverage ratio Interest expense
the BSP, any corporation desiring to issue
commercial papers may be exempted from
compliance therewith by the SEC, should 5) Debt-to-equity ratio shall not exceed
it meet all of the following financial ratios 2.5:1.
based on consolidated audited financial The SEC may, in its discretion, consult
statements for the immediate past three (3) with industry organization(s) such as
years: Investment Houses (IHs) Association of the
Philippines (IHAP) and Bankers Association
1) Average current ratio shall be at of the Philippines (BAP) and/or the Credit
least 1.2:1 computed as follows: Information Bureau, Inc.
6) A selling agreement for the
Current Assets commercial paper issues with an expanded
Current ratio =
Current Liabilities commercial bank or an investment house,
or any financial institution which may be
OR qualified subsequently by the BSP, with
Average acid-test ratios shall be at least minimum conditions that the selling agent,
0.5:1 computed as follows: among others, shall be responsible for
ensuring that the issuer observes the
Cash, receivables, and
marketable securities provisions of these rules pertaining to the
Acid-test ratio=
Current Liabilities use of proceeds of the committed credit

APP. Q-7
05.12.31
line and, with the issuer, shall be jointly time the registration statement is approved.
responsible for complying with all This preliminary prospectus shall not
reportorial requirements of the SEC and constitute an offer to buy nor shall there be
the BSP in connection with the any sale of these commercial papers in the
commercial paper issue, it being Philippines as such offer, solicitation, or sale
understood that the primary responsibility is prohibited prior to registration under the
for the submission of the report to said Securities Act, as amended by P.D. No. 678
regulatory agencies is upon the selling and P.D. No. 1798."
agent: Provided, however, That if the (ii) Aggregate maximum amount
commercial paper issuer is unable to applied for, stated on the front page of the
provide the information necessary to prospectus;
meet such reportorial requirements, the (iii) Description and nature of the
selling agent shall, not later than two (2) applicant's business;
working days prior to the date when the (iv) Intended use of proceeds;
report is due, notify the SEC of such (v) The nature of the firm,
inability on the part of the issuer: irrevocable, and committed credit line, the
Provided, finally, That if the selling amount of the line which shall be at least
agreement is with a group, composed of 20% of the aggregate outstanding
expanded commercial banks and/or commercial paper issues, proceeds of
investment houses or any financial which shall be allocated on a pro-rata basis
institutions which may be qualified to the aggregate outstanding commercial
subsequently by the BSP, there shall be a paper issue (regardless of the order of their
syndicate manager acting and responsible maturities), and the manner of availments,
for the group. as stipulated in the credit line agreement
(7) Income statements for the between the bank and the issuer;
immediate past three (3) fiscal years (vi) The provision in the selling
audited by an independent certified agreement naming the selling agent and
public accountant: Provided, That, if the the responsibilities of the selling agent in
applicant has been in operation for less connection with, among others, the use by
than three years, it shall submit income the issuer of the proceeds of the bank
statements for such number of years that committed credit line and the reportorial
it has been in operation. requirements under these rules;
(8) A printed copy of a preliminary (vii) Other obligations of the
prospectus approved by the applicant's commercial issuer classified by maturities
Board of Directors which, among others, (maturing within six (6) months; from six
shall contain the following: (6) months to one (1) year; over one (1)
(i) A statement printed in red on the year; and past-due amounts);
left-hand margin of the front page of the (viii) Encumbered assets;
following tenor: (ix) Directors, officers, and
"A registration statement relating to stockholders owning 2% or more of the
these short-term commercial papers has total subscribed stock of the corporation,
been filed with, but has not yet been indicating any advance to said directors,
approved by, the SEC. Information officers, and stockholders;
contained herein is subject to completion (x) List of entities where it owns
or amendment. These short-term more than 33-1/3% of the total equity, as
commercial papers may not be sold nor well as borrowings and advances to said
may offer to buy be accepted prior to the entities;

APP. Q-7
05.12.31
(xi) Financial statements for the Sec. 4. Commercial Papers Exempt

immediate past three (3) fiscal years Per Se. The following specific debt
audited by an independent certified public instruments are exempt per se from the
accountant: Provided, That if the applicant provisions of these Rules:
has been in operation for less than three (a) Evidence of indebtedness arising
(3) years, it shall submit financial statements from interbank loan transactions;
for such number of years that it has been in (b) Evidence of indebtedness issued
operation. by the national and local governments;
(b) Special Registration (c) Evidence of indebtedness issued
In the case of special registration to the BSP under its open market and/or
provided for under Section 10 hereof, the rediscounting operations;
following shall, in addition to the (d) Evidence of indebtedness issued
immediately preceding requirements, be by the BSP, Philippine National BanK
prepared and submitted by the selling (PNB), Development Bank of the
agent on behalf of the applicant: Philippines (DBP), Land Bank of the
(1) Projected annual cash flow Philippines (LBP), Government Service
statement as of the date of filing, presented Insurance System, and the Social Security
on a quarterly basis, supported by System (GSIS);
schedules on actual maturity patterns of (e) Evidence of indebtedness issued
existing receivables and liabilities (under to the following primary institutional
six (6) months, six (6) months to one (1) lenders: banks, including their trust
year, over one (1) year, and past-due accounts, trust companies, quasi-banks,
amounts) and inventory turnover as of the IHs, including their trust accounts, financing
end of the month prior to the filing of the companies, investment companies, non-
registration statement; and stock savings and loan associations
(2) Complementary financial ratios for (NSSLA), building and loan associations,
each of the immediate past three (3) fiscal venture capital corporations, special
years: purpose corporations referred to in Central
(i) Ratio of (a) the total of cash on Bank Monetary Board Res. No. 1051 dated
hand, marketable securities, current 19 June 1981, insurance companies,
receivables to (b) the total of current government financial institutions,
liabilities; pawnshops, pension and retirement funds
(ii) Debt-to-equity ratio, with debt approved by the Bureau of Internal Revenue
referring to all kinds of indebtedness, (BIR), educational assistance funds
including guarantees; established by the national government; and
(iii) Ratio of (a) net income after taxes other entities that may be classified as
to (b) net worth; primary institutional lenders by the BSP,
(iv) Net profits-to-sales ratio; and in consultation with the SEC: Provided,
(v) Such other financial indicators as That all such evidences of indebtedness
may be prescribed by the SEC. These shall be held on to maturity and shall neither
additional data shall likewise be be negotiated nor assigned to any one other
incorporated in the prospectus. than the BSP and the DBP, with respect to
(c) The SEC may, whenever it deems private development banks in connection
necessary impose other requirements in with their rediscounting privilege, and
addition to those enumerated in subsections financial intermediaries with quasi-banking
(a) and/or (b) above. functions;

APP. Q-7
05.12.31
(f) Evidence of indebtedness the Sec. 8. Action on Application for

total outstanding amount of which does Registration
not exceed P5,000,000 and issued to not (a) Within sixty (60) days after
more than ten (10) primary lenders other receipt of the complete application for
than those mentioned in subsection (e) registration, the SEC shall act upon the
above, which evidence of indebtedness application and shall, in the appropriate
shall be payable to a specific person and case, grant the applicant a Certificate of
not to bearer and shall neither be Registration and Authority to Issue
negotiated nor assigned but held on to Commercial Papers.
maturity; (b) The SEC shall return any
(g) Evidence of indebtedness application for registration, in cases where
denominated in foreign currencies; and the requirement of applicable laws and
(h) Evidence of indebtedness arising regulations governing the issuance of
from bonafide sale of goods or property. commercial papers have not been
complied with, or for reasons which shall
Sec. 5. Other Commercial Papers be so stated.
Exempt from Registration. Commercial
papers issued by any financial Sec. 9. Ordinary Registration. If the
intermediary authorized by the BSP to value of commercial papers applied for,
engage in quasi-banking functions shall be when added to the total outstanding
exempt from registration under Section 3, liabilities of the applicant, does not exceed
but shall be subject to payment of the 300% of networth based on the financial
exemption fee, as provided under Section statements referred to under Section 3(a)
15, and to the reportorial requirements (3), the commercial papers shall be
under Section 17, all under these Rules. registered upon compliance with the
requirements specified in Section 3(a)
Sec. 6. Prohibition. No commercial hereof. The same principle shall apply in
paper, except of a class exempt under the case of renewal of the Authority to
Sections 4 and 5 hereof, shall be issued Issue Commercial Paper.
unless such commercial paper shall have
been registered under these Rules: Sec. 10. Special Registration. If the
Provided, That no registered commercial value of commercial paper applied for
paper issuer may issue commercial paper exceeds 300% of networth, as
exempt per se under Section 4 (f) hereof. contemplated in the preceding section, it
shall be subject to compliance with the
Sec. 7. Compliance with Bangko requirement under Section 3(b) hereof.
Sentral Quasi-Banking Requirements
Nothing in these Rules shall be construed Sec. 11. Validity Period of the
as an exemption from or a waiver of the Authority to Issue Commercial
applicable BSP rules/regulations or Paper.The authority to issue commercial
circulars governing the performance of papers shall be valid for a period of 365
quasi-banking functions or financial days which shall be indicated in the
intermediaries duly authorized to engage Authority to Issue Commercial Paper,
in quasi-banking activities. Any violation provided that renewal thereof, upon
of said BSP rules/regulations or circulars application filed at least forty five (45)
shall be considered a violation of these days prior to its expiry date, may be for a
rules and regulations. period shorter than 365 days.

APP. Q-7
05.12.31
Sec. 12. Conditions of the Authority Sec. 14. Minimum Maturity Value
to Issue Commercial Paper The maturity value of each registered
(a) In the event that the commercial commercial paper instrument shall not be
paper issuer fails to pay in full any lower than P300,000.
commercial paper upon demand at stated
maturity date, the Authority to Issue Sec. 15. Fees. Every registrant shall
Commercial Paper is automatically pay the following fees:
suspended. The selling agent shall, within (a) Upon application for registration,
the next working day, notify the SEC and for renewals thereof, a filing fee of
thereof, and the SEC shall forthwith issue not more than 1/50th of 1% based on the
a formal Cease-and-Desist Order, total commercial paper proposed to be
enjoining both the issuer and the selling issued.
agent from further issuing or selling (b) For issuers of commercial paper
Commercial papers. exempt under Section 5 hereof, an annual
(b) Whenever necessary to exemption fee of P10,000.
implement the monetary and credit
policies promulgated from time to time Sec. 16. Notice of Availment
by the Monetary Board of the BSP, the SEC Whenever the credit line is drawn upon,
may suspend the Authority to Issue the selling agent and/or issuer shall, within
Commercial Paper, or reduce the two (2) working days immediately
authorized amount thereunder, or following the date of drawdown, notify the
schedule the maturities of the registered SEC of such event, indicating the amount
commercial paper to be issued. availed of and the total availment as of that
given time.
Sec. 13. Basic Features of
Registered Commercial Papers Sec. 17. Periodic Reports
(a) All registered commercial paper (a) Issuers of registered commercial
instruments shall have a standard format, papers and those exempt under Section 5
serially pre-numbered, and denominated. hereof shall submit to the SEC and the BSP
The instrument shall state, among others, the following reports in the prescribed form:
the debt ceiling of the registrant and a (1) Monthly reports on commercial
notice that information about the registrant papers outstanding as at the end of each
submitted in connection with the month, to be submitted within ten (10)
registration and other reportorial working days following the end of the
requirements from the issuer is available reference month;
at the SEC and open to public inspection (2) Quarterly reports on commercial
and that the issuer is not authorized by the paper transactions, accompanied by an
BSP to perform quasi-banking functions. interim quarterly financial statement, to be
(b) A specimen of the proposed submitted within thirty (30) calendar days
commercial paper instrument shall be following the end of the reference quarter; and
submitted to the SEC for approval of the (3) For issuers whose application for
text thereof. registration was under Section 10 hereof,
(c) The approved instrument shall be the projected quarterly cash flow statements
printed by the BSP Security Printing Plant with the corresponding quarter's actual
pursuant to a prior authorization from the figure, to be submitted within ten (10)
SEC, and shall be released by the SEC to working days following the end of the
the issuer. reference quarter;

APP. Q-7
05.12.31
(b) These periodic reports shall be palpable fraud, or violation of the disclosure
signed under oath by the corporate officers requirements of the Securities Act and of
authorized pursuant to a board resolution these Rules and Regulations.
previously filed with the SEC; The issuance of such Cease-and-Desist
(c) Issuers whose offices are located Order automatically suspends the
in the provinces may submit their reports Authority to Issue Commercial Paper.
to the nearest extension offices of the SEC. Such Cease-and-Desist Order shall be
confidential in nature until after the imposition
Sec. 18. Administrative Sanctions. If of the sanctions mentioned in Section 18 shall
the SEC finds that there is a violation of have become final and executory.
any of these Rules and Regulations and Immediately upon the issuance of an
implementing circulars or that any issuer, ex-parte Cease-and-Desist Order, the SEC
in a registration statement and its shall notify the parties involved, and
supporting papers, as well as in the schedule a hearing on whether to lift such
periodic reports required to be filled with order, or to impose the administrative
the SEC and the BSP, has made any untrue sanctions provided for in Section 18 not later
statement of a material fact, or omitted to than fifteen (15) days after receipt of notice.
state any material fact required to be stated
therein or necessary to make the statements Sec. 20. Repealing Clause. These
therein not misleading, or refuses to permit Rules and Regulations supersede the Rules
any lawful examination into its corporate on Registration of Commercial Papers
affairs, the SEC shall, in its discretion, impose dated 10 December 1975, and all the
any or all of the following sanctions: amendments to said Rules. All other rules,
(a) Suspension or revocation, after regulations, orders, and memoranda
proper notice and hearing, of the Certificate circular of the SEC which are inconsistent
of Registration and Authority to Issue herewith are likewise hereby repealed or
Commercial Paper; modified accordingly.
(b) A fine in accordance with the
guidelines that the SEC shall issue from Sec. 21. Transitory Provision. Any
time to time: Provided, however, That authority to Issue Commercial Paper, valid
such fine shall in no case be less than P200 and subsisting as of the date of the
or more than P50,000 for each violation, effectivity of these Rules and Regulations,
plus not more than P500 for each day of shall remain valid and upon its expiration
continuing violation. Annex "B" hereof shall may, at the discretion of the SEC and
initially be the guideline on the scale of fines; subject to such conditions as it may
(c) Other penalties within the power impose, be renewed on the basis of the
of the SEC under existing laws; and Rules of Registration of Commercial Papers
(d) The filing of criminal charges against dated 10 December 1975 for an aggregate
the individuals responsible for the violation. period not exceeding fifteen (15) months
from its expiry date.
Sec. 19. Cease-and-Desist Order. The
SEC may, on its own motion or upon Sec. 22. Effectivity. These Rules and
verified complaint by an aggrieved party, Regulations shall take effect on 11
issue a Cease-and-Desist Order ex-parte December 1981.
if the violation(s) mentioned in Section 18
may cause great or irreparable injury to (Editors Note: Annexes "A" and "B" are
the investing public, or may amount to not reproduced in this Appendix.)

APP. Q-8
05.12.31
NEW RULES ON THE REGISTRATION OF LONG-TERM COMMERCIAL PAPERS

(Appendix to Subsecs. 4211Q.9 and 4217Q.3)
Pursuant to Section 4(b) of the Revised manager for a principal under a fund
Securities Act and other existing applicable management agreement, and does not
laws, the SEC hereby promulgates the include numbered accounts.
following New Rules and Regulations h. Net worth shall refer to the excess
governing long-term commercial papers, in of total assets over total liabilities, net of
the interest of full disclosure and protection appraisal surplus.
of investors and lenders, in accordance with i. Subsidiary shall refer to a company
the monetary and credit policies of the BSP: more than fifty percent (50%) of the
outstanding voting stock of which is directly
Section 1. Scope. These Rules shall or indirectly owned, controlled, or held
apply to long-term commercial papers with power to vote by another company.
issued by corporations. j. Affiliate shall refer to a concern
linked, directly or indirectly, to another by
Sec. 2. Definitions. For purposes of means of:
these Rules, the following definitions shall 1) Ownership control and power to
apply: vote of ten percent (10%), but not more
a. Long-term commercial papers than fifty percent (50%), of the outstanding
shall refer to evidence of indebtedness of voting stock.
any corporation to any person or entity with 2) Common major stockholders; i. e.,
maturity period of more than 365 days. owning ten percent (10%), but not more
b. Interbank loan transactions shall than fifty percent (50%), of the outstanding
refer to borrowings between and among voting stock.
banks and quasi-banks. 3) Management contract or any
c. Issue shall refer to the creation of arrangement granting power to direct or
commercial paper and its actual or cause the direction of management and
constructive delivery to the payee. policies.
d. Appraised value shall refer to the 4) Voting trustee holding ten percent
value of chattel and real property, as (10%), but not more than fifty percent
established by a duly licensed and (50%), of the outstanding voting stock.
independent appraiser. 5) Permanent proxy constituting ten
e. Current market value shall refer percent (10%), but not more than fifty percent
to the value of the securities at current (50%), of the outstanding voting stock.
prices, as quoted at the stock exchanges. k) Underwriting shall refer to the act
f. Recomputed debt-to-equity ratio or process of distributing and selling of any
shall refer to the proportion of total kind of original issues of long-term
outstanding liabilities, including the commercial papers of a corporation other
amount of long-term commercial papers than those of the underwriter itself, either
applied for, and any unissued authorized on guaranteed or best-effort basis.
commercial papers to net worth. l) Trust accounts shall refer to those
g. Specific person shall refer to a duly accounts with a financial institution
named juridical or natural person as an authorized by the BSP to engage in trust
investor for its or his own account, a trustee functions, wherein there is a trustor-trustee
for one or more trustors, an agent or fund relationship under a trust agreement.

APP. Q-8
05.12.31
Sec. 3. Conditions for Registration compliance with the registration

Long-term commercial papers shall be requirements specified in Sec. 4 hereof.
registered under any of the following The conditions under which the
conditions: commercial papers of a registrant were
a. Collateral registered shall be strictly maintained
The amount of long-term commercial during the validity of the Certificate of
papers applied for is covered by the Registration.
following collaterals which are not
encumbered, restricted, or earmarked for Sec. 4. Registration Requirements
any other purpose and which shall be Any corporation desiring to issue long-term
maintained at their respective values at all commercial papers shall apply for
times, indicated in relation to the face value registration with, and submit to, the SEC
of the long-term commercial paper issue; the following:
1) Securities listed in - Current market
a. Sworn Registration Statement in the
the stock exchanges value of 200% form prescribed by the SEC;
2) Registered real estate - Appraised value b. Board resolution signed by a
mortgage of 150% majority of its members -
3) Registered chattel mort- - Appraised value 1) authorizing the issue of long-term
gage on heavy equipment, of 200%
machinery, and similar commercial papers;
assets acceptable to the 2) indicating the aggregate amount to
Commission and registrable be applied for;
with the appropriate 3) stating purpose or usage of
government agency
proceeds thereof;
b. Financial Ratios 4) providing that the registration
A registrant who meets such standard, statement shall be signed by any of the
as may be prescribed by the SEC, based following: the principal executive officer,
on the following complementary financial the principal operating officer, the principal
ratios for each of the immediate past three financial officer, the comptroller or
(3) fiscal years: principal accounting officer, or persons
1) Ratio of (a) the total cash, performing similar functions; and
marketable securities, current receivables 5) designating at least two senior
to (b) the total of current liabilities; officers with a rank of Vice-President, or
2) Debt-to-equity ratio, with debt higher of their equivalent, to sign the
referring to all kinds of indebtedness, commercial paper instruments to be issued.
including guarantees; c. The latest audited financial statements
3) Ratio of (a) net income after taxes and should the same be as of a date more
to (b) net worth; than three (3) months prior to the filing of the
4) Net profits to sales ratio; and registration statements, an unaudited
5) Such other financial indicators, as financial statement as of the end of the
may be required by the SEC. immediately preceding month; Provided,
c. Debt to equity however, That such unaudited financial
The recomputed debt-to-equity to ratio statement shall be certified under oath by
of the applicant based on the financial the accountant and the senior financial officer
statements required under Sec. 4.c. hereof of the applicant duly authorized for the
shall not exceed 4:1: Provided, That the purpose and substituted with an audited
authorized short-term commercial papers financial statement within 105 days after the
do not exceed 300% of net worth and upon end of the applicant's fiscal year;

APP. Q-8
05.12.31
d. Schedules A to L based on applicant's Board of Directors which,

subsection c above, in the form attached among others, shall contain the following:
as Annex "A"; 1) A statement printed in red on the
e. Income statements for the left-hand margin of the front page, to wit:
immediate past three (3) fiscal years "A registration statement relating to
audited by an independent certified public these long-term commercial papers has
accountant: Provided, That if the applicant been filed with, but has not yet been
has been in operation for less than three approved by, the SEC. Information
(3) years, it shall submit income statements contained herein is subject to completion
for such number of years that it has been or amendment. These long-term
in operation; commercial papers may not be sold nor
f. An underwriting agreement for may offers to buy be accepted prior to the
the long-term commercial paper issues approval of the registration statement. This
with an expanded commercial bank or an preliminary prospectus shall not constitute
investment house, or any other financial an offer to buy nor shall there be any sale
institution which may be qualified of these long-term commercial papers in
subsequently by the BSP with minimum the Philippines as such offer, solicitation,
condition, among others, that the or sale is prohibited prior to registration
underwriter and the issuer shall be jointly under the Revised Securities Act."
responsible for complying with all 2) Aggregate maximum amount
reportorial requirements of the SEC and applied for, stated on the front page of the
the BSP in connection with the long-term prospectus;
commercial paper issue, it being 3) Description and nature of the
understood that the primary responsibility applicant's business;
for the submission of the report to these 4) Intended use of proceeds;
regulatory agencies is upon the 5) Provisions in the underwriting
underwriting agreement and thereafter, agreement, naming the underwriter and its
the responsibility shall devolve upon this responsibilities in connection with, among
issuer: Provided, however, That if the issuer others, the reportorial requirements under
is unable to provide the information these Rules;
necessary to meet such reportorial 6) Other obligations of the applicant
requirements, the underwriter shall, not classified by maturities - maturing within six
later than two (2) working days prior to (6) months; from six (6) months to one (1)
the date when the report is due, notify the year; and one (1) year and past-due amounts;
SEC of such inability on the part of the 7) List of assets which are
issuer: Provided, further, That if the encumbered, restricted, or earmarked for
underwriting agreement is with a group any other purposes;
composed of expanded commercial banks 8) List of directors, officers, and
and/or investment houses or any financial stockholders owning two percent (2%) or
institutions which may be qualified more of the total outstanding voting stock
subsequently by the BSP, there shall be a of the corporation, indicating any advance
syndicate manager acting and responsible to said directors, officers, and stockholders;
for the group: Provided, finally, That the 9) List of entities where it owns more
underwriter may be changed subject to prior than thirty three and one third percent (33
approval by the SEC; 1/3%) of the total outstanding voting stock,
g. A typewritten copy of a as well as borrowings from, and advances
preliminary prospectus approved by the to, said entities.

APP. Q-8
05.12.31
h. Projected annual cash flow deducted from the authorized amount and
statement presented on a quarterly basis may no longer be reissued even if
as of the approximate date of issuance for reacquired in any manner, pursuant to the
a period co-terminus with the life time of terms and conditions of issue.
the issue, indicating the basic assumptions
thereto and supported by schedules on Sec. 7. Long-Term Commercial
actual maturity patterns of outstanding Papers Exempt Per Se. The following
receivables and liabilities (under six (6) specific long-term debt instruments are
months, six (6) months to one (1) year, over exempt per se from the provisions of
one (1) year, and past-due accounts) and these Rules:
inventory turnover; a. Evidence of indebtedness arising
i. Data on financial indicators, as may from interbank loan transactions;
be prescribed by the SEC, for each of the b. Evidence of indebtedness issued
immediate past three (3) fiscal years, such by the national and local governments;
as on solvency, liquidity, and profitability. c. Evidence of indebtedness issued
The SEC may, whenever it deems by government instrumentalities, the
necessary, impose other requirements in repayment and servicing of which are
addition to those enumerated above. fully guaranteed by the National
Government;
Sec. 5. Action on Application for d. Evidence of indebtedness issued
Registration to the BSP under its open market and/or
a. Within sixty (60) days after receipt rediscounting operations;
of the complete application for registration, e. Evidence of indebtedness issued
the SEC shall act upon the application and by the BSP, PNB, DBP, and LBP;
shall, in the appropriate case, grant the f. Evidence of indebtedness issued
applicant a Certificate of Registration and to the following primary institutional
Authority to Issue Long-Term Commercial lenders: banks, including their trust
Papers valid for one (1) year, which may accounts, trust companies,quasi-banks,
be renewed annually with respect to the investment houses, including their trust
unissued balance of the authorized amount, accounts, financing companies,
upon showing that the registrant has strictly investment companies, non-stock savings
complied with the provisions of these Rules and loan associations, building and loan
and the terms and conditions of the associations, venture capital corporations,
Certificate of Registration. special purpose corporations referred to
b. The SEC shall return any application in Central Bank Monetary Board
for registration, in cases where the Resolution No. 1051 dated 19 June 1981,
requirements of applicable laws and insurance companies, government
regulations governing the issuance of long- financial institutions, pawnshops, pension
term commercial papers have not been and retirement funds approved by the
complied with, or for reasons which shall BIR, educational assistance funds
be so stated. established by the national government,
and other entities that may be classified
Sec. 6. Close-end Registration as primary institutional lenders by the
Registration of long-term commercial BSP, in consultation with the SEC:
papers under these Rules shall be a close- Provided, That all such evidences of
end process, whereby the portion of the indebtedness shall be held on to maturity
authorized amount already issued shall be and shall neither be negotiated nor

APP. Q-8
05.12.31
assigned to any one other than the BSP, Sec. 8. Other Long-Term
and the DBP, with respect to private Commercial Papers Exempt from
development banks in connection with Registration. The following long-term
their rediscounting privileges, and commercial papers shall be exempt from
financial intermediaries with quasi- registration under Secs. 3 and 4 hereof, but
banking functions; shall be subject to the payment of the
g. Evidence of indebtedness, the exemption fee, as prescribed under Section
total outstanding amount of which does 14, and to the reportorial requirements
not exceed P15.0 million and issued to under Section 15 of these Rules:
not more than fifteen (15) primary lenders a. Long-term commercial papers
other than those mentioned in subsection issued by a financial intermediary
(f) above, which evidence of indebtedness authorized by the BSP to engage in quasi-
shall be payable to specific persons, and banking functions;
not to bearers, and shall neither be b. Long-term commercial papers
negotiated nor assigned but held on to fully secured by debt instruments of the
maturity: Provided, That the aggregate National Government and the BSP and
amount of P15.0 million shall include physically delivered to the trustee in the
outstanding short-term commercial Trust Indenture.
papers: Provided, further, That in
reckoning compliance with the number Sec. 9. Prohibitions
of primary lenders under this Section, a. No long-term commercial papers
holders of such papers exempt under Sec. shall be issued, or negotiated or assigned
4(f) of the Rules on Registration of Short- unless the requirements of these Rules shall
Term Commercial Papers, as amended, have been complied with: Provided, That
shall be counted: Provided, furthermore, no registered long-term commercial paper
That such issuer shall: issuer may issue long-term commercial
1) File (1) a disclosure statement paper exempt per se under Section 7(g)
prior to the issuance of any evidence of hereof.
indebtedness; and (2) a quarterly report b. There shall be no pretermination
on such borrowings in the forms of long-term commercial papers either by
prescribed by the SEC; and the issuer or the lender within 730 days
2) Indicate in bold letters on the face from issue date. Pretermination shall
of the instrument the words "NON- include optional redemption, partial
NEGOTIABLE, NON-ASSIGNABLE": installments, and amortization payments;
and Provided, finally, That any issuer, in however, installment and amortization
accordance with the Rules on Registration payments may be allowed, if so stipulated
of Long-Term Commercial Papers and in the loan agreement.
Bonds dated 15 October 1976 and with
outstanding long-term commercial papers Sec. 10. Compliance with Bangko
falling under this subsection as of the Sentral Quasi-Banking Requirements
effectivity date hereof, shall likewise file Nothing in these Rules shall be construed
the prescribed disclosure statement and as an exemption from, or a waiver of, the
the quarterly report on such borrowings; applicable BSP rules and regulations
h. Evidence of indebtedness governing the performance of quasi-
denominated in foreign currencies; and banking functions. Any violation of said
i. Evidence of indebtedness arising BSP rules and regulations shall be
from bona fide sale of goods or property. considered a violation of these Rules.

APP. Q-8
05.12.31
Sec. 11. Conditions of the Authority submitted in connection with the

to Issue Long-Term Commercial Papers registration, and other reportorial
a. During the effectivity of the requirements from the issuer is available
underwriting agreement, should the issuer at the SEC and open to public inspection,
fail to pay in full any interest due on or and that the issuer is not authorized by the
principal of long-term commercial paper BSP to perform quasi-banking functions.
upon demand at stated maturity date, the b. A specimen of the proposed
Authority to Issue Long-Term Commercial commercial paper instrument shall be
Papers shall be automatically suspended. submitted to the SEC for approval of the
The underwriter shall, within the next text thereof.
working day, notify the SEC thereof, and c. The instrument approved by the
the SEC shall forthwith issue a formal SEC shall be printed by an entity authorized
Cease-and-Desist Order enjoining both by the SEC and shall be released by the
the issuer and the underwriter from further SEC to the issuer.
issuing or underwriting long-term
commercial papers. Sec. 13. Minimum Principal Amount
b. Upon the expiration of the The minimum principal amount of each
underwriting agreement, it shall be the registered long-term commercial paper
responsibility of the issuer to notify the SEC instrument shall not be lower than the
that it failed to pay in full any interest due amounts indicated in the following
on, or principal of, long-term commercial schedule:
paper upon demand at stated maturity date a. Up to two years P100,000
and has accordingly automatically b. Over two years but less
suspended the issuance of its long-term than four years 50,000
commercial papers. Within the next c. Four years or more 20,000
working day, the SEC shall forthwith issue
a formal Cease-and-Desist Order enjoining Sec. 14. Fees. Every registrant shall
the issuer from further issuing long-term pay the following fees:
commercial papers. a. Upon application for registration,
c. Whenever necessary to implement a filing fee of 1/20 of one percent 1% based
the monetary and credit policies on total commercial paper proposed to be
promulgated from time to time by the issued, but not to exceed P75,000.
Monetary Board of the BSP, the SEC may b. For issuers of commercial papers
suspend the authority to issue long-term exempt under Section 8 hereof, an annual
commercial paper, or reduce the exemption fee of P10,000.
authorized amount thereunder, or
schedule the maturities of the registered Sec. 15. Periodic Reports
long-term commercial paper to be issued. a. Issuers of registered long-term
commercial papers, through their
Sec. 12. Basic Features of Registered underwriters and those exempt under
Commercial Papers Section 8 hereof, shall submit the following
a. All registered commercial paper reports in the form prescribed by the SEC:
instruments shall have a standard format, 1) Monthly reports on long-term
serially pre-numbered, and denominated. commercial papers outstanding as at the
The instrument shall state, among others, end of each month, to be submitted within
the debt ceiling of the registrant and a notice ten (10) working days following the end of
that information about the registrant the reference month;

APP. Q-8
05.12.31
2) Quarterly reports on long-term c. Other penalties within the power

commercial paper transactions, of the SEC under existing laws; and
accompanied by an interim quarterly d. The filing of criminal charges
financial statement to be submitted within against the individuals responsible for the
thirty (30) calendar days following the end violation.
of the reference quarter; and
3) Actual quarterly cash flow Sec. 17. Cease-and-Desist Order
statement, to be submitted within ten (10) a. The SEC may, on its own motion
working days following the end of the or upon verified complaint by an
reference quarter. aggrieved party, issue a Cease-and-Desist
b. These periodic reports shall be Order ex-parte, if the violation(s)
signed under oath by the corporate officers mentioned in Section 16 hereof may
authorized, pursuant to a board resolution cause great or irreparable injury to the
previously filed with the SEC. investing public, or will amount to
c. Issuers whose offices are located palpable fraud or violation of the
in the provinces may, through their disclosure requirements of the Revised
underwriters, submit their reports to the Securities Act and of these Rules and
nearest extension office of the SEC. Regulations.
b. The issuance of such Cease-and-
Sec. 16. Administrative Sanctions Desist Order automatically suspends the
If the SEC finds that there is a violation of Authority to Issue Long-Term Commercial
any of these Rules and Regulations and Paper.
implementing circulars, or that any issuer, c. Such Cease-and-Desist Order
in a registration statement and its shall be confidential in nature, until after
supporting papers, as well as in the periodic the imposition of the sanctions mentioned
reports required to be filed with the SEC in Section 16 hereof shall have become
and the BSP, has made any untrue final and executory.
statement of a material fact, or omitted to d. Immediately upon the issuance
state any material fact required to be stated of an ex-parte Cease-and-Desist Order,
therein or necessary to make the the SEC shall notify the parties involved,
statements therein not misleading, or and schedule a hearing on whether to lift
refuses to permit any lawful examination such order, or to impose the administrative
into its corporate affairs, the SEC shall, in sanctions provided for in Section 16 not
its discretion, impose any or all of the later than fifteen (15) days after receipt of
following sanctions: notice.
a. Suspension or revocation, after
proper notice and hearing, of the Certificate Sec. 18. Repealing Clause. These
of Registration and Authority to Issue Rules and Regulations supersede the
Commercial Paper; Rules on Registration of Long-Term
b. A fine in accordance with the Commercial Paper and Bonds dated 15
guidelines that the SEC shall issue from time October 1976 and all the amendments to
to time: Provided, however, That such fine said Rules except as provided in Section
shall in no case be less than P200 nor more 19 hereof. All other rules, regulations,
than P50,000 for each violation, plus not orders, memoranda circular of the SEC,
more than P500 for each day of continuing which are inconsistent herewith, are
violation. Annex "B" hereof shall initially be likewise hereby repealed or modified
the guidelines on the scale of fines; accordingly.

APP. Q-8
05.12.31
Sec. 19. Transitory Provision of the issuer's approved long-term debt

a. Any authority or Certificate of ceiling solely for refinancing of maturing
Exemption to Issue Long-Term long-term commercial paper issue for a
Commercial Papers, granted under the period not beyond fifteen (15) months from
Rules on Registration of Long-Term the effectivity date of these Rules.
Commercial Papers dated 15 October
1976, valid and subsisting as of the date Sec. 20. Effectivity. These Rules
of the effectivity of these Rules, shall and Regulations shall take effect fifteen
remain valid with respect only to all (15) days after publication in two
outstanding issue until such issues are newspapers of general circulation in the
retired or redeemed. Philippines.
b. The SEC may, at its discretion and
subject to such conditions it may impose, (Ed. Note: Annexes "A" and "B" are not
authorize issuance of any unissued portion reproduced in this Appendix.)

APP. Q-9
05.12.31
LIST OF RESERVE - ELIGIBLE AND NON-ELIGIBLE SECURITIES

A.Government securities ELIGIBLE as percent (4%) per annum, issued by

reserves government-owned or controlled
1. Direct obligations of the Government of corporations, political subdivisions and
the Republic of the Philippines eligible as instrumentalities likewise eligible as
reserve against peso deposit liabilities and reserves against peso deposit liabilities and
deposit substitute liabilities: deposit substitute liabilities:
a. 4% PWED Bonds all outstanding 4% NAWASA Bonds
series (1st to 9th &13th Series)
b. 4% NPC Bonds (26th - 50th Series
except 39th Ser. which bear 6% - 3. The following government securities
obligation assumed by the National bearing more than four percent (4%) per
Government) annum interest, whether Bangko Sentral
c. 4% Treasury Bonds (30th S; 57th supported or not, if being used by banks/
S; 59th-71st S; 78th-93rd S) quasi-banks as reserve against deposit
Treasury Bonds with less than 4% per substitute liabilities as of 17 January 1977
annum interest considered eligible by shall continue to be eligible as such:
reason of expressed BSP limited support to Provided, That whenever said securities
original purchaser: shall have matured, they shall be replaced
by securities carrying the features/
2% T/Bond L of 1973/2003 conditions enumerated under Circular No.
1st Series (1st & 2nd Release) 638, dated 8 November 1978, as
3% T/Bond L of 1978/2008 amended:
55th Series (1st Release)
4% T/Bond L of 1979/2009 6% PWED Bonds - All outstanding issues
55th Series (2nd Release) 6% NPC Bonds - -do
7% NPC Bonds - -do
3-¼% T/Bond L of 1974/1999
8-½% NPC Bonds - 3th - 22nd Series
6th Series (1st-2nd Release) 7% MWSS Capital Bonds- All outstanding issues
3-¼% T/Bond L of 1978/2003 6% NIA Bonds - -do-
54th Series (1st--3rd Release) 4½% Treasury Bonds - -do-
4 710 % Treasury Bonds - 7th Series
5% Treasury Bonds - 9th Series
d. 4% Treasury Notes L of 1980/1995 6% Treasury Bonds - 8th Series
115th Series 7% Treasury Bonds - All outstandingissues
except 15th Series
e. Bonds made specifically eligible to 10-¾% Treasury Bonds - All outstanding issues
its holders only: 9% Treasury Notes - 60th - 65th Series
10-½% Treasury Notes - 101st Series (1st & 2nd
4% Treasury Capital Bonds -- DBP only Release)
2% Capital Treasury Bonds -- PNB only 10-¾% Treasury Notes - 56th and 61st Series
11-¼% Treasury Notes - 59th Series
6% NAWASA Bonds - 11th, 12th and 1st Series
2. Bonds and other evidences of 10% EPZA Bonds - 9th - 11th Series
indebtedness bearing interest rate of four 10-¾% EPZA Bonds - 3rd - 8th Series

APP. Q-9
05.12.31
B. The following government securities are 2-¾%T/Bond L of 1974/1986 7-A & 7-B Series
not eligible whatsoever for reserve 3% T/Bond L of 1976/2001 26th, 27th, 31st -
34th, 46th & 47th Series
purposes: 3% T/Bond L of 1977/2002 49th Series
Negotiable Land Certificate (NLC) 3-¼%T/Bond L of 1974/1999
Cultural Center of the Philippines (CCP) Bonds 6th Series 3rd & 4th Release
Philippine Charity Sweepstakes Office (PCSO) 3-¼%T/Bond L of 1977/2002
Bonds 6th Series 5th Release
Public Estate Authority (PEA) Bonds 3-¼%T/Bond L of 1975/2000
National Development Company (NDC) Bonds 21st Series 1st Release
National Housing Authority (NHA) Bonds 3-¼%T/Bond L of 1977/2002
National Food Authority (NFA) Bonds 21st Series 2nd Release
NHMFC Bahayan Certificates 3-¼%T/Bond L of 1977/2002
Light Rail Transit Authority (LRTA) Notes 51st Series 1st & 2nd Release
CBCIs (Auctioned/discounted) - 24th -29th Series 3-¼%T/Bond L of 1978/2003
CBCIs (Negotiated) A to D-1Series and 5th to 7th 54th Series 1st & 34th Release
Series (18 months) 3-¼%T/Bond L of 1980/2005 58th Series
CBCIs 10-½% Special Series 1st - 32nd Series 3-¾%T/Bond L of 1973/2003 2nd Series
Central Bank Bills (Negotiated/discounted)
Treasury Bills (Negotiated/discounted) Treasury Notes
Treasury Notes and Treasury Bonds bearing less 2% T/Notes L of 1976/1991 79th Series
than four percent (4%) per annum, but not 3% T/Notes L of 1982/1997 128th Series
given BSP support as follows: 3% T/Notes L of 1981/1986
120th Series & 125th Series
Treasury Bonds 3-½%T/Notes L of 1982/1997
2% T/Bond L of 1973/2003 4th Series Special Series 1st-24th Release

APP. Q-10
08.12.31
GUIDELINES IN IDENTIFYING AND MONITORING PROBLEM LOANS

AND OTHER RISK ASSETS AND SETTING UP OF ALLOWANCE
FOR PROBABLE LOSSES
I. Classification of loans. In addition to a. Loans with unregistered mortgage

classifying loans as either current or past instrument which is not in compliance with
due, the same should be qualitatively the loan approval;
appraised and grouped as Unclassified or b. Loans with improperly executed
Classified. supporting deed of assignment/pledge
agreement/chattel mortgage/real estate
A. Unclassified loans. These are loans mortgage;
that do not have a greater-than-normal risk c. Loans with unnotarized mortgage
and do not possess the characteristics of instruments/agreements;
classified loans as defined below. The d. Loans with collaterals not covered
borrower has the apparent ability to satisfy by appraisal reports or appraisal reports not
his obligations in full and therefore no loss updated;
in ultimate collection is anticipated. The e. Loan availments against expired
following loans, among others, shall not credit line; availments in excess of credit
be subject to classification: line; availments against credit line without
1. Loans or portions thereof secured prior approval by appropriate authority;
by hold-outs on deposit substitutes f. Loans with collaterals not insured
maintained in the lending institutions, or with inadequate/expired insurance
margin deposits, or government-supported policies or the insurance policy is not
securities; endorsed in favor of the QB;
2. Loans with technical defects and g. Loans granted beyond the limits of
deficiencies in documentation and/or approving authority;
collateral requirements. These deficiencies h. Loans granted without compliance
are isolated cases where the exceptions with conditions stated in the approval; and
involved are not material nor is the QB’s i. Loans secured by property the title
chance to be repaid or the borrower’s to which bears an uncancelled annotation
ability to liquidate the loan in an orderly or lien or encumbrance.
manner undermined. These exceptions
should be brought to management’s B. Classified loans. These are loans which
attention for corrective action during the possess the characteristics outlined
examination and those not corrected hereunder. Classified loans are subdivided
shall be included in the Report of into (1) loans especially mentioned; (2)
Examination under “Miscellaneous substandard; (3) doubtful; and (4) loss.
Exceptions – Loans”. Moreover, 1. Loans especially mentioned. These
deficiencies which remained uncorrected are loans that have potential weaknesses
in the following examination shall be that deserve management’s close attention.
classified as “Loans Especially These potential weaknesses, if left
Mentioned”. uncorrected, may affect the repayment of
The following are examples of loans to the loan and thus increase credit risk to the
be cited under “Miscellaneous Exceptions QB. Their basic characteristics are as
– Loans”: follows:

APP. Q-10
08.12.31
a. Loans with unlocated collateral h. Loans previously cited as

folders and documents including, but not Miscellaneous Exceptions still
limited to, title papers, mortgage uncorrected in the current BSP
instruments and promissory notes; examination.
b. Loans to firms not supported by 2. Substandard. These are loans or
board resolutions authorizing the portions thereof which appear to involve
borrowings; a substantial and unreasonable degree of
c. Loans without credit investigation risk to the institution because of
report; unfavorable record or unsatisfactory
d. Loans not supported by the characteristics. There exists in such loans
documents required under Subsec. the possibility of future loss to the
4312Q.1 except: institution unless given closer
(1) consumer loans, with original supervision. Those classified as
amounts not exceeding P2.0 million: “Substandard” must have a well-defined
Provided, That these loans are current, and weakness or weaknesses that
are supported by latest ITR or by BIR Form jeopardize their liquidation. Such
2316 or payslips for at least three (3) well-defined weaknesses may include
months immediately preceding the date a d v e r s e trends or development of
of loan application, and financial financial, managerial, economic or
statements submitted for taxation purposes political nature, or a significant weakness
to the BIR, as may be applicable, at the in collateral. Their basic characteristics
time they were granted, renewed, are as follows:
restructured or extended. For this purpose, a. Secured loans
consumer loans is defined to include (1) Past due and circumstances are
housing loans, loans for purchase of car, such that there is an imminent possibility
household appliance(s), furniture and of foreclosure or acquisition of the
fixtures, loans for payment of educational collateral because of failure of all collection
and hospital bills, salary loans and loans efforts;
for personal consumption, including credit (2) Past due loans to borrowers whose
card loans. properties securing the loan have declined
(2) Loans which are exempted from the in value materially or have been found with
additional documentary requirements defects as to ownership or other adverse
under Subsec. 4312Q.1 information; and
e. Loans the repayment of which may (3) Current loans to borrowers whose
be endangered by economic or market AFSs show impaired/negative net worth
conditions that in the future may affect the except for start-up firms which should be
borrower’s ability to meet scheduled evaluated on a case-to-case basis.
repayments as evidenced by a declining b. Unsecured loans
trend in operations, illiquidity, or increasing (1) Renewed/extended loans of
leverage trend in the borrower’s financial borrowers with declining trend in
statements; operations, illiquidity, or increasing
f. Loans to borrowers whose leverage trend in the borrower’s financial
properties securing the loan (previously statements without at least twenty percent
well-secured by collaterals) have (20%) repayment of the principal before
declined in value or with other adverse renewal or extension; and
information; (2) Current loans to borrowers with
g. Loans past due for more than thirty unfavorable results of operations for two
(30) days up to ninety (90) days; and (2) consecutive years or with impaired/

APP. Q-10
08.12.31
negative net worth except for start-up firms d. Loans wherein the possibility of
which should be evaluated on a case-to- loss is extremely high but because of
case basis. certain important and reasonably specific
c. Loans under litigation; pending factors that may work to the
d. Loans past due for more than advantage and strengthening of the asset,
ninety (90) days; its classification as an estimated loss is
e. Loans granted without requiring deferred until a more exact status is
submission of the latest AFS/ITR and/or determined.
statements of assets and liabilities to 4. Loss. These are loans or portions
determine paying capacity of the thereof which are considered uncollectible
borrower; or worthless and of such little value that
f. Loans with unsigned promissory their continuance as bankable assets is not
notes or signed by unauthorized officers warranted although the loans may have
of the borrowing firm; and some recovery or salvage value. The
g. Loans classified as “Loans amount of loss is difficult to measure and
Especially Mentioned” in the last BSP it is not practical or desirable to defer
examination which remained uncorrected writing off these basically worthless assets
in the current examination. even though partial recovery may be
3. Doubtful. These are loans or obtained in the future. Their basic
portions thereof which have the characteristics are as follows:
weaknesses inherent in those classified as a. Past due clean loans the interest of
“Substandard”, with the added which is unpaid for a period of six (6) months;
characteristics that existing facts, b. Loans payable in installments
conditions, and values make collection where amortization applicable to interest
or liquidation in full highly improbable is past due for a period of six (6) months,
and in which substantial loss is probable. unless the loan is well secured;
Their basic characteristics are as follows: c. When the borrower’s whereabouts
a. Past due clean loans classified as is unknown, or he is insolvent, or his
“Substandard” in the last BSP examination earning power is permanently impaired
without at least twenty percent (20%) and his co-makers or guarantors are
repayment of principal during the insolvent or that their guaranty is not
succeeding twelve (12) months or with financially supported;
current unfavorable credit information; d. Where the collaterals securing the
b. Past due loans secured by loans are considered worthless and the
collaterals which have declined in value borrower and/or his co-makers are
materially such as, inventories, insolvent;
receivables, equipment, and other e. Loans considered as absolutely
chattels without the borrower offering uncollectible; and
additional collateral for the loans and f. Loans classified as “Doubtful” in
previously classified “Substandard” in the the last BSP examination and without any
last BSP examination; payment of interest or substantial reduction
c. Past due loans secured by real of principals during the succeeding twelve
estate mortgage, the title to which is subject (12) months, or have current unfavorable
to an adverse claim rendering settlement credit information which renders
of the loan through foreclosure doubtful; collection of the loans highly
and improbable.

APP. Q-10
08.12.31
C. Credit card receivables. Credit card 2. The basic characteristics of real

receivables shall be classified in estate property acquired subject to "Loss"
accordance with age as follows: classification are as follows:
a. Foreclosure expenses and other
No. of days past due Classification charges included in the book value of the
91 - 120 Substandard property, excluding the amount of non-
121 - 180 Doubtful refundable capital gains tax and
181 or more Loss documentary stamp tax paid in connection
with the foreclosure/purchase which meet
The foregoing is the minimum the criteria for inclusion in the book value
classification requirement. Management of the acquired property.
may therefore formulate additional specific b. The excess of the book value over
guidelines. the appraised value.
c. Property whose title is definitely lost
II. Investments and Other Risk Assets to a third party or is being contested in
court.
A. Investment in debt securities and d. Property wherein the exercise of the
marketable equity securities. The right of usufruct is not practicable or
classification, accounting procedures, possible as when it is eroded by a river or
valuation and sales and transfers of is under any like circumstances.
investment in all debt securities and Real estate property acquired are not
marketable equity securities is in Appendix sound bank assets. Because of their nature,
Q-20. that is, non-liquid and non-productive, their
immediate disposal through sale is highly
B. Equity investment in affiliates shall be recommended.
booked at cost or book value whichever is
lower on the date of acquisition. If cost is D. Acquired or repossessed personal
greater than book value, the excess shall property
be charged in full to operations or booked 1. All personal property owned or
as deferred charges and amortized as acquired held for three (3) years or less from
expense over a period not exceeding five date of acquisition shall be classified as
(5) years. Subsequent to acquisition, if there Substandard assets.
is an impairment in the recorded value, the 2. The basic characteristics of
impairment should adequately be provided acquired or repossessed personal property
with allowance for probable losses. classified as Loss are as follows:
a. Property not sold for more than
C. Other property owned or acquired three (3) years from date of acquisition;
1. The basic characteristics of real b. Property which is worthless or not
estate property acquired subject to saleable;
"Substandard" classification are as follows: c. Property whose title is lost or is
a. Acquired for less than five (5) years being contested in court;
unless worthless. d. Foreclosure expenses and other
b. Converted into a Sales Contract charges included in the book value of the
Receivable. property; and
c. Sold subject to a firm purchase e. The excess of the book value of
commitment from a third party before the the property over its appraised or
close of the examination. realizable value.

APP. Q-10
08.12.31
E. Accounts Receivable 4. Doubtful 50

1. Accounts receivable arising from 5. Loss 100
loan and investment accounts still
uncollected after six (6) months from the B. General allowance. In addition to the
date such loans or loan installments have allowance for probable losses required
matured or have become past due shall be under Item "A", a general provision for loan
provided with a 100% allowance for losses shall also be set up as follows:
uncollected accounts receivable. 1. Five percent (5%) of the outstanding
2. All other accounts receivable balance of unclassified restructured loans
should be classified in accordance with age less the outstanding balance of restructured
as follows, unless there is good reason for loans which are considered non-risk under
non-classification: existing laws, rules and regulations; and
No. of Days Outstanding Classification 2. One percent (1%) of the outstanding
balance of unclassified loans other than
61 - 180 Substandard restructured loans less loans which are
181 - 360 Doubtful
considered non-risk under existing laws,
361 or more Loss
rules and regulations.
The classification according to age of The general loan loss provision shall be
accounts receivable should be used in computed as follows:
classifying other risk assets not covered
above. However, their classification should For Loans Not Restructured
Gross Loan Portfolio Pxxx
be tempered by favorable information (Excluding Restructured Loans)
gathered in the review. Less:Classified Loans
(based on latest BSP examination)
Loans especially mentioned P xxx
F. Accrued Interest Receivable Substandard
1. Accrued interest receivable on Secured xxx
loans or loan installments still uncollected Unsecured xxx
Doubtful xxx
after three (3) months from the date such Loss xxx xxx
loans or loan installments have matured or Unclassified Loans Pxxx
Less: Loans considered non-risk
have become non-performing shall be under existing regulations xxx
provided with a 100% allowance for Loan Portfolio, net of exclusions Pxxx
uncollected interest on loans. General Loan Loss Provision
(1% of net loan portfolio) Pxxx
2. All other accrued interest receivable
on loans or loan installments shall be For Restructured Loans
classified similar to the classification of their Restructured Loans (Gross) Pxxx
Less: Classified Loans
respective loan accounts. (based on latest BSP examination)
Loans especially mentioned Pxxx
Substandard
III. Allowance for probable losses. An Secured xxx
allowance for probable losses on the loan Unsecured xxx
accounts should be set up as follows: Doubtful xxx
Loss xxx xxx
Unclassified Restructured Loans Pxxx
A. Specific allowance Less: Loans considered non-risk
Classification Allowance (Percent) under existing regulations xxx
Restructured Loans, net of exclusions Pxxx
General Loan Loss Provision
1. Unclassified 0
(5% of net restructured loans) Pxxx
2. Loans Especially Mentioned 5
3. Substandard
(a) Secured 10 The excess of the booked general loan
(b) Unsecured 25 loss provisions over the amount required

APP. Q-10
08.12.31
as a result of the reduction of the amount percent (10%) allowance shall be required
required to be set up to one percent (1%) for the portion thereof which are covered
shall first be applied to unbooked specific by the appraised value of the collateral:
valuation reserves, whether or not Provided, further, That said collateral is
authorized to be booked on a staggered reappraised at least annually.
basis and only the remainder can be Management is, however, encouraged
considered as income. to provide additional allowance as it deems
The specific and general allowances for prudent and to formulate additional specific
probable losses shall be adjusted guidelines within the context of the herein-
accordingly for additional allowance described system.
required by the BSP: Provided, That in (As amended by Circular Nos. 622 dated 16 September 2008,
cases of partially secured loans, only ten 549 dated 09 October 2006 and 520 dated 20 March 2006)

APP. Q-11
05.12.31
FORMAT-DISCLOSURE STATEMENT OF
LOAN/CREDIT TRANSACTION
(Business Name of Creditor)
DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT

OR INSTALLMENT PLAN)
(As required under R.A. 3765, Truth in Lending Act)
Name of Borrower
Address
1. Cash/Purchase Price or Net Proceeds of Loan P

(Item Purchased)
2. LESS: Downpayment and/or Trade-in Value (Not applicable for

loan transaction)
3. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan
4. Non-Finance Charges [Advanced by Seller/Creditor]:
a. Insurance Premium P
b. Taxes
c. Registration Fees
d. Documentary/Science Stamps
e. Notarial Fees
f. Others:
Total Non-Finance Charges
5. Amount to be Financed (Items 3 + 4) P

APP. Q-11
05.12.31
6. Finance Charges*
a. Interest % p.a. P
from to
[ ] Simple [ ] Monthly
[ ] Compound [ ] Quarterly
[ ] Semi-Annual
[ ] Annual
b. Discounts
c. Service/Handling Charges
d. Collection Charges
e. Credit Investigation Fees
f. Appraisal Fees
g. Attorney's/Legal Fees
h. Other charges incidental to the
extension of credit (specify):
Total Finance Charges P
7. Percentage of Finance Charges to Total Amount Financed

(Computed in accordance with Subsec. 4309Q.1) %
8. Effective Interest Rate
(Method of computation attached) %
9. Payment
a. Single Payment due P
(Date)
b. Total Installment Payments
(Payable in weeks/months @ P ) P
* Time price differential should be disclosed as a finance charge. If an itemization cannot be made,
a lump-sum figure may be reported among Other charges incidental to the extension of credit in
Item 6h.

APP. Q-11
05.12.31
10. Additional charges in case certain stipulations in the contract are not met by the debtor:
Nature Rate Amount
CERTIFIED CORRECT:
(Signature of Creditor/Authorized
RepresentativeOver Printed Name)
Position
I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE

CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND
FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF.
(Signature of Buyer/Borrower
Over Printed Name)
DATE
NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY

OF THIS PAPER WHICH YOU SHALL SIGN.

APP. Q-12
05.12.31
ABSTRACT OF "TRUTH IN LENDING ACT" (Republic Act No. 3765)

Section 1. This Act shall be known as (5) the total amount to be financed;
the "Truth in Lending Act." (6) the finance charge expressed in
terms of pesos and centavos; and
Sec. 2. Declaration of Policy. It is (7) the percentage that the finance
hereby declared to be the policy of the charge bears to the total amount to be
State to protect its citizens from a lack of financed expressed as a simple annual rate
awareness of the true cost of credit to the on the outstanding unpaid balance of the
user by assuring a full disclosure of such obligation.
cost with a view of preventing the xxxx xxxx xxxx
uninformed use of credit to the detriment
of the national economy. Sec. 6. (a) Any creditor who in
xxxx xxxx xxxx connection with any credit transaction fails
to disclose to any person any information
Sec. 3. As used in this Act, the term - in violation of this Act or any regulation
issued thereunder shall be liable to such
xxxx xxxx xxxx person in the amount of P100 or in an
amount equal to twice the finance charge
(3) "Finance charge" includes required by such creditor in connection
interest, fees, service charges, discounts, with such transaction, whichever is the
and such other charges incident to the greater, except that such liability shall not
extension of credit as the Board may by exceed P2,000 on any credit transaction.
regulation prescribe. xxxx xxxx xxxx
xxxx xxxx xxxx (c) Any person who willfully violates
any provision of this Act or any regulation
Sec. 4. Any creditor shall furnish to each issued thereunder shall be fined by not less
person to whom credit is extended, prior than P1,000 nor more than P5,000 or
to the consummation of the transaction, a imprisonment for not less than 6 months
clear statement in writing setting forth, to nor more than one year or both.
the extent applicable and in accordance xxxx xxxx xxxx
with rules and regulations prescribed by (d) Any final judgment hereafter
the Board, the following information: rendered in any criminal proceeding under
(1) the cash price or delivered price this Act to the effect that a defendant has
of the property or service to be acquired; willfully violated this Act shall be prima
(2) the amounts, if any, to be credited facie evidence against such defendant in
as down payment and/or trade-in; an action or proceeding brought by any
(3) the difference between the other party against such defendant under
amounts set forth under clauses (1) and this Act as to all matters respecting which
(2); said judgment would be an estoppel as
(4) the charges, individually between the parties thereto.
itemized, which are paid or to be paid
by such person in connection with the Sec. 7. This Act shall become effective
transaction but which are not incident to upon approval.
the extension of credit; Approved, June 22, 1963.

APP. Q-13
08.12.31
AGREEMENT FOR THE ENHANCED INTERBANK CALL LOAN

FUNDS TRANSFER SYSTEM
(As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/
RBAP/IHAP and MMAP)

APP. Q-13a
08.12.31
SETTLEMENT PROCEDURES FOR INTERBANK LOAN TRANSACTIONS AND

PURCHASE AND SALE OF GOVERNMENT SECURITIES
UNDER REPURCHASE AGREEMENTS WITH THE BANGKO SENTRAL
(As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/
RBAP/IHAP and MMAP)

Appendix Q-13a - Page 1
APP. Q-13b
08.12.31
ENHANCED INTRADAY LIQUIDITY FACILITY

Given the increasing volume of PhilPaSS Registration Division. The application letter
transactions as well as concerns of having shall be in the form of Annex 1 hereto.
temporary gridlocks in the PhilPaSS, the
current features of the Intraday Liquidity B. Timeline
Facility (ILF) had been enhanced, specifically From 9:00 am to 9:30 am of each banking
on the following areas: day, an Eligible Participant QB shall
a. Flexibility in changing the electronically instruct the BTr to move/
securities that will be used for the ILF; transfer from its Principal Securities Account
b. Availment of the facility on an “as with the BTr’s ROSS to the CSA-ILF under
the need arises” basis; and the name of the Eligible Participant QB, the
c. Removal of commitment fees pool of peso-denominated GS to be set aside
The revised features of the ILF are for the ILF purpose. The Eligible Participant
described below. QB hereby confirms to the BTr that pursuant
to an ILF availment, it has authorized the
A. Access to ILF transfer without consideration unto the CSA-
Government securities (GS) held by an ILF the pool of GS to be used for ILF purposes.
Eligible Participant QB in its Regular From 9:30 am to 10:00 am, the BTr
Principal Securities Account that will be RoSS shall electronically submit a
used for ILF purposes shall be delivered consolidated report to BSP showing the
to a sub-account under the BSP-ILF details of the GS that were transferred to
Securities Account with the Bureau of the the BSP-ILF Securities Account.
Treasury’s (BTr) Registry of Scripless From 10:00 am to 4:00 pm, Eligible
Securities (RoSS). The delivered GS to be Participant QBs with insufficient balances
used for ILF purposes shall be recorded in its Demand Deposit Account No.2
by RoSS in a sub-account (the “Client (PhilPaSS Account) may avail of the ILF.
Securities Account (CSA)”-ILF) under the Eligible Participant QBs may avail of the
BSP-ILF Securities Account in the name of ILF as necessary to fund pending payment
the Eligible Participant QB. instructions. Thus, when the ILF system
QBs without RoSS securities accounts detects queued transactions in the PhilPaSS-
who intend/desire to avail of the ILF shall be Central Accounting System, the Eligible
required to open/maintain a Securities Participant QB with insufficient balance in its
Account with the RoSS. The documentation PhilPaSS Account will automatically sell to
requirements for RoSS membership shall be the BSP-Treasury the GS in the CSA-ILF pool
prescribed by the BTr. corresponding to the amount which may be
QBs desiring to avail of the ILF shall be needed to cover any pending payment
further required to open a sub-account under instruction, and the proceeds of the sale of
the BSP-ILF Securities Account with the BTr’s securities shall be immediately credited to
RoSS by accomplishing an application letter the bank’s PhilPaSS Account. There may be
addressed to the Treasurer of the Philippines, more than one availment during the day.
Attn: The Director, Liability Management Until a sale to the BSP or an Overnight Repo
Service and the Chief, Scripless Securities (O/N-RP) transaction with the BSP is
Manual of Regulations for Non-Bank Financial Institutions Q-Regulations

Appendix Q-13b - Page 1
APP. Q-13b
08.12.31
executed, the beneficial ownership of the Department shall electronically instruct

GS that have been transferred to the CSA- RoSS, using the ILF RoSS system developed
ILF still belongs to the QBs. for herein purpose, to return/deliver from the
At 5:00 pm, the BSP shall sell back to CSA-ILF of the participating QBs to their
the Eligible Participant QB the GS at the respective Regular Principal Securities
same price as the original BSP purchase. Accounts with the RoSS all unused/
Partial repayment of a particular availment unencumbered GS. GS used for O/N-RP
will not be allowed. shall remain in the CSA-ILF until repayment
In case the PhilPaSS Account balance of subject O/N-RP or conversion to outright
of the participating QB is not sufficient to sale the following day.
cover the afternoon repayment transaction, Upon receipt of BSP’s electronic
the BSP and the participating QB may instruction for the return of GS back to the
agree on the following: participating QBs’ regular Principal
a. BSP shall extend to the Eligible Securities Accounts, the BTr shall update
participant QB an O/N-RP at 600 basis their database after which participating QBs
points over the BSP’s regular overnight may request/download statements of
lending rate for the day. The O/N-RP shall securities accounts for their verification.
be paid not later than 11:00 am on maturity
date. Unpaid O/N-RP shall be automatically C. Eligible Securities
converted into an absolute sale to the BSP Peso-denominated scripless securities
of the subject GS earlier delivered/ of the National Government that are free
transferred to the CSA-ILF, pursuant to an and unencumbered and with remaining
ILF availment by the Eligible Participant QB, maturity of eleven (11) days to ten (10) years
in which case, BSP shall issue an instruction shall be eligible for the ILF. GS that will be
to BTr to deliver/transfer the subject GS from used for ILF purposes would be reclassified
the BSP-ILF Securities Account to the BSP with due consideration to the original
regular Principal Securities Account. The sale booking of the security, as follows:
shall be evidenced by the issue of
Confirmation of Sale by the Eligible Original Booking of GS To be reclassified to
Participant QB (Annex 2) and the
Confirmation of Purchase by the BSP a. Held for Trading Held for Trading – ILF
Treasury Department (Annex 3), or, b. Designated Fair Value Designated Fair Value
b. Only in extreme cases, the BSP Through Profit or Loss Through Profit or Loss - ILF
shall sell back to the participating QBs GS c. Available for Sale Available for Sale - ILF
up to the extent of the PhilPaSS Account d. Held to Maturity Held to Maturity - ILF
balance. The BSP shall issue an instruction
to the BTr to transfer the remaining GS D. Valuation of Securities
amounting to the unpaid ILF availment The GS subject of an ILF transaction
from the BSP-ILF Securities Account to the shall be valued based on the 11:16 am
BSP’s Regular Principal Securities Account. fixing rates of the previous business day,
At the end of the day and after BSP’s from the applicable Reuters PDEX pages
sell-back of the GS to ILF participants, or any other valuation benchmark as may
normally by 5:45 pm, the BSP Treasury be prescribed by the BSP.
Q-Regulations Manual of Regulations for Non-Bank Financial Institutions

APP. Q-13b
08.12.31
E. Margins G. DDA Statements/Transaction Details

Margins shall be applied based on Eligible Participating QBs will be able
prevailing policies of the BSP Treasury to verify the status of their accounts by
Department. initiating the SWIFT/PPS-Front-end System
inquiry request.
F. Transaction Fee
The BTr shall collect a monthly Availability of Service
maintenance fee of One Thousand Pesos The ILF is covered by a Memorandum
(P1,000.00) from each Eligible Participant QB of Agreement (MOA) dated 25 March 2008
for the use of the CSA-ILF Securities Account. by and among the BSP, the BTr, the
The maintenance fees herein required to be Bankers Association of the Philippines (for
paid by each Eligible Participant QB shall be BAP members) and the Money Market
separate from and exclusive of any other fees Association of the Philippines (for non-BAP
being assessed and collected by BTr for members). Participating QBs shall sign
membership in the RoSS. For this purpose, individual participation agreements. The
the Eligible Participant QB shall issue to the services outlined in the MOA shall be
BTr an autodebit instruction to authorize the available at the BSP and the BTr at a fixed
BTr to debit its DDA with BSP for the above- hour on all banking days. Banking days
mentioned monthly maintenance fee. The refer to the days banking institutions are
BTr will inform the Eligible Participant QBs open for business, Mondays thru Fridays
of any change in fee at least fifteen (15) days as authorized by the BSP.
prior to implementation. (CL-2008-036 dated 20 June 2008)

APP. Q-13b
08.12.31
PARTICIPATION AGREEMENT
__________________
Date
Bangko Sentral ng Pilipinas
A. Mabini corner P. Ocampo Sr. Streets,
Manila
Bureau of the Treasury

Palacio del Gobernador
Intramuros, Manila
Bankers Association of the Philippines

11th Floor, Sagittarius Building
H. V. dela Costa Street, Salcedo Village
Makati City
Money Market Association of the Philippines

Penthouse, PDCP Bank Center
Herrera corner L. P. Leviste Streets, Salcedo Village
Makati City
Gentlemen:
Please be advised that we agree to participate in the Agreement for the Establishment of Intraday Liquidity
Facility to support the Philippine Payment and Settlement System (the “System”) which is covered by
the Memorandum of Agreement dated _____ (the “Agreement”) among yourselves and its subsequent
amendments of revisions as may be agreed upon by the parties thereto from time to time.
We agree to be bound by all the terms and conditions of the Agreement and adopt it as an integral part
of this Participation Agreement, including the authority of the BSP to execute payment instructions
and the authority of the Bureau of the Treasury (BTr) to execute our instructions on transfer to/from,
credit and debit to/against our Securities Account. Further, we agree to comply with all our obligations
as participating bank/financial institution as provided in the Agreement. Lastly, we agree to keep
yourselves free and harmless from any claim or liability arising from, or in connection with, our
transactions transmitted through the System in accordance with the provisions of the Agreement.
This participation will become effective upon your conformity hereto and your notification of the
same to us, the BSP and the BTr.
Very truly yours,
________________________________
Participating Bank/Financial Institutions
APPROVED:
Bangko Sentral ng Pilipinas By:
Bureau of the Treasury By: ________________
Bankers Association of the Philippines By: ________________
Money Market Association of the Philippines By: ________________

APP. Q-13b
08.12.31
Annex 1
(LETTERHEAD OF THE APPLICANT)
The Treasurer of the Philippines

Intramuros, Manila
Sir:
The undersigned hereby makes an application to open a Client Securities Account

under the BSP-ILF RoSS Account in the Registry of Scripless Securities (RoSS) operated and
maintained by the Bureau of the Treasury (BTr).
The undersigned will pay to BTr an additional monthly fee of P1,000.00 for the
Client Securities Account opened payable on the first business day of each month. The BTr
will inform the undersigned of any change in fee at least fifteen (15) days prior to
implementation.
Please debit/credit our Regular Demand Deposit Account No. ______ with the
BSP for the payment of said monthly fee.
_______________ Manila, Philippines

(Date)
(Name of Applicant)
(Signature of Authorized Signatory)
(Designation)

APP. Q-13b
08.12.31
Annex 2
LETTERHEAD OF THE SELLER
Transaction No. ________

Value Date ________
CONFIRMATION OF SALE OF GOVERNMENT SECURITIES
The _______________, does hereby CONFIRM that it has SOLD, TRANSFERRED

AND CONVEYED unto _______________, pursuant to the Memorandum of Agreement
for Intraday Liquidity Facility and the Participation Agreement executed on ______ and
______, respectively, all of its rights, titles and interests over the following described
Government Securities, held by the Bureau of the Treasury under the Registry of Scripless
Securities System.
ISIN TERM ISSUE MATURITY FACE

DATE DATE AMOUNT
(Code) (Account Number)
(Name of GSED)
(Designation)

APP. Q-13b
08.12.31
Annex 3
Transaction No. ________

Value Date ________
CONFIRMATION OF PURCHASE OF GOVERNMENT SECURITIES
The _____________, does hereby CONFIRM that it has PURCHASED from

______________, pursuant to the Memorandum of Agreement for Intraday Liquidity Facility
and the Participation Agreement executed on ______ and ______, respectively, all of its
rights, titles and interests over the following described Government Securities, held by
the Bureau of the Treasury under its Registry of Scripless Securities System.
ISIN TERM ISSUE MATURITY FACE

DATE DATE AMOUNT
(Code) (Account Number)
(Name of GSED)
(Designation)

APP. Q-14
05.12.31
SAMPLE INVESTMENT MANAGEMENT AGREEMENT

IMA No. (Prenumbered)
INVESTMENT MANAGEMENT AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, made and executed this day of at

, Philippines by and between:
(Hereinafter referred to as the "PRINCIPAL")
and
, an institution authorized to perform

trust functions, organized and existing under and by virtue of the laws
of the Philippines, with principal office and place of business
at , , Philippines.
(Hereinafter referred to as the "INVESTMENT MANAGER")
WITNESSETH: THAT -
WHEREAS, the Principal desires to avail of the services of the Investment Manager
relative to the management and investment of Principal's investible funds.
WHEREAS, the Investment Manager is willing to render the services required by

the Principal relative to the management and investment of Principal's investible funds,
subject to the terms and conditions hereinafter stipulated;
NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
conditions stipulated hereunder, the parties hereto hereby agree and bind themselves to
the following terms and conditions:

APP. Q-14
05.12.31
INVESTMENT PORTFOLIO
1. Delivery of the Fund - Upon execution of this Agreement, the Principal shall
deliver to the Investment Manager the amount of PHILIPPINE PESOS:
_____________________________________________ (P_____________).
2. Composition - The cash which the Principal has delivered to the Investment Manager
as well as such securities in which said sums are invested, the proceeds, interest, dividends
and income or profits realized from the management, investment and reinvestment thereof,
shall constitute the managed funds and shall hereafter be designated and referred to as the
Portfolio. For purposes of this Agreement, the term securities shall be deemed to include
commercial papers, shares of stock and other financial instruments.
3. Delivery of Additional Funds - At any time hereafter and from time to time at the
discretion of the Principal, the latter may deliver additional funds to the Investment Manager
which shall form part of the Portfolio and shall be subject to the same terms and conditions
of this Agreement. No formalities other than a letter from the Principal and physical delivery
to the Investment Manager of cash will be required for any addition to the Portfolio.
4. Nature of Agreement - THIS AGREEMENT IS AN AGENCY AND NOT A TRUST

AGREEMENT. AS SUCH, THE CLIENT SHALL AT ALL TIMES RETAIN LEGAL TITLE TO
FUNDS AND PROPERTIES SUBJECT OF THIS ARRANGEMENT.
THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF

ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD,
RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST
PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE
PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE
DEPENDING ON PREVAILING MARKET CONDITIONS.
IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT

COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND
THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL.
POWERS
5. Powers of the Investment Manager - The Investment Manager is hereby conferred

the following powers:
a. To invest or reinvest the Portfolio in (1) Evidences of indebtedness of the Republic

of the Philippines and of the Bangko Sentral ng Pilipinas, and any other evidences of
indebtedness or obligations the servicing and repayment of which are fully
guaranteed by the Republic of the Philippines or loans against such government
securities; (2) Loans fully guaranteed by the government as to the payment of
principal and interest; (3) Loans fully secured by hold-out on, assignment or pledge
of, deposits or of deposit substitutes, or mortgage and chattel mortgage bonds; (4)

APP. Q-14
05.12.31
Loans fully secured by real estate and chattels in accordance with Sec. 78 of R.A.
No. 337, as amended, and subject to the requirements of Secs. 75, 76 and 77 of R.A.
No. 337, as amended; and (5) Such other investments or loans as may be directed
or authorized by the Principal in a separate written instrument which shall form part
of this Agreement: Provided, That said written instrument shall contain the following
minimum information: (a) The transaction to be entered into; (b) The amount involved;
and (c) The name of the issuer, in case of securities and/or the name of the borrower
and nature of security, in the case of loans;
b. To endorse, sign or execute any and all securities, documents or contracts necessary
for or connected with the exercise of the powers hereby conferred or the performance
of the acts hereby authorized;
c. To cause any property of the Portfolio to be issued, held, or registered in the name
of the Principal or of the Investment Manager: Provided, That in case of the latter,
the instrument shall indicate that the Investment Manager is acting in a representative
capacity and that the Principal's name is disclosed thereat;
d. To open and maintain savings and/or checking accounts as may be considered

necessary from time to time in the performance of the agency and the authority
herein conferred upon the Investment Manager;
e. To collect and receive matured securities, dividends, profits, interest and all other
sums accruing to or due to the Portfolio;
f. To pay such taxes as may be due in respect of or on account of the Portfolio or in

respect of any profit, income or gains derived from the sale or disposition of securities
or other properties constituting part of the Portfolio;
g. To pay out of the Portfolio all costs, charges and expenses incurred in connection
with the investments or the administration and management of the Portfolio including
the compensation of the Investment Manager for its services relative to the Portfolio;
and
h. To perform such other acts or make, execute and deliver all instruments necessary
or proper for the exercise of any of the powers conferred herein, or to accomplish
any of the purposes hereof.
LIABILITY OF INVESTMENT MANAGER
6. Exemption from Liability - In the absence of fraud, bad faith, or gross or willful
negligence on the part of the Investment Manager or any person acting in its behalf, the
Investment Manager shall not be liable for any loss or damage to the Portfolio arising out of
or in connection with any act done or performed or caused to be done or performed by the
Investment Manager pursuant to the terms and conditions herein agreed, to carry out the
powers, duties and purposes for which this Agreement is executed.

APP. Q-14
05.12.31
7. Advice of Counsel - The Investment Manager may seek the advice of lawyers. Any
action taken or suffered in good faith by the Investment Manager as a consequence of the
opinion of the said lawyers shall be conclusive and binding upon the Principal, and the
Investment Manager shall be fully protected from any liability suffered or caused to be
suffered by the Principal by virtue hereof.
ACCOUNTING AND REPORTING
8. The Investment Manager shall keep and maintain books of accounts and other
accounting records as required by law. The Principal or the authorized representative of
the Principal shall have access to and may inspect such books of accounts and all other
records related to the Portfolio, including the securities held in custody by the Investment
Manager for the Portfolio.
9. Reporting Requirements - The Investment Manager shall prepare and submit to the
Principal the following reports within ______________________________: (a) Balance
Sheet; (b) Income Statement; (c) Schedule of Earning Assets; (d) Investment Activity
Report; and (e) (such other reports as may be required by the Principal).
INVESTMENT MANAGER'S FEE
10. Investment Fee - The Investment Manager, in addition to the reimbursement of its
expenses and disbursements in the administration and management of the Portfolio including
counsel fees, shall be entitled to receive as compensation for its services a management
fee of (Specify amount or rate) .
WITHDRAWALS FROM THE PORTFOLIO
11. Withdrawal of Income/Principal - Subject to availability of funds and the non-

diminution of the Portfolio below P1 million, the Principal may withdraw the income/
principal of the Portfolio or portion thereof upon written instruction or order given to the
Investment Manager. The Investment Manager shall not be required to see as to the
application of the income/principal so withdrawn from the Portfolio. Any income of the
Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for
further investment and reinvestment.
12. Non-alienation of Encumbrance of the Portfolio or Income - During the effectivity of

this Agreement, the Principal shall not assign or encumber the Portfolio or its income or
any portion thereof in any manner whatsoever to any person without the prior written
consent of the Investment Manager.

APP. Q-14
05.12.31
EFFECTIVITY AND TERMINATION
13. Term - This Agreement shall take effect from the date of signing hereof and shall be
in full force and effect until terminated by either party by giving written notice thereof to
the other at least _______(__) days prior to the termination date.
14. Powers upon Liquidation - The powers, duties and discretion conferred upon the
Investment Manager by virtue of this Agreement shall continue for the purpose of liquidation
and return of the Portfolio, after the notice of termination of this Agreement has been served
in writing, until final delivery of the Portfolio to the Principal.
15. Accounting of Transaction - Within _____ (__) days after the termination of this
Agreement, the Investment Manager shall submit to the Principal an accounting of all
transactions effected by it since the last report up to the date of termination. Upon the
expiration of the ________ (__) days from the date of submission, the Investment Manager
shall forever be released and discharged from all liability and accountability to anyone
with respect to the Portfolio or to the propriety of its acts and transactions shown in such
accounting, except with respect to those objected to in writing by the Principal within the
__________ (__) day period.
16. Remittance of Net Assets of the Portfolio - Upon termination of the Agreement, the
Investment Manager shall turn over all assets of the Portfolio which may or may not be in
cash to the Principal less the payment of the fees provided in this Agreement in carrying
out its functions or in the exercise of its powers and authorities.
This Agreement or any specific amendments hereto constitute the entire agreement
between the parties, and the Investment Manager shall not be bound by any representation,
agreement, stipulations or promise, written or otherwise, not contained in this Agreement
or incorporated herein by reference, except pertinent laws, circulars or regulations approved
by the Government or its agencies. No amendment, novation, modification or supplement
of this Agreement shall be valid or binding unless in writing and signed by the parties
hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands on the date and at
the place first above set forth.
(PRINCIPAL) (INVESTMENT MANAGER)
By:
SIGNED IN THE PRESENCE OF:

APP. Q-15
05.12.31
RISK MANAGEMENT GUIDELINES FOR DERIVATIVES

I. Foreword some combination thereof. The use of

These guidelines, which are based on these basic building blocks in structuring
the "Risk Management Guidelines For derivatives instruments allows the transfer
Derivatives" issued by the Basel of various financial risk to parties who are
Committee on Banking Supervision in July more willing, or better suited, to take or
1994, are expected to facilitate the further manage them.
development of a prudent approach to the 2. Derivatives are used by banking
risk management of derivatives. organizations both as risk management
The BSP recognizes that sound internal tools and a source of revenue. From a risk
risk management is essential to the prudent management perspective, they allow
operations of financial institutions and that financial institutions and other participants
supervisory tools, such as capital to identify, isolate and manage separately
requirements, are not by themselves the market risks in financial instruments and
sufficient. Sound internal risk management commodities. When used prudently,
is also essential to promoting stability in derivatives can offer managers efficient and
the financial system as a whole. effective methods for reducing certain risks
While the precise applicability of these through hedging. Derivatives may also be
guidelines will depend on the size and used to reduce financing costs and to
complexity of an institution's derivatives increase the yield of certain assets. For a
activities, we believe that the application growing number of banking organizations,
of the basic principles embodied therein derivatives activities are becoming a direct
are very relevant even for risks inherent source of revenue through "market-
in more traditional activities. making" functions and "position-taking":
- "MARKET-MAKING" functions
II. Introduction and Basic Principles involve entering into derivatives activities
1. Derivatives instruments have with customers and with other market-
become increasingly important to the makers while maintaining a generally
overall risk profile and profitability of balanced portfolio with the expectation of
banking organizations throughout the earning fees generated by a bid/offer
world. Broadly defined, a derivatives spread; and
instrument is a financial contract whose - "POSITION-TAKING", on the other
value depends on the values of one or hand, represents efforts to profit by
more underlying assets or indices. accepting the risk that stems from taking
Derivatives activities include a wide outright positions in anticipation of price
assortment of financial contracts, including movements.
forwards, futures, swaps and options. In 3. Participants in the derivatives
addition, other traded instruments markets are generally grouped into two
incorporate derivatives characteristics, such categories based primarily on their
as those with embedded options. While motivations for entering into derivatives
some derivatives instruments may have contracts. End-users typically enter into
very complex structures, all of them can derivatives activities to achieve specified
be divided into the basic building blocks objectives related to hedging, financing or
of options, swaps, futures and forwards or position-taking on the normal course of

APP. Q-15
05.12.31
their business operations. A wide variety end-users of derivatives instruments.

of business enterprises are end-users. They These basic principles include:
include, but are not limited to, a broad a. appropriate oversight by Boards of
range of financial institutions such as banks, Directors and/or Management Committee
securities firms and insurance companies; and Senior Management;
funds and specialized investment b. adequate risk management
partnerships; and corporations, local and process that integrates prudent risk limits,
state governments, government agencies sound measurement procedures and
and international agencies. information systems, continuous risk
4. Intermediaries, which are monitoring and frequent management
sometimes referred to as "Dealers", cater reporting; and
to the needs of end-users by "making c. comprehensive internal controls
markets" in over-the-counter derivatives and audit procedures.
instruments. In doing so, they expect to
generate income from transaction fees, bid/ III. Oversight of the Risk Management
offer spreads and their own trading Process. Written policies and procedures
positions. Important intermediaries, or on derivatives activities must be set forth
derivatives dealers, include major banks and documented in a policy manual duly
and securities firms. As intermediaries, approved by its Board of Directors. The
banks have traditionally offered foreign manual should include the following
exchange and interest rate risk minimum features:
management products to their customers 1. Scope of derivatives activities and
and generally view derivatives products types of services and products offered to
as a financial risk management service. clients;
5. The basic risks associated with 2. Authorities and Responsibilities of:
derivatives activities are not new to a. Board of Directors
banking organizations. In general, these b. Management Committees
risks are credit risk, market risk, liquidity c. Chief Executive Officer
risk, operations risk and legal risk. Because d. Other Senior Officers
they facilitate the specific identification and e. Department Managers
management of these risks, derivatives f. Trading or Dealing Officers/Staff
have the potential to enhance the safety 3. Policies and procedures to govern
and soundness of financial institutions and trading, including trading, exposure and
to produce a more efficient allocation of gap limits, and documentation of
financial risks. However, since derivatives transactions;
also have these basic risks in 4. Policies and procedures for
combinations that can be quite complex, controlling and measuring risk;
they can also threaten the safety and 5. Accounting policies and
soundness of institutions if they are not procedures;
clearly understood and properly managed. 6. Internal control system;
6. Recognizing the importance of 7. Internal audit policies;
sound risk management to the effective use 8. Policy review;
of derivatives instruments, the following 9. Reporting requirements;
guidelines are intended to highlight the key 10. Job description of key position and
elements and basic principles of sound minimum qualification standards; and
management practice for both dealers and 11. Client-oriented safety nets.

APP. Q-15
05.12.31
A. Oversight by Board of Directors and/ C. Independent Risk Management

or Management Committee Functions
1. The Board of Directors or 1. An independent body shall
appropriate Management Committee manage the measurement, monitoring and
should approve all significant policies control of risks consistent with established
relating to the management of risks policies and procedures. It shall directly
throughout the institution. These policies, report to the Board of Directors or to the
which should include those related to appropriate management committee.
derivatives activities, should be consistent 2. The personnel performing
with the organization's broader business independent risk management functions
strategies, capital strength, management should have a complete understanding of
expertise and overall willingness to take the risks associated with all of the bank's
risk. derivatives activities. Accordingly,
2. The Board of Directors or compensation policies for these
appropriate management committee shall individuals should be adequate to attract
structure a compensation package for risk and retain personnel qualified to assess
management officers and staff in such a way these risks.
that the said package is sufficiently
independent of the performance of trading IV. The Risk Management Process
activities. 1. The primary components of a
sound risk management process are:
B. Oversight by Senior Management comprehensive risk measurement
1. Senior management should be approach; detailed structure of limits,
responsible for ensuring that there are guidelines and other parameters used to
adequate policies and procedures for govern risk-taking; and strong
conducting derivatives operations on both management information system for
a long-range and day-to-day basis. This controlling, monitoring and reporting
responsibility includes: a) ensuring that risks.
there are clear delineations of lines of 2. To enable an institution to manage
responsibility for managing risk, adequate its risk exposure more effectively, its risk
systems for measuring risk, appropriately management process for derivatives
structured limits on risk taking, effective activities should be integrated into its overall
internal controls and a comprehensive risk management system using a conceptual
risk-reporting process; b) ensuring that all framework common to its other activities.
appropriate approvals are obtained and 3. The risk exposures in derivatives
that adequate operational procedures and activities should be fully supported by an
risk control systems are in place. adequate capital position.
2. Any significant changes in any
derivatives activities or any new A. Risk Measurement
derivatives activities should be approved 1. Risk should be measured and
by the Board of Directors or an appropriate aggregated across trading and non-trading
level of senior management as designated activities on an institution-wide basis to the
by the Board of Directors. fullest extent possible. In derivatives
3. Senior management should activities, assessment of the following risks
regularly evaluate the procedures in place should be included: credit risk, market
to manage risk to ensure that those risk, liquidity risk, operations risk and legal
procedures are appropriate and sound. risk (Section VI of these Guidelines).

APP. Q-15
05.12.31
2. Risk measurement procedures derivatives activities. Top management

should be understood by all relevant should be provided with adequate and
personnel - from individual traders to the timely information, on a regular basis, to
Board of Directors. judge the changing nature of the
3. Mark-to-Market valuation of institution's risk profile.
derivatives positions is fundamental to
measuring and reporting exposures D. Management Evaluation and Review
accurately and on a timely basis. A daily 1. Risk management guidelines
report to management indicating the gain should be evaluated and reviewed
or loss on derivatives activities should be regularly since any change in either the
submitted. Monitoring of credit exposures, institution's activities or the market
trading positions and market improvements environment may have created exposure
should be done at least daily. that requires additional attention.
4. Sound risk measurement practices 2. The review should include
include analysis of stress situations and assessment of the methodologies,
identification of changes in market models and assumptions used in
behavior that could have unfavorable measuring risk. Limit structures should
effects on the institution and assessment of be altered whenever necessary to reflect
the ability of the institution to withstand the institution's past performance and
them. current position. These reviews should
be made at least annually, or more often
B. Limiting Risks as market conditions dictate, to ensure
1. A sound system of integrated that they are appropriate and consistent.
institution-wide limits should set 3. Before being involved in new
boundaries for organizational risk-taking products, all relevant personnel
and should ensure that position which (including those in risk management,
exceeds pre-determined levels receive internal control, legal, accounting and
prompt management attention. Such a auditing) should understand the product
system should define, among others, the and should be able to integrate it into the
following limits: institution's risk measurement and
a. Earnings or capital-at-risk limits - control systems.
This defines the limit on potential loss
which could be expressed as a V. Internal Controls and Audit
percentage of projected earnings or 1. A sound system of internal
capital; and controls should promote effective and
b. Exposure limits - This defines efficient operations, reliable financial and
maximum exposure to the various regulatory reporting, and compliance
derivatives products. with relevant laws, regulations and
2. Should pre-determined limits be policies of the institution. In determining
exceeded, a report to senior whether internal controls meet those
management must be made for objectives, the institution should
information and appropriate action. consider the overall control environment
of the organization; the process of
C. Reporting. An accurate, informative, identifying, analyzing and managing
and timely reporting system to the risk; the adequacy of management
appropriate level of management is information systems; and adherence to
essential to the prudent operation of control activities such as approvals,

APP. Q-15
05.12.31
confirmations and reconciliations. procedures developed for the

Reconciliation control is particularly institution's key activities.
important where there are differences in 5. Bank management should ensure
the valuation methodologies or systems that a mechanism exists whereby
used by the front and back offices. financial derivatives contract
2. Internal auditors should audit and documentation is confirmed, maintained,
test the risk management process and and safeguarded. Documentation
internal controls on a periodic basis, with exceptions should be properly
the frequency based on a careful risk monitored and resolved.
assessment. The depth and frequency Controls must be in place to ensure
of internal audits should be increased if that the appropriate contract
weaknesses and significant issues are documentation is timely and properly
discovered, or if significant changes executed and maintained. The bank
have been made to product lines, should establish a process through which
modeling methodologies, the risk documentation exceptions are
oversight process, internal controls or the monitored and appropriately reviewed
over-all risk profile of the institution. To by senior management and legal
facilitate the development of adequate counsel. Banks with more active
controls, internal auditors should be derivatives businesses may consider
brought into the product development establishing a separate documentation
process at the earliest possible stage. unit to control financial derivatives
3. The institution should develop contracts and supporting documents.
internal controls for key activities which Such a unit may be a part of a broader
should include the following features: documentation unit of the legal
a. A chart of subsidiary accounts department.
adequately describing each account and
designed to complement the Manual of VI. Sound Risk Management Practices
Accounts prescribed by the BSP; and for Each Type of Risk
b. Written policies/procedures for A. Credit Risk - is the risk that a
handling/ recording confirmation and counterparty will fail to perform on an
settlement of transactions; segregation of obligation to the institution.
duties between the front office and back Credit risk management should
room personnel; revaluation of positions parallel the prudent controls expected in
indicating sources of revaluation rates; traditional lending activities. Policies and
documentation of review and approval procedures should be formalized to
of limits and sub-limits; and evaluation address concerns such as significant
and reporting to the Board of Directors/ counterparty exposures, concentration of
Senior Management of audit findings/ credit, risk ratings, non-performing
exceptions; and such other key activities contracts, and allowance allocations.
the institution is engaged in. An institution should include in its
4. Internal auditors are expected to credit risk policy, the credit exposures
continuously evaluate the independence to an individual counter-party. Internal
and overall effectiveness of the limits that are prudent in the light of its
institution's risk management functions. financial condition and management
They should be involved in the periodic expertise should be established. Policies
review and evaluation of all bank and procedures should reflect the Board
policies, limits, internal controls and of Director's risk tolerance for

APP. Q-15
05.12.31
concentration of credit. Policies be obtained independently from

addressing credit management qualified sources on a periodic basis. The
functions, such as risk ratings, non- traders should not be used as the source
performing contracts, and allowance of market valuations.
allocations should be consistent. 2. The sophistication of credit risk
measurement system should be consistent
Credit Approval Function with the level of activity and degree of risk
1. Management should make sure assumed in derivatives activities. An internal
that credit authorizations are provided by control system to determine potential credit
personnel independent of the trading risk should be in place.
unit to ensure safe and sound
management of derivatives credit risk Settlement Risk
exposure. Credit officers and approving This is the risk that an institution faces
officers should be: familiar with credit when it has performed its obligations
risk; able to analyze the impact of under a contract, but has not yet received
proposed derivatives activities on the value from its counterparty. Management
financial condition of the customer; should establish limits and monitoring
responsible for establishing and procedures for settlement risk
changing financial derivatives credit exposures. Settlement risk limits should
lines; and able to understand the be established separately from pre-
applicability of financial derivatives settlement credit limits and should
instruments to the risks the bank customer consider capital adequacy, operations
is attempting to manage. efficiency and credit analysis expertise.
2. Credit analysis should be Monitoring reports should provide
documented and necessary information sufficient detail to identify credit risk
should be provided to customer/s. arising from settlement versus pre-
settlement exposure.
Pre-settlement Risk
1. The system to be used to quantify Credit Risk Monitoring
the pre-settlement credit risk exposure 1. Credit risk monitoring should be
should: a) take into account current independent of the units that create
exposure ("mark-to-market") as well as financial derivatives exposures. The risk
potential credit risk due to possible monitoring unit should be responsible
future changes in applicable market rates for producing and distributing timely and
or prices ("add-on"); b) use a reliable accurate information about credit
source for determining the credit risk exposures, such as concentration of credit,
factor used to calculate the credit risk credit quality, limit exceptions, and
add-on; and c) produce a number significant counterparty exposures.
representing a reasonable 2. This methodology adopted to
approximation of loan equivalency, that measure and monitor credit risk should be
is, the amount of credit exposure controlled by personnel independent of the
inherent in a comparable extension of trading unit.
credit.
The mark-to-market calculation B. Market Risk - is the risk that adverse
should incorporate the same controls as movements in the level or volatility of
the mark-to-market calculation used to market prices will affect the institution's
identify profits and losses. Prices should financial condition.

APP. Q-15
05.12.31
Dealers and Active Position-Takers 1. Management should evaluate

1. There should be a risk these risks in the broader context of the
measurement system that can quantify risk institution's overall liquidity because
exposures arising from changes in market neither type of liquidity risk is necessarily
factors. This system should be structured unique to derivatives activities.
to enable management to initiate prompt 2. In developing guidelines for
remedial action, facilitate stress testing, and controlling liquidity risks, an institution
assess the potential impact of various should consider the possibility that it
changes in market factors on earnings and could lose access to one or more
capital. At a minimum, all risk markets, either because of concerns
measurement applications and models about the institution's own credit
should be reviewed and validated worthiness, the credit worthiness of a
annually, and management should major counterparty or because of
maintain adequate documentation to generally stressful market conditions. At
support the reliability of the validation such times, the institution may have less
process. flexibility in managing its market, credit
2. Statistical analyses should be used and liquidity risk exposures. An
to characterize market scenarios and price institution that makes markets in over-
behavior. Before they are used, and the-counter derivatives or that dynamically
whenever market conditions change hedges1 its positions requires constant
significantly, the analyses should be access to financial markets and that need
validated by a source independent of the may increase in times of market stress. The
trading desk or risk assumption unit. institution's liquidity plan should reflect its
ability to turn to alternative markets, such
Limited End-Users as futures or cash markets, or to provide
The senior management should ensure sufficient collateral or other credit
that all significant risks arising from their enhancements in order to continue trading
derivatives activities can be quantified, under a broad range of scenarios.
monitored, and controlled. At a minimum, 3. An institution that participates in
risk management systems should evaluate over-the-counter derivatives markets
the possible impact of derivatives activities should assess the potential liquidity risks
on earnings and capital which may result associated with the early termination of
from adverse changes in interest rates and derivatives contracts. Many forms of
other market conditions that are relevant standardized contracts for derivatives
to risk exposure and the effectiveness of activities allow counterparties to request
financial derivatives activities. collateral or to terminate their contracts
early if the institution experiences an
C. Liquidity Risk - is the risk that an adverse credit event or a deterioration in
institution will not be able to, or cannot its financial condition. In addition, under
easily, exit or unwind its position at a conditions of market stress, customers may
desired market price (market/product ask for the early termination of some
liquidity risk); or to meet its cash flow contracts within the context of the dealer's
obligations as they fall due or upon margin market making activities. In such
calls (cash flow/funding liquidity risk). situations, an institution that owes money
1
Dynamic hedging refers generally to the continuous process of buying and selling of instruments
to offset exposures as market conditions change (e.g., an option writer selling an underlying asset as
its price falls.)

APP. Q-15
05.12.31
on derivatives activities may be required databases should generate accurate

to deliver collateral or settle a contract information sufficient to allow business unit
early and possibly at a time when it may management and senior management to
face other funding and liquidity pressures. promptly monitor risk exposures.
Early terminations may also open up 3. Segregation of operational duties,
additional, unintended, market positions. exposure reporting and risk monitoring
Management and directors should be aware from the business unit is critical to proper
of these potential liquidity risks and should internal control.
address them in the institution liquidity plan 4. Management should ensure that a
and in the broader context of the institution's mechanism exists whereby derivatives
liquidity management process. contract documentation is confirmed,
maintained and safeguarded. An institution
D. Operational Risk - is the risk that an should establish a process through which
institution will suffer an unexpected loss documentation exceptions are monitored
due to deficiencies in information systems and resolved and appropriately reviewed
or internal controls. by senior management and legal counsel.
1. The Board of Directors/Management The institution should also have approved
Committee and senior management should policies that specify documentation
ensure the proper dedication of resources requirements for derivatives activities and
to support operations and systems formal procedures for savings and
development and maintenance. The safeguarding important documents that are
operation unit should report to an consistent with legal requirements and
independent unit and should be managed internal policies.
independently of the business unit. The
sophistication of the systems support and E. Legal Risk - is the risk that contracts
operational capacity should be are not legally enforceable or correctly
commensurate with the size and complexity documented.
of the derivatives business activity. 1. Before engaging in derivatives
2. Systems support and operational activities, an institution, in consultation with
capacity should be adequate to its legal counsel, should be satisfied that
accommodate the types of derivatives its counterparties have the legal authority
activities in which the institution engages. to engage in such activities.
This includes the ability to efficiently 2. The terms of any contract
process and settle the volume transacted governing derivatives activities should be
through the business unit, to provide legally sound.
support for the complexity of the 3. The institution should use the
transactions booked and to provide International Swap Dealers Association,
accurate and timely input. Inc. (ISDA) Master Agreement insofar as
Support systems and the systems the same is not inconsistent with existing
developed to interface with the official laws, rules and regulations.

APP. Q-16
05.12.31
RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES

Similar to other financial transactions, In entering into any derivatives

derivatives activities may provide activity with, or arranged by, us or any of
significant benefits and involve a variety our subsidiaries/affiliates, you should also
of significant risks. understand that ____________________
Before entering into any derivatives is acting solely in the capacity of an arm's
activity, you should carefully consider length contractual counterparty and not in
whether the transaction is appropriate for the capacity of your financial adviser or
you in light of your objectives, experience, fiduciary unless ____________________
financial and operational resources, and has so agreed in writing and then only to
other relevant circumstances. You should the extent so provided. Whether or not
ensure that you fully understand the nature you and ________________ have
and extent of your exposure to risk of loss, established a written financial advisory or
which may significantly exceed the amount fiduciary relationship,
of any initial payment by or to you. ________________ may, from time to
In general, all derivatives activities time, have substantial long or short
involve risks, which include, among positions in, and may make a market in
others, the risk of adverse or unanticipated or otherwise buy or sell instruments
market, financial or political identical or economically related to, the
developments, risk of counterparty or derivatives activity entered into with you;
issuer default and other credit and __________________may also have an
enforcement risks, and risk of illiquidity investment banking, corporate advisory,
and related risks. In addition, you may be or other commercial relationship with the
subject to operational risks in the event that issuer of any security or financial
you do not have in place appropriate instrument underlying the derivatives
internal systems and controls to monitor the activity entered into with you.
various risks, funding and other
requirements to which you may be subject THIS BRIEF STATEMENT DOES NOT
by virtue of your activities in derivatives PURPORT TO DISCLOSE ALL OF THE
and other financial markets. RISKS OR OTHER RELEVANT
As in any financial transaction, you CONSIDERATIONS OF ENTERING
should ensure that you understand the INTO DERIVATIVES ACTIVITIES. YOU
requirements applicable to you that are SHOULD REFRAIN FROM ENTERING
established by your regulators or by your INTO ANY SUCH ACTIVITY UNLESS
board of directors or other governing body. YOU FULLY UNDERSTAND ALL SUCH
You should also consider the legal, tax and RISKS AND HAVE INDEPENDENTLY
accounting implications of entering into any DETERMINED THAT THE ACTIVITY IS
derivatives activity. APPROPRIATE FOR YOU.

APP. Q-17
05.12.31
ACCOUNTING GUIDELINES FOR DERIVATIVES

Incorporated in 4603Q.5

APP. Q-18
05.12.31
SEC BASIC RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF

PRESIDENTIAL DECREE NO. 129, OTHERWISE KNOWN AS
"THE INVESTMENT HOUSES LAW"
(Appendix to Secs. 4604Q and 4656Q)
To effectively carry out the provisions d) Guarantee is any commitment and/

of Presidential Decree (P.D.) No. 129, or undertaking made by a person, firm or
otherwise known as "The Investment entity to an issuer or holder of securities to
Houses Law", the Commission, pursuant raise funds for said issuer or holder, by the
to the powers vested in it by said Decree, distribution of such securities for sale,
and by R.A. Nos. 1143 and 5050, hereby resale, or subscription, either through an
promulgates the following rules and outright purchase or through a
regulations for the information and corresponding commitment to purchase
guidance of the public: the balance not subscribed or sold.
e) Private placement refers to the
Section 1. Scope of Applicability. These underwritten sale of securities to less than
rules and regulations shall apply to any 20 persons or enterprises.
enterprise which engages or purports to f) Public distribution refers to the
engage in the underwriting of securities. underwritten sale of securities to at least
20 persons or enterprises.
Sec. 2. Definitions. The following g) Voting stock is that portion of the
terms as used in P.D. No. 129 and these authorized capital stock of an IH, as are
rules shall be understood to mean as subscribed and entitled to vote.
follows: h) Paid-in capital are all payments on
a) Investment House (IH) is any subscriptions to the authorized capital of an
enterprise which engages or purports to IH, including premiums paid in excess of par.
engage, whether regularly or on an i) Officer shall be understood to mean
isolated basis, in the underwriting of a senior officer of an IH or bank, which
securities of another person or enterprise, includes the president, executive vice-
including securities of the Government president, general manager, vice-
and its instrumentalities. president, assistant vice-president,
b) Underwriting of securities is the corporate secretary, head of an operating
act or process of guaranteeing the department and branch manager and such
distribution and sale within the Philippines other officers as the Commission, in
of securities issued by another person or consultation with the BSP, shall determine.
enterprise, including securities of the j) Organizers are persons who
Government or its instrumentalities. The undertake to form an IH, among
distribution and sale may be on a public themselves and others, and who are
or private placement basis. indicated in the articles of incorporation as
c) Securities are written evidences the incorporators and the incorporating
of ownership, interest or participation, in directors.
any enterprise, or written evidences of k) Managerial staff are the officers of
indebtedness of a person or enterprise. It an IH. Where an IH is under a
includes, but is not limited to, the management contract the terms shall be
instruments enumerated in Section 2 of understood to include the officers of the
the Securities Act. management firm.

APP. Q-18
05.12.31
l) Unimpaired capital and surplus 7) No director or officer of an IH shall

means the total of the unimpaired paid-in at the same time be a director of a bank,
capital, surplus, and undivided profits net and no director of an IH shall at the same
of such valuation reserves as may be time be an officer of a bank, except as may
required by the Commission provided that be authorized as an exception by the
the Commission may include such other Monetary Board of the BSP.
items as it may deem appropriate. B. Procedure - The organizers shall
m) Quasi-banking functions shall refer file with the Commission, a sworn
to the functions defined as such by law and application for registration in accordance
appropriate implementing rules and with the prescribed form, together with the
regulations. following documents:
n) Commission shall mean the (1) All documents required for
Securities and Exchange Commission. registration as a stock corporation;
(2) An information sheet of the
Sec. 3. Organization and Registration registrant corporation; [SEC Form 129-2]
A. Investment Houses shall be (3) A statement under oath by the
organized in the form of stock corporations organizers and the proposed managerial
in accordance with the provisions of the staff, of their educational background and
Corporation Law, subject to the following work experience, as well as information
requirements: on any position currently held by them in
1) At least a majority of the voting stock banking and other financial institutions, if
of the corporation shall be owned by citizens any (SEC Form 129-3);
of the Philippines. In determining the (4) A one-year projected statement of
percentage of foreign-owned voting stocks assets and liabilities of the proposed IH;
in an IH, the basis of the computation shall (5) A tentative program of operation
be the citizenship of each stockholder, and, for one year, including its investment
with respect to corporate owners of voting direction and volume, its expected sources
stock, the citizenship of the individual and intended uses of funds and its quasi-
owners of voting stock in the corporation banking functions, if any.
holding shares in the IH; C. Hearing on Application - The
2) The majority of the members of the Commission shall conduct a hearing to
Board shall be citizens of the Philippines; determine whether the establishment of
3) Foreign equity participation shall the proposed IH will promote public
be registered or reported with the Board interest and economic growth. The BSP shall
of Investment in accordance with the rules be officially notified.The SEC Commissioner
and regulations of that Office, prior to or shall not register any articles of
simultaneous with the registration with the incorporation unless his Office shall have
Commission; consulted the BSP and is satisfied on the
4) The corporation shall have a basis of the evidence submitted that:
minimum initial paid-in capital of P20.0 (1) All the requirements of P.D. No.
million at the time of incorporation; 129 and of existing laws relative to the
5) Resident foreign directors or organization of an IH have been complied
technicians of an IH, if any, shall register with with;
the Bureau of Immigration and Deportation; (2) Public interest and economic
6) In no event shall an officer of an IH be growth are promoted;
at the same time an officer of a bank, as defined (3) The amount of capital, the
in Section 3 of R.A. No. 337, as amended; proposed organization, direction and

APP. Q-18
05.12.31
administration, as well as the integrity, to the approval of the Commission, it being

experience and expertise of the organizers understood that no public distribution of
and the proposed managerial staff, provide securities shall be made without such
reasonable assurance that the enterprise approval. The Commission may impose
will be conducted with financial prudence. such terms and conditions as may be
D. Issuance of Certificate of necessary in the public interest and for the
Incorporation - Upon compliance with all protection of investors; and it may require
the requirements of law and implementing the submission of such documents as may
rules, and the Commission is satisfied that be necessary to ascertain compliance with
the formation of the IH will promote public such standards of operation as it may
interest and economic growth, a Certificate establish. Transactions which constitute
of Incorporation will be issued to it. A quasi-banking functions shall be subject to
license to operate shall also be granted after BSP regulation.
it shall have adopted its by-laws, elected As a gesture of faith in the issue, an IH
its directors and appointed its officers. may take for its own account a portion of
E. Annual Fees - On or before the the securities it underwrites but shall sell
fifteenth day of January of each year, and such securities to the public.
for as long as its license to operate remains
in effect, each IH shall pay a fee of P200. Sec. 5. Management of Funds. The
At the time of payment, the Commission Commission, by circular, shall provide
may require the licensee to appear and limitations on investments of discretionary
inform the Commission of the results of its accounts under the management of an IH.
operations. Should the IH engage in the
F. Branch Operations - No IH shall management of funds, it must at all times
open, maintain or operate a branch or adhere to the prudent man's rule. The IH
agency without first securing from the shall ensure that the interest of the funds
Commission a license to operate a branch managed is promoted and that the
in a particular locality. All applications for operation of the funds is undertaken on an
a license to operate a branch shall be acted arms' length basis.
upon by the Commission within ninety (90) The Commission may require such
days after submission of such documents documents and reports as may be
as may be required by the Commission in necessary, in order to determine if
support of such application. prudence and safety of the principal have
G. Use of the Term "Investment been paramount in the decision of the IH.
House" - No person, association,
partnership or corporation other than those Sec. 6. Underwriting Fees. Except in
duly licensed as an IH in accordance with highly meritorious cases, as approved by
these rules and regulations, shall advertise the Commission, an IH shall not collect
or hold itself out as being engaged in the underwriting fees in excess of five percent
business of an IH. (5%) of the amount generated by the
underwriter for the issuer.
Sec. 4. Underwriting Requirements
Underwriting agreements entered into by Sec. 7. Contingency Reserves. An IH
an IH, with respect to public distribution of shall provide annually a reserve for
securities, including the fees to be charged contingencies in such reasonable amount
in connection therewith, shall be subject as may be required by the Commission.

APP. Q-18
05.12.31
Sec. 8. Prohibitions dismissal, suspension, or filling of

(1) No IH shall undertake underwriting vacancies therein, or of any officers or
commitments for its own account in an managerial staff, signed under oath by the
aggregate outstanding amount exceeding secretary, within fifteen (15) days after
twenty (20) times its unimpaired capital occurrence of the event.
and surplus. Every registered IH shall maintain and
(2) An IH shall not at any time allow preserve such records and documents as
its unimpaired capital and surplus to fall the Commission may prescribe by way of
below P20.0 million; otherwise, it shall be circulars. Such circulars shall provide for a
prohibited from underwriting securities for reasonable degree of uniformity in
so long as such deficiency remains. accounting policies and principles to be
(3) Whenever an IH is engaged in the followed by IHs in maintaining their
management of funds, its officers and other accounting records and in preparing
personnel directly involved in the statements as required by these rules.
management of funds are prohibited from
simultaneously or concurrently buying or Sec. 10. Transitory Provisions
selling the shares of stock of the same firm A. All existing enterprises which have
that the funds are buying or selling. been operating as Investment Houses,
(4) No advance to directors, officers prior to 15 February 1973, shall:
and stockholders owning at least 10% of (1) Within six (6) months from 15
the outstanding capital of an IH shall be February 1973 file an information sheet
allowed, unless sufficiently collateralized. with the Commission in such form and
containing such data as may be required,
Sec. 9. Reporting Requirements. Every pay the required fee under Sec. 3-E of these
registered IH shall file with the Commission rules, and the Commission in consultation
the following periodic reports in triplicate: with the Monetary Board, after determining
A. Progress Reports - a quarterly report compliance with the requirements of P.D.
of the results of its underwriting operations No. 129 and of these Rules, shall issue a
and activities of funds managed on all License to Operate an IH.
commitments entered into in such form as (2) Within one (1) Year from 15
may be provided for the purpose, within February 1973 comply with the requirement
fifteen (15) days from the end of each quarter. of a minimum paid-in capital of P20.0
B. Semi-Annual Financial Statement million, citizenship requirements, and the
signed under oath by its chief accountant prohibition on interlocking directorate or
and verified by the president, within a officership.
period of sixty (60) days after the end of
each semester containing such data, and Sec. 11. Stockbrokerage or Dealership
in such form as the Commission shall Functions. If an IH engages in the business
require. A copy shall be filed with the BSP. of a stockbroker or dealer pursuant to P.D.
C. Annual Report concerning its No. 129, it shall comply with the provisions
operational activities for the year just of C.A. No. 83, otherwise known as the
ended, signed by its president (SEC Form Securities Act, and the rules and regulations
129-1) within the month of March of each of the Commission promulgated pursuant
year. A copy shall be filed with the BSP. thereto: Provided, however, that an IHe
D. A Report on the composition of the need not obtain a separate license under
board of directors or any resignation, Section 14 of the Securities Act.

APP. Q-18
05.12.31
Sec. 12. Bangko Sentral Rules. IHs shall to the criminal liabilities provided in the
also be subject to the rules and regulations second paragraph of Section 16 of P. D.
promulgated by the BSP for non-bank No. 129.
financial intermediaries as provided by law. In the exercise of its regulatory powers
under Section 12 of P.D. No. 129, the
Sec. 13.Visitorial Power. The Commission Monetary Board may issue a cease-and-
may, at its discretion, make such desist order upon an IH which is not
investigations as it deems necessary to complying with BSP rules and regulations
determine whether or not an IH is pertaining to non-bank financial
complying with any of the provisions of intermediaries or, in appropriate cases,
P.D. No. 129 or of any applicable laws, rules governing quasi-banking functions of
rules and regulations. It shall determine IHs. Failure to comply with the cease-and-
all the facts and circumstances concerning desist order shall subject an IH to a fine to
the matter to be investigated for the be imposed by the Monetary Board.
imposition of sanctions/penalties or
remedial or preventive measures. Sec. 16. Effectivity. These rules shall
take effect immediately. They shall be
Sec. 14. General Exemption Power published in a newspaper of general
The Commission may, upon proper circulation in the Philippines and in the
petition and payment of a fee of P100, grant Official Gazette.
an exemption from compliance with any
requirements of these rules as may be Manila, Philippines, 9 July 1973.
consistent with public interest and the
protection of investors.
(SGD.) ARCADIO E. YABYABIN
Sec. 15. Penalties. Any violation of P.D. Securities and Exchange Commissioner
No. 129 or of these rules and regulations,
shall be penalized by suspension or
revocation of the License to Operate, after APPROVED:
proper notice and hearing. In appropriate
cases, a fine not exceeding P200 per day
for every day during which such violation (SGD.) TROADIO T. QUIAZON, JR.
continues, shall be imposed upon the IH Acting Secretary of Trade
and the officer or director who ordered or
authorized the violation, without prejudice Date: 13 July 1973

APP. Q-19
05.12.31
Republic of the Philippines

Department of Finance
SECURITIES AND EXCHANGE COMMISSION
SEC Building, EDSA, Greenhills
Mandaluyong, Metro Manila
NEW RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF

REPUBLIC ACT (R.A.) NO. 5980 (THE FINANCING COMPANY ACT),
AS AMENDED
To effectively carry out the provisions used or invested in financing company

of R.A. No. 5980 (The Financing Company activities, Provided, That in the
Act), as amended, the Securities and computation thereof direct loans and
Exchange Commission, pursuant to the temporary investments in government
powers vested in it under said Act, R.A. securities shall be taken into account.
No. 1143 and Presidential Decree No. 902- c. FUNDS as used herein shall mean
A, as amended, hereby promulgates the total assets inclusive of allowance for
following rules and regulations: doubtful accounts and deferred income less
investment in real estate, shares of stock
Section 1. Definition of Terms. The in a real estate development corporation
following definition of terms shall apply for and real estate based projects which shall
purposes of these Rules: not exceed 25% of networth of the
a. FINANCING COMPANIES are investing company, leasehold rights and
corporations or partnerships, except those improvements, fixed assets inclusive of
supervised by the Central Bank of the appraisal surplus, foreclosed properties and
Philippines, Office of the Insurance prepayments.
Commissioner and the Bureau of d. COMMISSION shall mean the
Cooperatives Development, which are Securities and Exchange Commission.
primarily organized for the purpose of e. CREDIT shall mean any loan,
extending credit facilities to consumers and mortgage, deed of trust, advance or
to industrial, commercial, or agricultural discount, any conditional sales contract, any
enterprises: by discounting or factoring contract to sell, or sale or contract of sale of
commercial papers or accounts receivable; property or service, either for present or
by buying and selling contracts, leases, future delivery, under which, part or all of
chattel mortgages, or other evidences of the price is payable subsequent to the
indebtedness; or by leasing of motor making of such sale or contract, any
vehicles, heavy equipment and industrial rental-purchase contract, any option,
machinery, business and office machines demand, lien, pledge, or other claim
and equipment, appliances and other against, or for the delivery of, property
movable property. or money, any purchase, or other
b. PRIMARILY ORGANIZED shall acquisition of or any credit upon the
mean organized for the primary purpose security of any obligation or claim arising
of operating as a financing company and out of the foregoing; and any transactions
that more than 50% of its funds shall be having a similar purpose or effect.

APP. Q-19
05.12.31
f. PURCHASE DISCOUNT is the during which the lessee has the right to
difference between the value of the hold and use the leased property and shall
receivables purchased or credit assigned, and bear the cost of repairs, maintenance,
the net amount paid by the finance company insurance and preservation thereof, but
for such purchase or assignment, exclusive with no obligation or option to the part of
of fees, service charges, interest and other the lessee to purchase the leased property
charges incident to the extension of credit. at the end of the lease contract.
g. RECEIVABLES FINANCING is a k. PAID-UP CAPITAL refers to the
mode of extending credit through the amount paid for the subscription of stock
purchase by, or assignment to, a financing in a corporation including the amount paid
company of evidences of indebtedness or in excess of par value, while CAPITAL
open accounts by the discounting or CONTRIBUTION refers to the total
factoring. contributions of the partners in a
h. DISCOUNTING is a type of partnership.
receivables financing whereby evidences l. NETWORTH is the excess of assets
of indebtedness of a third party, such as over liabilities, net of appraisal surplus, and
installments contracts, promissory notes, booked valuation reserves, capital
and similar instruments, are purchased by, adjustments, overstatement of assets and
or assigned to, a financing company in an unrecorded liabilities.
amount or for a consideration less than their
face value. Sec. 2. Form of Organization. Financing
i. FACTORING is a type of companies shall be organized in the form
receivables financing whereby open of: stock corporations in accordance with
accounts, not evidenced by a written the provisions of the Corporation Code
promise to pay supported by documents of the Philippines (Batas Pambansa Blg.
such as but not limited to invoices of 68) or general partnerships pursuant to
manufacturers and suppliers, delivery the provisions of the New Civil Code of
receipts and similar documents, are the Philippines and subject to the
purchased by, or assigned to, a financing following:
company in an amount or for a a. At least sixty percentum (60%) of
consideration less than the outstanding the outstanding capital stock of the
balance of the open accounts. corporation, and in case of a partnership,
j. LEASING shall refer to the financial at least sixty percentum (60%) of the total
leasing which is a mode of extending credit capital contributions of the partners, shall
through a non-cancellable contract under be owned by citizens of the Philippines.
which the lessor purchases or acquires at b. A minimum paid-up capital, in case
the instance of the lessee heavy of corporations, and capital contribution in
equipment, motor vehicles, industrial case of partnerships, that shall maintain
machinery, appliances, business and office their principal offices in the areas hereunder
machines, and other movable property in specified, shall be made in cash or in
consideration of the periodic payment by property of at least:
the lessee of a fixed amount of money 1) P10,000,000 - Metro Manila Area
sufficient to amortize at least 70% of the 2) 5,000,000 - First Class Cities outside
purchase price or acquisition cost, including Metro Manila
any incidental expenses and a margin of 3) 2,500,000 - Second Class Cities
profit, over the lease period. The contract and First Class
shall extend over an obligatory period Municipalities

APP. Q-19
05.12.31
4) 1,000,000 - Third Class Cities and reported to the Commission within seven
Second Class (7) working days thereafter, and the
Municipalities requirement prescribed under Section 3.a.4
5) 500,000 - Fourth Class Cities, and 7 and Section 5.a.3. and 4 hereof, shall
Third Class be submitted within thirty (30) working
Municipalities and days from date of the aforesaid change..
below d. The corporate/partnership name of
In case the area where the principal financing companies shall contain the term
office of a financing company is located has "financing company","finance company",
been upgraded, the corresponding increase or "finance and investment company" or
in capitalization requirement shall be other title or word(s) descriptive of its
undertaken within such period as the operations and activities as a financing
Commission shall fix. company.
Unless otherwise authorized by the
Commission, all financing companies with Sec. 3. Requirements for Registration
a paid-up capital or capital contribution less a. Registration papers to be
than that mentioned above shall be given submitted to the Commission - Any
five (5) years within which to build up their corporation or partnership may be
capital requirement according to the registered as a financing company by filing
following schedule: with the Commission in five (5) copies an
3rd Class application to operate as a financing
1st Class 2nd Class Cities &
Metro Cities Out Cities & 1st 2nd Class company under R.A. No. 5980, as amended,
Manila side Metro Class Muni- Munici- signed under oath by its President/Managing
Area Manila cipalities palities Partner, together with the following
6-30-92 2,000,000 1,000,000 500,000 500,000 documents in the prescribed forms:
1) All documents required for
6-30-93 4,000,000 2,000,000 1,000,000 625,000
registration as a corporation or partnership;
6-30-94 6,000,000 3,000,000 1,500,000 750,000 2) By-laws;
3) Information Sheet of registrant
6-30-95 8,000,000 4,000,000 2,000,000 875,000
company;
6-30-96 10,000,000 5,000,000 2,500,000 1,000,000 4) Personal Information Sheet of each
of the directors, officers with the rank of
Any existing and/or new branch, Vice-President and up or their equivalent
agency, extension office or unit may or managing partners;
operate subject to the provision of Section 5) Answers to the questionnaire of the
5 thereof. Commission;
c. At least two-thirds of all the 6) Projected balance sheet, income
members of the board of directors in the statement and cash flow statement for three
case of a corporation and all the managing (3) years, together with a schedule of
partners in case of a partnership shall be discounting, factoring, leasing and other
citizens and residents of the Philippines. financing activities and all related income
Any change in the membership in, or therefrom.
composition of, the board of directors, 7) Documents required of each
officers from the rank of VP and up or their director, officer to be appointed from the
equivalent, branch manager, cashier and rank of Vice-President and up or their
administrative officer, or in the managing equivalent, or managing partner such as the
partners, as the case may be, shall be following:

APP. Q-19
05.12.31
a) Police clearance from local police of application, the Commission shall take
the city or municipality of which he is a appropriate action on said application.
resident;
b) NBI clearance; Sec. 4. Issuance of Certificate of Filing
c) Certificate of good moral character of Articles of Incorporation and By-Laws;
to be executed under oath by at least two Certificate of Authority; Conditions for
(2) reputable and disinterested persons in Commencement of Operations
the community; a. The Commission, in consultation
d) Bank credit information to be with the Central Bank, shall register the
issued by his depository or creditor bank(s), articles of incorporation and by-laws or
if any; and articles of partnership of, and issue the
8) Such other documents as may be Certificate of Authority to Operate to, any
required by the Commission whenever it proposed financing company if it is satisfied
deems necessary. that the establishment of such company will
b. Publication and Posting of Notice promote public interest and convenience,
and Order for Registration - Upon receipt and on the basis of the documents and/or
of the above registration papers of a evidences submitted, that;
proposed financing company, the 1) All the requirements of R. A. No.
Commission shall cause the notice and 5980, as amended, other existing laws, and
order to be published by the applicant applicable rules and regulations to engage
company at its expense in a newspaper of in the business for which the applicant is
general circulation in the Philippines once proposed to be incorporated, or organized,
a week for two (2) consecutive weeks, and have been complied with;
the notice shall simultaneously be posted 2) The organization, direction and
in a public and conspicuous place where administration of the applicant, as well as
the principal office of the company will be the integrity and responsibility of the
located and in the Office of the Commission organizers and administrators, presumably
for the same period. assure the protection of the interest of the
The notice shall state, among others, general public; and
the name of the proposed financing 3) Proof of the publication and posting
company, the capital structure in case of a of the notice and order for registration is in
corporation or the total capital contribution accordance with Sec. 3.b. hereof.
in case of a partnership, and the names and b. A corporation or partnership which
residences of its directors or managing has been duly registered, and granted a
partners. Certificate of Authority to Operate as a
c. Opposition to Registration, if any - financing company in accordance with the
Any interested party may oppose the law and these Rules, shall commence
registration of a financing company in operations within ninety (90) days from
writing, personally or through counsel, date of grant of such certificate. Failure to
within fifteen (15) days after the last date of operate within the prescribed ninety (90)
the publication of the notice. If after the days period shall subject the financing
hearing, the Commission finds that the company to a fine of not less than One
requirements of R. A. No. 5980, as Thousand (P1,000.00) Pesos unless its non-
amended, its implementing rules and operation is reasonably justified, as
regulations and other pertinent laws have determined by the Commission.
been complied with and that no valid c. The financing company may be
reason exists for the disapproval of the granted a grace period of another ninety

APP. Q-19
05.12.31
(90) days from the expiry date of the first proposed branch, extension office, agency
ninety (90) days within which to or unit will be established, to absorb new
commence operations notwithstanding its entities engaged in financing, as may be
failure to operate as aforestated. Failure determined by the Commission.
to operate within the extended period c. Additional Capital Requirement - A
shall empower the Commission, after financing company may be required to put
notice and hearing, to revoke its up additional capital for branches, agencies,
Certificate of Authority. extension offices or units in an amount to
be determined by the Commission.
Sec. 5. Branches, Agencies, Extension d. Prescribed Period to Operate -
Offices or Units Such branch, agency, extension office or
a. Certificate of Authority - No unit shall operate within ninety (90) days
financing company shall establish or from the issuance of the certificate of
operate a branch, agency, extension office authority and failure to operate within such
or unit without a prior certificate of period shall subject said branch, agency,
authority to be issued by the Commission. extension office or unit to a fine of not less
The application for authority filed under than One Thousand (P1,000) Pesos or
this section shall be accompanied by the revocation of the certificate of authority,
following documents: after due hearing at the discretion of the
1) Information Sheet of the proposed Commission, unless its non-operation is
branch; reasonably justified as determined by the
2) Answer to SEC questionnaire; Commission.
3) Police clearance of the manager, e. Term of Authority to Operate - The
cashier, and administrative officer of the certificate of authority to operate a branch,
proposed branch; agency, extension office or unit shall be co-
4) NBI clearance of the branch terminous with that of the head office.
manager, cashier and administrative
officer of the proposed branch; Sec. 6. Applicability of Central Bank
5) Copy of the proposed personnel Regulations - Financing companies duly
chart; and licensed to operate as such, their branches,
6) Such other documents as may be agencies, extension offices or units shall
required by the Commission whenever it also be subject to applicable Central Bank
deems necessary. regulations.
The above application shall be
published in accordance with the Sec. 7. Licensing Fees - A fee of 1/10 of
provisions of Sec. 3.b. of these Rules. 1% of the minimum paid-up capital or
However, the Notice and Order shall be capital contribution required under Section
posted in a public and conspicuous place 2.b. shall be charged for the issuance of the
where the aforesaid branch, agency, Certificate of Authority to Operate as a
extension office or unit shall be financing company.
established. A fee of one-tenth of one percent (1/10
b. Evaluation Guideposts - The of 1%) of the additional required capital
number of branches, agencies, extension under Sec. 5.c., but in no case less than
offices or units to be established shall P250.00 shall be charged likewise for the
depend upon the capacity of the company issuance of original Certificate of Authority
to conduct expanded operations and/or of each branch, agency, extension office
upon the capacity of the area wherein the or unit of such financing company.

APP. Q-19
05.12.31
Sec. 8. Loans and Investments functions shall not act as dealers in

a. Financing companies may commercial papers but may act as dealers
engage in direct lending if authorized by in other securities provided they are duly
the secondary purposes in its articles of licensed by the Commission as such.
incorporation and in accordance with b. Financing companies shall not act
Section 42 of the Corporation Code of the as dealers of certificates of time deposit.
Philippines (B.P. 68). c. Except in cases of issuances to
b. Unless otherwise authorized by the primary institutional lenders, financing
Commission, the total investment in real companies without quasi-banking license
estate and in shares of stock in a real estate shall not issue instruments other than
development corporation and other real promissory notes, to cover placements
estate based projects shall not at any time with, or borrowing by, them.
exceed twenty-five (25%) per cent of the
net worth of the investing financing Sec. 11. PurchaseDiscount/Fees/ Service
company. and Other Charges - The purchase
discounts, fees, service and other charges
Sec. 9. Conveyance of Evidences of of financing companies on assignments of
Indebtedness and Financed Receivables credit, purchases of installment papers,
a. The negotiation, sale or assignment accounts receivable or other evidences of
by financing companies of evidences of indebtedness, factoring of accounts
indebtedness shall be in accordance with receivable or other evidences of
the rules of the Commission on registration indebtedness, or leasing transactions shall be in
of commercial papers. accordance with the rules prescribed by
b. Accounts which have been factored the Monetary Board, in consultation with
or discounted by, the lease receivables of, the Commission, pursuant to the provisions
and other evidences of indebtedness (not of Section 5 of R.A. No. 5980, as amended
covered in Item a. above) issued or by P.D. No. 1454.
negotiated to, a financing company shall
not be sold, assigned or transferred in any Sec. 12. Networth for Operating
manner except to banks including their trust Financing Companies - The company's
accounts, trust companies, quasi-banks, networth shall be maintained at an amount
investment houses including their trust not less than that required under Sections
accounts, financing companies, investment 2.b. and 5.c. hereof.
companies, NSSLAs, insurance companies,
government financial institutions, pension Sec. 13. Prohibitions
and retirement funds approved by the a. No corporation shall be allowed to
Bureau of Internal Revenue, educational include financing activities as herein
assistance funds established by the National defined as one of its secondary purposes.
Government; Provided, That the b. No person, association, partnership
negotiation of evidence of indebtedness to or corporation shall do or hold itself out as
pension funds or educational assistance doing business as a financing company or
funds shall be on a recourse basis. finance and investment company or under
any other title or name tending to give the
Sec. 10. Other Activities public the impression that it is a financing
a. Financing companies not duly company unless so authorized under R. A.
authorized to perform quasi-banking No. 5980, as amended.

APP. Q-19
05.12.31
Sec. 14. Periodic Reports - Every financing b. A fine in accordance with the
company shall file with the Commission guidelines that the Commission shall issue
the following quarterly reports: a) from time to time;
Statement of Condition and Statement of c. Other sanctions within the power
Income and Expenses, together with the of the Commission and the Central Bank
schedule of aging of receivables (indicating under existing laws.
the maturity pattern of the aforesaid The imposition of the foregoing
receivables under due within 1 year, due administrative sanctions shall not preclude
over 1 year to be applicable to long term the institution of appropriate action against
receivables only, past due accounts to the officers and directors of the financing
subdivided further to past due accounts company or any person who might have
within 1 year, over 1 year and litigation participated therein, directly or indirectly,
items), payable (indicating likewise the same in violation of R. A. No. 5980, as amended,
maturing pattern of within 1 year and over 1 and these Rules and Regulations.
year) and off-balance sheet items; Provided,
however, That respective collateral/s (if any) Sec. 16. Cease and Desist Order - The
for past due accounts over 1 year and litigation Commission may, on its own motion or
items shall be adequately disclosed in the upon verified complaint of any aggrieved
aforementioned Schedules and b) list of party, issue a Cease and Desist Order ex-
officers, directors, and stockholders. These parte, if the violation(s) mentioned in the
reports shall be signed under oath by the preceding sections may cause grave or
company's principal executive officer and irreparable injury to the public or may
principal financial officer and shall be amount to culpable fraud or violation of
submitted within thirty (30) calendar days these Rules and Regulations, implementing
after the end of each quarter. They shall, circulars, certificates of authority issued by
likewise, file four (4) copies of their audited the Commission, or of any order, decision
financial statements within 120 days after or ruling thereof.
the end of their fiscal years and such other The issuance of such Cease and Desist
reports as may be required by the Order automatically suspends the authority
Commission. to operate as a financing company.
Immediately upon the issuance of an
Sec. 15. Administrative Sanctions - If ex-parte Cease and Desist Order, the
the Commission finds that there is a Commission shall notify the parties
violation of these Rules and Regulations and involved and schedule a hearing on
their implementing circulars or any of the whether to lift such order or to impose
terms and conditions of the Certificate of administrative sanctions provided for in
Authority to operate as a financing Section 16 not later than fifteen (15) days
company, or any Commission order, after service of notice.
decision or ruling, or refuses to have its
books of accounts audited, or continuously Sec. 17. Transitory Provision - Any
fail to comply with SEC requirements, the corporation/partnership at the time of the
Commission shall, in its discretion, impose effectivity of these Rules has been
any or all of the following sanctions: registered and licensed by the Commission
a. Suspension or revocation of the to operate as a financing company, shall
certificate of authority to operate as a be considered as registered and licensed
financing company after proper notice and under the provisions of these Rules, subject
hearing; to the terms and conditions of the license,

APP. Q-19
05.12.31
and shall be governed by the provisions Sec. 18. Effectivity - These Rules and
hereof; Provided, however, That financing Regulations shall take effect fifteen (15)
companies with existing certificate of days after publication in two (2)
authority shall surrender the same to the newspapers of general circulation in the
Commission upon payment of the annual Philippines.
fee pursuant to Section 7 hereof to be
replaced by new certificate of authority and, Mandaluyong, Metro Manila, Philippines
Provided, That where such corporation/ 16 October 1991.
partnership is affected by the new
provisions hereof, said corporation/
partnership shall, unless otherwise herein
provided, be given a period of not more than (SGD.) ROSARIO N. LOPEZ
one (1) year from the effectivity of these Rules Chairman
within which to comply with the same. Securities and Exchange Commission

APP. Q-20
08.12.31
CLASSIFICATION, ACCOUNTING PROCEDURES, VALUATION AND

SALES AND TRANSFERS OF INVESTMENTS IN DEBT SECURITIES
AND MARKETABLE EQUITY SECURITIES
Section 1. Statement of Policy. It is the a. Held to Maturity (HTM) Securities

policy of the BSP to promote full - These are debt securities with fixed or
transparency of the financial statements of determinable payments and fixed maturity
banks and other supervised institutions in that an FI has the positive intention and
order to strengthen market discipline, ability to hold to maturity other than:
encourage sound risk management (1) those that meet the definition of
practices, and stimulate the domestic capital Securities at Fair Value Through Profit or
market. Towards these ends, the BSP Loss; and
desires to align local financial accounting (2) those that the FI designates as
standards with international accounting Available-for-Sale Securities .
standards as prescribed by the International An FI shall not classify any debt security
Accounting Standards Board (IASB) to the as HTM if the FI has, during the current
greatest extent possible. financial year or during the two (2)
preceding financial years, sold or
Sec. 2. Scope. This Appendix covers reclassified more than an insignificant
accounting for investments in debt and amount of HTM investments before maturity
equity securities except: (more than insignificant in relation to the
a. those that are part of hedging total amount of HTM investments) other
relationship; than sales or reclassifications that:
b. those that are hybrid financial (a) are so close to maturity or the
instruments; security’s call date (i.e., less than three (3)
c. those financial liabilities that are months before maturity) that changes in the
held for trading; market rate of interest would not have a
d. those financial assets and financial significant effect on the security’s fair value;
liabilities which, upon initial recognition, (b) occur after the FI has substantially
are designated by the FIs as at fair value collected all [i.e., at least eighty-five percent
through profit or loss; and (85%)] of the security’s original principal
e. those that are classified as loans and through scheduled payments or
receivables. prepayments; or
It also does not include accounting for (c) are attributable to an isolated event
derivatives and non-derivative financial that is beyond the FI’s control, is
instruments other than debt and equity non-recurring and could not have been
securities. The foregoing exceptions and reasonably anticipated by the FI.
exclusions shall be covered by separate For this purpose, the phrase “more than
regulations. an insignificant amount” refers to sales or
reclassification of one percent (1%) or more
Sec. 3. Investments in Debt and Equity of the outstanding balance of the HTM
Securities. Depending on the intent, portfolio: Provided, however, That sales or
investments in debt and equity securities reclassifications of less than one percent
shall be classified into one (1) of four (4) (1%) shall be evaluated on case-to-case
categories and accounted for as follows:1 basis.
1
Reclassification allowed until 30 Nov. 2005 as per MAB dated 23 Nov. 2005

APP. Q-20
08.12.31
Sales or reclassifications before Sales before maturity could satisfy the

maturity that do not meet any of the condition of HTM classification and
conditions prescribed in this Appendix shall therefore need not raise a question about
require the entire HTM portfolio to be the FI’s intention to hold other HTM
reclassified to Available-for-Sale. Further, securities to maturity if they are attributable
the FI shall be prohibited from using the to any of the following:
HTM account during the reporting year of (i) A significant deterioration in the
the date of sales or reclassifications and for issuer’s creditworthiness; for example, a sale
the succeeding two (2) full financial years. following a downgrade in a credit rating by
Failure to reclassify the HTM portfolio to an external rating agency would not
Available-for-Sale on the date of sales or necessarily raise a question about the FI’s
reclassifications, shall subject the FI and intention to hold other investments to
concerned officers to penalties and maturity if the downgrade provides evidence
sanctions provided under 4391Q.3. This of a significant deterioration in the issuer’s
provision shall be applied prospectively, creditworthiness judged by reference to the
i.e., on prohibited sales or reclassifications credit rating at initial recognition. Similarly,
occurring on 13 March 2005 (effectivity if an FI uses internal ratings for assessing
date of Circular No. 476 dated 16 February exposures, changes in those internal ratings
2005) and thereafter. may help to identify issuers for which there
Securities held in compliance with BSP has been a significant deterioration in
regulations, e.g., securities held as liquidity creditworthiness, provided the FI’s
reserves and for the faithful performance of approach to assigning internal ratings and
trust duties, may be classified either as HTM, changes in those ratings give a consistent,
Securities Held-for-Trading (HFT) or reliable and objective measure of the credit
Available for Sale: Provided, That the quality of the issuers. If there is evidence
provision of Item (4) of paragraph 2 of that an instrument is impaired, the
Section 3.a.1 shall not apply to sales or deterioration in creditworthiness is often
reclassifications of the said securities regarded as significant.
booked under HTM. (ii) A change in tax law that eliminates
a.1.Positive intention and ability to hold or significantly reduces the tax-exempt status
investments in HTM securities to maturity of interest on the HTM security (but not a
– An FI does not have a positive intention change in tax law that revises the marginal
to hold to maturity an HTM security if: tax rates applicable to interest income);
(a) the FI intends to hold the security (iii) A major business combination or
for an undefined period; major disposition (such as sale of a segment)
(b) the FI stands ready to sell the that necessitates the sale or transfer of HTM
security (other than if a situation arises that securities to maintain the FI’s existing
is non-recurring and could not have been interest rate risk position or credit risk
reasonably anticipated by the FI) in response policy: Provided, That the sale or transfer
to changes in market interest rates or risks, of HTM security shall be done only once
liquidity needs, changes in the availability and within a period of six (6) months from
of and the yield on alternative investments, the date of the business combination or
changes in financing sources and terms or major disposition: Provided, further, That
changes in foreign currency risk; or prior BSP approval is required for sales or
(c) the issuer has a right to settle the transfers occurring after the prescribed six
security at an amount significantly below (6)-month time frame. In this case, FIs shall
its amortized cost. submit to the appropriate department of the

APP. Q-20
08.12.31
SES, a plan stating the reason for the by regulatory agencies and securities
extension and the proposed schedule for exchanges, and transfer taxes and duties.
the disposition of the HTM security. Transaction costs do not include debt
(iv) A change in statutory or regulatory premiums or discounts, financing costs or
requirements significantly modifying either internal administrative or holding costs.
what constitutes a permissible investment After initial recognition, an FI shall
or the maximum level of particular types of measure HTM securities at their amortized
investments, thereby causing an FI to cost using the effective interest method.
dispose of an HTM security; For this purpose, the effective interest
(v) A significant increase in the method is a method of calculating the
industry’s regulatory capital requirements amortized cost of a security (or group of
that causes the FI to downsize by selling securities) and of allocating the interest
HTM securities; or income over the relevant period using the
(vi) A significant increase in the risk effective interest rate. The effective interest
weights of HTM securities used for rate shall refer to the rate that exactly
regulatory risk-based capital purposes. discounts the estimated future cash receipts
An FI does not have a demonstrated through the expected life of the security or
ability to hold to maturity an investment in when appropriate, a shorter period to the
HTM security if: net carrying amount of the security. When
(aa) it does not have the financial calculating the effective interest rate, an FI
resources available to continue to finance shall estimate cash flows considering all
the investment until maturity; or contractual terms of the security (for
(bb)it is subject to an existing legal or example, prepayment, call and similar
other constraint that could frustrate its options) but shall not consider future credit
intention to hold the security to maturity. losses. The calculation includes all fees and
Sales before maturity due to events that points paid to the other party to the contract
are non-recurring and could not have been that are an integral part of the effective
reasonably anticipated by the FI such as a interest rate, transaction costs, and all other
run on a bank, likewise satisfy the condition premiums or discounts. There is a
of HTM classification and therefore need presumption that the cash flows and the
not raise a question about the FI’s intention expected life of a group of similar securities
and ability to hold other HTM investments can be estimated reliably. However, in
to maturity. those rare cases when it is not possible to
An FI assesses its intention and ability estimate reliably the cash flows or the
to hold its investment in HTM securities to expected life of a security (or group of
maturity not only when those securities are securities), the FI shall use the contractual
initially recognized, but also at each time cash flows over the full contractual terms
that the FI prepares its financial statements. of the security.
a.2. HTM securities shall be measured A gain or loss arising from the change
upon initial recognition at their fair value in the fair value of the HTM security shall
plus transaction costs that are directly be recognized in profit or loss when the
attributable to the acquisition of the security is derecognized or impaired, and
securities. through the amortization process.
For this purpose, transactions costs An FI shall assess at each time it
include fees and commissions paid to agents prepares its financial statements whether
(including employees acting as selling there is any objective evidence that an HTM
agents), advisers, brokers and dealers, levies security is impaired.

APP. Q-20
08.12.31
If there is objective evidence that an the impairment is reversed. The amount

impairment loss on HTM securities has of the reversal shall be recognized in profit
been incurred, the amount of the loss is or loss.
measured as the difference between the b. Securities at Fair Value through
security’s carrying amount and the present Profit or Loss – These consist initially of
value of estimated future cash flows HFT securities. HFT are debt and equity
(excluding future credit losses that have not securities that are:
been incurred) discounted at the security’s (1) acquired principally for the purpose
original effective interest rate (i.e. the of selling or repurchasing them in the near
effective interest rate computed at initial term; or
recognition). The carrying amount of the (2) part of a portfolio of identified
security shall be reduced through the use securities that are managed together and for
of an allowance account. The amount of the which there is evidence of a recent actual
loss shall be recognized in profit or loss. pattern of short-term profit-taking.
As a practical expedient, a creditor may For this purpose, an FI shall adopt its
measure impairment of HTM securities on own definition of short-term which shall
the basis of an instrument’s fair value using be within a (twelve) 12-month period. Said
an observable market price. definition which shall be included in its
An FI first assesses whether objective manual of operations, shall be applied and
evidence of impairment exists individually used consistently.
for HTM securities that are individually b.1 HFT securities shall be measured
significant, and individually or collectively upon initial recognition at their fair value.
for HTM securities that are not individually Transaction costs incurred at the acquisition
significant. If an entity determines that no of HFT securities shall be recognized
objective evidence of impairment exists for directly in profit or loss. After initial
an individually assessed HTM security, recognition, an FI shall measure HFT
whether significant or not, it includes the securities at their fair values without any
asset in a group of HTM securities with deduction for transaction costs that it may
similar credit risk characteristics and incur on sale or other disposal. A gain or
collectively assesses them for impairment. loss arising from a change in the fair value
HTM securities that are individually assessed of HFT securities shall be recognized in
for impairment and for which an impairment profit or loss under the account “Trading
loss is or continues to be recognized are not Gain/(Loss)”.
included in a collective assessment of c. Available- for- Sale Securities.
impairment. These are debt or equity securities that are
If, in a subsequent period, the amount designated as Available- for- Sale or are not
of the impairment loss decreases and the classified/designated as (a) HTM, (b)
decrease can be related objectively to an Securities at Fair Value through Profit or
event occurring after the impairment was Loss, or (d) Investment in Non-Marketable
recognized (such as an improvement in the Equity Securities (INMES).
debtor’s credit rating), the previously c.1 Availabe-for-Sale securities shall be
recognized impairment loss shall be measured upon initial recognition at their
reversed by adjusting the allowance account. fair value plus transaction costs that are
The reversal shall not result in a carrying directly attributable to the acquisition of the
amount of the security that exceeds what the securities. After initial recognition, an FI
amortized cost would have been had the shall measure Available- for- Sale securities
impairment not been recognized at the date at their fair values, without any deduction

APP. Q-20
08.12.31
for transaction costs it may incur on sale profit or loss even though the security has
or other disposal. A gain or loss arising from not been derecognized.
a change in the fair value of an Available- The amount of the cumulative loss that
for-Sale security shall be recognized directly is removed from equity and recognized in
in equity under the account “Net profit or loss shall be the difference between
Unrealized Gains/(Losses) on Securities the acquisition cost (net of any principal
Available-for-Sale” and reflected in the repayment and amortization) and current
statement of changes in equity, except for fair value, less any impairment loss on that
impairment losses and foreign exchange security previously recognized in profit or
gains and losses, until the security is loss.
derecognized, at which time the cumulative Impairment losses recognized in profit
gain or loss previously recognized in equity or loss for an investment in an equity
shall be recognized in profit or loss. instrument classified as Available-for-Sale
However, interest calculated using the shall not be reversed through profit or loss.
effective interest method is recognized in If, in a subsequent period, the fair value
profit or loss. Dividends on an Available- of a debt instrument classified as Available-
for- Sale equity security are recognized in for-Sale increases and the increase can be
profit or loss when the FI’s right to receive objectively related to an event occurring
payment is established. after the impairment loss was recognized
For the purpose of recognizing foreign in profit or loss, the impairment loss shall
exchange gains and losses on a monetary be reversed, with the amount of the
Available-for-Sale-security that is reversal recognized in profit or loss.
denominated in a foreign currency, it shall c.2.Underwriting Accounts (UA) shall
be treated as if it were carried at amortized be a sub-account under Available-for-Sale.
cost in the foreign currency. Accordingly, These are debt and equity securities
for such an Available-for-Sale security, purchased which have remained unsold/
exchange differences resulting from changes locked-in from underwriting ventures on a
in amortized cost are recognized in profit firm basis. UA account is applicable only
or loss and other changes in carrying to UBs and IHs.
amount are recognized directly in equity. d. INMES - These are equity
For Available-for-Sale securities that are not instruments that do not have a quoted
monetary items (for example, equity market price in an active market, and whose
instruments), the gain or loss that is fair value cannot be reliably measured.
recognized directly in equity includes any INMES shall be measured upon initial
related foreign exchange component. recognition at its fair value plus transaction
An FI shall assess at each time it costs that are directly attributable to the
prepares its financial statements whether acquisition of the security. After initial
there is any objective evidence that an recognition, an FI shall measure INMES at
Available-for-Sale security is impaired. cost. A gain or loss arising from the change
When a decline in the fair value of an in fair value of the INMES shall be
Available-for-Sale security has been recognized in profit or loss when the security
recognized directly in equity and there is is derecognized or impaired.
objective evidence that the asset is impaired, An FI shall assess each time it prepares
the cumulative loss that had been its financial statements whether there is any
recognized directly in equity shall be objective evidence that an INMES is
removed from equity and recognized in impaired.

APP. Q-20
08.12.31
If there is objective evidence that an Available-for-Sale. On such reclassification,

impairment loss has been incurred on an the difference between the carrying amount
INMES, the amount of impairment loss is and fair value shall be accounted for in
measured as the difference between the accordance with Section 3.c.1.
carrying amount of the security and the d. If a reliable measure becomes
estimated future cash flows discounted at available for an INMES, it shall be
the current market rate of return for a similar reclassified as Available-for-Sale and
financial instrument. Such impairment loss remeasured at fair value, and the difference
shall not be reversed. between its carrying amount and the fair
For Securities at Fair Value through Profit value shall be accounted for in accordance
or Loss and Available-for-Sale, an FI is with Section 3.c.1.
required to book the mark-to-market e. If, as a result of a change in intention
valuation on a daily basis. However, an FI or ability, or because the two (2) preceding
may opt to book the mark-to-market financial years’ referred to in Section 3.a
valuation every end of the month: Provided, have passed, it becomes appropriate to carry
That an adequate mechanism is in place to the debt security at amortized cost (i.e,
determine the daily fair values of securities. HTM) rather than at fair value (i.e,
An FI shall recognize an investment in Available-for-Sale), the fair value carrying
debt or equity security on its balance sheet amount of the security on that date becomes
when, and only when, the FI becomes a its new amortized cost. Any previous gain
party to the contractual provisions of the or loss on that debt security that has been
financial instrument. A regular way recognized directly in equity in
purchase or sale of financial assets shall be accordance with Section 3.c.1 shall be
recognized and derecognized, as applicable amortized to profit or loss over the
using trade date accounting or settlement remaining life of the HTM using the effective
date accounting. The method used is interest method. Any difference between
applied consistently for all purchases and the new amortized cost and maturity
sale of financial assets that belong to the amount shall also be amortized over the
same category. remaining life of the security using the
effective interest method, similar to the
Sec. 4. Reclassifications1 amortization of a premium and a discount.
a. An FI shall not reclassify a security If the security is subsequently impaired, any
into or out of the Fair Value through Profit gain or loss that has been recognized
Loss category while it is held. directly in equity is recognized in profit or
b. If, as a result of a change in intention loss in accordance with Section 3.c.1.
or ability, it is no longer appropriate to f. If, in the rare circumstance that a
classify a debt security as HTM, it shall be reliable measure of fair value is no longer
reclassified as Available-for-Sale and available, it becomes appropriate to carry
remeasured at fair value, and the difference the equity security at cost (i.e, INMES) rather
between its carrying amount and fair value than at fair value (i.e, Available-for-Sale), the
shall be accounted for in accordance with fair value carrying amount of the security
Section 3.c.1. on that date becomes its new cost. Any
c. Whenever sales or reclassifications previous gain or loss on that equity security
of more than an insignificant amount of that has been recognized directly in equity
HTM investments do not meet any of the in accordance with Section 3.c.1 shall
conditions in Section 3.a, any remaining remain in equity until the security is sold or
HTM investments shall be reclassified as otherwise disposed of, when it shall be
1
The guidelines governing the reclassification of financial assets between categories in accordance with the provisions of
the October 2008 amendments to PAS39 and PFRS7 are shown in Annex A.

APP. Q-20
08.12.31
recognized in profit or loss. If the financial initial recognition of the security (a “loss
asset is subsequently impaired, any event”) and that loss event has impact on
previous gain or loss that has been the estimated future cash flows of the
recognized directly in equity is securities. Losses expected as a result of
recognized in profit or loss in accordance future events, no matter how likely, are
with Section 3.c.1. not recognized. Objective evidence that
g. The following securities booked the security is impaired includes
under the HTM category, shall be observable data that comes to the
exempted from the “tainting” provision for attention of the holder of the security about
prudential reporting purposes which the following loss events:
prohibits FIs from using the HTM category a. significant financial difficulty of the
and requires reclassification of the entire issuer or obligor;
HTM portfolio to the Available-for-Sale b. a breach of contract, such as a
category during the reporting year and for default or delinquency in interest or
the succeeding two full financial years principal payments;
whenever an FI sells or reclassifies more c. the FI, for economic or legal
than an insignificant amount of HTM reasons relating to the issuer’s financial
investments before maturity, other than for difficulty, granting to the issuer a
reasons specified in Items “a(a)” to concession that the FI would not otherwise
“a(c)” of Section 3 of this Appendix: consider;
Provided, That securities rejected under d. it becoming probable that the issuer
items “i” and “ii” shall continue to be will enter bankruptcy or other financial
booked under the HTM category: reorganization;
i. Securities exchanged pursuant to e. the disappearance of an active
the Domestic Debt Exchange Offer of the market for that security because of financial
Republic of the Philippines; difficulties; or
ii. Securities offered and accepted in f. observable data indicating that there
the Global Bond Offering of the Republic is a measurable decrease in the estimated
of the Philippines; and future cash flows from a portfolio of
iii. Foreign currency denominated securities since the initial recognition of
NG/BSP bonds/debt securities, those assets, although the decrease cannot
outstanding as of 10 February 2007, which yet be identified with the individual
were reclassified from the HTM category securities in the portfolio, including:
in view of the increased risk-weights of (1) adverse change in the payment
said securities under Appendix 63b within status of issuers in the portfolio; or
thirty (30) calendar days after 10 February (2) national or local economic
2007. The subject securities once conditions that correlate with defaults on the
reclassified shall be accounted for in securities in the portfolio.
accordance with the measurement The disappearance of an active market
requirements of their new category because an FI’s held securities are no longer
(i.e., Available-for-Sale securities). publicly traded is not evidence of
impairment. A downgrade of an issuer’s
Sec. 5. Impairment. A debt or equity credit rating is not, of itself, evidence of
security is impaired and impairment impairment, although it may be evidence of
losses are incurred if, and only if, there impairment when considered with other
is objective evidence of impairment as available information. A decline in the fair
a result of event that occurred after the value of a security below its cost or

APP. Q-20
08.12.31
amortized cost is not necessarily evidence investment in the equity instrument may
of impairment (for example, a decline in not be recovered. A significant or
fair value of an investment in debt security prolonged decline in the fair value of an
that results from an increase in the risk free investment in an equity security below its
interest rate). cost is also objective evidence of
In addition to the types of events impairment.
enumerated in Items “a” to “f” in this
Section, objective evidence of Sec. 6. Operations Manual. The FI shall
impairment for an investment in an maintain an operations manual for booking
equity instrument includes information and valuation of HTM, Securities at Fair
about significant changes with an adverse Value through Profit or Loss, Available for
effect that have taken place in the Sale and INMES.
technological, market, economic or legal (As amended by Circular Nos. 628 dated 31 October 2008,
environment in which the issuer operates 626 dated 23 October 2008, 558 dated 22 January 2007,
and indicates that the cost of the 546 dated 21 September 2006 and 509 dated 01 February 2006)

APP. Q-20a
07.12.31
ESTABLISHING THE MARKET BENCHMARKS/REFERENCE PRICES AND

COMPUTATION METHOD USED TO MARK-TO-MARKET DEBT
AND MARKETABLE EQUITY SECURITIES
General Principle
As a general rule, to the extent a credible market pricing mechanism as determined by the
BSP exists for a given security, that market price shall be the basis of marking-to-market.
However, in the absence of a market price, a calculated price shall be used as prescribed
herein.
Marking-to-Market Guidelines
To ensure consistency, the following shall be used as bases in marking-to-market

debt and equity securities:
Type of Security Market Price Basis
A. Equity Securities Listed in the Stock Exchange
1. Traded in the Philippines Same day closing price as quoted at the Philippine
Stock Exchange. In case of halt trading/
suspension or holidays, use the last
available closing price.
2. Traded Abroad Latest available closing price from the exchange

where the securities are traded.
B. Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems
(e.g., Bloomberg, Reuters)
1. US Treasuries Price as of end of day, Manila time.
2. US Agency papers such as Latest available price for the day, Manila time. In
Fannie Maes, Freddie Macs, the absence of a price, use average quotes of at
Ginnie Maes, Municipal papers least three (3) regular brokers/market makers.*
3. Brady Bonds Same as B.2.
4. For all US$-denominated Same as B.2.

government and corporate
securities
5. Other foreign-currency securities Same as B.2.
* Based on done rates if available. If done rates are not available, use the mid rate between bid and offer. If
no mid rates are available, use the bid rate.

APP. Q-20a
07.12.31
C. Foreign Currency Denominated Debt their commitments and for possible market
Securities Traded in a Local Registered manipulation and enforce sanctions on
Exchange or Market errant participants and
The basis for marking-to-market immediately inform BAP and the BSP
foreign currency-denominated debt thereon; and
securities traded in a local registered 4. Review and upgrade the
exchange or market shall be the same as benchmark setting methodology upon
those used in Peso-Denominated consultation with BAP on a continuing
Government Securities in Section D basis, including documentation and
below. publications thereof.
Accordingly, all data on done and firm
D. Peso-Denominated Government bids/offers must be credible and verifiable
Securities and preferably sourced from trade
The benchmark or reference prices executions and reporting systems that are
shall be based on the weighted average part of a regulated and organized market
of done or executed deals in a trading duly licensed by the SEC where the data
market registered with the SEC. In the contributors are bound to uphold the
absence of done deals, the best firm bid principles of transparency, fair trading and
per benchmark tenor shall be used in best execution.
calculating the benchmark: Provided, That
the best firm offer per benchmark tenor E. Peso-Denominated Private Debt
shall likewise be included as soon as Securities
permissible under securities laws and The basis for marking-to-market peso-
regulations. denominated debt securities traded in an
The benchmark or reference rate shall organized market shall be the same as
be computed and published in accordance those used in Peso-Denominated
with prescribed guidelines on the Government Securities in Section D
computation of reference rates by a above.
Calculation Agent which is recognized by For private debt securities which are
the Bankers Association of the Philippines not traded in an organized market, the
(BAP): Provided, That both the Calculation marked to market value shall be based
Agent and its method of computation are on the corresponding government
acceptable to the BSP. security benchmark plus risk premium.
To ensure the integrity of the The corresponding government security
benchmark or reference prices, the benchmark shall be determined
Calculation Agent shall perform the according to Section D above. In
following: determining the risk premium, the
1. Monitor the quality of the credit risk rating of the securities
contributed source rates for the involved given by a BSP-recognized
benchmark; credit risk rating agency shall be
2. Monitor the data contributors and established and taken into account
replace participants, upon consultation whenever available. In the absence of
with the BAP, that fail to meet such credit risk rating, alternative
commitments to the benchmark; analyses may be used: Provided, That
3. Monitor the activities of the these are well-justified by sound risk
participants to ensure compliance with analysis principles.

APP. Q-20a
07.12.31
Other Guidelines Penalties and Sanctions

For the market valuation of FIs and the concerned officers found to
securities with odd tenors, have violated the provisions of these
interpolated yields derived from the regulations shall be subject to the penalties
benchmark or reference rates in prescribed under Subsec. 4391Q.3:
accordance with the BSP - approved Provided, That non-compliance with the
guidelines for computation of above guidelines may be a basis for a finding
reference rates in Section D above of unsafe and unsound banking practice.
shall be used. (As amended by M-2007-006 dated 28 February 2007)

APP. Q-21
05.12.31
GUIDELINES ON THE USE OF SCRIPLESS (RoSS) SECURITIES AS SECURITY

DEPOSIT FOR THE FAITHFUL PERFORMANCE OF TRUST DUTIES
(Appendix to Sec. 4405Q and Sec. 4415Q)
Definition of Terms and Acronyms A. Basic Requirements
Scripless securities and RoSS securities 1. The BSP-SES shall file with BTr an
- refers to uncertificated securities issued application to open a RoSS Principal
by the Bureau of the Treasury (BTr) that are Securities Account where RoSS securities
under the BTr’s Registry of Scripless of trust institutions used as security deposit
Securities for trust duties shall be held. BSP-SES shall
use Annex 1 for this purpose.
Trust institution - refers to an entity that 2. Using Annex 1-A, BSP-SES shall
is authorized to engage in trust business also apply for a Client Securities Account
(sub-account) for each trust institution under
BTr - Bureau of the Treasury its RoSS Principal Securities Account to
enable BSP-SES to keep track of the
RoSS - Registry of Scripless Securities security deposit. BTr shall maintain
Client Securities Accounts for P1,000
BSP - Bangko Sentral ng Pilipinas each month per account.
3. A trust institution which has a DDA
BSP-SES - Supervision and Examination with BSP-Accounting shall act as its own
Sector of BSP settlement bank.
A trust institution which does not have
SRSO - Supervisory Reports and a DDA with the BSP-Accounting shall
Studies Office of BSP-SES designate a settlement bank which will act
as conduit for transferring securities for trust
BSP-Accounting - Accounting Depart- duties to the BSP-SES account and for
ment of BSP paying interest, interest coupons and
redemption proceeds. The trust institution
GSED - Government Securities Eligible shall inform the appropriate supervising and
Dealer of the BTr examining department (SED) of the BSP of
the designation of a settlement bank.
DDA - refers to the regular demand 4. Each trust institution shall
deposit account of a bank/quasi-bank with accomplish an “Autodebit/Autocredit
BSP-Accounting Authorization” for its client securities
account under the BSP-SES RoSS account.
MOR - Manual of Regulations for Non- The document will authorize the BTr and
Bank Financial Institutions the BSP to credit the DDA of the trust
institution with BSP-Accounting for
Appropriate supervising and coupons/interest payments on securities
examining department or responsible in the BSP-SES RoSS accounts and to debit
supervising and examining department - the DDA for the monthly fees payable to
refers to the Department of Thrift Banks BTr for maintaining its client securities
and Non-Bank Financial Institutions accounts with BSP-SES. It will also authorize

APP. Q-21
05.12.31
the BTR and BSP to credit the deposit reimburse BSP-SES for whatever expenses
account of BSP-SES with BSP-Accounting that may be incurred in connection with
for the redemption proceeds of securities the subscription.
that mature while in the BSP-SES RoSS 8. Every trust institution must ensure
account. that it has adequate security deposit for trust
A trust institution with a DDA with BSP- duties pursuant to the provisions of Subsecs.
Accounting shall use Annex 2-A while a trust 4405Q.1, 4405Q.2, 4405Q.3 and 4405Q.4
institution with a settlement arrangement of the MOR.
shall use Annex 2-B. 9. BTr shall provide BSP-SES with the
5. BSP-SES shall open a deposit end-of-day transaction report whenever a
account with BSP-Accounting where the transaction in any client securities account
redemption value of securities shall be is made. BTr shall also provide BSP-SES a
credited, in the event such securities monthly report of balances of each client
mature while lodged in the RoSS account securities account.
of BSP-SES. 10. Every quarter, the responsible SED
6. SRSO shall be responsible for of BSP-SES shall determine, based on the
keeping track of the deposit and withdrawal Report of Trust and Other Fiduciary
of securities held under the BSP-SES Business and Investment Management
Principal Securities Account and the Client Activities (BSP 7-26-23) submitted by the
Securities Accounts of the trust institutions. trust institution, whether or not the trust
SRSO shall instruct BTr to transfer securities institution’s security deposit for trust duties
out of the BSP-SES account and the is sufficient pursuant to the provisions of
corresponding client securities accounts of the MOR mentioned above. In case of
trust institutions only after receiving deficiency, the department shall
authorization from the Director (or in his recommend the imposition of sanctions
absence, the designated alternate officer) and/or any other appropriate action to
of the appropriate SED of SES. higher authorities.
SRSO shall also be responsible for
keeping track of the BSP-SES deposit B. Procedures for Assigning RoSS
account with the B S P - A c c o u n t i n g Securities as Security Deposit for Trust
representing credits for the redemption Duties
value of security deposit of trust institutions 1. The trust institution shall advise the
that have matured while in the RoSS appropriate BSP-SES department that it will
account of BSP-SES. SRSO shall maintain transfer RoSS securities to BSP-SES. The
sub-accounts for each trust institution for the advice should be received by the BSP-
purpose. SRSO shall instruct BSP- SES at least two (2) business days before
Accounting to transfer balances out of the the date of transfer using the prescribed
deposit account and the corresponding sub- form (Annex 3) and checking Box “b” of
account of the trust institution only after said form. (Box “a” shall be checked by a
receiving authorization from the Director new trust institution that is making an initial
(or in his absence, the designated alternate security deposit pursuant to Subsec.
officer) of the appropriate SED of SES. 4404Q.2 of the MOR.) The advice should
7. BSP-SES shall subscribe to the be sent by cc mail or by fax to be followed
Telerate electronic trading system which by an official letter duly signed by an
is linked to BTr’s RoSS and cause the authorized trust officer.
installation of a Telerate terminal at SRSO. 2. The trust institution shall
Trust institutions may be required to electronically instruct BTr to transfer

APP. Q-21
05.12.31
securities from its own RoSS accounts to 3. The trust institution shall
the BSP-SES RoSS and its corresponding electronically instruct BTr to transfer
Client Securities Account on the specified securities from its own RoSS account to
date. In the case of a trust institution with the BSP-SES RoSS accounts and its
a settlement arrangement, the instruction corresponding Client Securities Account on
shall be coursed through the settlement the specified date. In the case of a trust
bank and the securities shall come from institution with a settlement arrangement,
the RoSS account of the same bank. the instruction shall be coursed through the
3. BTr shall effect the transfer upon settlement bank and the securities shall
verification of RoSS balances. At the end come from the RoSS account of the same
of the day, BTr shall transmit a transaction bank.
report to SRSO containing the transfer. 4. BTr shall effect the transfer upon
4. SRSO shall provide the verification of RoSS balances. At the end
appropriate BSP-SES department a copy of the day, BTr shall transmit a transaction
of the report. report to SRSO containing the transfer.
5. The BSP-SES department 5. SRSO shall immediately provide
concerned shall check from the report the appropriate BSP-SES department a copy
whether BTr effected the transfer of the report.
indicated in the advice (Annex 3) sent 6. The BSP-SES department
earlier by the trust institution. concerned shall immediately check from
the report whether the securities
C. Procedures for Replacing RoSS transferred to the BSP-SES account are the
Securities same securities described in the advice
1. The trust institution shall advise (Annex 3) sent earlier. If in order, the
the appropriate SED of BSP-SES that it Director (or in his absence, the
will replace existing RoSS securities designated alternate officer) of the
assigned as security deposit. The advice department concerned shall authorize
should be received by the BSP-SES at least SRSO to instruct BTr to transfer the
two (2) business days before the date of securities specified to be withdrawn from
replacement using the prescribed form the BSP-SES account to the trust institution’s
(Annex 3). The trust institution shall check (or the settlement bank’s) RoSS account. The
Box “c” of the form and indicate the Department concerned shall use Annex 5
details of the securities to be withdrawn. and check Boxes “a” and “d”. Should there
The advice should be sent by cc mail or be any discrepancy, the department shall
by fax to be followed by an official letter inform the trust institution immediately. The
duly signed by an authorized trust officer. authority to allow the withdrawal should be
2. The responsible BSP-SES transmitted to SRSO not later than the day
department shall verify whether the after the replacement securities were
securities to be replaced are in the RoSS transferred to the BSP-SES account.
account of BSP-SES and the sub-account The BSP-SES department concerned
of the trust institution and whether the shall also advise the trust institution that it
book value of the securities to be has approved the replacement of security
deposited is equal to or greater than those deposit by using Annex 6 and checking
to be withdrawn. The department Boxes “a” and “d” and the appropriate box
concerned shall immediately under “d” depending on whether or not
communicate with the trust institution in the trust institution has a settlement
case of a discrepancy. arrangement.

APP. Q-21
05.12.31
7. On the same day, SRSO shall Boxes “b” and “d”. Should there be any
instruct BTr to transfer the securities discrepancy, the department shall inform the
specified to be withdrawn from the BSP- trust institution immediately. The authority
SES account to the RoSS account of the trust to allow the withdrawal should be transmitted
institution (or its settlement bank). to SRSO not later than the date of the
8. BTr shall effect the transfer/ withdrawal indicated in the advice (Annex
withdrawal. At the end of the day, BTr shall 4) sent earlier by the trust institution.
send a report to SRSO containing the The BSP-SES department concerned
transfer/withdrawal. shall also advise the trust institution that it
9. SRSO shall provide the appropriate has approved the withdrawal of security
BSP-SES department a copy of the report. deposit by using Annex 6 and checking
10. The responsible BSP-SES Boxes “b” and “d” and the appropriate box
department shall check from the report under “d” depending on whether or not the
whether BTr effected the transfer/ trust institution has a settlement arrangement.
withdrawal. 3. On the same date, SRSO shall
instruct BTr to transfer the securities
D. Procedures for Withdrawing RoSS specified to be withdrawn from the BSP-
Securities SES account to the RoSS account of the trust
1. The trust institution shall advise the institution (or its settlement bank).
appropriate BSP-SES department that it will 4. BTr shall effect the transfer/
withdraw existing RoSS securities assigned withdrawal. At the end of the day, BTr
as security deposit. The advice should be shall send to SRSO a report which contains
received by the BSP-SES at least two (2) the transfer/withdrawal.
banking days before the date of withdrawal 5. SRSO shall provide the appropriate
using the prescribed form (Annex 4) and BSP-SES department a copy of the report.
indicating therein details of the securities 6. The BSP-SES department
to be withdrawn. The advice should be concerned shall check from the report
sent by cc mail or by fax to be followed whether BTr effected the withdrawal stated
by an official letter duly signed by an in the advice (Annex 4) sent earlier by the
authorized trust officer. trust institution.
2. The responsible BSP-SES
department shall verify whether the E. Procedures for Crediting Interest
securities to be withdrawn are in the RoSS Coupon Payments. On coupon or interest
account of BSP-SES and the Client payment date, BTr shall instruct BSP-
Securities Account of the trust institution. Accounting to credit the DDA of trust
The department shall also determine institutions or their designated settlement
whether the amount of remaining security banks for coupon/interest payment of
deposit will still be adequate in spite of the securities held under the RoSS account of
proposed withdrawal. If in order, the BSP-SES.
Director (or in his absence, the designated
alternate officer) of the department con- F. Procedures for Crediting and
cerned shall authorize SRSO to instruct BTr Withdrawing the Redemption Value of
to transfer the securities specified to be Matured Securities that are in the BSP-
with-drawn from the BSP-SES account to SES RoSS Account
the trust institution’s own RoSS account (or 1. On maturity date, BTr shall instruct
its settlement bank). The Department BSP-Accounting to credit the deposit
concerned shall use Annex 5 and check account of BSP-SES with BSP-Accounting

APP. Q-21
05.12.31
for the redemption value of securities of the day, BTr shall send a report to SRSO
that mature while held as security deposit containing the transfer.
in the RoSS account of BSP-SES. 8. SRSO shall provide the appropri-
2. BTr shall send to SRSO a copy of ate BSP-SES department a copy of the re-
the credit advice. port.
3. SRSO shall immediately provide 9. The BSP-SES department
the appropriate BSP-SES department a concerned shall immediately check from
copy of the credit advice. the report whether the securities
4. The responsible BSP-SES transferred to the BSP-SES account are the
department shall immediately inform same securities described in the advice
the trust institution concerned of the (Annex 3) sent earlier by the trust
cash credit and shall inquire whether the institution. If in order, the Director (or in
trust institution intends to transfer his absence, the designated alternate
securities to the RoSS account of the BSP- officer) of the Department shall direct the
SES to replace the matured securities. SRSO to instruct BSP-Accounting
5. The trust institution shall advise the Department to debit the BSP-SES deposit
appropriate BSP-SES department that it will account and transfer the funds to the DDA
transfer RoSS securities to BSP-SES in of the trust institution (or its designated
place of the cash credited to the deposit settlement bank). The Department
account of BSP-SES with BSP- concerned shall use Annex 5 and check
Accounting for matured securities. The Boxes “c” and “e”.
trust institution shall check Box “d” of the The BSP-SES department concerned
prescribed form (Annex 3). The concerned shall also advise the trust institution that it
department shall determine if the book has approved the replacement of matured
value of the securities to be transferred is securities by using Annex 6 and checking
equal to or greater than the cash credit. Boxes “c” and “e” and the appropriate box
6. The trust institution shall under “e” depending on whether or not
electronically instruct BTr to transfer the trust institution has a settlement
securities from its own RoSS accounts arrangement.
to the BSP-SES RoSS account and its 10. SRSO shall direct BSP-Accounting
corresponding Client Securities Account to debit the BSP-SES deposit account and
on the specified date. In the case of a trust credit the same amount to the DDA of
institution with a settlement arrangement, the trust institution (or its designated
the instruction shall be coursed through settlement bank) using Annex 7.
the settlement bank and the securities 11. BSP-Accounting shall effect the
shall come from the RoSS account of the transaction and send a copy of the debit
same bank. advice to SRSO and a copy of the credit
7. BTr shall effect the transfer upon advice to the trust institution (or the
verification of RoSS balances. At the end designated settlement bank).

APP. Q-21
05.12.31
Annex 1
SUPERVISION AND EXAMINATION SECTOR
Date
_______________________
Treasurer of the Philippines
Bureau of Treasury
Intramuros, Manila
Attention: Registry of Scripless Securities (RoSS)
Dear ________________________:
The Supervision and Examination Sector of the Bangko Sentral ng Pilipinas (BSP-
SES) hereby makes an application to open a Principal Securities Account in the Registry of
Scripless Securities (RoSS) for the purpose of holding the security deposit for the faithful
performance of trust duties of institutions engaged in trust business pursuant to Section 65
of R.A. No. 337, as amended.
We understand that the Bureau of the Treasury shall maintain the Principal Securities
Account of BSP-SES for free.
Very truly yours,
______________________
Deputy Governor

APP. Q-21
05.12.31
Annex 1-A
SUPERVISION AND EXAMINATION SECTOR
Date
______________________
Treasurer of the Philippines
Bureau of Treasury
Intramuros, Manila
Attention: Registry of Scripless Securities (RoSS)
Dear Ms. _________________________
In connection with the Principal Securities Account of BSP-SES in the Registry of

Scripless Securities (RoSS), please open Client Securities Account for the following trust
institutions so we can keep track of their security deposit for the faithful performance of
trust duties. Please note that the settlement bank of the institution, if it is required, is also
indicated.
Name of Settlement Bank,

Name of Trust Institution where required
1. _____________________ _______________________
2. _____________________ _______________________
n _____________________ _______________________
We understand that the Bureau of the Treasury will maintain the Client Securities
Account for P1,000 per month per account.
Very truly yours,
(Signature)
Authorized Signatory

APP. Q-21
05.12.31
Annex 2-A
To be used by a trust institution with own demand deposit account with BSP-Accounting
Letterhead of Trust Institution
AUTODEBIT/AUTOCREDIT AUTHORIZATION
The (name of trust institution) hereby authorizes the Bureau

of the Treasury (BTr) and the Bangko Sentral ng Pilipinas (BSP) to debit/credit our
demand deposit account with BSP-Accounting for coupons/interest payment of our securities
in the BSP-SES RoSS accounts; and to settle the payment of monthly maintenance fees to
BTr of our client securities account under the BSP-SES RoSS account. We also authorize
the BTr and the BSP to credit the Account of BSP-SES with BSP-Accounting for the
redemption proceeds of our securities in the event such securities mature while in the
RoSS account of BSP-SES.
This authorization will take effect on (indicate date) .
(Signature)
(Authorized Signatory)

APP. Q-21
05.12.31
Annex 2-B
To be used by a trust institution with settlement arrangement with a bank
AUTODEBIT/AUTOCREDIT AUTHORIZATION
The (name of settlement bank) for the account of (name of

trust institution) hereby authorizes the Bureau of the Treasury (BTr) and the Bangko
Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account with BSP-Accounting
for coupons/interest payment of securities of the trust institution in the BSP-SES RoSS
accounts; for maturing securities of the trust institution held in our RoSS Principal Securities
Account with BTr; and to settle the payment of monthly maintenance fees to BTr of our
client securities account under the BSP-SES RoSS account.
The (name of trust institution) also authorizes the BTr and the BSP to credit
the Account of BSP-SES with BSP-Accounting for the redemption proceeds of our securities
in the event such securities mature while in the RoSS account of BSP-SES.
This authorization will take effect on (indicate date) .
(Signature)
(Authorized Signatory of Settlement Bank)
(Signature)
(Authorized Signatory of Trust Institution)

APP. Q-21
05.12.31
Annex 3
Date
The Director
DTBNBFI
A. Mabini St., Manila
Dear Sir:
We are transferring on (indicate date of transfer) the following securities to your Principal Securities
Account and our Client Securities Account (sub-account) as our security deposit for the faithful
performance of trust duties pursuant to Section 65 of R.A. No. 337, as amended.
Purchase Issue Due Remaining Face Purchase

Type ISIN Date__ Date Date Tenor a/ Amount Price
__________ _____ ______ ______ ______ _______ ________ ________

__________ _____ ______ ______ ______ _______ ________ ________
__________ _____ ______ ______ ______ _______ ________ ________
We are transferring the above securities:

a. As our initial deposit
b. As an additional security deposit
c. To replace the following securities which we deposited on (date) .

Type ISIN Date Date Date Tenor a/ Amount Price
__________ _____ ______ ______ ______ _______ ________ ________

__________ _____ ______ ______ ______ _______ ________ ________
__________ _____ ______ ______ ______ _______ ________ ________
d. To replace matured securities the redemption value of which P _________ is

credited to the deposit account of BSP-SES with BSP-Accounting.
Very truly yours,
(Signature)
Name and Designation of Authorized Signatory
a / Reckoned from actual date of transfer/withdrawal

APP. Q-21
05.12.31
Annex 4
Date: _________________
The Director
DTBNBFI
A. Mabini St., Manila
Dear Sir:
We wish to withdraw on (indicate date of transfer) the following securities used as security
deposit for the faithful performance of trust duties from the Principal Securities Account and from our
corresponding Client Securities Account (sub-account).

__________ _____ ______ ______ ______ _______ ________ ________

__________ _____ ______ ______ ______ _______ ________ ________
__________ _____ ______ ______ ______ _______ ________ ________
Very truly yours,
(Signature)
Name and Designation of Authorized Signatory

APP. Q-21
05.12.31
Annex 5
MEMORANDUM
DTBNBFI
For : The Director

Supervisory Reports and Studies Office
From : The Director
Subject : Scripless Securities Used As Deposit for Trust Duties
Date :
In connection with the request of (indicate name of trust institution) dated ______________
to:
a. Replace outstanding RoSS securities

b. Withdraw RoSS securities
c. Replace cash credit of matured securities with outstanding RoSS securities,
you are hereby authorized to:
d. Instruct the Bureau of Treasury to transfer the following securities out of the BSP-
SES RoSS accounts to the RoSS Principal Securities Account of (indicate name of
trust institution or, where applicable, the name of its settlement bank)

__________ _____ ______ ______ ______ _______ ________ ________

__________ _____ ______ ______ ______ _______ ________ ________
__________ _____ ______ ______ ______ _______ ________ ________
e. Instruct BSP-Accounting to debit the BSP-SES deposit account in the amount of

P________ and to transfer said amount to the demand deposit account of (indicate
name of trust institution or, where applicable, the name of its designated settlement
bank).
(Signature)

APP. Q-21
05.12.31
Annex 6
DTBNBFI
Date
(Name of Trust Institution)

(Address)
Subject : Scripless Securities Used As Deposit for Trust Duties
Dear Mr. ____________:
We are pleased to inform you that we have approved your request dated _______________ to:
a. Replace outstanding RoSS securities

b. Withdraw RoSS securities
c. Replace cash credit of matured securities with outstanding RoSS securities.
Accordingly, we have authorized the Supervisory Reports and Studies Office to:
d. Instruct the Bureau of Treasury to transfer the following securities

out of the BSP-SES RoSS accounts to -
the RoSS Principal Securities Account

your settlement bank’s RoSS Principal Securities Account,
the securities described in your request.
e. Instruct BSP-Accounting to debit the BSP-SES deposit account in the

amount of P_______ and to credit said amount to -
your demand deposit account with BSP-Accounting

your settlement bank’s demand deposit account with BSP-Accounting
Very truly yours,
(Signature)

APP. Q-21
05.12.31
Annex 7
MEMORANDUM
DTBNBFI
For : The Director

Accounting Department
From : The Director
Date :
Subject: Security Deposit for Trust Duties
You are hereby instructed to debit our deposit account in the amount of P ___________
and to credit said amount to the demand deposit account of (indicate name of trust institution
or, where applicable, the name of its settlement bank).
The trust institution has transferred RoSS securities to the Principal Securities Account of
BSP-SES to replace the matured securities.
(Signature)

APP. Q-22
05.12.31
PROFORMA PAYMENT FORM

PAYMENT FORM - (Department Name)
Date
The Director
Cash Department
P. Ocampo, Sr. Cor. A. Mabini, Manila
Sir:
Attached is ____________________ _________________ ____________
(Bank) (Check/DD/CC) Number
in the amount of P_________________ as payment for:
AMOUNT
1. LEGAL RESERVE ____________
2. SUPERVISORY FEES YEAR AMOUNT
______________ ______________
______________ ______________ ____________
3. FINES/PENALTIES
NATURE PERIOD COVERED AMOUNT
a) Late reporting ______________ ______________

b) Reserve deficiency ______________ ______________
c) SBL ______________ ______________
d) Others (Specify) ______________ ______________ ____________
TOTAL ____________
______________________________
Signature Over Printed Name
______________________________
Position

APP. Q-23
05.12.31
ANTI-MONEY LAUNDERING REGULATIONS

Banks, quasi-banks, trust entities and all (1) Verification of the legal existence
other institutions, and their subsidiaries and and structure of the client from the
affiliates supervised or regulated by the BSP appropriate agency or from the client itself
(covered institutions) shall strictly comply or both, proof of incorporation, including
with the provisions of Section 9 of R.A. No. information concerning the customer’s
9160 and the following rules and name, legal form, address, directors,
regulations on anti-money laundering. principal officers and provisions regulating
the power behind the entity.
1. Customer identification. Covered (2) Verification of the authority and
institutions shall establish and record the identification of the person purporting to act
true identity of its clients based on official on behalf of the client.
documents. They shall maintain a system b. In case of doubt as to whether their
of verifying the true identity of their clients purported clients or customers are acting
and, in case of corporate clients, require a for themselves or for another, reasonable
system of verifying their legal existence and measures should be taken to obtain the true
organizational structure, as well as the identity of the persons on whose behalf an
authority and identification of all persons account is opened or a transaction conducted.
purporting to act on their behalf. c. The provisions of existing laws to
The guidelines on Customer Due the contrary notwithstanding, anonymous
Diligence for quasi-banks issued by the BASEL accounts, accounts under fictitious names,
Committee on Banking Supervision which and all other similar accounts shall be
highlights the Know-Your-Customer (KYC) absolutely prohibited. In case where
standards to be observed in the design of KYC numbered accounts is allowed (i.e., peso
programs are shown in Annex Q-23-c. and foreign currency non-checking
The guidelines on the Account Opening numbered accounts), covered institutions
and Customer Identification issued by the should ensure that the client is identified in
BASEL Committee on Banking Supervision an official or other identifying documents.
represent the starting point, which can be The BSP may conduct annual testing
used by banks in the area of customer solely limited to the determination of the
identification are shown in Annex Q-23-d. existence and the identity of the owners of
When establishing business relations or such accounts.
conducting transactions (particularly opening Covered institutions shall phase out
of deposit accounts, accepting deposit within a period of one (1) year from 2 April
substitutes, entering into trust and other 2001 or upon their maturity, whichever is
fiduciary transactions, renting of safety deposit earlier, anonymous accounts or accounts
boxes, performing remittances and other large under fictitious names as well as numbered
cash transactions) covered institutions should accounts being kept or managed by them,
take reasonable measures to establish and which are not expressly allowed under
record the true identity of their clients. Said existing law.
client identification may be based on official d. The identity of existing clients or
or other reliable documents and records. beneficial owners of deposits and other
a. In cases of corporate and other legal funds held or being managed by covered
entities, the following measures should be institutions should be renewed/updated at
taken, when necessary: least every other year.

APP. Q-23
05.12.31
e. All records of all transactions of requirements of App. Q-23 nos. 1, 2 and 4

covered institutions shall be maintained and within thirty (30) business days from 31 July
safely stored for five (5) years from the dates 2000 or from opening of the institution.
of transactions. With respect to closed 4. Required reporting of certain
accounts, the records on customer transactions. If there is reasonable ground
identification, account files and business to believe that the funds are proceeds of an
correspondence, shall be preserved and unlawful activity as defined under R.A. No.
safely stored for at least five (5) years from 9160 and/or its IRRs, the transactions
the dates when they were closed. involving such funds or attempts to transact
Such records must be sufficient to the same, should be reported to the Anti-
permit reconstruction of individual Money Laundering Council (AMLC) in
transactions so as to provide, if necessary, accordance with Rules 5.2 and 5.3 of the
evidence for prosecution of criminal AMLA IRRs.
behaviour. a. Report on suspicious transactions.1
f. Special attention should be given to Banks shall report covered transactions and
all complex, unusual large transactions, and suspicious transactions, as defined in Rules
all unusual patterns of transactions, which 5.2 and 5.3 of the AMLA IRRs, to the AMLC
have no apparent or visible lawful purpose. using the forms prescribed by the AMLC.
The background and purpose of such Reportable transactions shall include the
transactions should, as far as possible, be following:
examined, the findings established in (1) Outward remittances without visible
writing, and be available to help lawful purpose;
supervisors, auditors and law enforcement (2) Inward remittances without visible
agencies. lawful purpose or without underlying trade
g. Covered institutions should not, or transactions;
should at least avoid, transacting business (3) Unusual purchases of foreign
with criminals. Reasonable measures should exchange without visible lawful purpose;
be adopted to prevent the use of their (4) Unusual sales of foreign exchange
facilities for laundering of proceeds of whose sources are not satisfactorily
crimes and other illegal activities. established;
2. Programs against money (5) Complex, unusual large
laundering. Programs against money transactions, and all unusual patterns of
laundering should be developed. These transactions, which have no apparent or
programs, should include, as a minimum: visible lawful purpose;
a. The development of internal (6) Funds being managed or held as
policies, procedures and controls, including deposit substitutes if there is reasonable
the designation of compliance officers at ground to believe that the same are proceeds
management level, and adequate screening of criminal and other illegal activities; and
procedures to ensure high standards when (7) Suspicious Transaction Indicators or
hiring employees; “Red Flags” as a Guide in the Submission
b. An ongoing employee training to the AMLC of Reports of Suspicious
program; and Transactions Relating To Potential or Actual
c. An audit function to test the system. Financing of Terrorism.
3. Submission of plans of action. (a) Wire transfers between accounts,
Covered institutions shall submit a plan of without visible economic or business
action on how to comply with the purpose, especially if the wire transfers are
1
Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex Q-23-b).

APP. Q-23
05.12.31
effected through countries which are hand and the stated purpose and activity of
identified or connected with terrorist the NGO on the other.
activities. (o) Incongruities between apparent
(b) Sources and/or beneficiaries of wire sources and amount of funds raised or
transfers are citizens of countries which are moved by the NGO.
identified or connected with terrorist (p) Any other transaction that is similar,
activities. identical or analogous to any of the
(c) Repetitive deposits or withdrawals foregoing.
that cannot be explained or do not make (8) All other suspicious transactions/
sense. activities which can be reported without
(d) Value of the transaction is over and violating any law.
above what the client is capable of earning. The report on suspicious transactions
(e) Client is conducting a transaction shall provide the following minimum
that is out of the ordinary for his known information:
business interest. (a) Name or names of the parties
(f) Deposits being made by individuals involved.
who have no known connection or relation (b) A brief description of the transaction
with the account holder. or transactions.
(g) An individual receiving remittances, (c) Date or date the transaction(s)
but has no family members working in the occurred.
country from which the remittance is made. (d) Amount(s) involved in every
(h) Client was reported and/or transaction.
mentioned in the news to be involved in (e) Such other relevant information
terrorist activities. which can be of help to the authorities
(i) Client is under investigation by law should there be an investigation.
enforcement agencies for possible b. Exemption from Bank Secrecy Law.
involvement in terrorist activities. When reporting covered transactions to the
(j) Transactions of individuals, AMLC, covered institutions and their
companies or non-governmental officers, employees, representatives, agents,
organizations (NGOs) that are affiliated or advisors, consultants or associates shall not
related to people suspected of being be deemed to have violated R.A. No. 1405,
connected to a terrorist group or a group as amended; R.A. No. 6426, as amended;
that advocates violent overthrow of a R.A. No. 8791 and other similar laws, but
government. are prohibited from communicating, directly
(k) Transactions of individuals, or indirectly, in any manner or by any
companies or NGOs that are suspected as means, to any person the fact that a covered
being used to pay or receive funds from transaction report was made, the contents
revolutionary taxes. thereof, or any other information in relation
(l) The NGO does not appear to have thereto. In case of violation thereof, the
expenses normally related to relief or concerned officer, employee, representative,
humanitarian effort. agent, advisor, consultant or associate of the
(m) The absence of contributions from covered institution, shall be criminally liable.
donors located within the country of origin However, no administrative, criminal or civil
of the NGO. proceedings, shall lie against any person for
(n) A mismatch between the pattern having made a covered transaction report in
and size of financial transactions on the one the regular performance of his duties and in

APP. Q-23
05.12.31
good faith, whether or not such reporting case of violation thereof, the concerned
results in any criminal prosecution under R.A. officer, employee, representative, agent,
No. 9160 or any other Philippine law. advisor, consultant or associate of the
c. Prohibition from disclosure of the covered institution, or media shall be held
covered transaction report. When reporting criminally liable.
covered transactions to the AMLC, covered 5. Certification of compliance with
institutions and their officers, employees, anti-money laundering regulations.
representatives, agents, advisors, Covered institution shall submit annually
consultants or associates are prohibited to the BSP thru the appropriate supervising
from communicating, directly or indirectly, and examining department a certification
in any manner or by any means, to any (Annex Q-23-a) signed by the President or
person, entity, the media, the fact that a officer of equivalent rank and by their
covered transaction report was made, the Compliance Officer to the effect that they
contents thereof, or any other information have monitored compliance with existing
in relation thereto. Neither may such anti-money laundering regulations.
reporting be published or aired in any The certification shall be submitted in
manner or form by the mass media, accordance with Appendix Q-3 and shall
electronic mail, or other similar devices. In be considered a Category A-2 report.

APP. Q-23
05.12.31
Annex Q-23-a
CERTIFICATION OF COMPLIANCE
WITH ANTI-MONEY LAUNDERING REGULATIONS
CERTIFICATION
Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 2 April 2001, we
hereby certify:
1. That we have monitored (Name of quasi-bank)’s compliance with R.A. No. 9160
(Anti-Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253,
259 and 302;
2. That the quasi-bank is complying with the required customer identification,

documentation of all new clients, and continued monitoring of customer’s activities;
3. That the quasi-bank is also complying with the requirement to record all transactions
and to maintain such records including the record of customer identification for at
least five (5) years;
4. That the quasi-bank does not maintain anonymous or fictitious accounts; and
5. That we conduct regular anti-money laundering training sessions for all quasi-bank
officers and selected staff members holding sensitive positions.
________________________ ___________________
(Name of President or officer (Name of Compliance
of equivalent rank) Officer)
SUBSCRIBED AND SWORN to before me, _____ this ____ day of ____________,
affiant/s exhibiting to me their Community Tax Certificate No.(s) as follows:
Community Date/Place
Name Tax Cert. No Issued
Doc. No. _________; Notary Public

Page No. _________;
Book No. _________;
Series of 20___

APP. Q-23
05.12.31
Annex Q-23-b
AMLC Resolution No. 292
RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND

SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS*
1. All covered institutions are their respective transaction amounts, said

required to file Suspicious Transaction covered institutions shall be required to file
Reports (STRs) on transactions involving all CTRs on its clients whose transactions
kinds of monetary instruments or property. exceed P500,000 and are included in the
2. Banks shall file covered transaction bulk transactions.
reports (CTRs) on transactions involving all 5. With respect to insurance
kinds of monetary instruments or property, companies, when the total amount of the
i.e., in cash or non-cash, whether in premiums for the entire year, regardless
domestic or foreign currency. of the mode of payment (monthly,
3. Covered institutions, other than quarterly, semi-annually or annually),
banks, shall file CTRs on transactions in exceeds P500,000, such amount shall be
cash or foreign currency or other monetary reported as a covered transaction, even if
instruments (other than checks) or the amounts of the amortizations are less
properties. Due to the nature of the than the threshold amount. The CTR shall
transactions in the stock exchange, only be filed upon payment of the first premium
the brokers-dealers shall be required to file amount, regardless of the mode of
CTRs and STRs. The PSE, PCD, SCCP and payment. Under this rule, the insurance
transfer agents are exempt from filing company shall file the CTR only once
CTRs. They, are however, required to file every year until the policy matures or
STRs when the transactions that pass through rescinded, whichever comes first.
them are deemed to be suspicious. 6. The submission of CTRs is deferred
4. Where the covered institution until the AMLC directs otherwise.
engages in bulk transactions with a bank, Submission of STRs, however, are not
i.e., deposits of premium payments in deferred and covered institutions are
bulk or settlements of trade, and the bulk mandated to submit such STRs when the
transactions do not distinguish clients and circumstances so require.
*a. The Anti-Money Laundering Council (AMLC), in the exercise of its authority under Sections 7(1) and 9 of Republic Act No.
9160, otherwise known as the “Anti-Money Laundering Act of 2001”, as amended, and its Revised Implementing Rules and
Regulations, resolved to:
(1) Defer reporting by covered institutions to AMLC of the following “non-cash, no/low risk covered transactions:
· Transactions between banks and the BSP;
· Transactions between banks operating in the Philippines;
· Internal operating expenses of the banks;
· Transactions between banks and government agencies;
· Transactions involving transfer of funds from one deposit account to another deposit account of the same person within
the same bank;
· Roll-overs of placements of time deposits; and
· Loan interest/principal payment debited against borrower’s deposit account maintained with the lending bank.
(2) Request the BSP-supervised institutions, through the Association of Bank Compliance Officers (ABCOMP), to
determine and report to AMLC the specific transactions falling within the purview of the aforesaid BSP-identified categories on
“non-cash, no/low risk” covered transactions.
b. All covered institutions should:
(1) Submit corresponding electronic copy versions, in the required format, of those STRs previously submitted in hard copy
or the hard copy version of those submitted only in electronic form, as the case may be, retroactive to 05 January 2004; and
(2) Re-submit in required electronic form, those CTRs that have been submitted previously in hard copy or in diskette not in
the required format, retroactive to 23 March 2003.

APP. Q-23
05.12.31
Annex Q-23-c
CUSTOMER DUE DILIGENCE FOR BANKS AND QUASI-BANKS
1. Customer acceptance policy investment fund, a pension fund or a

Quasi-banks should develop clear company whose assets are managed by an
customer acceptance policies and asset manager, or the grantor of a trust.
procedures, including a description of the Quasi-banks should establish a
types of customer that are unacceptable to systematic procedure for verifying the
quasi-bank management. In preparing identity of new customers and should
such policies, factors such as customers’ never enter a business relationship until the
background, country of origin, public or identity of a new customer is satisfactorily
high profile position, business activities or established. Quasi-banks should
other risk indicators should be considered. “document and enforce policies for
Quasi-banks should develop graduated identification of customers and those acting
customer acceptance policies and on their behalf”.1 The best documents for
procedures that require more extensive verifying the identity of customers are
due diligence for high risk customers. For those most difficult to obtain illicitly and to
example, the policies may require the counterfeit, such as passport, driver’s
most basic account-opening requirements license or alien certificate of registration.
for a working individual with a small Special attention should be exercised in
account balance, whereas quite extensive the case of non-resident customers and in
due diligence may be deemed essential no case should a quasi-bank short-circuit
for an individual with a high net worth identity procedures just because the new
whose source of funds is unclear. customer is unable to present himself for
Decisions to enter into business interview. The quasi-bank should always
relationships with high risk customers, such ask itself why the customer has chosen to
as individuals holding important/ open an account in a foreign jurisdiction.
prominent positions, public or private (see The customer identification process
below), should be taken exclusively at applies naturally at the outset of the
senior management level. relationship, but there is also a need to
apply KYC standards to existing customer
2. Customer identification accounts. Where such standards have
Customer identification is an essential been introduced only recently and do not
element of KYC standards. A customer is as yet apply fully to existing customers, a
defined as any person or entity that keeps risk assessment exercise can be
an account with a quasi-bank and any undertaken and priority given to obtaining
person or entity on whose behalf an necessary information, where it is
account is maintained, as well as the deficient, in respect of the higher risk cases.
beneficiaries of transactions conducted by An appropriate time to review the
professional financial intermediaries. information available on existing customers
Specifically, a customer should include an is when a transaction of significance takes
account-holder and the beneficial owner place, or when there is a material change
of an account. A customer should also in the way that the account is operated.
include the beneficiary of a trust, an However, if a quasi-bank is aware that it
1
Core Principles Methodology, Essential Criterion 2.

APP. Q-23
05.12.31
lacks sufficient information about an full satisfaction the identity of each new
existing high-risk customer, it should take customer and the purpose and intended
steps to ensure that all relevant information nature of the business relationship. The
is obtained as quickly as possible. In extent and nature of the information
addition, the supervisor needs to set an depends on the type of applicant (personal,
appropriate target date for completion of a corporate, etc.) and the expected size of
KYC review and regularization of all the account. National supervisors are
existing accounts. In any event, a quasi- encouraged to provide guidance to assist
bank should undertake regular reviews of quasi-banks in their designing their own
its customer base to establish that it has up- identification procedures. Examples of the
to-date information and a proper type of information that would be
understanding of its account holders’ appropriate are set out in Annex Q-23-c-1.
identity and of their business. Quasi-banks should apply their full
Quasi- banks that offer private banking KYC procedures to applicants that plan to
services are particularly exposed to transfer an opening balance from another
reputational risk. Private quasi-banking by financial institution, bearing in mind that
nature involves a large measure of the previous account manager may have
confidentiality. Private quasi-banking asked for the account to be removed
accounts can be opened in the name of an because of a concern about dubious
individual, a commercial business, a trust, activities.
an intermediary or a personalized Quasi-banks should never agree to
investment company. In each case open an account or conduct ongoing
reputational risk may arise if the quasi- business with a customer who insists on
bank does not diligently follow established anonymity or “bearer” status or who gives
KYC procedures. In no circumstances a fictitious name. Nor should confidential
should private quasi-banking operations numbered 2 accounts function as
function autonomously, or as a “quasi-bank anonymous accounts but they should be
within a quasi-bank”1 , and no part of the subject to exactly the same KYC
quasi-bank should ever escape the procedures as all other customer accounts,
required procedures. This means that all even if the test is carried out by selected
new clients and new accounts should be staff. Whereas a numbered account can
approved by at least one person other than offer additional protection for the identity
the private quasi-banking relationship of the account-holder, the identity must be
manager. If particular safeguards are put known to a sufficient number of staff to
in place internally to protect confidentiality operate proper due diligence. Such
of private quasi-banking customers and their accounts should in no circumstances be
business, quasi-banks must still ensure that used to hide the customer identity from a
at least equivalent scrutiny and monitoring quasi-bank’s compliance function or from
of these customers and their business can the supervisors.
be conducted, e.g. they must be open to Quasi-banks need to be vigilant in
review by compliance officers and auditors. preventing corporate business entities from
2.1 General identification requirements being used by natural persons as a method
Quasi-banks need to obtain all of operating anonymous accounts.
information necessary to establish to their Personal asset holding vehicles, such as
1
Some quasi-banks insulate their private quasi-banking functions or create Chinese walls as a means of providing
additional protection for customer confidentiality.
2
In a numbered account, the name of the beneficial owner is known to the quasi-bank but is substituted by an
account number or code name in subsequent documentation.

APP. Q-23
05.12.31
international business companies (IBCs), banks have to decide, given the

may make proper identification of circumstances, whether the customer is the
customers or beneficial owners difficult. intermediary, or whether it would be more
A quasi-bank should take all steps appropriate to look through the
necessary to satisfy itself that it knows the intermediary to the ultimate beneficial
true identity of the ultimate owner of all owners. In each case, the identity of the
such entities. customer that is subject to due diligence
should be clearly established. The
2.2 Specific identification issues beneficial owners should be verified
There are a number of more detailed where possible. Where not, the quasi-
issues relating to customer identification banks should perform due diligence on the
which need to be addressed. Particular intermediary and establish to its complete
comments are invited on the issues satisfaction that the intermediary has a
mentioned in this section. Several of these sound due diligence process for each of its
are currently under consideration by the clients.
FATF as part of a general review of its forty Special care needs to be exercised in
recommendations, and the Working initiating business transactions with
Group recognizes the need to be companies that have nominee
consistent with the FATF. shareholders or shares in bearer form.
Satisfactory evidence of the identity of
2.2.1 Trust, nominee and fiduciary beneficial owners of all companies needs
accounts or client accounts opened by to be obtained.
professional intermediaries The above procedures may prove
Trust, nominee and fiduciary accounts difficult for quasi-banks in some countries
can be used to avoid customer to follow. In the case of professional
identification procedures. While it may intermediaries such as lawyers, there
be legitimate under certain circumstances might exist professional codes of conduct
to provide an extra layer of security to preventing the dissemination of
protect the confidentiality of legitimate information concerning their clients. The
private quasi-banking customers, it is FATF is currently engaged in a review of
essential that the true relationship is KYC procedures governing accounts
understood. Quasi-banks should establish opened by lawyers on behalf of clients.
whether the customer is acting on behalf The Working Group has therefore not
of another person as trustee, nominee or taken a definitive position on this issue.
professional intermediary (e.g. a lawyer or
an accountant). If so, a necessary 2.2.2 Introduced business
precondition is receipt of satisfactory The performance of identification
evidence of the identity of any procedures can be time consuming and
intermediaries and of the persons upon there is a natural desire to limit any
whose behalf they are acting, as well as inconvenience for new customers. In
details of the nature of the trust or other some countries, it has therefore become
arrangements in place. customary for quasi-banks to rely on the
Quasi-banks may hold “pooled’ procedures undertaken by other quasi-
accounts (e.g. client accounts managed by banks or introducers when business is
law firms) or accounts opened on behalf being referred. In doing so, quasi-banks
of pooled entities, such as mutual funds risk placing excessive reliance on the due
and money managers. In such cases, quasi- diligence procedures that they expect the

APP. Q-23
05.12.31
introducers to have performed. Relying on Under certain circumstances, the quasi-

due diligence conducted by an introducer, bank and/or its officers and employees
however reputable, does not in any way themselves can be exposed to charges of
remove the ultimate responsibility of the money laundering, if they know or should
recipient quasi-bank to know its customers have known that the funds stemmed from
and their business. In particular, quasi- corruption or other serious crimes.
banks should not rely on introducers that
are subject to weaker standards than those 3. On-going monitoring of high risk
governing the quasi-banks’ own KYC accounts
procedures or that are unwilling to share On-going monitoring of accounts and
copies of due diligence documentation. transactions is an essential aspect of
The FATF is currently engaged in a effective KYC procedures. Quasi-banks
review of the appropriateness of eligible can only effectively control and reduce
introducers, i.e. whether they should be their risk if they have an understanding
confined to reputable quasi-banks only or of normal and reasonable account activity
should extend to other regulated of their customers. Without such
institutions, whether a quasi-bank should knowledge, they are likely to fail in their
establish a contractual relationship with its duty to report suspicious transactions to
introducers and whether it is appropriate the appropriate authorities in cases where
to rely on a third party introducer at all. The they are required to do so. The on-going
Working Group is still developing its monitoring process includes the following:
thinking on this topic. • Quasi-banks should develop
“clear standards on what records must be
2.2.3 Reputational risk kept on customer identification and
Business relationship with individuals individual transactions and the retention
holding important/prominent positions, period”.1 As the starting point and natural
public or private, and with persons or follow-up of the identification process,
companies clearly related to them may quasi-banks should obtain and keep up to
expose a quasi-bank to significant date customer identification papers and
reputational and/or legal risks. retain them for at least five years after an
Accepting and managing funds from account is closed. They should also retain
such persons could put at risk the quasi- all financial transaction records for at least
bank’s own reputation and can undermine five years after the transaction has taken
public confidence in the ethical standards place.
of an entire financial centre, since such • Quasi-banks should ensure that
cases usually receive extensive media they have adequate management
attention and strong political reaction, even information systems to provide managers
if the illegal origin of the assets is often and compliance officers with timely
difficult to prove. In addition, the quasi- information needed to identify, analyse
bank may be subject to costly information and effectively monitor higher risk customer
requests and seizure orders from law accounts. The types of reports that may be
enforcement or judicial authorities needed include reports of missing account
(including international mutual assistance opening documentation, transactions made
procedures in criminal matters) and could through a customer account that are unusual,
be liable to actions for damages by the state and aggregations of a customer’s total
concerned or the victims of a regime. relationship with the quasi-bank.
1
Core Principles Methodology, Essential Criterion 2.

APP. Q-23
05.12.31
• Senior management of a quasi- that are clearly related to or associated with

bank in charge of private quasi-banking them.1
business should know the personal
circumstances of the quasi-bank’s large/ 4. Risk Management
important customers and be alert to sources Effective KYC procedures embrace
of third party information. Every quasi- routines for proper management oversight,
bank should draw its own distinction systems and controls, segregation of duties,
between large/important customers and training and other related policies. The
others, and set threshold indicators for board of directors of the quasi-bank should
them accordingly, taking into account the be fully committed to an effective KYC
country of origin and other risk factors. programme by establishing appropriate
Significant transactions by high-risk procedures and ensuring their
customers should be approved by a senior effectiveness. Quasi-banks should appoint
manager. a senior officer with explicit responsibility
• Quasi-banks should have systems for ensuring that the quasi-bank’s policies
in place to detect unusual or suspicious and procedures are, at a minimum, in
patterns of activity. This can be done by accordance with local supervisory practice.
establishing limits for a particular class or Quasi-banks should have clear written
category of accounts. Particular attention procedures, communicated to all
should be paid to transactions that exceed personnel, for staff to report suspicious
these limits. Certain types of transactions transactions to a specified senior manager.
should alert quasi-banks to the possibility That manager must then assess whether
that the customer is conducting undesirable the quasi-bank’s statutory obligations under
activities. They may include transactions recognized suspicious activity reporting
that do not make economic or commercial regimes require the transaction to be
sense, or that involve large amounts of cash reported to the appropriate law
deposits that are not consistent with the enforcement and supervisory authorities.
normal and expected transactions of the All quasi-banks must have an ongoing
customer. Very high account turnover, employee-training programme so that
inconsistent with the size of the balance, quasi-bank staff is adequately trained in
may indicate that funds are being “washed” KYC procedures. The timing and content
through the account. A list of suspicious of training for various sectors of staff will
activities drawn up by supervisors can be need to be adapted by the quasi-bank for
very helpful to quasi-banks. its own needs. Training requirements
• Quasi-bank should develop a clear should have a different focus for new staff,
policy and internal guidelines, procedures front-line staff, compliance staff or staff
and controls and remain especially vigilant dealing with new customers. New staff
regarding business relationships with should be educated in the importance of
individuals holding important/prominent KYC policies and the basic requirements
positions, public or private, and high profile at the quasi-bank. Front-line staff members
individuals or with persons and companies who deal directly with the public should
1
It is unrealistic to expect the quasi-bank to know or investigate every distant family, political or business
connection of a foreign customer. The need to pursue suspicions will depend on the size of the assets or
turnover, pattern of transactions, economic background, reputation of the country, plausibility of the customer’s
explanations etc. It should however be noted that individuals holding important/prominent positions,
public or private (or rather their family members and friends) would not necessarily present themselves in that
capacity, but rather as ordinary (albeit wealthy) business people, masking the fact they owe their high position
in a legitimate business corporation only to their privileged relation with the holder of the public office.

APP. Q-23
05.12.31
be trained to verify the customer identity requirements. Its responsibilities should

for new customers, to exercise due include ongoing monitoring of staff
diligence in handling accounts of existing performance through sample testing of
customers on an ongoing basis and to compliance and review of exception
detect patterns of suspicious activity. reports to alert senior management or the
Regular refresher training should be Board of Directors if it believes
provided to ensure that staff is reminded management is failing to address KYC
of their responsibilities and is kept procedures in a responsible manner.
informed of new developments. It is crucial Internal audit plays an important role
that all relevant staff fully understand the in independently evaluating the risk
need for and implement KYC policies management and controls, discharging its
consistently. A culture within quasi-banks responsibility to the Audit Committee of
that promotes such understanding is the the Board of Directors or a similar
key to successful implementation. oversight body through periodic
Quasi-banks’ internal audit and evaluations of the effectiveness of
compliance functions have important compliance with KYC policies and
responsibilities in evaluating and ensuring procedures. Management should ensure
adherence to KYC policies and procedures. that audit functions are staffed adequately
As a general rule, the compliance function with individuals who are well-versed in
provides an independent evaluation of the such policies and procedures. In addition,
quasi-bank’s own policies and procedures, internal auditors should be proactive in
including legal and regulatory following-up their findings and criticisms.

APP. Q-23
05.12.31
Annex Q-23-c-1
GENERAL IDENTIFICATION REQUIREMENTS
This annex presents a suggested list of identification requirements for personal customers
and corporates. National supervisors are encouraged to provide guidance to assist quasi-
banks in designing their own identification procedures.
Personal customers
For personal customers, quasi-banks need to obtain the following information:
Name and/or names used,
permanent residential address,
date and place of birth,
name of employer or nature of self-employment/business,
specimen signature, and
source of funds.
Additional information would relate to nationality or country of origin, public or high

profile position, etc. Quasi-banks should verify the information against original documents
of identity issued by an official authority (examples including identity cards and passports).
Such documents should be those that are most difficult to obtain illicitly. In countries
where new customers do not possess the prime identity documents, e.g., identity cards,
passports or driving licenses, some flexibility may be required. However, particular care
should be taken in accepting documents that are easily forged or which can be easily
obtained in false identities. Where there is face to face contact, the appearance should be
verified against an official document bearing a photograph. Any subsequent changes to
the above information should also be recorded and verified.
Corporate and other business customers
For corporate and other business customers, quasi-banks should obtain evidence of
their legal status, such as an incorporation document, partnership agreement, association
documents or a business licence. For large corporate accounts, a financial statement of the
business or a description of the customer’s principal line of business should also be obtained.
In addition, if significant changes to the company structure or ownership occur subsequently,
further checks should be made. In all cases, quasi-banks need to verify that the corporation
or business entity exists and engages in its stated business. The original documents or
certified copies of certificates should be produced for verification.

APP. Q-23
05.12.31
Annex Q-23-d
GENERAL GUIDE TO ACCOUNT OPENING AND CUSTOMER IDENTIFICATION
1. The Basel Committee on Banking 4. These guidelines may be adapted

Supervision in its paper on Customer Due for use by national supervisors who are
Diligence for Banks published in October seeking to develop or enhance customer
2001 referred to the intention of the identification programmes. However,
Working Group on Cross-border Banking1 supervisors should recognize that any
to develop guidance on customer customer identification programme should
identification. Customer identification is an reflect the different types of customers
essential element of an effective customer (individual vs. institution) and the different
due diligence programme which banks levels of risk resulting from a customer’s
need to put in place to guard against relationship with a bank. Higher risk
reputational, operational, legal and transactions and relationships, such as
concentration risks. It is also necessary in those with politically exposed persons or
order to comply with anti-money organizations, will clearly require greater
laundering legal requirements and a scrutiny than lower risk transactions and
prerequisite for the identification of bank accounts.
accounts related to terrorism. 5. Guidelines and best practices
2. What follows is account opening created by national supervisors should also
and customer identification guidelines and reflect the various types of transactions that
a general guide to good practice based on are most prevalent in the national banking
the principles of the Basel Committee’s system. For example, non-face-to-face
Customer due diligence for banks paper. opening of accounts may be more
This document, which has been developed prevalent in one country than another. For
by the Working Group on Cross-border this reason the customer identification
Banking, does not cover every eventuality, procedures may differ between countries.
but instead focuses on some of the 6. Some identification documents are
mechanisms that banks can use in more vulnerable to fraud than others. For
developing an effective customer those that are most susceptible to fraud, or
identification programme. where there is uncertainty concerning the
3. These guidelines represent a starting validity of the document(s) presented, the
point for supervisors and banks in the area bank should verify the information
of customer identification. This document provided by the customer through
does not address the other elements of the additional inquiries or other sources of
Customer Due Diligence for banks paper, information.
such as the ongoing monitoring of 7. Customer identification documents
accounts. However, these elements should should be retained for at least five years
be considered in the development of after an account is closed. All financial
effective customer due diligence, anti- transaction records should be retained for
money laundering and combating the at least five years after the transaction has
financing of terrorism procedures. taken place.
1
The Working Group on Cross-border Banking is a joint group consisting of members of the Basel Committee
and of the Offshore Group of Banking Supervisors.

APP. Q-23
05.12.31
8. These guidelines are divided into • confirming the permanent address

two sections covering different aspects of (e.g. utility bill, tax assessment, bank
customer identification. Section A statement, a letter from a public authority);
describes what types of information should • contacting the customer by
be collected and verified for natural telephone, by letter or by e-mail to confirm
persons seeking to open accounts or the information supplied after an account
perform transactions. Section B describes has been opened (e.g. a disconnected
what types of information should be phone, returned mail, or incorrect e-mail
collected and verified for institutions and address should warrant further investigation);
is in two parts, the first relating to corporate • confirming the validity of the
vehicles and the second to other types of official documentation provided through
institutions. certification by an authorised person (e.g.
9. All the terms used in these embassy official, notary public).
guidelines have the same meaning as in 12. The examples quoted above are
the Customer due diligence for banks paper. not the only possibilities. In particular
jurisdictions there may be other documents
A. Natural Persons of an equivalent nature which may be
10. For natural persons the following produced as satisfactory evidence of
information should be obtained, where customer’s identity.
applicable: 13. Financial institutions should apply
• legal name and any other names equally effective customer identification
used (such as maiden name); procedures for non-face-to-face customers
• correct permanent address (the full as for those available for interview.
address should be obtained; a Post Office 14. From the information provided in
box number is not sufficient); paragraph 10, financial institutions should
• telephone number, fax number, be able to make an initial assessment of a
and e-mail address; customer’s risk profile. Particular attention
• date and place of birth; needs to be focused on those customers
• nationality; identified thereby as having a higher risk
• occupation, public position held profile and additional inquiries made or
and/or name of employer; information obtained in respect of those
• an official person identification customers to include the following:
number or other unique identifier • evidence of an individual’s
contained in an unexpired official permanent address sought through a credit
document (e.g. passport, identification card, reference agency search, or through
residence permit, social security records, independent verification by home visits;
driving license) that bears a photograph of • personal reference (i.e. by an
the customer; existing customer of the same institution);
• type of account and nature of the • prior bank reference and contact
banking relationship; with the bank regarding the customer;
• signature. • source of wealth;
11. The bank should verify this • verification of employment, public
information by at least one of the following position held (where appropriate).
methods: 15. For one-off or occasional
• confirming the date of birth from an transactions where the amount of the
official document (e.g. birth certificate, transaction or series of linked transactions
passport, identity card,social security records); does not exceed an established minimum

APP. Q-23
05.12.31
monetary value, it might be sufficient to 20. The bank should verify this
require and record only name and address. information by at least one of the following
16. It is important that the customer methods:
acceptance policy is not so restrictive that • for established corporate entities –
it results in a denial of access by the reviewing a copy of the latest report and
general public to banking services, accounts (audited, if available);
especially for people who are financially • conducting an enquiry by a
or socially disadvantaged. business information service, or an
undertaking from a reputable and known
B. Institutions firm of lawyers or accountants confirming
17. The underlying principles of the documents submitted;
customer identification for natural persons • undertaking a company search
have equal application to customer and/or other commercial enquiries to see
identification for all institutions. Where in that the institution has not been, or is not
the following the identification and in the process of being, dissolved, struck
verification of natural persons is involved, off, wound up or terminated;
the foregoing guidance in respect of such • utilising an independent
persons should have equal application. information verification process, such as by
18. The term institution includes any accessing public and private databases;
entity that is not a natural person. In • obtaining prior bank references;
considering the customer identification • visiting the corporate entity, where
guidance for the different types of practical;
institutions, particular attention should be • contacting the corporate entity by
given to the different levels of risk telephone, mail or e-mail.
involved. 21. The bank should also take
reasonable steps to verify the identity and
I. Corporate Entities reputation of any agent that opens an
19. For corporate entities (i.e. account on behalf of a corporate customer,
corporations and partnerships), the if that agent is not an officer of the corporate
following information should be obtained: customer.
• name of institution;
• principal place of institution’s Corporations/Partnerships
business operations; 22. For corporations/partnerships, the
• mailing address of institution; principal guidance is to look behind the
• contact telephone and fax numbers; institution to identify those who have
• some form of official identification control over the business and the
number, if available (e.g. tax identification company’s/partnership’s assets, including
number); those who have ultimate control. For
• the original or certified copy of the corporations, particular attention should be
Certificate of Incorporation and paid to shareholders, signatories, or others
Memorandum and Articles of Association; who inject a significant proportion of the
• the resolution of the Board of capital or financial support or otherwise
Directors to open an account and exercise control. Where the owner is
identification of those who have authority another corporate entity or trust, the
to operate the account; objective is to undertake reasonable
• nature and purpose of business and measures to look behind that company or
its legitimacy. entity and to verify the identity of the

APP. Q-23
05.12.31
principals. What constitutes control for this firm of lawyers or accountants confirming
purpose will depend on the nature of a the documents submitted;
company, and may rest in those who are • obtaining prior bank references;
mandated to manage funds, accounts or • accessing public and private
investments without requiring further databases or official sources.
authorisation, and who would be in a
position to override internal procedures and Retirement Benefit Programmes
control mechanisms. For partnerships, 26. Where an occupational pension
each partner should be identified and it is programme, employee benefit trust or
also important to identify immediate family share option plan is an applicant for an
members that have ownership control. account the trustee and any other person
23. Where a company is listed on a who has control over the relationship (e.g.
recognised stock exchange or is a administrator, programme manager, and
subsidiary of such a company then the account signatories) should be considered
company itself may be considered to be as principals and the bank should take steps
the principal to be identified. However, to verify their identities.
consideration should be given to whether
there is effective control of a listed company Mutuals/Friendly Societies, Cooperatives
by an individual, small group of individuals and Provident Societies
or another corporate entity or trust. If this 27. Where these entities are an
is the case then those controllers should applicant for an account, the principals to
also be considered to be principals and be identified should be considered to be
identified accordingly. those persons exercising control or
significant influence over the organisation’s
II. Other Types of Institution assets. This will often include board
24. For the account categories referred members plus executives and account
to paragraphs 26 to 34, the following signatories.
information should be obtained in addition
to that required to verify the identity of the Charities, Clubs and Associations
principals: 28. In the case of accounts to be
• name of account; opened for charities, clubs, and societies,
• mailing address; the bank should take reasonable steps to
• contact telephone and fax identify and verify at least two signatories
numbers; along with the institution itself. The
• some form of official identification principals who should be identified should
number, if available (e.g. tax identification be considered to be those persons
number); exercising control or significant influence
• description of the purpose/activities over the organisation’s assets. This will often
of the account holder (e.g. in a formal include members of a governing body or
constitution); committee, the President, any board
• copy of documentation confirming members, the treasurer, and all signatories.
the legal existence of the account holder 29. In all cases independent verification
(e.g. register of charities). should be obtained that the persons
25. The bank should verify this involved are true representatives of the
information by at least one of the following: institution. Independent confirmation
• obtaining an independent should also be obtained of the purpose of
undertaking from a reputable and known the institution.

APP. Q-23
05.12.31
Trusts and Foundations 32. Where such circumstances apply

30. When opening an account for a and an account is opened for an open or
trust, the bank should take reasonable steps closed ended investment company, unit
to verify the trustee(s), the settler(s) of the trust or limited partnership which is also
trust (including any persons settling assets into subject to the same diligence standards in
the trust) any protector(s), beneficiary(ies), and respect of its client base as the bank, the
signatories. Beneficiaries should be identified following should be considered as
when they are defined. In the case of a principals and the bank should take steps
foundation, steps should be taken to verify to identify:
the founder, the managers/directors and • the fund itself;
the beneficiaries. • its directors or any controlling board
where it is a company;
Professional Intermediaries • its trustee where it is a unit trust;
31. When a professional intermediary • its managing (general) partner
opens a client account on behalf of a single where it is a limited partnership;
client that client must be identified. • account signatories;
Professional intermediaries will often open • any other person who has control
“pooled” accounts on behalf of a number over the relationship e.g. fund administrator
of entities. Where funds held by the or manager.
intermediary are not co-mingled but 33. Where other investment vehicles
where there are “sub-accounts” which can are involved, the same steps should be
be attributable to each beneficial owner, taken as in paragraph 32 where it is
all beneficial owners of the account held appropriate to do so. In addition all reasonable
by the intermediary should be identified. steps should be taken to verify the identity
Where the funds are co-mingled, the bank of the beneficial owners of the funds and
should look through to the beneficial of those who have control of the funds.
owners; however, there may be 34. Intermediaries should be treated as
circumstances which should be set out in individual customers of the bank and the
supervisory guidance where the bank may standing of the intermediary should be
not need to look beyond the intermediary separately verified by obtaining the
(e.g. when the intermediary is subject to appropriate information drawn from the
the same due diligence standards in itemised lists included in paragraphs 19-
respect of its client base as the bank). 20 above.

APP. Q-23
05.12.31
Annex Q-23-e

Series of 2005
Pursuant to Section 9-c of the Anti- the AMLC Secretariat Office is located, are
Money Laundering Act, as amended, treated as working days even for CIs
covered institutions (CIs) shall report to the located in such locality declared as on
AMLC all covered transactions and holiday, and hence, included in the
suspicious transactions within five (5) counting of the prescribed reporting
working days from occurrence thereof, period. However, the CIs affected may
subject to the circumstances described in file a deviation request with the AMLC
Resolution No. 292 dated 24 October 2003 Secretariat.
which remains in full force and effect. · CI’s request for deviation shall be
WHEREFORE, the Council, resolves as subject to approval of the Executive
it hereby resolved, to approve the Director of the AMLC Secretariat (or the
following policies and guidelines in Officer-in-charge) upon recommendation
reckoning CIs’ compliance with the of the Deputy Director of IMAS AMLC
prescribed reporting period: Secretariat. It shall be the basis of
1. The following non-working days manually recomputing whatever penalties
are excluded from the counting of the that would be automatically computed by
prescribed reporting period: TMAS.
· weekend (Saturday and Sunday) 4. Officially-declared non-working
· official regular national holiday days in localities or regions affected by
· officially declared national holiday natural calamities such as flood, typhoon,
(special non-working day nationwide) earthquake, etc. may be excluded from
· officially declared local holiday in the counting of the prescribed reporting
the locality where AMLC Secretariat Office period for CIs located in affected localities
is located or regions subject to submission of
2. A “non-reporting day” may be deviation request by the CI.
declared by the AMLC Secretariat when · CI’s request for deviation shall be
the File Transfer and Reporting Facility subject to approval of the Executive
(FTRF), used by the CIs in transmitting their Director of the AMLC Secretariat (or the
electronic reports to AMLC, is unavailable Officer-in-charge) upon recommendation
to all CIs for at least five (5) consecutive of the Deputy Director of IMAS AMLC
hours during the day Secretariat. It shall be the basis of
· AMLC-declared “non-reporting manually recomputing whatever penalties
day” is excluded from the counting of the that would be automatically computed by
prescribed reporting period. TMAS.
· The Executive Director of the WHEREFORE, the Council, resolves
AMLC Secretariat (or the Officer-in-charge) as it hereby resolved, to consider and
is authorized to declare such day as a “non- include the foregoing policies and
reporting” day upon notification and guidelines in the ongoing development
justification by the Deputy Director of and implementation of AMLC’s Transaction
IMAS AMLC Secretariat. Monitoring and Analysis System (TMAS)
3. Local holidays, except for officially and specifically, for the computation of the
declared local holidays in the locality where penalty for delayed reporting by the CIs.

APP. Q-24
05.12.31
ACTIVITIES WHICH MAY BE CONSIDERED UNSAFE AND UNSOUND

PRACTICES
(Appendix to Secs. 4149Q and 4408Q and Subsec. 4301Q.6)
The following activities are considered k. Selling participations without

only as guidelines and are not irrebutably disclosing to the purchasers of those
presumed to be unsafe or unsound. participations material, non-public
Conversely, not all practices which might information known to the quasi-bank/trust
under the circumstances be termed unsafe entity.
or unsound are mentioned here. The l. Failure to limit, control and
Monetary Board may consider other acts/ document contingent liabilities.
omissions as unsafe or unsound practices. m. Engaging in hazardous lending
a. Operating with management and lax collection policies and practices,
whose policies and practices are as evidenced by:
detrimental to the quasi-bank/trust entity (1) An excessive volume of loans
and jeopardize the safety of its deposit subject to adverse classification;
substitutes/trust accounts. (2) An excessive volume of loans
b. Operating with total adjusted without adequate documentation,
capital and reserves that are inadequate in including credit information;
relation to the kind and quality of the assets (3) Excessive net loan losses;
of the quasi-bank/trust entity. (4) An excessive volume of loans in
c. Operating in a way that produces relation to the total assets and deposit
a deficit in net operating income. substitutes/trust liabilities of the quasi-bank/
d. Operating with a serious lack of trust entity;
liquidity, especially in view of the asset and (5) An excessive volume of weak and
deposit substitute/liability structure of the self-serving loans to persons connected with
quasi-bank/trust entity. the quasi-bank/trust entity, especially if a
e. Engaging in speculative and significant portion of these loans are
hazardous investment policies. adversely classified;
f. Paying excessive cash dividends (6) Excessive concentrations of credit,
in relation to the capital position, earnings especially if a substantial portion of this
capacity and asset quality of the quasi- credit is adversely classified;
bank/trust entity. (7) Indiscriminate participation in
g. Excessive reliance on large, high- weak and undocumented loans originated
interest or volatile borrowings. by other institutions;
h. Excessive reliance on letters of (8) Failing to adopt written loan policies;
credit either issued by the quasi-bank/trust (9) An excessive volume of past due
entity or accepted as collateral to loans or non-performing loans;
advanced. (10) Failure to diversify the loan
i. Excessive amounts of loan portfolio/asset mix of the institution; and
participations sold. (11) Failure to make provision for an
j. Paying interest on participations adequate reserve for possible loan losses.
without advising participating institution n. Permitting officers to engage in
that the source of interest was not from the lending practices beyond the scope of their
borrower. positions.

APP. Q-24
05.12.31
o. Operating the quasi-bank/trust u. Any action likely to cause

entity with inadequate internal controls. insolvency or substantial dissipation of
p. Failure to keep accurate and assets or earnings of the institution or likely
updated books and records. to seriously weaken its condition or
q. Operating the institution with otherwise seriously prejudice the interest
excessive volume of out-of-territory loans. of its investors/clients.
r. Excessive volume of non-earning v. Non-observance of the principles and
assets. the requirements for managing and monitoring
s. Failure to heed warnings and large exposures and credit risk concentrations
admonitions of the supervisory authorities under Subsec. 4301Q.6a and b.
of the institution. w. Improper or non-documentation of
t. Continued and flagrant violation of repurchase agreements covering
any law, rule, regulation or written government securities and commercial
agreement between the institution and the papers and other negotiable and non-
BSP. negotiable securities or instruments.

APP. Q-25
05.12.31
REVISED IMPLEMENTING RULES AND REGULATIONS

R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194
RULE 1 subsidiaries and affiliates supervised and/

TITLE or regulated by the Bangko Sentral ng
Pilipinas (BSP).
Rule 1.a. Title. - These Rules shall be (a) A subsidiary means an entity more
known and cited as the “Revised Rules and than fifty percent (50%) of the outstanding
Regulations Implementing R.A. No. 9160”, voting stock of which is owned by a bank,
(the Anti-Money Laundering Act of 2001 quasi-bank, trust entity or any other
[AMLA]), as amended by R.A. No. 9194. institution supervised or regulated by the
BSP.
Rule 1.b. Purpose. - These Rules are (b) An affiliate means an entity at least
promulgated to prescribe the procedures twenty percent (20%) but not exceeding fifty
and guidelines for the implementation of percent (50%) of the voting stock of which
the AMLA, as amended by R.A. No. 9194. is owned by a bank, quasi-bank, trust entity,
or any other institution supervised and/or
RULE 2 regulated by the BSP.
DECLARATION OF POLICY
Rule 3.a.2. Insurance companies,
Rule 2. Declaration of Policy. - It is hereby insurance agents, insurance brokers,
declared the policy of the State to protect professional reinsurers, reinsurance brokers,
the integrity and confidentiality of bank holding companies, holding company
accounts and to ensure that the Philippines systems and all other persons and entities
shall not be used as a money-laundering supervised and/or regulated by the
site for the proceeds of any unlawful Insurance Commission (IC).
activity. Consistent with its foreign policy, (a) An insurance company includes
the Philippines shall extend cooperation in those entities authorized to transact
transnational investigations and insurance business in the Philippines,
prosecutions of persons involved in money whether life or non-life and whether
laundering activities wherever committed. domestic, domestically incorporated or
branch of a foreign entity. A contract of
RULE 3 insurance is an agreement whereby one
DEFINITIONS undertakes for a consideration to indemnify
another against loss, damage or liability
Rule 3. Definitions. – For purposes of this arising from an unknown or contingent
Act, the following terms are hereby defined event. Transacting insurance business
as follows: includes making or proposing to make, as
insurer, any insurance contract, or as surety,
Rule 3.a. Covered Institution refers to: any contract of suretyship as a vocation and
not as merely incidental to any other
Rule 3.a.1. Banks, offshore banking legitimate business or activity of the surety,
units, quasi-banks, trust entities, non-stock doing any kind of business specifically
savings and loan associations, pawnshops, recognized as constituting the doing of an
and all other institutions, including their insurance business within the meaning of

APP. Q-25
05.12.31
Presidential Decree (P.D.) No. 612, as Rule 3.a.3. (i) Securities dealers,
amended, including a reinsurance brokers, salesmen, associated persons of
business and doing or proposing to do brokers or dealers, investment houses,
any business in substance equivalent to investment agents and consultants, trading
any of the foregoing in a manner advisors, and other entities managing
designed to evade the provisions of P.D. securities or rendering similar services, (ii)
No. 612, as amended. mutual funds or open-end investment
(b) An insurance agent includes any companies, close-end investment
person who solicits or obtains insurance companies, common trust funds, pre-need
on behalf of any insurance company or companies or issuers and other similar
transmits for a person other than himself entities; (iii) foreign exchange
an application for a policy or contract of corporations, money changers, money
insurance to or from such company or payment, remittance, and transfer
offers or assumes to act in the negotiation companies and other similar entities, and
of such insurance. (iv) other entities administering or
(c) An insurance broker includes any otherwise dealing in currency,
person who acts or aids in any manner in commodities or financial derivatives based
soliciting, negotiating or procuring the thereon, valuable objects, cash substitutes
making of any insurance contract or in and other similar monetary instruments or
placing risk or taking out insurance, on property supervised and/or regulated by
behalf of an insured other than himself. the Securities and Exchange Commission
(d) A professional reinsurer includes (SEC).
any person, partnership, association or (a) A securities broker includes a
corporation that transacts solely and person engaged in the business of buying
exclusively reinsurance business in the and selling securities for the account of
Philippines, whether domestic, others.
domestically incorporated or a branch of (b) A securities dealer includes any
a foreign entity. A contract of reinsurance person who buys and sells securities for
is one by which an insurer procures a third his/her account in the ordinary course of
person to insure him against loss or business.
liability by reason of such original (c) A securities salesman includes a
insurance. natural person, employed as such or as an
(e) A reinsurance broker includes agent, by a dealer, issuer or broker to buy
any person who, not being a duly and sell securities.
authorized agent, employee or officer (d) An associated person of a broker
of an insurer in which any reinsurance or dealer includes an employee thereof
is effected, acts or aids in any manner who directly exercises control or
in negotiating contracts of reinsurance supervisory authority, but does not include
or placing risks of effecting reinsurance, a salesman, or an agent or a person whose
for any insurance company authorized functions are solely clerical or ministerial.
to do business in the Philippines. (e) An investment house includes an
(f) A holding company includes any enterprise which engages or purports to
person who directly or indirectly controls engage, whether regularly or on an
any authorized insurer. A holding isolated basis, in the underwriting of
company system includes a holding securities of another person or enterprise,
company together with its controlled including securities of the Government
insurers and controlled persons. and its instrumentalities.

APP. Q-25
05.12.31
(f) A mutual fund or an open-end publications or writings, as to the value of

investment company includes an any security and as to the advisability of
investment company which is offering for trading in any security; or
sale or has outstanding, any redeemable (2) who for compensation and as part
security of which it is the issuer. of a regular business, issues or
(g) A closed-end investment company promulgates, analyzes reports concerning
includes an investment company other than the capital market, except:
open-end investment company. (a) any bank or trust company;
(h) A common trust fund includes a (b) any journalist, reporter, columnist,
fund maintained by an entity authorized editor, lawyer, accountant, teacher;
to perform trust functions under a written (c) the publisher of any bonafide
and formally established plan, exclusively newspaper, news, business or financial
for the collective investment and publication of general and regular
reinvestment of certain money representing circulation, including their employees;
participation in the plan received by it in its (d) any contract market;
capacity as trustee, for the purpose of (e) such other person not within the
administration, holding or management of intent of this definition, provided that the
such funds and/or properties for the use, furnishing of such service by the foregoing
benefit or advantage of the trustor or of persons is solely incidental to the conduct
others known as beneficiaries. of their business or profession.
(i) A pre-need company or issuer (3) any person who undertakes the
includes any corporation supervised and/ management of portfolio securities of
or regulated by the SEC and is authorized investment companies, including the
or licensed to sell or offer for sale pre-need arrangement of purchases, sales or
plans. Pre-need plans are contracts which exchanges of securities.
provide for the performance of future (l) A moneychanger includes any
service(s) or payment of future monetary person in the business of buying or selling
consideration at the time of actual need, foreign currency notes.
payable either in cash or installment by the (m) A money payment, remittance
planholder at prices stated in the contract with and transfer company includes any person
or without interest or insurance coverage and offering to pay, remit or transfer or
includes life, pension, education, internment transmit money on behalf of any person
and other plans, which the Commission may, to another person.
from time to time, approve. (n) “Customer” refers to any person
(j) A foreign exchange corporation or entity that keeps an account, or
includes any enterprise which engages or otherwise transacts business, with a
purports to engage, whether regularly or on covered institution and any person or
an isolated basis, in the sale and purchase entity on whose behalf an account is
of foreign currency notes and such other maintained or a transaction is conducted,
foreign-currency denominated non-bank as well as the beneficiary of said
deposit transactions as may be authorized transactions. A customer also includes the
under its articles of incorporation. beneficiary of a trust, an investment fund,
(k) Investment Advisor/Agent/ a pension fund or a company or person
Consultant shall refer to any person: whose assets are managed by an asset
(1) who for an advisory fee is engaged manager, or a grantor of a trust. It includes
in the business of advising others, either any insurance policy holder, whether
directly or through circulars, reports, actual or prospective.

APP. Q-25
05.12.31
(o) “Property” includes any thing or certificates, trust certificates, custodial

item of value, real or personal, tangible or receipts or deposit substitute instruments,
intangible, or any interest therein or any trading orders, transaction tickets and
benefit, privilege, claim or right with confirmations of sale or investments and
respect thereto. money market instruments;
(4) Contracts or policies of insurance,
Rule 3.b. Covered transaction is a life or non-life, and contracts of suretyship;
transaction in cash or other equivalent and
monetary instrument involving a total (5) Other similar instruments where
amount in excess of PhP500,000.00 within title thereto passes to another by
one (1) banking day. endorsement, assignment or delivery.
Rule 3.b.1. Suspicious transactions are Rule 3.d. Offender refers to any person
transactions, regardless of amount, where who commits a money laundering
any of the following circumstances exists: offense.
(1) There is no underlying legal or trade
obligation, purpose or economic Rule 3.e. Person refers to any natural or
justification; juridical person.
(2) The client is not properly identified;
(3) The amount involved is not Rule 3.f. Proceeds refers to an amount
commensurate with the business or derived or realized from an unlawful
financial capacity of the client; activity. It includes:
(4) Taking into account all known (1) All material results, profits, effects
circumstances, it may be perceived that the and any amount realized from any
client’s transaction is structured in order to unlawful activity;
avoid being the subject of reporting (2) All monetary, financial or
requirements under the act; economic means, devices, documents,
(5) Any circumstance relating to the papers or things used in or having any
transaction which is observed to deviate relation to any unlawful activity; and
from the profile of the client and/or the (3) All moneys, expenditures,
client’s past transactions with the covered payments, disbursements, costs, outlays,
institution; charges, accounts, refunds and other
(6) The transaction is in any way related similar items for the financing, operations,
to an unlawful activity or any money and maintenance of any unlawful activity.
laundering activity or offense under this act
that is about to be, is being or has been Rule 3.g. Supervising authority refers to
committed; or the BSP, the SEC and the IC. Where the
(7) Any transaction that is similar, BSP, SEC or IC supervision applies only
analogous or identical to any of the to the registration of the covered
foregoing. institution, the BSP, the SEC or the IC,
within the limits of the AMLA, shall have
Rule 3.c. Monetary instrument refers to: the authority to require and ask assistance
(1) Coins or currency of legal tender of from the government agency having
the Philippines, or of any other country; regulatory power and/or licensing authority
(2) Drafts, checks and notes; over said covered institution for the
(3) Securities or negotiable instruments, implementation and enforcement of the
bonds, commercial papers, deposit AMLA and these Rules.

APP. Q-25
05.12.31
Rule 3.h. Transaction refers to any act public officer in his official capacity has to
establishing any right or obligation or intervene under the law;
giving rise to any contractual or legal (15) Directly or indirectly requesting
relationship between the parties thereto. or receiving any gift, present or other
It also includes any movement of funds by pecuniary or material benefit, for himself
any means with a covered institution. or for another, from any person for whom
the public officer, in any manner or
Rule 3.i. Unlawful activity refers to any act capacity, has secured or obtained, or will
or omission or series or combination thereof secure or obtain, any government permit
involving or having relation, to the or license, in consideration for the help
following: given or to be given, without prejudice to
Section 13 of R.A. No. 3019;
(A) Kidnapping for ransom under Article (16) Causing any undue injury to any
267 of Act No. 3815, otherwise known as party, including the government, or giving
the Revised Penal Code, as amended; any private party any unwarranted benefits,
(1) Kidnapping for ransom advantage or preference in the discharge
of his official, administrative or judicial
(B) Sections 4, 5, 6, 8, 9, 10, 12, 13, functions through manifest partiality,
14, 15 and 16 of R.A. No. 9165, otherwise evident bad faith or gross inexcusable
known as the Comprehensive Dangerous negligence;
Drugs Act of 2002; (17) Entering, on behalf of the
(2) Importation of prohibited drugs; government, into any contract or
(3) Sale of prohibited drugs; transaction manifestly and grossly
(4) Administration of prohibited drugs; disadvantageous to the same, whether or
(5) Delivery of prohibited drugs not the public officer profited or will profit
(6) Distribution of prohibited drugs thereby;
(7) Transportation of prohibited drugs (18) Directly or indirectly having
(8) Maintenance of a Den, Dive or financial or pecuniary interest in any
Resort for prohibited users business contract or transaction in
(9) Manufacture of prohibited drugs connection with which he intervenes or
(10)Possession of prohibited drugs takes part in his official capacity, or in
(11)Use of prohibited drugs which he is prohibited by the Constitution
(12)Cultivation of plants which are or by any law from having any interest;
sources of prohibited drugs (19) Directly or indirectly becoming
(13)Culture of plants which are sources interested, for personal gain, or having
of prohibited drugs material interest in any transaction or act
requiring the approval of a board, panel or
(C) Section 3 paragraphs b, c, e, g, h group of which he is a member, and which
and i of R.A. No. 3019, as amended, exercise of discretion in such approval,
otherwise known as the Anti-Graft and even if he votes against the same or he
Corrupt Practices Act; does not participate in the action of the
(14)Directly or indirectly requesting or board, committee, panel or group.
receiving any gift, present, share,
percentage or benefit for himself or for any (D) Plunder under R.A. No. 7080, as
other person in connection with any amended;
contract or transaction between the (20) Plunder through misappropriation,
Government and any party, wherein the conversion, misuse or malversation of

APP. Q-25
05.12.31
public funds or raids upon the public (F) Jueteng and Masiao punished as
treasury; illegal gambling under P.D. No. 1602;
(21) Plunder by receiving, directly or (29) Jueteng;
indirectly, any commission, gift, share, (30) Masiao.
percentage, kickbacks or any other form of
pecuniary benefit from any person and/or (G) Piracy on the high seas under the
entity in connection with any government Revised Penal Code, as amended and P.D.
contract or project or by reason of the office No. 532;
or position of the public officer concerned; (31) Piracy on the high seas;
(22) Plunder by the illegal or fraudulent (32) Piracy in inland Philippine waters;
conveyance or disposition of assets (33) Aiding and abetting pirates and
belonging to the National Government or brigands.
any of its subdivisions, agencies,
instrumentalities or government-owned or (H) Qualified theft under Article 310
controlled corporations or their subsidiaries; of the Revised Penal Code, as amended;
(23) Plunder by obtaining, receiving or (34) Qualified theft.
accepting, directly or indirectly, any shares
of stock, equity or any other form of interest (I) Swindling under Article 315 of the
or participation including the promise of Revised Penal Code, as amended;
future employment in any business (35) Estafa with unfaithfulness or abuse
enterprise or undertaking; of confidence by altering the substance,
(24) Plunder by establishing agricultural, quality or quantity of anything of value
industrial or commercial monopolies or other which the offender shall deliver by virtue
combinations and/or implementation of of an obligation to do so, even though such
decrees and orders intended to benefit obligation be based on an immoral or illegal
particular persons or special interests; consideration;
(25) Plunder by taking undue (36) Estafa with unfaithfulness or abuse
advantage of official position, authority, of confidence by misappropriating or
relationship, connection or influence to converting, to the prejudice of another,
unjustly enrich himself or themselves at the money, goods or any other personal
expense and to the damage and prejudice property received by the offender in trust
of the Filipino people and the republic of or on commission, or for administration, or
the Philippines. under any other obligation involving the
duty to make delivery or to return the same,
(E) Robbery and extortion under even though such obligation be totally or
Articles 294, 295, 296, 299, 300, 301 and partially guaranteed by a bond; or by
302 of the Revised Penal Code, as denying having received such money,
amended; goods, or other property;
(26) Robbery with violence or (37) Estafa with unfaithfulness or abuse
intimidation of persons; of confidence by taking undue advantage
(27) Robbery with physical injuries, of the signature of the offended party in
committed in an uninhabited place and by blank, and by writing any document above
a band, or with use of firearms on a street, such signature in blank, to the prejudice of
road or alley; the offended party or any third person;
(28) Robbery in an uninhabited house (38) Estafa by using a fictitious name,
or public building or edifice devoted to or falsely pretending to possess power,
worship. influence, qualifications, property, credit,

APP. Q-25
05.12.31
agency, business or imaginary (K) Violations under R.A. No. 8792,

transactions, or by means of other similar otherwise known as the Electronic
deceits; Commerce Act of 2000;
(39) Estafa by altering the quality, K.1. Hacking or cracking, which refers
fineness or weight of anything pertaining to:
to his art or business; (55) unauthorized access into or
(40) Estafa by pretending to have interference in a computer system/server or
bribed any government employee; information and communication system; or
(41) Estafa by postdating a check, or (56) any access in order to corrupt, alter,
issuing a check in payment of an steal, or destroy using a computer or other
obligation when the offender has no funds similar information and communication
in the bank, or his funds deposited therein devices, without the knowledge and consent
were not sufficient to cover the amount of the owner of the computer or information
of the check; and communications system, including
(42) Estafa by inducing another, by (57) the introduction of computer
means of deceit, to sign any document; viruses and the like, resulting in the
(43) Estafa by resorting to some corruption, destruction, alteration, theft or
fraudulent practice to ensure success in a loss of electronic data messages or
gambling game; electronic document;
(44) Estafa by removing, concealing
or destroying, in whole or in part, any K.2. Piracy, which refers to:
court record, office files, document or any (58) the unauthorized copying,
other papers. reproduction,
(59) the unauthorized dissemination,
(J) Smuggling under R.A. Nos. 455 distribution,
and 1937; (60) the unauthorized importation,
(45) Fraudulent importation of any (61) the unauthorized use, removal,
vehicle; alteration, substitution, modification,
(46) Fraudulent exportation of any (62) the unauthorized storage,
vehicle; uploading, downloading, communication,
(47) Assisting in any fraudulent making available to the public, or
importation; (63) the unauthorized broadcasting, of
(48) Assisting in any fraudulent protected material, electronic signature or
exportation; copyrighted works including legally
(49) Receiving smuggled article after protected sound recordings or phonograms
fraudulent importation; or information material on protected works,
(50) Concealing smuggled article through the use of telecommunication
after fraudulent importation; networks, such as, but not limited to, the
(51) Buying smuggled article after internet, in a manner that infringes
fraudulent importation; intellectual property rights;
(52) Selling smuggled article after
fraudulent importation; K.3. Violations of the Consumer Act or
(53) Transportation of smuggled R.A. No. 7394 and other relevant or
article after fraudulent importation; pertinent laws through transactions covered
(54) Fraudulent practices against by or using electronic data messages or
customs revenue. electronic documents:

APP. Q-25
05.12.31
(64) Sale of any consumer product that and murder, as defined under the Revised
is not in conformity with standards under Penal Code, as amended, including those
the Consumer Act; perpetrated by terrorists against non-
(65) Sale of any product that has been combatant persons and similar targets;
banned by a rule under the Consumer Act; (85) Hijacking;
(66) Sale of any adulterated or (86) Destructive arson;
mislabeled product using electronic (87) Murder;
documents; (88) Hijacking, destructive arson or
(67) Adulteration or misbranding of murder perpetrated by terrorists against
any consumer product; non-combatant persons and similar targets;
(68) Forging, counterfeiting or
simulating any mark, stamp, tag, label or (M) Fraudulent practices and other
other identification device; violations under R.A. No. 8799, otherwise
(69) Revealing trade secrets; known as the Securities Regulation Code
(70) Alteration or removal of the of 2000;
labeling of any drug or device held for sale; (89) Sale, offer or distribution of
(71) Sale of any drug or device not securities within the Philippines without a
registered in accordance with the provisions registration statement duly filed with and
of the E-Commerce Act; approved by the SEC;
(72) Sale of any drug or device by any (90) Sale or offer to the public of any
person not licensed in accordance with the pre-need plan not in accordance with the
provisions of the E-Commerce Act; rules and regulations which the SEC shall
(73) Sale of any drug or device beyond prescribe;
its expiration date; (91) Violation of reportorial
(74) Introduction into commerce of any requirements imposed upon issuers of
mislabeled or banned hazardous substance; securities;
(75) Alteration or removal of the (92) Manipulation of security prices by
labeling of a hazardous substance; creating a false or misleading appearance
(76) Deceptive sales acts and practices; of active trading in any listed security
(77) Unfair or unconscionable sales acts traded in an Exchange or any other trading
and practices; market;
(78) Fraudulent practices relative to (93) Manipulation of security prices by
weights and measures; effecting, alone or with others, a series of
(79) False representations in transactions in securities that raises their
advertisements as the existence of a prices to induce the purchase of a security,
warranty or guarantee; whether of the same or different class, of
(80) Violation of price tag requirements; the same issuer or of a controlling,
(81) Mislabeling consumer products; controlled or commonly controlled
(82) False, deceptive or misleading company by others;
advertisements; (94) Manipulation of security prices by
(83) Violation of required disclosures effecting, alone or with others, a series of
on consumer loans; transactions in securities that depresses
(84) Other violations of the provisions their price to induce the sale of a security,
of the E-Commerce Act; whether of the same or different class, of
the same issuer or of a controlling,
(L) Hijacking and other violations controlled or commonly controlled
under R.A. No. 6235; destructive arson company by others;

APP. Q-25
05.12.31
(95) Manipulation of security prices connection with the purchase and sale of
by effecting, alone or with others, a series any securities;
of transactions in securities that creates (102) Obtaining money or property in
active trading to induce such a purchase connection with the purchase and sale of
or sale though manipulative devices such any security by means of any untrue
as marking the close, painting the tape, statement of a material fact or any omission
squeezing the float, hype and dump, boiler to state a material fact necessary in order
room operations and such other similar to make the statements made, in the light
devices; of the circumstances under which they
(96) Manipulation of security prices were made, not misleading;
by circulating or disseminating information (103) Engaging in any act, transaction,
that the price of any security listed in an practice or course of action in the sale and
Exchange will or is likely to rise or fall purchase of any security which operates
because of manipulative market operations or would operate as a fraud or deceit upon
of any one or more persons conducted for any person;
the purpose of raising or depressing the price (104) Insider trading;
of the security for the purpose of inducing (105) Engaging in the business of buying
the purchase or sale of such security; and selling securities in the Philippines as a
(97) Manipulation of security prices broker or dealer, or acting as a salesman, or
by making false or misleading statements an associated person of any broker or dealer
with respect to any material fact, which without any registration from the
he knew or had reasonable ground to Commission;
believe was so false and misleading, for (106) Employment by a broker or
the purpose of inducing the purchase or dealer of any salesman or associated
sale of any security listed or traded in an person or by an issuer of any salesman,
Exchange; not registered with the SEC;
(98) Manipulation of security prices (107) Effecting any transaction in any
by effecting, alone or with others, any security, or reporting such transaction, in
series of transactions for the purchase and/ an Exchange or using the facility of an
or sale of any security traded in an Exchange which is not registered with the
Exchange for the purpose of pegging, SEC;
fixing or stabilizing the price of such (108) Making use of the facility of a
security, unless otherwise allowed by the clearing agency which is not registered
Securities Regulation Code or by the rules with the SEC;
of the SEC; (109) Violations of margin
(99) Sale or purchase of any security requirements;
using any manipulative deceptive device (110) Violations on the restrictions on
or contrivance; borrowings by members, brokers and
(100) Execution of short sales or stop- dealers;
loss order in connection with the purchase (111) Aiding and Abetting in any
or sale of any security not in accordance violations of the Securities Regulation
with such rules and regulations as the SEC Code;
may prescribe as necessary and (112) Hindering, obstructing or
appropriate in the public interest or the delaying the filing of any document
protection of the investors; required under the Securities Regulation
(101) Employment of any device, Code or the rules and regulations of the
scheme or artifice to defraud in SEC;

APP. Q-25
05.12.31
(113) Violations of any of the provisions RULE 5

of the implementing rules and regulations JURISDICTION OF MONEY
of the SEC; LAUNDERING CASES AND MONEY
(114) Any other violations of any of the LAUNDERING INVESTIGATION
provisions of the Securities Regulation Code. PROCEDURES
(N) Felonies or offenses of a similar Rule 5.1. Jurisdiction of Money

nature to the afore-mentioned unlawful Laundering Cases. - The Regional Trial
activities that are punishable under the Courts shall have the jurisdiction to try all
penal laws of other countries. cases on money laundering. Those
In determining whether or not a felony committed by public officers and private
or offense punishable under the penal laws persons who are in conspiracy with such
of other countries, is “of a similar nature”, public officers shall be under the
as to constitute the same as an unlawful jurisdiction of the Sandiganbayan.
activity under the AMLA, the nomenclature
of said felony or offense need not be Rule 5.2. Investigation of Money
identical to any of the predicate crimes Laundering Offenses. - The AMLC shall
listed under Rule 3.i. investigate:
(a) Suspicious transactions;
RULE 4 (b) Covered transactions deemed sus-
MONEY LAUNDERING OFFENSE picious after an investigation conducted
by the AMLC;
Rule 4.1. Money Laundering Offense. - (c) Money laundering activities; and
Money laundering is a crime whereby the (d) Other violations of this act.
proceeds of an unlawful activity as herein
defined are transacted, thereby making Rule 5.3. Attempts at Transactions. -
them appear to have originated from Section 4 (a) and (b) of the AMLA provides
legitimate sources. It is committed by the that any person who attempts to transact any
following: monetary instrument or property
(a) Any person knowing that any representing, involving or relating to the
monetary instrument or property represents, proceeds of any unlawful activity shall be
involves, or relates to, the proceeds of any prosecuted for a money laundering offense.
unlawful activity, transacts or attempts to Accordingly, the reports required under Rule
transact said monetary instrument or 9.3 (a) and (b) of these Rules shall include
property. those pertaining to any attempt by any
(b) Any person knowing that any person to transact any monetary instrument
monetary instrument or property involves or property representing, involving or
the proceeds of any unlawful activity, relating to the proceeds of any unlawful
performs or fails to perform any act as a activity.
result of which he facilitates the offense of
money laundering referred to in paragraph RULE 6
(a) above. PROSECUTION OF MONEY
(c) Any person knowing that any LAUNDERING
monetary instrument or property is required
under this Act to be disclosed and filed with Rule 6.1. Prosecution of Money Laundering
the Anti-Money Laundering Council (a) Any person may be charged with
(AMLC), fails to do so. and convicted of both the offense of money

APP. Q-25
05.12.31
laundering and the unlawful activity as Rule 6.6. All the elements of every money
defined under Rule 3 (i) of the AMLA. laundering offense under Section 4 of the
(b) Any proceeding relating to the AMLA must be proved by evidence
unlawful activity shall be given precedence beyond reasonable doubt, including the
over the prosecution of any offense or element of knowledge that the monetary
violation under the AMLA without prejudice instrument or property represents, involves
to the application Ex-Parte by the AMLC or relates to the proceeds of any unlawful
to the Court of Appeals for a Freeze Order activity.
with respect to the monetary instrument
or property involved therein and resort to other Rule 6.7. No element of the unlawful
remedies provided under the AMLA, the rules activity, however, including the identity of
of court and other pertinent laws and rules. the perpetrators and the details of the actual
commission of the unlawful activity need
Rule 6.2. When the AMLC finds, after be established by proof beyond reasonable
investigation, that there is probable cause doubt. The elements of the offense of
to charge any person with a money money laundering are separate and distinct
laundering offense under Section 4 of the from the elements of the felony or offense
AMLA, it shall cause a complaint to be constituting the unlawful activity.
filed, pursuant to Section 7 (4) of the AMLA,
before the Department of Justice or the RULE 7
Ombudsman, which shall then conduct CREATION OF ANTI-MONEY
the preliminary investigation of the case. LAUNDERING COUNCIL (AMLC)
Rule 6.3. After due notice and hearing in Rule 7.1.a. Composition. - The Anti-Money
the preliminary investigation proceedings Laundering Council is hereby created and
before the Department of Justice, or the shall be composed of the Governor of the
Ombudsman, as the case may be, and the BSP as Chairman, the Commissioner of the
latter should find probable cause of a Insurance Commission and the Chairman
money laundering offense, it shall file the of the SEC as members.
necessary information before the Regional
Trial Courts or the Sandiganbayan. Rule 7.1.b. Unanimous Decision. - The
AMLC shall act unanimously in discharging
Rule 6.4. Trial for the money laundering its functions as defined in the AMLA and
offense shall proceed in accordance with in these Rules. However, in the case of
the Code of Criminal Procedure or the the incapacity, absence or disability of any
Rules of Procedure of the Sandiganbayan, member to discharge his functions, the
as the case may be. officer duly designated or authorized to
discharge the functions of the Governor of
Rule 6.5. Knowledge of the offender that the BSP, the Chairman of the SEC or the
any monetary instrument or property Insurance Commissioner, as the case may
represents, involves, or relates to the be, shall act in his stead in the AMLC.
proceeds of an unlawful activity or that any
monetary instrument or property is required Rule 7.2. Functions. - The functions of the
under the AMLA to be disclosed and filed AMLC are defined hereunder:
with the AMLC, may be established by direct (1) to require and receive covered or
evidence or inferred from the attendant suspicious transaction reports from covered
circumstances. institutions;

APP. Q-25
05.12.31
(2) to issue orders addressed to the (8) to receive and take action in
appropriate Supervising Authority or the respect of any request from foreign states
covered institution to determine the true for assistance in their own anti-money
identity of the owner of any monetary laundering operations as provided in the
instrument or property subject of a covered AMLA. The AMLC is authorized under
or suspicious transaction report, or request Sections 7 (8) and 13 (b) and (d) of the AMLA
for assistance from a foreign State, or to receive and take action in respect of any
believed by the Council, on the basis of request of foreign states for assistance in their
substantial evidence, to be, in whole or in own anti-money laundering operations, in
part, wherever located, representing, respect of conventions, resolutions and other
involving, or related to, directly or directives of the United Nations (UN), the
indirectly, in any manner or by any means, UN Security Council, and other international
the proceeds of an unlawful activity; organizations of which the Philippines is a
(3) to institute civil forfeiture member. However, the AMLC may refuse
proceedings and all other remedial to comply with any such request, convention,
proceedings through the Office of the resolution or directive where the action
Solicitor General; sought therein contravenes the
(4) to cause the filing of complaints provisions of the Constitution, or the
with the Department of Justice or the execution thereof is likely to prejudice
Ombudsman for the prosecution of the national interest of the Philippines.
money laundering offenses; (9) to develop educational programs
(5) to investigate suspicious on the pernicious effects of money
transactions and covered transactions laundering, the methods and techniques
deemed suspicious after an investigation used in money laundering, the viable
by the AMLC, money laundering activities means of preventing money laundering
and other violations of this Act; and the effective ways of prosecuting and
(6) to apply before the Court of punishing offenders.
Appeals, Ex-Parte, for the freezing of any (10) to enlist the assistance of any branch,
monetary instrument or property alleged department, bureau, office, agency or
to be proceeds of any unlawful activity as instrumentality of the government, including
defined under Section 3(i) hereof; government-owned and -controlled
(7) to implement such measures as corporations, in undertaking any and all anti-
may be inherent, necessary, implied, money laundering operations, which may
incidental and justified under the AMLA include the use of its personnel, facilities and
to counteract money laundering. Subject resources for the more resolute prevention,
to such limitations as provided for by law, detection and investigation of money
the AMLC is authorized under Rule 7 (7) laundering offenses and prosecution of
of the AMLA to establish an information offenders. The AMLC may require the
sharing system that will enable the AMLC intelligence units of the Armed Forces of the
to store, track and analyze money Philippines, the Philippine National Police,
laundering transactions for the resolute the Department of Finance, the Department
prevention, detection and investigation of of Justice, as well as their attached agencies,
money laundering offenses. For this and other domestic or transnational
purpose, the AMLC shall install a governmental or non-governmental
computerized system that will be used in organizations or groups to divulge to the
the creation and maintenance of an AMLC all information that may, in any way,
information database; facilitate the resolute prevention,

APP. Q-25
05.12.31
investigation and prosecution of money department, bureau, office, agency or

laundering offenses and other violations of instrumentality of the government, including
the AMLA. government-owned and controlled
(11) To impose administrative corporations, in undertaking any and all anti-
sanctions for the violation of laws, rules, money laundering operations. This includes
regulations and orders and resolutions the use of any member of their personnel
issued pursuant thereto. who may be detailed or seconded to the
AMLC, subject to existing laws and Civil
Rule 7.3. Meetings. - The AMLC shall Service Rules and Regulations. Detailed
meet every first Monday of the month, or personnel shall continue to receive their
as often as may be necessary at the call of salaries, benefits and emoluments from their
the Chairman. respective mother units. Seconded personnel
shall receive, in lieu of their respective
RULE 8 compensation packages from their respective
CREATION OF A SECRETARIAT mother units, the salaries, emoluments and
all other benefits to which their AMLC
Rule 8.1. The Executive Director. - The Secretariat positions are entitled to.
Secretariat shall be headed by an
Executive Director who shall be appointed Rule 8.4. Confidentiality Provisions. - The
by the AMLC for a term of five (5) years. members of the AMLC, the Executive
He must be a member of the Philippine Bar, Director, and all the members of the
at least thirty-five (35) years of age, must have Secretariat, whether permanent, on detail
served at least five (5) years either at the BSP, or on secondment, shall not reveal, in any
the SEC or the IC and of good moral manner, any information known to them
character, unquestionable integrity and by reason of their office. This prohibition
known probity. He shall be considered a shall apply even after their separation
regular employee of the BSP with the rank from the AMLA. In case of violation of this
of Assistant Governor, and shall be entitled provision, the person shall be punished
to such benefits and subject to such rules and in accordance with the pertinent
regulations, as well as prohibitions, as are provisions of the Central Bank Act.
applicable to officers of similar rank.
RULE 9
Rule 8.2. Composition. - In organizing the PREVENTION OF MONEY
Secretariat, the AMLC may choose from LAUNDERING; CUSTOMER
those who have served, continuously or IDENTIFICATION REQUIREMENTS
cumulatively, for at least five (5) years in AND RECORD KEEPING
the BSP, the SEC or the IC. All members
of the Secretariat shall be considered Rule 9.1. Customer Identification
regular employees of the BSP and shall Requirements
be entitled to such benefits and subject to
such rules and regulations as are applicable Rule 9.1.a. Customer Identification. -
to BSP employees of similar rank. Covered institutions shall establish and
record the true identity of its clients based
Rule 8.3. Detail and Secondment. - The on official documents. They shall
AMLC is authorized under Section 7 (10) maintain a system of verifying the true
of the AMLA to enlist the assistance of the identity of their clients and, in case of
BSP, the SEC or the IC, or any other branch, corporate clients, require a system of

APP. Q-25
05.12.31
verifying their legal existence and (7) Contact numbers;

organizational structure, as well as the (8) Tax identification number, Social
authority and identification of all persons Security System number or Government
purporting to act on their behalf. Covered Service and Insurance System number;
institutions shall establish appropriate systems (9) Specimen signature;
and methods based on internationally (10) Source of fund(s); and
compliant standards and adequate internal (11) Names of beneficiaries in case of
controls for verifying and recording the true insurance contracts and whenever
and full identity of their customers. applicable.
Rule 9.1.b. Trustee, Nominee and Agent Rule 9.1.d. Minimum Information/
Accounts. - When dealing with customers Documents Required for Corporate and
who are acting as trustee, nominee, agent Juridical Entities. - Before establishing
or in any capacity for and on behalf of business relationships, covered
another, covered institutions shall verify institutions shall endeavor to ensure that
and record the true and full identity of the the customer is a corporate or juridical
person(s) on whose behalf a transaction entity which has not been or is not in
is being conducted. Covered institutions the process of being, dissolved, wound
shall also establish and record the true and up or voided, or that its business or
full identity of such trustees, nominees, operations has not been or is not in the
agents and other persons and the nature of process of being, closed, shut down,
their capacity and duties. In case a covered phased out, or terminated. Dealings
institution has doubts as to whether such with shell companies and corporations,
persons are being used as dummies in being legal entities which have no
circumvention of existing laws, it shall business substance in their own right but
immediately make the necessary inquiries through which financial transactions
to verify the status of the business relationship may be conducted, should be
between the parties. undertaken with extreme caution. The
following minimum information/
Rule 9.1.c. Minimum Information/ documents shall be obtained from
Documents Required for Individual customers that are corporate or juridical
Customers. - Covered institutions shall entities, including shell companies and
require customers to produce original corporations:
documents of identity issued by an official (1) Articles of Incorporation/
authority, bearing a photograph of the Partnership;
customer. Examples of such documents are (2) By-laws;
identity cards and passports. The following (3) Official address or principal
minimum information/documents shall be business address;
obtained from individual customers: (4) List of directors/partners;
(1) Name; (5) List of principal stockholders
(2) Present address; owning at least two percent (2%) of the
(3) Permanent address; capital stock;
(4) Date and place of birth; (6) Contact numbers;
(5) Nationality; (7) Beneficial owners, if any; and
(6) Nature of work and name of (8) Verification of the authority and
employer or nature of self-employment/ identification of the person purporting to
business; act on behalf of the client.

APP. Q-25
05.12.31
Rule 9.1.e. Prohibition Against Certain transactions. Said records and files shall
Accounts. Covered institutions shall contain the full and true identity of the
maintain accounts only in the true and full owners or holders of the accounts involved
name of the account owner or holder. The in the covered transactions and all other
provisions of existing laws to the contrary customer identification documents.
notwithstanding, anonymous accounts, Covered institutions shall undertake the
accounts under fictitious names, and all necessary adequate security measures to
other similar accounts shall be absolutely ensure the confidentiality of such file.
prohibited. Covered institutions shall prepare and
maintain documentation, in accordance with
Rule 9.1.f. Prohibition Against Opening the aforementioned client identification
of Accounts Without Face-to-face requirements, on their customer accounts,
Contact. - No new accounts shall be relationships and transactions such that any
opened and created without face-to-face account, relationship or transaction can be
contact and full compliance with the so reconstructed as to enable the AMLC,
requirements under Rule 9.1.c of these Rules. and/or the courts to establish an audit trail
for money laundering.
Rule 9.1.g. Numbered Accounts. - Peso
and foreign currency non-checking Rule 9.2.b. Existing and New Accounts
numbered accounts shall be allowed: and New Transactions. - All records of
Provided, That the true identity of the existing and new accounts and of new
customers of all peso and foreign currency transactions shall be maintained and safely
non-checking numbered accounts are stored for five (5) years from 17 October
satisfactorily established based on official 2001 or from the dates of the accounts or
and other reliable documents and records, transactions, whichever is later.
and that the information and documents
required under the provisions of these Rule 9.2.c. Closed Accounts. - With respect
Rules are obtained and recorded by the to closed accounts, the records on customer
covered institution. No peso and foreign identification, account files and business
currency non-checking accounts shall be correspondence shall be preserved and
allowed without the establishment of such safely stored for at least five (5) years from
identity and in the manner herein provided. the dates when they were closed.
The BSP may conduct annual testing for the
purpose of determining the existence and Rule 9.2.d. Retention of Records in Case
true identity of the owners of such accounts. a Money Laundering Case has been Filed
The SEC and the IC may conduct similar in Court. – If a money laundering case
testing more often than once a year and based on any record kept by the covered
covering such other related purposes as may institution concerned has been filed in
be allowed under their respective charters. court, said file must be retained beyond the
period stipulated in the three (3) immediately
Rule 9.2. Record Keeping Requirements preceding sub-Rules, as the case may be,
until it is confirmed that the case has been
Rule 9.2.a. Record Keeping: Kinds of finally resolved or terminated by the court.
Records and Period for Retention. – All
records of all transactions of covered Rule 9.2.e. Form of Records. – Records
institutions shall be maintained and safely shall be retained as originals in such forms
stored for five (5) years from the dates of as are admissible in court pursuant to

APP. Q-25
05.12.31
existing laws and the applicable rules either via diskettes, leased lines, or
promulgated by the Supreme Court. through internet facilities, with the
corresponding hard copy for suspicious
Rule 9.3. Reporting of Covered transactions. The final flow and
Transactions. - procedures for such reporting shall be
mapped out in the manual of
Rule 9.3.a. Period of Reporting Covered operations to be issued by the AMLC.
Transactions and SuspiciousTransactions.
- Covered institutions shall report to the Rule 9.3.c. Exemption from Bank
AMLC all covered transactions and Secrecy Laws. – When reporting
suspicious transactions within five (5) covered or suspicious transactions to the
working days from occurrence thereof, AMLC, covered institutions and their
unless the supervising authority concerned officers and employees, shall not be
prescribes a longer period not exceeding deemed to have violated R.A. No. 1405,
ten (10) working days. as amended, R.A. No. 6426, as
Should a transaction be determined to amended, R.A. No. 8791 and other
be both a covered and a suspicious similar laws, but are prohibited from
transaction, the covered institution shall communicating, directly or indirectly, in
report the same as a suspicious any manner or by any means, to any
transaction. person the fact that a covered or
The reporting of covered transactions suspicious transaction report was made,
by covered institutions shall be deferred the contents thereof, or any other
for a period of sixty (60) days after the information in relation thereto. In case
effectivity of R.A. No. 9194, or as may be of violation thereof, the concerned
determined by the AMLC, in order to officer and employee of the covered
allow the covered institutions to configure institution, shall be criminally liable.
their respective computer systems;
provided that, all covered transactions Rule 9.3.d. Confidentiality Provisions. –
during said deferment period shall be When reporting covered transactions or
submitted thereafter. suspicious transactions to the AMLC,
covered institutions and their officers,
Rule 9.3.b. Covered and Suspicious employees, representatives, agents,
Transaction Report Forms. - The Covered advisors, consultants or associates are
Transaction Report (CTR) and the Suspicious prohibited from communicating, directly
Transaction Report (STR) shall be in the or indirectly, in any manner or by any
forms prescribed by the AMLC. means, to any person, entity, or the
media, the fact that a covered transaction
Rule 9.3.b.1. Covered institutions shall report was made, the contents thereof,
use the existing forms for Covered or any other information in relation
Transaction Reports and Suspicious thereto. Neither may such reporting be
Transaction Reports, until such time as the published or aired in any manner or form
AMLC has issued new sets of forms. by the mass media, electronic mail, or
other similar devices. In case of violation
Rule 9.3.b.2. Covered Transaction hereof, the concerned officer, employee,
Reports and Suspicious Transaction representative, agent, advisor, consultant
Reports shall be submitted in a secured or associate of the covered institution,
manner to the AMLC in electronic form, or media shall be held criminally liable.

APP. Q-25
05.12.31
Rule 9.3.e. Safe Harbor Provisions. – No (c) The freeze order shall be effective for
administrative, criminal or civil proceedings, twenty (20) days unless extended by the
shall lie against any person for having made Court of Appeals upon application by the
a covered transaction report or a suspicious AMLC.
transaction report in the regular performance
of his duties and in good faith, whether or Rule 10.2. Definition of Probable Cause.
not such reporting results in any criminal - Probable cause includes such facts and
prosecution under this Act or any other circumstances which would lead a
Philippine law. reasonably discreet, prudent or cautious
man to believe that an unlawful activity
RULE 10 and/or a money laundering offense is about
APPLICATION FOR FREEZE ORDERS to be, is being or has been committed and
that the account or any monetary instrument
Rule 10.1. When the AMLC May Apply or property subject thereof sought to be
for the Freezing of Any Monetary frozen is in any way related to said unlawful
Instrument or Property. - activity and/or money laundering offense.
(a) After an investigation conducted by
the AMLC and upon determination that Rule 10.3. Duty of Covered Institution
probable cause exists that a monetary Upon Receipt Thereof. –
instrument or property is in any way related
to any unlawful activity as defined under Rule 10.3.a. Upon receipt of the notice of
Section 3 (i), the AMLC may file an Ex-Parte the freeze order, the covered institution
application before the Court of Appeals for concerned shall immediately freeze the
the issuance of a freeze order on any monetary instrument or property and related
monetary instrument or property subject web of accounts subject thereof.
thereof prior to the institution or in the course
of, the criminal proceedings involving the Rule 10.3.b. The covered institution shall
unlawful activity to which said monetary likewise immediately furnish a copy of the
instrument or property is any way related. notice of the freeze order upon the owner
(b) Considering the intricate and or holder of the monetary instrument or
diverse web of related and interlocking property or related web of accounts subject
accounts pertaining to the monetary thereof.
instrument(s) or property(ies) that any
person may create in the different covered Rule 10.3.c. Within twenty-four (24) hours
institutions, their branches and/or other from receipt of the freeze order, the covered
units, the AMLC may apply to the Court of institution concerned shall submit to the
Appeals for the freezing, not only of the Court of Appeals and the AMLC, by personal
monetary instruments or properties in the delivery, a detailed written return on the
names of the reported owner(s)/holder(s), freeze order, specifying all the pertinent and
and monetary instruments or properties relevant information which shall include the
named in the application of the AMLC but following:
also all other related web of accounts 1. The account number(s);
pertaining to other monetary instruments 2. The name(s) of the account owner(s)
and properties, the funds and sources of or holder(s);
which originated from or are related to the 3. The amount of the monetary
monetary instrument(s) or property(ies) instrument, property or related web of
subject of the freeze order(s). accounts as of the time they were frozen;

APP. Q-25
05.12.31
4. All relevant information as to the Rule 10.6. Prohibition Against Issuance

nature of the monetary instrument or of Freeze Orders Against Candidates for
property; an Electoral Office During Election
5. Any information on the related web Period. - No assets shall be frozen to the
of accounts pertaining to the monetary prejudice of a candidate for an electoral
instrument or property subject of the freeze office during an election period.
order; and
6. The time when the freeze thereon RULE 11
took effect. AUTHORITY TO INQUIRE INTO
BANK DEPOSITS
Rule 10.4. Definition of Related Web of
Accounts. - Rule 11.1. Authority to Inquire into Bank
Related Web of Accounts pertaining to Deposits with Court Order. -
the money instrument or property subject of Notwithstanding the provisions of R.A. No.
the freeze order is defined as those accounts, 1405, as amended; R.A. No. 6426, as
the funds and sources of which originated amended; R.A. No. 8791, and other laws,
from and/or are materially linked to the the AMLC may inquire into or examine
monetary instrument(s) or property(ies) any particular deposit or investment with any
subject of the freeze order(s). banking institution or non-bank financial
Upon receipt of the freeze order issued institution and their subsidiaries and affiliates
by the court of appeals and upon upon order of any competent court in cases
verification by the covered institution that of violation of this Act, when it has been
the related web of accounts originated from established that there is probable cause that
and/or are materially linked to the the deposits or investments involved are
monetary instrument or property subject related to an unlawful activity as defined in
of the freeze order, the covered institution Section 3 (i) hereof or a money laundering
shall freeze these related web of accounts offense under Section 4 hereof; except in
wherever these funds may be found. cases as provided under Rule 11.2.
The return of the covered institution as
required under rule 10.3.c shall include the Rule 11.2. Authority to Inquire into Bank
fact of such freezing and an explanation as Deposits Without Court Order. - The
to the grounds for the identification of the AMLC may inquire into or examine deposit
related web of accounts. and investments with any banking
institution or non-bank financial institution
Rule 10.5. Extension of the Freeze Order. and their subsidiaries and affiliates without
- Before the twenty (20) day period of the a Court Order where any of the following
freeze order issued by the court of appeals unlawful activities are involved:
expires, the AMLC may apply in the same (a) Kidnapping for ransom under Article
court for an extension of said period. Upon 267 of Act No. 3815, otherwise known as
the timely filing of such application and the Revised Penal Code, as amended;
pending the decision of the Court of (b) Sections 4,5,6, 8, 9, 10. 12, 13, 14,
Appeals to extend the period, said period 15 and 16 of R.A. No. 9165, otherwise
shall be deemed suspended and the freeze known as the Comprehensive Dangerous
order shall remain effective. Drugs Act of 2002;
However, the covered institution shall (c) Hijacking and other violations
not lift the effects of the freeze order without under R.A. No. 6235; destructive arson and
securing official confirmation from the AMLC. murder, as defined under the Revised

APP. Q-25
05.12.31
Penal Code, as amended, including those banks and non-bank financial institutions
perpetrated by terrorists against and their subsidiaries and affiliates with the
noncombatant persons and similar targets. AMLA and these rules.
Any findings of the BSP which may
Rule 11.2.a. Procedure For Examination constitute a violation of any provision of
Without A Court Order. - Where any of this act shall be transmitted to the AMLC
the unlawful activities enumerated under for appropriate action.
the immediately preceding Rule 11.2 are
involved, and there is probable cause that RULE 12
the deposits or investments with any FORFEITURE PROVISIONS
banking or non-banking financial
institution and their subsidiaries and Rule 12.1. Authority to Institute Civil
affiliates are in anyway related to these Forfeiture Proceedings. – The AMLC is
unlawful activities the AMLC shall issue a authorized under Section 7 (3) of the AMLA
resolution authorizing the inquiry into or to institute civil forfeiture proceedings and
examination of any deposit or investment all other remedial proceedings through the
with such banking or non-banking financial Office of the Solicitor General.
institution and their subsidiaries and
affiliates concerned. Rule 12.2. When Civil Forfeiture May be
Applied. – When there is a Suspicious
Rule 11.2.b. Duty of the banking Transaction Report or a Covered
institution or non- banking institution Transaction Report deemed suspicious after
upon receipt of the AMLC Resolution. - investigation by the AMLC, and the court
The banking institution or the non-banking has, in a petition filed for the purpose,
financial institution and their subsidiaries ordered the seizure of any monetary
and affiliates shall, immediately upon receipt instrument or property, in whole or in part,
of the AMLC Resolution, allow the AMLC directly or indirectly, related to said report,
and/or its authorized representative(s) full the Revised Rules of Court on civil forfeiture
access to all records pertaining to the deposit shall apply.
or investment account.
Rule 12.3. Claim on Forfeited Assets. -
Rule 11.3. - BSP Authority to Examine Where the court has issued an order of
deposits and investments; Additional forfeiture of the monetary instrument or
Exception to the Bank Secrecy Act. - To property in a criminal prosecution for any
ensure compliance with this act, the BSP money laundering offense under Section 4
may inquire into or examine any particular of the AMLA, the offender or any other
deposit or investment with any banking person claiming an interest therein may
institution or non-bank financial institution apply, by verified petition, for a declaration
and their subsidiaries and affiliates when that the same legitimately belongs to him,
the examination is made in the course of a and for segregation or exclusion of the
periodic or special examination, in monetary instrument or property
accordance with the rules of examination corresponding thereto. The verified petition
of the BSP. shall be filed with the court which rendered
the judgment of conviction and order of
Rule 11.3.a. BSP Rules of Examination. - forfeiture within fifteen (15) days from the
The BSP shall promulgate its rules of date of the order of forfeiture, in default of
examination for ensuring compliance by which the said order shall become final and

APP. Q-25
05.12.31
executory. This provision shall apply in delaying the execution thereof. The
both civil and criminal forfeiture. principles of mutuality and reciprocity
shall, for this purpose, be at all times
Rule 12.4. Payment in Lieu of Forfeiture. recognized.
- Where the court has issued an order of
forfeiture of the monetary instrument or Rule 13.2. Powers of the AMLC to Act on
property subject of a money laundering a Request for Assistance from a Foreign
offense under Section 4 of the AMLA, and State. - The AMLC may execute a request
said order cannot be enforced because any for assistance from a foreign state by: (1)
particular monetary instrument or property tracking down, freezing, restraining and
cannot, with due diligence, be located, or seizing assets alleged to be proceeds of
it has been substantially altered, destroyed, any unlawful activity under the procedures
diminished in value or otherwise rendered laid down in the AMLA and in these Rules;
worthless by any act or omission, directly (2) giving information needed by the
or indirectly, attributable to the offender, foreign state within the procedures laid
or it has been concealed, removed, down in the AMLA and in these Rules; and
converted or otherwise transferred to (3) applying for an order of forfeiture of any
prevent the same from being found or to monetary instrument or property in the
avoid forfeiture thereof, or it is located court: Provided, That the court shall not
outside the Philippines or has been placed issue such an order unless the application
or brought outside the jurisdiction of the is accompanied by an authenticated copy
court, or it has been commingled with other of the order of a court in the requesting state
monetary instruments or property belonging ordering the forfeiture of said monetary
to either the offender himself or a third instrument or property of a person who has
person or entity, thereby rendering the same been convicted of a money laundering
difficult to identify or be segregated for offense in the requesting state, and a
purposes of forfeiture, the court may, instead certification or an affidavit of a competent
of enforcing the order of forfeiture of the officer of the requesting state stating that
monetary instrument or property or part the conviction and the order of forfeiture
thereof or interest therein, accordingly order are final and that no further appeal lies in
the convicted offender to pay an amount respect of either.
equal to the value of said monetary
instrument or property. This provision shall Rule 13.3. Obtaining Assistance from
apply in both civil and criminal forfeiture. Foreign States. - The AMLC may make a
request to any foreign state for assistance
RULE 13 in (1) tracking down, freezing, restraining
MUTUAL ASSISTANCE AMONG and seizing assets alleged to be proceeds
STATES of any unlawful activity; (2) obtaining
information that it needs relating to any
Rule 13.1. Request for Assistance from a covered transaction, money laundering
Foreign State. - Where a foreign state makes offense or any other matter directly or
a request for assistance in the investigation indirectly related thereto; (3) to the extent
or prosecution of a money laundering allowed by the law of the foreign state,
offense, the AMLC may execute the applying with the proper court therein for
request or refuse to execute the same and an order to enter any premises belonging
inform the foreign state of any valid reason to or in the possession or control of, any or
for not executing the request or for all of the persons named in said request,

APP. Q-25
05.12.31
and/or search any or all such persons believed to have any information,
named therein and/or remove any document, material or object which may
document, material or object named in said be of assistance to the investigation or
request: Provided, That the documents prosecution; (5) ask from the covered
accompanying the request in support of the institution concerned any information,
application have been duly authenticated document, material or object which may
in accordance with the applicable law or be of assistance to the investigation or
regulation of the foreign state; and (4) prosecution; (6) specify the manner in
applying for an order of forfeiture of any which and to whom said information,
monetary instrument or property in the document, material or object obtained
proper court in the foreign state: Provided, pursuant to said request, is to be
That the request is accompanied by an produced; (7) give all the particulars
authenticated copy of the order of the necessary for the issuance by the court in
Regional Trial Court ordering the forfeiture the requested state of the writs, orders or
of said monetary instrument or property processes needed by the requesting state;
of a convicted offender and an affidavit of and (8) contain such other information as
the clerk of court stating that the conviction may assist in the execution of the request.
and the order of forfeiture are final and that
no further appeal lies in respect of either. Rule 13.6. Authentication of Documents
- For purposes of Section 13 (f) of the AMLA
Rule 13.4. Limitations on Requests for and Section 7 of the AMLA, a document is
Mutual Assistance. - The AMLC may refuse authenticated if the same is signed or
to comply with any request for assistance certified by a judge, magistrate or equivalent
where the action sought by the request officer in or of, the requesting state, and
contravenes any provision of the Constitution authenticated by the oath or affirmation of
or the execution of a request is likely to a witness or sealed with an official or public
prejudice the national interest of the seal of a minister, secretary of state, or
Philippines, unless there is a treaty between officer in or of, the government of the
the Philippines and the requesting state requesting state, or of the person
relating to the provision of assistance in administering the government or a
relation to money laundering offenses. department of the requesting territory,
protectorate or colony. The certificate of
Rule 13.5. Requirements for Requests for authentication may also be made by a
Mutual Assistance from Foreign States. - secretary of the embassy or legation,
A request for mutual assistance from a consul general, consul, vice consul,
foreign state must (1) confirm that an consular agent or any officer in the foreign
investigation or prosecution is being service of the Philippines stationed in the
conducted in respect of a money foreign state in which the record is kept,
launderer named therein or that he has and authenticated by the seal of his office.
been convicted of any money laundering
offense; (2) state the grounds on which Rule 13.7. Suppletory Application of the
any person is being investigated or Revised Rules of Court. –
prosecuted for money laundering or the
details of his conviction; (3) give Rule 13.7.1. For attachment of Philippine
sufficient particulars as to the identity of properties in the name of persons
said person; (4) give particulars sufficient convicted of any unlawful activity as
to identify any covered institution defined in Section 3 (i) of the AMLA,

APP. Q-25
05.12.31
execution and satisfaction of final included as an extraditable offense in any

judgments of forfeiture, application for extradition treaty existing between said
examination of witnesses, procuring search state parties, and the Philippines shall
warrants, production of bank documents include money laundering as an
and other materials and all other actions extraditable offense in every extradition
not specified in the AMLA and these Rules, treaty that may be concluded between
and assistance for any of the the Philippines and any of said state
aforementioned actions, which is subject parties in the future.
of a request by a foreign state, resort may
be had to the proceedings pertinent thereto RULE 14
under the Revised Rules of Court. PENAL PROVISIONS
Rule 13.7.2. Authority to Assist the United Rule 14.1. Penalties for the Crime of
Nations and other International Money Laundering.
Organizations and Foreign States. – The
AMLC is authorized under Section 7 (8) Rule 14.1.a. Penalties under Section 4 (a)
and 13 (b) and (d) of the AMLA to receive of the AMLA. - The penalty of imprisonment
and take action in respect of any request ranging from seven (7) to fourteen (14) years
of foreign states for assistance in their own and a fine of not less than Php3.0 Million
anti-money laundering operations. It is but not more than twice the value of the
also authorized under Section 7 (7) of the monetary instrument or property involved
AMLA to cooperate with the National in the offense, shall be imposed upon a
Government and/or take appropriate person convicted under Section 4 (a) of the
action in respect of conventions, AMLA.
resolutions and other directives of the
United Nations (UN), the UN Security Rule 14.1.b. Penalties under Section 4 (b)
Council, and other international of the AMLA. - The penalty of imprisonment
organizations of which the Philippines is from four (4) to seven (7) years and a fine
a member. However, the AMLC may of not less than Php1.5 Million but not more
refuse to comply with any such request, than Php3.0 Million, shall be imposed upon
convention, resolution or directive where a person convicted under Section 4 (b) of
the action sought therein contravenes the the AMLA.
provision of the Constitution or the
execution thereof is likely to prejudice the Rule 14.1.c. Penalties under Section 4 (c)
national interest of the Philippines. of the AMLA. - The penalty of imprisonment
from six (6) months to four (4) years or a
Rule 13.8. Extradition. – The Philippines fine of not less than Php100,000.00 but not
shall negotiate for the inclusion of money more than Php500,000.00, or both, shall
laundering offenses as defined under be imposed on a person convicted under
Section 4 of the AMLA among the Section 4(c) of the AMLA.
extraditable offenses in all future treaties.
With respect, however, to the state parties Rule 14.1.d. Administrative Sanctions. - (1)
that are signatories to the United Nations After due notice and hearing, the AMLC shall,
Convention Against Transnational at its discretion, impose fines upon any
Organized Crime that was ratified by the covered institution, its officers and employees,
Philippine Senate on 22 October 2001, or any person who violates any of the
money laundering is deemed to be provisions of R.A. No. 9160, as amended by

APP. Q-25
05.12.31
R.A. No. 9194 and rules, regulations, orders deported without further proceedings after
and resolutions issued pursuant thereto. The serving the penalties herein prescribed. If the
fines shall be in amounts as may be offender is a public official or employee, he
determined by the council, taking into shall, in addition to the penalties prescribed
consideration all the attendant circumstances, herein, suffer perpetual or temporary
such as the nature and gravity of the violation absolute disqualification from office, as the
or irregularity, but in no case shall such fines case may be.
be less than Php100,000.00 but not to exceed
Php500,000.00. The imposition of the Rule 14.5. Refusal by a Public Official or
administrative sanctions shall be without Employee to Testify. - Any public official
prejudice to the filing of criminal charges or employee who is called upon to testify
against the persons responsible for the and refuses to do the same or purposely fails
violations. to testify shall suffer the same penalties
prescribed herein.
Rule 14.2. Penalties for Failure to Keep
Records - The penalty of imprisonment Rule 14.6. Penalties for Breach of
from six (6) months to one (1) year or a fine Confidentiality. – The punishment of
of not less than Php100,000.00 but not imprisonment ranging from three (3) to
more than Php500,000.00, or both, shall eight (8) years and a fine of not less than
be imposed on a person convicted under Php500,000.00 but not more than Php1.0
Section 9 (b) of the AMLA. Million, shall be imposed on a person
convicted for a violation under Section 9(c).
Rule 14.3. Penalties for Malicious In case of a breach of confidentiality that is
Reporting. - Any person who, with malice, published or reported by media, the
or in bad faith, reports or files a completely responsible reporter, writer, president,
unwarranted or false information relative publisher, manager and editor-in-chief shall
to money laundering transaction against be liable under this act.
any person shall be subject to a penalty of
six (6) months to four (4) years RULE 15
imprisonment and a fine of not less than PROHIBITIONS AGAINST POLITICAL
Php100,000.00 but not more than HARASSMENT
Php500,000.00, at the discretion of the
court: Provided, That the offender is not Rule 15.1. Prohibition against Political
entitled to avail the benefits of the Probation Persecution. - The AMLA and these Rules
Law. shall not be used for political persecution or
harassment or as an instrument to hamper
Rule 14.4. Where Offender is a Juridical competition in trade and commerce. No case
Person. - If the offender is a corporation, for money laundering may be filed to the
association, partnership or any juridical prejudice of a candidate for an electoral office
person, the penalty shall be imposed upon during an election period.
the responsible officers, as the case may
be, who participated in, or allowed by their Rule 15.2. Provisional Remedies
gross negligence the commission of the Application; Exception. –
crime. If the offender is a juridical person,
the court may suspend or revoke its license. Rule 15.2.a. - The AMLC may apply, in
If the offender is an alien, he shall, in addition the course of the criminal proceedings,
to the penalties herein prescribed, be for provisional remedies to prevent the

APP. Q-25
05.12.31
monetary instrument or property subject own respective charters and regulatory

thereof from being removed, concealed, authority, issue their Guidelines and
converted, commingled with other property Circulars on anti-money laundering to
or otherwise to prevent its being found or effectively implement the provisions of R.A.
taken by the applicant or otherwise placed No. 9160, as amended by R.A. No. 9194.
or taken beyond the jurisdiction of the court.
However, no assets shall be attached to the Rule 17.2. Money Laundering Prevention
prejudice of a candidate for an electoral office Programs. –
during an election period.
Rule 17.2.a. Covered institutions shall
Rule 15.2.b. - Where there is conviction for formulate their respective money
money laundering under Section 4 of the laundering prevention programs in
AMLA, the court shall issue a judgment of accordance with Section 9 and other
forfeiture in favor of the Government of the pertinent provisions of the AMLA and these
Philippines with respect to the monetary Rules, including, but not limited to,
instrument or property found to be proceeds information dissemination on money
of one or more unlawful activities. laundering activities and their prevention,
However, no assets shall be forfeited to the detection and reporting, and the training
prejudice of a candidate for an electoral of responsible officers and personnel of
office during an election period. covered institutions, subject to such
guidelines as may be prescribed by their
RULE 16 respective supervising authority. Every
RESTITUTION covered institution shall submit its own
money laundering program to the
Rule 16. Restitution. - Restitution for any supervising authority concerned within the
aggrieved party shall be governed by the non-extendible period that the supervising
provisions of the New Civil Code. authority has imposed in the exercise of
its regulatory powers under its own charter.
RULE 17
IMPLEMENTING RULES AND Rule 17.2.b. Every money laundering
REGULATIONS AND MONEY program shall establish detailed procedures
LAUNDERING PREVENTION implementing a comprehensive, institution-
PROGRAMS wide “know-your-client” policy, set-up an
effective dissemination of information on
Rule 17.1. Implementing Rules and money laundering activities and their
Regulations. – prevention, detection and reporting, adopt
(a) Within thirty (30) days from the internal policies, procedures and controls,
effectivity of R.A. No. 9160, as amended designate compliance officers at
by R.A. No. 9194, the BSP, the Insurance management level, institute adequate
Commission and the Securities and screening and recruitment procedures, and
Exchange Commission shall promulgate set-up an audit function to test the system.
the Implementing Rules and Regulations
of the AMLA, which shall be submitted to Rule 17.2.c. Covered institutions shall adopt,
the Congressional Oversight Committee as part of their money laundering programs,
for approval. a system of flagging and monitoring
(b) The Supervising Authorities, the transactions that qualify as suspicious
BSP, the SEC and the IC shall, under their transactions, regardless of amount or covered

APP. Q-25
05.12.31
transactions involving amounts below the from the House of Representatives shall be
threshold to facilitate the process of appointed by the Speaker also based on
aggregating them for purposes of future proportional representation of the parties or
reporting of such transactions to the AMLC coalitions therein with at least two (2)
when their aggregated amounts breach the members representing the minority.
threshold. All covered institutions, including
banks insofar as non-deposit and non- Rule 18.2. Powers of the Congressional
government bond investment transactions Oversight Committee. - The Oversight
are concerned, shall incorporate in their Committee shall have the power to
money laundering programs the provisions promulgate its own rules, to oversee the
of these Rules and such other guidelines for implementation of this Act, and to review
reporting to the AMLC of all transactions that or revise the implementing rules issued by
engender the reasonable belief that a money the Anti-Money Laundering Council within
laundering offense is about to be, is being, thirty (30) days from the promulgation of
or has been committed. the said rules.
Rule 17.3. Training of Personnel. - Covered RULE 19

institutions shall provide all their responsible APPROPRIATIONS FOR AND
officers and personnel with efficient and BUDGET OF THE AMLC
effective training and continuing education
programs to enable them to fully comply with Rule 19.1. Budget. – The budget of 25
all their obligations under the AMLA and Million Pesos appropriated by Congress
these Rules. under the AMLA shall be used to defray the
initial operational expenses of the AMLC.
Rule 17.4. Amendments. - These Rules or Appropriations for succeeding years shall
any portion thereof may be amended by be included in the General Appropriations
unanimous vote of the members of the Act. The BSP shall advance the funds
AMLC and submitted to the Congressional necessary to defray the capital outlay,
Oversight Committee as provided for under maintenance and other operating expenses
Section 19 of R.A. No. 9160, as amended and personnel services of the AMLC subject
by R.A. No. 9194. to reimbursement from the budget of the
AMLC as appropriated under the AMLA and
RULE 18 subsequent appropriations.
CONGRESSIONAL OVERSIGHT
COMMITTEE Rule 19.2. Costs and Expenses. - The budget
shall answer for indemnification for legal costs
Rule 18.1. Composition of Congressional and expenses reasonably incurred for the
Oversight Committee. - There is hereby services of external counsel in connection
created a Congressional Oversight Committee with any civil, criminal or administrative
composed of seven (7) members from the action, suit or proceedings to which members
Senate and seven (7) members from the of the AMLC and the Executive Director and
House of Representatives. The members other members of the Secretariat may be
from the Senate shall be appointed by the made a party by reason of the performance
Senate President based on the proportional of their functions or duties. The costs and
representation of the parties or coalitions expenses incurred in defending the
therein with at least two (2) Senators aforementioned action, suit or proceeding
representing the minority. The members may be paid by the AMLC in advance of the

APP. Q-25
05.12.31
final disposition of such action, suit or are hereby repealed, amended or modified
proceeding upon receipt of an undertaking accordingly.
by or on behalf of the member to repay the
amount advanced should it be ultimately RULE 22
determined that said member is not entitled EFFECTIVITY OF THE RULES
to such indemnification.
Rule 22. Effectivity. – These Rules shall take
RULE 20 effect after its approval by the Congressional
SEPARABILITY CLAUSE Oversight Committee and fifteen (15) days after
its complete publication in the Official Gazette
Rule 20. Separability Clause. – If any or in a newspaper of general circulation.
provision of these Rules or the application
thereof to any person or circumstance is RULE 23
held to be invalid, the other provisions of TRANSITORY PROVISIONS
these Rules, and the application of such
provision or Rule to other persons or Rule 23.1. - Transitory Provisions. - Existing
circumstances, shall not be affected thereby. freeze orders issued by the AMLC shall
remain in force for a period of thirty (30) days
RULE 21 after effectivity of this act, unless extended
REPEALING CLAUSE by the Court of Appeals.
Rule 21. Repealing Clause. – All laws, Rule 23.2. - Effect of R.A. No. 9194 on
decrees, executive orders, rules and Cases for Extension of Freeze Orders
regulations or parts thereof, including the Resolved by the Court of Appeals. - All
relevant provisions of R.A. No. 1405, as existing freeze orders which the Court of
amended; R.A. No. 6426, as amended; R.A. Appeals has extended shall remain
No. 8791, as amended, and other similar effective, unless otherwise dissolved by
laws, as are inconsistent with the AMLA, the same court.

APP. Q-26
05.12.31
INVESTMENT HOUSES AND FINANCING COMPANIES (IH/FC)

WITH QUASI-BANKING FUNCTIONS
REVERSE REPURCHASE AGREEMENTS WITH BSP

PRO-FORMA ACCOUNTING ENTRIES
1. To record the purchase by IH/FC from BSP of government securities under reverse
REPO agreement.
DR Trading Account Securities – Loans

- Government Securities Purchased under Reverse Repurchase
Agreements with BSP
CR Due from BSP (or any appropriate account)
2. To record the subsequent sale by IH/FC of reverse REPO with BSP to clients
DR Cash (or any appropriate account)
CR Bills Payable – Others

- Reverse Repurchase Agreements with BSP Sold to Clients
3. To record payment of client’s claim on the IH/FC
DR Bills Payable – Others

- Reverse Repurchase Agreements with BSP Sold to Clients
DR Interest Expense on Borrowed Funds – Bills Payable – Others
CR Cash (or any appropriate account)
4. To record BSP’s payment of the reverse REPO agreement
DR Due from BSP (or any appropriate account)
CR Trading Account Securities – Loans

- Government Securities Purchased under Reverse Repurchase
Agreements with BSP
CR Interest Income – Trading Account Securities - Loans

APP. Q-27
05.12.31
DETAILS ON THE COMPUTATION OF QUARTERLY INTEREST PAYMENTS

CREDITED TO THE DEMAND DEPOSIT ACCOUNTS (DDAs) OF
QUASI-BANKS’ LEGAL RESERVE DEPOSITS WITH BSP
The following are the pertinent through EFTIS (for PhilPaSS participants) or
information on the computation of monthly through the DDA statements sent
quarterly interest payments credited to the by mail (for non-PhilPaSS participants).
demand deposit accounts (DDAs) of quasi- 3. The data on reserve requirements
banks’ legal reserve deposits with BSP. are based on the institutions’ Consolidated
1. BSP Circular No. 262, as amended, Report of Condition Required and Available
(for regular DDA) and Memorandum to Reserves against deposit substitutes and
All Banks and Other Financial special financing submitted to the SDC on
Intermediaries Performing Trust, Other a weekly basis. Unless SDC furnishes an
Fiduciary Business and Investment amended data, the quasi-bank’s
Management Activities (for CTF and computation is used in determining the
TOFA), as amended, both dated 18 forty percent (40%) of the reserve
October 2000 state that computation of requirement that shall be compared with
quarterly interest payments due on quasi- the outstanding daily balance, in arriving
banks’ legal reserve deposits with the BSP at the amount of interest credit.
is based on the lower of their outstanding 4. The interest credit to each DDA is
daily DDA balance and forty percent supported by a credit advice which
(40%) of the reserve requirement indicates the period covered by the
(excluding liquidity reserve). Interest rate payment. For PhilPaSS participants, the
is at four percent (4%) per annum and credit advices are released through their
interest base at 365 days. authorized quasi-bank representatives
2. The daily DDA balance used in the together with the cancelled checks drawn
computation of interest may be obtained against the institutions’ DDA with the BSP
from the semi-monthly demand deposit while for non-PhilPaSS participants, the
statements of account balances that are credit advices are sent by mail together with
available electronically to quasi-banks their DDA Statement of Accounts.

APP. Q-28
06.12.31
TRANSFER/SALE OF NON-PERFORMING ASSETS TO A

SPECIAL PURPOSE VEHICLE OR TO AN INDIVIDUAL
The following procedures shall govern b. An application for eligibility of

the transfer/sale of non-performing assets specific NPAs shall be filed in writing (hard
(NPAs) to a Special Purpose Vehicle (SPV) copy) by the selling QB with the BSP
or to an individual that involves a single through the appropriate department of the
family residential unit, or transactions SES for each proposed transfer of asset/s.
involving dacion en pago by the borrower Although no specific form is prescribed, the
or third party of a non-performing loan applicant shall describe in sufficient detail
(NPL), for the purpose of obtaining the its proposed transaction, identifying its
Certificate of Eligibility (COE) which is counterparty/ies and disclosing the terms,
required to avail of the incentives provided conditions and all material commitments
under R.A. No. 9182, as amended by R.A. related to the transaction.
No. 9343. c. For applications involving more
a. Prior to the filing of any application than ten (10) NPA accounts, the list of NPAs
for transfer/sale of NPAs, a QB shall to be transferred/sold shall be submitted
coordinate with the BSP through the in soft copy (by electronic mail or diskette)
Supervisory Data Center (SDC) and the in excel format using the prescribed data
appropriate department of the SES to structure/format for NPLs and ROPAs to
develop a reconciled and finalized master the appropriate department of the SES of
list of its eligible NPAs. the applicant QB at the following
For this purpose, QBs were requested addresses:
to submit a complete inventory of their
NPAs in the format prescribed under SEDI-SPV@bsp.gov.ph
Circular Letter dated 7 January 2003. Only SEDII-SPV@bsp.gov.ph
NPAs included in the masterlist that meet SEDIII-SPV@bsp.gov.ph
the definition of NPA, NPL and ROPA SEDIV-SPV@bsp.gov.ph
under R.A. No. 9182 may qualify for the
COE. The QBs shall be provided a copy For applications involving ten (10)
of their reconciled and finalized masterlist NPA accounts or less, it is preferable that
for their guidance. the list be submitted also in soft copy. The
Only QBs which have not yet applicant may opt to submit the list in hard
submitted their masterlist of NPAs and copy, provided all the necessary
intend to avail of the incentives and fee information shown in the prescribed data
privileges of the SPV Act 2nd Phase structure that are relevant to each NPL or
implementation are allowed to submit a ROPA to be transferred/sold will be
complete inventory of their NPAs in the indicated. The list to be submitted in hard
format prescribed under Circular Letter copy would be ideal for the sale/transfer
dated 07 January 2003. QBs which have of NPAs that involve one (1) promissory
already submitted to BSP a masterlist of note and/or one (1) asset item per
NPAs as of 30 June 2002 in the 1st Phase account.
implementation of the SPV Act will not be d. The application shall be
allowed to submit a new/amended accompanied by a written certification
masterlist. signed by a senior officer with a rank of at

APP. Q-28
06.12.31
least senior vice president or equivalent, shall be charged a processing fee, as

who is authorized by the board of follows:
directors, or by the country head, in the (1) 1/100 of one percent (1%) of the
case of foreign banks, that: book value of NPAs transferred or the transfer
(1) the assets to be sold/transferred price, whichever is higher, but not below
are NPAs as defined under the SPV Act of P25,000 if the transfer is made to an SPV;
2002; (2) 1/100 of 1% of the book value of
(2) the proposed sale/transfer of said the NPL but not below P5,000 in case of a
NPAs is under a true sale; dacion en pago arrangement by an
(3) the notification requirement to the individual or corporate borrower;
borrowers has been complied with; and (3) P5,000 if the transfer involves a
(4) the maximum ninety (90)-day single family residential unit to an
period for renegotiation and restructuring individual.
has been complied with. h. An SPV that intends to transfer/sell
Items (3) and (4) above shall not apply to a third party an NPA that is covered by
if the NPL has become a ROPA after 30 a COE previously issued by the BSP shall
June 2002. file an application for such transfer/sale
e. In the case of dacion en pago by with the SEC which shall issue the
the borrower or a third party to a QB, the corresponding COE based on the data base
application for COE on the NPL being of COEs maintained at the BSP.
settled shall be accompanied by a Deed An individual who intends to transfer/
of Dacion executed by the borrower, the sell an NPA that involves a single family
third party, the registered owner of the residential unit he had acquired that is
property and the QB. covered by a COE shall file an application
f. The appropriate department of the for the another COE with the BSP through
SES may conduct an on-site review of the the QB from which the NPA was acquired.
NPLs and ROPAs proposed to be The individual shall indicate in his
transferred/sold. After the on-site review, application the previous COE issued for
the application for transfer/sale shall be the NPA he had acquired and the name,
submitted to the Deputy Governor, SES address and TIN of the transferee/buyer of
for approval and for the issuance of the the NPA. A processing fee of P5,000 shall
corresponding COE. be collected by BSP upon issuance of the
g. Upon the issuance of the SPV SPV Application Number by the BSP.
Application Number by the BSP, a QB (As amended by M-2006-001 dated 11 May 2006)

APP. Q-28-a
05.12.31
ACCOUNTING GUIDELINES ON THE SALE OF NON-PERFORMING ASSETS

TO SPECIAL PURPOSE VEHICLES AND TO QUALIFIED INDIVIDUALS
FOR HOUSING UNDER “THE SPECIAL PURPOSE VEHICLE (SPV)
ACT OF 2002”
General Principles the nature of a “true sale” pursuant to

These guidelines set out alternative Section 13 of the SPV Law and its
regulatory accounting treatment of the sale Implementing Rules and Regulations.
of non-performing assets (NPAs) by banks
and other financial institutions (FIs) under I. Derecognition of NPAs Sold and Initial
BSP supervision to Special Purpose Recognition of Financial Instruments
Vehicles (SPVs) and to qualified individuals Received
for housing under R.A. No. 9182, otherwise A bank/FI should derecognize an NPA
known as “The Special Purpose Vehicle in accordance with the provisions of PAS
(SPV) Act of 2002”. 39 (for financial assets such as loans and
The guidelines recognize that banks/FIs securities) and PAS 16 and 40 (for non-
may need temporary regulatory relief, in financial assets such as land, building and
addition to tax relief under the SPV Law, equipment).
particularly in the timing of recognition of A sale of NPA qualifying as a true sale
losses, so that they may be encouraged to pursuant to Section 13 of the SPV Law and
maximize the sale of their NPAs even at its Implementing Rules and Regulations but
substantial discounts: Provided, however, not qualifying for derecognition under PASs
That in the interest of upholding full 39, 16 and 40 may nonetheless, be
transparency and sustaining market derecognized. Provided: That the bank/FI
discipline, banks/FIs that avail of such shall disclose such fact, in addition to all
regulatory relief shall fully disclose its other disclosures provided in this Appendix.
impact in all relevant financial reports. On derecognition, any excess of the
The guidelines cover the following carrying amount of the NPA (i.e., net of
areas: specific allowance for probable losses after
(1) Derecognition of NPAs sold/ booking the BSP recommended valuation
transferred to an SPV and initial recognition reserve) over the proceeds received in the
of financial instruments issued by the SPV form of cash and/or financial instruments
to the selling bank/FI as partial or full issued by the SPV represents an actual loss
settlement of the NPAs sold/transferred to that should be charged to current period’s
the SPV; operations.
(2) Subsequent measurement of the However, a bank/FI may use any
carrying amount of financial instruments existing specific allowance for probable
issued by the SPV to the selling bank/FI; losses on NPA sold:
(3) Capital adequacy ratio (CAR) (1) to cover any unbooked (specific/
calculation; and general) allowance for probable losses; and
(4) Disclosure requirement on the (2) to apply the excess, if any, as
selling bank/FI. additional (specific/general) allowance for
The sale/transfer of NPAs to SPV probable losses, on remaining assets, in
referred to in these guidelines shall be in which case the carrying amount of the NPA

Appendix Q-28-a - Page 1
APP. Q-28-a
05.12.31
(which is compared with the proceeds Banks/FIs shall book such financial
received for purposes of determining the instruments under the general ledger
actual loss) shall be the gross amount of account “Unquoted Debt Securities
the NPA: Provided, That the use of such Classified as Loans” for debt instruments or
existing specific allowance for probable “Investments in Non-Marketable Equity
losses on the NPA sold as provisions Securities (INMES)” for equity instruments.
against remaining assets shall be properly
disclosed. Consolidation of SPV with Bank/FI. Even
The loss may, moreover, be booked if the sale of NPAs to SPVs qualifies for
under “Deferred Charges” account which derecognition, a bank/FI shall consolidate
should be written down over the next ten the SPV in the audited consolidated
(10) years based on the following financial statements when the relationship
schedule: between the bank/FI and the SPV indicates
End of Period Cumulative that the SPV is controlled by the bank/FI in
From Date of Write-down of accordance with the provisions of SIC
Transaction Deferred Charges (Standing Interpretations Committee)-12
Consolidation – Special Purpose Entities.
Year 1 5%
Year 2 10% II. Subsequent Measurement of Financial
Year 3 15% Instruments Received
Year 4 25% (a) A bank/FI should assess at end of each
Year 5 35% fiscal year or more frequently whether there
Year 6 45% is any objective evidence or indication based
Year 7 55% on analysis of expected net cash inflows that
Year 8 70% the carrying amount of financial instruments
Year 9 85% issued by an SPV may be impaired. A
Year 10 100% financial instrument is impaired if its carrying
amount (i.e., net of specific allowance for
Provided, That the staggered booking probable loss) is greater than its estimated
of actual loss on sale/transfer of the NPA recoverable amount. The estimated
shall be properly disclosed. recoverable amount is determined based on
In case the face amounts of the the net present value of expected future cash
financial instruments exceed the excess of flows discounted at the current market rate
the carrying amount of the NPA over the of interest for a similar financial instrument.
cash proceeds, the same shall be adjusted In applying discounted cash flow
by setting up specific allowance for analysis, a bank/FI should use the discount
probable losses so that no gain shall be rate(s) equal to the prevailing rate of return
recognized from the transaction. for financial instruments having substantially
The carrying amount of the NPA shall the same terms and characteristics, including
be initially assumed to be the NPA’s fair the creditworthiness of the issuer.
value. The excess of the carrying amount (b) Alternatively, the estimated
of the NPA over the cash proceeds or the recoverable amount of the financial
face amounts of the financial instruments, instruments may be determined based on
whichever is lower, shall then be the initial an updated estimate of residual net present
cost of financial instruments received. value (NPV) of the issuing SPV.

APP. Q-28-a
05.12.31
The estimated recoverable amount of End of Period Cumulative Booking

the financial instrument shall be the present From Date of of Allowance for
value of the excess of expected cash Transaction Probable Losses
inflows (e.g., proceeds from the sale of
collaterals and/or ROPAs, which in no case Year 1 5%
shall exceed the contract price of the NPAs Year 2 10%
sold/transferred, interest on the reinvestment Year 3 15%
of proceeds) over expected cash outflows Year 4 25%
(e.g., direct costs to sell, administrative Year 5 35%
expenses, principal and interest payments Year 6 45%
on senior obligations, interest payments on Year 7 55%
the financial instruments). Year 8 70%
The fair market value of the collateral Year 9 85%
and/or ROPAs should under this method Year 10 100%
be considered only under the following Provided, That the staggered booking
conditions: of impairment, if any, upon remeasurement
(1) The appraisal was performed by an of financial instruments at end of the fiscal
independent appraiser acceptable to the year the sale/transfer of the NPA occurred
BSP; and shall be properly disclosed.
(2) The valuation of the independent After initially recognizing an
appraiser is based on current market impairment loss, the bank/FI should review
valuation of similar assets in the same the financial instruments for future
locality as underlying collateral rather than impairment in subsequent financial
other valuation methods such as reporting date.
replacement cost, etc. If in a subsequent period, the estimated
The assumptions regarding the timing recoverable amount of the financial
of sale, the direct cost to sell, administrative instrument decreases, the bank/FI should
expenses, reinvestments rate and current immediately book additional allowance for
market rate should be disclosed in sufficient probable losses corresponding to the
detail in the audited financial statements. decrease. However, a bank/FI may stagger
The applicable discount rate should be the booking of such additional allowance
based on the implied stripped yield of the for probable losses in such a way that it
Treasury note or bond for the tenor plus catches up and keeps pace with the original
an appropriate risk premium. deferral schedule (e.g., if the impairment
(c) In case of impairment, the carrying occurred in Year 8, a bank/FI should
amount of the financial instrument should immediately book 70 percent (70%) at end
be reduced to its estimated recoverable of Year 8, and thereafter, additional 15
amount, through the use of specific percent (15%) each at end of Year 9 and
allowance for probable losses account that Year 10, respectively): Provided, That the
should be charged to current period’s staggered booking of impairment, if any,
operations. However, at the end of the upon remeasurement of financial
fiscal year the sale/transfer of NPA instruments shall be properly disclosed.
occurred, such setting up of specific If in a subsequent period, the estimated
allowance for probable losses account may recoverable amount of the financial
be booked on a staggered basis over the instrument increases exceeding its carrying
next ten (10) years based on the following amount, and the increase can be
schedule: objectively related to an event occurring

APP. Q-28-a
05.12.31
after the write-down, the write-down of the Provided, That no cash dividend on common
financial instruments should be reversed by stock and/or preferred stock shall be declared
adjusting the specific allowance for by the bank/FI while the staggered recognition
probable losses account. The reversal of actual loss on sale/transfer of NPA and/or
should not result in a carrying amount of impairment, if any, on the remeasurement of
the financial instrument that exceeds what financial instruments at end of the first fiscal
the cost would have been had the year following the sale/transfer of NPA exist.
impairment not been recognized at the date The financial instruments received by
the write-down of the financial instrument the selling bank/FI shall be risk weighted in
is reversed. The amount of the reversal accordance with Sec. 4116Q.
should be included in the profit for the A bank/FI may declare cash dividend
period. on common and/or preferred stock
Illustrative accounting entries for notwithstanding deferred recognition of loss
derecognition of NPAs, initial recognition duly authorized by the BSP.
of financial instruments issued by the SPV,
and subsequent measurement of the IV. Disclosure
carrying amount of the financial instrument Banks/FIs should disclose as
are in Annex Q-28-a-1. ”Additional Information” in periodic reports
submitted to the BSP, as well as in
III. Capital Adequacy Ratio (CAR) Calculation published reports and audited financial
Banks/FIs may, for purposes of statements and all relevant financial reports
calculating capital adequacy ratio (CAR), the specific allowance for probable losses
likewise stagger over a period of seven (7) on NPAs sold used as provisions against
years the recognition of: remaining assets, the staggered recognition
(1) actual loss on sale/transfer of NPAs; and of actual loss on sale/transfer of NPAs” and/
(2)impairment, if any, upon or impairment, if any, on the
remeasurement of financial instruments, in remeasurement of financial instruments.
accordance with the following schedule: In addition, banks/FIs which receive
financial instruments issued by the SPVs as
End of Period Cumulative partial or full settlement of the NPAs
From Date of Recognition of transferred to the SPVs should disclose in
Transaction Losses/Impairment the audited financial statements the method
used and the significant assumptions
Year 1 5% applied in estimating the recoverable
Year 2 10% amount of the financial instruments,
Year 3 15% including the timing of the sale, the direct
Year 4 25% cost to sell, administrative expenses,
Year 5 35% reinvestment rate, current market rate, etc.
Year 6 45% (The pro-forma disclosure requirements on
Year 7 55% the staggered recognition of actual loss on
Year 8 70% sale/transfer of NPAs and/or impairment, if
Year 9 85% any, on the remeasurement of financial
Year 10 100% instruments are shown in Annex Q-28-a-2.)

APP. Q-28-a
05.12.31
Annex Q-28-a-1
ILLUSTRATIVE ACCOUNTING ENTRIES TO RECORD SALE OF NPAs TO SPV

UNDER THE SPV LAW OF 2002 UNDER DEFERRED RECOGNITION
OF LOSS/IMPAIRMENT OF FINANCIAL INSTRUMENTS
Mode of Payment
(Cash, Financial Instruments)
Financial Part Cash, Part Part Cash, Part Part Cash, Part
Cash Only
Instruments Financial Financial Financial
Only Instruments 1 Instruments2 Instruments
(30, 0)
(0, 120) (30,100) (30, 90) (30, 70)
Assumptions:
Loans/ROPAs, gross 120 120 120 120 120

Allowance for probable 20 20 20 20 20
losses
Loans/ROPAs, net 100 100 100 100 100
Cash payment received 30 0 30 30 30
Financial instruments 0 120 100 90 70
received
Unbooked valuation 15 15 15 15 15
reserves on remain-
ing assets
---------------------------------------------------------------------------------------------------------------------
1
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash
proceeds.
2
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the cash
proceeds.

APP. Q-28-a
05.12.31
Part Cash, Part Cash, Part Cash,

Financial Part Part Part
Cash Only Instruments Financial Financial Financial
Only Instruments 1 Instruments 2 Instruments
(30, 0) (0, 120) (30, 100) (30, 90) (30, 70)
Accounting Entries
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
1 Allowance for Probable Losses – NPAs

sold Allowance For Probable Losses - 20 20 20 20 20
Remaining Assets
(For unbooked provisions) 15 15 15 15 15
(As additional provisions) 5 5 5 5 5
To record the reclassification of existing

specific allowance for credit losses on
NPAs sold as provisions against
remaining assets.
2 Cash 30 0 30 30 30
Unquoted Debt Securities Classified as
Loans/INMES 0 120 100 90 70
Deferred Charges
Loans/ROPAs 90 120 0 120 0 120 0 120 20 120
Allowance for Credit Losses - 0 0 10 0 0
Unquoted Debt Securities
Classified as Loans/INMES
To record the sale of NPAs, receipt of

cash and/or financial instruments, and
deferred recognition of loss, if any.
3 Amortization – Deferred Charges xxx 0 0 0 xxx

Deferred Charges xxx 0 0 0 xxx
To record annual write down of

deferred charges based on schedule of
staggered booking of losses.
4 Provision for Credit Losses –

Unquoted Debt Securitues Classified 0 xxx xxx xxx xxx
as Loans/INMES
Allowance for Credit Losses – 0 xxx xxx xxx
Unquoted Debt Securities
Classified as Loans/INMES
To record annual build up of allowance

for credit losses on financial instruments
based on schedule of staggered booking
of allowance for credit losses.
1
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash
proceeds.
2
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the
cash proceeds.

APP. Q-28-a
05.12.31
Annex Q-28-a-2
PRO-FORMA DISCLOSURE REQUIREMENT
A. Statement of Condition
Amount
Particulars
Qualified for Not Qualified for
derecognition derecognition Total
Under Under
PFRS/PAS PFRS/PAS
Additional Information:
NPAs sold, gross xxx xxx xxx

Allowance for credit losses (specific) on xxx xxx xxx
NPAs sold
Allowance for credit losses (specific) on

NPAs sold applied to:
Unbooked allowance for credit
losses:
Specific xxx xxx xxx
General xxx xxx xxx
Additional allowance for credit losses
Specific xxx xxx xxx
General xxx xxx xxx
Cash received xxx xxx xxx
Financial instruments received, gross xxx xxx xxx

Less: Allowance for credit losses (spe- xxx xxx xxx
cific)
Carrying amount of financial instru- xxx xxx xxx
ments received
Less: Unbooked allowance for credit xxx xxx xxx
losses (specific)
Adj. carrying amount of financial xxx xxx xxx
instruments received
Deferred charges, gross xxx xxx xxx

Less: Deferred charges written down xxx xxx xxx
Carrying amount of deferred charges xxx xxx xxx

APP. Q-28-a
05.12.31
B. Statement of Income and Expenses
Amount
Particulars
Qualified for Not Qualified
derecognition for derecognition Total
Under Under
PFRS/PAS PFRS/PAS
Additional Information:
Net income/(loss) after income tax xxx

(with regulatory relief)
Less: Deferred charges not yet written xxx xxx xxx

down
Unbooked allowance for credit xxx xxx xxx
losses (specific) on financial
instruments received
Total deduction xxx xxx xxx
less: Deferred tax liability, if xxx xxx xxx
applicable xxx xxx xxx
Net deductions
Net income/(loss) after income tax

(without regulatory relief)

APP. Q-28b
08.12.31
SIGNIFICANT TIMELINES RELATIVE TO THE IMPLEMENTATION OF

R.A. NO. 9182, ALSO KNOWN AS THE “SPECIAL PURPOSE VEHICLE ACT”,
AS AMENDED BY R.A. NO. 9343
A. Filing of Applications with the SEC for 2. The transfer of the ROPA by the FI to
Establishing an SPV an SPV;
Under Section 6 of R.A. No. 9182, as 3. The dation in payment (dacion en
amended by R.A. No. 9343, applications pago) of the NPL by the borrower to the FI;
for the establishment and registration of an 4. The dation in payment (dacion en
SPV shall be filed with the SEC within pago) of the NPL by a third party, on behalf
eighteen (18) months from the effectivity of the borrower, to the Fl;
of the amendatory Act (i.e., up to 14 5. The transfer of the NPL (secured by
November 2007). a real estate mortgage on a residential unit)
by the FI to an individual; and
B. Sale/Transfer of NPAs Entitled to Tax 6. The transfer of the ROPA (single family
Exemptions and Fee Privileges residential unit) by the FI to an individual.
The following transactions enumerated For purposes of determining whether a
as Items “1” to “6” of Section 15 of the IRR transaction occurred within the two (2)-year
of the SPV Law are entitled to the tax period or from 14 May 2006 to 14 May
exemptions and fee privileges under the 2008, relevant documents to support the
same Section only if such transactions occur application (e.g., Asset Sale and Purchase
within two (2) years from the effectivity of Agreement, Deed of Assignment, Deed of
the amendatory Act or from 14 May 2006 Dation, etc.) should be notarized within the
to 14 May 2008:1 said two (2)-year period.
1. The transfer of the NPL by the FI (M-2007 -013 dated 11 May 2007 as amended by M-2008-014
to an SPV; dated 17 March 2008)
1
The Monetary Board authorized the SES to accept applications for Certificate of Eligibility (COE) until 13 June 2008, or
up to 30 days after the 14 May 2008 deadline.

APP. Q-29
07.12.31
GUIDELINES AND MINIMUM DOCUMENTARY REQUIREMENTS FOR

FOREIGN EXCHANGE (FX) FORWARD AND SWAP TRANSACTIONS
(Appendix to Subsecs. 4603Q.16 – 4603Q.18)
The following is a list of minimum 2. NON-TRADE TRANSACTIONS

documentary requirements for FX forward Only non-trade transactions with
and swap transactions. Unless otherwise specific due dates shall be eligible for
indicated, original documents* shall be forward contracts, and shall be subject to
presented on or before deal date to QBs. the same documentation requirements
under Circular No. 388 dated 26 May 2003
A. FORWARD SALE OF FX TO COVER with the following additional guidelines for
OBLIGATIONS – DELIVERABLE AND foreign currency loans and investments.
NON-DELIVERABLE 2.1 Foreign Currency Loans owed to
non-residents or AABs
1. FORWARD SALE OF FX – TRADE 2.1.1 Deliverable Forwards
1.1 Trade transactions The maturing portion of the outstanding
1.1.1 Under Letters of Credit (LC) eligible obligation, i.e., those that are
a. Copy of LC opened; and registered with the BSP registration letter,
b. Accepted draft, or commercial may be covered by a deliverable forward
invoice/Bill of Lading subject to the documentary requirements
1.1.2 Under Documents against under Circular No. 388. A copy of the
Acceptances (DA)/Open Account (OA) creditor’s billing statement may be
arrangements submitted only on or before the maturity
a. Certification of reporting QB on the date of the contract.
details of DA/OA under Schedule 10 2.1.2 NDFs
(Import Letters of Credits Opened and The outstanding eligible obligation,
DA/OA Import Availments and i.e., those that are registered with the BSP,
Extensions) of FX Form 1 (Consolidated including interests and fees thereon as
Report on Foreign Exchange Assets and indicated in the BSP registration letter may
Liabilities); and be covered by a NDF, subject to the
b. Copy of commercial invoice; documentary requirements under Circular
In addition to the above requirements, No. 388, except for the creditor’s billing
the QB shall require the customer to statement which need not be submitted.
submit a Letter of Undertaking that: The amount of the forward contract
(i.) Before or at maturity date of the shall not exceed the outstanding amount
forward contract, it (the importer) shall of the underlying obligation during the
comply with the documentation term of the contract.
requirements on sale of FX for trade 2.2 Inward Foreign Investments
transactions under existing regulations; and The unremitted amount of sales/
(ii.) No double hedging has been maturity proceeds due for repatriation to
obtained by the customer for the covered non-resident investors pertaining to BSP -
transactions. registered investments in the following
1.1.3 Direct Remittance instruments issued by a Philippine resident:
Original shipping documents a. shares of stock listed in the
indicated in Item "II.a" of Circular Letter Philippine Stock Exchange (PSE);
dated 24 January 2002. b. government securities;
* If copy is indicated, it shall mean photocopy, electronic copy or facsimile of original.

APP. Q-29
07.12.31
c. money market instruments; and (i.) At maturity of the forward

d. peso time deposits with a minimum contract, it shall comply with the
tenor of ninety (90) days may be covered documentation requirements on the sale
by FX forward contracts subject to the of FX for trade transactions under Circular-
presentation of the original BSRD on or Letter dated 24 January 2002, as amended;
before deal date. However, for Item and
"2.2.a" above, original BSRD or BSRD (ii.) No double hedging has been
Letter-Advice, together with the broker’s obtained by the customer for the covered
sales invoice, shall be presented on or transactions.
before maturity date of the FX forward
contract, which date coincides with the 2. NON-TRADE (NON-DELIVERABLE)
settlement date of the PSE transaction. The outstanding balance of BSP-
Sales proceeds of BSP-registered registered foreign investments without
investments in shares of stock that are not specific repatriation date, appearing in the
listed in the PSE may be covered by a covering BSRD may only be covered by
deliverable FX forward contract only if an NDF contract, based on its market/
determined to be outstanding as of the deal book value on deal date, subject to prior
date for the contract and payable on a BSP approval and if already with BSRD
specific future date as may be indicated in presentation of the covering BSRD and the
the Contract To Sell/Deed of Absolute proof that the investment still exists (e.g.,
Sale and subject to the same stock certificate, or broker’s buy invoice,
documentary requirements under or confirmation of sale, or certificate of
Circular No. 388. investment in money market instruments,
or certificate of peso time deposits).
B. FORWARD SALE OF FX TO COVER Hedging for permanently assigned capital
EXPOSURES– DELIVERABLE AND of Philippine branches of foreign banks/
NON-DELIVERABLE firms is not allowed.
1. TRADE (DELIVERABLE AND NON- C. FORWARD PURCHASE OF FX

DELIVERABLE)
1.1 Under LC Such FX forward contracts shall be
a. Copy of LC opened; and subject to the QB’s “Know Your
b. Proforma Invoice, or Sales Contract/ Customer” policy and existing regulations
Purchase Order on anti-money laudering. In addition,
1.2 Under DA/OA, Documents Against counterparties must be limited to those
Payment (DP) or Direct Remittance (DR) that are manifestly eligible to engage in
Any of the following where delivery FX forwards as part of the normal course
or shipment shall be made not later than of their operations and which satisfy the
one (1) year from deal date: QB’s suitability and eligibility rules for
a. Sales Contract such transactions.
b. Confirmed Purchase Order
c. Accepted Proforma Invoice D. FX SWAP TRANSACTIONS
d. Shipment/Import Advice of the
Supplier 1. FX SALE (first leg)/FORWARD FX
In addition to the above requirements, PURCHASE (second leg)
the QB shall require the customer to submit The same minimum documentary
a Letter of Undertaking that: requirements for sale of FX under BSP

APP. Q-29
07.12.31
Circular No. 388 for non-trade transactions, and existing regulations on anti-money
and Circular-Letter dated 24 January 2002, laundering. The second leg of the swap
as amended, for trade transactions, shall transaction will be subject to the swap
be presented on or before deal date. contract between the counterparties.
Swap contracts of this type intended to
2. FX PURCHASE (first leg)/FORWARD fund peso loans to be extended by non-
FX SALE (second leg) residents in favor of residents shall require
The first leg of the swap will be subject prior BSP approval.
to the QB’s “Know Your Customer” policy (As amended by Circular No. 591 dated 15 October 2007)

APP. Q-30
06.12.31
GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT AND THE

REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF QUASI-BANKS
A. GENERAL REQUIREMENTS shall not have outstanding loans or any

Only external auditors included in the credit accommodations (except credit card
list of BSP selected external auditors shall obligations which are normally available
be engaged by banks, QBs, trust entities to other credit card holders and fully
or NSSLAs for regular audit or special secured auto loans and housing loans
engagements. The external auditor to be which are not past due) with the bank, QB,
hired shall also be in-charge of the audit of trust entity or NSSLA, its subsidiaries and
the entity’s subsidiaries and affiliates affiliates at the time of signing the
engaged in allied activities: Provided, That engagement and during the engagement.
the external auditor shall be changed or In the case of partnership, this prohibition
the lead and concurring partner shall be shall apply to the partners and the auditor-
rotated every five (5) years or earlier: in-charge of the engagement;
Provided, further, That the rotation of the 3. The external auditor must not be
lead and concurring partner shall have an currently engaged nor was engaged during
interval of at least two (2) years. the preceding year in providing the
Banks, QBs, trust entities or NSSLAs following services to the bank, QB, trust
which have engaged their respective entity or NSSLA its subsidiaries and
external auditors for a consecutive period affiliates:
of five (5) years or more as of 26 a. Internal audit functions;
November 2003 (effectivity of Circular No. b. Information systems design,
410) shall have a one (1) year period from implementation and assessment; and
said date within which to either change c. Such other services which could
their external auditors or rotate the lead affect his independence as may be
and/or concurring partner. The following determined by the Monetary Board;
are the selection requirements for external 4. The external auditor, auditor-in-
auditors: charge and members of the audit team
1. No external auditor may be must adhere to the highest standards of
engaged by a bank, QB, trust entity or professional conduct and shall carry out
NSSLA if he or any member of his services in accordance with relevant
immediate family has or has committed ethical and technical standards, such as the
to acquire any direct or indirect financial Generally Accepted Auditing Standards
interest in the bank, QB, trust entity or (GAAS) and the Code of Professional Ethics
NSSLA, its subsidiaries and affiliates, or if for CPAs;
his independence is considered impaired 5. The external auditor should have
under the circumstances specified in the the following track record in conducting
Code of Professional Ethics for CPAs. In external audits:
the case of a partnership, this limitation shall a. The external auditor for a UB or KB
apply to the partners, associates and the must have at least twenty (20) existing
auditor-in-charge of the engagement and corporate clients with resources of at least
members of their immediate family; P50 million each and at least one (1)
2. The external auditor and the existing client UB or KB in the regular audit
members of the audit team do not have/ or in lieu thereof, the external auditor or

APP. Q-30
06.12.31
the auditor-in-charge of the engagement B. APPLICATION AND PRE-

must have at least five (5) years experience QUALIFICATION REQUIREMENTS
in the regular audit of UBs or KBs; The application for BSP selection shall
b. The external auditor for a TB, QB, be signed by the external auditor or the
trust entity and national Coop Bank must managing partner, in case of partnership
have at least ten (10) existing corporate and shall be submitted to the appropriate
clients with resources of at least P25.0 department of the SES together with the
million each and at least one (1) existing following documents/information:
client TB, QB, trust entity or national Coop 1. An undertaking:
Bank in the regular audit or in lieu thereof, a. That the external auditor, partners,
the external auditor or the auditor-in-charge associates, auditor-in-charge of the
of the engagement must have at least five engagement and the members of their
(5) years experience in the regular audit of immediate family shall not acquire any
TBs, QBs, trust entities or national Coop direct or indirect financial interest with a
Banks: Provided, That an external auditor bank, QB, trust entity, NSSLA, its
who has been selected by the BSP to audit subsidiaries and affiliates. Neither shall the
a UB or KB is automatically qualified to external auditor, partners, associates and
audit a TB, QB, trust entity or national Coop auditor-in-charge accept an audit
Bank; and engagement with a bank, QB, trust entity,
c. The external auditor for an RB or NSSLA, its subsidiaries and affiliates
local Coop Bank must have at least three where they or any member of their
(3) years track record in conducting immediate family have any direct or
external audit: Provided, That an external indirect financial interest and that their
auditor who has been selected by the BSP independence is not considered
to audit a UB, KB, TB, QB, trust entity and impaired under the circumstances
national Coop bank is automatically specified in the Code of Professional Ethics
qualified to audit an RB, local Coop Bank for CPAs;
and NSSLA; b. That the external auditor, partners,
6. A bank, QB, trust entity or NSSLA associates, auditor-in-charge and members
shall not engage the services of an external of the audit team do not have nor shall
auditor whose partner or auditor-in-charge apply for loans or any credit
of audit engagement during the preceding accommodations (except normal credit
year had been hired or employed by the card obligations and fully secured auto
bank, QB, trust entity, NSSLA, its loans and housing loans) nor shall accept
subsidiaries and affiliates as chief executive an audit engagement with a bank, QB,
officer, chief financial officer, controller, trust entity, NSSLA, its subsidiaries and
chief accounting officer or any position of affiliates where they have outstanding
equivalent rank; and loans or any credit accommodations
7. The external auditor must (except normal credit card obligations and
undertake to keep for at least five (5) years fully secured auto loans and housing loans
all audit or review working papers in which are not past due);
sufficient detail to support the conclusions c. That the external auditor shall not
in the audit report which shall be made accept an audit engagement with a bank,
available to the BSP upon request. Working QB, trust entity, NSSLA, its subsidiaries
papers shall include, but shall not be limited and affiliates where he was engaged during
to, pre-audit analysis, audit scope and the preceding year in providing the
detailed work program. following services:

APP. Q-30
06.12.31
1. Internal audit functions; 2. Loans and other risk assets review

2. Information systems design, and classification.
implementation and assessment; and 2. Other documents/information:
3. Such other services, which could a. List of existing corporate clients
affect his independence as may be with resources of at least P50.0 million
determined by the Monetary Board from each for external auditor of a UB or KB; for
time to time. a TB, QB, trust entity, NSSLA, and national
This requirement shall not, however, Coop Bank, list of existing corporate clients
affect audit engagement existing as of 26 with resources of at least P25.0 million
November 2003 (effectivity of Circular No. each; and list of existing clients and/or
410). details of three (3) years track record in
d. That the external auditor and external audit for external auditors of an
members of the audit team shall adhere to RB, NSSLA and a local Coop Bank;
the highest standards of professional b. If the external auditor for a UB or
conduct and shall carry out their services KB has no existing UB or KB client, and
in accordance with relevant ethical and the external auditor for a TB, QB, trust
technical standards of the accounting entity and national Coop Bank, has no
profession; existing client TB or national Coop Bank, a
e. That the lead or concurring partner notarized certification that the external
and auditor-in-charge shall not accept auditor or the auditor-in-charge of the
employment with the bank, QB, trust engagement has at least five (5) years
entity, NSSLA, its subsidiaries and affiliates experience in the regular audit of banks of
being audited during the engagement appropriate category mentioning the banks
period and within a period of one (1) year they have audited;
after the audit engagement; c. Updated PRC license (for
f. That the external auditor shall not individual auditors) and business license for
accept an audit engagement with a bank, the partnership;
QB, trust entity, NSSLA, its subsidiaries and d. Copy of the proposed engagement
affiliates where an officer (i.e., chief contract between the bank, QB, trust entity
executive officer, chief financial officer, or NSSLA and the external auditor where
controller, chief accounting officer or other applicable; and
senior officer of equivalent rank) had been e. Certification from PRC that the
a partner of the external auditor or had external auditor, lead partner, concurring
worked for the audit firm and had been partner, auditor-in-charge and members of
the auditor-in-charge of the audit the audit team have no derogatory
engagement of said entities during the year information, previous conviction or any
immediately preceding the engagement; pending investigation. However, in the
g. That the external auditor shall keep event that the certification cannot be
all audit or review working papers for at obtained because of the pendency of a
least five (5) years in sufficient detail to case, the BSP may dispense with this
support the conclusions in the audit report; requirement upon determination by the
and Monetary Board that the case involves
h. That the audit work shall include purely legal question, or does not, in any
assessment of the audited institution’s way, negate the auditor’s adherence to
compliance with BSP rules and regulations, the highest standards of professional
such as, but not limited to the following: conduct nor degrade his integrity and
1. CAR; and objectivity.

APP. Q-30
06.12.31
C. REQUIRED REPORTS audit findings, except in circumstances

1. To enable the BSP to take timely where the external auditor believes that
and appropriate remedial action, the the entity’s management is involved in
external auditor must report to the BSP fraudulent conduct.
within thirty (30) calendar days after It is, however, understood that the
discovery, the following cases: accountability of an external auditor is
a. Any material finding involving based on matters within the normal
fraud or dishonesty (including cases that coverage of an audit conducted in
were resolved during the period of audit); accordance with generally accepted
and auditing standards.
b. Any potential losses the aggregate
of which amounts to at least one percent D. DEFINITION OF TERMS
(1%) of the capital. For purposes of these guidelines, the
2. The external auditor shall report following terms shall be defined as follows:
directly to the BSP within fifteen (15) 1. Subsidiary. A corporation or firm
calendar days the occurrence of the more than fifty percent (50%) of the
following: outstanding voting stock of which is
a. Termination or resignation as directly or indirectly owned, controlled or
external auditor and stating the reason held with power to vote by a bank, QB,
therefore; trust entity or NSSLA.
b. Discovery of a material breach of 2. Affiliate. A corporation, not more
laws or BSP rules and regulations such as, than fifty percent (50%) but not less than
but not limited to: ten percent (10%) of the outstanding voting
1. CAR; and stock of which is directly or indirectly
2. Loans and other risk assets review owned, controlled or held with power to
and classification. vote by a bank, QB, trust entity, NSSLA
c. Findings on matters of corporate and a juridical person that is under
governance that may require urgent action common control with the bank, QB, trust
by the BSP. entity or NSSLA.
3. In case there are no matters to 3. Control. Exists when the parent
report (e.g. fraud, dishonesty, breach of owns directly or indirectly more than one
laws, etc.) the external auditor shall submit half of the voting power of an enterprise
directly to the BSP within fifteen (15) unless, in exceptional circumstance, it can
calendar days after the closing of the audit be clearly demonstrated that such
engagement a notarized certification that ownership does not constitute control.
there is none to report. Control may also exist even when
The management of the bank, QB, ownership is one half or less of the voting
trust entity, NSSLA, its subsidiaries and power of an enterprise when there is:
affiliates shall be informed of the adverse a. Power over more than one-half of
findings and the external auditor’s report the voting rights by virtue of an agreement
to the BSP shall include its explanation and/ with other stockholders;
or corrective action. b. Power to govern the financial and
The management of the bank, QB, operating policies of the enterprise under
trust entity, NSSLA, its subsidiaries and a statute or an agreement;
affiliates shall be given the opportunity to c. Power to appoint or remove the
be present in the discussions between the majority of the members of the board of
BSP and the external auditor regarding the directors or equivalent governing body;

APP. Q-30
06.12.31
d. Power to cast the majority votes at require the external auditor to undertake
meetings of the board of directors or a specific review of a particular aspect
equivalent governing body; or of the operations of these institutions.
e. Any other arrangement similar to The report shall be submitted to the BSP
any of the above. and the audited institution
4. Associate. Any director, officer, simultaneously, within thirty (30)
manager or any person occupying a similar calendar days after the conclusion of said
status or performing similar functions in the review.
audit firm including employees performing
supervisory role in the auditing process. G. AUDIT ENGAGEMENT CONTRACT
5. Partner. All partners including Banks, QBs, trust entities, and
those not performing audit engagements. NSSLAs, shall submit the audit
6. Lead Partner. Also referred to as engagement contract between them, their
the engagement partner/partner-in-charge/ subsidiaries and affiliates and the external
managing partner who is responsible for auditor to the appropriate department of
signing the audit report on the the SES within fifteen (15) calendar days
consolidated financial statements of the from signing thereof. Said contract shall
audit client, and where relevant, the include the following provisions:
individual audit report of any entity whose 1. That the bank, QB, trust entity, or
financial statements form part of the NSSLA shall be responsible for keeping
consolidated financial statements. the auditor fully informed of existing and
7. Concurring Partner. The partner subsequent changes to prudential,
who is responsible for reviewing the audit regulatory and statutory requirements of
report. the BSP and that both parties shall comply
8. Auditor-in-charge. Refers to the with said requirements;
team leader of the audit engagement. 2. That disclosure of information by
the external auditor to the BSP as required
E. INCLUSION IN BSP LIST under Items "C" and "F" hereof, shall be
In case of partnership, inclusion in the allowed; and
list of BSP selected external auditors shall 3. That both parties shall comply with
apply to the audit firm only and not to the all of the requirements under these
individual signing partners or auditors guidelines.
under its employment. The BSP will
circularize to all banks, QBs, trust entities H. DELISTING OF EXTERNAL
and NSSLAs the list of selected external AUDITORS
auditors once a year. The BSP, however, 1. Grounds for delisting
shall not be liable for any damage or loss External auditors may be delisted from
that may arise from its selection of the the list of BSP selected external auditor
external auditors to be engaged by banks, for the bank, QB, trust entity or NSSLA
QBs, trust entities, or NSSLAs, for regular for violation of, or non-compliance with
audit or special engagements. any provision of these guidelines or in
case of dissolution of the audit firm
F. SPECIFIC REVIEW except when said dissolution was solely
When warranted by supervisory for the purpose of admitting new partner/s
concern, the Monetary Board may, at the and the new partner/s have complied
expense of the bank, QB, trust entity, with the requirements of these
NSSLA, its subsidiaries and affiliates guidelines.

APP. Q-30
06.12.31
2. Procedure for delisting Banking Law of 2000” the Monetary Board

An external auditor shall only be may also direct the board of directors of a
delisted upon prior notice to him and after bank, QB, trust entity, NSSLA or the
giving him the opportunity to be heard and individual members thereof, to conduct,
defend himself by presenting witnesses/ either personally or by a committee
evidence in his favor. Delisted external created by the board, an annual balance
auditor may re-apply for BSP selection after sheet audit of the bank, QB, trust entity or
the period prescribed by the Monetary NSSLA to review the internal audit and the
Board. internal control system of the concerned
entity and to submit a report of such audit
I. AUDIT BY THE BOARD OF DIRECTORS to the Monetary Board within thirty (30)
Pursuant to Section 58 of R.A. No. calendar days after the conclusion thereof.
8791, otherwise known as “The General (As amended by Circular No. 529 dated 11 May 2006)

APP. Q-31
05.12.31
QUALIFICATION REQUIREMENTS FOR A BANK/NBFI APPLYING FOR

ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR BOND
ISSUED BY ANY MUNICIPALITY, GOVERNMENT-OWNED OR
CONTROLLED CORPORATION, OR ANY BODY POLITIC
A bank/NBFI applying for accreditation f. The by-laws of the institution shall

to act as trustee on any mortgage or bond include among others, provisions on the
issued by any municipality, government- following:
owned or controlled corporation, or any (1) The organization plan or structure
body politic must comply with the of the department, office or unit which shall
following requirements: conduct the trust and other fiduciary
a. It must be a bank or NBFI under business of the institution;
BSP supervision; (2) The creation of a trust committee,
b. It must have a license to engage in the appointment of a trust officer and
trust and other fiduciary business; subordinate officers of the trust department;
c. It must have complied with the and
minimum capital accounts required under (3) A clear definition of the duties and
existing regulations, as follows: responsibilities as well as the line and staff
UBs and KBs The amount required under functional relationships of the various units,
existing regulations or such officers and staff within the organization.
amount as may be required g. The bank’s operation during the
by the Monetary Board in
preceding calendar year and for the period
the future
immediately preceding the date of
Branches of The amount required under application has been profitable;
Foreign Banks existing regulations h. It has not incurred net weekly
reserve deficiencies during the eight (8)
Thrift Banks P650 million or such amounts weeks period immediately preceding the
as may be required by the date of application;
Monetary Board in the future i. It has generally complied with
banking laws, rules and regulations, orders
NBFIs Adjusted capital of at least or instructions of the Monetary Board and/
P300.0 million or such
or BSP Management in the last two
amounts as may be required
by the Monetary Board in the
preceding examinations prior to the date
future. of application, particularly on the following:
(1) election of at least two (2)
d. Its risk-based capital adequacy ratio independent directors;
is not lower than twelve percent (12%) at (2) attendance by every member of the
the time of filing the application; board of directors in a special seminar for
e. The articles of incorporation or board of directors conducted or accredited
governing charter of the institution shall by the BSP;
include among its powers or purposes, (3) the ceilings on credit accommodations
acting as trustee or administering any trust to DOSRI;
or holding property in trust or on deposit (4) liquidity floor requirements for
for the use, or in behalf of others; government deposits;

APP. Q-31
05.12.31
(5) single borrower’s loan limit; and responsibility for risk management,
(6) investment in bank premises and adequate risk measurement systems,
other fixed assets. appropriately structured risk limits,
j. It maintains adequate provisions effective internal controls and complete,
for probable losses commensurate to the timely and efficient risk reporting system;
quality of its assets portfolio but not lower m. It has a CAMELS Composite Rating
than the required valuation reserves as of at least "3" in the last regular
determined by the BSP; examination with management rating of
k. It does not have float items not lower than "3"; and
outstanding for more than sixty (60) n. It is a member of the PDIC in good
calendar days in the “Due From/To Head standing (for banks only).
Office/Branches/Other Offices” accounts Compliance with the foregoing as well
and the “Due from Bangko Sentral” as with other requirements under existing
account exceeding one percent (1%) of the regulations shall be maintained up to the
total resources as of date of application; time the trust license is granted. A bank
l. It has established a risk management that fails in this respect shall be required
system appropriate to its operations to show compliance for another test period
characterized by clear delineation of of the same duration.

APP. Q-32
05.12.31
RULES AND REGULATIONS ON

COMMON TRUST FUNDS1
1. The administration of CTFs shall be character and kind of investments which

subject to the provisions of Subsecs. may be purchased;
4409Q.1 up to 4409Q.6 and to the d. Allocation, apportionment and
following regulations. distribution dates of income, profit and losses;
As an alternative compliance with the e. Terms and conditions governing
required prior authority and disclosure the admission or withdrawal as well as
under Subsecs. 4409Q.2 and 4409Q.3, a expansion or contraction of participations
list which shall be updated quarterly of in the plan including the minimum initial
prospective and/or outstanding investment placement and account balance to be
outlets may be made available by the maintained by the trustor;
trustee for the review of all CTF clients. f. Auditing and settlement of accounts
(Sec. 4410Q) of the trustee with respect to the plan;
g. Detailed information on the basis,
2. Establishment of common trust frequency, and method of valuing and
funds. Any trust company or investment accounting of CTF assets and each
house authorized to engage in trust business participation in the fund;
may establish, administer and maintain one h. Basis upon which the plan may be
(1) or more CTFs. (Subsec. 4410Q.1) terminated;
i. Liability clause of the trustee;
3. Minimum documentary requirements j. Schedule of fees and commissions
for common trust funds. In addition to the which shall be uniformly applied to all
trust agreement or indenture required participants in a fund and which shall not
under Subsec. 4409Q.1, each CTF shall be be changed between valuation dates; and
established, administered and maintained k. Such other matters as may be
in accordance with a written declaration of necessary or proper to define clearly the
trust referred to as the plan, which shall be rights of participants under the plan.
approved by the board of directors of the The legal capacity of the institution
trustee and a copy submitted to the administering a CTF shall be indicated in
appropriate supervising and examining the plan and other related agreements or
department (SED) of the BSP within thirty contracts as trustee of the fund and not in
(30) business days prior to its any other capacity such as fund manager,
implementation. financial manager, or like terms.
The plan shall make provisions on the The provisions of the plan shall control
following matters: all participations in the fund and the rights
a. Title of the plan; and benefits of all parties in interest.
b. Manner in which the plan is to be The plan may be amended by
operated; resolution of the board of directors of the
c. Investment powers of the trustee trustee: Provided, however, That
with respect to the plan, including the participants in the fund shall be
--------------------------------------------------------------------------------------------------------
1
The rules and regulations on common trust funds (CTFs) were previously under Sec. 4410Q and the subsections enclosed
in parentheses. The UIT Funds regulations which are now in said section/subsections took effect on 01 October 2004
(effectivity of Circular 447 dated 03 September 2004).

APP. Q-32
05.12.31
immediately notified of such amendments funds representing employee benefit plans

and shall be allowed to withdraw their under trust or investment management
participations if they are not in conformity may invest funds in the CTF: Provided,
with the amendments made: Provided, further, That in the case of employee
further, That amendments to the plan shall benefit plans under trust belonging to
be submitted to the appropriate SED of the employees of entities other than that of the
BSP within ten (10) business days from trustee, the trustee may invest such funds
approval of the amendments by the board in its own CTF only on a temporary basis
of directors. in accordance with Subsec. 4409Q.5.
A copy of the plan shall be available at (Subsec. 4410Q.4)
the principal office of the trustee during
regular office hours for inspection by any 6. Exposure limit of common trust
person having an interest in a trust whose fund to a single person or entity. No
funds are invested in the plan or by his investment for a CTF shall be made in
authorized representative. Upon request, stocks, bonds, bank deposits or other
a copy of the plan shall be furnished such obligations of any one (1) person, firm or
person. (Subsec. 4410Q.2) corporation, if as a result of such
investment the total amount invested in
4. Management of common trust stocks, bonds, bank deposits or other
funds. The trustee shall have the exclusive obligations issued or guaranteed by such
management and control of each CTF person, firm or corporation shall aggregate
administered by it, and the sole right at any to an amount in excess of fifteen percent
time to sell, convert, reinvest, exchange, (15%) of the market value of the CTF:
transfer or otherwise change or dispose of Provided, That this limitation shall not apply
the assets comprising the fund. to investments in government securities or
The trustee shall designate clearly in other evidences of indebtedness of the
its records the trust accounts owning Republic of the Philippines and of the BSP,
participation in the CTF and the extent of and any other evidences of indebtedness
the interests of such account. The trustee or obligations the servicing and repayment
shall not negotiate nor assign the trustor’s of which are fully guaranteed by the
beneficial interest in the CTF without prior Republic of the Philippines. (Subsec.
written consent of the trustor or beneficiary. 4410Q.5)
No trust account holding a participation in
a CTF shall have or be deemed to have 7. Operating and accounting
any ownership or interest in any particular methodology. By its inherent nature, a CTF
asset or investment in the common trust shall be operated and accounted for in
fund but shall have only its proportionate accordance with the following:
beneficial interest in the fund as a whole. a. The trustee shall have exclusive
(Subsec. 4410Q.3) management and control of each CTF
administered by it and the sole right at any
5. Trustee as participant in common time to sell, convert, reinvest, exchange,
trust funds. A trustee administering a CTF transfer or otherwise change or dispose of
shall not have any interest in such fund the assets comprising the fund;
other than in its capacity as trustee of the b. The total assets and accountabilities
CTF nor grant any loan on the security of a of each fund shall be accounted for as a
participation in such fund: Provided, single account referred to as pooled fund
however, That a trustee which administers accounting;

APP. Q-32
05.12.31
c. Contributions to each fund by shall be admitted to or withdrawn from the

clients shall always be through fund except on the basis of such valuation.
participations in the fund; (Subsec. 4410Q.6)
d. All such participations shall be
pooled and invested as one (1) account 8. (Reserved)
(referred to as collective investments); and
e. The interest of each participant shall 9. Custody of Securities. Investments
be determined by a formal method of in securities of all existing CTFs shall be
participation valuation established in the delivered to a BSP-accredited third party
written plan of the CTF, and no participation custodian not later than 31 October 2004.

APP. Q-33
06.12.31
CHECKLIST OF BSP REQUIREMENTS IN THE SUBMISSION OF FINANCIAL

AUDIT REPORT (FAR), ANNUAL AUDIT REPORT (AAR) AND REPORTS
REQUIRED UNDER APPENDIX Q-30
(Appendix to Secs. 4172Q, 4172S and 4172N)
The external auditor (Included in the List of BSP Selected External Auditors) shall start
the audit not later than thirty (30) calendar days after the close of the calendar/fiscal year
adopted by the bank. AFS of banks/QBs with subsidiaries shall be presented side by side on
a solo basis and on a consolidated basis (QBs and subsidiaries). The FAR shall be submitted
by the bank/QB to the appropriate department of the SES not later than one hundred twenty
calendar days after the close of the calendar year or fiscal year adopted by the bank/QB,
together with the following:
Information/Data Required Deadline for submission
A. Financial Audit Report

1. Certification by the external auditor on For submission together with the FAR not
the following: later than 120 calendar days after the close
of the calendar year or fiscal year adopted
a. The dates of commencement and by the bank.
termination of audit.
b. The date when the FAR and certification

under oath stating that no material
weakness or breach in the internal
control and risk management systems
was noted in the course of the audit of
the bank/QB were submitted to the
board of directors or country head, in
the case of foreign bank branches; and
c. That the external auditor, partners,

associates, auditor-in-charge of the
engagement and the members of their
immediate family do not have any direct
or indirect financial interest with the
bank/QB, its subsidiaries and affiliates
and that their independence is not
considered impaired under the
circumstances specified in the Code of
Professional Ethics for CPAs.
2. Reconciliation statement for the For submission together with the FAR not
differences in amounts between the later than 120 calendar days after the close
audited and the submitted Balance of the calendar year or fiscal year adopted
Sheet and Income Statement for bank by the bank.

APP. Q-33
06.12.31
proper (regular and FCDU) and trust

department, including copies of
adjusting entries on the reconciling
items.
Note: Please see pro-forma

comparative analysis (Annex Q-33-a).
3. LOC indicating the external auditor's Within thirty (30) calendar days after
findings and comments on the material submission of the FAR.
weakness noted in the internal control
and risk management systems and other
aspects of operations.
In case no material weakness is noted For submission together with the FAR not
to warrant the issuance of an LOC, a later than 120 calendar days after the close
certification under oath stating that no of the calendar year or fiscal year adopted
material weakness or breach in the by the bank.
internal control and risk management
systems was noted in the course of the
audit of the bank shall be submitted by
the external auditor.
4. Copies of the board resolutions showing

the:
a. Action taken on the FAR and, where Within thirty (30) banking days after the
applicable, on the certification under receipt of the FAR and certification under
oath including the names of the oath by the board of directors.
directors, present and absent, among
other things; and
b. Action taken on the findings and Within thirty (30) banking days after the
recommendations in the LOC, and the receipt of the LOC by the board of directors.
names of the directors present and
absent, among other things.
5. In case of foreign banks with branches

in the Philippines, in lieu of the board
resolution:
a. A report by the country head on the Within thirty (30) banking days after the
action taken by management (head receipt of the FAR and certification under
office, regional or country) on the FAR oath by the country head.

APP. Q-33
06.12.31
and, where applicable, on the

applicable,on certification under oath
stating that no material weakness or
breach in the internal control and risk
management systems was noted in the
course of the audit of the bank.
b. A report by the country head on the Within thirty (30) banking days after the
action taken by management (head receipt of the LOC by the country head.
office, regional or country) on the LOC.
6. Certification of the external auditor on the Within thirty (30) banking days after the
date when the LOC was submitted to receipt of the LOC by the board of directors
the board of directors or country head. or country head.
7. All the required disclosures in the AFS For submission together with the FAR not
provided under Subsec. 4172Q.3 later than one hundred twenty calendar
days after the close of the calendar year or
fiscal year adopted by the bank.
8. Reports required to be submitted by the

external auditor under Appendix Q-30.
a. To enable the BSP to take timely and Within thirty (30) calendar days after
appropriate remedial action, the external discovery.
auditor must report to the BSP, the
following cases:
(1) Any material finding involving fraud

or dishonesty (including cases that were
resolved during the period of audit); and
(2) Any potential losses the aggregate of

which amounts to at least one percent
(1%) of the capital.
b. The external auditor shall report directly Within fifteen (15) calendar days after the
to the BSP the following: occurrence/discovery.
(1) Termination or resignation as external

auditor and starting the reason therefore;
(2) Discovery of a material breach of

laws or BSP rules and regulations such
as, but not limited to:

APP. Q-33
06.12.31
(a) CAR; and
(b) Loans and other risk assets review

and classification.
(3) Findings on matters of corporate

governance that may require urgent
action by the BSP.
c. In case there are no matters to report Within fifteen (15) calendar days after the
(e.g., fraud, dishonesty, breach of laws, closing of the audit engagement.
etc.) a notarized certification that there
is none to report.
B. AAR – For banks and other financial

institutions under the concurrent
jurisdiction of the BSP and COA.
1. Copy of the AAR accompanied by the: Within thirty (30) banking days after receipt
of the AAR by the board of directors.
a. Certification by the institution
concerned on the date of receipt of the
AAR by the board of directors;
b. Reconciliation statement between the

AFS in the AAR and the balance sheet
and income statement of bank proper
(Regular and FCDU) and trust
department submitted to the BSP,
including copies of adjusting entries on
the reconciling items; and
c. Other information that may be required

by the BSP.
2. Copy of the board resolution showing Within thirty (30) banking days after receipt
the action taken on the AAR, as well as of the AAR by the board of directors.
on the comments and observations,
including the names of the directors
present and absent, among other
things.
(As amended by Circular Nos. 554 dated 22 December 2006 and 540 dated 09 August 2006)

APP. Q-33
06.12.31
Annex Q-33-a
Name of Financial Institution

Comparison of Submitted Consolidated Balance Sheet and Income Statement
and Audited Financial Statements
(Parent and Subsidiaries)
As of (end of calendar or fiscal year)
(In Thousand Pesos)
Submitted Audited Variance/ Reasons for

Report Report Discrepancy Discrepancy
Cash and Other Cash Items

Due from BSP
Due from Other Banks
Financial Assets Held for Trading (HFT)
Held-to-Maturity (HTM) Financial Assets
Available-for-Sale Financial Assets
Loans and Receivables, net
Interbank Loans Receivable
Equity Investments in Subsidiaries, Associates
& Joint Ventures
Bank Premises, Furniture, Fixtures and Equipment, net
Real and Other Properties Acquired (ROPA), net
Other Assets
Due from Head Office/Branches/Agencies Abroad
Total Assets
===== ==== ===== ======
Deposit Liabilities
Bills Payable
Bonds Payable
Unsecured Subordinated Debt (UnSD)
Redeemable Preferred Shares
Accrued Interest, Taxes and Other Expenses
Other Liabilities
Due to Head Office/Branches/Agencies Abroad
Total Liabilities
===== ==== ===== ======
Paid-in Capital Stock
Additional Paid-In Capital
Retained Earnings
Assigned Capital
Total Capital
===== ==== ===== ======
Total Liabilities and Capital
===== ==== ===== ======
Total Income
Total Expenses
Net Income before Income Tax
===== ==== ===== ======
(As amended by Circular Nos. 554 dated 22 December 2006 and 540 dated 09 August 2006)

APP. Q-34
05.12.31
QUARTERLY INVESTMENT DISCLOSURE STATEMENT

Name of Unit Investment Trust Fund:

For the Quarter ended:
Net Asset Value, end of quarter:
Net Asset Value Per Unit (NAVPu):
Short Description:
(e.g., The Fund is a peso denominated fixed-income fund. The investment objective of the
Fund is to generate a steady stream of income by investing in a diversified portfolio of
high-grade marketable securities)
Administrative Details:
Trust Fee:
Minimum Investment:
Holding Period:
Participation/Redemption Conditions:
Special Reimbursable Expenses, if any:
Outstanding Investments:
The Fund has investments in the following:
(may be in graph format showing weightings per investment type or class of security)
Prospective Investments:
The following names/securities are among the fund’s approved investment outlets where
the Trustee intends to invest in depending on its availability or other market driven
circumstances:

APP. Q-34a
08.12.31
Annex A
(NAME OF TRUST ENTITY)-(TRUST BANKING GROUP/TRUST DEPARTMENT)

Unit Investment Trust Funds
RISK DISCLOSURE STATEMENT
Prior to making an investment in any of the (Name of Trust Entity) Unit Investment Trust Funds (UITFs),
(Name of Trust Entity) is hereby informing you of the nature of the UITFs and the risks involved in investing
therein. As investments in UITFs carry different degrees of risk, it is necessary that before you participate/invest
in these funds, you should have: 1. Fully understood the nature of the investment in UITFs and the extent of your
exposure to risks; 2. Read this Risk disclosure Statement completely; and 3. Independently determined that the
investment in the UITFs is appropriate for you.
There are risks involved in investing in the UITFs because the value of your investment is based on the Net
Asset Value per unit (NAVpu) of the Fund which uses a marked-to-market valuation and therefore may fluctuate
daily. The NAVpu is computed by dividing the Net Asset Value (NAV) of the Fund by the number of outstanding
units. The NAV is derived from the summation of the market value of the underlying securities of the Fund plus
accrued interest income less liabilities and qualified expenses.
Investment in the UITF does not provide guaranteed returns even if invested in government securities
and high-grade prime investment outlets. Your principal and earnings from investment in the Fund can be lost
in whole or in part when the NAVpu at the time of redemption is lower than the NAVpu at the time of
participation. Gains from investment is realized when the NAVpu at the time of redemption is higher than the
NAVpu at the time of participation.
Your investment in any of the (Name of Trust Entity) UITFs exposes you to the various types of risks
enumerated and defined hereunder:
Interest Rate Risk. This is the possibility for an investor to experience losses due to changes in interest rates.
The purchase and sale of a debt instrument may result in profit or loss because the value of a debt instrument
changes inversely with prevailing interest rates.
The UITF portfolio, being market-to-market, is affected by changes in interest rates thereby affecting the value
of fixed income investments such as bonds. Interest rate changes may affect the prices of fixed income securities
inversely, i.e., as interest rates rise, bond prices fall and when interest rates decline, bond prices rise. As the prices
of bonds in a Fund adjust to a rise in interest rates, the Fund’s unit price may decline.
Market/Price Risk. This is the possibility for an investor to experience losses due to changes in market prices
of securities (e.g., bonds and equities). It is the exposure to the uncertain market value of a portfolio due to price
fluctuations.
It is the risk of the UITF to lose value due to a decline in securities prices, which may sometimes happen
rapidly or unpredictably. The value of investments fluctuates over a given time period because of general market
conditions, economic changes or other events that impact large portions of the market such as political events,
natural calamities, etc. As a result, the NAVpu may increase to make profit or decrease to incur loss.
Liquidity Risk. This is the possibility for an investor to experience losses due to the inability to sell or convert
assets into cash immediately or in instances where conversion to cash is possible but at a loss. These may be
caused by different reasons such as trading in securities with small or few outstanding issues, absence of buyers,
limited buy/sell activity or underdeveloped capital market.
Liquidity risk occurs when certain securities in the UITF portfolio may be difficult or impossible to sell at a
particular time which may prevent the redemption of investment in UITF until its assets can be converted to cash.
Even government securities which are the most liquid of fixed income securities may be subjected to liquidity risk
particularly if a sizeable volume is involved.
Credit Risk/Default Risk. This is the possibility for an investor to experience losses due to a borrower’s
failure to pay principal and/or interest in a timely manner on instruments such as bonds, loans, or other forms of
security which the borrower issued. This inability of the borrower to make good on its financial obligations may
have resulted from adverse changes in its financial condition thus, lowering credit quality of the security, and
consequently lowering the price (market/price risk) which contributes to the difficulty in selling such security. It
also includes risk on a counterparty (a party the UITF Manager trades with) defaulting on a contract to deliver its
obligation either in cash or securities.
This is the risk of losing value in the UITF portfolio in the event the borrower defaults on his obligation or in
the case of a counterparty, when it fails to deliver on the agreed trade. This decline in the value of the UITF

APP. Q-34a
08.12.31
happens because the default/failure would make the price of the security go down and may make the security
difficult to sell. As these happen, the UITFs NAVpu will be affected by a decline in value.
Reinvestment Risks. This is the risk associated with the possibility of having lower returns or earnings when
maturing funds or the interest earnings of funds are reinvested.
Investors in the UITF who redeem and realize their gains run the risk of reinvesting their funds in an
alternative investment outlet with lower yields. Similarly, the UITF manager is faced with the risk of not being able
to find good or better alternative investment outlets as some of the securities in the fund matures.
In case of a foreign-currency denominated UITF or a peso denominated UITF allowed to invest in securities
denominated in currencies other than its base currency, the UITF is also exposed to the following risks:
Foreign Exhange Risk. This is the possibility for an investor to experience losses due to fluctuations in
foreign exchange rates. The exchange rates depend upon a variety of global and local factors, e.g., interest rates,
economic performance, and political developments.
It is the risk of the UITF to currency fluctuations when the value of investments in securities denominated in
currencies other than the base currency of the UITF depreciates. Conversely, it is the risk of the UITF to lose value
when the base currency of the UITF appreciates. The NAVpu of a peso-denominated UITF invested in foreign
currency-denominated securities may decrease to incur loss when the peso appreciates.
Country Risk. This is the possibility for an investor to experience losses arising from investments in securities
issued by/in foreign countries due to the political, economic and social structures of such countries. There are
risks in foreign investments due to the possible internal and external conflicts, currency devaluations, foreign
ownership limitations and tax increases of the foreign country involved which are difficult to predict but must be
taken into account in making such investments.
Likewise, brokerage commissions and other fees may be higher in foreign securities. Government supervision
and regulation of foreign stock exchanges, currency markets, trading systems and brokers may be less than those
in the Philippines. The procedures and rules governing foreign transactions and custody of securities may also
involve delays in payment, delivery or recovery of investments.
Other Risks. Your participation in the UITFs may be further exposed to the risk of any actual or potential
conflicts of interest in the handling of in-house or related party transactions by (Name of Trust Entity). These
transactions may include own-bank deposits; purchase of own-institution or affiliate obligations (stock, mortgages);
purchase of assets from or sales to own institution, directors, officers, subsidiaries, affiliates or other related
interests/parties; or purchases or sales between fiduciary/managed accounts.
I/we have completely read and fully understood this risk disclosure statement and the same was clearly explained
to me/us by a (Name of Trust Entity) UIT marketing personnel before I/we affixed my/our signature/s herein. I/we
hereby voluntarily and willingly agree to comply with any and all laws, regulations, the plan rules, terms and
conditions governing my/our investment in the (Name of Trust Entity) UITFs.
Signature over Printed Name Date
I acknowledge that I have (1) advised the client to read this Risk Disclosure Statement, (2) encouraged the client
to ask questions on matters contained in this Risk Disclosure Statement, and (3) fully explained the same to the
client.
Signature over Printed Name/ Date

Position of UIT Marketing Personnel
(Circular No. 593 dated 08 January 2008)

Appendix Q-34a - Page 2 Manual of Regulations for Non-Bank Financial Institutions
APP. Q-35
05.12.31
BSP RULES OF PROCEDURE ON ADMINISTRATIVE CASES

INVOLVING DIRECTORS AND OFFICERS OF QUASI-BANKS AND TRUST ENTITIES
RULE I – GENERAL PROVISIONS Sec. 2. Where to file. – The complaint

shall be filed with or referred to the OSI.
Section 1. Title. – These Rules shall be
known as the BSP Rules of Procedure on Sec. 3. Contents of the Complaint - The
Administrative Cases Involving Directors complaint shall contain the ultimate facts
and Officers of Quasi-Banks and Trust of the case and shall include:
Entities. a. full name and address of the
complainant;
Sec. 2. Applicability. – These Rules b. full name and address of the person
shall apply to administrative cases filed with complained of;
or referred to the Office of Special c. specification of the charges;
Investigation (OSI), BSP, involving directors d. statement of the material facts;
and officers of quasi-banks and trust entities e. statement as to whether or not a
pursuant to Section 37 of R.A. No. 7653 similar complaint has been filed with the
(The New Central Bank Act) and Sections BSP or any other public office.
16 and 66 of R.A. No. 8791 (The General The complaint shall include copies of
Banking Law of 2000). documents and affidavits of witnesses, if
The disqualification of directors and any, in support of the complaint.
officers under Section 16 of R.A. No. 8791
shall continue to be covered by existing BSP RULE III – DETERMINATION OF PRIMA
rules and regulations. FACIE CASE AND PROSECUTION OF
THE CASE
Sec. 3. Nature of Proceedings. – The
proceedings under these Rules shall be Sec. 1. Action on Complaint.- Upon
summary in nature and shall be conducted determination that the complaint is sufficient
without necessarily adhering to the in form and substance, the OSI shall furnish
technical rules of procedure and evidence the respondent with a copy thereof and
applicable to judicial trials. Proceedings require respondent to file within ten (10)
under these Rules shall be confidential and days from receipt thereof, a sworn answer,
shall not be subject to disclosure to third together with copies of documents and
parties, except as may be provided under affidavits of witnesses, if any, copy furnished
existing laws. the complainant.
Failure of the respondent to file an
RULE II – COMPLAINT answer within the prescribed period shall
be considered a waiver and the case shall
Sec. 1. Complaint. - The complaint shall be deemed submitted for resolution.
be in writing and subscribed and sworn to
by the complainant. However, in cases Sec. 2. Preliminary Investigation. –
initiated by the appropriate department of Upon receipt of the sworn answer of the
the BSP, the complaint need not be under respondent, the OSI shall determine
oath. No anonymous complaint shall be whether there is a prima facie case against
entertained. the respondent. If a prima facie is

APP. Q-35
05.12.31
established during the preliminary thereto, and shall require him to submit,
investigation, the OSI shall file the formal within ten (10) days from receipt thereof, a
charge with the Supervised Banks sworn answer, copy of which shall be
Complaints Evaluation Group (SBCEG), furnished the prosecution.
BSP. However, in the absence of a prima The respondent, in his answer, shall
facie case, the OSI shall dismiss the specifically admit or deny all the charges
complaint without prejudice or take specified in the formal charge, including the
appropriate action as may be warranted. attachments. Failure of the respondent to
comment, under oath, on the documents
Sec. 3. Formal Charge. – The formal attached thereto shall be deemed an
charge shall contain the name of the admission of the genuineness and due
respondent, a brief statement of material or execution of said documents.
relevant facts, the specific charge, and the
pertinent provisions of banking laws, rules Sec. 4. Waiver. – In the event that the
or regulations violated. respondent, despite due notice, fails to
submit an answer within the prescribed
Sec. 4. Prosecution. – The OSI shall period, he shall be deemed to have waived
prosecute the case. The complainant may his right to present evidence. The Hearing
be assisted or represented by counsel, who Panel or Hearing Officer shall issue an
may be deputized for such purpose, under Order to that effect and direct the
the direction and control of the OSI. prosecution to present evidence ex parte.
Thereafter, the Hearing Panel or Hearing
RULE IV – PROCEEDING BEFORE THE Officer shall submit a report on the basis of
HEARING PANEL OR HEARING available evidence.
OFFICER
Sec. 5. Preliminary Conference.– Upon
Sec. 1. Filing of the Formal Charge.- receipt of the answer of respondent, the
The OSI shall file the formal charge before Hearing Panel or Hearing Officer shall set
the SBCEG. It shall also furnish the SBCEG the case for preliminary conference for the
with supporting documents relevant to the parties to consider and agree on the
formal charge. admission or stipulation of facts and of
documents, simplification of issues,
Sec. 2. Hearing Officer and identification and marking of evidence and
Composition of the Hearing Panel. – The such other matters as may aid in the prompt
case shall be heard either by a Hearing and just resolution of the case. Any
Officer or a Hearing Panel, which shall be evidence not presented and identified
composed of a Chairman and two (2) during the preliminary conference shall not
members, all of whom shall be designated be admitted in subsequent proceedings.
by the SBCEG. The SBCEG shall determine
whether the case shall be heard either by a Sec. 6. Submission of Position
Hearing Panel or a Hearing Officer. Papers.– After the preliminary conference,
the Hearing Panel or Hearing Officer shall
Sec. 3. Answer. – The Hearing Panel issue an Order stating therein the matters
or Hearing Officer shall furnish the taken up, admissions made by the parties
respondent with a copy of the formal and issues for resolution. The Order shall
charge, with supporting documents relevant also direct the parties to simultaneously

APP. Q-35
05.12.31
submit, within ten (10) days from the thereon and cause true copies of its
receipt of said Order, their respective Resolution to be served upon the parties.
position papers which shall be limited to
a discussion of the issues as defined in the Sec. 3. Finality of the Resolution.–
Order. The Resolution of the Monetary Board
shall become final after the expiration of
Sec. 7. Hearing. – After the fifteen (15) days from receipt thereof by
submission by the parties of their position the parties, unless a motion for
papers, the Hearing Panel or Hearing reconsideration shall have been timely
Officer shall determine whether or not filed.
there is a need for a hearing for the purpose
of cross-examination of the affiant(s). If Sec. 4. Motion for Reconsideration.–
the Hearing Panel or Hearing Officer finds A motion for reconsideration may only be
no necessity for conducting a hearing, he entertained if filed within fifteen (15) days
shall issue an Order to the effect. from receipt of the Resolution by the
In cases where the Hearing Panel or parties. No second motion for
Haring Officer deems it necessary to allow reconsideration shall be allowed.
the parties to conduct cross-examination,
the case shall be set for hearing. The RULE VII – APPEAL
affidavits of the parties and their witnesses
shall take the place of their direct Sec. 1. Appeal. – An appeal from the
testimony. Resolution of the Monetary Board may be
taken to the Court of Appeals within the
RULE V – PROHIBITED MOTIONS period and in the manner provided under
Rule 43 of the Revised Rules of Court.
Sec. 1. Prohibited Motions. – No
motion to dismiss or quash, motion for bill RULE VIII – EXECUTION OF
of particulars and such other dilatory RESOLUTION
motions shall be allowed in the cases
covered by these Rules. Sec. 1. Resolution Becoming
Executory. – The Resolution of the
RULE VI – RESOLUTION OF THE CASE Monetary Board shall become executory
upon the lapse of fifteen (15) days from
Sec. 1. Contents and Period for receipt thereof by the parties or from the
Submission of Report. – Within sixty (60) receipt of the denial of the motion for
days after the Hearing Panel or Hearing reconsideration.
Officer has issued an Order declaring that
the case is submitted for resolution, a Sec. 2. Effect of Appeal. – The appeal
report shall be submitted to the Monetary shall not stay the Resolution sought to be
Board. The report of the Hearing Panel or reviewed unless the Court of Appeals shall
Hearing Officer shall contain clearly and direct otherwise upon such terms as it may
distinctly the findings of facts and deem just.
conclusions of law on which it is based.
Sec. 3. Enforcement of Resolution.–
Sec. 2. Rendition and Notice of When the Resolution orders the
Resolution. – After consideration of the imposition of fines, suspension or removal
report, the Monetary Board shall act from office of respondent, the

APP. Q-35
05.12.31
enforcement thereof shall be referred to the thereof inconsistent with these Rules are
appropriate department of the BSP. hereby repealed, amended or modified
accordingly.
RULE IX – MISCELLANEOUS
PROVISIONS Section 2. Separability Clause. – If any
part of these Rules is declared
Section 1. Repeal. – All existing rules, unconstitutional or illegal, the other parts
regulations, orders or circulars or any part or provisions shall remain valid.

APP. Q-36
05.12.31
FORMAT CERTIFICATION
______________________________
Name of Bank
CERTIFICATION
Pursuant to the requirements of Subsec 4211Q.12, I HEREBY CERTIFY that on all banking
days of the semester ended _____ that the ____________________ (quasi-bank) did not enter
into any repurchase agreement covering government securities, commercial papers and other
negotiable and non-negotiable securities or instruments that are not documented in
accordance with existing BSP regulations and that it has strictly complied with the pertinent
rules of the SEC and the BSP on the proper sale of securities to the public and performed the
necessary representations and disclosures on the securities particularly the following:
1. Informed and explained to the client all the basic features of the security being sold on
a without recourse basis, such as, but not limited to:
a. Issuer and its financial condition;

b. Term and maturity date;
c. Applicable interest rate and its computation;
d. Tax features (whether taxable, tax paid or tax-exempt);
e. Risk factors and investment considerations;
f. Liquidity feature of the instrument:
f.1. Procedures for selling the security in the secondary market (e.g., OTC or exchange);
f.2. Authorized selling agents; and
f.3. Minimum selling lots.
g. Disposition of the security
g.1. Registry (address and contact numbers)

g.2. Functions of the registry
g.3. Pertinent registry rules and procedures
h. Collecting and Paying Agent of the principal and interest

i. Other pertinent terms and conditions of the security and if possible, a copy of the
prospectus or information sheet of the security.
2. Informed the client that pursuant to BSP Circular No. 392 dated 23 July 2003 –
• Securities sold under repurchase agreements shall be physically delivered, if
certificated, to a BSP-accredited custodian that is mutually acceptable to the client and
the quasi-bank, or by means of book-entry transfer to the appropriate securities account
of the BSP-accredited custodian in a registry for said securities, if immobilized or
dematerialized, and

APP. Q-36
05.12.31
• Securities sold on a without recourse basis are required to be delivered physically

to the purchaser, or to his designated custodian duly accredited by the BSP, if certificated,
or by means of book-entry transfer to the appropriate securities account of the purchaser
or his designated custodian in a registry for said securities if immobilized or dematerialized
3. Clearly stated to the client that:
a. The quasi-bank does not guarantee the payment of the security sold on a “without
recourse basis” and in the event of default by the issuer, the sole credit risk shall be
borne by the client; and
b. The quasi-bank is not performing any advisory or fiduciary function.
_______________
Name of Officer
Position
Date _____________
SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiant exhibiting
his Community Tax Certificate as indicated below:
Name Community Tax Date/Place

Cert. No. Issued
Notary Public

App. Q-36
05.12.31
Annex Q-36-a
______________________________
Name of Bank
CERTIFICATION
Pursuant to the requirements of Subsec 4211Q.12, I hereby certify that as of 31

January 2005, the ____________________ (name of quasi-bank) does not have any
outstanding repurchase agreements covering government securities, commercial papers
and other negotiable and non-negotiable securities or instruments that are not documented
in accordance with existing BSP regulations.
_________________
Name of Officer
Position
his Community Tax Certificate as indicated below:

Cert. No. Issued
NotaryPublic

APP. Q-37
08.12.31
DUTIES AND RESPONSIBILITIES OF BANKS AND THEIR DIRECTORS/OFFICERS

IN ALL CASES OF OUTSOURCING OF BANKING FUNCTIONS
(Appendix to Sec. 4190Q, 4190S, 4190P and 4190N)
a. When outsourcing of banking c. Outsourcing of information

functions is allowed by law, banks shall: technology systems/processes. Subject to
(1) Carry out the same in accordance prior approval of the Monetary Board,
with proper standards, ensuring the banks may outsource all information
integrity of the data, systems and controls technology systems and processes except
of the banks and subject to the for functions excluded in Item “1”.
supervisory, regulatory and administrative (1) Certain functions affecting the ability
authority of the BSP over the banks and of the bank to ensure the fit of technology
their directors/officers; services deployed to meet its strategic and
(2) Be responsible for the performance business objectives and to comply with all
thereof in the same manner and to the same pertinent banking laws and regulations, such
extent as it was before the outsourcing; as, but not limited to, strategic planning for
(3) Comply with all laws and the use of information technology;
regulations governing the quasi-banking determination of system functionalities;
activities/services performed by the change management inclusive of quality
qualified service providers in its behalf such assurance and testing; service level and
as, but not limited to, keeping of records contract management; and security policy
and preparation of reports, signing and administration, may not be outsourced.
authorities, internal control and clearing Subject to prior approval of the Monetary
regulations; and Board and submission of the same
(4) Manage, monitor and review on an documentary requirements in Item “(2)”
ongoing basis the performance by the hereof, consultants and/or service providers
qualified service providers of the outsourced may be engaged to provide assistance/
banking activities/services. support to the bank personnel assigned to
b. Prohibition against outsourcing perform such functions.
certain banking functions. No bank or (2) Documentary requirements. A
any director, officer, employee, or agent bank intending to outsource information
thereof shall outsource inherent banking technology systems and processes shall
functions. submit the following documents to BSP
For purposes of this Section, which shall treat the same as strictly
outsourcing of inherent banking functions confidential:
shall refer to any contract between the bank (a) Proposed contract between the
and a service provider for the latter to bank and the service provider which
supply, or any act whereby the latter should, at a minimum, include all the
supplies, the manpower to service the following:
deposit substitute transactions of the (i) Complete description of the work to
former. be performed or services to be provided;
Banks cannot outsource management (ii) Fee structure;
functions except as may be authorized by (iii) Provisions regarding on-line
the Monetary Board when circumstances communication availability, transmission
justify. line security, and transaction authentication;

APP. Q-37
08.12.31
(iv) Responsibilities regarding (xvii) Access of BSP to the operations

hardware, software and infrastructure of the service provider in order to review
upgrades; the same in relation to the outsourced
(v) Provisions governing activities/services;
amendment and pretermination of contract; (xviii) Provision which requires the
(vi) Mandatory notification by the service provider to immediately take the
service provider of all systems changes that necessary corrective measures to satisfy
will affect the bank; the findings and recommendations of BSP
(vii) Details of all security procedures examiners and those of the internal and/
and standards; or external auditors of the bank and/or the
(viii) Responsibility, fines, penalties service provider; and
and accountability of the service provider (xix) Remedies for the bank in the
for errors, omissions and frauds; event of change of ownership, assignment,
(ix) Confidentiality clause covering attachment of assets, insolvency, or
all data and information; solidary liability receivership of the service provider.
of service provider and bank for any (b) Minutes of meetings of the board
violation of R.A. No. 1405 (Bank Deposits of directors of the bank concerned signed
Secrecy Law) actions that the bank may by majority thereof, certified by the
take against the service provider for breach secretary and attested by the president
of confidentiality or any form of disclosure documenting their discussions on the
of confidential information; and the following:
applicable penalties; (i) The benefits and advantages of
(x) Segregation of the data of the outsourcing with respect to, among others,
bank from that of the service provider and its role and contribution to the
its other clients; accomplishment of the strategic and
(xi) Disaster recovery/business business plans of the bank as well as the
continuity contingency plans and economy, efficiency and quality of its over-
procedures; all operations;
(xii) Adequate insurance for fidelity (ii) The careful and diligent evaluation,
and fire liability; prior to selecting the service provider with
(xiii) Ownership/maintenance of which it is entering into an outsourcing
the computer hardware, software contract, by the bank of various service
(program source code), user and system providers and their proposals, including
documentation, master and transaction their reputation, financial condition, cost
data files; for development, maintenance and
(xiv) Guarantee that the service support, internal controls, recovery
provider will provide necessary levels of processes, service level agreements,
transition assistance if the bank decides to availability of competent, technically
convert to other service providers or other qualified and experienced personnel,
arrangements; strategic or convenient location of support
(xv) Access to the financial services and such similar other
information of the service provider; considerations;
(xvi) Access of internal and external (iii) The creation, organization and
auditors to information regarding the membership of a senior management
outsourced activities/services which they oversight committee to handle and
need to fulfill their respective oversee the efficient implementation
responsibilities; and monitoring of the applications/

APP. Q-37
08.12.31
operations of the service provider to (d) credit card services;

ensure that the same is in accordance with (e) credit investigation and collection;
the existing information technology (f) processing of export, import and
initiatives, policies and guidelines of the other trading transactions;
bank; the list of the members of such (g) property appraisal;
committee, its organizational chart, and a (h) property management services;
detailed description of the roles and (i) internal audit, subject to the
responsibilities of its members must be following conditions:
included in the minutes of the meeting or (i) the board of directors and senior
submitted as attachments thereto; management of the regulated entity
(iv) The creation, organization and remain responsible for maintaining an
membership of a help desk to resolve all effective system of internal control and for
queries, problems and other concerns providing active oversight of the
arising from the applications/operations outsourced internal audit activities/
rendered by the service provider; and functions;
(v) The systems and user acceptance (ii) the external service provider shall
tests that will be conducted by the service be an independent external auditor
provider before full implementation of the included in the list of BSP-selected external
outsourced systems/processes and the auditors or a parent company which owns
unsatisfactory results of which shall be or controls more than fifty percent (50%)
valid ground to rescind the contract with of the subscribed capital stock of the
the service provider. outsourcing entity: Provided, That Item
(c) Profile of the selected service “A2” of the general requirements under
provider or the non-bank partner, in case Appendix Q-30 shall apply to the parent
of joint ventures and other similar company while Items “A2”, “A4”, “A5”,
arrangements, which should include: and “A6” shall apply to the independent
(i) Most recent and complete financial external auditor;
and operational information; (iii) the contract/service agreement
(ii) Track record; with the external service provider shall not
(iii) List of clientele, particularly banks be entered into for a period longer than five
and the services provided thereto by the (5) years;
service provider; and (iv) there shall be a contingency plan
(iv) At the option of the service provider to mitigate any significant disruption,
or non-bank partner, other documents discontinuity or gap in audit coverage,
demonstrative of its competence and particularly for high-risk areas;
reputation in the field of information (v) the written engagement contract or
technology as applied to banking operations. service agreement with the external
d. Outsourcing of other banking service provider shall, as a minimum:
functions (aa) define the rights, expectations and
(1) Subject to prior approval of the responsibilities of both parties;
Monetary Board, banks may outsource the (bb)set the scope and frequency of, and
following functions, services or activities: the fees to be paid for, the work to be
(a) data imaging, storage, retrieval performed by the external service
and other related systems; provider;
(b) clearing and processing of checks (cc) state that the outsourced internal
not included in the PCHC System; audit services are subject to regulatory
(c) printing of bank deposit statements; review and that BSP examiners shall be

APP. Q-37
08.12.31
granted full and timely access to internal provider) and such service provider shall
audit reports and related working papers; service only entities belonging to its
(dd) state that the external service business group;
provider will not perform management (iii) The bank shall certify that no
functions, make management decisions, or inherent quasi-banking functions involving
act or appear to act in a capacity equivalent deposit substitute transactions shall be
to that of a member of management or an outsourced to its parent/subsidiary (service
employee of the institution, and will provider);
comply with professional and regulatory (iv) The bank shall submit a Service
independence guidelines; Level Agreement duly signed by the
(ee) specify that the external service concerned parties and any amendments
provider must maintain the audit reports thereto, detailing the functions to be
and related working papers/files for at least outsourced, the respective responsibilities
five (5) years; of the bank and its parent/subsidiary
(ff) state that internal audit reports are (service provider), and a confidentiality
the property of the institution, that the clause; and
institution will be provided with copies (v) Any breach in any of the above
of related working papers/files it deems conditions shall subject the outsourcing of
necessary, and any information the aforementioned banking functions to
pertaining to the institution must be kept all the requirements of this Appendix;
confidential; and (n) back up and data recovery
(gg) establish a protocol for changing operations;
the terms of the service contract and (o) Call center operations for credit
stipulations for default and termination of card and bank services provided that such
the contract; bank services do not involve inherent
(j) marketing loans, deposits and banking functions;
other bank products and services, provided (p) loans processing, credit
it does not involve the actual opening of administration and documentation
deposit accounts; services in favor of subsidiaries, affiliates
(k) general bookkeeping and and other companies related to it by at least
accounting services: Provided, That these five percent (5%) common ownership;
activities do not include servicing bank (q) loan documentation services (such
deposits or other inherent banking as mortgage registration); and
functions; (r) such other activities as may be
(l) offsite records storage services; determined by the Monetary Board.
(m) front/back office functions, i.e., (2) Without need of prior Monetary
trade support services and downstream Board approval, banks may outsource the
processing activities, by parent to a following functions, services or activities:
subsidiary or vice-versa, subject to the (a) printing of loan statements and
following conditions: other non-deposit records, forms and
(i) The bank intending to outsource the promotional materials;
aforementioned functions shall certify that (b) transfer agent services for debt and
the front office functions to be done by its equity securities;
parent/subsidiary (service provider) shall (c) messenger, courier and postal
be limited to trade support services; services;
(ii) The bank shall remain a parent/ (d) security guard services;
subsidiary of its subsidiary/parent (service (e) vehicle service contracts;

APP. Q-37
08.12.31
(f) janitorial services; provider’s monitoring system are purely

(g) public relations services, ATM statuses and in no way shall client or
procurement services, and temporary transaction information be sent; and
staffing: Provided, That these activities do (t) such other activities as may be
not include servicing bank deposit determined by the Monetary Board.
substitutes or other inherent banking e. Service providers. When allowed
functions; by law, banks may enter into outsourcing
(h) sorting and bagging of notes and contracts only with service providers with
coins; demonstrable technical and financial
(i) maintenance of computer capability commensurate to the services
hardware, e.g., disk drives, printers, to be rendered.
monitors, UPS, network cabling systems; f. Review of subsisting outsourcing
(j) payroll of employees; contracts. Within six (6) months from 19
(k) telephone operator/receptionist July 2005 –
services; (1) banks should submit a list of all
(l) sale/disposal of acquired assets their existing contracts with service
(ROPA); providers, detailing the:
(m) personnel training and development; (a) services/activities being
(n) buildings, ground and other outsourced;
facilities maintenance; (b) terms of the contracts;
(o) legal services from local legal (c) measures, if any, undertaken by
counsel; the bank and/or service provider to ensure
(p) compliance risk assessment and the secrecy and confidentiality of all other
testing; data and information; and
(q) tax compliance services; Provided, (d) such other information as may be
That the service provider is not also the necessary to show compliance with the
external auditor of the bank; pertinent provisions of this Appendix or be
(r) ATM card plastic embossing required by the Monetary Board; and
service, subject to the following conditions: (2) for outsourcing contracts not in
(i) Only the ATM card number and accordance with this Appendix, the
the name of the depositor are printed/ following alternative courses of action are
indicated on the plastic card and stored in available to the bank concerned:
the magstripe; and (a) preterminate said contracts;
(ii) Account/Transaction validation is (b) renegotiate or remedy the same
done at the host level,i.e., the bank’s and submit the amendments thereto or
computer, as the card number stored in the new contracts to the BSP; or
magstripe is linked to the deposit account (c) submit a program of compliance to
number residing at the same host the BSP.
computer; (As amended by Circular Nos. 623 dated 09 October 2008,
(s) ATM incident management service; 621 dated 16 September 2008, 610 dated 26 May 2008,
Provided, That the messages transmitted by 596 dated 11 January 2008, 548 dated 25 September 2006 and
the ATM machines to the service 543 dated 08 September 2006)

APP. Q-38
07.12.31
IMPLEMENTATION OF THE DELIVERY BY THE SELLER OF SECURITIES TO THE

BUYER OR TO HIS DESIGNATED THIRD PARTY CUSTODIAN
(Appendix to Secs. 4441Q and 4144N and Subsecs. 4101Q.4, 4211Q.4 and 4103N.3)
Section 1. Statement of Policy. Pursuant transfer of ownership and issues registry

to the policy of the BSP to promote the confirmation to the buyers/holders. Except
protection of investors in order to gain their as otherwise provided in existing BSP
confidence in the securities market as regulations, a BSP-accredited securities
enunciated under Circular Nos. 392 and registry is considered a third party if it has
428 dated 23 July 2003 and 27 April 2004, no subsidiary or affiliate relationship with
respectively, the following rules/guidelines the issuer of securities.
shall be observed by banks and NBFI
under BSP supervision in their dealings in Sec. 3. Registry of Scripless Securities of
securities whether they are acting as seller, the Bureau of Treasury. The Bureau of
buyer, agent or custodian. Treasury, as operator of the RoSS , which
The disposition of compliance issues of this serves as the official registry for
Appendix is shown in Appendix Q-38a. government securities, is not subject to
The guidelines on the delivery of BSP accreditation and is exempted from the
government securities by the selling bank independence requirement under the
to an investor’s Principal Securities Account existing BSP regulations.
with the RoSS through the Client Interface
System facility are in Appendix Q-38b. Sec. 4. Delivery of Securities. Pursuant to
existing BSP regulations, securities sold on
Sec. 2. Distinction Between a Custodian a without recourse basis shall be delivered
and a Registry. A securities custodian is a by the seller to the purchaser, or to his
BSP-accredited bank or NBFI designated by designated BSP-accredited custodian which
the investor to perform the functions of must not be a subsidiary or affiliate of the
safekeeping, holding title to the securities issuer or seller.
either in a nominee or trustee capacity,
reports rendition, mark-to-market valuation, Sec. 5. Mode of Delivery. If the securities
administration of dividends or interest sold are certificated, delivery shall be
earnings and representation of clients in effected physically to the purchaser, or to
corporate actions. It may also perform value his designated BSP-accredited custodian.
added services such as collecting and The certificate must be transferred to and
paying and securities borrowing and registered under the name of the purchaser
lending as agent. A BSP-accredited and properly recorded in the registry book.
custodian is considered a third party if it On the other hand, delivery of immobilized
has no subsidiary or affiliate relationship or dematerialized securities shall be effected
with the issuer or seller of securities. by means of book entry transfer to the
On the other hand, a securities registry, appropriate securities account of either: (1)
other than the Bureau of Treasury, is a BSP- the purchaser in a registry of said securities;
accredited bank or NBFI designated or or (2) the purchaser’s designated custodian
appointed by the issuer to maintain the in a registry of said securities. Book-entry
securities registry book either in electronic transfer to a sub-account for clients under
or in printed form. It records the initial the primary account of the seller will not
issuance of the securities and subsequent be deemed compliant with this

APP. Q-38
07.12.31
requirement. The delivery must be supported Sec. 8. Authority of the Securities

by a confirmation of book-entry transfer to Owner/Purchaser to Revoke Special
be issued by the securities registry in case Power of Attorney (SPA). Whenever a
of name on registry or by a confirmation securities owner/purchaser executes an
receipt to be issued by the custodian in case SPA designating/appointing an agent to
of delivery to the purchaser’s designated open and maintain a custodianship
custodian. account with a BSP-accredited third party
custodian pursuant to Sec. 6 above, said
Sec. 6. Client Information. Selling or SPA shall clearly stipulate that the
dealing banks shall inform their clients appointment of the agent is revocable at
of the requirements under Secs. 3 and 4 the instance of the securities owner/
above, together with the complete list purchaser or his agent. Any revocation
of all BSP-accredited custodians. The by either party shall be made in writing
selling or dealing bank or NBFI must and must be given to the other party and
inform their clients that the choice of to the custodian. The custodian is
custodian is the sole prerogative of the hereby enjoined to acknowledge and
securities purchaser. The seller or dealer respect said right of the client. It is,
may, however, indicate to their clients however, understood that the revocation
their preferred custodian. Attached as of the SPA shall be without prejudice to
Annex “A” is a suggested template of the any transaction executed by the agent or
letter to the client. custodian prior to said party’s knowledge
of the revocation. Upon revocation of
Sec. 7. Custodianship Agreement. The the SPA, the custodian shall deal directly
securities owner/purchaser shall enter with the securities owner or his newly
into a custodianship agreement with a appointed agent. However, the
BSP-accredited third-party custodian of custodian has the right to impose
his choice. However, the securities additional reasonable conditions similar
purchasers/owners may designate/ to those being imposed on separate
appoint through a special power of custody accounts maintained directly by
attorney (SPA) a representative or agent individual or corporate clients.
for the purpose of opening and
maintaining an account with the BSP- Sec.9. Reports of the Custodian. Periodic
accredited third-party custodian: reports of the custodian on account
Provided, That if the securities seller or balances shall be rendered at least quarterly
dealer is appointed as an agent, its and shall reflect the mark-to-market
authority shall be limited to the opening valuation of the security in accordance with
of the custodianship account and the existing BSP regulations. It shall be
execution of trade transactions (i.e. delivered, mailed or electronically
buying and selling instructions transmitted directly to the securities owner
including relaying of instructions to the unless the securities owner gives a written
custodian to receive or deliver securities request or instruction directly to the
in order to consummate the buy/sell custodian to deliver said reports to a
transactions). It shall be the person/entity named therein. Said request/
responsibility of the custodian to protect instruction of the securities owner shall
the interest of the client by ensuring that indicate that he is appointing an agent/
the agent is acting within the scope of representative for the purpose,
his authority. notwithstanding contrary advice of the BSP.

APP. Q-38
07.12.31
Aside from the periodic reports, the Sec. 12. Compliance with the Anti-Money
custodian shall also issue confirmation of Laundering Act of 2001. For purposes of
transfers of ownership as they occur in compliance with the requirements of R.A.
either electronic or printed form delivered No. 9160, otherwise known as the “Anti-
directly to the securities owner, unless the Money Laundering Act of 2001”, as
securities owner gives a written request amended, particularly the provisions
or instruction directly to the custodian to regarding customer identification,
deliver the confirmation reports to a recordkeeping and reporting of suspicious
person/entity named therein. transactions, a BSP-accredited custodian may
rely on referral by the seller/issuer of securities,
Sec. 10. Right of the Securities Owner to in lieu of the face-to-face contact with client,
Sell his Securities. Subject to the subject to the following conditions:
requirements of existing laws and a. the seller/issuer is also a covered
regulations, securities owners shall have institution;
the right to choose the best buyers of his b. the seller/issuer certifies to the
securities in the secondary market, custodian that it has performed its own KYC
without limiting himself to the original screening on the client;
selling or dealing bank that he transacted c. the custodian has unchallenged
with. The securities seller or dealer shall access to the KYC records/documents of the
not impose any condition that will impair referring seller/issuer pertaining to the
this right of the securities owner or leave referral client;
him no alternative except to sell his d. the custodian maintains a record of
securities exclusively to the selling or the referral together with the minimum
dealing bank. information/documents required under the
law and its implementing rules and
Sec. 11. Undelivered Securities. In cases regulations; and
where banks or NBFIs under BSP e. the seller/issuer must provide the
supervision maintain custody of securities custodian with the following minimum
which were sold prior to the effectivity of information/documents:
Circular No. 457 dated 14 October 2004 For individual clients:
to clients who are unable or unwilling to 1. Name;
take delivery of said securities pursuant to 2. Present address;
the provisions of Circular No. 392 dated 3. Permanent address;
23 July 2003 but who declined to deliver 4. Date and place of birth;
their existing securities to a BSP-accredited 5. Nationality;
third party custodian, said banks/financial 6. Nature of work and name of employer
institutions shall: or nature of self-employment/business;
a. report on a quarterly basis to the 7. Contact numbers;
appropriate department of the SES the 8. Tax identification number, SSS
volume of said securities broken down into number or GSIS number;
maturity dates, type of security, ISIN or 9. Specimen signature; and
applicable certificate or reference number, 10. Source of fund(s);
and registry; and
b. ensure that said securities under For corporate clients:
custody are segregated from their 1. Articles of Incorporation/Partnership;
proprietary holdings. 2. By-laws;

APP. Q-38
07.12.31
3. Official address or principal identification documents supporting its KYC

business address; certification: Provided, That:
4. List of directors/partners; a. The BSP accredited custodian has
5. List of principal stockholders owning received a certification from the seller/dealer
at least two percent (2%) of the capital stock; that it has in its possession all required KYC
6. Contact numbers; documents and the custodian shall maintain
7. Beneficial owners, if any; a list of such documents;
8. Authorized signatories; b. The accredited custodian shall have
9. Board/Partnership Resolution on the unhampered access to the KYC documents
authority of the signatories; and for its own verification; and
10. Verification of the identification and c. KYC or customer identification
authority of the person purporting to act on documents shall be made available to
behalf of the client. regulators for verification upon request.
Nothwithstanding Secs. 12 and 13, the
Sec. 13. Safekeeping of Customers’ custodian is not precluded from conducting
Identification Documents. The BSP its own KYC activities and maintaining direct
accredited third-party custodian may entrust custody of the KYC documents of its clients.
to the referring seller/dealer the safekeeping (Circular No. 524 dated 31 March 2006, as amended by
and maintenance of the customer M-2007-002 dated 23 January 2007)

APP. Q-38
07.12.31
Annex A
TEMPLATE OF LETTER TO INVESTOR
Dear Investor:
We wish to inform you that the Bangko Sentral ng Pilipinas (BSP), in July of 2003
issued Circular No. 392, Series of 2003, which requires all securities sold by banks on a
“without recourse basis” (i.e. the bank has no liability to the buyer of securities in paying
the obligation due on the security) to be delivered to the buyer/purchaser of securities
through any of the following means:
(a) If the security is evidenced by a certificate of indebtedness, the certificate

must be transferred in the name of the purchaser/buyer and physically delivered
to the purchaser/buyer or to his designated BSP-accredited third party custodian.
(b) If the security is immobilized or dematerialized (i.e., that the security is not
evidenced by a certificate of indebtedness and instead security account is created
in the electronic books of the registry in the name of the purchaser/buyer or his
designated custodian):
i. The security must be delivered by book-entry transfer to the appropriate

securities account of the buyer in the registry of said securities which must
be evidenced by a confirmation in writing by the registrar to the buyer. The
confirmation of sale or document of conveyance shall be physically delivered
by the seller or dealer to the buyer, or
ii. The security must be delivered by book-entry transfer to the appropriate

securities account of the BSP-accredited third party custodian designated
by the buyer/purchaser in the registry of said securities which must be
evidenced by a confirmation in writing by the registrar to the said BSP-
accredited third party custodian, who shall in turn issue to the securities
owner a delivery receipt acknowledging receipt of the securities
Circular No. 392 is part of a package of reforms to support the development of the
domestic capital market through enhanced investor protection and greater market
transparency. It provides for a more defined role and responsibilities for the custodians and
registrars and a stricter supervision and regulation thereof by the BSP. It aims to provide the
client with the following benefits:
a. Full control and possession of the securities purchased;

b. Independent validation of the existence of securities purchased;
c. Regular reporting of securities holdings; and
d. Capability to choose most competitive counter-parties in case of sale, pledge,
transfer, and lending of securities.

APP. Q-38
07.12.31
Moreover, Circular No. 392, which amends CBP Circular 437-74, seeks to address
the changes in the legal framework brought by the developments in the market, i.e. where
purchase of securities may be evidenced not only by transfer of certificates but also by
electronic book-entry transfer of ownership in the books of the registrar for said security.
As an investor, therefore, of securities which is dematerialized or scripless, you

have the option to require your dealer/broker to deliver the securities to you by requiring
them to have the securities registered directly in your name in the registry of said securities
or by requiring them to have the securities registered in the name of the BSP accredited
third party custodian of your choice who in turn will credit your securities account with
them.
The registry is a BSP-accredited bank or non-bank financial institution (NBFI)

designated or appointed by the Issuer to (1) maintain the securities registry book; (2) record
the (a) issuance of the securities and (b) subsequent transfers of ownership thereof; and (3)
issue registry confirmation to the buyers/holders of security.
The custodian, on the other hand, is a BSP-accredited bank or NBFI designated by

the investor to safekeep the security by allowing it to hold title to the security, either in a
nominee or trustee capacity, to enable it to perform the following administrative functions/
services related to investing in a security or various securities: i) Mark to market valuation
of security that will enable the client to know the value of his investment at any period in
time; ii) compute and collect the interest due on the security; iii) render statements on
outstanding securities under safekeeping; iv) represents the client (per its instruction) in
the events of default or breach of contract of the issuer; and v) lend the security of the
clients as “agent” that will enable the client to earn additional income on the security.
The registrars and custodians underwent a rigorous evaluation process by the BSP
to determine whether they have the following: i) adequate capital to cover for potential
operating risks related to performing its custody functions; ii) competent management
team to manage the company with responsibility and proper corporate ethics; iii) robust
technology system to operate the custody business efficiently; and iv) favorable track record
or significant experience in the custody business or related business. They will also undergo
regular audit by the BSP to ensure that they comply with BSP rules and regulations and
will be subject to penalties and administrative sanctions for any violation thereof.
As of date, BSP has accredited the following registrars and custodians: Bank of the
Philippine Islands, CITIBANK N.A., Deutsche Bank, Hongkong and Shanghai Banking
Corporation, Philippine Depository and Trust Corporation, and Standard Chartered Bank.
The Registry of Scripless Securities (RoSS) operated by the Bureau of Treasury

(BTR) which is acting as a registry for government securities, is automatically accredited as
securities registry. However, the BTR, as registry, cannot act as custodian of government
securities pursuant to the opinion of the Secretary of Justice rendered on 17 January 2005
due to irreconcilable conflict of loyalties that is anathema to agency if the same institution
were to act as registrar and custodian at the same time.

APP. Q-38
07.12.31
The custodian shall render periodic reports on your account balances on a quarterly
basis, or at such interval as you may require. Moreover, the custodian shall issue to you a
confirmation of any transfer of ownership as it occurs, in either electronic or printed forms.
Said reports shall be delivered/mailed directly at your address unless you give a written
instruction directly to the custodian to deliver the said reports to your designated person/
entity. You are, however, required to acknowledge in the written instruction that you are
designating another person/entity to receive the periodic reports from the custodian,
notwithstanding contrary advice of the BSP.
Please note that the abovementioned arrangements may change once the BSP
issues more detailed implementing rules and guidelines to the abovementioned circulars.
We will update you if and when these developments occur.
Please fill up and sign the required documentation of your chosen custodian and
we will forward the same to them so that your securities account can be opened as soon as
possible. You may, however, designate/appoint an agent for this purpose. In either case,
the custody arrangement may or may not entail additional fees.
If you have any further questions, please call us so that we can refer the matter to
the appropriate custodian/registrar.
Very truly yours,
(Circular No. 524 dated 31 March 2006, as amended by M-2007-002 dated 23 January 2007)

APP. Q-38a
06.12.31
DISPOSITION OF COMPLIANCE ISSUES ON APPENDIX Q-38

(Appendix to Secs. 4441Q and 4144N and Subsecs. 4101Q.4, 4211Q.4 and 4103N.3)
A. The Monetary Board, in its they have obtained confirmation from the
Resolution No. 581 dated 5 May 2006 dealing banks that notifications on the
approved a thirty (30) calendar day period limitation of the dealing bank’s authority,
from 05 June 2006 within which banks/non- together with a compliant SPA for the clients’
banks will effect revisions to non- signature, have been sent to all their clients.
conforming SPAs issued by investor-clients Absent confirmation from the dealing bank
to strictly conform to the limited authority of the sending of notices and the revised SPA,
provisions of Section 7 of Appendix Q-38, the custodian should immediately freeze (i.e.,
subject to the following conditions: no new movements in the security, except
1. The clean-up of SPAs will cover sale or disposition thereof) the account to
those issued by clients prior to Circular No. be considered in substantial compliance.
524 dated 31 March 2006; 3. Absent a compliant SPA, the dealing
2. Custodians will allow transfers of bank and custodian should “freeze” the
securities from proprietary accounts of account of the client. Accordingly, if a client
dealers to their omnibus principal custody wants to transact with securities, the dealing
accounts within the period; bank must require the submission of an
3. There will be no penalties imposed executed compliant SPA before any new
for dealer-banks and accredited securities transaction can be entered into. Otherwise,
custodians that allowed non-compliant the dealing bank will be subject to the
SPAs prior to Circular No. 524 dated 31 appropriate penalties prescribed under
March 2006 or those issued under Circular Subsec. X441.29. However, for the period
Letter dated 4 August 2005 if corrected of 05 July 2006 - 04 August 2006,
within the thirty (30)-day period; and transactions by the dealing bank with its
4. Non-compliance with other clients, absent a compliant SPA but to which
provisions of Appendix Q-38 are not an advice on the limitation of the authority
covered/qualified to be corrected within the of the dealing bank and a compliant SPA
thirty (30)-day period and are therefore for signature have been sent, will be subject
subject to the usual penalty/sanctions under to a fine of P10,000.00 per transaction/day:
existing regulations. Provided, That the total penalty arising from
B. The Monetary Board, in its Resolution that class of violation for the said period shall
No. 876 dated 06 July 2006 approved the not exceed P100,000.00, computed in
following disposition of compliance issues for accordance with Section 37 of Republic Act
the period of 05 July 2006 - 04 August 2006: No. 7653 (The New Central Bank Act).
1. The sending by a dealing bank to Furthermore, the Custodian will not be
all its clients of: subject to any penalties for accepting
(a) a notice indicating a limitation on securities subject of the transaction.
the authority of the dealing bank pursuant 4. Starting on 05 August 2006, the
to Section 7 of Appendix Q-38; and penalties under Subsec. X441.29 shall be
(b) compliant SPA for execution applied for any violation of the provisions of
will be deemed substantial compliance only Appendix Q-38. Custodians shall be required
as of 05 July 2006. Proof thereof should be to freeze the securities account for those
preserved for examination purposes. without a compliant SPA from the investor.
2. Custodians will be deemed in (M-2006-009 dated 18 July 2006 and M-2006-002 dated 05
substantial compliance as of 05 July 2006 if June 2006)

APP. Q-38b
07.12.31
DELIVERY OF GOVERNMENT SECURITIES TO THE INVESTOR’S PRINCIPAL

SECURITIES ACCOUNT WITH THE REGISTRY OF SCRIPLESS SECURITIES
(Appendix to Secs. 4441Q and 4144N, Subsecs. 4101Q.4, 4211Q.4,
4103N.3, and 4103N.4)
The following are the guidelines on the the dealing QB/NBFI should freeze the
delivery of government securities by the account of the client/investor (i.e., no new
selling QB and/or NBFI under the movements in the account, except sale/
supervision of the BSP to an investor’s disposition upon written instruction by the
Principal Securities Account with the client/investor): Provided, That starting 01
Registry of Scripless Securities (RoSS) March 2007 no new Investors Principal
through the Client Interface System facility Securities Account shall be created unless
as compliance with the requirement of the investor submits a compliant Investor’s
effective delivery under Secs. 4441Q and Undertaking and SPA. Otherwise,
4144N, Subsecs. 4101Q.4, 4101Q.5, the dealing QB/NBFI will be subject to the
4211Q.4, 4103N.3 and 4103N.4: appropriate penalties prescribed under
(a) QBs/NBFIs, acting either as an Secs. 4441Q and 4144N, and, Subsecs.
accredited government securities eligible 4101Q.4, 4101Q.5, 4211Q.4, 4103N.3,
dealers (GSEDs) or licensed government and 4103N.4.
securities dealers, shall execute the attached (e) The sub-accounts in the RoSS
Memorandum of Agreement (MOA) with the maintained by dealing QBs/NBFI for their
BTr regarding the creation of the Principal client/investor who either (1) declined in
Securities Account with the RoSS on or before writing the delivery of his/its securities to a
31 January 2007. The MOA between the BTr direct registry account under his/its name
and GSED is attached as Annex A. or a third-party custodian or (2) have not
(b) If the dealing QB/NBFI is designated responded to the dealer’s letter to the client/
as the agent of the client/investor, the investor as regards the disposition of his/its
authority of the dealing QB/NBFI under the securities shall be frozen. However, sale/
Special Power of Attorney (SPA) executed disposition of securities in the sub-accounts
by the client/investor shall be limited to the shall be allowed upon written instruction
opening of the Principal Securities Account by the client/investor to dispose the same:
with the RoSS and the execution of trade Provided, That in case of a client/investor
transactions (i.e., buying and selling who as of 04 November 2004 has not
instructions, including relaying of instructions responded to the dealer’s letter regarding
to the BTr, as operator of the RoSS, to receive the disposition of his/its securities,
and deliver securities in order to the dealer should be able to obtain from the
consummate the buy/sell transaction). said client/investor the written instruction
(c) QBs/NBFIs shall require their regarding the client/investor’s inability to take
clients/investors who have manifested the delivery of existing securities. For clarity, the
desire to have their own Principal Securities sub-accounts maintained by the dealing
Account with the RoSS to execute (1) an SPA QBs/NBFIs shall not be considered a
pursuant to Secs. 4441Q and 4144N, Subsecs. violation of Subsecs. 4101Q.4, 4211Q.4,
4101Q.4, 4211Q.4, 4103N.3 and 4103N.4 4103N.3 and 4104N.4: Provided, That (1) the
and (2) the revised Investor’s Undertaking same were created on or before 04 November
(attached as Annex B) on or before 28 2004; and (2) no additional securities have
February 2007. been lodged thereon since 04 November
(d) Absent a compliant Investor’s 2004.
Undertaking and SPA as of 01 March 2007, (M-2007-002 dated 23 January 2007)

APP. Q-38b
07.12.31
Annex A
MEMORANDUM OF AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This agreement made and entered into this ______________________ at

_________________________, Philippines by and between:
The BUREAU OF THE TREASURY, a duly constituted government

bureau under the Department of Finance, Republic of the Philippines,
with principal office at Palacio del Gobernador Building, Gen. Luna
corner A. Soriano Avenue, Intramuros, Manila, represented herein by
the Treasurer of the Philippines, _______________________________,
and hereinafter referred to as “BTr”;
-and-
__________________________________________, a domestic/
international/banking/financial institution organized and existing
pursuant to the laws of the Republic of the Philippines/(country of
incorporation), duly licensed by the Securities and Exchange
Commission (SEC) to deal in securities, represented herein by
_____________________________________________ in her/his
capacity as _________________________________________, and
hereinafter referred to as the Dealer;
(the “BTr” and the “Dealer” may be referred to as a “Party” in the singular
tense, as “Parties” in the plural/collective tense)
WITNESSETH: THAT
WHEREAS, the Registry of Scripless Securities (RoSS) is the official registry of

government securities issued by the National Government through the BTr;
WHEREAS, the RoSS is an electronic registry of recording ownership of or interest

in and transfers of government securities;
WHEREAS, the delivery of government securities sold by the Dealer, on a without

recourse basis, to the investor’s Principal Securities Account with the RoSS through the
Client Interface System (CIS) Facility shall be sufficient compliance with the delivery
requirement under Subsec. X238.1 of the Bangko Sentral ng Pilipinas (“BSP”) Manual of
Regulations for Banks and Circular No. 524, dated 31 March 2006.
WHEREAS, the Dealer is a government securities eligible dealer, accredited by

the BTr to participate in the primary auction of government securities pursuant to Finance
Department Order No. 141-95, as amended, and/or a bank/financial institution licensed
by the SEC to deal in government securities in the secondary market;

APP. Q-38b
07.12.31
WHEREAS, investors of government securities purchase/trade the same in the

secondary market through any of the dealers;
WHEREAS, recording of ownership of or interest in government securities requires

the creation/opening of a Principal Securities Account with the RoSS through the CIS Facility;
WHEREAS, to promote transparency, investor confidence and deepening of the

government bond market, investors must be given adequate assistance in the opening/
creation of his/its Principal Securities Account with the RoSS (“Name-on- Registry”);
NOW, THEREFORE, in view of the foregoing premises and the mutual covenants
hereinafter provided, the parties hereby agree as follows:
Section 1. Obligations of BTr.
The BTr shall:
1. Receive instruction from the Dealer through the RoSS-CIS for the creation/
opening of the Principal Securities Account, as indicated in the Special Power of
Attorney executed by the investor in favor of the Dealer for that purpose;
2. Create/open in the RoSS a Principal Securities Account for the requesting investor
of scripless government securities through which all transactions affecting said
securities will be recorded;
3. Provide and forward to the investor an electronic confirmation of his/its RoSS

Principal Securities Account Number and notices and statements of account under
any of the modes indicated in the Investor’s Oath of Undertaking submitted to the BTr;
4. On relevant coupon/maturity payment dates and for payments made through

the BSP, instruct the BSP to credit the regular demand deposit account (DDA) of
the investor’s settlement bank: Provided, That if the coupon/maturity payment date
falls on a Saturday, Sunday, or Holiday or on a day during which business operations
of the BTr is suspended, payment/s shall be made by the BTr on the next business
day, without adjustment in the amount of interest to be paid.
5. Ensure that all government securities bought by investors from the Dealer are
accurately recorded under the investor’s Principal Securities Account or to the
Securities Custody Account of the investor’s designated third-party custodian.
6. Furnish the investor with Statement(s) of Securities Account, at least quarterly

and whenever there is a movement in the investor’s Principal Securities Account,
through the investor’s preferred mode of receipt of notice and/or statement;
7. Consistent with BTr Memoranda dated 28 December 2005, 12 January 2006

and 31 January 2006 and applicable BSP regulations, disallow any increase in the

APP. Q-38b
07.12.31
holdings of beneficial owners of securities recorded in the sub-account of the Dealer,

if any, existing as of 02 February 2006, for beneficial owners of securities who
have either (a) declined in writing the delivery of his/its securities to a direct registry
account under his or its name or a third-party custodian or (b) not responded to the
Dealer’s letter to the investor as regards the disposition of his/its securities. Any
withdrawal or sale of the securities, either partial or total, under the sub-account of
the Dealer for the beneficial owners may only be allowed if the Dealer is authorized
in writing by the client/Investor. Such written authority shall be furnished by the
Dealer to the BTr prior to the execution of the transaction.
Sec. 2. Obligations of the Dealer
The Dealer shall:
1. Assist the investor to open his/its individual Principal Securities Account (Name-
On-Registry) with the RoSS through the CIS facility;
2. Conduct the Know your Client (“KYC”) screening of its investors/clients referred
to the BTr for the creation of the Principal Securities Account (Name-On-Registry)
with the RoSS. In this connection it shall: (a) issue a certification to the BTr that it
has conducted the necessary “KYC” screening; (b) maintain client identification
records; (c) report any suspicious transaction in accordance with the provisions of
R.A. No. 9160, otherwise known as the “Anti-Money Laundering Act of 2001”, as
amended, and its implementing rules and regulations; and whenever necessary,
(d) afford BTr unchallenged access to said KYC records/documents. The same KYC
or customer identification documents shall likewise be made available to regulators
for verification upon request.
3. Transmit the investor’s instructions to the RoSS for the creation/opening of a

Principal Securities Account. For this purpose, the Dealer shall submit and/or inform
the investor to submit to the BTr his/her settlement account maintained in a
settlement bank of his/her choice, through which all relevant payments on the
securities will be made by the BTr;
4. Upon the creation of the investor’s Principal Securities Account with the BTr’s
RoSS to which the securities subject of a sale will be credited, immediately furnish
the investor with the BTr’s electronic confirmation of its creation. The Dealer shall
also provide to the investor the BTr electronic confirmation that include a statement
on the credited amount of securities;
5. Ensure that Special Power of Attorney (SPA) executed by client investors in their
favor as agents of the former be limited, pursuant to BSP Circular No. 524;
6. Ensure that all government securities sold to investors are delivered to their
appropriate Principal Securities Account with the RoSS, or to the account of the
investor’s designated custodian;

APP. Q-38b
07.12.31
7. Undertake not to misuse the investor’s RoSS Account No. which may come into
its possession upon the creation of a Principal Securities Account for the investor or
on previous transactions with the investor;
8. Acquaint/apprise investors on the rules and procedure prescribed by the BTr in

connection with investment and trading of scripless government securities, including
but not limited to coupon payment, redemption value/proceeds of the investor’s
securities, legal encumbrances, and other relevant information relative to investor’s
security holdings. As a minimum, investors must be apprised of the Revised RoSS
Procedure on Buy and Sell of Securities and recording of transfers through the
RoSS-CIS facility found in the BTr website, with particular emphasis on the feature
of non-tagging of securities to GSEDs, or non-exclusivity of the selling GSEDs for
subsequent transactions;
9. Whenever designated as authorized agent, provide BTr upon reasonable request,

all evidence of authority to transact on the securities issued by investor to such
authorized agent;
10. Whenever designated as authorized agent and/or settlement bank, ensure

confidentiality and prompt delivery of all notices and statements of securities
account/s to investors;
11. Ensure that all instructions transmitted to BTr concerning the securities account
of clients-investors are legal, valid and duly authorized pursuant to an agreement,
a special power of attorney, or any written authority executed by the client-investor
in favor of the dealer; and
12. Disallow any increase in the securities holdings of clients recorded in its sub-
account in the RoSS, with respect to clients who have either (a) declined in writing
the delivery of his/its securities to a direct registry account under his or its name or
a third-party custodian or (b) have not responded to the Dealer’s letter to the investor
as regards the disposition of his/its securities. The Dealer shall allow the client/
investor to withdraw or sell, whether partial or total, from the said securities holdings
recorded in the Dealer’s sub-account only upon written request/instruction by the
investor/client: Provided, That in case of investors who have not responded to the
Dealer’s letter regarding the disposition of his/its securities, the Dealer should be
able to obtain from such investor a written advice that he is neither willing to take
delivery nor have his securities delivered to a third-party custodian. The dealer shall
furnish BTr such written request/instruction prior to the execution of the transaction.
Sec. 3. Cut Off Period. No transfer of securities shall be allowed (i) during the period of
two (2) business days ending on (and including) the due date of any redemption payment
of principal and (ii) during the period of two (2) business days ending on (and including) the
due date of any coupon payment date (the “Closed Period”). BTr shall prevent any transfer
of the securities to be recorded in the RoSS during any Closed Period. Bondholders of
record as appearing in the RoSS as of the Closed Period will be treated by BTr as the
beneficial owners of such securities for any relevant payment.

APP. Q-38b
07.12.31
Sec. 4. Settlement Bank. Whenever the Dealer is designated by the investor as his/its
settlement bank, it shall confirm receipt of payments from BTr intended for the investor
and shall promptly and punctually credit the investor’s bank account all said relevant payments
on the securities. Upon the crediting of the regular demand deposit account of the Dealer with
BSP for the applicable payments, the investor shall be considered as having been fully paid on
his/its securities and the Dealer shall then be responsible to the investor. The BTr, its officers
and employees and agents shall not be made liable for any claim, liability, or responsibility for
damages or injury incurred by the investor on account of the Dealer’s failure to pay/credit the
investor’s settlement account.
Sec. 5. Compliance with Anti-Money Laundering Law. The Dealer shall be responsible
for compliance with the requirements of Anti-Money Laundering Law and other banking
laws, rules and regulations relative to reporting of suspicious accounts and deposits.
Sec. 6. Limitation of Liability. The BTr, its officers, employees and agents shall not be held liable
for any claim, liability or responsibility for damages or injury incurred by the investor on account
of the loss of his/its securities holdings unless the loss or injury was caused by the act or omission
of the BTr. Likewise, the BTr, its officers, employees and agents shall be rendered free and
harmless from any liability on account of effecting instruction/s transmitted by the Dealer to
the RoSS which the latter believed in good faith to have emanated from the Dealer.
Sec. 7. Sanctions for Fraudulent Transactions. In case the Dealer commits any fraudulent
act or transaction in connection with government securities or violates any of its undertakings
herein, the BTr shall have the right to impose administrative sanctions such as but not
limited to dis-accreditation and/or suspension of accreditation as a government securities
eligible dealer, and other administrative sanctions as may be prescribed by competent
authorities without prejudice to civil or criminal prosecution in accordance with law.
Sec. 8. Amendment and Repeal. This agreement may be amended, modified or repealed
by the parties in writing, by giving 30 days prior written notice.
Sec. 9. Effectivity. This agreement shall take effect immediately.
IN WITNESS WHEREOF, the parties have hereunto signed these presents this
_____________________ at _____________________.
BUREAU OF THE TREASURY [Dealer]
By: By:
_______________________ _______________________
Treasurer of the Philippines President & CEO
Signed in the presence of:
_______________________ _______________________

APP. Q-38b
07.12.31
Republic of the Philippines)

________________________)S.S
ACKNOWLEDGMENT
BEFORE ME, a Notary Public for and in the City of ________________, personally
appeared:
Name CTC No. Date & Place Issued
Bureau of the Treasury ________ ________________

Rep. by the Treasurer of the
Philippines
[Dealer]
Rep. by ____________________ ________ ________________
known to me to be the same persons who executed the foregoing instrument consisting
of ____ ( ) pages, including this page where this Acknowledgment is written, and
acknowledge to me that the same is their free and voluntary act and deed and of the
agency/institution they represent.
WITNESS MY HAND AND NOTARIAL SEAL this _____________ at

__________________, Philippines.
NOTARY PUBLIC
Doc. No.: ______

Page No.: ______
Book No.:______
Series of ______

APP. Q-38b
07.12.31
Annex B
NOTE: TO BE SUBMITTED TO THE

BUREAU OF THE TREASURY
INVESTOR’S UNDERTAKING
I/We,
For Individual Investors Name:

of legal age Address:
Civil Status:
For Juridical Entity Name:

authorized to do business Principal Office Address:
in the Philippines Place of Incorporation:
Name of Representative:
Capacity/Position of Representative:
A. Hereby agree to execute, pursuant to BSP Circular 524, a limited Special Power of
Attorney in favor of either the dealing Government Securities Eligible Dealer1
(GSED) or Securities Dealer2 for the creation of a Principal Securities Account with
the RoSS or for the execution of trade transactions (i.e. buying and selling instructions,
including relaying of instructions to “the CUSTODIAN“ to receive or deliver
securities in order to consummate the buy/sell transactions) and to be bound by
the provisions of a written Authority or a special power of attorney, or any relevant
agreement I/we have entered into concerning my/our government security
holdings, thereby confirming my/our authority for BTr-RoSS to carry out and execute
the acts or instructions referred to in the aforesaid documents;
B. It is understood that the RoSS administered by the BTr is the official registry of
ownership of or interest in government securities; that all government securities
floated/originated by NG under its scripless policy are recorded in the RoSS as
well as subsequent transfer of the same; and that I/we will abide by the rules and
regulations of BTr-RoSS concerning government securities.
And further undertake as follows:
1. To create/open through the Client Interface System a Principal Securities Account

with the RoSS to ensure that title of said scripless securities is officially recorded in
my/our name and under my/our control.
2. That as a condition for the creation/opening of my/our Principal Securities Account

with the RoSS, I/we have opened a bank account with
(_________________________________________ as Settlement Bank) to which
coupon and maturity proceeds and any other payments to be made on my/our
________________
1 Accredited by the Bureau of the Treasury
2 Licensed by the Securities and Exchange Commission
APP. Q-38b
07.12.31
government securities holdings will be credited; undertake to furnish the RoSS of

said bank account number; and give notice at least three (3) business days prior to
any coupon and/or maturity payment of any change in the Settlement Bank and/or
bank account number.
3. That no transfer of securities shall be made (i) during the period of two (2) business
days ending on (and including) the due date of any redemption payment of principal
and (ii) during the period of two (2) business days ending on (and including) the
due date of any coupon payment date (the “Closed Period”). I/We further acknowledge
that the BTr shall prevent any transfer of the securities to be recorded in the RoSS
during any Closed Period.
4. That in the case of outright sale transactions of government securities, including

that of RTBs, I/we undertake to sell the same to any of the GSEDs or Securities
Dealers, save those provided for under existing rules and regulations on government
securities applicable to tax-exempt institutions, government-owned or controlled
corporations and local government units. Otherwise, I/we shall have the said
securities delivered to my/our agent/custodian for trading or any other transactions
pursuant to a relevant written instruction/authority.
5. To receive notices and/or statements of account on a quarterly basis or whenever

there is a movement in my Principal Securities Account from the RoSS through
any of the following modes:
(Please indicate choice)
[ ] Pick-up at the RoSS

[ ] Registered Mail to Home/Office Address _______________________
[ ] Deliver electronically to Agent
[ ] Deliver electronically to Settlement Bank (for pick up)
[ ] Email - email address_________________
In the absence of an indicated choice, I/we understand that the BTr shall electronically
deliver all Notices and Statements to my/our designated settlement bank.
Note: In addition to the indicated manner of receiving notice(s) and statement(s),

Investor can directly secure from the BTr written copy of any notice, statement of
account, or confirmation report, subject to prior notice to and in accordance with
the procedures of the BTr.
I/We hereby agree to abide with the Schedule of Fees and the manner of collection,
as may be prescribed by the BTr from time to time.
6. That I/we expressly agree and acknowledge that the crediting to the regular demand
deposit account of my/our settlement bank of coupons and/or redemption value
due my/our scripless securities shall constitute actual receipt of payment by me/
us.

APP. Q-38b
07.12.31
7. To hold the BTr, its officers, employees and agents free and harmless against all
suits, actions, damages or claims arising from failure of my/our Settlement Bank to
credit my/our bank account for coupons and maturity values on due date.
8. That all instructions affecting my/our scripless securities which are transmitted to or
received in good faith by the RoSS from myself/ourselves or my/our designated
agent/custodian are covered by relevant documentation indicating my/our express
consent and authority.
9. That I/we expressly warrant and authorize the delivery of copies of all evidence of
authority granted to my/our designated agent/custodian to transact on my/our
scripless securities upon reasonable demand by BTr.
10. That I/we undertake to immediately notify the RoSS of any unauthorized trade of my/
our scripless securities, and until receipt of such notice, transactions effected by BTr
in good faith are deemed valid.
11. To render free and harmless the BTr, its officers, employees and agents for any
claim or damages with respect to trade instructions carried out in good faith.
12. That while it is understood that BTr shall maintain the strict confidentiality of records
in the RoSS, I/we hereby expressly waive and authorize BTr, to the extent allowed by
law, to disclose relevant information in compliance with Anti-Money Laundering
laws, rules and regulations.
13. To submit to the BTr the relevant special power of attorney or authorizations issued
to my/our agent, upon demand of BTr.
IN WITNESS WHEREOF, I/We hereunto affix our hands this _____ day of
_______________ at _____________________, Philippines.
____________________________________
Name & Signature of Investor
Conforme:
____________________________________
Settlement Bank

APP. Q-38b
07.12.31
ACKNOWLEDGMENT
BEFORE ME, a Notary Public for and in the City of _____________, personally
appeared:
Name: CTC No. Date: Place of Issue:
__________________________ ___________ ____________ ________________

(Investor or Representative of Juridical Entity)
known to me to be the same person who executed the foregoing instrument and he/she
acknowledged to me that the same is his/her free and voluntary act and deed (and the free
act and deed of the entity they represent).
WITNESS MY HAND AND NOTARIAL SEAL this ___________ at _________________,

Philippines.
NOTARY PUBLIC
Doc. No.: ______

Page No.: ______
Book No.:______
Series of ______

APP. Q-39
05.12.31
THE GUIDELINES FOR THE IMPOSITION OF MONETARY PENALTY FOR

VIOLATIONS/OFFENSES WITH SANCTIONS FALLING UNDER
SECTION 37 OF R. A. NO. 7653 ON QUASI-BANKS,
DIRECTORS AND/OR OFFICERS
(Appendix to Secs. 4199Q, 4299Q, 4399Q, 4499Q, 4599Q, 4699Q)
The schedule of penalty, categorized based on: (1) the nature of offenses such as minor,
less serious, and/or serious, and (2) the assets size of the quasi-bank, shall be as follows:
A. For Serious Offense

Up to P200 Above P200 Above P500 Above P1 Above P10 Above P50
Asset Size million million but million but Billion but Billion but Billion
Penalty not not not not
Range exceeding exceeding P1 exceeding exceeding
P500 million Billion P10 Billion P50 Billion
Minimum P 500 P 1, 000 P 3, 000 P 10, 000 P 18, 000 P 25, 000
Medium 750 1, 500 5, 000 12, 500 20, 000 27, 500
Maximum 1, 000 2, 000 7, 000 15, 000 22, 000 30, 000
B. For Less Serious Offense

Minimum P 300 P 600 P 1, 000 P 3, 000 P 7, 000 P 15, 000
Medium 350 700 1, 250 4, 000 8, 500 17, 500
Maximum 400 800 1, 500 5, 000 10, 000 20, 000
C. For Minor Offense

Minimum P 150 P 300 P 600 P 1, 000 P 3, 000 P 6, 000
Medium 200 400 700 1, 500 4, 000 8, 000
Maximum 250 500 800 2, 000 5, 000 10, 000
For purposes of this Regulation, the following definition of terms shall mean:
1. Serious Offense - This refers to unsafe or unsound quasi-banking practice. An unsafe

or unsound practice is one (1) in which there has been some conduct, whether act or
omission, which is contrary to accepted standards of prudent quasi-banking operation
and may result to the exposure of the quasi-bank and its shareholders to abnormal risk
or loss.

APP. Q-39
05.12.31
In determining the acts or omissions included under the unsafe or unsound

banking practice, an analysis of the impact thereof on the banks/quasi-banks/
trust entities’ operations and financial condition must be undertaken, including
evaluation of capital position, asset condition, management, earnings posture
and liquidity position. The following circumstances shall be considered:
(a) The act or omission has resulted or may result in material loss or damage, or
abnormal risk or danger to the safety, stability, liquidity or solvency of the
institution;
(b) The act or omission has resulted or may result in material loss or damage or
abnormal risk to the institution’s depositors, creditors, investors, stockholders or
to the Bangko Sentral or to the public in general;
(c) The act or omission has caused any undue injury, or has given unwarranted
benefits, advantage or preference to the quasi-bank or any party in the discharge
by the director or officer of his duties and responsibilities through manifest
partiality, evident bad faith or gross inexcusable negligence; or
(d) The act or omission involves entering into any contract or transaction manifestly
and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or
not the director or officer profited or will profit thereby.
Certain acts or omissions as falling under this classification maybe determined

based on the guidelines provided under Appendix Q-24.
2. Less Serious Offense - These include major acts or omissions defined as quasi-bank/
individual’s failure to comply with the requirements of banking laws, rules and
regulations, provisions of Manual of Regulations(MOR)/Circulars/Memorandum as well
as Monetary Board directives/instructions having material1/ impact on quasi-bank’s
solvency, liquidity or profitability and/or those violations classified as major offenses
under the Report of Examination, except those classified under unsafe or unsound
banking practice.
3. Minor Offense - These include acts or omissions which are procedural in nature, can
be corrected immediately and do not have material impact on the solvency, liquidity
and profitability of the quasi-bank. All other acts or omissions that cannot be classified
under the major offenses/violations will be classified under this category.
4. Minimum refers to the range of penalties to be imposed if the mitigating factor(s)

outweigh the aggravating circumstances.
5. Medium refers to the penalty to be imposed in the absence of any mitigating and
aggravating circumstances or if the mitigating factor(s) offset the aggravating factor(s).
1/
SFAS/IAS defines materiality as any information, which if omitted or misstated, could influence the economic decisions of
users taken on the basis of the financial statements. Per Financial Accounting Standard Board (FASB), it is defined as the
magnitude of an omission or misstatement of accounting information.

APP. Q-39
05.12.31
6. Maximum refers to the penalty to be imposed if the aggravating circumstances outweigh

the mitigating factor(s).
In determining the amount of penalty, a two-stage assessment shall be conducted as

follows:
Step 1: Determine the nature of offense whether it is: (a) Serious; (b) Less Serious; or
(c) Minor Offense; and
Step 2: Determine whether there are aggravating and/or mitigating factors (as listed
and defined in Annex A).
Both the aggravating and mitigating factors shall be considered for initial penalty
imposition and subsequent requests for reconsideration thereto.
The foregoing monetary penalties shall be without prejudice to the imposition of non-
monetary sanctions, if and when deemed applicable by the Monetary Board. Violations of
banking laws and Bangko Sentral regulations with specific penal clause are not covered by
this Regulation.

APP. Q-39
05.12.31
Annex A
Aggravating and Mitigating Factors to be Considered in the Imposition of Penalty
1. Aggravating Factors: Governor, in cases where the violation has

been elevated accordingly. This covers the
(a) Frequency of the commission of period after the final notification of the
specific violation – This pertains to existence of the violation until such time
commission or omission of a specific that the violation has been corrected and/
offense involving either the same or or remedied. The corrective action shall be
different transaction. This will also refer to reckoned with from the date of notification.
a violation which may have been corrected
in the past but found repeated in another (d) Concealment – This factor pertains
transaction/account in the subsequent to the cover up of a violation. In evaluating
examination. this factor, one shall consider the intention
In determining frequency, the number of the party(ies) involved and whether
of times of commission or omission of a pecuniary benefit may accrue accordingly.
specific offense during the preceding three Intention precedes concealment. The
(3) - year period shall also be considered. act of concealing an offense or omission
The word “offense” pertains to a carries with it the intention to defraud
violation that connotes infraction of regulators. Moreover, the amount of
existing BSP rules and regulations as well pecuniary benefit, which may or may not
as non-compliance with BSP/MB directives. accrue from the offense or omission, shall
also be considered under this factor.
(b) Duration of Violations Prior to Concealment may be apparent in cases
Notification – This pertains to the length of when quasi-bank officers purposely
time prior to the latest notification on the complicates the transaction to make it
violation. Violations that have been existing difficult to uncover or refuse to provide
for a long time before it was revealed/ information/documents that would support
discovered in the regular examination or are the violation/offense committed.
under evaluation for a long time due to Inasmuch as concealment and
pending requests or correspondences from intention are speculative matters and may
quasi-banks on whether a violation has be difficult to establish, appropriate support
actually occurred shall be dealt with through of facts or circumstantial evidence in this
this criterion. Violations outstanding for more factor shall be considered.
than one (1) year prior to notification, at the
minimum, will qualify as violations (e) Loss or risk of loss to quasi-bank –
outstanding for a long time. In assessing this factor, “potential loss”
refers to any time at which the quasi-bank
(c) Continuation of offense or was in danger of sustaining a loss.
omission after notification – This pertains · Substantial actual loss – The quasi-
to the persistence of an act or offense after bank has been exposed to a significant loss
the latest notification on the existence of of earnings and capital. The volume of
the violation, either from the appropriate accounts involved in the loss is substantial/
Supervision and Examination Department significant in relation to the institution’s
or from the Monetary Board and/or Deputy assets and capital. The quasi-bank/

App. Q-39
05.12.31
individual may have substantial/serious for example, by involvement of quasi-

violations that could impact the reputation bank’s director/officer in activities not
and earnings of the quasi-bank. acceptable to the regulatory bodies, e.g.
· Minimal actual loss or substantial pyramiding, investment scams etc. This
risk of loss – The quasi-bank has incurred may also involve insider abuse of authority/
minimal loss or will be exposed to substantial power. However, the banking industry is
risk of loss of earnings or capital although not affected for this isolated case.
both do not materially impact financial · Moderate impact on banking
condition. The volume of accounts industry or on public perception of
involved for minimal loss or substantial risk banking industry. This may involve poor
of loss is reasonable and manageable. corporate governance and mismanagement
While a loss was incurred, the quasi-bank of quasi-bank that may result to erosion of
could absorb the loss in the normal course public confidence leading to bank run in
of business. Substantial risk of loss includes various branches. This may also trigger a
any potential losses the aggregate of which bank run in other subsidiaries.
amounts to at least one percent (1%) of · Substantial impact on banking
the capital of the quasi-bank1. industry or on public perception of
· Minimal risk of loss – The risk banking industry. This is a worst-case
exposure on earnings or capital is minimal. scenario. The violations/irregular activities
Quasi-bank is not vulnerable to significant of the quasi-bank may totally erode the trust
loss. The volume of accounts involved for and confidence of the quasi-banking public
potential loss/risk is minimal/negligible. resulting to a nationwide bank run.
The risk of loss would have little impact Pessimistic perception of the banking public
on the quasi-bank or its financial condition. on the banking industry is highly observed.
The risk of loss aggregating to less than one
percent (1%) of the capital of the quasi- 2. Mitigating Factors
bank will fall under this classification.
(a) Good Faith – Good faith is the
(f) Impact to quasi-bank/banking absence of intention of the erring
industry– In assessing this factor, it is individual/entity in the commission of a
appropriate to consider any possible violation.
negative impact or harm to the quasi-bank. · Full Cooperation - This is
(e.g. A violation of law involving insider determined by the actions of the individual
abuse may result in adverse publicity for and/or quasi-bank towards the regulators
the institution, possibly causing a run on after or even before notification of the
deposits and affecting the quasi-bank’s offense and/or omission. Assistance
liquidity). Resulting effect on the banking rendered by the quasi-bank during the
industry on the violation/offenses investigation and/or examination
committed by the quasi-bank, if any, will conducted relative to the cited offense and/
also be considered. Sources of data may or omission may be viewed favorably when
come from news reports. computing the amount of penalty to be
· Substantial impact on quasi-bank. imposed on the quasi-Bank/individual.
No impact on banking industry. This may · With positive measures/action
involve reputational risk of the quasi-bank undertaken although not corrected
as a result of negative publicity generated immediately. The quasi-bank is willing to
1
Cir. 410 dated 29 October 2003 provides that external auditors of quasi-banks must report to BSP, among others, any
potential losses the aggregate of which amounts to at least one percent (1%) of the capital to enable the BSP to take timely and
appropriate remedial action.

APP. Q-39
05.12.31
remedy/correct the violation but is being regular/special examination or in the

restrained of its capacity to take immediate supervisory work (e.g. submission of
action thus, will undertake a Memorandum reports to the BSP disclosing the violation
of Undertaking/Commitment for a committed by the quasi-bank based on the
specified period as a sign of good faith. internal auditor’s findings) may be
The quasi-bank has started to rectify the considered as the highest level of
infraction by instituting reforms in their mitigation under this factor.
operations or systems. The burden of proof, however, falls on
· Voluntary disclosure of offense - the quasi-bank/individual to support its/his/
Voluntary disclosure of the quasi-bank of her claim of good faith and may be used
the offense committed before it is as basis to mitigate the amount of penalty
discovered by BSP examiners in the that may be imposed.

APP. Q-40
06.12.31
PROMPT CORRECTIVE ACTION FRAMEWORK

(Appendix to Secs. 4192Q, 4192S, 4192P and 4192N)
In carrying out its primary objective of building up a bank’s capital base (primarily
maintaining price stability conducive to a through an increase in Tier 1 capital) to a
balanced and sustainable growth of the level commensurate to the underlying risk
economy 1, the BSP must necessarily exposure and in full compliance with
maintain stability of the financial system minimum capital adequacy requirement. In
through preservation of confidence therein. conjunction with this plan, the BSP may also
While preservation of confidence in the require any one (1), or a combination of
financial system may call for closure of the following:
mismanaged banks and/or financial entities 1. Limit or curtail dividend payments
under its jurisdiction, such closure is not to common stockholders;
the only option available to the BSP. When 2. Limit or curtail dividend payments
a bank’s closure, for instance, is adjudged to preferred stockholders; and
by the Monetary Board to have adverse 3. Limit or curtail fees and/or other
systemic consequences, the State may act payments to related parties.
in accordance with law to avert potential Business improvement plan – this
financial system instability or economic component contains the set of actions to be
disruption.2 taken immediately to bring about an
It is recognized that the closure of a improvement in the entity’s operating
bank or its intervention can be a costly and condition, including but not limited to any
painful exercise. For this reason, the BSP, one (1), or a combination of the following:
as supervisor, can enforce prompt 1. Reduce risk exposures to
corrective action (“PCA”)3 as soon as a manageable levels;
bank’s condition indicates higher-than 2. Strengthen risk management;
normal risk of failure. 3. Curtail or limit the bank’s scope of
PCA essentially involves the BSP operations including those of its subsidiaries
directing the board of directors of a bank, or affiliates where it exercises control;
prior to an open outbreak of crisis, to 4. Change or replace management
institute strong measures to restore the officials;
entity to normal operating condition within 5. Reduce expenses; and
a reasonable period, ideally within one (1) 6. Other measures to improve the
year. These measures may include any or quality of earnings.
all of the following components: Corporate governance reforms – this
(1) Implementation of a capital component contains the actions to be
restoration plan; immediately taken to improve the
(2) Implementation of a business composition and/or independence of the
improvement plan; and board of directors and to enhance the
(3) Implementation of corporate quality of its oversight over the management
governance reforms. and operation of the entity. This also
Capital restoration plan – this includes measures to minimize potential
component contains the schedule for shareholder conflicts of interest detrimental
1
Section 3 of Republic Act No. 7653
2
Section 17 and 18 of Republic Act No. 3591, as amended
3
Section 4.6 of Republic Act No. 8791

APP. Q-40
06.12.31
to its creditors, particularly, depositors in a include, but are not limited, to any one (1)
bank. This likewise lays down measures to or a combination of the following:
provide an acceptable level of financial a. Finding of unsafe and unsound
transparency to all stakeholders. Such activities that could adversely affect the
actions could include, but are not limited interest of depositors and/or creditors;
to, any one (1), or a combination of the b. A finding of repeat violations of law
following: or the continuing failure to comply with
1. A change in the composition of the Monetary Board directives; and
board of directors or any of the mandatory c. Significant reporting errors that
committees [under the Manual of materially misrepresent the bank’s
Regulations for Non-Bank Financial financial condition.
Institutions (MORNBFI)]; The initiation of PCA shall be
2. An enhancement to the frequency recommended by the Deputy Governor,
and/or depth of reporting to the board of SES to the Monetary Board for approval.
directors; Any initiation of PCA shall be reported to
3. A reduction in exposures to and/or the PDIC for notation. Upon PCA initiation,
a termination or reduction of business the BSP shall require the bank to enter into
relationships with affiliates that pose a MOU committing to the PCA plan. The
excessive risk or are inherently MOU shall be subject to confirmation by
disadvantageous to the supervised financial the Monetary Board.
institution; and In order to monitor compliance with
4. A change of external auditor. the PCA, quarterly progress reports shall
A bank may be subject to PCA be made. The BSP reserves the right to
whenever any or all of the following conduct periodic on-site visits outside of
conditions obtain: regular examination to validate
(1) When either of the Total Risk-Based compliance with the PCA plan.
Ratio1, Tier 1 Risk-Based Ratio, or Leverage Subject to Monetary Board approval,
Ratio2 falls below ten percent (10%), six sanctions may be imposed on any bank
percent (6%) and five percent (5%), subject to PCA whenever there is
respectively, or such other minimum levels unreasonable delay in entering into a PCA
that may be prescribed for the said ratios plan or when PCA is not being complied
under relevant regulations, and/or the with. These may include any or all of the
combined capital account falls below the following:
minimum capital requirement prescribed (1) monetary penalty on or curtailment
under Sec. 4106Q; or suspension of privileges enjoyed by
(2) The Capital Adequacy, Asset Quality, the board of directors or responsible
Management, Earnings, Liquidity and officers;
Sensitivity to Market Risk (“CAMELS”) (2) restriction on existing activities that
composite rating is less than “3” or a the supervised financial institution may
Management component rating of less than “3”; undertake;
(3) A serious supervisory concern has (3) denial of application for branching
been identified that places a bank at more- and other special authorities;
than-normal risk of failure in the opinion of (4) denial or restriction of access to
the director of the Examination Department BSP credit facilities; and
concerned, which opinion is confirmed by (5) restriction on declaration of
the Monetary Board. Such concerns could dividends.
1
Otherwise known as Capital Adequacy Ratio (“CAR”)
2
Total Capital / Total Assets

APP. Q-40
06.12.31
On the other hand, if the bank subject immediately recommend to the Monetary
to PCA promptly implements a PCA plan Board more drastic actions as prescribed
and substantially complies with its under Sec. 29 (conservatorship) and Sec.
conditions, it may continue to have access 30 (receivership) of R.A. 7653.
to BSP credit facilities notwithstanding Subject to Monetary Board approval,
non-compliance with standard conditions the PCA status of a bank may be lifted:
of access to such facilities. The Deputy Provided, That the bank fully complies with
Governor, SES shall recommend such the terms and conditions of its MOU and:
exemption to the Monetary Board for Provided, further, That the Deputy
approval. Governor, SES has determined that the
In cases where a bank’s problems are financial and operating condition of the
deemed to be exceptionally serious from bank no longer presents a risk to itself or
the outset, or when a bank is unwilling to the financial system. Such improved
submit to the PCA or unable to assessment shall be immediately reported
substantially comply with an agreed PCA to the PDIC.
plan, the Deputy Governor, SES may (Circular No. 523 dated 23 March 2006)

APP. Q-41
06.12.31
GUIDELINES FOR THE CHANGE IN THE MODE OF COMPLIANCE WITH THE

LIQUIDITY RESERVE REQUIREMENT
(Appendix to Subsecs. 4246Q.1 & 4405Q.5)
The following guidelines shall be 5. Principal and interest payments at

observed in implementing the change in the maturity net of applicable tax shall be
mode of compliance with the liquidity made by the BSP through automatic credit
reserve requirement from holding to the institution’s demand deposit account
government securities bought directly from with the BSP. Full or partial rollover of
the BSP: placements in the RDA shall be settled on a
1. Government securities previously gross basis;
bought from the BSP in compliance with the 6. Any deficiency in the liquidity
liquidity reserve requirement shall remain reserves shall continue to be in the forms or
eligible for such purpose until these mature modes prescribed under existing regulations
or are sold back to the BSP at yields quoted for the composition of required reserves;
by the BSP Treasury Department (TD). Only 7. Banks and QBs shall continue to
the outstanding ERAP and PEACe bonds shall specify in the prescribed reports to the
qualify as eligible securities for liquidity Supervisory Data Center (SDC) of the BSP
reserves. Future issuances will no longer the balance of government securities held
carry the liquidity reserve eligibility under for liquidity reserve purposes. Said balance
this section. shall decline over time as government
2. The interest rates applied to the securities previously bought from the BSP
reserve deposit account (RDA) shall be set mature or are sold back to the BSP; and
by the TD at one-half percent (1/2%) below 8. To facilitate the adoption of the
the prevailing market rate for comparable change in the mode of compliance with the
government securities; liquidity reserve requirement, the TD (while
3. Pre-termination of RDAs shall be starting to accept placements in the reserve
allowed subject to a reduction in applicable deposit account) shall continue to sell
interest rates, as prescribed by the TD; government securities for liquidity reserve
4. Banks and QBs shall submit on purposes until 29 September 2006.
placement date a written authority (see The above guidelines shall take effect
Annex A) to the TD to debit their demand on 25 August 2006.
deposit account with the BSP as payment (Circular Nos. 551 dated 17 November 2006 and 539 dated
for the RDA; 09 August 2006)

APP. Q-41
06.12.31
Annex A
DEBIT/CREDIT AUTHORITY FORMAT

ORDINARY WHITE PAPER
2 COPIES
(COUNTERPARTY’S LETTERHEAD)
DATE: ________________
TREASURY DEPARTMENT
TREASURY SERVICES GROUP – DOMESTIC
BANGKO SENTRAL NG PILIPINAS
GENTLEMEN:
THIS IS TO CONFIRM OUR RESERVE DEPOSIT ACCOUNT (RDA) PLACEMENT WITH YOUR
OFFICE, DETAILED AS FOLLOWS:
VALUE DATE
TERM
MATURITY DATE
RATE
PRINCIPAL AMOUNT
GROSS INTEREST
WITHHOLDING TAX
LIQUIDITY RESERVES FOR Deposit Liabilities & Deposit Substitute
(PLEASE CHECK ONE) TOFA - Others
CTF
ACCORDINGLY, PLEASE DEBIT OUR REGULAR DEMAND DEPOSIT ACCOUNT

WITH YOURSELVES ON VALUE DATE FOR THE PRINCIPAL AMOUNT OF (AMOUNT IN
WORDS) (P) AND CREDIT THE SAME ACCOUNT ON MATURITY DATE THE
AMOUNT OF (AMOUNT IN WORDS) (P) REPRESENTING FULL PAYMENT OF THE
PRINCIPAL PLUS INTEREST (NET OF APPLICABLE WITHHOLDING TAX) THEREON.
VERY TRULY YOURS,
(AUTHORIZED SIGNATORY)1
(Circular Nos. 551 dated 17 November 2006 and 539 dated 09 August 2006)

APP. Q-42
06.12.31
GUIDELINES ON SUPERVISION BY RISK

(Appendix to Secs. 4193Q, 4193S, 4193P and 4193N)
I. Background cases, the primary concern of the BSP is that

It must be recognized that banking is a the FI operates in a safe and sound manner
business of taking risks in order to earn and maintains capital commensurate with
profits. While banking risks historically have its risks. Further guidance on risk
been concentrated in traditional banking management issues will be addressed in
activities, the financial services industry has subsequent issuances that are part of the
evolved in response to market-driven, overall risk assessment program.
technological, and legislative changes.
These changes have allowed FIs to expand III. Guidelines for risk management
product offerings, geographic diversity, and For purposes of the discussion of risk,
delivery systems. They have also the BSP will evaluate banking risk relative
increased the complexity of the FI’s to its impact on capital and earnings. From
consolidated risk exposure. Because of this a supervisory perspective, risk is the
complexity, FIs must evaluate, control, and potential that events, expected or
manage risk according to its significance. unanticipated, may have an adverse impact
The FI’s evaluation of risk must take into on the FI’s capital or earnings.
account how non-bank activities within a The BSP-SES has defined eight (8)
banking organization affect the FI. categories of risk for FI supervision
Consolidated risk assessments should be purposes. These risks are: credit, market,
a fundamental part of managing the FI. interest rate, liquidity, operational,
Large FIs assume varied and complex risks compliance, strategic, and reputation.
that warrant a risk-oriented supervisory These categories are not mutually exclusive;
approach. any product or service may expose the FI
to multiple risks. In addition, they can be
II. Statement of policy interdependent. Increased risk in one (1)
The existence of risk is not necessarily category can increase risk in other
a reason for concern. Likewise, the categories.
existence of high risk in any area is not
necessarily a concern, so long as Types and definitions of risk
management exhibits the ability to 1. Credit risk arises from
effectively manage that level of risk. Under counterparty’s failure to meet the terms of
this approach, the BSP will not necessarily any contract with the FI or otherwise
attempt to restrict risk-taking but rather perform as agreed. Credit risk is found in
ensure that FIs identify, understand, and all activities where success depends on
control the risks they assume. As an counterparty, issuer, or borrower
organization grows more diverse and performance. It arises any time FI funds are
complex, the FI’s risk management extended, committed, invested, or
processes must keep pace. When risk is not otherwise exposed through actual or
properly managed, BSP will direct FI implied contractual agreements, whether
management to take corrective action such reflected on or off the balance sheet. Credit
as reducing exposures, increasing capital, risk is not limited to the loan portfolio.
strengthening risk management processes 2. Market risk is the risk to earnings
or a combination of these actions. In all or capital arising from changes in the value

APP. Q-42
06.12.31
of traded portfolios of financial instruments. with, laws, rules, regulations, prescribed

This risk arises from market-making, dealing, practices, internal policies and procedures,
and position-taking in interest rate, foreign or ethical standards. Compliance risk also
exchange, equity and commodities markets. arises in situations where the laws or rules
3. Interest rate risk is the current and governing certain FI products or activities
prospective risk to earnings or capital arising of the FI’s clients may be ambiguous or
from movements in interest rates. Interest untested. This risk exposes the FI to fines,
rate risk arises from differences between the payment of damages, and the voiding of
timing of rate changes and the timing of cash contracts. Compliance risk can lead to
flows (repricing risk); from changing rate diminished reputation, reduced franchise
relationships among different yield curves value, limited business opportunities,
affecting FI activities (basis risk); from reduced expansion potential, and lack of
changing rate relationships across the contract enforceability.
spectrum of maturities (yield curve risk); and 7. Strategic risk is the current and
from interest-related options embedded in prospective impact on earnings or capital
FI products (options risk). arising from adverse business decisions,
4. Liquidity risk is the current and improper implementation of decisions, or
prospective risk to earnings or capital arising lack of responsiveness to industry changes.
from an FI’s inability to meet its obligations This risk is a function of the compatibility
when they come due without incurring of an organization’s strategic goals, the
unacceptable losses. Liquidity risk includes business strategies developed to achieve
the inability to manage unplanned those goals, the resources deployed against
decreases or changes in funding sources. these goals, and the quality of
Liquidity risk also arises from the failure to implementation. The resources needed to
recognize or address changes in market carry out business strategies are both
conditions that affect the ability to liquidate tangible and intangible. They include
assets quickly and with minimal loss in communication channels, operating
value. systems, delivery networks, and managerial
5. Operational risk is the current and capacities and capabilities. The organization’s
prospective risk to earnings or capital arising internal characteristics must be evaluated
from fraud, error, and the inability to deliver against the impact of economic,
products or services, maintain a competitive technological, competitive, regulatory, and
position, and manage information. Risk is other environmental changes.
inherent in efforts to gain strategic 8. Reputation risk is the current and
advantage, and in the failure to keep pace prospective impact on earnings or capital
with changes in the financial services arising from negative public opinion. This
marketplace. Operational risk is evident in affects the FI’s ability to establish new
each product and service offered. relationships or services or continue
Operational risk encompasses: product servicing existing relationships. This risk
development and delivery, operational may expose the FI to litigation, financial loss,
processing, systems development, or a decline in its customer base. In extreme
computing systems, complexity of products cases, FIs that lose their reputation may
and services, and the internal control suffer a run on deposits. Reputation risk
environment. exposure is present throughout the
6. Compliance risk is the current and organization and requires the responsibility
prospective risk to earnings or capital arising to exercise an abundance of caution in
from violations of, or non-conformance dealing with customers and the community.

APP. Q-42
06.12.31
IV. FI management of risk positions and exceptions. Monitoring

Because market conditions and reports should be frequent, timely,
company structures vary, there is no single accurate, and informative and should be
risk management system that works for all distributed to appropriate individuals to
FIs. Each FI should tailor its risk ensure action, when needed. For large,
management program to its needs and complex FIs, monitoring is essential to
circumstances. Sound risk management ensure that management’s decisions are
systems, however, have several things in implemented for all geographies,
common; for example, they are products, and legal entities.
independent of risk-taking activities. 4. Control risk: The FI should
Regardless of the risk management establish and communicate risk limits
program’s design, each program should: through policies, standards, and
1. Identify risk: To properly identify procedures that define responsibility and
risks, an FI must recognize and understand authority. These control limits should be
existing risks or risks that may arise from valid tools that management should be
new business initiatives, including risks able to adjust when conditions or risk
that originate in non-bank subsidiaries and tolerances change. The FI should have a
affiliates. Risk identification should be a process to authorize exceptions or
continuing process, and should occur at changes to risk limits when warranted. In
both the transaction and portfolio level. merging or consolidating FIs, the transition
2. Measure risk: Accurate and timely should be tightly controlled; business
measurement of risk is essential to plans, lines of authority, and accountability
effective risk management systems. An FI should be clear. Large, diversified FIs
that does not have a risk measurement should have strong risk controls covering
system has limited ability to control or all geographies, products, and legal
monitor risk levels. Further, the more entities.
complex the risk, the more sophisticated The Board must establish the FI’s
should be the tools that measure it. An FI strategic direction and risk tolerances. In
should periodically conduct tests to make carrying out these responsibilities, the
sure that the measurement tools it uses are Board should approve policies that set
accurate. Good risk measurement systems operational standards and risk limits. Well-
assess the risks of both individual designed monitoring systems will allow
transactions and portfolios. During the the Board to hold management
transition process in FI mergers and accountable for operating within
consolidations, the effectiveness of risk established tolerances. Capable
measurement tools is often impaired management and appropriate staffing are
because of the technological also essential to effective risk
incompatibility of the merging systems or management. FI management is
other problems of integration. Therefore, responsible for the implementation,
the resulting FI must make a strong effort integrity, and maintenance of risk
to ensure that risks are appropriately management systems. Management also
measured across the consolidated entity. must keep the directors adequately
Larger, more complex FIs must assess the informed. Management must:
impact of increased transaction volume a. Implement the FI’s strategy;
across all risk categories. b. Develop policies that define the
3. Monitor risk: FIs should monitor FI’s risk tolerance and ensure that they are
risk levels to ensure timely review of risk compatible with strategic goals;

APP. Q-42
06.12.31
c. Ensure that strategic direction and 4. Control systems include the tools
risk tolerances are effectively and information systems (e.g, internal/
communicated and adhered to throughout external audit programs) that FI managers
the organization; use to measure performance, make
d. Oversee the development and decisions about risk, and assess the
maintenance of management information effectiveness of processes. Feedback
systems to ensure that information is should be timely, accurate, and pertinent.
timely, accurate, and pertinent.
VI. Supervision by Risk
V. Assessment of risk management Using the core assessment standards
When assessing risk management of the BSP as guide, an examiner will
systems, the BSP will consider the FI’s obtain both a current and prospective view
policies, processes, personnel, and control of an FI’s risk profile. When appropriate,
systems. Significant deficiencies in any one this profile will incorporate potential
of these areas will cause the BSP to expect material risks to the FI from non-bank
the FI to compensate for these deficiencies affiliates’ activities conducted by the FI.
in their overall risk management process. Subsidiaries and branches of foreign FIs
1. Policies are statements of the FIs’ should maintain sufficient documentation
commitment to pursue certain results. onsite to support the analysis of their risk
Policies often set standards (on risk management. This risk assessment drives
tolerances, for example) and recommend supervisory strategies and activities. It also
courses of action. Policies should express facilitates discussions with FI management
an FI’s underlying mission, values, and and directors and helps to ensure more
principles. A policy review should always efficient examinations. The core
be triggered when an FI’s activities or risk assessment complements the risk
tolerances change. assessment system (RAS). Examiners
2. Processes are the procedures, document their conclusions regarding the
programs, and practices that impose order quantity of risk, the quality of risk
on the FI’s pursuit of its objectives. management, the level of supervisory
Processes define how daily activities are concern (measured as aggregate risk), and
carried out. Effective processes are the direction of risk using the RAS.
consistent with the underlying policies, are Together, the core assessment and RAS
efficient, and are governed by checks and give the appropriate department of the SES
balances. the means to assess existing and emerging
3. Personnel are the staff and risks in FIs, regardless of size or
managers that execute or oversee complexity.
processes. Good staff and managers Specifically, supervision by risk
perform as expected, are qualified, and allocates greater resources to areas with
competent. They understand the FI’s higher risks. The appropriate department
mission, values, policies, and processes. of the SES will accomplish this by:
Compensation programs should be 1. Identifying risks using common
designed to attract, develop, and retain definitions. The categories of risk, as they
qualified personnel. In addition, are defined, are the foundation for
compensation should be structured to supervisory activities.
reward contributions to effective risk 2. Measuring risks using common
management. methods of evaluation. Risk cannot always

APP. Q-42
06.12.31
be quantified in pesos. For example, supervisory efforts on the areas of greater

numerous internal control deficiencies risk within the FI, the consolidated banking
may indicate excessive operational risk. organization, and the banking system.
3. Evaluating risk management to To fully implement supervision by risk,
determine whether FI systems and the appropriate department of the SES will
processes permit management to manage also assign CAMELS ratings to the lead FI
and control existing and prospective levels and all affiliated FIs. It may determine that
of risk. risks in individual FIs are increased,
The appropriate department of the SES reduced, or mitigated in light of the
will discuss preliminary conclusions consolidated risk profile of the FI as a
regarding risks with FI management. whole. To perform a consolidated analysis,
Following these discussions, it will adjust it obtain pertinent information from FIs and
conclusions when appropriate. Once the affiliates, and verify transactions flowing
risks have been clearly identified and between FIs and affiliates.
communicated, it can then focus (Circular No. 510 dated 03 February 2006)

APP. Q-43
06.12.31
GUIDELINES ON MARKET RISK MANAGEMENT

I. Background evaluating the above parameters, the BSP

The globalization of financial markets, expects FIs to have sufficient knowledge,
increased transaction volume and volatility, skills and appropriate system and
and the introduction of complex products technology necessary to understand and
and trading strategies have made market risk effectively manage their market risk
management take on a more important role exposures. The principles set forth in these
in risk management. FIs now use a wide guidelines shall be used in determining the
range of financial products and strategies, adequacy and effectiveness of an FI’s market
ranging from the most liquid fixed income risk management process, the level and
securities to complex derivative trend of market risk exposure and adequacy
instruments and structured products. The of capital relative to exposure. The BSP shall
risk dimensions of these products and consider the following factors:
strategies must be fully understood, 1. The major sources of market risk
monitored, and controlled by a financial exposure and the complexity and level of
institution. risk posed by the assets, liabilities, and off-
balance-sheet activities of the FI;
II. Statement of policy 2. The FI’s actual and prospective level
For purposes of these guidelines, of market risk in relation to its earnings,
financial institutions refer to banks and capital, and risk management systems;
NBFIs supervised by the BSP and their 3. The adequacy and effectiveness of
respective financial subsidiaries. The level the FI’s risk management practices and
of market risk assumed by an FI is not strategies as evidenced by:
necessarily a concern, so long as the FI has • The adequacy and effectiveness of
the ability to effectively manage the risk. board and senior management oversight;
Therefore, the BSP will not restrict the level • Management’s knowledge and
of risk assumed by an FI, or the scope of ability to identify and manage sources of
its financial market activities, so long as the market risk as measured by past and
FI is authorized to engage in such activities projected financial performance;
and: • The adequacy of internal
• Understands, measures, monitors measurement, monitoring, and management
and controls the risk assumed, information systems;
• Adopts risk management practices • The adequacy and effectiveness of
whose sophistication and effectiveness are risk limits and controls that set tolerances
commensurate to the risk being monitored on income and capital losses;
and controlled, and • The adequacy and frequency of the
• Maintains capital commensurate FI’s internal review and audit of its market
with the risk exposure assumed. risk management process.
If the BSP determines that an FI’s risk Further, an FI’s market risk management
exposures are excessive relative to the FI’s system shall be assessed under the FI’s
capital, or that the risk assumed is not well general risk management framework,
managed, the BSP will direct the FI to reduce consistent with the guidelines on
its exposure to an appropriate level and/or supervision by risk as set forth under
strengthen its risk management systems.In Appendix Q-42.

APP. Q-43
06.12.31
III. Market risk management process market risk usually involves establishing
An FI’s market risk management process market risk limits that are consistent with
should be consistent with its general risk an FI’s market risk measurement
management framework and should be methodologies. Limits may be applied
commensurate with the level of risk through an outright prohibition on
assumed. Although there is no single market exposures above a pre-set threshold, by
risk management system that works for all restraining activities or deploying strategies
FIs, an FI’s market risk management process that alter the risk-return characteristics of on-
should: and off- balance sheet positions.
1. Identify market risk. Identifying Appropriate pricing strategies may likewise
current and prospective market risk be used to control market risk exposures.
exposures involves understanding the 4. Monitor market risk. Ensuring that
sources of market risk arising from an FI’s market risk exposures are adequately
existing or new business initiatives. An FI controlled requires the timely review of
should have procedures in place to identify market risk positions and exceptions.
and address the risk posed by new Monitoring reports should be frequent,
products and activities prior to initiating the timely and accurate. For large, complex FIs,
new products or activities. consolidated monitoring should be
Identifying market risk also includes employed to ensure that management’s
identifying an FI’s desired level of risk decisions are implemented for all
exposure based on its ability and willingness geographies, products, and legal entities.
to assume market risk. An FI’s ability to
assume market risk depends on its capital IV. Definition and sources of market risk
base and the skills/capabilities of its Market risk is the risk to earnings or
management team. In any case, market risk capital arising from adverse movements in
identification should be a continuing factors that affect the market value of
process and should occur at both the instruments, products, and transactions in
transaction and portfolio level. an institution’s overall portfolio, both on or
2. Measure market risk. Once the off-balance sheet. Market risk arises from
sources and desired level of market risk have market-making, dealing, and position-taking
been identified, market risk measurement in interest rate, foreign exchange, equity
models can be applied to quantify an FI’s and commodities markets.
market risk exposures. However, market risk Interest rate risk is the current and
cannot be managed in isolation. Market risk prospective risk to earnings or capital arising
measurement systems should be integrated from movements in interest rates.
into an FI’s general risk measurement system Foreign exchange risk refers to the risk
and results from models should be to earnings or capital arising from adverse
interpreted in coordination with other risk movements in foreign exchange rates.
exposures. Further, the more complex an FI’s Equity risk is the risk to earnings or
financial market activities are, the more capital arising from movements in the value
sophisticated the tools that measure market of an institution’s equity-related holdings.
risk exposures arising from such complex Commodity risk is the risk to earnings
activities should be. or capital due to adverse changes in the
3. Control market risk. Quantifying value of an institution’s commodity-related
market risk exposures help an FI align holdings.
existing exposures with the identified While there are generally four sources
desired level of exposures. Controlling of market risk, as defined herein, the focus

APP. Q-43
06.12.31
of this Appendix is interest rate risk and c. Yield curve risk

foreign exchange risk. Nevertheless, the Yield curve risk is the risk that rates of
principles set forth in the market risk different maturities may change by a
management process and sound risk different magnitude. It arises from variations
management practices are generally in the movement of interest rates across the
applicable to all sources of market risk. maturity spectrum of the same index or
market. Yield curves can steepen, flatten or
a. Interest rate risk even invert. Unanticipated shifts of the yield
Interest rate risk is the risk that changes curve may have adverse effects on an FI’s
in market interest rates will reduce current earnings or underlying economic value.
or future earnings and/or the economic d. Option risk
value of a financial institution. Accepting Option risk is the risk that the payment
interest rate risk is a normal part of financial patterns of assets and liabilities will change
intermediation and is a major source of when interest rates change. Formally, an
profitability and shareholder value. option gives the option holder the right, but
Excessive or inadequately understood and not the obligation to buy, sell, or in some
controlled interest rate risk, however, can manner alter the cash flow of an instrument
pose a significant threat to an FI’s earnings or financial contract. Options may be stand-
and capital. Thus, an effective risk alone instruments or may be embedded
management process that maintains interest within otherwise standard instruments.
rate risk within prudent levels is essential Examples of instruments with embedded
to the safety and soundness of FIs. options include various types of bonds,
notes, loans or even deposits which give a
1. Sources of interest rate risk counter-party the right to prepay or even
a. Re-pricing risk extend the maturity of an instrument or to
This is the most common type of interest change the rate paid. In some cases, the
rate risk and arises from differences in the holder of an option can force a counter-
maturity (for fixed-rate instruments) and re- party to pay additional notional, or to forfeit
pricing (for floating-rate instruments) of an notional already paid.
FI’s assets, liabilities and off-balance sheet The option holder’s ability to choose to
(OBS) positions. While such re-pricing alter cash flows creates an asymmetric
mismatches are fundamental to the business performance pattern. If not adequately
of financial intermediation, they also expose managed, the asymmetrical payoff
an FI’s earnings and underlying economic characteristics of instruments with
value to changes based on fluctuations in optionality can pose significant risk
market interest rates. particularly to those who sell the options,
b. Basis risk since the options held, both explicit and
Basis risk arises from imperfect embedded, are generally exercised to the
correlations among the various interest rates advantage of the holder and the
earned and paid on financial instruments with disadvantage of the seller.
otherwise similar re-pricing characteristics. A
shift in the relationship between these rates 2. Measuring the effects of interest rate risk
or interest rates in different markets can give Changes in interest rates affect both
rise to unexpected changes in the cash flows earnings and the economic value of an FI.
and earnings spread between assets, liabilities This has given rise to two separate, but
and OBS instruments of similar maturities or complementary, perspectives for evaluating
re-pricing frequencies. an FI’s exposure to interest rate risk.

APP. Q-43
06.12.31
Exposure to earnings typically receives focus of analysis under the earnings

the most attention. Many FIs use a modified perspective is the impact of changes in
interest rate gap or earnings simulation interest rates on accrual or reported
model to forecast earnings over a running earnings. Volatility in earnings should be
next twelve (12) month time horizon under monitored and controlled because reduced
a variety of interest rate scenarios. Given earnings or outright losses can threaten the
that a large portion of a typical FI’s liabilities financial stability of an FI by undermining
and even assets re-price in less than one (1) its capital adequacy. Further, unexpected
year, there is value in such a system. For volatility in earnings can undermine an FI’s
example, earnings are a key measure in reputation and result in an erosion of public
determining if the board of directors is confidence.
creating value for the shareholders. Fluctuations in interest rates generally
However, earnings over the next twelve have the greatest impact on reported
(12) months do not present a complete earnings through changes in net interest
picture of an FI’s exposure to interest rate income (i.e., the difference between total
risk. Many FIs hold assets such as bonds and interest income and total interest expense).
fixed rate loans with extended terms. The Thus, the BSP will expect FIs to adopt
full effect of changes in interest rates on the systems that are capable of estimating
value of these assets cannot be fully changes to net interest income under a
captured by a short-term earnings model. variety of interest rate scenarios. For
Thus, it is also important to consider a more example, non-complex FIs with traditional
comprehensive picture of the FI’s exposure business lines and balance sheets could
to interest rate risk through an assessment potentially limit their simulations to a single
of the FI’s economic value. ± 100 basis point parallel rate shock.
The BSP will not consider market risk However, FIs that hold significant levels of
to be “well managed” unless the FI has fully derivatives and structured products relative
implemented an effective risk measurement to capital should incorporate more severe
system whose sophistication is commensurate rate movements (e.g., ± 100, 200 and 300
with the nature and complexity of the risk basis points) to determine what happens if
assumed. Smaller FIs with non-complex single strike prices are breached or “events” are
currency balance sheets may be able to use a triggered. Further, the BSP will expect an FI
single non-complex measurement to employ alternative scenarios such as
methodology, such as re-pricing gap analysis changes to the shape of the yield curve if
to manage their interest rate risk. However, the FI is exposed to significant levels of
large commercial or universal banks with yield curve or basis risk.
complex, multi-currency balance sheets, or Changes in market interest rates may
FIs that accept large exposures of interest also affect the volume of activities that
rate risk relative to capital will be expected generate fee income and other non-interest
to measure interest rate risk through a income. Thus, FIs should incorporate a
combination of earnings simulation and broader focus on overall net income –
economic value. Trading activities should incorporating both interest and non-interest
continue to be managed through the use of income and expenses – if the FI reports
an effective, and independently validated significant levels of interest rate sensitive
Value-at-Risk (VaR) methodology. non-interest income.
a. Earnings perspective b. Economic value perspective
An FI should consider how changes in The economic value of an FI can be
interest rates may affect future earnings. The viewed as the present value of an FI’s

APP. Q-43
06.12.31
expected net cash flows, defined as the In contracting to meet clients’ foreign
expected cash flows from assets minus the currency needs or simply buying and selling
expected cash flows from liabilities plus the foreign exchange for its own account, a
expected net cash flows on off-balance sheet financial institution undertakes a risk that
(OBS) positions. As such, it provides a more exchange rates might change subsequent to
comprehensive view of the potential long- the time the contract is consummated.
term effects of changes in interest rates than Foreign exchange risk may also arise from
is offered by the earnings perspective. maintaining an open foreign exchange (FX)
While a variety of models are available, position. Thus, managing FX risk includes
the BSP expects that economic value monitoring an FI’s net FX position.
models will incorporate all significant An FI has a net position in a foreign
classes of assets, liabilities and OBS. As with currency when its assets, including spot and
earnings at risk, the FI should incorporate a future contracts to purchase, and its
variety of interest rate scenarios to ensure liabilities, including spot and future
that any strike prices, caps, limits, or contracts to sell, in that currency are not
“events” are breached in the simulation. equal. An excess of assets over liabilities is
Also, FIs with significant levels of basis or called a net “long” position and liabilities
yield curve risk are expected to add in excess of assets, a net “short” position.
scenarios such as alternative correlations It should be noted that when engaging
between interest rates and/or a flatter or in foreign exchange activities, FIs are also
steeper yield curve. exposed to other risks including liquidity
and credit risks, particularly related to the
Managing earnings and economic settlement of foreign exchange contracts. FIs
exposures should have an integrated approach to risk
Management must make certain management in relation to its foreign
tradeoffs when immunizing earnings and exchange activities: FX risk should be
economic value from interest rate risk. reviewed together with other risks to
When earnings are immunized, economic determine the FI’s overall risk profile.
value becomes more vulnerable, and vice Liquidity and settlement risks related to
versa. The economic value of equity, like foreign exchange activities are outside the
that of other financial instruments, is a scope of these guidelines. Nevertheless,
function of the discounted net cash flows it future guidelines may be issued on these
is expected to earn in the future. If an FI has risk areas.
immunized earnings, such that expected
earnings remain constant for any change in V. Sound market risk management
interest rates, the discounted value of those practices
earnings will be lower if interest rates rise. When assessing an FI’s market risk
Hence, its economic value will fluctuate management system, the BSP expects an FI
with rate changes. Conversely, if an FI fully to address the four (4) basic elements of a
immunizes its economic value, its periodic sound risk management system:
earnings must increase when rates rise and 1. Active and appropriate Board and
decline when interest rates fall. senior management oversight;
2. Adequate risk management policies
b. Foreign exchange risk and procedures;
Foreign exchange risk (FX risk) is the risk 3. Appropriate risk measurement
to earnings or capital arising from changes methodologies, limits structure, monitoring
in foreign exchange rates. and management information systems; and

APP. Q-43
06.12.31
4. Comprehensive internal controls regard to market risk management and how

and independent audits. market risk fits within the organization’s
The specific manner in which an FI overall risk management framework.
applies these elements in managing its market
risk will depend upon the complexity and Responsibilities of the board of directors
nature of its activities, as well as the level of The board of directors has the ultimate
market risk exposure assumed. What responsibility for understanding the nature
constitutes adequate market risk management and the level of market risk taken by the
practices can therefore vary considerably. FI. In order to carry out its responsibilities,
Regardless of the systems used, the BSP will the Board should:
not consider market risk to be well managed 1. Establish and guide the FI’s strategic
unless all four of the above elements are direction and tolerance for market risk.
deemed to be at least “satisfactory”. While it is not possible to provide a
As with other risk factor categories, comprehensive list of documents to
banking groups (banks and subsidiaries/ consider, the BSP should see a clear and
affiliates) should monitor and manage documented pattern whereby the Board
market risk exposures of the group on a reviews, discusses and approves strategies
consolidated and comprehensive basis. At and policies with respect to market risk
the same time, however, FIs should fully management. In addition, there should be
recognize any legal distinctions and possible evidence that the Board periodically
obstacles to cash flow movements among reviews and discusses the overall
affiliates and adjust their risk management objectives of the FI with respect to the level
practices accordingly. While consolidation of market risk acceptable to the FI.
may provide a comprehensive measure in 2. Identify senior management who
respect of market risk, it may also has the authority and responsibility for
underestimate risk when positions in one managing market risk and ensure that
affiliate are used to offset positions in senior management takes the necessary
another affiliate. This is because a steps to monitor and control market risk
conventional accounting consolidation may consistent with the approved strategies and
allow theoretical offsets between such policies. The BSP should be able to discern
positions from which an FI may not in a clear hierarchal structure with a clear
practice be able to benefit because of legal assignment of responsibility and authority.
or operational constraints. 3. Monitor the FI’s performance and
overall market risk profile, ensuring that
A. Active and appropriate board and the level of market risk is maintained
senior management oversight1 within tolerance and at prudent levels
Effective board and senior management supported by adequate capital. The Board
oversight of an FI’s market risk activities is should be regularly informed of the market
critical to a sound market risk management risk exposure of the FI and any breaches
process. It is important that these individuals to established limits for appropriate action.
are aware of their responsibilities with Reporting should be timely and clearly
1
This section refers to a management structure composed of a board of directors and senior management. The BSP is
aware that there may be differences in some FIs as regards the organizational framework and functions of the board of
directors and senior management. For instance, branches of foreign banks have board of directors located outside of the
Philippines and are overseeing multiple branches in various countries. In this case, “board-equivalent” committees are
appointed. Owing to these differences, the notions of the board of directors and the senior management are used in
these guidelines not to identify legal constructs but rather to label two decision-making functions within a FI.

APP. Q-43
06.12.31
presented. In assessing an FI’s capital review the organization’s market risk

adequacy for market risk, the Board should management policies and procedures to
consider the FI’s current and potential ensure that they remain appropriate and
market risk exposure as well as other risks sound.
that may impair the FI’s capital, such as 2. Ensure adherence to the lines of
credit, liquidity, operational, strategic, and authority and responsibility that the board
reputation risks. has established for measuring, managing,
4. Ensure that the FI implements and reporting market risk exposures.
sound fundamental principles that facilitate 3. Maintain appropriate limits
the identification, measurement, structure, adequate systems for measuring
monitoring and control of market risk. The market risk, and standards for measuring
board of directors should encourage performance.
discussions among its members and senior 4. Oversee the implementation and
management – as well as between senior maintenance of management information
management and others in the FI – and other systems to identify, measure,
regarding the FI’s market risk exposures monitor, and control the FI’s market risk.
and management process. 5. Establish effective internal controls
5. Ensure that adequate resources, over the market risk management process.
both technical and human resources, are 6. Ensure that adequate resources are
devoted to market risk management. available for evaluating and controlling
While board members need not have market risk. Senior management of FIs,
detailed technical knowledge of complex including branches of foreign banks, should
financial instruments, legal issues or ensure that analysis and market risk
sophisticated risk management techniques, management activities are conducted by
they have the responsibility to ensure that competent staff with technical knowledge
the FI has personnel available who have and experience consistent with the nature
the necessary technical skills to evaluate and scope of the FI’s activities. There
and control market risk. This responsibility should be sufficient depth in staff resources
includes ensuring that there is continuous to manage these activities and to
training of personnel on market risk accommodate the temporary absence of
management and providing competent key personnel and normal succession.
technical staff for the internal audit function. In evaluating the quality of oversight,
the BSP shall evaluate how the board and
Responsibilities of senior management senior management carry out the above
Senior management is responsible for functions/responsibilities. Further, sound
ensuring that market risk is adequately management oversight is highly related to
managed for both long-term and day-to- the quality of other areas/elements of an
day basis. In managing the FI’s activities, FI’s risk management system. Thus, even
senior management should: if board and senior management exhibit
1. Develop and implement policies, active oversight, the FI’s policies,
procedures and practices that translate the procedures, measurement methodologies,
board’s goals, objectives and risk limits structure, monitoring and
tolerances into operating standards that are information systems, controls and audit
well understood by personnel and that are must be considered adequate before
consistent with the board’s intent. Senior quality of board and senior management
management should also periodically can be considered at least “satisfactory”.

APP. Q-43
06.12.31
Lines of responsibility and authority market risk models used to quantify

FIs should clearly define the individuals market risk. Market risk policies should
and/or committees responsible for also identify quantitative parameters that
managing market risk and should ensure define the acceptable level of market risk
that there is adequate separation of duties for the FI. Where appropriate, limits
in key elements of the risk management should be further specified for certain
process to avoid potential conflicts of types of instruments, portfolios, and
interest. Management should ensure that activities. All market risk policies should
sufficient safeguards exist to minimize the be reviewed periodically and revised as
potential that individuals initiating risk- needed. Management should define the
taking positions may inappropriately specific procedures to be used for
influence key control functions of the identifying, reporting and approving
market risk management process. FIs exceptions to policies, limits, and
should therefore have risk measurement, authorizations.
monitoring, and control functions with It is important that FIs identify market
clearly defined duties that are sufficiently risk, as well as other risks, inherent in new
independent from position-taking products and activities and ensure these
functions of the FI and which report risk are subject to adequate procedures and
exposures directly to the board of directors. controls before the new products and
The nature and scope of safeguards to activities are introduced or undertaken.
minimize potential conflicts of interest Specifically, new products and activities
should be in accordance with the size and should undergo a careful pre-acquisition
structure of an FI. Larger or more complex review to ensure that the FI understands
FIs should have a designated independent their market risk characteristics and can
unit responsible for the design and incorporate them into its risk management
administration of the FI’s market risk process. Major hedging or risk
measurement, monitoring and control management initiatives should be
functions. approved in advance by the board or its
appropriate delegated committee.
B. Adequate risk management Proposals and the subsequent new
policies and procedures product/activity review should be formal
An FI’s market risk policies and and written. For purposes of managing
procedures should be clearly defined, market risk inherent in new products,
documented and duly approved by the proposals should, at a minimum, contain
board of directors. Policies and procedures the following features:
should be consistent with the nature and 1. Description of the relevant
complexity of the FI’s activities. When product or strategy;
reviewing banking groups, the BSP will 2. Use/purpose of the new product/
assess whether adequate and effective activity;
policies and procedures have been adopted 3. Identification of the resources
and implemented across all levels of the required and unit/s responsible for
organization. establishing sound and effective market
Policies and procedures should risk management of the product or activity;
delineate lines of responsibility and 4. Analysis of the reasonableness of
accountability and should clearly define the proposed activities in relation to the
authorized instruments, hedging strategies, FI’s overall financial condition and capital
position-taking opportunities, and the levels; and

APP. Q-43
06.12.31
5. Procedures to be used to measure, should ensure that the degree of detail

monitor, and control the risks of the regarding the nature of their positions is
proposed product or activity. commensurate with the complexity and
risk inherent in those positions.
C. Appropriate risk measurement At a minimum, smaller non-complex
methodologies, limits structure, FIs should have the ability to mark-to-
monitoring, and management information market or revalue their investment
system portfolio and construct a simple re-pricing
gap. When using gap analysis, the
Market risk measurement models/ precision of interest rate risk measurement
methodologies depends in part on the number of time
It is essential that FIs have market risk bands into which positions are aggregated.
measurement systems that capture all Clearly, aggregation of positions/cash flows
material sources of market risk and that into broad time bands implies some loss
assess the effect of changes in market risk of precision. In addition, the use of
factors in ways that are consistent with the reasonable and valid assumptions is
scope of their activities. Depending upon important for a measurement system to be
the size, complexity, and nature of precise. In practice, the FI must assess the
activities that give rise to market risk, the significance of the potential loss of
ability to capture all material sources of precision in determining the extent of
market risk in a timely manner may aggregation and simplification to be built
require an FI’s market risk measurement into the measurement approach.
system to be interfaced with other systems, Assumptions and limitations of the
such as the treasury system or loan system. measurement approach, such as the loss
The assumptions underlying the of precision, should be documented.
measurement system should be clearly On the other hand, banks holding an
understood by risk managers and senior expanded derivatives license and FIs
management. engaging in options or structured products
Market risk measurement systems with embedded options cannot capture all
should: material sources of market risk by using
1. Assess all material market risk static models such as the re-pricing gap.
associated with an FI’s assets, liabilities, These FIs should have interest rate risk
and OBS positions; measurement systems that assess the
2. Utilize generally accepted effects of rate changes on both earnings
financial concepts and risk measurement and economic value. These systems
techniques; and should provide meaningful measures of an
3. Have well-documented FI’s current levels of interest rate risk
assumptions and parameters. exposure, and should be capable of
There are a number of methods/ identifying any excessive exposures that
techniques for measuring market risks. might arise. Pricing models and simulation
Complexity ranges from simple marking- techniques will probably be required.
to-market or valuation techniques to more There is also a question on the extent
advanced static simulations using current to which market risk should be viewed on
holdings to highly sophisticated dynamic a whole institution basis or whether the
modeling techniques that reflect potential trading book, which is marked to market,
future business activities. In designing and the accrual book, which is often not,
market risk measurement systems, FIs should be treated separately. As a general

APP. Q-43
06.12.31
rule, it is desirable for any measurement cash flows from on- and off- balance sheet
system to incorporate market risk positions are incorporated into the
exposures arising from the full scope of measurement system on a consistent and
an FI’s activities, including both trading timely basis. Inputs should be verified
and non-trading sources. A single through a process that validates data
measurement system can facilitate analysis integrity. Assumptions and inputs should
of market risk exposure. However, this be subject to control and oversight review.
does not preclude different measurement Any manual adjustments to underlying
systems and risk management approaches data should be documented, and the nature
being used for similar or different and reasons for the adjustments should also
activities. For example, a bank with be clearly understood.
expanded derivatives license will use Critical to model accuracy is the
pricing models as basic tools in valuing validity of underlying assumptions.
position from its derivatives activities and Assumptions regarding maturity of
structured products. In addition, the bank deposits, for example, are critical in
should use simulation models to assess the measuring interest rate risk. The treatment
potential effects of changes in market risk of positions where behavioral maturity is
factors by simulating the future path of different from contractual maturity requires
market risk factors and their impact on cash the use of assumptions and may
flows from these activities. complicate the measurement of interest
Different methodologies may also be rate risk exposure, particularly when using
applied to the trading and accrual books. the economic value approach. The validity
Regardless of the number of models or of correlation assumptions to aggregate
measurement systems used, management market risk exposures is likewise
should have an integrated view of market important as breakdowns in correlations
risk across products and business lines. may significantly affect the validity of
Regardless of the measurement model results. Key assumptions should
system used, the BSP will expect the FI to therefore be subject to rigorous
ensure that input data are timely and documentation and review. Any significant
correct, assumptions can be supported and changes should be approved in advance
are valid, the methodologies used produce by the board of directors.
accurate results, and the results can be (2) Model risk. While accuracy is key
easily understood by senior management to an effective market risk measurement
and the board. system, methodologies cannot be
(1) Model input. All market risk expected to flawlessly predict potential
measurement methodologies require losses arising from market risk. The use of
various types of inputs, including hard data, models introduces the potential for model
readily observable parameters such as risk. Thus, model risk is the risk of loss
asset prices, and both quantitatively and arising from inaccurate or incorrect
qualitatively-derived assumptions. This quantification of market risk exposures due
applies equally to simple gap as well as to weaknesses in market risk
complex simulation models. methodologies. It may arise from relying
The integrity and timeliness of data is on assumptions that are inconsistent with
a key component of the market risk market realities, from employing input
measurement process. The BSP expects parameters that are unreliable, or from
that adequate controls will be established calibrating, applying and implementing
to ensure that all material positions and models incorrectly.

APP. Q-43
06.12.31
Model risk is more likely to arise for b. Model validation. Before models
instruments that have non-standard or are authorized for use, they should be
option-like features. The use of validated by individuals who are neither
proprietary models that employ directly involved in the development
unconventional techniques that are not process nor responsible for providing
widely agreed upon by market inputs to the model. Independent model
participants is likewise more sensitive to validation is a key control in the model
model risk. Even the use of standard development process and should be
models may lead to errors if the financial specifically addressed in an FI’s policies.
tools are not appropriate for a given Further, the BSP expects that the staff
instrument. validating the models will have the
The BSP expects FIs to implement necessary technical expertise.
effective policies and procedures to A sound validation process should
manage model risk. The scope of policies rigorously and comprehensively evaluate
and procedures will depend upon the type the sensitivity of the model to material
and complexity of models developed or sources of model risk and includes the
purchased. However, FIs holding an following:
expanded license or significant levels of 1. Tests of internal logic and
complex investments including mathematical accuracy;
structured products, should at a minimum 2. Development of empirical support
implement the following controls: for the model’s assumptions;
a. Model development/acquisition, 3. Back-testing. The BSP expects FIs
implementation and revisions. The BSP to conduct backtesting of model results.
expects larger, complex FIs to adopt Back-testing is a method of periodically
policies governing development/ evaluating the accuracy and predictive
acquisition, implementation and revision capability of an FI’s market risk
of market risk models. These policies measurement system by monitoring and
should clearly define the responsibilities comparing actual movements in market
of staff involved in the development/ prices or market risk factors with
acquisition process. FIs should ensure that projections produced by the model. To be
modeling techniques and assumptions are more effective, back-testing should be
consistent with widely accepted financial conducted by parties independent of those
theories and market practices. Policies developing or using the model. Policies
and procedures should be duly approved should address the scope of the back-
by the board of directors and properly testing process, frequency of back-testing,
documented. An inventory of the models documentation requirements, and
in use should be maintained along with management responses. Complex models
documentation explaining how they should be back-tested continually while
operate. simple models can be back-tested
The BSP also expects that revisions periodically. Significant discrepancies
to models will be performed in a should prompt a model review.
controlled environment by authorized 4. Periodic review of methodologies
personnel and changes should be made and assumptions. The BSP expects that FIs
or verified by a control function. Written will periodically review or reassess their
policies should specify when changes to modeling methodologies and
models are acceptable and how those assumptions. Again, the frequency of
revisions should be accomplished. review will depend on the model but

APP. Q-43
06.12.31
complex models should be reviewed at In addition, stress scenarios should

least once a year, when changes are made, include conditions under which key
or when a new product or activity is business assumptions and parameters
introduced. Model review could also be break down. The stress testing of
prompted when there is a need for the assumptions used for illiquid instruments
model to be updated to reflect changes in and instruments with uncertain contractual
the FI or market. The review process maturities are particularly critical to
should be performed by an independent achieving an understanding of the FI’s risk
group as it is considered to be part of the profile. When conducting stress tests,
risk control and audit function. special consideration should be given to
The use of vendor models can present instruments or markets where
special challenges, as vendors often claim concentrations exist. FIs should consider
proprietary privilege to avoid disclosing also “worst case” scenarios in addition to
information about their models. Thus, FIs more probable events.
may be constrained from performing Further, the BSP will expect FIs with
validation procedures related to internal material market risk exposure, particularly
logic, mathematical accuracy and model from derivatives and/or structured products
assumptions. However, vendors should to supplement their stress testing with an
provide adequate information on how the analysis of their exposure to
models were constructed and validated so “interconnection risk.” While stress testing
that FIs have reasonable assurances that typically considers the movement of a
the model works as intended. single market factor (e.g., interest rates),
c. Stress testing interconnection risk considers the linkages
The underlying statistical models used across markets (e.g., interest rates and
to measure market risk summarize the foreign exchange rates) and across the
exposures that reflect the most probable various categories of risk (e.g., credit, and
market conditions. Regardless of size and liquidity risk). For example, stress from
complexity of activities, the BSP expects one market may transmit shocks to other
FIs to supplement their market risk markets and give rise to otherwise
measurement models with stress tests. dormant risks, such as liquidity risk.
Stress testing are simulations that show Evaluating interconnected risk involves
how a portfolio or balance sheet might assessing the total or aggregate impact of
perform during extreme events or highly singular events.
volatile markets. Guidelines for performing stress
Stress testing should be designed to testing should be detailed in the risk
provide information on the kinds of management policy statement.
conditions under which the FI’s strategies Management and the board of directors
or positions would be most vulnerable. should periodically review the design,
Thus stress tests must be tailored to the major assumptions, and the results of such
risk characteristics of the FI. Possible stress stress tests to ensure that appropriate
scenarios might include abrupt changes in contingency plans are in place.
the general level of interest rates, changes (3) Model output. Reports should be
in the relationships among key market provided to senior management and the
rates (i.e., basis risk), changes in the slope Board as a basis for making decisions.
and the shape of the yield curve (i.e., yield Report content should be clear and
curve risk), changes in the liquidity of key straightforward, indicating the purpose of
financial markets, or changes in the the model, significant limitations, the
volatility of market rates. quantitative level of risk estimated by the

APP. Q-43
06.12.31
simulation, a comparison to Board Larger, more complex FIs should

approved limits and a qualitative establish limits on the potential impact of
discussion regarding the appropriateness changes in market risk factors on reported
of the FI’s current exposures. earnings or/and the FI’s economic value
Sophisticated simulations should be used of equity. Market risk limits may include
carefully so that they do not become limits on net and gross positions, volume
“black boxes” producing numbers that limits, stop-loss limits, value-at-risk limits,
have the appearance of precision but may re-pricing gap limits, earnings-at-risk limits
not be very accurate when their specific and other limits that capture either notional
assumptions and parameters are revealed. or (un)expected loss exposures. In
assigning interest rate risk limits under the
Market limits structure earnings perspective, FIs should explore
The FI’s board of directors should set limits on the variability of net income as
the institution’s tolerance for market risk well as net interest income in order to fully
and communicate that tolerance to senior assess the contribution of non-interest
management. Based on these tolerances, income to the interest rate risk exposure
senior management should establish of the FI. Such limits usually specify
appropriate risk limits, duly approved by acceptable levels of earnings volatility
the Board, to maintain the FI’s exposure under specified interest rate scenarios.
within the set tolerances over a range of For example, interest rate risk limits
possible changes in market risk factors may be keyed to specific scenarios of
such as interest rates. movements in market interest rates such
Limits represent the FI’s actual as an increase or decrease of a particular
willingness and ability to accept real magnitude. The rate movements used in
losses. In setting risk limits, the board and developing these limits should represent
senior management should consider the meaningful stress situations taking into
nature of the FI’s strategies and activities, account historic rate volatility and the time
past performance, and management required for management to address
skills. Most importantly, the board and exposures. Limits may also be based on
senior management should consider the measures derived from the underlying
level of the FI’s earnings and capital and statistical distribution of interest rates, such
ensure that both are sufficient to absorb as earnings at risk or economic value-at-
losses equal to the proposed limits. Limits risk techniques. Moreover, specified
should be approved by the board of scenarios should take account of the full
directors. Furthermore, limits should be range of possible sources of interest rate
flexible to changes in conditions or risk risk to the FI including re-pricing, yield
tolerances and should be reviewed curve, basis, and option risks. Simple
periodically. scenarios using parallel shifts in interest
An FI’s limits should be consistent rates may be insufficient to identify such
with its overall approach to measuring risks. This is particularly important for FIs
market risk. At a minimum, FIs using with significant exposures to these sources
simple gap should establish limits on of market risk.
mismatches in each time bucket on a The form of limits for addressing the
stand-alone and cumulative basis. In effect of rates on an FI’s economic value
addition, limits should be adopted to of equity should be appropriate for the size
control potential losses in the investment and complexity of its underlying positions.
portfolio to a pre-set percentage of capital. For FIs engaged in traditional banking

APP. Q-43
06.12.31
activities, relatively simple limits may the board on a regular basis. While the
suffice. However, for FIs with significant types of reports prepared for the board and
holdings of long-term instruments, options, for various levels of management will vary
instruments with embedded options, or based on the FI’s market risk profile, they
other structured instruments, more detailed should at a minimum include the
limit systems may be required. following:
Depending on the nature of an FI’s 1. Summaries of the FI’s aggregate
holdings and its general sophistication, exposures;
limits can also be identified for individual 2. Reports demonstrating the FI’s
business units, portfolios, instrument types, compliance with policies and limits;
or specific instruments. The level of detail 3. Summary of key assumptions, for
of risk limits should reflect the example, non-maturity deposit behavior,
characteristics of the FI’s holdings prepayment information, and correlation
including the various sources of market risk assumptions;
the FI is exposed to. 4. Results of stress tests, including
The BSP also expects that the limits those assessing breakdowns in key
system will ensure that positions that assumptions and parameters; and
exceed predetermined levels receive 5. Summaries of the findings of
prompt management attention. Limit reviews of market risk policies,
exceptions should be communicated to procedures, and the adequacy of the
appropriate senior management without market risk measurement systems,
delay. Policies should include how senior including any findings of internal and
management will be informed and what external auditors and retained consultants.
action should be taken by management in
such cases. Particularly important is D. Risk controls and audit
whether limits are absolute in the sense Adequate internal controls ensure the
that they should never be exceeded or integrity of an FI’s market risk
whether, under specific circumstances, management process. These internal
breaches of limits can be tolerated for a controls should be an integral part of the
short period of time. The circumstances institution’s overall system of internal
leading to a tolerance of breaches should control and should promote effective and
be clearly described. efficient operations, reliable financial and
regulatory reporting, and compliance with
Market risk monitoring and reporting relevant laws, regulations, and institutional
An accurate, informative, and timely policies. An effective system of internal
management information system is control for market risk includes:
essential for managing market risk 1. A strong control environment;
exposures both to inform management and 2. An adequate process for
to support compliance with board policy. identifying and evaluating risk;
Reporting of risk measures should be done 3. The establishment of control
regularly and should clearly compare activities such as policies, procedures, and
current exposure to policy limits. In methodologies;
addition, past forecasts or risk estimates 4. Adequate information systems;
should be compared with actual results to 5. Continual review of adherence to
identify any modeling shortcomings. established policies and procedures; and
Reports detailing the market risk 6. An effective internal audit and
exposure of the FI should be reviewed by independent validation process.

APP. Q-43
06.12.31
Policies and procedures should specify system’s accuracy, and recommend

the approval processes, exposure limits, solutions to any identified weaknesses. If
reconciliations, reviews, and other control the measurement system incorporates one
mechanisms designed to provide a or more subsidiary systems or processes,
reasonable assurance that the institution’s the review should include testing aimed
market risk management objectives are at ensuring that the subsidiary systems are
achieved. Many attributes of a sound risk well-integrated and consistent with each
management process, including risk other in all critical respects. The results of
measurement, monitoring, and control this review, along with any
functions, are actually key aspects of an recommendations for improvement,
effective system of internal control. FIs should be reported to senior management
should ensure that all aspects of the internal and/or the board.
control system are effective, including The BSP expects that FIs with
those aspects that are not directly part of complex risk exposures should have their
the risk management process. measurement, monitoring, and control
An important element of an FI’s functions reviewed on a regular basis by
internal control system is regular an independent party (such as an internal
evaluation and review. The BSP expects or external auditor). In such cases, reports
that FIs will establish a process to ensure written by external auditors or other
that its personnel are following established outside parties should be available to the
policies and procedures, and that its BSP. It is essential that any independent
procedures are actually accomplishing reviewer ensures that the FI’s risk
their intended objectives. Such reviews measurement system is sufficient to
and evaluations should also address any capture all material elements of market
significant change that may impact the risk, whether arising from on- or off-
effectiveness of controls, and that balance-sheet activities. Among the items
appropriate follow-up action was that an audit should review and validate
implemented when limits were breached. are:
Management should ensure that all such 1. The appropriateness of the FI’s risk
reviews and evaluations are conducted measurement system(s) given the nature,
regularly by individuals who are scope, and complexity of its activities.
independent of the function they are 2. The accuracy and completeness of
assigned to review. When revisions or the data inputs - This includes verifying that
enhancements to internal controls are balances and contractual terms are
warranted, there should be a mechanism correctly specified and that all major
in place to ensure that these are instruments, portfolios, and business units
implemented in a timely manner. are captured in the model. The review
Independent reviews of the market should also investigate whether data
risk measurement system should also extracts and model inputs have been
include assessments of the assumptions, reconciled with transactions and general
parameters, and methodologies used. ledger systems.1
Such reviews should seek to understand, 3. The reasonableness and validity of
test, and document the current scenarios and assumptions – This includes
measurement process, evaluate the a review of the appropriateness of the
1
It is acceptable for parts of the reconciliation to be automated; e.g., routines may be programmed to investigate whether
the balances being extracted from various transaction systems match the balances recorded on the FI’s general ledger.
Similarly, the model itself often contains various audit checks to ensure, for example, that maturing balances do not
exceed original balances.

APP. Q-43
06.12.31
interest rate scenarios as well as customer evaluation of capital adequacy. Where

behaviors and pricing/volume relationships market risk is undertaken as part of an FI’s
to ensure that these assumptions are trading activities, existing capital adequacy
reasonable and internally consistent.1 ratio requirements shall prevail.
4. The validity of the risk The BSP will periodically evaluate the
measurement calculations - The scope and market risk measurement system for the
formality of the measurement validation accrual book to determine if the FI’s capital
will depend on the size and complexity is adequate to support its exposure to
of the FI. At large FIs, internal and external market risk and whether the internal
auditors may have their own models measurement systems of the FI are
against which the FI’s model is tested. FIs adequate. In performing this assessment,
with more complex risk profiles and the BSP may require information regarding
measurement systems should have the the market risk exposure of the FI,
model or calculations audited or validated including re-pricing gaps, earnings and
by an independent source. At smaller and economic value simulation estimates, and
less complex FIs, periodic comparisons of the results of stress tests. This information
actual performance with forecasts may be will typically be found in internal
sufficient.2 management reports.
The frequency and extent to which an If an FI’s internal measurement system
FI should re-evaluate its risk measurement does not adequately capture the level of
methodologies and models depend, in market risk, the BSP may require an FI to
part, on the particular market risk improve its system. In cases where an FI
exposures created by holdings and accepts significant market risk in its accrual
activities, the pace and nature of market book, the BSP expects that a portion of
rate changes, and the pace and complexity capital will be allocated to cover this risk.
of innovation with respect to measuring When performing these evaluations,
and managing market risk. the BSP will determine if:
(a) All material market risk associated
VI. Capital adequacy with an institution’s assets, liabilities, and
In addition to adequate risk OBS positions in the accrual book are
management systems and controls, capital captured by the risk management systems;
has an important role to play in mitigating (b) Generally accepted financial
and supporting market risk. FIs must hold concepts and risk measurement
capital commensurate with the level of techniques are utilized. For larger,
market risk they undertake. As part of complex FIs, internal systems must be
sound market risk management, FIs must capable of measuring risk using both an
translate the level of market risk they earnings and economic value approach.
undertake whether as part of their trading (c) Data inputs are adequately
or non-trading activities, into their overall specified (commensurate with the nature
1
Key areas of review include the statistical methods that were used to generate scenarios and assumptions (if applicable),
and whether senior management reviewed and approved key assumptions. The review should also compare actual
pricing spreads and balance sheet behavior to model assumptions. For some instruments, estimates of value changes can
be compared with market value changes. Unfavorable results may lead the FI to revise model relationships.
2
The validity of the model calculations is often tested by comparing actual with forecasted results. When doing so, FIs can
compare projected net income results with actual earnings. Reconciling the results of economic valuation systems can be
more difficult because market prices for all instruments are not always readily available, and the FI does not routinely
mark all of its balance sheet to market. For instruments or portfolios with market prices, these prices are often used to
benchmark or check model assumptions.

APP. Q-43
06.12.31
and complexity of an FI’s holdings) with (e) Market risk measurement systems
regard to rates, maturities, re-pricing, are integrated into the institution’s daily risk
embedded options, and other details; management practices. The output of the
(d) The system’s assumptions (used to systems should be used in characterizing
transform positions into cash flows) are the level of market risk to senior
reasonable, properly documented, and management and board of directors.
stable over time.1 (Circular No. 544 dated 15 September 2006)
1
This is especially important for assets and liabilities whose behavior differs markedly from contractual maturity or re-
pricing, and for new products. Material changes to assumptions should be documented, justified, and approved by
management.

APP. Q-44
06.12.31
GUIDELINES ON LIQUIDITY RISK MANAGEMENT

I. Background relative to the FI’s size, complexity, and

The on-going viability of institutions, risk profile.
particularly financial organizations, is In general, liquidity risk management
heavily influenced by their ability to practices should ensure that an institution
manage liquidity. Innovations in is able to maintain a level of liquidity
investment and funding products, growth sufficient to meet its financial obligations
in off-balance sheet activities and in a timely manner and to fulfill the
continuous competition for consumer legitimate funding needs of its community.
funds have affected the way FI do business Practices should reflect the ability of the
and intensified the need for proactive institution to manage unplanned changes
liquidity risk management. FIs need to fully in funding sources, as well as react to
understand, measure and control the changes in market conditions that affect
resulting liquidity risk exposures. the ability to quickly liquidate assets with
minimal loss. In addition, funds-
II. Statement of Policy management practices should ensure that
For purposes of these guidelines, FIs liquidity is not consistently maintained at
include banks, NBFIs supervised by the a high cost, from concentrated sources, or
BSP and their financial subsidiaries. through undue reliance on funding sources
The BSP recognizes the liquidity risk that may not be available in times of
inherent in FI activities and how these financial stress or adverse changes in
activities expose an FI to multiple risks market conditions.
which may increase liquidity risk. The BSP In evaluating the above parameters,
will not restrict risk-taking activities as long the BSP shall consider the following factors:
as FIs are authorized to engage in such 1. The actual and potential level of
activities and: liquidity risk posed by the FI’s products and
1. Understand, measure, monitor and services, balance sheet structure and off-
control the risk they assume; balance sheet activities;
2. Adopt risk management practices 2. The cost of an FI’s access to money
whose sophistication and effectiveness is markets and other alternative sources of
commensurate to the risk assumed; and funding;
3. Maintain capital commensurate 3. The diversification of funding
with their risk exposures. sources (on and off-balance sheet);
The principles set forth in these 4. The adequacy and effectiveness of
guidelines shall be used to determine the board and senior management oversight,
level and trend of liquidity risk exposure particularly the Board’s ability to recognize
and adequacy and effectiveness of an FI’s the effects of interrelated risk areas, such
liquidity risk management process. In as market and reputation risks, to liquidity
evaluating the adequacy of an FI’s liquidity risk;
position, the BSP shall consider the FI’s 5. The reasonableness of liquidity risk
current level and prospective sources of limits and controls in relation to earnings,
liquidity as compared to its funding needs. as affected by the cost of access to money
Further, the BSP will evaluate the markets and other alternative sources of
adequacy of funds management practices funding, and capital;

APP. Q-44
06.12.31
6. The adequacy of measurement risk and prospective risks from new

methodologies, monitoring and products and activities. It involves
management information systems; determining the volume and trends of
7. The adequacy of foreign currency liquidity needs and the sources of liquidity
liquidity management; available to meet these needs. Identifying
8. The appropriateness and liquidity risk necessitates expressing the
reasonableness of contingency plans for FI’s desired level of risk exposure based
handling liquidity crises; on its ability and willingness to assume
9. The adequacy of internal controls risk which may primarily depend on the
and audit of liquidity risk management FI’s capital base and access to funds
process. providers. Liquidity risk identification
The sophistication of liquidity risk should be a continuing process and should
management shall depend on the size, occur at both the transaction, portfolio and
nature and complexity of an FI’s activities. entity level.
However, in all instances, FIs are 2. Measure liquidity risk. Adequate
expected to measure their liquidity measurement systems enable FIs to
position on an ongoing basis, analyze net quantify liquidity risk exposures on a per
funding requirements under alternative entity basis and across the consolidated
scenarios, diversify funding sources and organization. A relatively large
adopt contingency funding plans. organization with extensive scope of
An FI’s liquidity risk management operations would generally require a
system shall be assessed under the FI’s more robust management information
general risk management framework, system to properly measure risk in a
consistent with the guidelines on timely and comprehensive manner.
supervision by risk as set forth under 3. Control liquidity risk. The FI
Appendix Q-42. If an FI’s risk exposures should establish policies and standards on
are deemed excessive relative to the FI’s acceptable product types, activities,
capital, or that the risk assumed is not well counterparties and set risk limits on a
managed, the BSP will direct the FI to transactional, portfolio and aggregate/
reduce its exposure and/or strengthen its consolidated basis to control liquidity risk.
risk management system. In setting limits, the FI should recognize
any legal distinctions and possible
III. Liquidity Risk Management Process obstacles to cash flow movements
Liquidity risk management process among affiliates or across separate books.
should be tailored to an FI’s structure and Lines of authority and accountability
scope of operations and application can should be clearly defined to ensure
vary across institutions. Regardless of the liquidity risk exposures remain
structure, an FI’s liquidity risk reasonable and within the risk tolerance
management process should be expressed by the board.
consistent with its general risk 4. Monitor liquidity risk. Monitoring
management framework and should be liquidity risk requires timely review of
commensurate with the level of risk liquidity risk positions and exceptions,
assumed. At a minimum, the process including day-to-day liquidity
should: management. Monitoring reports should
1. Identify liquidity risk. Proper be frequent, timely, and accurate and
identification of liquidity risk requires that should be distributed to appropriate levels
management understand both existing of management.

APP. Q-44
06.12.31
IV. Definition of Liquidity Risk liquidity risk is particularly important for

Liquidity risk is generally defined as institutions with significant holdings of
the current and prospective risk to earnings instruments traded in financial markets.
or capital arising from an FI’s inability to Market and liquidity risks are highly
meet its obligations when they come due interrelated, particularly during times of
without incurring unacceptable losses or uncertainty when there is a high
costs. Liquidity risk includes the inability correlation between the need for liquidity
to manage unplanned decreases or and market volatility. Likewise, an FI’s
changes in funding sources. Liquidity risk exposure to other risks such as reputation,
also arises from the failure to recognize or strategic, and credit risks, can likewise
address changes in market conditions that significantly affect an institution’s liquidity
affect the ability to liquidate assets quickly risk. It is therefore important that an FI’s
and with minimal loss in value. liquidity risk management system is
In terms of capital markets and trading consistent with its general risk
activities, FIs face two (2) types of liquidity management framework.
risk: funding liquidity risk and market
liquidity risk. Funding liquidity risk refers V. Sound Liquidity Risk Management
to the inability to meet investment and Practices
funding requirements arising from cash When assessing an FI’s liquidity risk
flow mismatches without incurring management system, the BSP shall consider
unacceptable losses or costs. This is how an FI address the four basic elements
synonymous with the general definition of of a sound risk management system:
liquidity risk. 1. Active and appropriate board and
Market liquidity risk, on the other hand, senior management oversight;
refers to the risk that an institution cannot 2. Adequate risk management
easily eliminate or offset a particular policies and procedures;
position because of inadequate liquidity in 3. Appropriate risk measurement
the market. The size of the bid/ask spread methodologies, limits structure,
of instruments in a market provides a monitoring and management information
general indication of its depth, hence its system; and
liquidity, under normal circumstances. 4. Comprehensive internal controls
Market liquidity risk is also associated with and independent audits
the probability that large transactions may Evaluation of the adequacy of the FI’s
have a significant effect on market prices application of the above elements will be
in markets that lack sufficient depth. In relative to the FI’s risk profile. FIs with less
addition, market liquidity risk is associated complex operations may generally use
with structured or complex investments as more basic practices while larger, and/or
the market of potential buyers is typically more complex institutions will be
small. Finally, FIs are exposed to the risk expected to adopt more formal and
of an unexpected and sudden erosion of sophisticated practices. Large organizations
market liquidity. This could be the result should likewise take a comprehensive
of sharp price movement or jump in perspective to measuring and controlling
volatility, or internal to the FI such as that liquidity risk by understanding how
posed by a general loss of market subsidiaries and affiliates can raise or
confidence. Understanding market lower the consolidated risk profile.

APP. Q-44
06.12.31
A. Active and Appropriate Board and 5. Mandate and track the

Senior Management Oversight1 implementation of corrective action in
Effective liquidity risk management instances of breaches in policies and
requires that the Board and senior procedures;
management be fully informed of the level 6. Establish, review and to the extent
of liquidity risk assumed by the FI and possible, test contingency plans for dealing
ensure that the activities undertaken are with potential temporary and long-term
within the prescribed risk tolerance. Senior liquidity disruptions; and
management should have a thorough 7. Ensure that the FI has sufficient
understanding of how other risks such as competent personnel, including internal audit
credit, market, operational and reputation staff, and adequate measurement systems
risks impact the FI’s overall liquidity to effectively manage liquidity risk.
strategy.1
Responsibilities of senior management
Responsibilities of the board of directors Senior management is responsible for
The Board has the ultimate effectively executing the liquidity strategy
responsibility for understanding the nature and overseeing the daily and long-term
and level of liquidity risk assumed by the management of liquidity risk. In managing
FI and the processes used to manage it. the FI’s activities, Senior Management
The board of directors should: should:
1. Establish and guide the FI’s strategic 1. Develop and implement
direction and tolerance for liquidity risk by procedures and practices that translate the
adopting a formal written liquidity/funding Board’s goals, objectives, and risk
policy that specifies quantitative and tolerances into operating standards that are
qualitative targets; transmitted to and well understood by
2. Approve policies that govern or personnel. Operating standards should be
influence the FI’s liquidity risk, including consistent with the Board’s intent;
reasonable risk limits and clear guidelines 2. Plan for adequate sources of liquidity
which are adequately documented and to meet current and potential funding
communicated to all concerned; needs and establish guidelines for the
3. Identify the Senior Management development of contingency funding plans;
staff who has the authority and 3. Adhere to the lines of authority and
responsibility for managing liquidity risk responsibility that the Board has established
and ensure that this staff takes the for managing liquidity risk;
necessary steps to monitor and control 4. Oversee the implementation and
liquidity risk; maintenance of management information
4. Monitor the FI’s performance and and other systems that identify, measure,
overall liquidity risk profile in a timely monitor, and control the FI’s liquidity risk;
manner by requiring frequent reports that and
outline the liquidity position of the FI along 5. Establish effective internal controls
with information sufficient to determine if over the liquidity risk management process.
the FI is complying with established risk In evaluating the quality of oversight
limits; provided by the Board and Senior
1
This section refers to a management structure composed of a board of directors and senior management. The BSP is
aware that there may be differences in some FIs as regards the organizational framework and functions of the board of
directors and senior management. For instance, branches of foreign banks have board of directors located outside of the
Philippines and are overseeing multiple branches in various countries. In this case, “board-equivalent” committees are
appointed. Owing to these differences, the notions of the board of directors and the senior management are used in these
guidelines not to identify legal constructs but rather to label two decision-making functions within a FI.

APP. Q-44
06.12.31
Management, the BSP will evaluate how to provide appropriate guidance to

the Board and Senior Management carry management. These policies should be
out the above functions/responsibilities. applied on a consolidated basis and, as
Further, sound management practices are appropriate, at the level of individual
highly related to the quality of other areas/ affiliates, especially when recognizing
elements of risk management system. legal distinctions and possible obstacles to
Thus, even if Board and Senior cash movements among affiliates.
Management exhibit active oversight, the Liquidity risk policies should identify
FI’s policies, procedures, measurement the quantitative parameters used by the FI
methodologies, limits structure, to define the acceptable level of liquidity
monitoring and information systems, risk such as risk limits and financial ratios
controls and audit should be adequate as well as describe the measurement tools
before quality of Board and Senior and assumptions used. Qualitative
Management can be considered guidelines should include description of
“satisfactory”. the FI’s acceptable products and activities,
including off-balance sheet transactions,
Lines of Responsibility and Authority desired composition of assets and
Management of liquidity risk generally liabilities, and approach towards managing
requires collaboration from various liquidity in different currencies,
business areas of the FI, thus a clear geographies and across subsidiaries and
delineation of responsibilities is necessary. affiliates. Where appropriate, a large FI
The management structure should clearly should apply these policies on a
define the duties of senior level consolidated basis to address risk
committees, members of which have exposures resulting from inter-connected
authority over the units responsible for funding structures and operations among
executing liquidity-related transactions. members of an FI’s corporate group.
There should be a clear delegation of day- It is essential that policies include the
to-day operating responsibilities to development of a formal liquidity risk
particular departments such as the measurement system that addresses
Treasury Department. business-as-usual scenarios and a
To ensure proper management of contingency funding plan that addresses a
liquidity risk, the FI should designate an variety of stress scenarios. FIs should
independent unit responsible for likewise have specific procedures for
measuring, monitoring and controlling addressing breaches in policies and
liquidity risk. Said unit should take a implementation of corrective actions.
comprehensive approach and directly Management should periodically
report to the board of directors or a review its liquidity risk policies and ensure
committee thereof. that these remain consistent with the level
and complexity of the FI’s operations.
B. Adequate risk management policies Policies should be updated to incorporate
and procedures effects of new products/activities, changes
An FI’s liquidity risk policies and in corporate structure and in light of its
procedures should be comprehensive, liquidity experience.
clearly defined, documented and duly
approved by the board of directors. Policies C. Appropriate risk measurement
and procedures should cover the FI’s methodologies, limits structure, monitoring,
liquidity risk management system in order and management information system

APP. Q-44
06.12.31
Liquidity risk measurement models/ designed to measure the effects of a breach

methodologies of the triggers (strike price) on these
An FI should have a measurement instruments.
system in place capable of quantifying and Where the FI’s organizational structure
capturing the main sources of liquidity risk and business practices indicate cash flow
in a timely and comprehensive manner. movements and liquidity support among
Liquidity management requires ongoing corporate group members, the FI should
measurement, from intra-day liquidity to adopt consolidated risk measurement tools
long-term liquidity positions. Depending to help management assess the group’s
on its risk profile, an FI can use techniques liquidity risk exposure. Depending on the
of simple calculations, static simulations degree of inter-related funding, non-
based on current holdings or sophisticated complex measurement and monitoring
models. What is essential is that the FI systems may be acceptable. However,
should be able to identify and avoid large, complex FIs that display a high
potential funding shortfalls such that the FI degree of inter-related and inter-dependent
can consistently meet investment, funding funding will be expected to utilize more
and/or strategic targets. sophisticated monitoring and management
FIs with simple operations can systems. These systems should enable the
generally use a static approach to liquidity Board of the consolidated entity to simulate
management. Static models are based on and anticipate the funding needs of the FIs
positions at a given point in time. While on both a consolidated basis and in each
an exact definition of “simple operations” of its component parts.
will not be provided, the BSP expects that Liquidity risk measurement
banks using a static approach to liquidity methodologies/models should be
management would limit their operations documented and approved by the board
to core banking activities such as accepting and should be periodically independently
plain vanilla deposits and making reviewed for reasonableness and tested for
traditional loans. Such banks would not accuracy and data integrity. Assumptions
have active Treasury Departments, would used in managing liquidity should be
not hold or offer structured products and periodically revisited to ensure that these
would not be exposed to significant levels remain valid.
of FX risk. Board reporting could be less Liquidity models require projecting all
frequent than in more complex banks but relevant cash flows. As such, FIs engaged
in no event should be less than quarterly. in complex activities should have the
Complex FIs, on the other hand, will capability to model the behavior of all
be expected to adopt more robust assets, liabilities, and off-balance sheet
approaches such as a dynamic maturity/ items both under normal/business-as usual
liquidity gap reporting or even simulation and a variety of stressed conditions.
modeling. At a minimum, universal banks Stressed conditions may include liquidity
should use maximum cash outflow/ crisis confined within the institution, or a
liquidity or maturity gap models. FIs systemic liquidity crisis, in which all FIs
engaged in holding or offering significant are affected. For FIs operating in a global
levels of structured products and/or environment, cash flow projections should
derivatives will be expected to have the reflect various foreign-currency funding
capability to model the cash flows from requirements.
these instruments under a variety of When projecting cash flows,
scenarios. Specifically, scenarios should be management should also estimate

APP. Q-44
06.12.31
customer behavior in addition to administrative matters are handled. A

contractual maturities. Many cash flows are contingency funding/liquidity plan ensures
uncertain and may not necessarily follow that an FI is ready to respond to liquidity
contractual maturities. Cash flows may be crisis.
influenced by interest rates and customer The sophistication of a contingency plan
behavior, or may simply follow a seasonal should be commensurate with the FI’s
or cyclical pattern. When modeling complexity and risk exposure, activities,
liquidity risk, it is important that products and organizational structure. The
assumptions be documented. Assumptions plan should identify the types of events that
should be reasonable and should be based will trigger the contingency plan, quantify
on past experiences or with consideration potential funding needs and sources and
of the potential impact of changes in provide the specific administrative policies
business strategies and market conditions. and procedures to be followed in a liquidity
Measurement tools should include a crisis.
sufficient number of time bands to enable Specifically, the contingency plan
effective monitoring of both short- and long- should:
term exposures. This expectation applies 1. Clearly identify, quantify and rank
not only to complex simulation modeling, all sources of funding by preference
but to the construction of simple liquidity including, but not limited to:
GAP models as well. • Reducing assets
To sufficiently measure an FI’s liquidity • Modifying the liability structure or
risk, management should analyze how its increasing liabilities
liquidity position is affected by changes in • Using off-balance-sheet sources,
internal (company-specific) and external such as securitizations
(market-related) conditions. Management • Using other alternatives for
will need to assess how a shift from a controlling balance sheet changes
normal scenario to various levels of 2. Consider asset and liability
liquidity crisis can affect its ability to source strategies for responding to liquidity crisis
external funds and at what cost, liquidate including, but not limited to:
certain assets at expected prices within • Whether to liquidate surplus
expected timeframes, or hasten the need money market assets
to settle obligations (e.g., limited ability to • When (if at all) HTM securities
roll-over deposits). Management should, at might be liquidated
a minimum, consider stress scenarios • Whether to sell liquid securities in
where securities are sold at prices lower the repo markets
than anticipated and credit lines are • When to sell longer-term assets,
partially or wholly cancelled. fixed assets, or certain lines of business
Regardless of the liquidity risk models • Coordinating lead bank funding
used, an FI should adopt an appropriate with that of the FI’s other banks and non-
contingency plan for handling liquidity bank affiliates
crisis. Well before a liquidity crisis occurs, • Developing strategies on how to
management should carefully plan how to interact with non-traditional funding
handle administrative matters in a crisis. sources (e.g., whom to contact, what type
Management credibility, which is essential of information and how much detail should
to maintaining the public’s confidence and be provided, who will be available for
access to funding, can be gained or lost further questions, and how to ensure that
depending on how well or poorly some communications are consistent)

APP. Q-44
06.12.31
3. Address administrative policies Limits can take various forms. FIs

and procedures that should be used during should address limits on types of funding
a liquidity crisis: sources and uses of funds, including off-
• The responsibilities of Senior balance sheet positions. In addition,
Management during a funding crisis policies should set targets for minimum
• Names, addresses, and telephone holdings of liquid assets relative to
numbers of members of the crisis team liabilities. Complex FIs, or FIs engaged in
• Where, geographically, team complex activities should set maximum
members will be assigned cumulative cash-flow mismatches over
• Who will be assigned responsibility particular time horizons and establish
to initiate external contacts with regulators, counterparty limits. Such limits should be
analysts, investors, external auditors, press, applied to all currencies to which the FI
significant customers, and others has a significant exposure. In particular, FIs
• How internal communications will should take into consideration any legal
flow between management, ALCO, distinctions and possible obstacles to cash
investment portfolio managers, traders, flow movements between the Regular
employees, and others Banking Unit (RBU) and the FCDU.
• How to ensure that the ALCO When evaluating a bank’s liquidity
receives management reports that are position, the BSP will consider low levels
pertinent and timely enough to allow of liquid assets relative to liabilities, and
members to understand the severity of the significant negative funding gaps to be
FI’s circumstances and to implement indicative of high liquidity risk exposure.
appropriate responses. Further, negative cash-flow mismatches in
The above outline of the scope of a the short term time buckets will receive
good contingency plan is by no means heightened scrutiny by the BSP and should
exhaustive. FIs should devote significant also receive the attention of senior
time and consideration to scenarios that are management and the board of directors.
most likely, given their activities. Before accepting negative funding
Regardless of the strategies employed, an gaps, or setting limits that allow negative
FI should consider the effects of such funding gaps, the board and senior
strategies on long-term liquidity positions management should consider the FI’s
and take appropriate actions to ensure that ability to fund these negative gaps. Factors
level of risk exposures shall remain or be include, but are not limited to: the
brought down within the risk tolerance of availability of on-balance sheet liquidity,
the Board. the amount of firm credit lines available
from commercial sources that can be
Limits structure drawn to fund the shortfall, and the amount
The board and senior management of unencumbered on-balance sheet assets
should establish limits on the nature and that can be sold without excessive loss and
amount of liquidity risk they are willing to in a reasonable time-frame.
assume. In setting limits, management Further, actual positions and limits
should consider the nature of the FI’s should reflect the outcome of possible
strategies and activities, its past stress scenarios caused by internal and
performance, the level of earnings and external factors, particularly those related
capital available to absorb potential losses to reputation risk. Stress scenarios should
and costs of an FI’s access to money consider the possibility that securities may
markets and other alternative sources of be sold at a greater discount and/or may
funding. take more time to sell than expected or

APP. Q-44
06.12.31
that credit lines and other off-balance D. Risk controls and audit
sheet sources of funding may be An FI should have adequate internal
cancelled or may be unavailable at controls in place to protect the integrity of
reasonable cost. its liquidity risk management process.
Management should define specific Fundamental to the internal control system
procedures for the prompt reporting and is for the Board to prescribe independent
documentation of limit exceptions and reviews to evaluate the effectiveness of the
the management approval and action risk management system and check
required in such cases. compliance with established limits,
policies and procedures.
Liquidity risk monitoring and reporting An effective system of internal controls
An adequate management for liquidity risk includes:
information system is critical in the risk 1. A strong internal control
monitoring process. The system should environment;
be able to provide the Board, senior 2. An adequate process for identifying
management and other personnel with and evaluating liquidity risk;
timely information on the FI’s liquidity 3. Adequate information systems; and
position in all the major currencies it deals 4. Continual review of adherence to
in, on an individual and aggregate basis, established policies and procedures.
and for various time periods. To ensure that risk management
Effective liquidity risk monitoring objectives are achieved, management
requires frequent routine liquidity needs to focus on the following areas:
reviews and more in-depth and appropriate approval processes, limits
comprehensive reviews on a periodic monitoring, periodic reporting, segregation
basis. In general, monitoring should of duties, restricted access to information
include sufficient information and a clear systems and the regular evaluation and
presentation such that the reader can review by independent competent
determine the FI’s ongoing degree of personnel.
compliance with risk limits. For example, Internal audit reviews should cover all
reports should address funding aspects of the liquidity risk management
concentrations, funding costs, projected process, including determining the
funding needs and available funding appropriateness of the risk management
sources. system, accuracy and completeness of
Monitoring and board reporting measurement models, reasonableness of
should be robust. It is not unreasonable assumptions and stress testing
to expect complex FIs or FIs engaged in methodology. Audit staff should have the
complex activities to monitor liquidity on skills commensurate with the
a daily basis. Board reporting should be sophistication of the FI’s risk management
no less frequent than monthly. However, systems. Audit results should be promptly
the BSP would expect Board-level reported to the board. Deficiencies should
committees or sub-committees to receive be addressed in a timely manner and
more frequent reporting. monitored until resolved/corrected.
Comprehensive and accurate internal
reports analyzing an FI’s liquidity risk E. Foreign currency liquidity
should be regularly prepared and management
reviewed by senior management and The principles described in this
submitted to the board of directors. Appendix also apply to the management

APP. Q-44
06.12.31
of any foreign currency to which the FI consider effects of other risk areas,
maintains a significant exposure. particularly settlement risks from its off-
Specifically, management should ensure balance sheet activities. An FI should also
that its measurement, monitoring and conservatively assess its access to
control systems account for these foreign exchange markets when setting
exposures as well. Management needs up its risk limits. As with overall liquidity
to set and regularly review limits on the risk management, foreign currency
size of its cash flow mismatches for each liquidity should be analyzed under
significant individual currency and in various scenarios, including stressful
aggregate over appropriate time conditions.
horizons. In addition, an FI should (Circular No. 545 dated 15 September 2006)

APP. Q-45
07.12.31
AUTHORIZATION FORM FOR QUERYING THE BSP WATCHLIST FILES FOR

SCREENING APPLICANTS AND CONFIRMING APPOINTMENTS OF
DIRECTORS AND OFFICIALS
(Appendix to Subsecs. 4143Q.5, 4143S.6, 4143P.6 and 4143N.6)
AUTHORIZATION
I, , after being sworn in accordance with law, do

hereby authorize the following, pursuant to the provisions of Subsecs. 4143Q.5(c), 4143S.6(c),
4143P.6(c) and 4143N.6(c) of the MORNBFI:
a) (Name of NBFI) to conduct a background investigation on myself

relative to my application for or appointment to the position of (position)
in (Name of NBFI) which include, among others, inquiring from the Watchlist Files
of the BSP; and
b) The BSP to disclose its findings pertinent to the aforementioned inquiry on the said
watchlist files to (Name of NBFI) .
With the above authorization, I hereby waive my right to the confidentiality of the
information that will be obtained as a result of the said inquiry, provided that disclosure of
said information will be limited for the purpose of ascertaining my qualification or non-
qualification for the said position.
IN WITNESS WHEREOF, I have hereunto set my hand this ________________.
______________________________
(Signature Over Printed Name)
SIGNED IN THE PRESENCE OF:
________________________ ________________________
(Witness) (Witness)

APP. Q-45
07.12.31
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES } S.S.

_________________CITY }
BEFORE ME, this ___ day of _________________200___ in __________________

personally appeared the following person:
Name Community Tax Place Date

Certificate
known to me to be the same person who executed the foregoing instrument and he
acknowledged to me to be the same person who executed the foregoing instrument and
he acknowledged to me that the same is his free act and deed.
This instrument, consisting of two (2) pages, including the page on which this
acknowledgment is written, has been signed on the left margin of each and every page
thereof by __________________, and his witnesses, and sealed with my notarial seal.
IN WITNESS WHEREOF, I have hereunto set my hand, the day, year and place
above written.
Notary Public
Doc. No.: __________

Page No.: __________
Book No.: __________
Series of 200___
(As amended by CL-2007-001 dated 04 January 2007 and CL-2006-046 dated 21 December 2006)

APP. Q-46
08.12.31
RISK-BASED CAPITAL ADEQUACY FRAMEWORK

FOR THE PHILIPPINE BANKING SYSTEM
Introduction the best means to preserve the integrity of

This Appendix outlines the BSP capital in banks with subsidiaries by
implementing guidelines of the revised eliminating double gearing. However, as
International Convergence of Capital one of the principal objectives of
Measurement and Capital Standards, or supervision is the protection of depositors,
popularly known as Basel II. Basel II is the it is essential to ensure that capital
new international capital standards set by recognized in capital adequacy measures
the Basel Committee on Banking is readily available for those depositors.
Supervision (BCBS)1. It aims to replace Accordingly, individual banks should
Basel I, which was issued in 1988 with an likewise be adequately capitalized on a
amendment in 1996, to make the stand-alone basis.
risk-based capital framework more 4. To the greatest extent possible, all
risk-sensitive. Banks are enjoined to banking and other relevant financial
submit their group-wide (including activities (both regulated and unregulated)
subsidiary banks and QBs) Basel II conducted by a bank and its subsidiaries
implementation plans from 2007-2010, not will be captured through consolidation.
later than 31 December 2006. Thus, majority-owned or -controlled
The guidelines contained in this financial allied undertakings should be fully
Appendix shall take effect on 1 July 2007. consolidated on a line by line basis.
(As amended by M-2006-022 dated 24 November 2006) Exemptions from consolidation shall only
be made in cases where such holdings are
Part I. Risk-based capital adequacy ratio acquired through debt previously
contracted and held on a temporary basis,
1. The risk-based CAR of UBs and KBs are subject to different regulation, or where
and their subsidiary banks and QBs, non-consolidation for regulatory capital
expressed as a percentage of qualifying purposes is otherwise required by law. All
capital to risk-weighted assets, shall not be cases of exemption from consolidation
less than ten percent (10%). must be made with prior clearance from
2. Qualifying capital is computed in the BSP.
accordance with the provisions of Part II. 5. Banks shall comply with the
Risk-weighted assets is the sum of (1) credit minimum CAR at all times notwithstanding
risk-weighted assets (Parts III, IV, and V), that supervisory reporting shall only be on
(2) market risk-weighted assets (Parts IV quarterly basis. Any breach, even if only
and VI), and (3) operational risk-weighted temporary, shall be reported to the bank’s
assets (Part VII). Board of Directors and to BSP, SES within
3. The CAR requirement will be three (3) banking days. For this purpose,
applied to all UBs and KBs and their banks shall develop an appropriate system
subsidiary banks, and QBs on both solo to properly monitor their compliance.
and consolidated bases. The application of 6. The BSP reserves the right, upon
the requirement on a consolidated basis is authority of the Deputy Governor,SES, to
1
The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the
central bank governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisory
authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain,
Sweden, Switzerland, the United Kingdom, and the United States. It usually meets at the Bank for International Settlements in
Basel, Switzerland where its permanent Secretariat is located.
APP. Q-46
08.12.31
conduct on-site inspection outside of through profit or loss that are due to own
regular or special examination, for the credit worthiness;
purpose of ascertaining the accuracy of v. Unbooked valuation reserves and
CAR calculations as well as the integrity of other capital adjustments based on the
CAR monitoring and reporting systems. latest report of examination as approved
by the Monetary Board;
Part II. Qualifying capital vi. Total outstanding unsecured credit
accommodations, both direct and indirect,
1. Qualifying capital consists of Tier 1 to DOSRI and unsecured loans, other
(core plus hybrid) capital and Tier 2 credit accommodations and guarantees
(supplementary) capital elements, net of granted to subsidiaries and affiliates;
required deductions from capital. vii. Deferred income tax;
viii.Goodwill, including that relating to
A. Tier 1 Capital unconsolidated subsidiary banks, financial
2. Tier 1 capital is the sum of core allied undertakings, excluding subsidiary
Tier 1 capital and allowable amount of hybrid securities dealers/brokers and insurance
Tier 1 capital, as set in paragraph 12. companies, (on solo basis) and
3. Core Tier 1 capital consists of: unconsolidated subsidiary securities
a) Paid-up common stock; dealers/brokers, insurance companies and
b) Paid-up perpetual and non- non-financial allied undertakings (on solo
cumulative preferred stock; and consolidated bases); and
c) Additional paid-in capital; ix. Gain on sale resulting from a
d) Retained earnings; securitization transaction.
e) Undivided profits (for domestic 4. Hybrid Tier 1 capital in the form of
banks only); perpetual preferred stock and perpetual
f) Net gains on fair value adjustment UnSD may be issued subject to prior BSP
of hedging instruments in a cash flow hedge approval and to the conditions in
of available for sale equity securities; paragraph 12.
g) Cumulative foreign currency 5. In the case of foreign banks, Tier 1
translation; and capital is equivalent to:
h) Minority interest in subsidiary a) Assigned capital including earnings
financial allied undertakings which are less not remitted to the head office which the
than wholly-owned: Provided, That a bank bank elects to consider as part of assigned
shall not use minority interests in the equity capital (in which case it can no longer be
accounts of consolidated subsidiaries as remitted to the head office); and
avenue for introducing into its capital b) “Net due to” head office, branches,
structure elements that might not otherwise subsidiaries and other offices outside the
qualify as Tier 1 capital or that would, in Philippines as defined under Subsec.
effect, result in an excessive reliance on X121.5.d (inclusive of earnings not
preferred stock within Tier 1: remitted to head office per Subsec.
Less: X121.5.c, unless considered as part of the
i. Common stock treasury shares; assigned capital by the bank), subject to
ii. Perpetual and non-cumulative the limit prescribed under Subsec.
preferred stock treasury shares; X121.6,
iii. Net unrealized losses on available Less:
for sale equity securities purchased; i. Any balance in the “Net due from”
iv. Gains (Losses) resulting from account.
designating financial liabilities at fair value (As amended by Circular No. 560 dated 11 January 2007)

APP. Q-46
08.12.31
B. Tier 2 Capital Remaining maturity Discount factor

6. Tier 2 capital is the sum of upper 5 years & above 0%
Tier 2 capital and lower Tier 2 capital. 4 years to <5 years 20%
7. The total amount of lower Tier 2 3 years to <4 years 40%
(LT2) capital before deductions 2 years to <3 years 60%
enumerated in paragraph 10 that may be 1 year to <2 years 80%
included in total Tier 2 capital shall be < 1 year 100%
limited to a maximum of fifty percent
(50%) of total Tier 1 capital (net of g) Deposit for common stock
deductions enumerated in paragraph 3). subscription;
The total amount of upper and lower Tier 2 h) Deposit for perpetual and non-
capital both before deductions enumerated cumulative preferred stock subscription; and
in paragraph 10 that may be included in i) Hybrid Tier 1 capital as defined in
total qualifying capital shall be limited to a paragraph 4 in excess of the maximum
maximum of 100% of total Tier 1 capital allowable limit of fifteen percent (15%) of
(net of deductions enumerated in total Tier 1 capital (net of deductions
paragraph 3). enumerated in paragraph 3):
8. Upper Tier 2 capital consists of: Less:
a) Paid-up perpetual and cumulative i. Perpetual and cumulative preferred
preferred stock; stock treasury shares;
b) Paid-up limited life redeemable ii. Limited life redeemable preferred
preferred stock issued with the condition stock treasury shares with the replacement
that redemption thereof shall be allowed requirement upon redemption;
only if the shares redeemed are replaced iii. Sinking fund for redemption of
with at least an equivalent amount of limited life redeemable preferred stock
newly paid-in shares so that the total paid- with the replacement requirement upon
in capital stock is maintained at the same redemption; and
level prior to redemption; iv. Net losses in fair value adjustment
c) Appraisal increment reserve – of hedging instruments in a cash flow
bank premises, as authorized by the hedge of available for sale equity
Monetary Board; securities.
d) Net unrealized gains on available 9. LT2 capital consists of:
for sale equity securities purchased a) Paid-up limited life redeemable
subject to a fifty five percent (55%) preferred stock without the replacement
discount; requirement upon redemption in an
e) General loan loss provision, amount equivalent to its carrying amount
limited to a maximum of one percent (1%) discounted by the following rates:
of credit risk-weighted assets, and any
amount in excess thereof shall be deducted Remaining maturity Discount factor
from the credit risk-weighted assets in 5 years & above 0%
computing the denominator of the 4 years to <5 years 20%
risk-based capital ratio; 3 years to <4 years 40%
f) With prior BSP approval, UnSD 2 years to <3 years 60%
with a minimum original maturity of at least 1 year to <2 years 80%
ten (10) years issued subject to the < 1 year 100%
conditions in paragraph 13, in an amount
equivalent to its carrying amount b) With prior BSP approval, UnSD
discounted by the following rates: with a minimum original maturity of at

APP. Q-46
08.12.31
least five (5) years, issued subject to the c) Investments in equity of

conditions in paragraph 14, in an amount unconsolidated subsidiary securities
equivalent to its carrying amount dealers/brokers, insurance companies, and
discounted by the following rates: non-financial allied undertakings, after
deducting related goodwill, if any (for both
Remaining maturity Discount factor solo and consolidated bases);
5 years & above 0% d) Capital shortfalls of unconsolidated
4 years to <5 years 20% subsidiary securities dealers/brokers and
3 years to <4 years 40% insurance companies (for both solo and
2 years to <3 years 60% consolidated bases);
1 year to <2 years 80% e) Significant minority investments
< 1 year 100% (20%-50% of voting stock) in banks and QBs,
and other financial allied undertakings (for
c) Deposit for perpetual and both solo and consolidated bases);
cumulative preferred stock subscription; f) Reciprocal investments in equity
and of other banks/enterprises;
d) Deposit for limited life redeemable g) Reciprocal investments in other
preferred stock subscription with the regulatory capital instruments of other
replacement requirement upon banks and QBs;
redemption. h) Materiality thresholds in credit
Less: derivative contracts purchased;
i. Limited life redeemable preferred i) Securitization tranches which are
stock treasury shares without the rated below investment grade or are
replacement requirement upon unrated; and
redemption; and j) Credit enhancing interest only
ii. Sinking fund for redemption of strips in relation to a securitization structure,
limited life redeemable preferred stock net of the amount of “gain-on-sale” that
without the replacement requirement upon must be deducted from core Tier 1 capital
redemption up to the extent of the balance referred to in paragraph 3.
of redeemable preferred stock after 11. Any asset deducted from qualifying
applying the cumulative discount factor. capital in computing the numerator of the
risk-based capital ratio shall not be included
C. Deductions from the total of Tier 1 and in the risk-weighted assets in computing
Tier 2 capital the denominator of the ratio. Available for
10. The following items should be sale debt securities shall be risk-weighted
deducted fifty percent (50%) from Tier 1 net of specific provisions as provided in
and fifty percent (50%) from Tier 2 capital: paragraph 1 of Part III.A, but without
a) Investments in equity of considering accumulated market gains/
unconsolidated subsidiary banks and QBs, losses.
and other financial allied undertakings
(excluding subsidiary securities dealers/ D. Eligible instruments under hybrid Tier 1
brokers and insurance companies), after capital
deducting related goodwill, if any (for solo 12. Perpetual preferred stock and
basis); perpetual UnSD issuances of banks should
b) Investments in other regulatory comply with the following minimum
capital instruments of unconsolidated conditions in order to be eligible as hybrid
subsidiary banks and QBs (for solo basis); Tier 1 (HT1) capital:

APP. Q-46
08.12.31
a) It must be issued and fully paid-up. and board authorization for conversion/
Only the net proceeds received from the issue to take place anytime;
issuance shall be included as capital; d) Its holders must not have a priority
b) The dividends/coupons must be claim, in respect of principal and dividend/
non-cumulative. It is acceptable to pay coupon payments in the event of winding
dividends/coupons in scrip or shares of up of the bank, which is higher than or
stock if a cash dividend/coupon is withheld: equal with that of depositors, other creditors
Provided, That this does not result on of the bank and holders of LT2 and UT2
issuing lower quality capital: Provided, capital instruments. Its holder must waive
further, That where such dividend/coupon his right to set-off any amount he owes the
stock settlement feature is included, the bank against any subordinated amount
bank should ensure that it has an owed to him due to the HT1 capital
appropriate buffer of authorized capital instrument;
stock and appropriate stockholders and board e) It must neither be secured nor
authorization, if necessary, to fulfill their covered by a guarantee of the issuer or
potential obligations under such issues; related party or other arrangement that
c) It must be available to absorb legally or economically enhances the
losses of the bank without it being obliged priority of the claim of any holder as against
to cease carrying on business. The depositors, other creditors of the bank and
agreement governing its issuance should holders of LT2 and UT2 capital instruments;
specifically provide for the dividend/ f) It must not be redeemable at the
coupon and principal to absorb losses initiative of the holder. It must not be
where the bank would otherwise be repayable without the prior approval of the
insolvent, or for its holders to be treated as BSP: Provided, That repayment may be
if they were holders of a specified class of allowed only in connection with call option
share capital in any proceedings after a minimum of five (5) years from issue
commenced for the winding up of the date: Provided, however, That a call option
bank. Issue documentation must disclose may be exercised within the first five (5)
to prospective investors the manner by years from issue date when –
which the instrument is to be treated in i. It was issued for the purpose of a
loss situation. merger with or acquisition by the bank and
Alternatively, the agreement governing the merger or acquisition is aborted;
its issuance can provide for automatic ii. There is a change in tax status of
conversion into common shares or perpetual the HT1 capital instrument due to changes
and non-cumulative preferred shares upon in the tax laws and/or regulations; or
occurrence of certain trigger events, as iii. It does not qualify as HT1 capital
follows: as determined by the BSP:
i. Breach of minimum capital ratio; Provided, further, That such repayment
ii. Commencement of proceedings shall be approved by the BSP only if the
for winding up of the bank; or preferred share/debt is simultaneously
iii. Upon appointment of receiver for replaced with issues of new capital which
the bank. is neither smaller in size nor of lower
The rate of conversion must be fixed quality than the original issue, unless the
at the time of subscription to the bank’s capital ratio remains more than
instrument. The bank must also ensure that adequate after redemption.
it has appropriate buffer of authorized It must not contain any clause which
capital stock and appropriate stockholders requires acceleration of payment of

APP. Q-46
08.12.31
principal, except in the event of the initial index basis and the stepped-up
insolvency. The agreement governing its index basis.
issuance must not contain any provision The swap spread should be fixed as of
that mandates or creates an incentive for the pricing date and reflect the differential
the bank to repay the outstanding principal in pricing on that date between the initial
of the instrument, e.g., a cross-default or reference security or rate and the stepped-
negative pledge or a restrictive covenant, up reference security or rate.
other than a call option which may be l) It must be underwritten by a third
exercised by the bank; party not related to the issuer bank nor
g) Its main features must be publicly acting in reciprocity for and in behalf of
disclosed by annotating the same on the the issuer bank;
instrument and in a manner that is easily m) It must be issued in minimum
understood by the investor; denominations of at least P500,000.00 or
h) The proceeds of the issuance must its equivalent;
be immediately available without n) It must clearly state on its face that
limitation to the bank; it is not a deposit and is not insured by the
i) The bank must have full discretion PDIC; and
over the amount and timing of dividends/ o) The bank must submit a written
coupons where the bank – external legal opinion that the
i. Has not paid or declared a dividend abovementioned requirements, including
on its common shares in the preceding the subordination and loss absorption
financial year; or features, have been met:
ii. Determines that no dividend is to Provided, That for purposes of reserve
be paid on such shares in the current requirement regulation, it shall not be
financial year. treated as time deposit liability, deposit
The bank must have full control and substitute liability or other forms of
access to waived payments; borrowings: Provided, further, That the total
j) Any dividend/coupon to be paid amount of HT1 capital that may be included
must be paid only to the extent that the in the Tier 1 capital shall be limited to a
bank has profits distributable determined maximum of fifteen percent (15%) of total
in accordance with existing BSP Tier 1 capital (net of deductions
regulations. The dividend/coupon rate, or enumerated in paragraph 3): Provided,
the formulation for calculating dividend/ furthermore, That the amount of HT1
coupon payments must be fixed at the time capital in excess of the maximum limit
of issuance and must not be linked to the shall be eligible for inclusion in the UT2
credit standing of the bank; capital, subject to the limit in total Tier 2
k) It may allow only one (1) moderate capital. To determine the allowable amount
step-up in the dividend/coupon rate in of HT1 capital, the amount of total core Tier 1
conjunction with a call option, only if the capital (net of deductions enumerated in
step-up occurs at a minimum of ten (10) paragraph 3) should be multiplied by
years after the issue date and if it results in seventeen and sixty five percent (17.65%),
an increase over the initial rate that is not the number derived from the proportion
more than: of fifteen percent (15%) to eighty five
i. 100 basis points less the swap percent (85%), i.e., 15%/85% = 17.65%.
spread between the initial index basis and
the stepped-up index basis; or E. Eligible unsecured subordinated debt
ii. fifty percent (50%) of the initial 13. UnSD issuances by banks should
credit spread less the swap spread between comply with the following minimum

APP. Q-46
08.12.31
conditions in order to be eligible as UT2 against any subordinated amount owed to

capital: him due to the UT2 capital instrument;
a) It must be issued and fully paid-up. d) It must neither be secured nor
Only the net proceeds received from the covered by a guarantee of the issuer or
issuance shall be included as capital; related party or other arrangement that
b) It must be available to absorb legally or economically enhances the
losses of the bank without it being obliged priority of the claim of any holder as against
to cease carrying on business. The depositors, other creditors of the bank and
agreement governing its issuance should holders of LT2 capital instruments;
specifically provide for the coupon and e) It must not be redeemable at the
principal to absorb losses where the bank initiative of the holder. It must not be
would otherwise be insolvent, or for its repayable prior to maturity without the
holders to be treated as if they were prior approval of the BSP: Provided, That
holders of a specified class of share capital repayment may be allowed only in
in any proceedings commenced for the connection with a call option after a
winding up of the bank. Issue minimum of five (5) years from issue date:
documentation must disclose to Provided, however, That a call option may
prospective investors the manner by which be exercised within the first five (5) years
the instrument is to be treated in loss from issue date when:
situation. i. It was issued for the purpose of a
Alternatively, the agreement governing merger with or acquisition by the bank and
its issuance can provide for automatic the merger or acquisition is aborted;
conversion into common shares or ii. There is a change in tax status of
perpetual and non-cumulative shares or the UT2 capital instrument due to changes
perpetual and cumulative preferred shares in the tax laws and/or regulations; or
upon occurrence of certain trigger events, iii. It does not qualify as UT2 capital
as follows: as determined by the BSP:
i. Breach of minimum capital ratio; Provided, further, That such repayment
ii. Commencement of proceedings prior to maturity shall be approved by the
for winding up of the bank; or BSP only if the debt is simultaneously
iii. Upon appointment of receiver for replaced with issues of new capital which
the bank. is neither smaller in size nor of lower
The rate of conversion must be fixed quality than the original issue, unless the
at the time of subscription to the bank’s capital ratio remains more than
instrument. The bank must also ensure that adequate after redemption.
it has appropriate buffer of authorized It must not contain any clause which
capital stock and appropriate stockholders requires acceleration of payment of principal,
and board authorization for conversion/ except in the event of insolvency. The
issue to take place anytime; agreement governing its issuance must not
c) Its holders must not have priority contain any provision that mandates or
claim, in respect of principal and coupon creates an incentive for the bank to repay
payments in the event of winding up of the outstanding principal of the instrument,
the bank, which is higher than or equal e.g., a cross-default or negative pledge or
with that of depositors, other creditors of a restrictive covenant, other than a call option
the bank, and holders of LT2 capital which may be exercised by the bank;
instruments. Its holder must waive his right f) Its main features must be publicly
to set off any amount he owes the bank disclosed by annotating the same on the

APP. Q-46
08.12.31
instrument and in a manner that is easily m) It must clearly state on its face that
understood by the investor; it is not a deposit and is not insured by the
g) The proceeds of the issuance must PDIC; and
be immediately available without n) The bank must submit a written
limitation to the bank; external legal opinion that the
h) The bank must have the option to abovementioned requirements, including
defer any coupon payment where the the subordination and loss absorption
bank: features, have been met:
i. has not paid or declared a dividend Provided, That it shall be subject to a
on its common shares in the preceding cumulative discount factor of twenty
financial year; or percent (20%) per year during the last five
ii. determines that no dividend is to (5) years to maturity [i.e., twenty percent
be paid on such shares in the current (20%) if the remaining life is four (4) years
financial year; to less than five (5) years, forty percent
It is acceptable for the deferred coupon (40%) if the remaining life is three (3) years
to bear interest but the interest rate to less than four (4) years, etc.]: Provided,
payable must not exceed market rates; further, That where it is denominated in a
i) The coupon rate, or the formulation foreign currency, it shall be revalued in
for calculating coupon payments must be accordance with PAS 21: Provided,
fixed at the time of issuance and must not furthermore, That for purposes of reserve
be linked to the credit standing of the requirement regulation, it shall not be
bank; treated as time deposit liability, deposit
j) It may allow only one (1) substitute liability or other forms of
moderate step-up in the coupon rate in borrowings.
conjunction with a call option, only if the 14. UnSD issuances by banks should
step-up occurs at a minimum of ten (10) comply with the following minimum
years after the issue date and if it results conditions in order to be eligible as LT2
in an increase over the initial rate that is capital:
not more than: a) It must be issued and fully paid-up.
i. 100 basis points less the swap Only the net proceeds received from the
spread between the initial index basis and issuance shall be included as capital;
the stepped-up index basis; or b) Its holders must not have priority
ii. fifty percent (50%) of the initial claim, in respect of principal and coupon
credit spread less the swap spread payments in the event of winding up of
between the initial index basis and the the bank, which is higher than or equal
stepped-up index basis. with that of depositors and other creditors
The swap spread should be fixed as of of the bank. Its holder must waive his right
the pricing date and reflect the differential to set-off any amount he owes the bank
in pricing on that date between the initial against any subordinated amount owed to
reference security or rate and the stepped- him due to the LT2 capital instrument;
up reference security or rate; c) It must neither be secured nor
k) It must be underwritten by a third covered by a guarantee of the issuer or
party not related to the issuer bank nor related party or other arrangement that
acting in reciprocity for and in behalf of legally or economically enhances the
the issuer bank; priority of the claim of any holder as against
l) It must be issued in minimum depositors and other creditors of the bank;
denominations of at least P500,000.00 or d) It must not be redeemable at the
its equivalent; initiative of the holder. It must not be

APP. Q-46
08.12.31
repayable prior to maturity without the h) It may allow only one (1)
prior approval of the BSP: moderate step-up in the coupon rate in
Provided, That repayment may be conjunction with a call option, only if the
allowed only in connection with a call step-up occurs at a minimum of five (5)
option after a minimum of five (5) years years after the issue date and if it results
from issue date: Provided, however, That in an increase over the initial rate that is
a call option may be exercised within the not more than:
first five (5) years from issue date when: i. 100 basis points less the swap
i. It was issued for the purpose of a spread between the initial index basis and
merger with or acquisition by the bank the stepped-up index basis; or
and the merger or acquisition is aborted; ii. fifty percent (50%) of the initial
ii. There is a change in tax status of credit spread less the swap spread
the LT2 capital instrument due to changes between the initial index basis and the
in the tax laws and/or regulations; or stepped-up index basis.
iii. It does not qualify as LT2 capital The swap spread should be fixed as
as determined by the BSP: of the pricing date and reflect the
Provided, further, That such differential in pricing on that date between
repayment prior to maturity shall be the initial reference security or rate and
approved by the BSP only if the debt is the stepped-up reference security or rate;
simultaneously replaced with issues of i) It must be underwritten by a third
new capital which is neither smaller in party not related to the issuer bank nor
size nor of lower quality than the original acting in reciprocity for and in behalf of
issue, unless the bank’s capital ratio the issuer bank;
remains more than adequate after j) It must be issued in minimum
redemption. denominations of at least P500,000.00 or
It must not contain any clause which its equivalent;
requires acceleration of payment of k) It must clearly state on its face that
principal, except in the event of it is not a deposit and is not insured by the
insolvency. The agreement governing its PDIC; and
issuance must not contain any provision l) The bank must submit a written
that mandates or creates an incentive for external legal opinion that the
the bank to repay the outstanding principal abovementioned requirements, including
of the instrument, e.g., a cross-default or the subordination features, have been met:
negative pledge or a restrictive covenant, Provided, That it shall be subject to a
other than a call option which may be cumulative discount factor of twenty percent
exercised by the bank; (20%) per year during the last five (5) years
e) Its main features must be publicly to maturity [i.e., twenty percent (20%) if the
disclosed by annotating the same on the remaining life is four (4) years to less than
instrument and in a manner that is easily five (5) years, forty percent (40%) if the
understood by the investor; remaining life is three (3) years to less than
f) The proceeds of the issuance must four (4) years, etc.]: Provided, further, That
be immediately available without where it is denominated in a foreign
limitation to the bank; currency, it shall be revalued in accordance
g) The coupon rate, or the with PAS 21: Provided, furthermore, That
formulation for calculating coupon for purposes of reserve requirement
payments must be fixed at the time of regulation, it shall not be treated as time
issuance and must not be linked to the deposit liability, deposit substitute liability
credit standing of the bank; or other forms of borrowings.

APP. Q-46
08.12.31
Part III. Credit risk-weighted assets The table below sets out the mapping of
external credit assessments with the
A. Risk-weighting corresponding risk weights for banking
1. Banking book exposures shall be book exposures. Exposures related to
risk-weighted based on third party credit credit derivatives and securitizations are
assessment of the individual exposure dealt with in Parts IV and V, respectively.
given by eligible external credit Exposures should be risk-weighted net of
assessment institutions listed in Part III.C. specific provisions.
STANDARDIZED CREDIT RISK WEIGHTS

Credit Assessment1 AAA AA+ to A+ BBB+ to BB+ to B+ Below
AA- to A- BBB- BB- to B- B- Unrated
Sovereigns 0% 0% 20% 50% 100% 100% 150% 100%
MDBs 0% 20% 50% 50% 100% 100% 150% 100%
Banks 20% 20% 50% 50% 100% 100% 150% 100%2
Interbank call loans 20%
Local government units 20% 20% 50% 50% 100% 100% 150% 100%2
Government corporations 20% 20% 50% 100% 100% 150% 150% 100% 2
Corporates 20% 20% 50% 100% 100% 150% 150% 100% 2
Housing loans 50%
MSME qualified portfolio 75%
Defaulted exposures
Housing loans 100%
Others 150%
ROPA 150%
All other assets 100%
Sovereign Exposures European Community (EC) shall also

2. These include all exposures to receive zero percent (0%) risk weight.
central governments and central banks. All (As amended by Circular No. 588 dated 11 December 2007)
Philippine peso (Php) denominated
exposures to the Philippine National MDB Exposures
Government (NG) and the BSP shall be risk- 3. These include all exposures to
weighted at zero percent (0%). Foreign multilateral development banks. Exposures
currency denominated exposures to the to the World Bank Group comprised of
NG and the BSP, however, shall be risk- the IBRD and the IFC, the ADB, the AfDB,
weighted according to the table above: the EBRD, the IADB, the EIB, the European
Provided, That only one-third (1/3) of the Investment Fund (EIF), the NIB, the CDB,
applicable risk weight shall be applied from the Islamic Development Bank (IDB), and
01 July 2007, two-thirds (2/3) from the CEDB currently receive zero percent
01 January 2008, and the full risk weight (0%) risk weight. However, it is the
from 01 January 20093. Exposures to the responsibility of the bank to monitor the
Bank for International Settlements (BIS), the external credit assessments of multilateral
International Monetary Fund (IMF), and the development banks to which they have
European Central Bank (ECB) and the an exposure to reflect in the risk weights
any change therein.
1 The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external
rating agencies is in Part III.C
2 Or risk weight applicable to sovereign of incorporation, whichever is higher
3 The capital treatment of QB's holdings of ROP Global Bonds paired with Warrants under the BSP's revised risk-based
capital adequacy framework is contained in Appendix Q-46a.

APP. Q-46
08.12.31
Bank Exposures Micro, Small, and Medium Enterprises

4. These include all exposures to (MSME)
Philippine-incorporated banks/QBs, as 10. An exposure must meet the
well as foreign-incorporated banks. following criteria to be considered as an
MSME exposure:
Interbank Call Loans a) The exposure must be to an MSME
5. Interbank call loans refer to as defined under existing BSP regulations;
interbank loans that pass through the and
Interbank Call Loan Funds Transfer System b) The exposure must be in the form
of the BSP, the BAP, and the PCHC. of direct loans, or unavailed portion of
committed credit lines and other business
Exposures to Local Government Units facilities such as outstanding guarantees
6. These include all exposures to issued and unused letters of credit:
non-central government public sector Provided, That the credit equivalent
entities. Bonds issued by Philippine local amounts thereof shall be determined in
government units (LGU Bonds), which are accordance with the methodology for off-
covered by Deed of Assignment of Internal balance sheet items.
Revenue Allotment of the LGU and
guaranteed by the LGU Guarantee Qualified portfolio
Corporation shall be risk-weighted at the 11. For a bank’s portfolio of MSME
lower of fifty percent (50%) or the exposures to be considered as qualified, it
appropriate risk weight indicated in the must be a highly diversified portfolio, i.e.,
table above. it has at least 500 borrowers that are
distributed over a number of industries.
Exposures to Government Corporations In addition, all MSME exposures in the
7. These include all exposures to qualified portfolio must be current
commercial undertakings owned by central exposures. All non-current MSME
or local governments. Exposures to exposures are excluded from count and
Philippine GOCCs that are not explicitly are to be treated as ordinary non-
guaranteed by the Philippine NG are also performing loans. Current MSME
included in this category. exposures not qualifying under highly
diversified MSME portfolio will be risk-
Corporate Exposures weighted based on external rating and
8. These include all exposures to shall be risk-weighted in the same
business entities, which are not considered manner as corporate exposures.
as micro, small, or medium enterprises
(MSME), whether in the form of a Defaulted Exposures
corporation, partnership, or sole- 12. A default is considered to have
proprietorship. These also include all occurred in the following cases:
exposures to FIs, including securities dealers/ a) If a credit obligation is considered
brokers and insurance companies, not falling non-performing under existing rules and
under the definition of Bank in paragraph 4. regulations. For non-performing debt
securities, they shall be defined as
Housing Loans follows:
9. These include all current loans to i. For zero-coupon debt securities,
individuals for housing purpose, fully secured and debt securities with quarterly, semi-
by first mortgage on residential property that annual, or annual coupon payments, they
is or will be occupied by the borrower. shall be considered non-performing

APP. Q-46
08.12.31
when principal and/or coupon payment, Other Assets

as may be applicable, is unpaid for thirty 16. The standard risk weight for all
(30) days or more after due date; and other assets, including bank premises,
ii. For debt securities with monthly furniture, fixtures and equipment, will be
coupon payments, they shall be 100%, except in the following cases:
considered non-performing when three (3) a) Cash on hand and gold, which shall
or more coupon payments are in arrears: be risk-weighted at zero percent (0%); and
Provided, however, That when the total b) Checks and other cash items,
amount of arrearages reaches twenty which shall be risk-weighted at twenty
percent (20%) of the total outstanding percent (20%).
balance of the debt security, the total Accruals on a claim shall be classified
outstanding balance of the debt security and risk-weighted in the same way as the
shall be considered as non-performing. claim. Bills purchased shall be classified
b) If a borrower/obligor has sought or and risk-weighted as claims on the drawee
has been placed in bankruptcy, has been bank. The treatments of credit derivatives
found insolvent, or has ceased operations and securitization exposures are presented
in the case of businesses; separately in Parts IV and V, respectively.
c) If the bank sells a credit obligation at Investments in equity or other regulatory
a material credit-related loss, i.e., excluding capital instruments issued by banks or
gains and losses due to interest rate other financial/non-financial allied/non-
movements. Banks’ board-approved internal allied undertakings will be risk-weighted
policies must specifically define when a at 100%, unless deductible from the capital
material credit-related loss occurs; and base as required in Part II.
d) If a credit obligation of a borrower/
obligor is considered to be in default, all Off-balance sheet items
credit obligations of the borrower/obligor 17. For off-balance sheet items, the
with the same bank shall also be risk-weighted amount shall be calculated
considered to be in default. using a two-step process. First, the credit
equivalent amount of an off-balance sheet
Housing loans item shall be determined by multiplying its
13. These include all loans to notional principal amount by the appropriate
individuals for housing purpose, fully credit conversion factor, as follows:
secured by first mortgage on residential a) 100% credit conversion factor - this
property that is or will be occupied by the shall apply to direct credit substitutes, e.g.,
borrower, which are considered to be in general guarantees of indebtedness
default in accordance with paragraph 12. (including standby letters of credit serving
as financial guarantees for loans and
Others securities) and acceptances (including
14. These include the total amounts or endorsements with the character of
portions of all other defaulted exposures, acceptances), and shall include:
which are not secured by eligible collateral i. Guarantees issued other than
or guarantee as defined in Part III.B. shipside bonds/airway bills;
ii. Financial standby letters of credit
ROPA b) Fifty percent (50%) credit
15. All real and other properties conversion factor – this shall apply to
acquired and classified as such under certain transaction-related contingent items,
existing regulations. e.g., performance bonds, bid bonds,

APP. Q-46
08.12.31
warranties and standby letters of credit related iv. Travelers’ checks unsold;
to particular transactions, and shall include: v. Trust department accounts;
i. Performance standby letters of vi. Items held for safekeeping/
credit (net of margin deposit), established custodianship;
as a guarantee that a business transaction vii. Items held as collaterals;
will be performed; viii.Deficiency claims receivable; and
This shall also apply to – ix. Others.
i. Note issuance facilities and 18. For derivative contracts, the credit
revolving underwriting facilities; and equivalent amount shall be the sum of the
ii. Other commitments, e.g., formal current credit exposure (or replacement
standby facilities and credit lines with an cost) and an estimate of the potential future
original maturity of more than one (1) year, credit exposure (or add-on). However, the
and this shall also include Underwritten following shall not be included in the
Accounts Unsold. computation:
c) Twenty percent (20%) credit a) Instruments which are traded in an
conversion factor – this shall apply to short- exchange where they are subject to daily
term, self-liquidating trade-related receipt and payment of cash variation
contingencies arising from movement of margin; and
goods, e.g., documentary credits b) Exchange rate contract with
collateralized by the underlying original maturity of fourteen (14) calendar
shipments, and shall include: days or less.
i. Trade-related guarantees: 19. The current credit exposure shall be
- Shipside bonds/airway bills the positive mark-to-market value of the
- Letters of credit – confirmed contract (or zero if the mark-to-market value
ii. Sight letters of credit outstanding is zero or negative). The potential future
(net of margin deposit); credit exposure shall be the product of the
iii. Usance letters of credit outstanding notional principal amount of the contract
(net of margin deposit); multiplied by the appropriate potential future
iv. Deferred letters of credit (net of credit conversion factor, as indicated below:
margin deposit); and
v. Revolving letters of credit (net of Interest Exchange
margin deposit) arising from movement of Residual Maturity Rate Rate Equity
Contract Contract Contract
goods and/or services; One (1) year or less 0.0% 1.0% 6.0%
This shall also apply to commitments Over one (1) year to
with an original maturity of up to one (1) five (5) years 0.5% 5.0% 8.0%
year, and shall include Committed Credit Over five (5) years 1.5% 7.5% 10.0%
Line for Commercial Paper Issued.
d) Zero percent (0%) credit Provided, That:
conversion factor – this shall apply to a) For contracts with multiple
commitments which can be exchanges of principal, the factors are to
unconditionally cancelled at any time by be multiplied by the number of remaining
the bank without prior notice, and shall payments in the contract;
include Credit Card Lines. b) For contracts that are structured to
This shall also apply to those not settle outstanding exposure following
involving credit risk, and shall include: specified payment dates and where the
i. Late deposits/payments received; terms are reset such that the market value
ii. Inward bills for collection; of the contract is zero on these specified
iii. Outward bills for collection; dates, the residual maturity would be set

APP. Q-46
08.12.31
equal to the time until the next reset date, on claims for which an issue-specific rating
and in the case of interest rate contracts is used that already reflects that CRM.
with remaining maturities of more than one Principal-only ratings will not be allowed
(1) year that meet these criteria, the potential within the framework of CRM.
future credit conversion factor is subject to 24. While the use of CRM techniques
a floor of one-half percent (1/2%); and reduces or transfers credit risk, it
c) No potential future credit exposure simultaneously may increase other risks
shall be calculated for single currency (residual risks). Residual risks include
floating/floating interest rate swaps, i.e., the legal, operational, liquidity and market
credit exposure on these contracts would risks. Therefore, it is imperative that banks
be evaluated solely on the basis of their employ robust procedures and processes
mark-to-market value. to control these risks, including strategy;
20. The credit equivalent amount shall consideration of the underlying credit;
be treated like any on-balance sheet asset, valuation; policies and procedures;
and shall be assigned the appropriate risk systems; control of roll-off risks; and
weight, i.e., according to the third party management of concentration risk arising
credit assessment of the counterparty from the bank’s use of CRM techniques
exposure. and its interaction with the bank’s overall
credit risk profile.
B. Credit risk mitigation (CRM) 25. The disclosure requirements under
21. Banks use a number of techniques Part VIII of this document must also be
to mitigate the credit risks to which they observed for banks to obtain capital relief
are exposed. For example, exposures may (i.e., adjustments in the risk weights of
be collateralized by first priority claims, in collateralized or guaranteed exposures) in
whole or in part with cash or securities, or respect of any CRM techniques.
a loan exposure may be guaranteed by a
third party. Physical collateral, such as real Collateralized transactions
estate, buildings, machineries, and 26. A collateralized transaction is one
inventories are not recognized at this time in which:
for credit risk mitigation purposes in line a) banks have a credit exposure or
with Basel II recommendations. potential credit exposure; and
22. In order for banks to obtain capital b) that credit exposure or potential
relief for any use of CRM techniques, all credit exposure is hedged in whole or in
documentation used in collateralized part by collateral posted by a counterparty1
transactions and for documenting or by a third party in behalf of the
guarantees must be binding on all parties counterparty.
and legally enforceable in all relevant 27. In addition to the general
jurisdictions. Banks must have conducted requirement for legal certainty set out in
sufficient legal review to verify this and have paragraph 22, the legal mechanism by
a well-founded legal basis to reach this which collateral is pledged or transferred
conclusion, and undertake such further must ensure that the bank has the right to
review as necessary to ensure continuing liquidate or take legal possession of it, in a
enforceability. timely manner, in the event of default,
23. The effects of CRM will not be insolvency or bankruptcy (or one or more
double counted. Therefore, no additional otherwise-defined credit events set out in
supervisory recognition of CRM for the transaction documentation) of the
regulatory capital purposes will be granted counterparty (and, where applicable, of the
1
Counterparty refers to a party to whom a bank has an on- or off-balance sheet credit exposure or a potential credit
exposure.

APP. Q-46
08.12.31
custodian holding the collateral). the collateralized portion of the credit

Furthermore, banks must take all steps exposure (equivalent to the fair market
necessary to fulfill those requirements value of recognized collateral), subject to
under the law applicable to the bank’s a floor of twenty percent (20%). The
interest in the collateral for obtaining and twenty percent (20%) floor shall not apply
maintaining an enforceable security and a zero percent (0%) risk weight can
interest, e.g., by registering it with a be applied when the exposure and the
registrar, or for exercising a right to net collateral are denominated in the same
or set off in relation to title transfer currency, and either:
collateral. a) The collateral is cash as defined in
28. In order for collateral to provide paragraph 34.a; or
protection, the credit quality of the b) The collateral is a sovereign debt
counterparty and the value of the collateral security eligible for zero percent (0%) risk
must not have a material positive weight, or a Php-denominated debt
correlation. For example, securities issued obligation issued by the Philippine NG or
by the counterparty – or by any related the BSP, which fair market value has been
group entity – would provide little discounted by twenty percent (20%).
protection and so would be ineligible. 33. For collateral to be recognized,
29. Banks must have clear and robust however, the collateral must be pledged
procedures for the timely liquidation of for at least the life of the exposure and it
collateral to ensure that any legal must be marked to market and revalued
conditions required for declaring the with a minimum frequency of every six
default of the counterparty and liquidating (6) months.
the collateral are observed, and that 34. The following are the eligible
collateral can be liquidated promptly. collateral instruments:
30. Where the collateral is required to a) Cash (as well as certificates of
be held by a custodian, the BSP will only deposit or comparable instruments issued
recognize the collateral for regulatory by the lending bank) on deposit with the
capital purposes if it is held by BSP- bank which is incurring the counterparty
authorized third party custodians. exposure;
31. A capital requirement will be b) Gold;
applied to a bank on either side of the c) Debt obligations issued by the
collateralized transaction: for example, Philippine NG or the BSP;
both repos and reverse repos will be d) Debt securities issued by central
subject to capital requirements. Likewise, governments and central banks (and PSEs
both sides of a securities lending and treated as sovereigns) of foreign countries
borrowing transaction will be subject to as well as MDBs with at least investment
explicit capital charges, as will the posting grade external credit ratings;
of securities in connection with a e) Other debt securities with external
derivative exposure or other borrowing. credit ratings of at least BBB- or its equivalent;
f) Unrated senior debt securities
Banking book issued by banks with an issuer rating of at
32. Where banks take eligible least BBB- or its equivalent, or with other
collateral, as listed in paragraph 34, and debt issues of the same seniority with a
satisfies the requirements under rating of at least BBB- or its equivalent;
paragraphs 27 to 31, they are allowed to g) Equities included in the main index
apply the risk weight of the collateral to of an organized exchange; and

APP. Q-46
08.12.31
h) Investments in Unit Investment period, daily marking to market and

Trust Funds (UITF) and the Asian Bond daily remargining), expressed as
Fund 2 (ABF2) duly approved by the BSP. percentages:
Haircut
Trading book Sovereign Other
35. A credit risk capital requirement (and PSEs Issuers
should also be applied to banks’ treated as
Issue rating for Residual sovereign)
counterparty exposures in the trading debt securities1 maturity and MDB
book (e.g., repo-style transactions, OTC (with 0%
derivatives contracts). Where banks take risk weight)
issuers
eligible collateral for these trading book Php – denomi- <1 year 0.5
transactions, as listed in paragraph 34, and nated securities
issued by the >1 yr. to < 5 yrs. 2
satisfies the requirements under Philippine NG > 5 years 4
paragraphs 27 to 31, they are to compute and BSP
for the credit risk capital requirement <1 year 0.5 1
AAA to AA- >1 yr. to < 5 yrs. 2 4
according to the following paragraphs: > 5 years 4 8
Provided, That, for repo-style transactions A+ to BBB-/ <1 year 1 2
in the trading book, all instruments which Unrated bank >1 yr. to < 5 yrs. 3 6
debt securities > 5 years 6 12
are included in the trading book may be as defined in
used as eligible collateral. paragraph 34.f
Equities inclu- 15
36. For collateralized transactions in ded in the main
the trading book, the exposure amount index and gold
after risk mitigation is calculated as follows: UITF and ABF2 Highest haircut
applicable to any
E* = max {0, [E x (1 + He) – C x (1 – Hc security in which
– Hfx)]} the fund can invest
Cash per parag- 0
Where: raph 34.a in the
same currency
E* = the exposure value after risk Other financial 25
mitigation instruments in
E = the current value of the exposure the trading book
(applies to repo-
H e = haircut appropriate to the exposure style transactions
C = the current value of the collateral in the trading
received book only)
H c = haircut appropriate to the collateral

Hfx = haircut appropriate for currency
mismatch between the collateral 39. Where the collateral is a basket of
and exposure set at 8% (based on assets, the haircut on the basket will be
a 10-business day holding period H =Σai Hi, where ai is the weight of the
and daily marking to market) asset in the basket and Hi is the haircut
applicable to that asset.
37. The treatment of transactions 40. For collateralized OTC derivatives
where there is a maturity mismatch transactions in the trading book, the credit
between the maturity of the counterparty equivalent amount will be computed
exposure and the collateral is given in according to paragraphs 18 to 19, but
paragraphs 50 to 54. adjusted by deducting the volatility
38. These are the haircuts to be used adjusted collateral amount as computed
(based on a 10-business day holding according to paragraphs 36 to 39.
1
The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external

APP. Q-46
08.12.31
41. The exposure amount after risk the guarantee. The bank must have the right
mitigation will be multiplied by the risk to receive any such payments from the
weight of the counterparty to obtain the guarantor without first having to take legal
risk-weighted asset amount for the actions in order to pursue the counterparty
collateralized transaction. for payment;
b) The guarantee is an explicitly
Guarantees documented obligation assumed by the
42. Where guarantees are direct, guarantor; and
explicit, irrevocable and unconditional, c) The guarantee must cover all types
banks may be allowed to take account of of payments the underlying obligor is
such credit protection in calculating expected to make under the
capital requirements. documentation governing the transaction,
43. A guarantee must represent a direct for example, notional amount, margin
claim on the protection provider and must payments, etc. Where a guarantee covers
be explicitly referenced to specific payment of principal only, interests and
exposures or a pool of exposures, so that other uncovered payments should be
the extent of the cover is clearly defined treated as an unsecured amount.
and incontrovertible. Other than 45. Where the bank’s exposure is
non-payment by a protection purchaser of guaranteed by an eligible guarantor, as
money due in respect of the credit listed in paragraph 47, and satisfies the
protection contract, the guarantee must be requirements under paragraphs 42 to 44,
irrevocable; there must be no clause in the the bank is allowed to apply the risk weight
contract that would allow the protection of the guarantor to the guaranteed portion
provider unilaterally to cancel the credit of the credit exposure.
cover or that would increase the effective 46. The treatment of transactions where
cost of cover as a result of deteriorating there is a mismatch between the maturity
credit quality in the hedged exposure. It of the counterparty exposure and the
must also be unconditional; there should guarantee is given in paragraphs 50 to 54.
be no clause in the protection contract 47. The following are the eligible
outside the direct control of the bank that guarantors:
could prevent the protection provider from a) Philippine NG and the BSP;
being obliged to pay out in a timely manner b) Central governments and central
in the event that the original counterparty banks and PSEs of foreign countries as well
fails to make the payment(s) due. as MDBs with a lower risk weight than the
44. In addition to the legal certainty counterparty;
requirement in paragraph 22, in order for c) Banks with a lower risk weight than
a guarantee to be recognized, the the counterparty; and
following conditions must be satisfied: d) Other entities with external credit
a) On the qualifying default/ assessment of at least A- or its equivalent.
non-payment of the counterparty, the bank 48. Where a bank provides a credit
may in a timely manner pursue the protection to another bank in the form of a
guarantor for any monies outstanding guarantee that a third party will perform
under the documentation governing the on its obligations, the risk to the guarantor
transaction. The guarantor may make one bank is the same as if the bank had entered
lump sum payment of all monies under into the transaction as a principal. In such
such documentation to the bank, or the circumstances, the guarantor bank will be
guarantor may assume the future payment required to calculate capital requirement
obligations of the counterparty covered by on the guaranteed amount according to the

APP. Q-46
08.12.31
risk weight corresponding to the third party hedge is less than that of the underlying
exposure. In this instance, and provided exposure.
the credit protection is deemed to be 52. The maturity of the hedge and the
legally effective, the credit risk is maturity of the underlying exposure should
considered transferred to the bank both be defined conservatively. For the
providing credit protection. However, the hedge, embedded options which may
bank receiving credit protection on its reduce the term of the hedge should be
exposure to a third party shall recognize a taken into account so that the shortest
corresponding risk-weighted credit exposure possible effective maturity is used. Where
to the bank providing credit protection. a call is at the discretion of the guarantor/
49. An exposure that is covered by a protection seller, the maturity will always
guarantee that is counter-guaranteed by the be at the first call date. If the call is at the
Philippine NG or BSP, may be considered discretion of the protection buying bank
as covered by the guarantee of the but the terms of the arrangement at
Philippine NG or BSP: Provided, That: origination of the hedge contain a positive
a) the counter-guarantee covers all incentive for the bank to call the transaction
credit risk element of the exposure; before contractual maturity, the remaining
b) both the original guarantee and the time to the first call date will be deemed
counter-guarantee meet all operational to be the effective maturity. For example,
requirements for guarantees, except that where there is a step-up in cost in
the counter guarantee need not be direct conjunction with a call feature or where
and explicit to the original exposure; and the effective cost of cover increases over
c) the cover is robust and that no time even if credit quality remains the
historical evidence suggests that the same or increases, the effective maturity
coverage of the counter-guarantee is less will be the remaining time to the first call.
than effectively equivalent to that of a direct The effective maturity of the underlying,
guarantee of the Philippine NG and BSP. on the other hand, should be gauged as
Currently, Php-denominated exposures the longest remaining time before the
to the extent guaranteed by Industrial counterparty is scheduled to fulfill its
Guarantee and Loan Fund (IGLF), Home obligation, taking into account any
1
Guaranty Corporation (HGC) ,and Trade and applicable grace period.
Investment Development Corporation of the 53. Hedges with maturity mismatches
Philippines (TIDCORP), which guarantees are only recognized when their original
are counter-guaranteed by the Philippine maturities are greater than or equal to one
NG receive zero percent (0%) risk weight. year. As a result, the maturity of hedges
for exposures with original maturities of less
Maturity mismatch than one (1) year must be matched to be
50. For collateralized transactions in the recognized. In all cases, hedges will no
trading book and guaranteed transactions, longer be recognized when they have a
the credit risk mitigating effects of such residual maturity of three months or less.
transactions will still be recognized even if 54. When there is a maturity mismatch
a maturity mismatch occurs between the with recognized credit risk mitigants, the
hedge and the underlying exposure, following adjustment will be applied.
subject to appropriate adjustments. Pa = P x (t – 0.25)/(T – 0.25)
51. For purposes of calculating Where:
risk-weighted assets, a maturity mismatch Pa = value of the credit protection
occurs when the residual maturity of a adjusted for maturity mismatch

APP. Q-46
08.12.31
P = credit protection (e.g., collateral International credit assessment agencies:

amount, guarantee amount) a) Standard & Poor’s;
adjusted for any haircuts b) Moody’s;
t = min (T, residual maturity of the c) Fitch Ratings; and
credit protection arrangement) d) Such other rating agencies as may
expressed in years be approved by the Monetary Board.
T = min (5, residual maturity of the Domestic credit assessment agencies:
exposure) expressed in years a) PhilRatings; and
b) Such other rating agencies as may
C. Use of third party credit assessments be approved by the Monetary Board.
55. The following third party credit 56. The tables below set out the mapping
assessment agencies are recognized of ratings given by the recognized credit
by the BSP for regulatory capital assessment agencies for purposes of
purposes: determining the appropriate risk weights:
Agency INTERNATIONAL RATINGS
S&P AAA AA+ AA AA- A+ A A-
Moody’s Aaa Aa1 Aa2 Aa3 A1 A2 A3
Fitch AAA AA+ AA AA- A+ A A-
Agency DOMESTIC RATINGS

PhilRatings AAA Aa+ Aa Aa- A+ A A-

S&P BBB+ BBB BBB- BB+ BB BB- B+
Moody’s Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1
Fitch BBB+ BBB BBB- BB+ BB BB- B+

PhilRatings Baa+ Baa Baa- Ba+ Ba Ba- B+

S&P B B-
Moody's B2 B3
Fitch B B-
PhilRatings B B-
57. The BSP will issue the mapping of the Philippine sovereign as reference
ratings of other rating agencies as soon as highest credit quality anchor.
it is recognized by the BSP for regulatory
capital purposes. Multiple Assessments
59. If an exposure has only one rating
National Rating Systems by any of the BSP recognized credit
58. With prior BSP approval, assessment agencies, that rating shall be
international credit rating agencies may used to determine the risk weight of the
have national rating systems developed exposure; in cases where there are two or
exclusively for use in the Philippines using more ratings which map into different risk

APP. Q-46
08.12.31
weights, the higher of the two lowest risk use credit derivatives to mitigate its credit
weights should be used. risks or to acquire credit risks. For credit
derivatives that are used as credit risk
Issuer versus issue assessments mitigants (CRM), the general requirements
60. Any reference to credit rating shall for the use of CRM techniques in paragraphs
refer to issue-specific rating; the issuer 21 to 25, Part III.B, have to be satisfied, in
rating may be used only if the exposure addition to the specific operational
being risk-weighted is: requirements for credit derivatives in
a) an unsecured senior obligation of paragraphs 8 to 14.
the issuer and is of the same denomination 2. The contents of this Part are just the
applicable to the issuer rating (e.g., local general rules to be followed in computing
currency issuer rating may be used for risk capital requirements for credit derivatives.
weighting local currency denominated A bank, therefore, is expected to consult
senior claims); the BSP-SES when there is uncertainty
b) short-term; and about the computation of capital
c) in cases of guarantees. requirements, or even about whether a
61. For loans, risk weighting shall given transaction should be treated under
depend on either the rating of the borrower the credit derivatives framework.
or the rating of the unsecured senior
obligation of the borrower: Provided, That A. Definitions and general terminology
in case of the latter, the loan is of the same 3. Credit derivative – a contract
currency denomination as the unsecured wherein one party called the protection
senior obligation. buyer or credit risk seller transfers the
credit risk of a reference asset or assets
Domestic versus international debt issued by a reference entity or entities,
issuances which it may or may not own, to another
62. Domestic debt issuances may be party called the protection seller or credit
rated by BSP-recognized domestic credit risk buyer. In return, the protection buyer
assessment agencies or by international pays a premium or interest-related payments
credit assessment agencies which have to the protection seller reflecting the
developed a national rating system underlying credit risk of the reference
acceptable to the BSP. Internationally- asset/s. Credit derivatives may refer to
issued debt obligations shall be rated by credit default swaps (CDS), total return
BSP-recognized international credit swaps (TRS), and credit-linked notes (CLN)
assessment agencies only. and similar products.
4. Credit default swap – a credit
Level of application of the assessment derivative wherein the protection buyer
63. External credit assessments for one may exchange the reference asset or any
entity within a corporate group cannot be deliverable obligation of the reference
used to proxy for the credit assessment of entity for cash equal to a specified amount,
other entities within the same group. Such or get compensated to the extent of the
other entities should secure their own ratings. difference between the par value and
market value of the asset upon the
Part IV. Credit Derivatives occurrence of a defined credit event.
5. Total return swap – a credit
1. This Part sets out the capital derivative wherein the protection buyer
treatment for credit derivatives. Banks may exchanges the actual collections and

APP. Q-46
08.12.31
variations in the prices of the reference a) failure to pay the amounts due
asset with the protection seller in return under terms of the underlying obligation
for a fixed premium. that are in effect at the time of such failure
6. Credit-linked note – a pre-funded (with a grace period that is closely in line
credit derivative wherein the note holder with the grace period in the underlying
acts as a protection seller while the note obligation);
issuer is the protection buyer. As such, the b) bankruptcy, insolvency or inability
repayment of the principal to the note of the obligor to pay its debts, or its failure
holder is contingent upon the non- or admission in writing of its inability
occurrence of a defined credit event. All generally to pay its debts as they become
references to CLNs shall be taken to due, and analogous events; and
generically include similar instruments, c) restructuring of the underlying
such as credit-linked deposits (CLDs). obligation involving forgiveness or
7. Special purpose vehicle – refers to postponement of principal, interest or fees
an entity specifically established to issue that results in a credit loss event (i.e.,
CLNs of a single, homogeneous risk class charge-off, specific provision or other
that are fully collateralized as to principal similar debit to the profit and loss account).
by eligible collateral instruments listed in 10. The credit derivative shall not
paragraph 34, Part III.B, and which are terminate prior to expiration of any grace
purchased out of the proceeds of the note period required for a default on the
issuance. underlying obligation to occur as a result
of a failure to pay, subject to the provisions
B. Operational requirements for credit of paragraph 52 of Part III.B.
derivatives 11. Credit derivatives allowing for cash
8. A credit derivative must represent a settlement are recognized for capital
direct claim on the protection seller and purposes insofar as a robust valuation
must be explicitly referenced to specific process is in place in order to estimate loss
exposures or a pool of exposures, so that reliably. There must be a clearly specified
the extent of the cover is clearly defined and period for obtaining post-credit event
incontrovertible. Other than non-payment valuations of the underlying obligation.
by a protection buyer of money due in 12. If the protection buyer’s right or
respect of the credit derivative contract, it ability to transfer the underlying obligation
must be irrevocable; there must be no to the protection seller is required for
clause in the contract that would allow the settlement, the terms of the underlying
protection seller unilaterally to cancel the obligation must provide that any required
credit cover or that would increase the consent to such transfer may not be
effective cost of cover as a result of unreasonably withheld.
deteriorating credit quality in the hedged 13. The identity of the parties
exposure. It must also be unconditional; responsible for determining whether a
there should be no clause in the credit credit event has occurred must be clearly
derivative contract outside the direct control defined. This determination must not be
of the protection buyer that could prevent the sole responsibility of the protection
the protection seller from being obliged to seller. The bank as protection buyer must
pay out in a timely manner in the event of a have the right/ability to inform the
defined credit event. protection seller of the occurrence of a
9. The credit events specified by the credit event.
contracting parties must at a minimum 14. Asset mismatches (underlying
cover: obligation is different from the obligation

APP. Q-46
08.12.31
used for purposes of determining cash a) The fixed amount, if such is to be

settlement or the deliverable obligation, or paid upon the occurrence of a credit
from the obligation used for purposes of event; or
determining whether a credit event has b) The notional value of the contract
occurred) are permissible if: if either (1) par is to be paid in exchange
a) the obligation used for purposes of for physical delivery of the reference asset,
determining cash settlement or the or (2) par less market value of the asset is
deliverable obligation, or the obligation to be paid upon the occurrence of a credit
used for purposes of determining whether event.
a credit event has occurred ranks pari passu 18. A bank may obtain credit protection
with or is junior to the underlying for a basket of reference entities where the
obligation; and contract terminates and pays out on the first
b) both obligations share the same entity to default. In this case, the bank may
obligor (i.e., the same legal entity) and substitute the risk weight of the protection
legally enforceable cross-default or cross- seller for the risk weight of the asset within
acceleration clauses are in place. the basket with the lowest risk-weighted
amount, but only if the notional amount is
C. Capital treatment for protection less than or equal to the notional amount of
buyers the credit derivative.
15. A bank that enters into a credit 19. Where the contract terminates and
derivative transaction as a protection buyer pays out on the nth (other than the first)
in order to hedge an existing exposure in entity to default, the bank will only be able
the banking book may only get capital relief to recognize any reductions in the risk
if all the general requirements for the use of weight of the underlying asset if (n-1)th
CRM techniques in paragraphs 21 to 25, Part default-protection has also been obtained
III.B and the conditions in paragraphs 8 to or when n-1 of the assets within the basket
14 are satisfied. In addition, only the eligible has already defaulted.
guarantors listed in paragraph 47, Part III.B 20. Where the contract is referenced to
are considered as eligible protection sellers. entities in the basket proportionately,
16. If all of the conditions in paragraph reductions in the risk weight will only
15 are satisfied, banks that are protection apply to the extent of the underlying
buyers may apply the risk weight of the asset’s share of protection in the contract.
protection seller to the protected portion of 21. When a bank conducts an internal
the exposure being hedged. The risk weight hedge using a credit derivative (i.e.,
of the protection seller should therefore be hedging the credit risk of an exposure in
lower than the risk weight of the exposure the banking book with a credit derivative
being hedged for capital relief to be booked in the trading book), in order for
recognized. Exposures that are protected the bank to receive any reduction in the
through the issuance of CLNs will be treated capital requirement for the exposure in the
as transactions collateralized by cash and a banking book, the credit risk in the trading
zero percent (0%) risk weight is applied to book must be transferred to an outside third
the protected portion. The uncovered party (i.e., an eligible protection seller).
portion shall retain the risk weight of the 22. Where a bank buys credit
bank’s underlying counterparty. protection through a TRS and records the
17. The protected portion of an net payments received on the swap as net
exposure is measured as follows: income, but does not record offsetting

APP. Q-46
08.12.31
deterioration in the value of the asset that 27. For a bank holding a CLN, credit
is protected (either through reductions in exposure is acquired on two fronts. As
fair value or by an addition to reserves), the such, the on-balance sheet exposure
credit protection will not be recognized. arising from the note should be weighted
23. Materiality thresholds on payments by adding the risk weights of the reference
below which no payment is made in the entity and the risk weight of the note
event of loss are equivalent to retained first issuer. The amount of exposure is the
loss positions and must be deducted in full carrying amount of the note. If the CLN
from the capital of the bank buying the principal is fully collateralized by an
credit protection. eligible collateral listed in paragraph 34,
24. Where the credit protection is Part III.B, and which satisfies the
denominated in a currency different from requirements in paragraphs 27 to 31, Part
that in which the exposure is denominated III.B, the risk weight of the note issuer is
– i.e., there is a currency mismatch – the substituted with the risk weight associated
protected portion of the exposure will be with the relevant collateral.
reduced by the application of a haircut, as 28. When the credit derivative is
follows: referenced to a basket of reference entities
Ga = G x (1 – Hfx) and the contract terminates and pays out
Where: on the first entity to default in the basket,
Ga = adjusted protected portion of the capital should be held to consider the
exposure cumulative risk of all the reference entities
G = protected portion of the exposure prior in the basket. This means that the risk
to haircut weights of all the reference entities are
Hfx= haircut appropriate for currency
added up and multiplied by the amount
mismatch between the credit protection
and underlying obligation set at eight
of the protection provided by the credit
percent (8%) (based on a 10-business derivative to obtain the risk-weighted
day holding period and daily marking exposure to the basket. However, the risk-
to market) weighted exposure is capped at ten (10)
times the protection provided under the
25. Where a maturity mismatch occurs contract. Accordingly, the maximum
between the credit protection and the capital charge is 100% of the protection
underlying exposure, the protected portion provided under the contract. The multiplier
of the exposure adjusted for maturity ten (10) is the reciprocal of the BSP-
mismatch will be computed according to required minimum CAR of ten percent
paragraph 50 to 54, Part III.B. (10%). For CLNs, the risk weight of the
issuer is likewise included in the summing
D. Capital treatment for protection of the risk weights.
sellers 29. When the contract terminates and
th
26. Where a bank is a protection seller pays out on the n (other than the first)
in a CDS or TRS transaction, it must entity to default, the treatment above shall
calculate a capital requirement on the apply except that in aggregating the risk
reference asset as if it were a direct investor weights of the reference entities, the risk
in the reference asset. The risk weight of weight/s of the n-1 lowest risk-weighted
the reference asset is multiplied by the entity/ies is/are excluded from the
nominal amount of the protection computation. For CLNs, the risk weight
provided by the credit derivative to obtain of the issuer is likewise included in the
the risk-weighted exposure. summing of the risk weights.

APP. Q-46
08.12.31
th
30. When a first or an n -to-default reference basket has/have already
credit derivative has an external credit defaulted.
rating acceptable to the BSP, the risk weight 36. When a credit derivative is
in paragraph 21, Part V.F will be applied. referenced to multiple entities and the
31. A contract that is referenced to contract terminates and pays out on the first
entities in the basket proportionately should obligation to default in the basket, the
be risk-weighted according to each transaction should be reported by the
reference entity’s share of protection under protection seller as long positions in each
the contract. of the reference obligations in the basket.
A CLN should likewise be reported as a
E. Credit derivatives in the trading book long position on the note issuer. The total
32. The following describes the capital charge is capped at the notional
positions to be reported for credit amount of the derivative or, in the case of
derivative transactions for purposes of a CLN, the carrying amount of the note.
calculating specific risk and general market 37. When the contract terminates and
th
risk charges under the standardized pays out on the n (other than the first)
approach. entity to default in the basket, the
33. A CDS creates a notional position treatment above shall apply except that the
in the specific risk of the reference protection seller may exclude the long
obligation. A TRS creates notional positions position/s on n-1 reference obligations with
on the specific and general market risks of the lowest risk-weighted exposures in its
the reference obligation, and an opposite report. A CLN should likewise be reported
notional position on a zero coupon as a long position on the note issuer. The
government security representing the fixed total capital charge is capped at the notional
payments or premium under the TRS. A CLN amount of the derivative or, in the case of
creates a notional position in the specific a CLN, the carrying amount of the note.
th
risk of the reference obligation, a position 38. When an n -to-default credit
on the specific risk associated with the derivative has an external credit rating
issuer, and a position on the general market acceptable to the BSP, the specific risk
risk of the note. weights in Part VI.B will be applied.
39. When the contract is referenced to
Specific risk multiple obligations under a proportionate
34. The specific risk position/s on the structure, positions in the reference
reference obligation/s created by credit obligations should be reported according
derivatives are reported as short positions to their respective proportions in the
by protection buyers and long positions by contract.
protection sellers. In addition, holders of
CLNs should report a long position on the General market risk
specific risk of the note issuer. 40. A protection buyer/seller in a TRS
35. The protection buyer in a first-to- should report a short/long notional position
default transaction should report a short on the reference obligation and a long/
position in the reference obligation with the short notional position on a zero coupon
lowest specific risk charge. A protection government security representing the
th
buyer in an n (other than the first)-to- fixed payment under the contract.
default transaction shall only be allowed to 41. A protection buyer/seller in a CLN
report a short position in a reference should report a short/long position on the
obligation only if n-1 obligations in the note.

APP. Q-46
08.12.31
Counterparty credit risk rate or currency swaps, and credit

42. CDS and TRS transactions in the derivatives. Underlying instruments in the
trading book attract counterparty credit risk pool being securitized may include but are
charges. A five percent (5%) add-on factor not restricted to the following: loans,
for the computation of the potential future commitments, asset-backed and mortgage-
credit exposure shall be used by both backed securities, corporate bonds, equity
protection buyers and protection sellers if securities, and private equity investments.
the reference obligation has an external 2. Since securitizations may be
credit rating of at least BBB- or its equivalent. structured in many different ways, the capital
A ten percent (10%) add-on factor applies treatment of a securitization exposure must
to all other reference obligations. However, be determined on the basis of its economic
a protection seller in a CDS shall only be substance rather than its legal form. The
subject to the add-on factor if it is subject to contents of this Part are just the general rules
closeout upon the insolvency of the to be followed in computing capital
protection buyer while the underlying is still requirements for securitization exposures.
solvent. The add-on in this case should be A bank should therefore consult the BSP-
capped to the amount of unpaid premiums. SES when there is uncertainty about the
43. Where the credit derivative is a first computation of capital requirements, or
to default transaction, the add-on will be even about whether a given transaction
determined by the lowest credit quality should be considered a securitization.
underlying in the basket, i.e., if there are
any non-investment grade or unrated items A. Definitions and general terminology
in the basket, the ten percent (10%) add-on 3. Traditional securitization – a
should be used. For second and subsequent structure where the cash flow from an
to default transactions, underlying assets underlying pool of exposures is used to
should continue to be allocated according service at least two (2) different stratified
to the credit quality, i.e., the second lowest risk positions or tranches reflecting
credit quality will determine the add-on different degrees of credit risk. Payments
for a second to default transaction, etc. to the investors depend upon the
44. Where the credit derivative is performance of the specified underlying
referenced proportionately to multiple exposures, as opposed to being derived
obligations, the add-on factor will follow from an obligation of the entity originating
the add-on factor applicable for the those exposures. The stratified/tranched
obligation with the biggest share. If the structures that characterize securitizations
protection is equally proportioned, the differ from ordinary senior/subordinated
highest add-on factor should be used. debt instruments in that junior
securitization tranches can absorb losses
Part V. Securitization without interrupting contractual payments
to more senior tranches, whereas
1. Banks must apply the securitization subordination in a senior/subordinated debt
framework for determining regulatory structure is a matter of priority of rights to
capital requirements on their securitization the proceeds of liquidation.
exposures. Securitization exposures can 4. Synthetic securitization – a
include but are not restricted to the structure with at least two (2) different
following: asset-backed securities, stratified risk positions or tranches that
mortgage-backed securities, credit reflect different degrees of credit risk
enhancements, liquidity facilities, interest where credit risk of an underlying pool of

APP. Q-46
08.12.31
exposures is transferred, in whole or in investors’ relative shares of the receivables

part, through the use of funded (e.g., credit- outstanding at the beginning of each month;
linked notes) or unfunded (e.g., credit c) The bank must set a period for
default swaps) credit derivatives or amortization that would be sufficient for
guarantees that serve to hedge the credit at least ninety percent (90%) of the total
risk of the portfolio. Accordingly, the debt outstanding at the beginning of the
investors’ potential risk is dependent upon early amortization period to have been
the performance of the underlying pool. repaid or recognized as in default; and
5. Originating bank – a bank that d) The pace of repayment should not
originates directly or indirectly underlying be any more rapid than would be allowed
exposures included in the securitization. by straight-line amortization over the
6. Clean-up call – an option that period set out in criterion (c).
permits the securitization exposures to be An early amortization provision that
called before all of the underlying does not satisfy the conditions for a
exposures or securitization exposures controlled early amortization provision
have been repaid. In the case of traditional will be treated as non-controlled early
securitizations, this is generally amortization provision.
accomplished by repurchasing the 9. Eligible liquidity facilities – an off-
remaining securitization exposures once the balance sheet securitization exposure shall
pool balance or outstanding securities have be treated as an eligible liquidity facility if
fallen below some specified level. In the the following minimum requirements are
case of a synthetic transaction, the clean-up satisfied:
call may take the form of a clause that a) The facility documentation must
extinguishes the credit protection. clearly identify and limit the circumstances
7. Credit enhancement – a contractual under which it may be drawn. Draws
arrangement in which the bank retains or under the facility must be limited to the
assumes a securitization exposure and, in amount that is likely to be repaid fully from
substance, provides some degree of added the liquidation of the underlying exposures
protection to other parties to the transaction. and any seller-provided credit
8. Early amortization provisions – enhancements. In addition, the facility
mechanisms that, once triggered, allow must not cover any losses incurred in the
investors to be paid out prior to the originally underlying pool of exposures prior to a
stated maturity of the securities issued. For draw, or be structured such that draw-
risk-based capital purposes, an early down is certain (as indicated by regular or
amortization provision will be considered continuous draws);
either controlled or non-controlled. A b) The facility must be subject to an
controlled early amortization provision must asset quality test that precludes it from
meet all of the following conditions: being drawn to cover credit risk exposures
a) The bank must have an appropriate that are considered non-performing under
capital/liquidity plan in place to ensure that existing BSP regulations. In addition,
it has sufficient capital and liquidity liquidity facilities should only fund
available in the event of an early exposures that are externally rated
amortization; investment grade at the time of funding;
b) Throughout the duration of the c) The facility cannot be drawn after
transaction, including the amortization all applicable (e.g., transaction-specific and
period, there is the same pro rata sharing of program-wide) credit enhancements from
interest, principal, expenses, losses and which the liquidity would benefit have
recoveries based on the bank’s and been exhausted; and

APP. Q-46
08.12.31
d) Repayment of draws on the facility a) Significant credit risk associated

(i.e., assets acquired under a purchase with the securitized exposures has been
agreement or loans made under a lending transferred to third parties.
agreement) must not be subordinated to b) The transferor does not maintain
any interests of any note holder in the effective or indirect control over the
program or subject to deferral or waiver. transferred exposures. The assets are
10. Eligible servicer cash advance legally isolated from the transferor in such
facilities – cash advance that may be a way (e.g., through the sale of assets or
provided by servicers to ensure an through subparticipation) that the
uninterrupted flow of payments to exposures are put beyond the reach of the
investors. The servicer should be entitled transferor and its creditors, even in
to full reimbursement and this right is bankruptcy or receivership. These
senior to other claims on cash flows from conditions must be supported by an opinion
the underlying pool of exposures. provided by a qualified legal counsel.
11. Excess spread – generally defined The transferor is deemed to have
as gross finance charge collections and maintained effective control over the
other income received by the trust or transferred credit risk exposures if it:
special purpose entity (SPE, specified in i. is able to repurchase from the
paragraph 13) minus certificate interest, transferee the previously transferred
servicing fees, charge-offs, and other exposures in order to realize their benefits; or
senior trust or SPE expenses. ii. is obligated to retain the risk of the
12. Implicit support – arises when a bank transferred exposures.
provides support to a securitization in excess The transferor’s retention of servicing
of its predetermined contractual obligation. rights to the exposures will not necessarily
13. Special purpose entity – a constitute indirect control of the exposures.
corporation, trust, or other entity c) The securities issued are not
organized for a specific purpose, the obligations of the transferor. Thus, investors
activities of which are limited to those who purchase the securities only have
appropriate to accomplish the purpose of claim to the underlying pool of exposures.
the SPE, and the structure of which is d) The transferee is an SPE and the
intended to isolate the SPE from the credit holders of the beneficial interests in that
risk of an originator or seller of exposures. entity have the right to pledge or exchange
SPEs are commonly used as financing them without restriction.
vehicles in which exposures are sold to a e) Clean-up calls must satisfy the
trust or similar entity in exchange for cash conditions set out in paragraph 17.
or other assets funded by debt issued by f) The securitization does not contain
the trust. clauses that (i) require the originating bank
to alter systematically the underlying
B. Operational requirements for the exposures such that the pool’s weighted
recognition of risk transference in average credit quality is improved unless
traditional securitizations this is achieved by selling assets to
14. An originating bank may exclude independent and unaffiliated third parties
securitized exposures from the calculation at market prices; (ii) allow for increases in
of risk-weighted assets only if all of the a retained first loss position or credit
following conditions have been met. enhancement provided by the originating
Banks meeting these conditions, however, bank after the transaction’s inception; or
must still hold regulatory capital against (iii) increase the yield payable to parties other
any securitization exposures they retain. than the originating bank, such as investors

APP. Q-46
08.12.31
and third-party providers of credit iv. Clauses that increase the yield
enhancements, in response to a deterioration payable to parties other than the originating
in the credit quality of the underlying pool. bank, such as investors and third-party
providers of credit enhancements, in
C. Operational requirements for the response to a deterioration in the credit
recognition of risk transference in synthetic quality of the reference pool; and
securitizations v. Clauses that provide for increases
15. For synthetic securitizations, the in a retained first loss position or credit
use of CRM techniques (i.e., collateral, enhancement provided by the originating
guarantees and credit derivatives) for bank after the transaction’s inception.
hedging the underlying exposure may be f) An opinion must be obtained from
recognized for risk-based capital purposes a qualified legal counsel that confirms the
only if the conditions outlined below are enforceability of the contracts in all relevant
satisfied: jurisdictions.
a) Credit risk mitigants must comply g) Clean-up calls must satisfy the
with the requirements as set out in Part III.B conditions set out in paragraph 17.
and Part IV of this Framework. 16. For synthetic securitizations, the
b) Eligible collateral is limited to that effect of applying CRM techniques for
specified in paragraph 34, Part III.B. Eligible hedging the underlying exposure are
collateral pledged by SPEs may be treated according to Part III.B and Part IV
recognized. of this Framework. In case there is a
c) Eligible guarantors are defined in maturity mismatch, the capital requirement
paragraph 47, Part III.B. SPEs are not will be determined in accordance with
recognized as eligible guarantors in the paragraphs 50 to 54, Part III.B. When the
securitization framework. exposures in the underlying pool have
d) Banks must transfer significant credit different maturities, the longest maturity
risk associated with the underlying exposure must be taken as the maturity of the pool.
to third parties. Maturity mismatches may arise in the
e) The instruments used to transfer context of synthetic securitizations when,
credit risk must not contain terms or for example, a bank uses credit derivatives
conditions that limit the amount of credit risk to transfer part or all of the credit risk of a
transferred, such as those provided below: specific pool of assets to third parties. When
i. Clauses that materially limit the the credit derivatives unwind, the
credit protection or credit risk transference transaction will terminate. This implies that
(e.g., significant materiality thresholds below the effective maturity of the tranches of the
which credit protection is deemed not to synthetic securitization may differ from that
be triggered even if a credit event occurs or of the underlying exposures. Originating
those that allow for the termination of the banks of synthetic securitizations with such
protection due to deterioration in the credit maturity mismatches must deduct all
quality of the underlying exposures); retained positions that are unrated or rated
ii. Clauses that require the originating below investment grade. Accordingly,
bank to alter the underlying exposures to when deduction is required, maturity
improve the pool’s weighted average mismatches are not taken into account. For
credit quality; all other securitization exposures, the bank
iii. Clauses that increase the banks’ must apply the maturity mismatch
cost of credit protection in response to treatment set forth in paragraphs 50 to 54,
deterioration in the pool’s quality; Part III.B.

APP. Q-46
08.12.31
D. Operational requirements and E. Operational requirements for use of

treatment of clean-up calls external credit assessments
17. For securitization transactions that 20. The following operational criteria
include a clean-up call, no capital will be concerning the use of external credit
required due to the presence of a clean-up assessments apply in the securitization
call if the following conditions are met: framework:
(i) the exercise of the clean-up call must a) To be eligible for risk-weighting
not be mandatory, in form or in substance, purposes, the external credit assessment
but rather must be at the discretion of the must take into account and reflect the entire
originating bank; (ii) the clean-up call must amount of credit risk exposure the bank
not be structured to avoid allocating losses has with regard to all payments owed to it.
to credit enhancements or positions held For example, if a bank is owed both
by investors or otherwise structured to principal and interest, the assessment must
provide credit enhancement; and (iii) the fully take into account and reflect the credit
clean-up call must only be exercisable risk associated with timely repayment of
when ten percent (10%) or less of the both principal and interest.
original underlying portfolio, or securities b) The external credit assessments
issued remain, or, for synthetic must be from an eligible ECAI as
securitizations, when ten percent (10%) or recognized by the bank’s national
less of the original reference portfolio supervisor in accordance with Part III.C. An
value remains. eligible credit assessment must be publicly
18. Securitization transactions that available. In other words, a rating must be
include a clean-up call that does not meet published in an accessible form and
all of the criteria stated in paragraph 17 included in the ECAI’s transition matrix.
result in a capital requirement for the Consequently, ratings that are made
originating bank. For a traditional available only to the parties to a transaction
securitization, the underlying exposures do not satisfy this requirement.
must be treated as if they were not c) Eligible ECAIs must have a
securitized. Additionally, banks must not demonstrated expertise in assessing
recognize in regulatory capital any gain- securitizations, which may be evidenced
on-sale, as defined in paragraph 23. For by strong market acceptance.
synthetic securitization, the bank d) A bank must apply external credit
purchasing protection must hold capital assessments from eligible ECAIs consistently
against the entire amount of the securitized across a given type of securitization
exposures as if they did not benefit from exposure. Furthermore, a bank cannot use
any credit protection. Same treatment the credit assessments issued by one ECAI
applies for synthetic securitization that for one or more tranches and those of
incorporates a call, other than a clean-up another ECAI for other positions (whether
call, that effectively terminates the retained or purchased) within the same
transaction and the purchased credit securitization structure that may or may not
protection on a specified date. be rated by the first ECAI. Where two or
19. If a clean-up call, when exercised, more eligible ECAIs can be used and these
is found to serve as a credit enhancement, assess the credit risk of the same
the exercise of the clean-up call must be securitization exposure differently,
considered a form of implicit support paragraph 59 of Part III.C will apply.
provided by the bank and must be treated e) Where CRM is provided directly to
in accordance with paragraph 26. an SPE by an eligible guarantor defined in

APP. Q-46
08.12.31
paragraph 47 of Part III.B and is reflected capital. Such an increase in capital is

in the external credit assessment assigned referred to as a “gain-on-sale” for the
to a securitization exposure(s), the risk purposes of the securitization framework.
weight associated with that external credit 24. Credit enhancing IOs (interest
assessment should be used. In order to only), net of the amount that must be
avoid any double counting, no additional deducted from Tier 1 as in paragraph 23,
capital recognition is permitted. If the CRM are to be deducted fifty percent (50%) from
provider is not an eligible guarantor, the Tier 1 capital and fifty percent (50%) from
covered securitization exposures should Tier 2 capital.
be treated as unrated. 25. Deductions from capital may be
f) In the situation where a credit risk calculated net of any specific provisions
mitigant is not obtained by the SPE but rather taken against the relevant securitization
applied to a specific securitization exposure exposures.
within a given structure (e.g., ABS tranche), 26. When a bank provides implicit
the bank must treat the exposure as if it is support to a securitization, it must, at a
unrated and then use the CRM treatment minimum, hold capital against all of the
outlined in Part III.B to recognize the hedge. exposures associated with the
securitization transaction as if they had not
F. Risk-weighting been securitized. Additionally, banks
21. The risk-weighted asset amount of would not be permitted to recognize in
a securitization exposure is computed by regulatory capital any gain-on-sale, as
multiplying the amount of the position by defined in paragraph 23. Furthermore, the
the appropriate risk weight determined in bank is required to disclose publicly that
accordance with the following table. For (a) it has provided non-contractual support
off-balance sheet exposures, banks must and (b) the capital impact of doing so.
apply a credit conversion factor (CCF) and 27. As a general rule, off-balance
then risk weight the resultant credit sheet securitization exposures will
equivalent amount. receive a CCF of 100%, except in the
cases below.
Credit AAA to A+ to A- BBB+to Below BBB- 28. A CCF of twenty percent (20%)
assessment1 AA- BBB- and unrated
and fifty percent (50%) will be applied to
Risk weight 20% 50% 100% Deduction eligible liquidity facilities as defined in
from capital paragraph 9 above with original maturity
(50% from Tier
1 and 50% of one year or less and more than one
from Tier 2) year, respectively. However, if an
external rating of the facility itself is used
22. The capital treatment of implicit for risk weighting the facility, a 100% CCF
support, liquidity facilities, securitizations must be applied. A zero percent (0%) CCF
of revolving exposures, and credit risk may be applied to eligible liquidity
mitigants are identified separately. facilities that are only available in the
23. Banks must deduct from Tier 1 event of a general market disruption (i.e.,
capital any increase in equity capital whereupon more than one SPE across
resulting from a securitization transaction, different transactions are unable to roll
such as that associated with expected over maturing commercial paper, and that
future margin income resulting in a gain- inability is not the result of an impairment
on-sale that is recognized in regulatory in the SPE’s credit quality or in the credit
1
The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external

APP. Q-46
08.12.31
quality of the underlying exposures). To of the underlying facilities does not return
qualify for this treatment, the conditions to the originating bank);
provided in paragraph 9 must be satisfied. c) Structures where a bank securitizes
Additionally, the funds advanced by the one or more credit line(s) and where
bank to pay holders of the capital market investors remain fully exposed to future
instruments (e.g., commercial paper) when draws by borrowers even after an early
there is a general market disruption must amortization event has occurred; and
be secured by the underlying assets, and d) The early amortization clause is
must rank at least pari passu with the solely triggered by events not related to the
claims of holders of the capital market performance of the securitized assets or the
instruments. selling bank, such as material changes in
29. A CCF of zero percent (0%) will tax laws or regulations.
be applied to undrawn amount of eligible 32. As described below, the CCFs
servicer cash advance facilities, as defined depend upon whether the early amortization
in paragraph 10 above, that are repays investors through a controlled or
unconditionally cancellable without prior non-controlled mechanism. They also differ
notice. according to whether the securitized
30. An originating bank is required to exposures are uncommitted retail credit
hold capital against the investors’ interest lines (e.g., credit card receivables) or other
(i.e., against both the drawn and undrawn credit lines (e.g., revolving corporate
balances related to the securitized facilities). A line is considered uncommitted
exposures) when: if it is unconditionally cancelable without
a) It sells exposures into a structure that prior notice.
contains an early amortization feature; and 33. For uncommitted retail credit lines
b) The exposures sold are of a (e.g., credit card receivables) that have either
revolving nature. These involve exposures controlled or non-controlled early
where the borrower is permitted to vary amortization features, banks must compare
the drawn amount and repayments within the three-month average excess spread
an agreed limit under a line of credit (e.g., defined in paragraph 11 to the point at
credit card receivables and corporate loan which the bank is required to trap excess
commitments). spread as economically required by the
31. Originating banks, though, are not structure (i.e., excess spread trapping point).
required to calculate a capital requirement In cases where such a transaction does not
for early amortizations in the following require excess spread to be trapped, the
situations: trapping point is deemed to be 4.5
a) Replenishment structures where percentage points.
the underlying exposures do not revolve 34. The bank must divide the excess
and the early amortization ends the ability spread level by the transaction’s excess
of the bank to add new exposures; spread trapping point to determine the
b) Transactions of revolving assets appropriate segments and apply the
containing early amortization features that corresponding conversion factors, as
mimic term structures (i.e., where the risk outlined in the following tables:

APP. Q-46
08.12.31
Controlled Non-controlled
3-month average Credit conversion 3-month average Credit conversion
excess spread- factor (CCF) excess spread- factor (CCF)
credit conversion credit conversion
factor (CCF) factor (CCF)
Uncommitted Committed Uncommitted Committed
Retail credit lines 133.33% of 90% CCF 133.33% of 100% CCF
trapping point or trapping point or
more – 0% CCF more – 0% CCF
less than 133.33% less than 133.33%

to 100% of trapping to 100% of trapping
point – 1% CCF point – 5% CCF
less than 100% to less than 100% to

75% of trapping 75% of trapping
point – 2% CCF point – 15% CCF
less than 75% to less than 75% to

50% of trapping 50% of trapping
point - 10% CCF point - 50% CCF
less than 50% to less than 50% of

25% of trapping trapping point -
point - 20% CCF 100% CCF
less than 25% of

trapping point -
40%
Non-retail 90% CCF 90% CCF 100% CCF 100%CCF

credit lines
35.All other securitized revolving 37. For a bank subject to the early
exposures with controlled and amortization treatment, the total capital charge
non-controlled early amortization features for all of its positions will be subject to a
will be subject to CCFs of ninety percent maximum capital requirement (i.e., a ‘cap’) equal
(90%) and 100%, respectively, against the to the greater of (i) that required for retained
off-balance sheet exposures. securitization exposures, or (ii) the capital
36. The CCF will be applied to the requirement that would apply had the
amount of the investors’ interest. The exposures not been securitized. In addition,
resultant credit equivalent amount shall banks must deduct the entire amount of any
then be applied a risk weight applicable gain-on-sale and credit enhancing IOs arising
to the underlying exposure type, as if the from the securitization transaction in
exposures had not been securitized. accordance with paragraphs 23 and 25.

APP. Q-46
08.12.31
G. Credit risk mitigation securitizations which will be determined

38. The treatment below applies to a in accordance with paragraph 16.
bank that has obtained or given a credit risk
mitigant on a securitization exposure. Credit Part VI. Market risk-weighted assets
risk mitigants include collateral, guarantees,
and credit derivatives. Collateral in this 1. Market risk is defined as the risk of
context refers to that used to hedge the losses in on- and off-balance sheet positions
credit risk of a securitization exposure rather arising from movements in market prices.
than the underlying exposures of the The risks addressed in these guidelines are:
securitization transaction. a) The risks pertaining to interest rate-
related instruments and equities in the
Collateral trading book; and
39. Eligible collateral is limited to that b) Foreign exchange risk throughout
recognized in paragraph 34, Part III.B. the bank.
Collateral pledged by SPEs may be
recognized. A. Definition of the trading book
2. A trading book consists of positions
Guarantees and credit derivatives in financial instruments held either with
40. Credit protection provided by the trading intent or in order to hedge other
entities listed in paragraph 47, Part III.B may elements of the trading book. To be eligible
be recognized. SPEs cannot be recognized for trading book capital treatment, financial
as eligible guarantors. instruments must either be free of any
41. Where guarantees or credit restrictive covenants on their tradability or
derivatives fulfill the minimum operational able to be hedged completely. In addition,
requirements as specified in Part III.B and positions should be frequently and
Part IV, respectively, banks can take account accurately valued, and the portfolio should
of such credit protection in calculating capital be actively managed.
requirements for securitization exposures. 3. A financial instrument is any
42. Capital requirements for the contract that gives rise to both a financial
collateralized or guaranteed/protected asset of one entity and a financial liability
portion will be calculated according to Part or equity instrument of another entity.
III.B and Part IV. Financial instruments include both primary
43. A bank other than the originator financial instruments (or cash instruments)
providing credit protection to a securitization and derivative financial instruments. A
exposure must calculate a capital requirement financial asset is any asset that is cash, the
on the covered exposure as if it were an right to receive cash or another financial
investor in that securitization. A bank asset; or the contractual right to exchange
providing protection to an unrated credit financial assets on potentially favorable
enhancement must treat the credit terms, or an equity instrument. A financial
protection provided as if it were directly liability is the contractual obligation to
holding the unrated credit enhancement. deliver cash or another financial asset or
to exchange financial liabilities under
Maturity mismatches conditions that are potentially unfavorable.
44. For the purpose of setting 4. Positions held with trading intent
regulatory capital against a maturity are those held intentionally for short-term
mismatch, the capital requirement will be resale and/or with the intent of benefiting
determined in accordance with paragraphs from actual or expected short-term price
50 to 54, Part III.B, except for synthetic movements or to lock in arbitrage profits,

APP. Q-46
08.12.31
and may include for example proprietary would include assessing the quality and
positions, positions arising from client availability of market inputs to the valuation
servicing (e.g. matched principal brokering) process, level of market turnover, sizes of
and market making. positions traded in the market, etc.
5. The following will be the basic c) Clearly defined policy and
requirements for positions eligible to receive procedures to monitor the positions against
trading book capital treatment: the bank’s trading strategy including the
a) Clearly documented trading strategy monitoring of turnover and stale positions
for the position/instrument or portfolios, in the bank’s trading book.
approved by senior management (which 6. The documentations of the basic
would include expected holding horizon); requirements of paragraph 5 should be
b) Clearly defined policies and submitted to the BSP.
procedures for the active management of the 7. In addition to the above
position, which must include: documentation requirements, the bank
i. positions are managed on a trading should also submit to the BSP a
desk; documentation of its systems and controls
ii. position limits are set and monitored for the prudent valuation of positions in the
for appropriateness; trading book including the valuation
iii. dealers have the autonomy to enter methodologies.
into/manage the position within agreed
limits and according to the agreed strategy; B. Measurement of capital charge
iv. positions are marked to market at 8. The market risk capital charge shall
least daily, and when marking to model the be computed according to the methodology
parameters must be assessed on a daily basis; set under Subsec. 1116.5 of the MORB,
v. positions are reported to senior subject to certain modifications as outlined
management as an integral part of the in the succeeding paragraphs.
institution’s risk management process; and 9. The specific risk weights for
vi. positions are actively monitored trading book positions in debt securities
with reference to market information and debt derivatives shall depend on the
sources (assessment should be made of the third party credit assessment of the issue
market liquidity or the ability to hedge or the type of issuer, as may be
positions or the portfolio risk profiles). This appropriate, as follows:
Credit ratings of debt Credit ratings of debt Credit ratings of debt Unadjusted
securities/derivatives securities/derivatives securities/derivatives specific
1
issued by sovereigns issued by MDBs issued by other entities risk weight
Php-denominated debt securities/derivatives issued by the Philippine NG and BSP 0.00%
LGU Bonds covered by Deed of Assignment of Internal Revenue Allotment and guaranteed
by LGU Guarantee Corporation 4.00%
AAA to AA- AAA 0.00%
A+ to BBB- AA+ to BBB- AAA to BBB-
Residual maturity < Residual maturity < Residual maturity < 0.25%
6 months 6 months 6 months
Residual maturity > Residual maturity > Residual maturity >
6 months, < 24 months 6 months, < 24 months 6 months, < 24 months 1.00%
Residual maturity > Residual maturity > Residual maturity >
24 months 24 months 24 months 1.60%
All other debt securities/
derivatives 8.00%
1
The notations follow the rating symbols used by Standard & Poor’s. The mapping of ratings of all recognized external
rating agencies is in Part III.C. For purposes of this framework, debt securities/derivatives issued by sovereigns include
foreign currency denominated debt securities/derivatives issued by the Philippine NG.

APP. Q-46
08.12.31
10. Foreign currency denominated the Management and Supervision of

debt securities/derivatives issued by the Operational Risk (February 2003). The same
1
Philippine NG and BSP shall be may be downloaded from the BIS website
risk-weighted according to the table above: (www.bis.org).
Provided, That only one-third (1/3) of the
applicable risk weight shall be applied B. Measurement of capital charge
from 01 July 2007, two-thirds (2/3) from 3. In computing for the operational risk
01 January 2008, and the full risk weight capital charge, Banks may use either the
from 01 January 2009. basic indicator approach or the standardized
11. A security, which is the subject of approach.
a repo-style transaction, shall be treated as 4. Under the basic indicator approach,
if it were still owned by the seller/lender banks must hold capital for operational risk
of the security, i.e., to be reported by the equal to fifteen percent (15%) of the
seller/lender. average gross income over the previous
12. In addition to capital charge for three (3) years of positive annual gross
specific and general market risk, a credit income. Figures for any year in which
risk capital charge should be applied to annual gross income is negative or zero
banks’ counterparty exposures in repo- should be excluded from both the
style transactions and OTC derivatives numerator and denominator when
contracts. The computation of the credit risk calculating the average.
capital charge for counterparty exposures 5. Banks that have the capability to
arising from trading book positions are map their income accounts into the various
discussed in paragraphs 35 to 41 of Part III.B. business lines given in paragraph 7 may
(As amended by Circular No. 605 dated 05 March 2008) use the standardized approach subject to
prior BSP approval2. In order to qualify for
C. Measurement of risk-weighted assets use of the standardized approach, a bank
13. Market risk-weighted assets are must satisfy BSP that, at a minimum:
determined by multiplying the market risk a) Its board of directors and senior
capital charge by ten (10) [i.e., the management are actively involved in the
reciprocal of the minimum capital ratio of oversight of the operational risk management
ten percent (10%)]. framework;
b) It has an operational risk
Part VII. Operational risk-weighted management system that is conceptually
assets sound and is implemented with integrity; and
c) It has sufficient resources in the use
A. Definition of operational risk of the approach in the major business lines
1. Operational risk is defined as the as well as the control and audit areas.
risk of loss resulting from inadequate or 6. Operational risk capital charge is
failed internal processes, people and calculated as the three (3)-year average of
systems or from external events. This the simple summation of the regulatory
definition includes legal risk, but excludes capital charges across each of the business
strategic and reputational risk. lines in each year. In any given year,
2. Banks should be guided by the negative capital charges (resulting from
Basel Committee on Banking Supervision’s negative gross income) in any business line
recommendations on Sound Practices for may offset positive capital charges in other
1
Warrants paired with ROP Global Bonds shall be exempted from capital charge for market risk only to the extent of
bank's holdings of bonds paired with warrants equivalent to not more than fifty (50%) of total qualifying capital, as
defined under Part II of this Appendix.
2
Refer to Appendix Q-46b for the Guidelines on the Use of the Standardized Approach in Computing the Capital
Charge for Operational Risk
APP. Q-46
08.12.31
business lines without limit. However, be excluded from both the numerator and
where the aggregate capital charge across denominator.
all business lines within a given year is 7. The business lines and their
negative, then figures for that year shall corresponding beta factors are listed below:
Business lines Activity Groups Beta factors

Level 1 Level 2
Corporate Finance Mergers and acquisitions, underwriting, 18%
Corporate finance Municipal/Govern- privatizations, securitization, research, debt
ment Finance (government, high yield), equity, syndications, IPO,
Advisory Services secondary private placements
Sales Fixed income, equity, foreign exchanges, 18%
Market Making commodities, credit, funding, own position securities,
Trading and Sales Proprietary lending and repos, brokerage, debt, prime brokerage
Positions
Treasury
Retail Banking Retail lending and deposits, banking services, trust 12%
and estates
Private Banking Private lending and deposits, banking services,
Retail Banking
trust and estates, investment advice
Card Services Merchant/commercial/corporate cards, private
labels and retail
Commercial Commercial Project finance, real estate, export finance, trade 15%
Banking Banking finance, factoring, leasing, lending, guarantees,
bills of exchange
Payment and External Clients Payments and collections, funds transfer, clearing 18%
Settlement and settlement
Custody Escrow, depository receipts, securities lending 15%
(customers) corporate actions
Agency Services
Corporate Agency Issuer and paying agents
Corporate Trust
Discretionary Fund Discretionary and non-discretionary fund 12%
Asset Management Management management, whether pooled, segregated, retail,
Non-Discretionary institutional, closed, open, private equity
Fund Management
Retail Brokerage Retail brokerage Execution and full service 12%
8. Gross income, for the purpose of f) include other income (i.e., rental
computing for operational risk capital income, miscellaneous income, etc.)
charge, is defined as net interest income
plus non-interest income. This measure C. Measurement of risk-weighted assets
should: 9. The resultant operational risk
a) be gross of any provisions for capital charge is to be multiplied by 125%
losses on accrued interest income from before multiplying by ten (10) [i.e., the
financial assets; reciprocal of the minimum capital ratio of
b) be gross of operating expenses, ten percent (10%)].
including fees paid to outsourcing service (As amended by M-2007-019 dated 21 June 2007)
providers;
c) include fees and commissions; Part VIII. Disclosures in the Annual
d) exclude gains/(losses) from the Reports and Published Statement of
sale/redemption/derecognition of non- Condition
trading financial assets and liabilities;
e) exclude gains/(losses) from sale/ 1. This section lists the specific
derecognition of non-financial assets; and information that banks have to disclose, at

APP. Q-46
08.12.31
a minimum, in their Annual Reports, c) The scope and nature of risk

except Item "h", paragraph 4 which should reporting and/or measurement systems;
also be disclosed in banks’ quarterly and
Published Statement of Condition. These d) Policies for hedging and/or
enhanced disclosures shall commence mitigating risk, and strategies and processes
with Annual Reports for financial year 2007 for monitoring the continuing effectiveness
and quarterly published statement of of hedges/mitigants.
condition from end-September 2007.
2. Full compliance of these disclosure Credit risk
requirements is a prerequisite before banks 5. Aside from the general disclosure
can obtain any capital relief (i.e., adjustments requirements stated in paragraph 4, the
in the risk weights of collateralized or following information with regard to credit
guaranteed exposures) in respect of any risk have to be disclosed in banks’ Annual
credit risk mitigation techniques. Reports:
a) Total credit risk exposures (i.e.,
A. Capital structure and capital adequacy principal amount for on-balance sheet and
3. The following information with credit equivalent amount for off-balance
regard to banks’ capital structure and capital sheet, net of specific provision) broken down
adequacy shall be disclosed in banks’ by type of exposures as defined in Part III;
Annual Reports, except Item "h" below b) Total credit risk exposure after risk
which should also be disclosed in banks’ mitigation, broken down by:
quarterly published statement of condition: i. type of exposures as defined in Part
a) Tier 1 capital and a breakdown of III; and
its components (including deductions solely ii. risk buckets, as well as those that
from Tier 1); are deducted from capital;
b) Tier 2 capital and a breakdown of c) Total credit risk-weighted assets
its components; broken down by type of exposures as
c) Deductions from Tier 1 fifty percent defined in Part III;
(50%) and Tier 2 fifty percent (50%) capital; d) Names of external credit assessment
d) Total qualifying capital; institutions used, and the types of exposures
e) Capital requirements for credit risk for which they were used;
(including securitization exposures); e) Types of eligible credit risk mitigants
f) Capital requirements for market risk; used including credit derivatives;
g) Capital requirements for f) For banks with exposures to
operational risk; and securitization structures, aside from the
h) Total and Tier 1 CAR on both solo general disclosure requirements stated in
and consolidated bases. paragraph 4, the following minimum
information have to be disclosed:
B. Risk exposures and assessments i. Accounting policies for these
4. For each separate risk area (credit, activities;
market, operational, interest rate risk in the ii. Total outstanding exposures
banking book), banks must describe their securitized by the bank; and
risk management objectives and policies, iii. Total amount of securitization
including: exposures retained or purchased, broken
a) Strategies and processes; down by exposure type;
b) The structure and organization of g) For banks that provide credit
the relevant risk management function; protection through credit derivatives, aside

APP. Q-46
08.12.31
from the general disclosure have to disclose their operational

requirements stated in paragraph 4, risk-weighted assets in their Annual
total outstanding amount of credit Reports.
protection given by the bank broken
down by type of reference exposures Interest rate risk in the banking book
should also be disclosed; and 8. Aside from the general disclosure
h) For banks with investments in other requirements stated in paragraph 4, the
types of structured products, aside from the following information with regard to
general disclosure requirements stated in interest rate risk in the banking book have
paragraph 4, total outstanding amount of to be disclosed in banks’ Annual Reports:
other types of structured products issued a) Internal measurement of interest
or purchased by the bank broken down by rate risk in the banking book, including
type should also be disclosed. assumptions regarding loan prepayments
and behavior of non-maturity deposits, and
Market risk frequency of measurement; and
6. Aside from the general disclosure b) The increase (decline) in earnings
requirements stated in paragraph 4, the or economic value (or relevant measure
following information with regard to used by management) for upward and
market risk have to be disclosed in banks’ downward rate shocks according to internal
Annual Reports: measurement of interest rate risk in the
a) Total market risk-weighted assets banking book.
broken down by type of exposures
(interest rate, equity, foreign exchange, Part IX. Enforcement
and options); and
b) For banks using the internal A. Sanctions for non-reporting of CAR
models approach, the following breaches
information have to be disclosed: 1. It is the responsibility of the bank
i. The characteristics of the models CEO to cause the immediate reporting of
used; CAR breaches both to its Board and to the
ii. A description of stress testing BSP. It is likewise the CEO’s responsibility
applied to the portfolio; to ensure the accuracy of CAR calculations
iii. A description of the approach used and the integrity of the associated
for backtesting/validating the accuracy and monitoring and reporting system. Any
consistency of the internal models and willful violation of the above will be
modeling processes; considered as a serious offense for
iv. The scope of acceptance by the purposes of determining the appropriate
BSP; and monetary penalty that will be imposed on
v. A comparison of VaR estimates the CEO. In addition, the CEO shall be
with actual gains/losses experienced by subject to the following non-monetary
the bank, with analysis of important sanctions:
outliers in backtest results. a) First offense – warning;
b) Second offense – reprimand;
Operational risk c) Third offense – 1 month suspension
7. Aside from the general disclosure without pay; and
requirements stated in paragraph 4, banks d) Further offense – disqualification.

APP. Q-46
08.12.31
B. Sanctions for non-compliance with a) First offense – warning on CEO and

required disclosures the Board;
2. Willful non-disclosure or erroneous b) Second offense – reprimand on
disclosure of any item required to be disclosed CEO and the Board;
under this framework in either the Annual c) Third offense – 1 month suspension
Report or the Published Statement of of CEO without pay; and
Condition shall be considered as a serious d) Further offense – possible
offense for purposes of determining the disqualification of the CEO and/or the Board.
appropriate monetary penalty that will be (Circular No. 538 dated 04 August 2006, as amended by
imposed on the bank. In addition, the CEO Circular Nos. 605 dated 05 March 2008, 588 dated 11 December
and the Board shall be subject to the 2007, M-2007-019 dated 21 June 2007, Circular No. 560 dated
following non-monetary sanctions: 31 January 2007 and M-2006-022 dated 24 November 2006)

APP. Q-46a
07.12.31
GUIDELINES ON THE CAPITAL TREATMENT OF BANKS’ HOLDINGS

OF ROP GLOBAL BONDS PAIRED WITH WARRANTS
A QB’s holdings of ROP Global Bonds weighted at zero percent (0%): Provided,
that are paired with Warrants (paired That the zero percent (0%) risk weight shall
Bonds), which give the QB the option or be applied only to QB’s holdings of paired
right to exchange its holdings of ROP Bonds equivalent to not more than fifty
Global Bonds into Peso-denominated percent (50%) of the total qualifying capital,
government securities upon occurrence of as defined under Appendix Q-46.
a predetermined credit event, shall be risk (Circular 588 dated 11 December 2007)

APP. Q-46b
07.12.31
GUIDELINES ON THE USE OF THE STANDARDIZED APPROACH IN

COMPUTING THE CAPITAL CHARGE FOR OPERATIONAL RISKS
QBs applying for the use of the Mapping of Gross Income

Standardized Approach (TSA) must 5. QBs using TSA in computing
satisfy the following requirements/ operational risk capital charge must
criteria: develop specific written policies and
criteria for mapping gross income of their
General Criteria current business lines into the standard
1. The use of TSA shall be business lines prescribed under Appendix
conditional upon the explicit prior Q-46. They must also put in place a review
approval of the BSP. process to adjust these policies and criteria
2. The BSP will only give approval for new or changing business activities or
to an applicant QB if at a minimum: products as appropriate.
a. Its board of directors and senior 6. QBs must adopt the following
management are actively involved in the principles for mapping their business
oversight of the operational risk activities to the appropriate business lines:
management framework; (a) Activities or products must be
b. It has an operational risk mapped into only one (1) of the eight (8)
management system that is conceptually standard business lines, as follows:
sound and is implemented with integrity; (1) Corporate finance- This includes
and, arrangements and facilities [e.g., mergers and
c. It has sufficient resources in the acquisitions, underwriting, privatizations,
use of the approach in the major business securitization, research, debt (government,
lines as well as in the control and audit high yield), equity, syndications, Initial
areas. Public Offering (IPO), secondary private
3. The above criteria should be placements] provided to large commercial
supported by a written documentation enterprises, multinational companies, NBFIs,
of the board-approved operational risk government departments, etc.
management framework of the QB which (2) Trading and sales- This includes
should cover the following: treasury operations, buying and selling of
a. Overall objectives and policies securities, currencies and others for
b. Strategies and processes proprietary and client account.
c. Operational risk management (3) Retail banking- This includes
structure and organization financing arrangements for private
d. Scope and nature of risk reporting/ individuals, retail clients and small
assessment systems businesses such as personal loans, credit
e. Policies and procedure for cards, auto loans, etc. as well as other
mitigating operational risk facilities such as trust and estates and
4. This operational risk management investment advice.
framework of the QB should be disclosed (4) Commercial banking- This includes
in its annual report, as provided under financing arrangements for commercial
Appendix Q-46. enterprises, including project finance, real

APP. Q-46b
07.12.31
estate, export finance, trade finance, (d) The process by which QBs map
factoring, leasing, guarantees, bills of their business activities into the
exchange, etc. standardized business lines must be
(5) Payment and settlement- This regularly reviewed by party independent
includes activities relating to payments and from that process.
collections, inter-bank funds transfer, 7. In computing the gross income of
clearing and settlement. the QB, the amounts of the income
(6) Agency services- This refers to accounts reported in the operational risk
activities of QBs acting as issuing and paying template2 must be equal to the year-end
agents for corporate clients, providing balance reported in the FRP. Any
custodial services, etc. discrepancy must be properly accounted
(7) Asset management- This includes and supported by a reconciliation
managing funds of clients on a pooled, statement.
segregated, retail, institutional, open or
closed basis under a mandate. Application Process for the Use of TSA
(8) Retail brokerage- This includes 8. QBs applying for the use of TSA
brokering services provided to customers should submit the following documents to
that are retail investors rather than their respective Central Points of Contact
institutional investors. (CPCs) of the BSP:
(a) Any activity or product which (a) An application letter signed by the
cannot be readily mapped into one (1) of president/CEO of the QB signifying its
the standardized business lines but which intention to use TSA in computing the
is ancillary1 to a business line shall be capital charge for operational risk;
allocated to the business line to which it is (b) Written documentation of the
ancillary. If the activity is ancillary to two Board-approved operational risk
(2) or more business lines, an objective management framework as described in
criteria or qualification must be made to paragraph 3.
allocate the annual gross income derived (c) Written policies and criteria for
from that activity to the relevant business mapping business activities and their
lines. corresponding gross income into the
(b) Any activity that cannot be mapped standard business lines as described in
into a particular business line and is not an paragraphs 5 to 7.
1
ancillary activity to a business line shall be (d) An overall roll-out plan of the QB
mapped into one (1) of the business lines including project plans and execution
with the highest associated beta factor processes, with the appropriate time lines.
eighteen percent (18%). Any ancillary
activity to that activity will follow the same Initial Monitoring Period
business line treatment. 9. The BSP may require a six (6)-month
(c) QBs may use internal pricing period of initial monitoring of a QB’s TSA
methods to allocate gross income between before it is used for supervisory capital
business lines: Provided, That the sum of purposes.
gross income for the eight business lines
must still be equal to the gross income as Reversion from TSA to BIA
would be recorded if the QB uses the Basic 10. A QB which has been approved to
Indicator Approach (BIA). use TSA in computing its capital charge
1 Ancillary function is an activity/function that is not the main activity of a given business line but only as a
support activity
2 Part V of the revised CAR report template

APP. Q-46b
07.12.31
for operational risk will not be allowed to repeat the whole application process
revert to the simpler approach, i.e., the should it opt to return to the use of TSA,
BIA. However, if the BSP determines that but only after a year of using the BIA.
the QB no longer meets the qualifying These guidelines shall take effect on
criteria for TSA, it may require the QB to 21 July 2007.
revert to BIA. The QB shall be required to (M-2007-019 dated 21 June 2007)

APP. Q-47
07.12.31
GUIDELINES FOR TRUST DEPARTMENTS’ PLACEMENTS

IN THE SDA FACILITY OF BSP
The following are the guidelines Tier Tiered Rate

governing the trust deparments’ placements Amounts in excess of BSP published rate less
in the SDA facility of BSP. P5.0 billion up to 2%
1. Access to the subject BSP facility PI0.0 billion
shall be granted upon receipt by the BSP Amounts in excess of BSP published rate less
Treasury Department (BSP-TD) of a letter PI0.0 billion 4%
of request (Appendix 78 Annex 1) for 6. The minimum placement is P10.0
account opening together with the following million with the additional amounts in
requirements: increments of PI .0 million.
a. Internal approvals allowing the trust 7. Trust departments may place only
department to invest in the BSP SDA once per tenor per day
facility; 8. Trust departments may pre-
b. A list of authorized signatories; terminate their SDA placements, either fully
c. A list of authorized traders; and or partially. If the holding period of the SDA
d. Contact details for the front and back placement when it is rate pre-terminated is
offices. less than fifty percent (50%) of the original
2. The trust department shall use a tenor of the said placement, the applicable
depository institution that is a PhilPASS interest rate for the pre-terminated amount will
member when placing its funds in the SDA be the rate dealt on value date less two percent
facility. On transaction date, the trust (2%) p.a. If the holding period is fifty percent
department shall instruct said depository (50%) or more of the original tenor, the
institution to debit their account in favor of applicable interest rate for the pre-terminated
their SDA with the BSP. Similarly, the trust amount will be the rate dealt on value date
department shall specify a PhilPASS less one percent (1%) p.a. The pre-termination
member to which its principal and interest rate shall apply only to the amount pre-
will be credited at maturity of the SDA terminated.
placement. 9. The income from the SDA is subject
3. Trading hours shall be from I0:00 to a twenty percent (20%) final withholding
am to 3:00 pm for all business days. All tax
trades shall settle on trade date. 10. Depository institution shall
4. Applicable tenors and pricing shall generally follow the existing settlement
be based on published rates (i.e., in process for SDA placements with BSP of
Bloomberg’s CBPHI and Reuters BANGKO QBs. The trust department will be required
page). to send the transaction confirmation directly
5. The existing tiering scheme, as to the BSP-TD back office. A sample
detailed below shall be applied to the SDA confirmation is attached as Appendix Q-47
placements of the trust departments Annex 1 and Annex 2.
separately from the placements of their bank 11. Trust departments may request a
proper. statement from the BSP-TD for their
Tier Tiered Rate outstanding SDA placement as of a specified
Amounts less than or BSP published rate date.
equal to P5.0 billion (M-2007-011 dated 08 May 2007)

APP. Q-47
07.12.31
Annex 1
(Institution’s Letterhead)
Date:_____________________
Mrs. Ma. Ramona GDT Santiago

Managing Director
Treasury Department
Dear Madam:
Pursuant to Monetary Board Resolution Nos. 433 and 518 dated 19 April 2007 and
3 May 2007, allowing trust departments to place their funds in the BSP’s Special Deposit
Account (SDA) facility, the trust department of (name of institution) respectfully request the
creation of an account for the said facility.
Please find attached the following documents, as required:
a. Internal approvals allowing the trust department to invest in the SDA

facility;
b. A list of authorized signatories;
c. A list of authorized traders; and
d. Contract details for the front and back offices.
For your kind attention.
Very truly yours,
__________________________
__________________________

APP. Q-47
07.12.31
Annex 2
(Institution’s Letterhead)
Date:_________________
TREASURY DEPARTMENT
Treasury Services Group - Domestic
Gentlemen:
This is to confirm our Special Deposit Account placement to yourselves as

follows:
VALUE DATE
TERM
MATURITY DATE
RATE
PRINCIPAL AMOUNT
GROSS INTEREST
WITHHOLDING TAX
NET MATURITY VALUE
On value date, our funds will come from Regular Demand Deposit account of
(name of depository QB).
Accordingly, please CREDIT the Regular Demand Deposit Account of

(name of depository QB) on maturity date the amount of ____________PESOS (P___________),
representing full payment of the principal plus interest (net of applicable withholding tax)
thereon.
Very truly yours,
___________________________
___________________________

APP. Q-47a
07.12.31
SDA PLACEMENTS OF TRUST DEPARTMENTS/ENTITIES AS AGENT

FOR TAX-EXEMPT INSTITUTIONS (TEI) AND ACCOUNTS
(Appendix to Subsection 4409Q.2)
Section 1. Placement of tax-exempt c. Copy of the covering trust

accounts in the SDA facility should comply agreement; and
with existing minimum placement and d. Certification from the trust
incremental requirements for the SDA department that such placements, for as long
facility. as these are outstanding, are owned by the
specified TEls and are accordingly exempt
Sec. 2. On transaction date, the trust from said twenty percent (20%) final
department/entity must inform the BSP the withholding tax (FWT). Shown in Annex 1.
exact amount of the tax-exempt placement Advance copies may be sent through
in the SDA and submit the following facsimile (facsimile number 523-3348) or
supporting documents: electronic mail of BSP-Treasury Back Office
a. Copy of the relevant ruling from the personnel (jsiguenza@bsp. gov. ph).
BIR, duly certified by the latter, affirming Absent the supporting documents by
the exemption from taxes of the income end of the business day, the tax-exempt
earned by concerned TEls or accounts from placement will be cancelled.
their investments;
b. Copy of the board resolution duly Sec. 3. For outstanding tax-exempt SDA
certified by the corporate secretary placements as of 01 November 2007, trust
authorizing the placement (directly for departments must submit the documents
managed funds or indirectly through specified in Item "2" hereof on or before 04
designated trustee bank/FI in the case December 2007 to avail of the exemption
of managed trust funds) in the SDA from withholding tax.
facility; ( M-2007-038 dated 29 November 2007)

APP. Q-47a
07.12.31
Annex 1
(Trust Entity/Department’s Letterhead)
Date:______________________
Ms. Ma. Ramona GDT Santiago
Managing Director
Treasury Department
A. Mabini corner P. Ocampo Sts.
Manila 1004
Dear Ms. Santiago:
This refers to the placement/s amounting to (Peso Amount) placed in the BSP’s SDA facility at
(SDA rate) % per annum for value (Value date) to mature on (Maturity date).
This is to certify that the above placement/s is/are transacted on behalf of the following Tax-
Exempt Institutions (TEI) or tax-exempt funds and interest income thereon are exempt from the twenty
percent (20%) final withholding tax based on the corresponding BIR rulings:
Tax Exempt Institutions Basis Amount

(BIR Ruling No. and date)
1.
2.
3.
(rows may be increased depending on number of placements)
TOTAL
This is to further certify that above placements will be owned by the specified TEIs/tax-exempt
funds for as long as these placements are outstanding.
In the event that the BSP is assessed for deficiency final withholding tax on the above placements
by the Bureau of Internal Revenue (BIR), (NBFI name) shall be liable for and pay such deficiency taxes
and surcharges, and/or indemnify/reimburse the BSP for such deficiency taxes and surcharges that the
latter may eventually pay to the BIR as a result thereof. Further, (NBFI name) hereby authorizes the BSP
to automatically debit its regular demand deposit account with the BSP for payment or reimbursement of
any such deficiency taxes and surcharges.
Sincerely yours,
HEAD OF TRUST DEPARTMENT
SUBSCRIBED AND SWORN to before me this ____ day of____________________ 2007 at

______________________, affiant exhibiting to me his Community Tax Certificate/Passport No.
____________, issued at _________________, on _____________________.
Notary Public
Doc. No. _________;
Page No. _________;
Book No. _________;
Series of 200___

APP. Q-48
08.12.31
BASIC STANDARDS IN THE ADMINISTRATION OF TRUST, OTHER FIDUCIARY

AND INVESTMENT MANAGEMENT ACCOUNTS
(Appendix to Subsec. 4401Q)
I. Introduction the account. It shall be covered by a written

Trust and other fiduciary business and policy which shall contain, among other
investment management activities have things, the types of trust, other fiduciary and
evolved with the changes in the financial investment management accounts that are
market and advancement in technology. desirable and consistent with the TE’s risk
These innovations have allowed trust strategies and the specific conditions for
entities to expand the scope of trust accepting new accounts, and approved by
products and services offered to customers, the Trust Committee, or the Trust Officer,
thus increasing their exposure to various or subordinate officer of the trust
risks. As trust entities grow more diverse, department, authorized by the board of
necessarily policies and procedures as well directors or its functional oversight
as risk management practices must keep equivalent, in the case of foreign QBs and
pace. The basic standards would provide institutions.
common processes for an efficient operation The review process entails the
and administration of trust, other fiduciary thorough and complete review of the
and investment management activities client’s/account’s characteristics and
across the trust industry. investment profile, including the assets/
properties to be contributed/ delivered.
II. Statement of policy Non-financial/non-traditional assets
It is the policy of the BSP to provide (i.e., real estate and the like) which are
adequate level of protection to investors more likely to be illiquid shall be carefully
who, under a fiduciary arrangement, reviewed prior to acceptance to ensure that
engage the services or avail of products of the TE only accepts accounts which hold
trust entities which are required to observe assets it may be able to properly manage.
prudence in the exercise of their fiduciary Prior to the acceptance of a fiduciary
responsibility. Along this line, the BSP account, the TE shall review the underlying
prescribes basic standards for the efficient instrument (trust agreement or contract) for
administration and operation of trust and potential conflicts of interest. If such conflict
other fiduciary business and investment exists, the TE shall take appropriate action
management activities. to address such condition before the
account is accepted.
III. Standards In cases where the TE is chosen as a
The basic standards in the administration successor trustee or investment manager,
of trust, other fiduciary and investment the TE shall perform a review and
management accounts are meant to address evaluation of all assets to be delivered to
the significant areas of operations and the TE to determine how these would serve
provide minimum set of requirements and the client's objectives, whether the TE can
procedures: properly handle such assets and to assess
A. Account acceptance and review any possible issue/problem which may
processes arise with respect to such assets before
1. Pre-acceptance account review acceptance of such assets and/or
This review must document that the assumption of the trust, fiduciary or
trust entity (TE) can effectively administer investment management relationship.

APP. Q-48
08.12.31
2. Establishment and post-acceptance service to be provided and ensure the

review. Acceptance policies for new suitability of the investment product/
accounts shall, at a minimum, include the portfolio/strategy to be recommended to
following processes and/or requirements: each client. It shall provide prospective
(1) Account opening process. This clients with client suitability questionnaire
process defines the TE’s policies and and require them to accomplish the same
procedures for client/account prior to the acceptance of the account and
identification, consistent with the TE’s execution of a transaction.
“know your customer” (KYC) policy for For this purpose, the TE shall make an
compliance with anti-money laundering assessment of the client’s level of financial
regulations; identification of the needs of sophistication and consider factors relevant
the client; the objective(s) of the to the creation and management of, or
engagement; the vehicle to be used; and participation in, an investment portfolio,
the account’s investment parameters. The such as but not limited to, the specific
trust officer or other authorized personnel needs and unique circumstances of the
of the trust department shall conduct the client and/or beneficiary/(ies), basic
account opening process for trust, characteristics of the clients’ investment
fiduciary and investment management and experience, financial constraints, risk
accounts. In the case of unit investment tolerance, tax considerations and regulatory
trust funds (UITFs), only authorized requirements.
branch managers/officers as well as UIT The same client suitability assessment
marketing personnel, who have all process shall be applied by the TE for
successfully undergone the required directional accounts.
certification/accreditation/licensing • Minimum information required for
process, may perform said process for CSA:
UITF clients. The account opening i. Personal/Institutional data. Minimum
process shall at least involve the personal/institutional information that are
following: unique to a natural or juridical client, which
a. Client profiling shall be performed shall also cover demographics and KYC
for all UITF and regular trust, other fiduciary information; the identity of beneficiaries,
and investment management accounts where applicable, and approximate portion
(except court trusts) via a duly acknowledged of total assets administered/managed.
Client Suitability Assessment (CSA), which ii. Investment objective. A clear
aims to provide the TE with information statement or definition of the client’s
leading to the prudent design of investment investment goals/purposes to be achieved
packages, suited to a particular client or through a particular trust, fiduciary or
investment account. The profiling process, investment product or service. The client
to be documented through a CSA Form may opt to open several accounts, each
signed by the concerned parties1, shall be one with specific investment objectives
undertaken on a per client basis, which separate and distinct from the other
shall emphasize the level of risk tolerance accounts.
of the client. iii. Investment experience. A list of
• Client suitability assessment various types of investment the prospective
The TE shall obtain adequate information client is familiar with, acquired from actual/
from the client to determine the personal investment experience, or of similar
appropriateness of the fiduciary product/ investment circumstances.
1
i.e., the client, the UIT accredited marketing personnel or the officer of the trust department conducting the client
profiling. The CSA Form shall be acknowledged or confirmed by the trust officer or other officer of the trust department
autorized by board of directors.
Appendix Q-48 - Page 2 Manual of Regulations for Non-Bank Financial Institutions

APP. Q-48
08.12.31
iv. Knowledge and financial situation. invested in deposits with local QBs/
For complex transactions where the level branches of foreign QBs operating in the
of risk involved is greater, the TE must take Philippines and with FIs in any foreign
into account the knowledge, experience country: Provided, That said FIs has at least
and financial situation of the client or an investment grade credit rating from a
potential client to assess the level of reputable international credit rating agency.
investment sophistication. This may ii. Moderate. Client wants a portfolio
include the careful assessment whether the which may provide potential returns on
specific type of financial instrument/service/ investment that are higher than the regular
portfolio/strategy is in line with the client’s traditional deposit products and client is
disclosed financial capacity. aware that a higher return is accompanied
Such assessment is necessary as there by a higher level of risk. Client is willing
are significant risks involved on financial to expose the funds to a certain level of
investments (e.g., derivatives), the type of risks in consideration for higher returns.
transaction (e.g. sale of options), the iii. Aggressive. Client wants a portfolio
characteristics of the order (e.g., size or price which may provide appreciation of capital
specifications) or the frequency of the trading. over time and client is willing to accept higher
v. Investment time frame and liquidity risks involving volatility of returns and even
requirement. The TE is able to organize the possible loss of investment in return for
portfolio in a manner that will provide for potential higher long-term results.
anticipated liquidity requirement through • Investment policy statement
redemption of principal contribution or The TE shall have in place a method by
earnings. which suitability of investment is
vi. Risk tolerance. Allow the TE to determined based on the results of the CSA
classify clients in accordance with its own and formulated via an Investment Policy
pre-set internal risk classification. Statement (IPS). It shall communicate to
Based on the results of the CSA, prospective clients the results of the
classification of clients by the TE may assessment, recommend the investment
include, but need not be limited to the product/portfolio/strategy, and explain the
following: reasons why, on the basis of the given
i. Conservative. Client wants an information, its recommendation is to the
investment strategy where the primary best interest of the client as of a defined
goal is to prevent the loss of principal at timeframe. The TE shall make a
all times, and where the client prefers recommendation only after having
investment grade and highly liquid assets, reasonably determined that the proposed
government securities, Republic of the investment is suitable to the client’s and/or
Philippines' bonds (ROPs), deposits with beneficiary’s financial situation, investment
local QBs/ branches of foreign QBs experience, and investment objectives.
operating in the Philippines, and deposits The IPS is a clear reference frame for
with financial institutions in any foreign investment decisions and must be based
country: Provided, That said FI has at least on the investment objectives and risk
an investment grade credit rating from a tolerance of the client. It must include, at a
reputable international credit rating agency. minimum, a description of the following:
For purposes of investing in a UITF, a client i. Investment objective;
wants an investment strategy where the ii. Investment strategy-indicating how
primary objective is to prevent the loss of assets will be allocated indicating the
principal at all times and where the fund is agreed portfolio mix;
Manual of Regulations for Non-Bank Financial Institutions Appendix Q-48 - Page 3

APP. Q-48
08.12.31
iii. Investment performance review – ii. The TE shall issue a clear written
indicating proposed market benchmarks, if warning to the client of the protections he
any and the desired frequency of the may lose and conversely, of the risks that
performance review/reporting; he is exposed to.
iv. Investment limits – identifies any iii. The TE shall have taken all
limitation which the client may have for reasonable steps to ensure that the client
the portfolio such as investment restrictions meets all relevant requirements as
(e.g., prohibited investments) and client’s provided for in the TE’s written policies.
consent for taking losses. • Frequency of CSA and IPS
For UITF, the IPS is equivalent to the i. The CSA shall be performed and
investment objective of the fund specifically the IPS shall be formulated and executed
stated in the Declaration of Trust. prior to the opening of the account;
• Option of client to reclassification ii. The TE shall update the CSA and
Generally, the TE shall recommend the the IPS at least every three (3) years except
investment product/portfolio/strategy in the following instances;
suitable to the client based on the results • Whenever updates are necessitated
of the CSA. The TE may, however, provide by the client, upon notice/advise to the TE,
a process for allowing clients to invest in on account of a change in personal/financial
investment products/ portfolio/strategy with circumstances or preferences, the TE shall
a higher risk than those corresponding to adjust/modify its investment strategy/
the CSA profile results. A client who portfolio and recommendation, subject to
exercises the option to be re-classified the conformity of the client;
outside the CSA process thereby waives • Whenever managed trust, other
some of the protection afforded by these fiduciary, and investment management
guidelines. Such re-classification may be accounts express intention to invest in
allowed subject to the observance of the complex investment products such as
following: financial derivatives, the TE shall ensure
i. The client shall state in writing to that the CSA and the IPS are updated at
the TE that - least annually. Otherwise, the TE shall not
• He does not agree with or accept make new/additional investments in
the recommendation of the TE on the complex investment products.
investment product/portfolio/strategy iii. The TE shall ensure that periodic
appropriate to the client’s profile based on written notices given to clients reminding
the results of the CSA; them of such updates are received/
• He would like to avail of the acknowledged by clients or their
investment product/portfolio/strategy other authorized representatives;
than that which is consistent with the results iv. Updated CSA and IPS shall be
of the CSA; acknowledged by the client;
• He requests/intends to be re- v. The frequency of review shall be
classified, either generally or in respect to included as a provision in the written
a particular investment/service/ transaction/ agreement; and
product; and vi. The latest CSA and IPS will
• He fully understands and is willing continue to be applied for any subsequent
to take the risks incidental to the principal contributions to the account, until
investment product/portfolio/strategy to be these are amended or updated by the
availed of. client.

APP. Q-48
08.12.31
b. Identification of degree of i. A description of the services to be

discretion granted by client to the TE. This provided;
process involves the determination of the ii. All charges relating to the services
extent of discretion granted to the TE to or instruments envisaged and how the
manage the client’s portfolio. charges are calculated;
(1) Discretionary. The TE has authority iii. The obligations of the client with
or discretion to invest the funds/property respect to the transactions envisaged, in
of the client in accordance with the particular his financial commitments
parameters set forth by the client. Such towards the TE; and
authority of the TE which obtained a iv. For engagements involving
composite Trust Rating of “4” in the latest management of assets or properties, the
BSP examination will not be subject to the degree of discretion granted to the trustee
investment limitations provided under or agent must be clearly defined and stated
Subsecs. 4409Q.2 and 4409Q.3 for trust in the agreement;
and other fiduciary accounts and Subsecs. b. The Agreement shall be in plain
4411Q.4 and 4411Q.5 for investment language understandable by the client and/
management accounts, respectively; and or personnel of the TE responsible for
(2) Non-discretionary. Investment explaining the contents of the agreement
activity of the TE is directed by the client to the client.
or limited only to specific securities or c. For complex investment products
properties and expressly stipulated in the such as financial derivatives instruments or
agreement or upon written instruction of those that use synthetic investment
the client. vehicles, the TE shall disclose to the client
(3) Documentation. The trust, fiduciary and require client’s prior written conformity
or investment management relationship to the following:
shall be formally established through a i. Key features of investment services
written legal document such as the trust or and financial instruments envisaged,
investment management agreement. The according to the nature of such instruments
engagement documents shall clearly and services;
specify the extent of fiduciary assignments/ ii. The type(s) of instruments and
responsibilities of the TE and articulate the transactions envisaged;
nature and limits of each party’s status as iii. The obligations of the TE with
trustor/principal or trustee/agent. Policies respect to the transactions envisaged, in
and procedures shall provide that trust or particular, its reporting and notice
investment management agreements are obligations to the clients; and
signed by the trust officer or , subordinate iv. An appropriate disclosure bringing to
officer of the trust department, or in the the client’s attention the risks involved in
case of UITFs, branch managers/officers the transactions envisaged.
duly authorized by the board of directors. d. In order to give a fair and adequate
The documentation process must also description of the investment service or
consider the following: financial instrument, the TE shall provide a
a. The Agreement must conform to clearly stated and easily understood Risk
the requirements provided under Subsec. Disclosure Statement to its clients, which
4409Q.1 for trust and other fiduciary forms part of or attached to the trust, fiduciary
accounts and Subsec. 4411Q.1 for or investment management agreement.
investment management accounts. In The Risk Disclosure Statement shall
addition, the Agreement shall contain the contain, among other things, the following
following provisions: provisions:

APP. Q-48
08.12.31
i. Cautionary statement on the management accounts (including

general risks of investing or associated with collective investment schemes such as
financial instruments, i.e., if the market is UITFs) shall be conducted. The periodic
not good, an investor may not be able to review of managed accounts shall be
get back his principal or original aligned with the provisions on the review
investment. Such statement must be and updating of the CSA and IPS. The
given due prominence, and not to be board of directors may delegate the
concealed or masked in any way by the conduct of account review to the Trust
wording, design or format of the Officer or Trust Department Committee
information provided; created for that purpose. The policy shall
ii. If the investment outlet is exposed likewise indicate the scope of the account
to any major or specific risks, a description review depending upon the nature and
and explanation of such risks shall be clearly types of trust, fiduciary and investment
stated; and management accounts managed.
iii. Advisory statement that for A comprehensive accounts review,
complex investment products, said which shall entail an administrative as well
instruments can be subject to sudden and as investments review, shall be performed
sharp falls in value such that the client may on a periodic basis to ascertain that the
lose its/his entire investment, and, account is being managed in accordance
whenever applicable, be obligated to with the instrument creating the trust and
provide extra funding in case it/he is other fiduciary relationship. The
required to pay more later. administrative review of an account is
Additional risk disclosures may be taken to determine whether the portfolio/
provided as appropriate. assets are appropriate, individually and
The TE must ensure that the trust, collectively, for the account, while an
fiduciary and investment management investment review is used to analyze the
agreements and documents have been investment performance of an account and
reviewed and found to be legally in order. reaffirm or modify the pertinent investment
B. Account administration policy statement, including asset allocation
It is the fundamental duty of a fiduciary guidelines. Whether the administrative
to administer an account solely in the and investment review are performed
interest of clients. The duty of loyalty is a separately or simultaneously, the
paramount importance and underlies the reviewing authority shall be able to
entire administration of trust, other fiduciary determine if certain portfolio/assets are no
and investment management accounts. A longer appropriate for the account, (i.e., not
successful administration will meet the consistent with the requirements of the
needs of both clients and beneficiaries in a client) and to take proper action through
safe and productive manner. prudent investment practices to change the
Account administration basically structure or composition of the assets.
involves three processes, namely; (1) The periodic review process also
periodic review of existing accounts, (2) involves disclosure of information on the
credit process and (3) investment process. investment portfolio and the relevant
(1) Periodic review of existing accounts investing activities. Regardless of the
The board of directors and Trust degree of discretion granted by the client
Committee shall formulate and implement to the TE, the former assumes full risk on
a policy to ensure that a comprehensive the investment and related activities, and
review of trust, fiduciary and investment counterparties. Relevant changes in the

APP. Q-48
08.12.31
TE’s organization or investment policies processes, including the use of internal and
that may affect the client’s decision to external credit rating and approval process
continue the services of the TE shall be relative to the delivery of its investment
disclosed to the client. function. The TE can share credit
In the case of non-discretionary public information with the non-bank proper
interest accounts such as employee subject to proper delineation and
benefit/retirement or pension funds, due documentation. The credit process shall
diligence review of the investment show the following at the minimum:
portfolio by the TE shall include providing i. Clear credit process flow, from
investors with appropriate information initiation of the lending activities
needed to make an informed investment envisioned by the TE up to the execution
decision and avoid possible conflict of of actual investment;
interest and self-dealing situations. ii. Credit criteria and rating used;
The TE should be able to show (in iii. Manner by which the TE handles
addition to the specific written directive the information, including confidential and
from the client) what it has done in the material data, which is shared between and
exercise of due diligence and prudence on among the departments, subsidiaries or
its part to protect the interest of the client affiliates of the TE; and
and/or beneficiaries, especially for accounts iv. Clear delineation of duties and
of public interest like retirement/pension responsibilities of each of the departments,
fund accounts. subsidiaries and affiliates of the TE, where
The TE shall keep its clients informed such groups or entities share the credit
of the investment and related activities by process.
rendering periodic reports and financial b. Counterparty accreditation process
statements prescribed under Subsec. The TE must clearly define the policies and
4425Q.1 and as necessary. The types of the processes it will undertake to accredit
reports and statements and the frequency counterparties, including the nonbank
of their submission must be clearly proper, and its subsidiaries and affiliates,
specified in the TE’s written policies and for their investment trading functions. It
procedures. may use or avail itself of the accreditation
The TE shall also establish a system that process of its nonbank proper, provided
enables a trust account representative or there is proper delineation of functions. The
officer to periodically contact clients and/or counterparty accreditation process shall
beneficiaries to determine whether their show the following at the minimum:
financial objectives and circumstances have i. Clear accreditation process flow
changed. from the initiation of credit activities up to
(2) Credit process the actual usage of lines;
Each trust entity shall define its credit ii. Credit criteria and rating used;
process in relation to the discharge of the iii. Manner by which the TE handles
TE’s investment function. The process the information, including confidential and
ensures credit worthiness of investment material data, which are shared between
undertakings including dealings and and among the departments, subsidiaries
relationship with counterparties. It also or affiliates of the TE;
serves to institutionalize the independence iv. Usage, duties and responsibilities
of the credit process of the TE. The credit of each of the department, subsidiaries and
process must at least cover the following: affiliates of the TE, where there is sharing
a. Credit policies. Trust entities must of credit lines between and among these
clearly define its credit policies and concerned groups/ entities; and

APP. Q-48
08.12.31
v. Clear delineation of duties and • Asset allocation. Outlines the

responsibilities of each of the departments, process and criteria for selecting and
subsidiaries and affiliates of the TE, where evaluating different asset classes identified
such groups or entities share the to be appropriate for the client’s profile and
accreditation credit process. investment objective. It includes the
(3) Investment process allocation of desired tenors in conjunction
This process defines the investment with the client or portfolio profile based on
policies and procedures, including the CSA or IPS. The asset allocation may be
decision-making processes, undertaken by based on percentage to total funds managed
the TE in the execution of its fund/asset by the TE or stated in absolute amount
management function. The primary whichever is preferred by the client.
objective of such process is to create a • Security selection. Policies and
structure that will assure TEs observe procedures on the selection of investment
prudence in investment activities at all levels, outlets, including investment advisory, must
preservation of capital, diversification, a be in place. This involves the selection of
reasonable level of risk as well as issuers for each of the identified asset
undivided loyalty to each client and classes. The process provides for the
adherence to established structure for the review of investment performance using
TE’s investment undertakings. The risk parameters and comparison to
investment process covers a broad range appropriate benchmarks. It shall also
of activities; thus, the investment policies identify the documentation required for all
shall clearly outline the parameters that, at investment decisions.
a minimum, include the following: If the TE uses approved lists of
a. Overall investment philosophy, investments, there shall be an outline of
standards and practices. A general the criteria for the selection and monitoring
statement of principles that guides the of such investments, as well as a description
portfolio manager in the management of of the overall process for addition to and
investments outlined in the board-approved deletion from the lists.
policy, along with a discussion on the • Benchmark selection/creation
practices and standards to be implemented Selects or crafts the benchmarks to reflect
to achieve the desired result. the desired return of the portfolio and to
b. Investment policies and processes. measure the performance of the portfolio
Defines the policies and the processes manager. The TE shall be required to
undertaken to create the portfolio to ensure measure performance based on
the proper understanding of the client’s benchmarks to gauge or measure the
preferences. performance of the account. The TE must
i. Profiling of client. Aims to have clear definition of its benchmarking
understand the level of maturity of the policy.
client relevant to the creation of an • Limits. Identifies any limitations on
appropriate portfolio. portfolio management which the client may
ii. Portfolio construction for custom- impose on the TE. These limitations have
made portfolios. Includes the process of to be specific as to the nature of the portfolio,
researching and selecting recommended such as but not limited to, core holdings,
portfolio and setting objectives or strategies investment in competitor companies, and
for diversification by types and classes of companies engaged in vices.
securities into general and specialized • Risk disclosure statement. A clear
portfolios. and appropriately worded statement/s to

APP. Q-48
08.12.31
disclose different risks to clients of the various iii. Financial strength, including
investment undertakings of the investment operating results and adequacy of capital
manager done in behalf of the client. and liquidity;
iii. Internal policies on trade allocation. iv. Past record of good and timely
Defines the institution’s policies in delivery and payment on trades;
ensuring timely, fair and equitable v. Value of services provided,
allocation of investments across investing including research; and
portfolios. vi. Available information about the
iv. Diversification of discretionary broker from other broker customers,
investments. The TE shall have a policy regulators, and self-regulated organizations
on the general diversification requirements authorized by the SEC.
for asset administration, as well as the The TE with large portfolio may opt to
process implemented to monitor and evaluate broker performance using a
control deviations from policy guidelines. formalized point scoring system. A list of
v. A TE shall have access to timely approved brokers shall be made available
and competent economic analyses and by the TE, reviewed periodically and
forecasts for the capital markets and other updated at least annually.
products in which its clients will be d. Best practices. The TE shall
investing. TEs engaged in more complex document best practices policies and
transactions may consider providing an processes to institutionalize proper
economic and securities research unit that safeguards for the protection of its clients
continually monitors global trends and and itself. At a minimum, the policies must
capital markets. This unit provides include the following standards:
necessary forecasts of capital market i. Best execution. The TE shall use
expectations, currency relationships, reasonable diligence to ensure that
interest rate movements, commodity investment trades are executed in a timely
prices, and expected returns of asset manner and on the best available terms that
classes and individual investment are favorable to the client under prevailing
instruments, which help the TE establish market conditions as can be reasonably
appropriate investment policies and obtained elsewhere with an acceptable
strategies, select appropriate investments, counterparty. For related counterparties, no
and manage risks effectively. purchase/sale must be made for
vi. The TE shall have a process that discretionary accounts without considering
will confirm trust personnel with at least two (2) competitive quotes from
investment functions know and follow the other sources. The policy on best execution
BOD-approved investment policies and must document processes to warrant such
processes. execution is readily and operationally
c. Selection and use of brokers/ verifiable.
dealers. The quality of execution is an ii. Chinese wall. A clear policy on
important determinant in broker selection. Chinese wall aims to protect the institution
In selecting brokers/dealers, a TE must from conflict of interest arising from varying
consider the following minimum standards functions carried by the TE in relation to
and criteria: credit (debt), shareholder, and investment
i. Execution capability and ability to position taking. The policy shall state the
handle specialized transactions; duties and responsibilities of the TE and
ii. Commission rates and other each department including that of the
compensation; nonbank proper and subsidiaries and

APP. Q-48
08.12.31
affiliates should transactions involve the taking investment actions. When

concerned departments and entities. providing advice to a client, the TE shall
iii. Personnel investment policies act diligently and make certain that its
These policies aim to ensure honest and advice and recommendations to clients are
fair discharge of investment trading based on thorough analysis and take into
functions of all qualified personnel. account available alternatives.
Qualified personnel are those that may • The TE shall take all reasonable
have access to information on clients and steps to execute promptly client orders in
investment position-taking of clients, accordance with the instruction of clients.
investment manager or portfolios. The use • The TE, when acting for or with
of such information may be abused and clients, shall always execute client orders
detrimental to the clients. The policy shall on the best available terms.
state the duties and responsibilities of each • The TE shall ensure that
qualified personnel in relation to trading transactions executed on behalf of clients
and portfolio management activities are promptly and fairly allocated to the
including allowed and not allowed accounts of the clients on whose behalf the
transactions as well as sanctions in case of transactions were executed.
violations. Where a client opts not to accept the
iv. Confidentiality and materiality of recommendation of the TE and chooses to
information. The TE must keep information purchase another investment product
about past, current and prospective clients which is not recommended, the TE may
confidential, unless disclosure is authorized proceed with the client’s request/
in writing by the client or required by law instruction, provided it shall document the
and the information involve illegal decision of the client and highlight to him/
activities perpetrated by the client. It must her that it is his/her responsibility to ensure
ensure safekeeping of confidential and the suitability of the product selected.
material information and prevent the abuse vii. In-House or related party
of such information to the detriment of the transactions handling. The TE shall define
institution or its clients. the policies in handling related-interest
v. Fair dealing. The TE shall document transaction to ensure that the best interest
dealing practices to ensure fair, honest and of clients prevails at all times and all
professional practices in accordance with the dealings are above board. It must conform
best interest of the client and counterparties to the requirements of Subsecs. 4409Q.3
at all times and for the integrity of the market. and 4411Q.5.
It must ensure that any representations or viii. Valuation. The TE shall document
other communications made and information the institution’s valuation process to show
provided to the client are accurate and not the sources of prices, either market or
misleading. The TE must also take care not historical value, and the formula used to
to discriminate against any client but treat all derive the NAV of investment portfolios.
clients in a fair and impartial manner. Valuation shall be understood, compliant
vi. Diligence and reasonable basis. In with written policies and operating
conducting its investment services, the TE procedures, and used consistently within
shall act with skill, and care and diligence, the TE. The TE must ensure that the
and in the best interests of its clients and valuation processes of service providers,
the integrity of the market. The duty of due custodians, and other subcontractors are
diligence is intertwined with the duty to compatible with those of the TE and in
maintain independence and objectivity in compliance with relevant statutory or
providing investment recommendations or regulatory valuation standards.

APP. Q-48
08.12.31
Risk officers shall document the beneficiaries of the remaining assets held
accuracy and reliability of all valuation under trusteeship/agency arrangement,
processes and data sources and ensure that preparation and filing of required reports.
valuations are completed as required by The TE must ensure that risk control
internal policies and procedures and processes are observed when terminating
regulatory reporting standards. accounts just as when accepting them.
e. Conflicts of interests. These may The TE must have a general policy with
arise when the TE exercises any discretion respect to the termination of trust accounts,
where mutually opposing interests are which policy shall take into consideration
involved. The most serious conflict of the general processes to be observed in the
interest is self-dealing, which could include return or delivery of different types of
transactions such as an investment in assets, the possible modes of distribution,
related interests of the TE or purchase of fees to be paid, taxes to be imposed, the
securities from or through an affiliate. Such documentation required to effect the
transactions must be fully disclosed and transfer of assets, the provision of terminal
authorized in writing by clients. Because reports, and whenever applicable, the timing
of the complexity and sensitivity of the of distribution, needs and circumstances
issue, a TE must develop policies and of the beneficiaries. Should the TE anticipate
procedures to identify and deal with possible issues or problems with respect
conflicts of interest situations. to the termination of the account, such
3. Account termination as the liquidation of certain assets or the
Accounts may be terminated for a partition or division of assets, these issues
variety of reasons, including the occurrence shall be disclosed to the client for proper
of a specified event or upon written notice disposition. The policy on the termination
of either the client or the TE. The trust or of trust, fiduciary and investment
investment management agreement shall management accounts shall likewise include
provide for the terms and manner of the approval process to be observed for the
liquidation, return and delivery of assets/ termination of these accounts as well as the
portfolio to the client. Generally, the TE’s reporting requirements for accounts
responsibilities include distribution to the terminated and closed.
client, the successor trustee and/or (Circular No. 618 dated 20 August 2008)

GUIDELINES FOR DAYS DECLARED AS PUBLIC SECTOR HOLIDAYS
(Appendix to 4246Q.2 and 4601Q.6)

Bangko Sentral ng Pilipinas Bureau of the Treasury
PCHC
Time of receipt Treasury Department Reserve
of Public Holiday PhilPASS Position Sec. Mkt. Manila Regional
Overnight RP/RRP Term RP& RRP/GS/ PDS Cash Dept Auction
Announcement by
SDA/RDA Withdrawal
the BSP
Trading Settlement Trading Settlement
1. On an No clearing; no To be decided in
o r d i n a r y s e t t l e m e n t . coordination with
business day Closed Closed Closed Closed Closed Closed Closed Non- Closed Closed PCHC will issue Head Office
prior to the Reserve an advisory to its
date of members that it
effectivity will continue
accepting and
processing checks
2. On a
Saturday or
Sunday to take
effect the
following
Monday or on
a non-working
holiday to take
effect the next
business day
a. Under good No No No No To be decided in

w e a t h e r change change change in change in Open coordination with
Open Open Reserve Open Open Normal
condition in in trading settlement Head Office
trading settlement hours time
hours time
b . U n d e r No clearing; no To be decided in
unfavorable s e t t l e m e n t . coordination with
conditions such PCHC will issue Head Office
as bad Closed Closed Closed Closed Closed Closed Closed Non- an advisory to its
Closed Closed
weather, (e.g. Reserve members that it
Typhoon signal will continue
APP. Q-49
no. 3), natural accepting and
08.12.31
calamities or processing checks
c i v i l
disturbances
Bureau of Treasury
08.12.31
APP. Q-49
Time of receipt Bangko Sentral ng Pilipinas PCHC
of Public Holiday Treasury Department Reserve
Announcement by PhilPASS Position Sec. Mkt. Manila Regional
Overnight RP/RRP Term RP& RRP/GS/ PDS Cash Dept Auction
the BSP
SDA/RDA Withdrawal
No clearing; no
3. Before 9:00 Closed Closed Closed Closed Closed Closed Closed Non- Closed Closed To be decided in
settlement. PCHC
a.m. on the date Reserve coordination with
will issue an advisory
of effectivity Head Office
to its members that
it will continue
accepting and
processing checks
4. After Day 1 Suspended No No Open Open Open Reserve Open Open Normal To be decided in
9:00 a.m. on to be change in change in coordination with
the date of resumed trading settlement Head Office
effectivity the hours time
following
day at
9:01a.m.
to
9:45 a.m.
Resumed 9:01 a.m. No No Open Open Open Open Normal To be decided in
Day 2 Reserve Open
from 9:01 to change in coordination with
change
a.m. to 10:00 trading Head Office
in
9:45 am
a.m. hours settlement

(for value
time
Day 1)
then,
4:45p.m. 4:45p.m.
to to
5:30p.m. 5:45p.m.
for same
day
transaction
5. In case of
suspension of
work is
extended to
Day 2
a. Before closed; Closed Closed Closed Closed Closed Non- Closed Closed No clearing; no To be decided in
Day 2 Closed
9:00am of Day 1 Reserve settlement PCHC coordination with
Day 2 transactions will issue an Head Office
will be advisory to its
moved to members that it
Day 3 will continue
(for value accepting and
Day 1) processing checks
Time of receipt Bangko Sentral ng Pilipinas

of Public Holiday Reserve Bureau of Treasury PCHC
Announcement by Position
Treasury Department
the BSP PDS Cash Dept
Overnight RP/RRP Term RP& RRP/GS/ PhilPASS
Withdrawal Auction Sec. Mkt. Manila Regional
SDA/RDA
Day 3 Resumed No No Open Open Open Reserve Open Open Normal To be decided in
from 9:01 a.m. change in change in coordination
9:01 a.m. to 10:00 trading settle- with Head
to am hours ment Office
9:45 am time
(for value
Day 1)
then, 4:45p.m.
4:45p.m. to
to 5:45p.m.
5:30p.m.
for same
day
transaction
b. After Day 2 Resumed 9:01 a.m. No No Open Open Open Reserve Open Open Normal To be decided in
9:00 a.m. from to change in change coordination with
of Day 2 9:01 a.m. 10:00 trading in Head Office
to a.m. hours settlement
9: 45 a.m. time
(for value
Day 1)
then, 4:45p.m.
Day 2 to
transactions 5:45p.m.
suspended
to be
resumed
the
following
day from
9:01a.m.
to
9:45 a.m.
APP. Q-49
08.12.31
08.12.31
APP. Q-49
Bureau of Treasury
Time of receipt Bangko Sentral ng Pilipinas PCHC

of Public Holiday Treasury Department Reserve
Announcement by Cash Dept Position Auction Sec. Mkt. Manila Regional
Overnight RP/RRP Term RP& RRP/GS/ PDS PhilPASS
the BSP Withdrawal
SDA/RDA
Resumed No Open
Day 3 9:01 a.m. No Open Open Reserve Open Open Normal To be decided in
from change in change in
to 10:00 coordination with
9:01 a.m. trading
a.m. settlement Head Office
to 9:45 hours time
am (for
value
Day 2)
4:45p.m.
then,
to
4:45p.m.
5:45p.m.
to
5:30p.m.
for same
day
transaction
6. In case the 4:45 p.m. 4:45 p.m. No No Open Open Open Reserve Open Open Normal To be decided in
suspension of to 5:30 to 5:45 change in change in coordination with
work does not p.m. for p.m. trading settlement Head Office
apply to all same day hours time
government transaction
offices (Manila
Day, Quezon
City Day, etc.)
(M-2008-025 dated 13 August 2008)

S REGULATIONS
(Regulations Governing Non-Stock Savings and Loan Associations)
TABLE OF CONTENTS
SECTION 4101S Scope of Authority of Non-Stock Savings and Loan Associations

4101S.1 Membership
4101S.2 Organizational requirements
SECTIONS 4102S - 4105S (Reserved)
B. CAPITALIZATION
SECTION 4106S Capital

4106S.1 Revaluation surplus
C. (RESERVED)
D. NET WORTH-TO-RISK ASSETS RATIO
SECTION 4116S Capital-to-Risk Assets
SECTION 4117S Withdrawable Share Reserve
SECTION 4118S Surplus Reserve for Ledger Discrepancies
SECTION 4119S Reserve for Office Premises, Furniture, Fixtures and Equipment
SECTION 4120S (Reserved)
i
E. (RESERVED)
F. NET INCOME DISTRIBUTION
SECTION 4126S Limitations on Distribution of Net Income

4126S.1 Reporting and verification
4126S.2 Recording of net income for distribution
G. TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS
SECTION 4141S Definition; Qualifications; Responsibilities and Duties of

Trustees
4141S.1 Definition of trustees
4141S.2 Qualifications of trustees
4141S.3 Powers and authority of the board of trustees
4141S.4 General responsibility of the board of trustees
4141S.5 Duties and responsibilities of the board of
trustees
SECTION 4142S Definition and Qualifications of Officers

4142S.1 Definition of officers
4142S.2 Qualifications of officers
SECTION 4143S Disqualifications of Trustees and Officers

4143S.1 Persons disqualified to become trustees
4143S.2 Persons disqualified to become officers
4143S.3 Disqualification procedures
4143S.4 Effect of non-possession of qualifications or
possession of disqualifications
4143S.5 (Reserved)
4143S.6 Watchlisting
SECTION 4144S Compensation of Trustees, Officers and Employees

4144S.1 Compensation increases
4144S.2 Liability for loans contrary to law
SECTION 4145S Bonding of Officers and Employees
SECTION 4146S Agents and Representatives
ii
SECTION 4148S Full-Time Manager for NSSLAs
SECTION 4151S Establishment of Branches/Extension Offices

4151S.1 Application
4151S.2 Conditions precluding acceptance/processing of
application
4151S.3 Internal control system
4151S.4 Permit to operate
I. BUSINESS DAYS AND HOURS
SECTION 4156S Business Days and Hours
J. REPORTS
SECTION 4161S Records

4161S.1 Uniform system of accounts
4161S.2 Philippine Financial Reporting Standards/
SECTION 4162S Reports

4162S.1 Categories and signatories of reports
4162S.2 Manner of filing
4162S.3 Sanctions and procedures for filing and payment
of fines
SECTION 4164S Internal Audit Function

4164S.1 Status
4164S.2 Scope
4164S.3 Qualification standards of the internal auditor
4164S.4 Code of Ethics and Internal Auditing Standards
iii
K. INTERNAL CONTROL
SECTION 4171S External Auditor
SECTION 4172S Financial Audit

4172S.1 Audited financial statements of NSSLAs
4172S.2 Posting of audited financial statements
SECTION 4180S Selection, Appointment and Reporting Requirements for

SECTION 4181S Publication Requirements
SECTION 4182S Business Name
SECTION 4183S Prohibitions
SECTION 4190S Duties and Responsibilities of NSSLAs and Their Directors/

Officers in All Cases of Outsourcing of NSSLA Functions
SECTIONS 4191S (Reserved)
SECTION 4192S Prompt Corrective Action Framework
SECTION 4193S Supervision by Risks
SECTION 4194S Market Risk Management
SECTION 4195S Liquidity Risk Management
SECTION 4196S - 4198S (Reserved)
SECTION 4199S General Provision on Sanctions
iv
PART TWO - DEPOSIT AND BORROWING OPERATIONS
A. DEMAND DEPOSITS
SECTION 4201S Checking Accounts
B. SAVINGS DEPOSITS
SECTION 4206S Definition
SECTION 4207S Minimum Deposit
SECTION 4208S Withdrawals
SECTION 4209S Dormant Savings Deposits
C. (RESERVED)
D. TIME DEPOSITS
SECTION 4222S Minimum Term and Size of Time Deposits
SECTION 4223S Withdrawals of Time Deposits
E. - F. (RESERVED)
G. INTEREST ON DEPOSITS
SECTION 4241S Interest on Savings Deposits
v
SECTION 4242S Interest on Time Deposits
4242S.1 Time of payment
4242S.2 Treatment of matured time deposits
H. (RESERVED)
I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS
SECTION 4261S Opening and Operation of Deposit Accounts

4261S.1 Who may open deposit accounts
4261S.2 Identification of member-depositors
4261S.3 Number of deposit accounts
4261S.4 Signature card
4261S.5 Passbook and certificate of time deposit
4261S.6 Deposits in checks and other cash items
J. (RESERVED)
K. OTHER BORROWINGS
SECTION 4286S Borrowings
PART THREE - LOANS AND INVESTMENTS
A. LOANS IN GENERAL
SECTION 4301S Authority; Loan Limits; Maturity of Loans
SECTION 4302S Basic Requirements in Granting Loans
SECTION 4303S Loan Proceeds
vi
SECTION 4304S Loan Repayment
SECTION 4305S Interest and Other Charges

4305S.1 - 4305S.2 (Reserved)
4305S.3 Interest in the absence of contract
4305S.4 Escalation clause; when allowable
4305S.5 Interest accrual on past due loans
SECTION 4306S Past Due Accounts

4306S.1 Accounts considered past due
4306S.2 Extension/renewal of loans
4306S.3 Write-off of loans as bad debts
4306S.4 Updating of information provided to credit
information bureaus
SECTION 4307S "Truth in Lending Act" Disclosure Requirements

4307S.1 Definition of terms
4307S.2 Information to be disclosed
4307S.3 Inspection of contracts covering credit
transactions
4307S.4 Posters
4307S.5 Penal provisions
SECTION 4312S Grant of Loans and Other Credit Accommodations

4312S.1 General Guidelines (Deleted by Circular No.
622 dated 16 September 2008)
412S.2 – 4312S.3 (Reserved)
4312S.4 Signatories (Deleted by Circular No. 622
dated 16 September 2008)
Secs. 4313S – 4320S (Reserved)
B. SECURED LOANS
SECTION 4321S Kinds of Security
C. – D. (RESERVED)

vii
E. LOANS/CREDIT ACCOMMODATIONS TO TRUSTEES, OFFICERS,
STOCKHOLDERS AND THEIR RELATED INTERESTS
SECTION 4356S General Policy
SECTION 4357S Direct/Indirect Borrowings; Ceilings
SECTION 4358S Records; Reports
SECTION 4370S Sanctions
F. - I. (RESERVED)
J. OTHER OPERATIONS
SECTION 4391S Fund Investments

4391S.1 - 4391S.2 (Reserved)
4391S.3 Investment in debt and marketable equity securities
4391S.4 - 4391S.10 (Reserved)
K. MISCELLANEOUS PROVISIONS
PART FOUR - (RESERVED)
PART FIVE - (RESERVED)
viii
A. OTHER OPERATIONS
SECTION 4601S Fines and Other Charges

4601S.1 Guidelines on the imposition of monetary
penalties
SECTION 4631S Revocation/Suspension of NSSLA License
SECTION 4651S Notice of Dissolution
SECTION 4652S Confidential Information
SECTION 4653S Examination by the BSP
SECTION 4654S Applicability of Other Rules
SECTION 4655S Annual Fees on Non-Stock Savings and Loan Association
SECTION 4656S Basic Law Governing Non-Stock Savings and Loan

Association
SECTION 4657S NSSLA Premises and Other Fixed Assets

4657S.1 Accounting for NSSLAs premises; Other fixed
assets
4657S.2 (Reserved)
4657S.3 Reclassification of real and other properties
acquired as NSSLA premises
4657S.4 - 4657S.8 (Reserved)
4657S.9 Batas Pambansa Blg. 344 - An Act to Enhance
the Mobility of Disabled Persons by Requiring
Certain Buildings, Institutions, Establishments
and Public Utilities to Install Facilities and Other
Devices
ix
SECTION 4660S Disclosure of Remittance Charges and Other Relevant

Information
SECTION 4691S Anti-Money Laundering Regulations

4691S.1 - 4691S.8 (Reserved)
4691S.9 Sanctions and penalties
SECTION 4695S Valid Identification (ID) Cards for Financial Transactions
x
List of Appendices
08.12.31
LIST OF APPENDICES
No. SUBJECT MATTER
S-1 Safeguards in Bonding of NSSLA Accountable Officers and Employees
S-2 List of Reports Required from Non-Stock Savings and Loan Associations
Annex S-2-a - Reporting Guidelines on Crimes/Losses
S-3 Guidelines on Prescribed Reports Signatories and Signatory Authorization

Annex S-3-a - Format of Resolution for Signatories of Category A-1
Reports
Annex S-3-b - Format of Resolution for Signatories of Category A-2
Reports
Annex S-3-c - Format of Resolution for Signatories of Categories A-3
and B Reports
S-4 Format-Disclosure Statement of Loan/Credit Transaction
S-5 Abstract of "Truth in Lending Act" (Republic Act No. 3765)
S-6 Anti-Money Laundering Regulations

Annex S-6-a - Certification of Compliance with Anti-Money
Annex S-6-b - Rules on Submission of Covered Transaction Reports
Institutions
S-7 Revised Implementing Rules and Regulations R.A. No. 9160, as

amended by R.A. No. 9194
S-8 Guidelines to Govern the Selection, Appointment and the Reporting

Requirement for External Auditors of NSSLAs
Manual of Regulations for Non-Bank Financial Institutions S Regulations

§§ 4101S - 4101S.2
08.12.31
PART ONE
A. SCOPE OF AUTHORITY coverage broader or narrower than the

foregoing definition, shall be allowed to
Section 4101S Scope of Authority of continue as such.
Non-Stock Savings and Loan Associations The Monetary Board may, as
An NSSLA shall include any non-stock, circumstances warrant, require NSSLAs
non-profit corporation engaged in the mentioned in the immediately preceding
business of accumulating the savings of its paragraph to amend their by-laws to comply
members and using such accumulations for with the concept of a well-defined group.
loans to members to service the needs of c. In no case shall the total amount of
households by providing long-term entrance fees exceed one percent (1%) of
financing for home building and the amount to be contributed or
development and for personal finance. An otherwise paid-in by the particular
NSSLA may also engage in a death benefit member: Provided, That for new
program meant exclusively for the benefit members, the fee shall be based on the
of its members. amount of contributions computed in
An NSSLA shall accept deposits from and accordance with the revaluation of the
grant loans to its members only and shall not assets of the NSSLA.
transact business with the general public.
§ 4101S.2 Organizational requirements1
§ 4101S.1 Membership a. Articles of Incorporation; by-laws
a. NSSLAs shall issue a certificate of The articles of incorporation and by-laws
membership to every qualified member and of a proposed NSSLA, or any amendment
shall maintain a registry of their members. thereto, shall not be registered with the
b. An NSSLA shall confine its SEC unless accompanied by a certificate
membership to a well-defined group of persons. of approval from the Monetary Board.
A well-defined group shall consist of b. Application for approval. The
any of the following: articles of incorporation and by-laws of a
(1) Employees, officers, and trustees of proposed NSSLA, both accomplished in the
one company, including member-retirees; prescribed forms, shall be submitted to the
(2) Government employees belonging Monetary Board through the appropriate
to the same office, branch, or department, department of the SES together with a
including member-retirees; and covering application for the approval
(3) Immediate members of the families thereof, signed by a majority of the board
up to the second degree of consanguinity of trustees and verified by one of them. The
or affinity of those falling under Items “(1)” application shall include:
and “(2)” above. (1) The proposed articles of
NSSLAs whose articles of incorporation incorporation and by-laws together with
and by-laws were approved and registered the names and addresses of the
prior to the effectivity of R. A. No. 8367 incorporators, trustees and officers, with a
and which limit and/or allow membership statement of their character, experience,
1
See SEC Circular No. 3 dated 16 February 2006.

Part I - Page 1
§§ 4101S.2 - 4116S
08.12.31
and general fitness to engage in the The minimum capital contribution

non-stock savings and loan business; requirement shall also apply to all pending
(2) An itemized statement of the applications to establish NSSLAs received
estimated receipts and expenditures of the prior to 14 August 2001.
proposed NSSLA for the first year; Members who have contributed P1,000
(3) Filing fee of P1,000; and or more to the capital of an NSSLA may
(4) Such other information as the increase their capital contribution. Partial
Monetary Board may require. withdrawal from the amount paid by a
c. Grounds for disapproval of member as capital contribution, during his
application. The Monetary Board may deny membership, may be allowed unless the
the application to organize an NSSLA on the by-laws of the NSSLA provide otherwise, and
basis of a finding that: subject to such rules and regulations as the
(1) The NSSLA is being organized for Monetary Board may prescribe in the matter
any purpose other than to engage in the of such withdrawal of capital contribution.
business of a legitimate NSSLA; However, in no case, shall such partial
(2) The NSSLA’s financial program is withdrawal diminish the member’s capital
unsound; contribution to less than P1,000.
(3) The proposed members are Members of NSSLAs may participate in
adequately served by one (1) or more the profits of the NSSLA on the basis of their
existing NSSLAs; and respective capital contributions on the date
(4) There exist other reasons which the distribution of net income is approved by
Monetary Board may consider as sufficient its board of trustees.
ground for such disapproval. (As amended by Circular No. 573 dated 22 June 2007)
d. Certificate of authority to operate;
revocation or suspension thereof. NSSLAs, § 4106S.1 Revaluation surplus. In
prior to transacting business, shall procure cases of both retiring and new members,
a certificate of authority to transact business a revaluation surplus shall be added to their
from the Monetary Board. After due notice contributions by imputing their respective
and hearing, the Monetary Board may proportionate shares in the withdrawable
revoke or suspend, for such period as it share reserve and the reserve for furniture,
determines, the certificate of authority of fixtures, and furnishings.
any NSSLA, the solvency of which is
imperiled by losses or irregularities, or of Secs. 4107S - 4110S (Reserved)
any NSSLA which willfully violates any
provision of R. A. No. 8367, these rules or C. (RESERVED)
any pertinent law or regulation.
(As amended by CL-2008-078 dated 15 December 2008) Secs. 4111S - 4115S (Reserved)
Secs. 4102S - 4105S (Reserved) D. NET WORTH-TO-RISK ASSETS RATIO
B. CAPITALIZATION Sec. 4116S Capital-to-Risk Assets. The

combined capital accounts of each NSSLA
Sec. 4106S Capital. NSSLAs established shall not be less than an amount equal to ten
after 14 August 2001, shall have a minimum percent (10%) of its risk assets which is defined
capital contribution of at least P1.0 million. as its total assets minus the following assets:
S Regulations Manual of Regulations for Non-Bank Financial Institutions

Part I - Page 2
§§ 4116S - 4118S
07.12.31
a. Cash on hand; of this Section until the minimum required

b. Evidences of indebtedness of the capital ratio has been restored.
Republic of the Philippines and of the BSP (As amended by Circular No. 573 dated 22 June 2007)
and any other evidences of indebtedness/
obligations, the servicing and repayment Sec. 4117S Withdrawable Share Reserve
of which are fully guaranteed by the NSSLAs shall create a withdrawable share
Republic of the Philippines; reserve which shall consist of two percent
c. Loans to the extent covered by (2%) of the total capital contributions of
hold-out on, or assignment of, deposits the members.
maintained in the lending NSSLA and held An amount corresponding to the
in the Philippines; withdrawable share reserve shall be set up
d. Office premises, depreciated; by the NSSLA, such amount invested in
e. Furniture, fixtures and equipment, bonds or evidences of indebtedness of the
depreciated; Republic of the Philippines or of its
f. Real estate mortgage loans insured subdivisions, agencies or instrumentalities,
by the Home Guarantee Corporation to the servicing and repayment of which are
the extent of the amount of the insurance; fully guaranteed by the Republic of the
and Philippines, and evidences of
g. Other non-risk items as the indebtedness of the BSP.
Monetary Board may, from time to time, For a uniform interpretation of the
authorize to be deducted from total provisions of this Section, the following
assets. shall serve as guidelines:
The Monetary Board shall prescribe a. The withdrawable share reserve
the manner of determining the total assets shall be set up from the undivided profits
of such NSSLA for the purpose of this of the NSSLA and shall be funded in the
Section, but contingent accounts shall not form of cash deposited as a separate
be included among total assets. account and/or an investment allowed
Whenever the capital accounts of an under this Section;
NSSLA are deficient with respect to the b. Should there be an increase in the
preceding paragraph, the Monetary Board, capital contribution, the reserve shall be
after considering the report of the correspondingly adjusted at the end of
appropriate department of the SES on the each month from undivided profits, if any;
state of solvency of the NSSLA concerned, and
shall limit or prohibit the distribution of c. The reserve shall be adjusted first
net income and shall require that part or before the NSSLA shall declare and
all of net income be used to increase the distribute to its members any portion of its
capital accounts of the NSSLA until the net income at any time of the year.
minimum requirement has been met. The (As amended by Circular No. 573 dated 22 June 2007)
Monetary Board may, after considering the
aforesaid report of the appropriate Sec. 4118S Surplus Reserve for Ledger
department of the SES, and if the amount Discrepancies. Whenever an NSSLA has
of the deficiency justifies it, restrict or a discrepancy between its general ledger
prohibit the making of new investments accounts and their respective subsidiary
of any sort by the NSSLA with the ledgers, the board of trustees of the NSSLA
exception of the purchases of evidence shall set up from the undivided profits of
of indebtedness included under Item “b” the NSSLA, if any, a surplus reserve, in an

Part I - Page 3
§§ 4118S - 4126S
07.12.31
amount equivalent to the amount of the F. NET INCOME DISTRIBUTION

discrepancy, and this reserve shall not be
available for distribution to members or for Sec. 4126S Limitations on Distribution of
any other purpose unless and until the Net Income
discrepancy is accounted for. The board a. Basis for participation in profits
of trustees shall also direct the employee Member-depositors of an NSSLA may
responsible for the discrepancy to account participate in the profits of the NSSLA on
for said discrepancy: Provided, That the the basis of their capital contributions on
failure of the employee to do so shall the date distribution of net income to
constitute as ground for his dismissal if the members is approved by its board of
discrepancy is of serious or recurring trustees/directors.
nature. b. Level of withdrawable share
NSSLAs shall report such discrepancies reserve. No NSSLA shall distribute any of
to the appropriate department of the SES its net income to its members if the
within fifteen (15) days from discovery. withdrawable share reserve required under
(As amended by Circular No. 573 dated 22 June 2007) Sec. 4117S is less than, or if by such
distribution would be reduced below, the
Sec. 4119S Reserve for Office Premises, amount specified in said Section. The
Furniture, Fixtures and Equipment reserve shall be adjusted first before the
NSSLAs shall set aside five percent (5%) NSSLA shall distribute its net income at any
of their yearly net income until it amounts time of the year.
to at least five percent (5%) of the total c. Capital-to-risk assets ratio. NSSLAs
assets as a reserve for a building fund to shall not distribute any of its net income
cover the cost of construction or to their members if their capital-to-risk
acquisition of office premises, and of the assets ratio is below the level required
purchase of office furniture, fixtures and under Sec. 4116S.
equipment. d. Discrepancies between general
An NSSLA which, as determined by ledger and subsidiary ledger accounts. The
its board of trustees, has adequate office surplus reserves set up as required under
premises, furniture, fixtures and Sec. 4118S shall not be reverted to free
equipment necessary for the conduct of surplus for distribution to members unless
its business need not set up the reserve: and until the discrepancy between the
Provided, That this fact should be general ledger accounts and their respective
certified by its board of trustees in a subsidiary ledgers for which the surplus
resolution to be submitted to the reserve has been set up ceases to exist.
appropriate department of the SES for e. Other unbooked capital
verification and approval: Provided, adjustments required by BSP, whether or
however, That in case reserves had been not allowed to be set up on a staggered
set up, the NSSLA so exempted may revert basis. The unbooked valuation reserves
the reserves to free surplus. and other unbooked capital adjustments
(As amended by Circular No. 573 dated 22 June 2007) required by the BSP, whether or not
allowed to be set up on a staggered basis,
Sec. 4120S (Reserved) shall be deducted from the amount of net
income available for distribution to
E. (RESERVED) members.
f. Interest and other income earned
Secs. 4121S - 4125S (Reserved) but not yet collected/received, net of

Part I - Page 4
§§ 4126S - 4141S.2
07.12.31
reserve for uncollected interest on loans include a statement to the effect that the
Accrued interest and other income not yet distribution is subject to review by the BSP.
received but already recorded by an (As amended by Circular No. 573 dated 22 June 2007)
NSSLA, net of allowance for uncollected
interest on loans, shall be deducted from Secs. 4127S - 4140S (Reserved)
the amount of net income available for
distribution to members. G. TRUSTEES, OFFICERS, EMPLOYEES
(As amended by Circular No. 573 dated 22 June 2007 AND AGENTS
§ 4126S.1 Reporting and verification Sec. 4141S Definition; Qualifications;

Declaration of income for distribution to Responsibilities and Duties of Trustees. For
members shall be reported by an NSSLA purposes of this Section, the following shall
concerned to the appropriate department be the definition, qualifications,
of the SES in the prescribed form (Revised responsibilities and duties of trustees.
BSP Form No. 7-26-25H).
Pending verification of above mentioned § 4141S.1 Definition of trustees
report by the appropriate department of the Trustees shall include: (a) those who are
SES, the NSSLA concerned shall not make named as such in the articles of
any announcement or communication on incorporation; (b) those duly elected in
the intended distribution of net income nor subsequent meetings of the NSSLA’s
shall any actual distribution be made members; and (c) those elected to fill
thereon. vacancies in the board of trustees.
In any case, the declaration may be
announced and the income distributed, if § 4141S.2 Qualifications of trustees
after twenty (20) business days from the No person shall be eligible as trustee of an
date of the report required herein shall NSSLA unless he is a member of good
have been received by the BSP, no advice standing of such NSSLA.
against such distribution has been In addition, such person shall have the
received by the NSSLA concerned. qualifications and none of the
(As amended by Circular No. 573 dated 22 June 2007) disqualifications as provided in pertinent
laws and BSP rules.
§ 4126S.2 Recording of net income A trustee shall have the following
for distribution. The liability for members’ minimum qualifications:
share in the net income distribution shall a. He shall be at least twenty-five (25)
be taken up in the books upon receipt of years of age at the time of his election/
BSP approval thereof, or if no such appointment;
approval is received, after twenty (20) b. He shall be at least a college graduate
business days from the date the required or have at least five (5) years experience in
Report on Distributable Net Income was business, or shall have undergone any BSP
received by the appropriate department training in NSSLA or banking operations:
of the SES whichever comes earlier. A Provided, however, That undergraduates
memorandum entry may be made to eligible to be elected as trustees in the
trustees and for full disclosure purposes, NSSLA’s by-laws may be allowed as may
the amount of income for distribution may be approved by the Monetary Board;
be disclosed in the financial statements c. He must have attended a special
by means of a footnote which should seminar on corporate governance for board

Part I - Page 5
§§ 4141S.2 - 4141S.5
05.12.31
of trustees conducted or accredited by the While the management of the day-to-day

BSP; and affairs of the institution is the responsibility
d. He must be fit and proper for the of the management team, the board of
position of a trustee of the NSSLA. In trustees is, however, responsible for
determining whether a person is fit and monitoring and overseeing management
proper for the position of a trustee, the action.
following matters must be considered:
integrity/probity, competence, education, § 4141S.5 Duties and responsibilities
diligence, and experience/training. of the board of trustees. To ensure prudent
The foregoing qualifications for trustees and efficient administration of NSSLAs, the
shall be in addition to those already following guidelines shall govern the
required or prescribed by R.A. No. 8367, responsibilities and duties of the board of
as amended, and other existing applicable trustees of NSSLAs:
laws and regulations. a. Specific duties and responsibilities
of the board of trustees
§ 4141S.3 Powers and authority of the (1) To select and appoint officers who
board of trustees. The corporate powers of are qualified to administer the NSSLA
an NSSLA shall be exercised, its business affairs effectively and soundly and to
conducted, and all its property shall be establish adequate selection process for all
controlled and held by its board of trustees. personnel. It is the primary responsibility
The powers of the board of trustees as of the board of trustees to appoint
conferred by law are original and cannot competent management team at all times.
be revoked by the members. The trustees The board of trustees should apply fit and
hold their office charged with the duty to proper standards on key personnel. Integrity,
act for the NSSLA in accordance with their technical expertise and experience in the
best judgment. institution’s business, either current or
planned, should be the key considerations
§ 4141S.4 General responsibility of the in the selection process. And because
board of trustees. The position of an NSSLA mutual trust and a close working
trustee is a position of trust. A trustee relationship are important, the board of
assumes certain responsibilities to different trustees’ choice should share its general
constituencies or stakeholders (e.g., the operating philosophy and vision for the
NSSLA itself, its member-depositors and institution. The board of trustees shall
other creditors, its management and establish an appropriate compensation
employees and the public at large). These package for all personnel which shall be
constituencies or stakeholders have the consistent with the interest of all stakeholders.
right to expect that the institution is being (2) To establish objectives and draw
run in a prudent and sound manner. up a business strategy for achieving them.
The board of trustees is primarily Consistent with the institution’s objectives,
responsible for the corporate governance business plans should be established to
of the NSSLA. To ensure good governance direct its on-going activities. The board of
of the NSSLA, the board of trustees should trustees should ensure that performance
establish strategic objectives, policies and against plan is regularly reviewed, with
procedures that will guide and direct the corrective action taken as needed.
activities of the NSSLA and the means to (3) To conduct the affairs of the
attain the same as well as the mechanism institution with high degree of integrity.
for monitoring management’s performance. Since reputation is a very valuable asset, it

Part I - Page 6
§ 4141S.5
05.12.31
is in the institution’s best interest that in (4) To prescribe a clear assignment of

dealings with its members, it observes a responsibilities and decision-making
high standard of integrity. The board of authorities, incorporating a hierarchy of
trustees should prescribe corporate values, required approvals from individuals to the
codes of conduct and other standards of board of trustees. The board of trustees
appropriate behavior for itself, the senior shall establish in writing the limits of the
management and other employees. Among discretionary powers of each officer,
other matters, activities and transactions committee, sub-committee and such other
that could result or potentially result in group for the purpose of lending, investing
conflict of interest, personal gain at the or committing the NSSLA to any financial
expense of the institution, or unethical undertaking or exposure to risk at any time.
conduct shall be strictly prohibited. It shall The board of trustees shall have a schedule
provide policies that will prevent the use of matters and authorities reserved to it for
of the facilities of the NSSLA in furtherance decision, such as major capital expenditures,
of criminal and other illegal activities. equity investments and divestments.

Part I - Page 6a
§ 4141S.5
05.12.31
(5) To effectively supervise the responsible for the setting up of the internal
NSSLA’s affairs. The board of trustees shall audit department and for the appointment
establish a system of checks and balances of the internal auditor as well as the
which applies in the first instance to the independent external auditor. It shall
board itself. Among the members of the monitor and evaluate the adequacy and
board, an effective system of checks and effectiveness of the internal control system.
balances must exist. The system shall also (9) To meet regularly. To properly
provide a mechanism for effective check discharge its function, the board of trustees
and control by the board of trustees over shall meet regularly. Independent views in
the chief executive officer and key board meetings shall be given full
managers and by the latter over the line consideration and all such meetings shall
officers of the NSSLA. be duly minuted.
(6) To monitor, assess and control the (10) To keep the individual members
performance of management. The board of the board and the members informed. It
of trustees shall put in place an appropriate is the duty of the board of trustees to present
reporting system so that it is provided with to all its members and to the stakeholders a
relevant and timely information to be able balanced and understandable assessment
to effectively assess the performance of of the NSSLA’s performance and financial
management. For this purpose, it may condition. It should also provide
constitute a governance committee. appropriate information that flows
(7) To adopt and maintain adequate internally and to the public. All members
risk management policy. The board of of the board shall have reasonable access
trustees shall be responsible for the to any information about the institution.
formulation and maintenance of written (11) To ensure that the NSSLA has
policies and procedures relating to the beneficial influence on the economy. The
management of risks throughout the board of trustees has a continuing
institution. The risk management policy responsibility to provide those services and
shall include: facilities which will be supportive of the
(a) a comprehensive risk management national economy.
approach; (12) To assess at least annually its
(b) a detailed structure of limits, performance and effectiveness as a body,
guidelines and other parameters used to as well as its various committees, the chief
govern risk-taking; executive officer and the NSSLA itself. The
(c) a clear delineation of lines of composition of the board of trustees shall
responsibilities for managing risk; also be reviewed regularly with the end in
(d) an adequate system for measuring view of having a balanced membership.
risk; and Towards this end, a system and procedure
(e) effective internal controls and a for evaluation shall be adopted which may
comprehensive risk-reporting process. include, but not limited to, the setting of
The board of trustees may constitute a benchmark and peer group analysis.
committee for this purpose. (13) To keep their authority within the
(8) To constitute the Audit Committee. powers of the institution as prescribed in
The Audit Committee shall be composed the articles of incorporation, by-laws and
of trustees, preferably with accounting and in existing laws, rules and regulations. To
finance experience. Said audit committee conduct and maintain the affairs of the
provides oversight of the institution’s institution within the scope of its authority
internal and external auditors. It shall be as prescribed in its charter and in existing

Part I - Page 7
§§ 4141S.5 - 4142S
05.12.31
laws and regulations, the board of trustees participate in board and committee
shall appoint a compliance officer who shall meetings, request and review meeting
be responsible for coordinating, monitoring materials, ask questions and request
and facilitating compliance with existing explanations. If a person cannot give
laws and regulations. The compliance sufficient time and attention to the affairs
officer shall be vested with appropriate of the institution, he shall neither accept
authority and provided with appropriate his nomination nor run for election as
support and resources. It may also member of the board of trustees.
constitute a compliance committee. (4) To act judiciously. Before deciding
b. Specific duties and responsibilities on any matter brought before the board of
of a trustee trustees, every trustee should thoroughly
(1) To conduct fair business evaluate the issues, ask questions and seek
transactions with the NSSLA and to ensure clarifications when necessary.
that personal interest does not bias board (5) To exercise independent judgment.
decisions. Trustees should, whenever A trustee should view each problem/
possible, avoid situations that would give situation objectively. When a disagreement
rise to a conflict of interest. If transactions with others occurs, he should carefully
with the institution cannot be avoided, it evaluate the situation and state his position.
should be done in the regular course of He should not be afraid to take a position
business and upon terms not less favorable even though it might be unpopular.
to the institution than those offered to Corollarily, he should support plans and
others. The basic principle to be observed ideas that he thinks will be beneficial to
is that a trustee should not use his position the institution.
to make profit or to acquire benefit or (6) To have a working knowledge of
advantage for himself and/or his related the statutory and regulatory requirements
interests. He should avoid situations that affecting the NSSLA, including the content
would compromise his impartiality. of its articles of incorporation and by-laws,
(2) To act honestly and in good faith, the requirements of the BSP, and where
with loyalty and in the best interest of the applicable, the requirements of other
NSSLA, its members, regardless of the regulatory agencies. A trustee also keeps
amount of their capital contributions, and himself informed of the industry
creditors, if any. A trustee must always act developments and business trends in order
in good faith, with the care which an to safeguard the institution’s competitiveness.
ordinarily prudent man would exercise under (7) To observe confidentiality. Trustees
similar circumstances. While a trustee should must observe the confidentiality of non-
always strive to promote the interest of all public information acquired by reason of
members, he shall also give due regard to their position as trustees. They may not
the rights and interests of other stakeholders. disclose said information to any other
(3) To devote time and attention person without the authority of the board.
necessary to properly discharge their duties
and responsibilities. Trustees shall devote Sec. 4142S Definition and Qualifications
sufficient time to familiarize themselves of Officers. Officers shall include the
with the institution’s business. They must President, Vice-President, General
be constantly aware of the institution’s Manager, Corporate Secretary, Treasurer
condition and be knowledgeable enough and others mentioned as officers of the
to contribute meaningfully to the board’s NSSLA, or whose duties as such are defined
work. They must attend and actively in the by-laws.

Part I - Page 8
§§ 4142S - 4143S.1
07.12.31
The minimum qualifications for trustees Sec. 4143S Disqualification of Trustees

prescribed in Sec. 4141S are also applicable and Officers. The following regulations
to officers. shall govern the disqualification of NSSLAs’
trustees and officers.
§ 4142S.1 Definition of officers
Officers shall include the president, § 4143S.1 Persons disqualified to
executive vice president, senior vice become trustees. Without prejudice to
president, vice president, general manager, specific provisions of law prescribing
secretary, treasurer, and others mentioned disqualifications for trustees, the following
as officers of the NSSLA, or those whose are disqualified from becoming trustees:
duties as such are defined in the by-laws, a. Permanently disqualified. Trustees/
or are generally known to be the officers of officers/employees permanently disqualified
the NSSLA (or any of its branches and offices by the Monetary Board from holding a
other than the head office) either through director/trustee position:
announcement, representation, publication (1) Persons who have been convicted
or any kind of communication made by the by final judgment of a court for offenses
NSSLA. A person holding the position of involving dishonesty or breach of trust such
chairman, vice-chairman or any other as but not limited to, estafa, embezzlement,
position of the board who also performs extortion, forgery, malversation, swindling,
functions of management such as those theft, robbery, falsification, bribery,
ordinarily performed by regular officers shall violation of B.P. Blg. 22, violation of Anti-
also be considered an officer. Graft and Corrupt Practices Act and
prohibited acts and transactions under
§ 4142S.2 Qualifications of officers.An Section 7 of R.A. No. 6713 (Code of
officer shall have the following minimum Conduct and Ethical Standards for Public
qualifications: Officials and Employees);
a. He shall be at least twenty-one (21) (2) Persons who have been convicted
years of age; by final judgment of a court sentencing them
b. He shall be at least a college graduate to serve a maximum term of imprisonment
or have at least five (5) years experience in of more than six (6) years;
NSSLA or banking operations or related (3) Persons who have been convicted
activities or in a field related to his position by final judgment of the court for violation
and responsibilities, or have undergone of banking/quasi-banking/NSSLA laws, rules
training in NSSLA or banking operations and regulations;
acceptable to the appropriate department of (4) Persons who have been judicially
the SES; declared insolvent, spendthrift or
c. He must be fit and proper for the incapacitated to contract;
position of an officer of the NSSLA. In (5) Trustees, officers or employees of
determining whether a person is fit and proper closed banks/QBs/trust entities who were
for the position of an officer, the following found to be culpable for such institution’s
matters must be considered: integrity/probity, closure as determined by the Monetary
competence, education, diligence, and Board;
experience/training. The foregoing (6) Trustees and officers of banks, QBs
qualifications for officers shall be in addition and trust entities found by the Monetary
to those already required or prescribed by Board as administratively liable for violation
R.A. No. 8367, as amended, and other of banking laws, rules and regulations
existing applicable laws and regulations. where a penalty of removal from office is

Part I - Page 9
§ 4143S.1
07.12.31
imposed, and which finding of the (3) Persons who are delinquent in the
Monetary Board has become final and payment of their obligations as defined
executory; or hereunder:
(7) Trustees and officers of banks, QBs (a) Delinquency in the payment of
and trust entities or any person found by obligations means that an obligation of a
the Monetary Board to be unfit for the person with an NSSLA where he/she is a
position of trustees or officers because they trustee or officer, or at least two (2) obligations
were found administratively liable by with other banks/FIs, under different credit
another government agency for violation lines or loan contracts, are past due
of banking laws, rules and regulations or pursuant to existing regulations;
any offense/violation involving dishonesty (b) Obligations shall include all
or breach of trust, and which finding of said borrowings from a bank/QB/trust entity/
government agency has become final and NSSLA/other FIs obtained by:
executory. (i) A trustee or officer for his own
b. Temporarily disqualified. Trustess/ account or as the representative or agent
officers/employees disqualified by the of others or where he/she acts as a
Monetary Board from holding a trustee guarantor, endorser or surety for loans from
position for a specific/indefinite period of such FIs;
time. Included are: (ii) The spouse or child under the
(1) Persons who refuse to fully disclose parental authority of the trustee or officer;
the extent of their business interest or any (iii)Any person whose borrowings or
material information to the appropriate loan proceeds were credited to the account
department of the SES when required of, or used for the benefit of a trustee or
pursuant to a provision of law or of a officer;
circular, memorandum, rule or regulation of (iv)A partnership of which a trustee
the BSP. This disqualification shall be in effect or officer, or his/her spouse is the managing
as long as the refusal persists; partner or a general partner owning a
(2) Trustees who have been absent or controlling interest in the partnership; and
who have not participated for whatever (v) A corporation, association or firm
reasons in more than fifty percent (50%) of wholly-owned or majority of the capital of
all meetings, both regular and special, of which is owned by any or a group of persons
the board of trustees during their mentioned in the foregoing Items “(i)”, “(ii)”
incumbency, and trustees who failed to and “(iv)”;
physically attend for whatever reasons in This disqualification shall be in effect
at least twenty-five percent (25%) of all as long as the delinquency persists.
board meetings in any year, except that (4) Persons who have been convicted
when a notarized certification executed by by a court for offenses involving dishonesty
the corporate secretary has been submitted or breach of trust such as, but not limited
attesting that said trustees were given the to, estafa, embezzlement, extortion, forgery,
agenda materials prior to the meeting and malversation, swindling, theft, robbery,
that their comments/decisions thereon were falsification, bribery, violation of B.P. Blg. 22,
submitted for deliberation/discussion and violation of Anti-Graft and Corrupt Practices
were taken up in the actual board meeting, Act and prohibited acts and transactions
said trustees shall be considered present in under Section 7 of R.A. No. 6713 (Code
the board meeting. This disqualification of Conduct and Ethical Standards for Public
applies only for purposes of the Officials and Employees), violation of
immediately succeeding election; banking laws, rules and regulations or

Part I - Page 10
§ 4143S.1
07.12.31
those sentenced to serve a maximum term of the trustee/officer or the ability to

of imprisonment of more than six (6) years effectively discharge his duties. This
but whose conviction has not yet become disqualification applies until they have
final and executory; cleared themselves of the alleged
(5) Trustees and officers of closed irregularities/violations or after a lapse of
banks/QBs/trust entities/NSSLAs and other five (5) years from the time the complaint,
FIs under BSP supervision/regulation which was the basis of the derogatory
pending their clearance by the Monetary record, was initiated;
Board; (11) Trustees and officers of banks, QBs
(6) Trustees disqualified for failure to and trust entities found by the Monetary
observe/discharge their duties and Board as administratively liable for
responsibilities prescribed under violation of banking laws, rules and
existing regulations. This regulations where a penalty of removal from
disqualification applies until the lapse office is imposed, and which finding of the
of the specific period of disqualification Monetary Board is pending appeal before
or upon approval by the Monetary Board the appellate court, unless execution or
on recommendation by the appropriate enforcement thereof is restrained by the
department of the SES of such trustees’ court;
election/re-election; (12) Ttrustees and officers of banks,
(7) Trustees who failed to attend the QBs and trust entities or any person found
special seminar on corporate governance by the Monetary Board to be unfit for the
for board of trustees required by BSP. position of trustees or officers because they
This disqualification applies until the were found administratively liable by
trustee concerned had attended such another government agency for violation
seminar; of banking laws, rules and regulations or
(8) Persons dismissed/terminated from any offense/violation involving dishonesty
employment for cause. This or breach of trust, and which finding of said
disqualification shall be in effect until they government agency is pending appeal
have cleared themselves of involvement before the appellate court, unless execution
in the alleged irregularity or upon clearance, or enforcement thereof is restrained by the
on their request, from the Monetary Board court; and
after showing good and justifiable reasons, (13) Trustees and officers of banks,
or after the lapse of five (5) years from the QBs and trust entities found by the
time they were officially advised by the Monetary Board as administratively liable
appropriate department of the SES of their for violation of banking laws, rules and
disqualification; regulations where a penalty of suspension
(9) Those under preventive from office or fine is imposed, regardless
suspension; whether the finding of the Monetary
(10) Persons with derogatory records Board is final and executory or pending
as certified by, or on the official files of, appeal before the appellate court, unless
the judiciary, NBI, PNP, quasi-judicial execution or enforcement thereof is
bodies, other government agencies, restrained by the court. The
international police, monetary authorities disqualification shall be in effect during
and similar agencies or authorities of the period of suspension or so long as
foreign countries for irregularities or the fine is not fully paid.
violations of any law, rules and regulations (As amended by Circular Nos. 584 dated 28 September 2007
that would adversely affect the integrity and 513 dated 10 February 2006)

Part I - Page 11
§§ 4143S.1 - 4143S.3
07.12.31
§ 4143S.2 Persons disqualified to disqualify a trustee/officer/employee from

become officers being elected/appointed as trustee/officer in
a. The disqualifications for trustees any FI under the supervision of the BSP.
mentioned in Subsec. 4143S.1 shall Grounds for disqualification made known to
likewise apply to officers, except those the NSSLA shall be reported to the
stated in Items “b(2)” and “b(7)”. appropriate department of the SES within
b. Except as may be authorized by the seventy-two (72) hours from knowledge
Monetary Board or the Governor, the thereof.
spouse or a relative within the second b. On the basis of knowledge and
degree of consanguinity or affinity of any evidence on the existence of any of the
person holding the position of chairman, grounds for disqualification mentioned in
vice chairman, president, executive vice Subsecs. 4143S.1 and 4143S.2, the trustee
president or any position of equivalent rank, or officer concerned shall be notified in
general manager, treasurer, chief cashier or writing either by personal service or
chief accountant is disqualified from through registered mail with registry return
holding or being elected or appointed to receipt card at his/her last known address
any of said positions in the same NSSLA; by the appropriate department of the SES
and the spouse or relative within the second of the existence of the ground for his/her
degree of consanguinity or affinity of any disqualification and shall be allowed to
person holding the position of manager, submit within fifteen (15) calendar days
cashier, or accountant of a branch or office from receipt of such notice an explanation
of an NSSLA is disqualified from holding on why he/she should not be disqualified
or being appointed to any of said positions and included in the watchlisted file,
in the same branch or office; together with the evidence in support of
c. Except as may otherwise be allowed his/her position. The head of said
under C.A. No. 108, otherwise known as department may allow an extension on
“The Anti-Dummy Law,” as amended, meritorious ground.
foreigners cannot be officers or employees c. Upon receipt of the reply/
of NSSLAs; and explanation of the trustee/officer
d. Any appointive or elective public concerned, the appropriate department of
official, whether full time or part time, the SES shall proceed to evaluate the case.
except in cases where such service is The trustee/officer concerned shall be
incident to financial assistance provided by afforded the opportunity to defend/clear
the government or GOCCs or in cases himself/herself.
allowed under existing law. d. If no reply has been received from
the trustee/officer concerned upon the
§ 4143S.3 Disqualification procedures expiration of the period prescribed under
a. The board of trustees and Item “b” above, said failure to reply shall
management of every NSSLAs shall be be deemed a waiver and the appropriate
responsible for determining the existence of department of the SES shall proceed to
the ground for disqualification of the NSSLA’s evaluate the case based on available
trustee/officer or employee and for reporting records/evidence.
the same to the BSP. While the concerned e. If the ground for disqualification is
NSSLA may conduct its own investigation delinquency in the payment of obligation,
and impose appropriate sanction/s as are the concerned trustee or officer shall be
allowable, this shall be without prejudice given a period of thirty (30) calendar days
to the authority of the Monetary Board to within which to settle said obligation or,

Part I - Page 12
§ 4143S.3
07.12.31
restore it to its current status or, to explain to determine if the disqualification of the
why he/she should not be disqualified and trustee/officer concerned is warranted or
included in the watchlisted file, before the not. The evaluation of the case shall be
evaluation on his disqualification and made for the purpose of determining if
watchlisting is elevated to the Monetary disqualification would be appropriate and
Board. not for the purpose of passing judgment
f. For trustees/officers of closed QBs, on the findings and decision of the entity
trust entities, NSSLAs or other FIs under concerned. The appropriate department
BSP supervision, the concerned of the SES may decide to recommend to
department of the SES shall make the Monetary Board a penalty lower than
appropriate recommendation to the disqualification (e.g., reprimand,
Monetary Board clearing said trustees/ suspension, etc.) if, in its judgment the
officers when there is no pending case/ act committed or omitted by the trustee/
complaint or evidence against them. When officer concerned does not warrant
there is evidence that a trustees/officer has disqualification.
committed irregularity, the appropriate h. All other cases of disqualification,
department of the SES shall make whether permanent or temporary shall be
recommendation to the Monetary Board elevated to the Monetary Board for
that his/her case be referred to the OSI for approval and shall be subject to the
further investigation and that he/she be procedures provided in paragraphs “a”,
included in the masterlist of temporarily “b”, “c” and “d” above.
disqualified persons until the final i. Upon approval by the Monetary
resolution of his/her case. Trustees/officers Board, the concerned trustee/officer shall
with pending cases/complaints shall also be informed by the appropriate
be included in said masterlist of department of the SES in writing either
temporarily disqualified persons upon by personal service or through registered
approval by the Monetary Board until the mail with registry return receipt card, at
final resolution of their cases. If the trustee/ his/her last known address of his/her
officer is cleared from involvement in any disqualification from being elected/
irregularity, the appropriate department of appointed as trustee/officer in any FI
the SES shall recommend to the Monetary under the supervision of BSP and/or of
Board his/her delisting. On the other hand, his/her inclusion in the masterlist of
if the trustee/officer concerned is found to watchlisted persons so disqualified.
be responsible for the closure of the j. The board of trustees of the
institution, the concerned department of concerned institution shall be
the SES shall recommend to the Monetary immediately informed of cases of
Board his/her delisting from the masterlist disqualification approved by the
of temporarily disqualified persons and his/ Monetary Board and shall be directed to
her inclusion in the masterlist of act thereon not later than the following
permanently disqualified persons. board meeting. Within seventy-two (72)
g. If the disqualification is based on hours thereafter, the corporate secretary
dismissal from employment for cause, the shall report to the Governor of the BSP
appropriate department of the SES shall, through the appropriate department of the
as much as practicable, endeavor to SES the action taken by the board on the
establish the specific acts or omissions trustee/officer involved.
constituting the offense or the ultimate facts k. Persons who are elected or
which resulted in the dismissal to be able appointed as trustee or officer in

Part I - Page 12a
§§ 4143S.3 - 4143S.6
07.12.31
any of the BSP-supervised institutions for -Trustees/officers/employees

the first time but are subject to any of the permanently disqualified by the Monetary
grounds for disqualification provided for Board from holding a trustee/officer
under Subsecs. 4143S.1 and 4143S.2, shall position in any institution under the
be afforded the procedural due process supervision/regulation of BSP.
prescribed above. (2) Disqualification File “B” (Temporary)
l. Whenever a trustee/officer is -Trustees/officers/employees
cleared in the process mentioned under temporarily disqualified by the Monetary
Item “c” above or, when the ground for Board from holding a trustee/officer
disqualification ceases to exist, he/she position in any institution under the
would be eligible to become trustee or supervision/regulation of BSP.
officer of any bank, QB, trust entity or any b. Inclusion of trustees/officers/
institution under the supervision of the BSP employees in the watchlist. Upon
only upon prior approval by the Monetary recommendation by the appropriate
Board. It shall be the responsibility of the department of the SES, the inclusion of
appropriate department of the SES to trustees/officers/employees in watchlist
elevate to the Monetary Board the lifting disqualification files “A” and “B” on the
of the disqualification of the concerned basis of decisions, actions or reports of the
trustee/officer and his/her delisting from the courts, banks, QBs, other NSSLAs and FIs
masterlist of watchlisted persons. under BSP supervision, BSP, NBI or any
(As amended by Circular No. 584 dated 28 September 2007) other administrative agencies shall first be
approved by the Monetary Board.
§ 4143S.4 Effect of non-possession of c. Notification of trustees/officers/
qualifications or possession of employees. Upon approval by the
disqualifications. Trustees/officers elected Monetary Board, the concerned trustee/
or appointed without possessing the officer/employee shall be informed through
qualifications in Subsecs. 4141S.2/4142S.2 registered mail, with registry return receipt
or possessing any of the disqualifications card at his/her last known address of his/
as enumerated in Subsecs.4143S.1/ her inclusion in the masterlist of
4143S.2, shall vacate their respective watchlisted persons disqualified to be a
positions immediately. trustee/officer in any FI under the
supervision of the BSP.
§ 4143S.5 (Reserved) d. Confidentiality. Watchlisting shall
be for internal use only and may not be
§ 4143S.6 Watchlisting. To provide the accessed or queried upon by outside parties
BSP with a central information file to be including banks, QBs, trust entities, NSSLAs
used as reference in passing upon and or other FIs under BSP supervision except
reviewing the qualifications of persons with the authority of the person concerned
elected or appointed as trustee or officer and with the approval of the Deputy
of an NSSLA, the SES shall maintain a Governor, SES, or the Governor, or the
watchlist of disqualified NSSLA trustees/ Monetary Board.
officers under the following procedures: The BSP will disclose information on its
a. Watchlist categories. Watchlisting watchlist files only upon submission of a
shall be categorized as follows: duly accomplished and notarized
(1) Disqualification File “A” authorization from the concerned person
(Permanent) and approval of such request by the Deputy

Part I - Page 12b
§§ 4143S.6 - 4144S.2
07.12.31
Governor, SES or the Governor or the Disqualification File “A” shall be eligible
Monetary Board. The prescribed for re-employment with any bank, QB, trust
authorization form to be submitted to the entity, NSSLA or other FI under BSP
concerned department of the SES is in supervision.
Appendix Q-45. (As amended by CL-2007-001 dated 04 January 2007 and
NSSLAs can gain access to information CL-2006-046 dated 21 December 2006)
in the said watchlist for the sole purpose
of screening their applicants for hiring and/ Sec. 4144S Compensation of Trustees,
or confirming their elected trustees and Officers and Employees. No trustee, officer
appointed officers. NSSLAs must obtain or employee of an NSSLA shall receive from
the said authorization on an individual such NSSLA and no NSSLA shall pay to
basis. any trustee, officer, or employee of such
e. Delisting. All delistings shall be NSSLA, any commission, emolument,
approved by the Monetary Board upon gratuity or reward based on the volume or
recommendation of the appropriate number of loans made, or based on the
department of the SES except in cases of interest or fees collected thereon. Nothing
persons known to be dead, where delisting in this Section, however, prohibits or limits
shall be automatic upon proof of death and any of the following:
need not be elevated to the Monetary a. Receipt or payment of salaries of
Board. Delisting may be approved by the trustees, officers and employees;
Monetary Board in the following cases: b. Receipt or payment of commissions
(1) Watchlist – Disqualification File to agents whether or not based on the
“B” (Temporary) – volume or number of loans or on the
(a) After the lapse of the specific period interest and fees collected thereon; or
of disqualification; c. Receipt or payment of bonuses of
(b) When the conviction by the court trustees, officers or employees if such
for crimes involving dishonesty, breach of bonuses are based on the profits and not
trust and/or violation of banking laws on the volume or number of loans made
becomes final and executory, in which or on the interest or fees collected thereon.
case the trustee/officer/employee is relisted
to Watchlist – Disqualification File “A” § 4144S.1 Compensation increases.All
(Permanent); increases in compensation, in any form, of
(c) Upon favorable decision or all trustees and trustee-officers in excess of
clearance by the appropriate body, i.e., ten percent (10%) thereof per annum shall
court, NBI, bank, QB, trust entity or such require the approval of the BSP.
other agency/body where the concerned
individual had derogatory record. Trustees/ § 4144S.2 Liability for loans contrary
officers/employees delisted from the to law. No NSSLA shall make or purchase
Watchlist – Disqualification File “B” other any loan or investment not authorized or
than those upgraded to Watchlist – permitted under R.A. No. 8367, and any

Part I - Page 12c
§§ 4144S.2 - 4151S
05.12.31
trustee, officer or employee, who on the circumstances mentioned above, the

behalf of any such NSSLA, knowingly Monetary Board may impose the following
makes or purchases any such loan or restrictions in the compensation and other
investment or who knowingly consents benefits of trustees and officers:
thereto shall be personally liable to the (a) Except for the financial assistance
NSSLA for the full amount of any such loan to meet expenses for the medical,
or investment. maternity, education and other emergency
needs of the trustees or officers or their
Sec. 4145S Bonding of Officers and immediate family, other forms of financial
Employees. All officers and employees of assistance may be suspended.
an NSSLA who, in the regular discharge (b) When the total compensation
of their duties have access to money or package including salaries, allowances,
negotiable securities shall, before entering fees and bonuses of trustees and officers
upon such duties, furnish to the employing are significantly excessive as compared
NSSLA a good and sufficient bond and with industry averages, the Monetary Board
providing for indemnity to the NSSLA may order their reduction to reasonable
against the loss of money or securities, by levels.
reason of their dishonesty. The bond of
the cashier, assistant cashier, treasurer, and Sec. 4146S Agents and Representatives
other employees having money No person shall act as an agent or sales
accountability shall not be less than their representative of an NSSLA or operate an
average daily accountability. The bond agency without obtaining a license from
must be issued by a reputable bonding the Monetary Board. No license is required
company duly licensed by the Insurance for a collector of an NSSLA but no person
Commission and approved by the BSP. shall hold himself out or act as collector
Capital contribution or a cash bond unless he is authorized as a collector in
deposited with the NSSLA or with a bank, writing by such NSSLA.
may also be allowed.
To protect the funds of depositors and Sec. 4147S (Reserved)
creditors, the Monetary Board may
regulate/ restrict the payment by the Sec. 4148S Full-Time Manager for NSSLAs
NSSLA of compensation, allowances, fees, NSSLAs with total assets of at least P5.0
bonuses, and fringe benefits to its trustees million shall maintain a full-time manager
and officers in exceptional cases and when to take charge of the operations of the
the circumstances warrant, such as, but not NSSLA. The manager shall possess all the
limited to the following: qualifications and shall not have any
a. When the NSSLA is found by the disqualification under Subsecs. 4142S.2
Monetary Board to be conducting business and 4143S.2, respectively.
in an unsafe or unsound manner;
b. When the NSSLA is found by the Secs. 4149S - 4150S (Reserved)
Monetary Board to be in an unsatisfactory
financial condition such as, but not limited H. BRANCHES AND OTHER OFFICES
to, the following cases:
(1) Its capital is impaired; and Sec. 4151S Establishment of Branches/
(2) It has suffered continuous losses Extension Offices. Prior BSP authority shall
from operations for the past three (3) years. be obtained before operating a branch or
In the presence of any one (1) or more of other offices.

Part I - Page 13
§§ 4151S.1 - 4161S.1
05.12.31
§ 4151S.1 Application. The application § 4151S.4 Permit to operate. Actual

shall be prescribed by the appropriate SED operation shall commence only after a permit
of the BSP and accompanied by the to operate has been issued by the BSP.
following minimum requirements:
a. Sketch of the location of the proposed Secs. 4152S - 4155S (Reserved)
office which shall be within the compound
of the mother firm’s branch office; I. BUSINESS DAYS AND HOURS
b. Itemized statement of estimated
receipts and expenses of the NSSLA in Sec. 4156S Business Days and Hours
connection with such branch or extension NSSLAs may, with the prior approval of the
office; appropriate SED of the BSP, adopt such
c. Description or enumeration of business days and hours as may be
service facilities that will cater to the deposit convenient for them. NSSLAs shall be open
and credit needs of members of the NSSLA; for business during business hours and days
d. Financial statements for the year except when extraordinary instances
immediately preceding the date of application; caused by unforeseen, unavoidable event
e. Certification as to the actual number directly affect the NSSLA’s ability to open
of members that will be serviced by the for business. NSSLAs shall post
branch/extension office; and conspicuously at all times in their place of
f. Undertaking that the branch/ business their schedule of regular business
extension office will service only members hours and days.
of the NSSLA.
Secs. 4157S - 4160S (Reserved)
§ 4151S.2 Conditions precluding
acceptance/processing of application. The J. REPORTS
application shall not be accepted/processed
in any of the following cases: Sec. 4161S Records. NSSLAs shall have a
a. The NSSLA’s operation during the true and accurate account, record or
year immediately preceding the date of statement of their daily transactions. The
filing of application was unprofitable; making of any false entry or the willful
b. Total capital accounts of the NSSLA omission of entries relevant to any
are less than P100 million as of the date of transaction is a ground for the Monetary
filing of the application; Board for the imposition of administrative
c. Total number of members to be sanctions under Section 37 of R.A. No.
served in the proposed branch/extension 7653, without prejudice to the criminal
office is less than 500; or liability of the director or officer responsible
d. Non-compliance by the NSSLA therefore under Sections 35 and 36 of R.A.
with any of the pertinent provisions of No. 7653 and/or the applicable provisions
banking laws, rules, regulations and of the Revised Penal Code. Records shall
policies of the BSP. be up-to-date and shall contain sufficient
detail so that an audit trail is established.
§ 4151S.3 Internal control system. The
NSSLA shall submit to the appropriate SED § 4161S.1 Uniform System of
of the BSP a system of internal safeguards Accounts. NSSLAs are required to pattern
and control measures to be adopted for their charts of accounts and recording
compliance by the staff of the proposed systems after the Uniform System of
branch/extension office. Accounts prescribed for NSSLAs including

Part I - Page 14
§§ 4161S.1 - 4162S
07.12.31
reportorial and publication requirements. provisions of PAS 28 “Investments in

The voucher system of accounting or the Associates”;
ticket system, or such other accounting b. For purposes of preparing separate
system acceptable to the BSP as well as the financial statements, financial/non-financial
prescribed chart of accounts shall be allied/non-allied subsidiaries/associates,
adopted for use by NSSLAs. including insurance subsidiaries/associates,
shall also be accounted for using the equity
§ 4161S.2 Philippine Financial method; and
Reporting Standards/Philippine Accounting c. FIs shall be required to meet the BSP
Standards recommended valuation reserves.
Statement of policy. It is the policy of Government grants extended in the
the Bangko Sentral to promote fairness, form of loans bearing nil or low interest
transparency and accuracy in financial rates shall be measured upon initial
reporting. It is in this light that the BSP aims recognition at its fair value (i.e., the
to adopt all PFRS and PAS issued by the present value of the future cash flows of
ASC to the greatest extent possible. the financial instrument discounted using
NSSLAs shall adopt the PFRS and PAS the market interest rate). The difference
which are in accordance with generally between the fair value and the net
accepted accounting principles in proceeds of the loan shall be recorded
recording transactions and in the under “Unearned Income-Others”, which
preparation of financial statements and shall be amortized over the term of the
reports to BSP. However, in cases where loan using the effective interest method.
there are differences between BSP The provisions on government grants
regulations and PFRS/PAS as when more shall be applied retroactively to all
than one (1) option are allowed or certain outstanding government grants received.
maximum or minimum limits are NSSLAs that adopted an accounting
prescribed by the PFRS/PAS, the option or treatment other than the foregoing shall
limit prescribed by BSP regulations shall consider the adjustment as a change in
be adopted by all NSSLA/FIs. accounting policy, which shall be
For purposes hereof, the PFRS/PAS shall accounted for in accordance with PAS 8.
refer to issuances of the ASC and approved Notwithstanding the exceptions in
by the PRC. Items “a”, “b” and “c”, the audited annual
Accounting treatment for prudential financial statements required to be
reporting. For prudential reporting, FIs shall submitted to the BSP in accordance with
adopt in all respect the PFRS and PAS Appendix S-2 shall in all respect be PFRS/
except as follows: PAS compliant: Provided, That FIs shall
a. In preparing consolidated financial submit to the BSP adjusting entries
statements, only investments in financial reconciling the balances in the financial
allied subsidiaries except insurance statements for prudential reporting with that
subsidiaries shall be consolidated on a in the audited annual financial statements.
line-by-line basis; while insurance and (As amended by Circular No. 572 dated 22 June 2007)
non-financial allied subsidiaries shall be
accounted for using the equity method. Sec. 4162S Reports. NSSLAs shall submit
Financial/non-financial allied/non-allied to the appropriate department of the SES of
associates shall be accounted for using the the BSP the reports in prescribed form listed
equity method in accordance with the in Appendix S-2.

Part I - Page 15
§§ 4162S.1 - 4162S.3
07.12.31
§ 4162S.1 Categories and signatories mentioned above, the appropriate

of reports. For purposes of designating the department of the SES shall refuse to
signatories of reports, certain weekly, acknowledge the report as valid or consider
monthly, quarterly, semi-annual, and the report as not having been submitted at
annual statements/reports required to be all. If such a report is not resubmitted by
submitted to the BSP are hereby grouped the NSSLA under the signature of a duly
into Category A-1, A-2, A-3 and Category B, authorized signing officer, administrative
as enumerated in Appendix S-3. sanctions/penalties shall be imposed on the
Category A-1 reports shall be signed by erring NSSLA for the late reporting or failure
the NSSLA’s chief executive officer (who to submit the required report, as the case
may be the president or chairman of the may be.
board, or designated in the by-laws), or in
his absence, by the executive vice president § 4162S.2 Manner of filing. The
or the officer duly authorized under a submission of the reports shall be effected
resolution approved by the board of trustees by filing them personally with the
and by the chief finance officer appropriate department of the SES or with
(i.e., controller or chief accountant, who the BSP Regional Offices or by sending
shall likewise be duly authorized by the them registered mail or special delivery,
NSSLA’s board of trustees in a format unless otherwise specified in the circular
prescribed in Appendix S-3a. or memorandum of the Monetary Board or
Category A-2 reports of the head office the BSP.
of the NSSLA shall be signed by the NSSLA’s
president or senior vice-president/ § 4162S.3 Sanctions and procedures
equivalent position. Offices/units (such as for filing and payment of fines. Failure to
branch) reports in this category shall be submit the above reports on or before the
signed by their respective managers/ specified dates shall subject the person
officers-in-charge. Likewise, the signing responsible or entity concerned to the
authority in this category shall be contained penalties provided by law.
in a resolution approved by the board of For willful delay in the submission of
trustees in the format prescribed in reports, the following rules shall apply:
Appendix S-3b. a. Definition of Terms. The following
Category A-3 and B reports are those definitions shall apply:
required to be submitted to the BSP and are (1) Report shall refer to all written
not included in Categories A-1 and A-2. reports/statements required of an NSSLA to
They shall be signed by officers or their be submitted to the BSP periodically or
alternates, who shall be duly designated by within a specified period.
the board of trustees. A copy of the board (2) Willful delay in the submission of
resolution with format as prescribed in reports shall refer to the failure of any
Appendix S-3c, covering the initial NSSLA to submit on time the report defined
designation and subsequent changes in in Item “(1)” above. Failure to submit a
signatories and alternates, shall be report on time due to fortuitous events, such
submitted to the appropriate department of as fire and other natural calamities and
the SES within three (3) days from the date public disorders, shall not be considered
of resolution. as willful delay.
If a report is submitted to the BSP under (3) Examination shall include, but
the signature of an officer who is not listed need not be limited to, the verification,
or included in any of the resolutions review, audit, investigation and inspection

Part I - Page 16
§ 4162S.3
07.12.31
of the books and records, business affairs, For the purpose of establishing delay
administration and financial condition of or default, the date of acknowledgment by
any NSSLA including the reproduction of the appropriate department of the SES or
the records as well as the taking possession the BSP Regional Offices/Units appearing
of the books and records and keeping them on the copies of such reports filed or
under BSP custody after giving proper submitted or the date of mailing postmarked
receipts therefor. It shall also include the on the envelope/the date of registry or
interview of the directors and personnel special delivery receipt, as the case may be,
of any NSSLA. shall be considered as the date of filing.
(4) Refusal to permit examination shall Delayed schedules/attachments and
mean any act or omission which impedes, amendments shall be considered late
delays or obstructs the duly authorized BSP reporting subject to above penalties.
officer/examiner/employee from c. Sanctions for willful refusal to permit
conducting an examination, including the examination/making of false statement
act of refusing to honor a letter of authority (1) Any NSSLA which shall willfully
to examine presented by any officer/ refuse to permit examination shall pay a fine
examiner/employee of the BSP. of P3,000 daily from the day of refusal and
b. Fines for willful delay in for as long as such refusal lasts.
submission of reports. NSSLAs incurring The provisions of Section 34 of R. A.
willful delay in the submission of required No. 7653 shall apply to any agent,
reports shall pay a fine in accordance with manager, or other officer-in-charge of any
the following schedule: NSSLA who willfully refuses any lawful
examination into the affairs of such NSSLA.
(1) For Categories A-1, A-2 and A-3 reports The willful making of a false statement
Per day of default or misleading statement on a material fact
until the report is filed P180 to department of the BSP charged with the
(2) For Category B reports regulation of NSSLAs or to his examiner
Per day of default shall be punished in accordance with
until the report is filed 60 Section 36 of R. A. No. 7653.
(2) Procedures in imposing the fine
Delay or default shall start to run on (a) The BSP officer/examiner/
the day following the last day required for employee shall report the refusal of the
the submission of reports. However, NSSLA to permit examination to the head
should the last day of filing fall on a non- of the appropriate department of BSP, who
working day in the locality where the shall forthwith make a written demand
reporting NSSLA is situated, delay or upon the NSSLA concerned for such
default shall start to run on the day examination. If the NSSLA continues to
following the next working day. The due refuse said examination without any
date/deadline for submission of reports to satisfactory explanation therefor, the BSP
BSP as prescribed under Sec. 4162S officer/examiner/employee concerned shall
governing the frequency and deadlines submit a report to that effect to the
indicated in Appendix S-2 shall be appropriate department head.
automatically moved to the next business (b) The fine shall be imposed starting
day whenever a half-day suspension of on the day following the receipt by the
business operations in government offices appropriate department of the written report
is declared due to an emergency such as submitted by the BSP officer/examiner/
typhoon, floods, etc. employee concerned regarding the

Part I - Page 17
§§ 4162S.3 - 4164S.3
07.12.31
continued refusal of the NSSLA to permit § 4164S.2 Scope. The scope of

the desired examination. internal audit shall include:
d. Manner of payment or collection a. Examination and evaluation of the
of fines. The regulations embodied in Sec. adequacy and effectiveness of the internal
4601S shall be observed in the collection control systems;
of the fines from NSSLAs. b. Review of the application and
e. Appeal to the Monetary Board. effectiveness of risk management
NSSLAs may appeal to the Monetary Board procedures and risk assessment
a ruling of the appropriate department methodologies;
imposing a fine. c. Review of the management and
f. Other penalties. The foregoing financial information systems, including
penalties shall not preclude the application the electronic information system and
of, or shall be without prejudice to, other electronic banking services;
administrative sanctions as well as to the d. Assessment of the accuracy and
filing of criminal case as provided for in reliability of the accounting system and of
the other provisions of the law, as may be the resulting financial reports;
warranted by the nature of the offense. e. Review of the systems and
(As amended by Circular No. 585 dated 15 October 2007) procedures of safeguarding assets;
f. Review of the system of assessing
Sec. 4163S (Reserved) capital in relation to the estimate of
organizational risk;
Sec. 4164S Internal Audit Function g. Transaction testing and
Internal audit is an independent, objective assessment of specific internal control
assurance and consulting function procedures; and
established to examine, evaluate and h. Review of the compliance system
improve the effectiveness of risk and the implementation of established
management, internal control, and policies and procedures.
governance processes of an organization.
§ 4164S.3 Qualification standards of
§ 4164S.1 Status. The internal audit the internal auditor. The internal auditor
function must be independent of the of a UB or a KB must be a CPA and must
activities audited and from day-to-day have at least five (5) years experience in
internal control process. It must be free to the regular audit (internal or external) of a
report audit results, findings, opinions, UB or KB as auditor-in-charge, senior
appraisals and other information to the auditor or audit manager. He must possess
appropriate level of management. It shall the knowledge, skills, and other
have authority to directly access and competencies to examine all areas in
communicate with any officer or employee, which the institution operates. Professional
to examine any activity or entity of the competence as well as continuing training
institution, as well as to access any records, and education shall be required to face-
files or data whenever relevant to the up to the increasing complexity and
exercise of its assignment. The Audit diversity of the institution’s operations.
Committee or senior management should The internal auditor of a TB, QB, trust
take all necessary measures to provide the entity or national Coop Bank must be a
appropriate resources and staffing that CPA with at least five (5) years experience
would enable internal audit to achieve its in the regular audit (internal or external)
objectives. of a TB, QB, trust entity or national Coop

Part I - Page 18
§ 4164S.3
05.12.31
Bank as auditor-in-charge, senior auditor Accounting graduate with two (2) years
or audit manager or, in lieu thereof, at least experience in external audit or in the
three (3) years experience in the regular regular audit of an RB, NSSLA or local Coop
audit (internal or external) of a UB or KB Bank or, in lieu thereof, at least one (1) year
as auditor-in-charge, senior auditor or experience in the regular audit (internal or
audit manager. external) of a UB, KB, TB, QB, trust entity
The internal auditor of an RB, NSSLA or national Coop Bank as auditor-in-charge,
or local Coop Bank must be at least an senior auditor or audit manager.

Part I - Page 18a
§§ 4164S.3 - 4172S
06.12.31
A qualified internal auditor of a UB or later than thirty (30) calendar days after the
a KB shall be qualified to audit TBs, QBs, close of the calendar year or the fiscal year
trust entities, national cooperative banks, adopted by the NSSLA. Report of such audit
RBs, NSSLAs, local cooperative banks, shall be submitted to the board of directors
subsidiaries and affiliates engaged in allied and the appropriate department of the SES
activities, and other financial institutions not later than 120 calendar days after the
under BSP supervision. close of the calendar year or the fiscal year
A qualified internal auditor of a TB or adopted by the NSSLA. The report to the
national cooperative bank shall likewise BSP shall be accompanied by the: (1)
be qualified to audit QBs, trust entities, certification by the external auditor on
RBs, NSSLAs, local cooperative banks, the: (a) dates of start and termination of
subsidiaries and affiliates engaged in allied audit; (b) date of submission of the financial
activities, and other financial institutions audit report and certification under oath
under BSP supervision. stating that no material weakness or breach
in the internal control and risk management
§ 4164S.4 Code of Ethics and Internal systems was noted in the course of the
Auditing Standards. The internal auditor audit of the NSSLA to the board of directors;
should conform with the Code of and (c) the absence of any direct or indirect
Professional Ethics for CPAs and ensure financial interest and other circumstances
compliance with sound internal auditing that may impair the independence of the
standards, such as the Institute of Internal external auditor; (2) reconciliation
Auditors’ International Standards for the statement between the AFS and the balance
Professional Practice of Internal Auditing sheet and income statement for NSSLA
(e-mail: standards@theiia.org; Web: http:/ submitted to the BSP including copies of
/www.theiia.org.) and other supplemental adjusting entries on the reconciling items;
standards issued by regulatory authorities/ and (3) other information that may be
government agencies. The Standards required by the BSP.
address independence and objectivity, In addition, the external auditor shall
professional proficiency, scope of work, be required by the NSSLA to submit to the
performance of audit work, management board of directors, a LOC indicating any
of internal audit, quality assurance reviews, material weakness or breach in the
communication and monitoring of results. institution’s internal control and risk
management systems within thirty (30)
Secs. 4165S - 4170S (Reserved) calendar days after submission of the
financial audit report. If no material
K. INTERNAL CONTROL weakness or breach is noted to warrant the
issuance of an LOC, a Certification under
Sec. 4171S External Auditor. NSSLAs oath stating that no material weakness or
except those with total resources of P10.0 breach in the internal control and risk
million or less, shall engage the services management systems was noted in the
of an independent Certified Public course of the audit of the NSSLA shall be
Accountant to audit their books of accounts submitted in its stead, together with the
at least once a year, or as often as necessary. financial audit report.
Material weakness shall be defined as
Sec. 4172S Financial Audit. NSSLAs shall a significant control deficiency, or
cause an annual financial audit by an combination of deficiencies, that results in
external auditor acceptable to the BSP not more than a remote likelihood that a

Part I - Page 19
§ 4172S
06.12.31
material misstatement of the financial NSSLAs under BSP supervision which

statements will not be detected or are under the concurrent jurisdiction of the
prevented by the entity’s internal control. COA shall be exempt from the
A material weakness does not mean that a aforementioned annual financial audit by
material misstatement has occurred or will an acceptable external auditor: Provided,
occur, but that it could occur. A control That when warranted by supervisory
deficiency exists when the design or concern such as material weakness/breach
operation of a control does not allow in internal control and/or risk management
management or employees, in the normal systems, the Monetary Board may, upon
course of performing their assigned recommendation of the appropriate
functions, to prevent or detect department of the SES, require the financial
misstatements on a timely basis. A audit to be conducted by an external
significant deficiency is a control auditor acceptable to the BSP, at the
deficiency, or combination of control expense of the institution concerned:
deficiencies, that adversely affects the Provided further, That when
entity’s ability to initiate, authorize, record, circumstances such as, but not limited to,
process, or report financial data reliably in loans from multilateral financial
accordance with GAAP. The term more institutions, privatization, or public listing
than remote likelihood shall mean that warrant, the financial audit of the
future events are likely to occur or are concerned institution by an acceptable
reasonably possible to occur. external auditor may also be allowed.
The board of directors, in a regular or NSSLAs under the concurrent
special meeting, shall consider and act on jurisdiction of the BSP and COA shall,
the financial audit report and the however, submit a copy of the AAR of the
certification under oath submitted in lieu COA to the appropriate department of the
of the LOC and shall submit, within thirty SES within thirty (30) banking days after
(30) banking days after receipt of the receipt of the report by the board of
reports, a copy of its resolution to the directors. The AAR shall be accompanied
appropriate department of the SES. The by the: (1) certification by the institution
resolution shall show, among other concerned on the date of receipt of the
things, the actions(s) taken on the reports AAR by the board of directors; (2)
and the names of the directors present reconciliation statement between the AFS
and absent. in the AAR and the balance sheet and
The board shall likewise consider and income statement of the NSSLA submitted
act on the LOC and shall submit, within to the BSP, including copies of adjusting
thirty (30) banking days after receipt entries on the reconciling items; and (3)
thereof, a copy of its resolution together other information that may be required by
with said LOC to the appropriate the BSP.
department of the SES. The resolution shall The board of directors of said
show the action(s) taken on the findings institutions, in a regular or special meeting,
and recommendations and, the names of shall consider and act on the AAR, as well
the directors present and absent, among as on the comments and observations and
other things. shall submit, within thirty (30) banking
The LOC shall be accompanied by the days after receipt of the report, a copy of
certification of the external auditor of the its resolution to the appropriate department
date of its submission to the board of of the SES. The resolution shall show the
directors. action(s) taken on the report, including the

Part I - Page 20
§§ 4172S - 4180S
06.12.31
comments and observations and the §4172S.2 Posting of audited financial

names of the directors present and absent, statements. NSSLAs shall post in
among other things.” conspicuous places in their head offices,
NSSLAs as well as external auditors all their branches and other offices, as well
shall strictly observe the requirements in as in their respective websites, their latest
the submission of the financial audit financial audit report.
report and reports required to be (Circular No. 540 dated 09 August 2006)
submitted under Appendix Q-33.
The audited annual financial Secs. 4173S – 4179S (Reserved)
statements required to be submitted
shall in all respect be PFRS/PAS Sec. 4180S Selection, Appointment and
compliant: Provided, That NSSLAs shall Reporting Requirements for External
submit to the BSP adjusting entries Auditors; Sanction; Effectivity. Under
reconciling the balances in the financial Section 58, R.A. No. 8791, the Monetary
statements for prudential reporting with Board may require an NSSLA to engage
that in the audited annual financial the services of an independent auditor to
statements. be chosen by the NSSLA concerned from
The reports and certifications of a list of certified public accountants
institutions concerned, schedules and acceptable to the Monetary Board.
attachments required under this It is the policy of the BSP to promote
Subsection shall be considered Category high ethical and professional standards in
B reports, delayed submission of which public accounting practice and to
shall be subject to the penalties under encourage coordination and sharing of
Subsec. 4162S.3 information between external auditors and
(As amended by Circular Nos. 554 dated 22 December regulatory authorities of banks, QBs,
2006 and 540 dated 09 August 2006) NSSLAs, and/or trust entities to ensure
effective audit and supervision of these
§4172S.1 Audited Financial institutions and to avoid unnecessary
Statements of NSSLAs. The following duplication of efforts. In furtherance of this
rules shall govern the utilization and policy and to ensure that reliance by
submission of AFS of NSSLAs. regulatory authorities and the public on
For purposes of this Section, AFS the opinion of external auditors is well-
shall include the balance sheets, income placed, the BSP hereby prescribes the rules
statements, statements of changes in and regulations that shall govern the
equity, statements of cash flows and notes selection, appointment, reporting
to financial statements which shall requirements and delisting for external
include among other information, auditors of banks, QBs, NSSLAs, and/ or
disclosure of the volume of past due loans trust entities, their subsidiaries and
as well as loan-loss provisions. On the affiliates engaged in allied activities and
other hand, financial audit report shall other financial institutions which under
refer to the AFS and the opinion of the special laws are subject to BSP
auditor. The AFS of NSSLAs with supervision.
subsidiaries shall be presented side by The selection of external auditors shall
side on a solo basis (parent) and on a be valid for a period of three (3) years.
consolidated basis (parent and BSP selected external auditors shall apply
subsidiaries). for the renewal of their selection every
(Circular No. 540 dated 09 August 2006 three years.The provisions of Items “A”

Part I - Page 21
§§ 4180S - 4181S
06.12.31
and “B” of Appendix S-8 shall likewise Item “I” in Appendix S-8. Erring external
apply for each application for renewal. auditors may also be reported by the BSP to
The SES shall make an annual the PRC for appropriate disciplinary action.
assessment of the performance of (As amended by Circular No. 529 dated 11 May 2006)
external auditors and will recommend
deletion from the list even prior to the L. MISCELLANEOUS PROVISIONS
three (3) -year renewal period, if based
on assessment, the external auditors’ Sec. 4181S Publication Requirements
report did not comply with BSP NSSLAs shall, within 120 calendar days
requirements. after the close of the calendar year or their
External auditors who meet the fiscal year, as the case may be, furnish the
requirements specified in this Section shall Monetary Board and post in any of the
be included in the list of BSP selected NSSLAs’ bulletin boards or in any other
external auditors. In case of partnership, conspicuous place a copy of their financial
inclusion in the list of BSP selected external statements showing, in such form and detail
auditors shall apply to the audit firm only as the Monetary Board shall require, the
and not to the individual signing partners amount and character of the assets and
or auditors under its employment. liabilities of the NSSLAs at the end of the
The BSP will circularize to all banks, preceding fiscal year. The Monetary Board
QBs, trust entities and NSSLAs the list of may, in addition to the foregoing, require
selected external auditors once a year. The the disclosure of such other information as
BSP, however, shall not be liable for any it shall deem necessary for the protection
damage or loss that may arise from its of the members of the NSSLA.
selection of the external auditors to be The consolidated statements of
engaged by banks, QBs, trust entities or condition of an NSSLA and its subsidiaries
NSSLAs for regular audit or special and associates shall conform with the
engagements. guidelines of PAS 27 “Consolidated and
a. Rules and regulations. The rules Separate Financial Statements”, except that
and regulations to govern the selection and for purposes of consolidated financial
delisting by the BSP of external auditors statements, only investments in financial
of NSSLAs and their subsidiaries and allied subsidiaries except insurance
affiliates engaged in allied activities are subsidiaries shall be consolidated on a line-
shown in Appendix S-8. by-line basis; while insurance and non-
b. Sanctions. The applicable financial allied subsidiaries shall be
sanctions/penalties prescribed under accounted for using the equity method.
Sections 36 and 37 of R. A. No. 7653 to Financial/non-financial allied/non-allied
the extent applicable shall be imposed on associates shall be accounted for using the
the NSSLA, its audit committee and the equity method in accordance with the
directors approving the hiring of external provisions of PAS 28 “Investments in
auditors who are not in the BSP list of Associates”. For purposes of separate
selected auditors for banks, QBs, NSSLAs, financial statements, investments in
and trust entities or for hiring, and/or financial/non-financial allied/non-allied
retaining the services of the external subsidiaries/associates, including
auditor in violation of any of the provisions insurance subsidiaries/associates, shall be
of this Section and for non-compliance accounted for using the equity method.
with the Monetary Board directive under (As amended by Circular No. 494 dated 20 September 2005)

Part I - Page 22
§§ 4182S - 4194S
08.12.31
Sec. 4182S Business Name 1. NSSLAs be adopted in so far as they are applicable
organized or operating under R.A. No. to NSSLAs.
8367 and licensed by the BSP shall (As amended by Circular Nos. 610 dated 26 May 2008,
include in their names the words “Savings 596 dated 11 January 2008, 548 dated 25 September 2006
and Loan Association”. Such NSSLAs and 543 dated 08 September 2006)
shall display in a conspicuous place at
their business offices a sign including, Sec. 4191S (Reserved)
among other things, the following words:
“Authorized by the Bangko Sentral ng Sec. 4192S Prompt Corrective Action
Pilipinas”. Framework. The framework for the
(As amended by CL Nos. 2008-053 dated 21 August 2008 and enforcement of PCA on banks which is in
2008-007 dated 05 February 2008) Appendix Q-40, shall govern the PCA taken
on NSSLAs to the extent applicable, or by
Sec. 4183S Prohibitions analogy.
a. No person, association, partnership (Circular No. 523 dated 31 March 2006)
or corporation shall do business as an
NSSLA, or shall use the terms “Savings Sec. 4193S Supervision by Risks. The
and Loan Association” or any other title guidelines on supervision by risk in
or name tending to give the public Appendix Q-42 which provide guidance
impression that it is engaged in the on how QBs should identify, measure,
operations and activities of an NSSLA monitor and control risks shall govern the
unless so authorized under R.A. No. 8367 supervision by risks of NSSLAs to the extent
and these regulations. applicable.
b. The use by an NSSLA of any other The guidelines set forth the
name or title or combination of names and expectations of the BSP with respect to the
titles or any other deviation from the management of risks and are intended to
requirements of this Section shall not be provide more consistency in how the
authorized except upon prior approval of risk-focused supervision function is applied
the Monetary Board. to these risks. The BSP will review the risks
c. NSSLAs shall not issue, publish or to ensure that an NSSLA’s internal risk
cause or permit to be issued or published, management processes are integrated and
any advertisement that it is doing or comprehensive. All NSSLAs should follow
permitted to do business which is the guidance in risk management efforts.
prohibited by law to an NSSLA. (Circular No. 510 dated 03 February 2006)
d. No NSSLA shall advertise or
represent itself to its members or to the Sec. 4194S Market Risk Management. The
public as a bank, or as a trust company. guidelines on market risk management for
QBs as shown in Appendix Q-43 shall
Secs. 4184S - 4189S (Reserved) govern the market risk management of
NSSLAs to the extent applicable.
Sec. 4190S Duties and Responsibilities of The guidelines set forth the
NSSLAs and their Directors/Officers in All expectations of the BSP with respect to the
Cases of Outsourcing of NSSLA Functions management of market risk and are
The rules on outsourcing of banking intended to provide more consistency in
functions as shown in Appendix Q-37 shall how the risk-focused supervision is applied
1
See SEC Circular Nos. 5 dated 17 July 2008 and 14 dated 24 October 2000.

Part I - Page 23
§§ 4194S - 4199S
06.12.31
to this risk. NSSLAs are expected to have of liquidity risk and are intended to provide
an integrated approach to risk management more consistency in how the risk-focused
to identify, measure, monitor and control supervision function is applied to this
risks. Market risk should be reviewed risk. NSSLAs are expected to have an
together with other risks to determine integrated approach to risk management
overall risk profile. to identify, measure, monitor and control
The BSP is aware of the increasing risks. Liquidity risk should be reviewed
diversity of financial products and that together with other risks to determine
industry techniques for measuring and overall risk profile.
managing market risk are continuously These guidelines are intended for
evolving. As such, the guidelines are general application; specific application
intended for general application; specific will depend on the size and sophistication
application will depend to some extent on of a particular NSSLA and the nature and
the size, complexity and range of activities complexity of its activities.
undertaken by NSSLAs. (Circular No. 545 dated 15 September 2006)
(Circular No. 544 dated 15 September 2006)
Secs. 4196S - 4198S (Reserved)
Sec. 4195S Liquidity Risk Management. The
guidelines on liquidity risk management for Sec. 4199S General Provision on
QBs as shown in Appendix Q-44 shall Sanctions. Unless otherwise provided, any
govern the liquidity risk management of violation of the provisions of this Part shall
NSSLAs to the extent applicable. be subject to the sanctions provided in
The guidelines set forth the expectations Sections 34, 35, 36 and 37 of R.A. No.
of the BSP with respect to the management 7653, whenever applicable.

Part I - Page 24
§§ 4201S - 4240S
05.12.31
PART TWO
DEPOSIT AND BORROWING OPERATIONS
A. DEMAND DEPOSITS may be charged by the NSSLA for every

withdrawal made in excess of the maximum
Section 4201S Checking Accounts. No number allowed in any one (1) month.
NSSLA shall have or carry upon its books
for any person any demand, commercial Sec. 4209S Dormant Savings Deposits
or checking account, or any credit to be NSSLAs may charge a fee, the amount of
withdrawn upon the presentation of any which shall be approved by the BSP for
negotiable check or draft. the maintenance of dormant savings
deposits. Savings deposit shall be classified
Secs. 4202S - 4205S (Reserved) as dormant if no deposit or withdrawal has
been made for the last two (2) years.
B. SAVINGS DEPOSITS
Secs. 4210S – 4215S (Reserved)
Sec. 4206S Definition. Savings deposits
are deposits evidenced by a passbook C. (RESERVED)
consisting of funds deposited to the credit
of one (1) or more individuals with respect Secs. 4216S - 4220S (Reserved)
to which the depositor may withdraw
anytime, unless prior notice in writing of D. TIME DEPOSITS
an intended withdrawal is required by the
NSSLA. Sec. 4221S (Reserved)
Sec. 4207S Minimum Deposit. Savings Sec. 4222S Minimum Term and Size of
deposits with NSSLAs may be opened Time Deposits
with a minimum deposit of P100. a. Term - No time deposit shall be
accepted for a term of less than thirty (30)
Sec. 4208S Withdrawals. Withdrawal days.
from a savings deposit shall be made b. Minimum Size - NSSLAs shall
through the presentation to the NSSLA of not require a minimum amount of time
a duly accomplished withdrawal slip deposit greater than P1,000.
together with the depositor’s passbook.
NSSLAs shall reserve the right to Sec. 4223S Withdrawals of Time
require the depositor to give prior written Deposits. The withdrawal of a time
notice of withdrawal of not more than thirty deposit can be made only by presentation
(30) days. of the certificate of time deposit on the
NSSLAs may limit the number of day of or after its maturity.
withdrawals that a depositor may make:
Provided, That the number of the Secs. 4224S - 4230S (Reserved)
withdrawals allowed shall not be less than
three (3) times a month. A service charge E. - F. (RESERVED)
to be determined by the board of trustees
of the NSSLA and approved by the BSP, Secs. 4231S - 4240S (Reserved)

Part II - Page 1
§§ 4241S - 4261S.5
05.12.31
G. INTEREST ON DEPOSITS deposit account for himself, provided he

has sufficient discretion. However, he
Sec. 4241S Interest on Savings Deposits cannot withdraw therefrom, except
Savings deposits of NSSLAs shall not be through, or with the assistance of a guardian
subject to any interest rate ceiling. authorized to act for him. Parents may
deposit for their minor children, and
Sec. 4242S Interest on Time Deposits guardians for their wards.
Interest on time deposits shall not be subject Notwithstanding the provisions of the
to any interest rate ceiling. preceding paragraph, the cashier,
bookkeeper and their assistants, and other
§ 4242S.1 Time of payment. Interest employees of an NSSLA whose duties entail
on time deposits may be paid at maturity the handling of cash or checks are prohibited
or upon withdrawal or in advance: from opening savings deposit accounts with
Provided, however, That interest paid in the head office or branch of the NSSLA in
advance shall not exceed the interest for which they are assigned as such.
one (1) year.
§ 4261S.2 Identification of member-
§ 4242S.2 Treatment of matured depositors. NSSLAs shall be responsible
time deposits. A time deposit not for the proper identification of their
withdrawn or renewed on its due date shall member-depositors.
be treated as a savings deposit and shall
earn an interest from maturity to the date § 4261S.3 Number of deposit
of actual withdrawal or renewal at a rate accounts. A member-depositor may open
applicable to savings deposits. and have more than one (1) savings deposit
in his own name in the same capacity, and
Secs.4243S - 4250S (Reserved) he may open and have various deposits in
different capacities such as guardian, agent,
or trustee for others.
H. (RESERVED)
§ 4261S.4 Signature card. A
Secs. 4251S – 4260S (Reserved) signature card bearing at least three (3)
specimen signatures of each member-
I. SUNDRY PROVISIONS ON depositor shall be required upon opening
DEPOSIT OPERATIONS of a deposit account.
Sec. 4261S Opening and Operation of § 4261S.5 Passbook and certificate

Deposit Accounts. The following are basic of time deposit. A savings deposit
provisions on the opening and operation of passbook, signed by the receiving teller and
deposit accounts of NSSLAs. an authorized officer, shall be issued to a
member-depositor showing, among other
§ 4261S.1 Who may open deposit things, his name and address, account
accounts. Only members who have number, date, amount of deposit, interest
contributed P1,000 or more to the capital credits and balance. NSSLAs shall pre-
of the NSSLA may open deposit accounts number their savings deposit passbooks. In
with NSSLAs. A natural person, although the case of a time deposit, a certificate of
lacking capacity to contract, may time deposit signed by two (2) authorized
nevertheless open a savings or time officers, shall be issued to the member-

Part II - Page 2
§§ 4261S.5 - 4299S
05.12.31
depositor containing, among other things, public lending institution, and from private
his name, amount of deposit, date when banking institutions, and such private
the deposit was made, its due date and lending institutions as may be approved
interest rate. by the Monetary Board: Provided, That
the proceeds of such loan shall be used
§ 4261S.6 Deposits in checks and exclusively to meet the normal credit
other cash items. Checks and other cash requirements of its members. The
items may be accepted for deposit by Monetary Board may, in meritorious
NSSLAs: Provided, That withdrawals cases, raise the ceiling on the borrowing
from such deposits shall not be made until capacity of an NSSLA to not more than
the check or other cash item is collected. thirty percent (30%) of its total assets.
NSSLAs organized by employees of an
Secs. 4262S - 4280S (Reserved) entity or a corporation may borrow funds
from said entity or corporation, but not
J. (RESERVED) vice-versa.
Secs. 4281S - 4285S (Reserved) Secs. 4287S - 4298S (Reserved)
K. OTHER BORROWINGS Sec. 4299S General Provision on

Sanctions. Unless otherwise provided,
Sec. 4286S Borrowings. An NSSLA may any violation of the provisions of this Part
borrow money or incur such obligation up shall be subject to the sanctions provided
to not more than twenty percent (20%) of in Sections 34, 35, 36 and 37 of R.A. No.
the total assets of the NSSLA, from any 7653, whenever applicable.

Part II - Page 3
§§ 4301S - 4302S
05.12.31
PART THREE
LOANS AND INVESTMENTS
A. LOANS IN GENERAL redemption of permissible investments

made by NSSLAs; and
Section 4301S Authority; Loan Limits; (3) Amount of credit available for loan
Maturity of Loans. The board of trustees purposes from government or private
of NSSLAs shall prescribe their own rules financing institutions.
and regulations governing credit c. Maximum loan maturity. No loan
operations of the NSSLAs within the granted by NSSLAs shall have a maturity
framework of the terms and conditions date of more than five (5) years except loans
embodied in this Section. on the security of unencumbered real estate
a. Loan limit to a single borrower. An for the purpose of home building and home
NSSLA may grant loans not exceeding the development which may be granted with
amount deposited and/or contributed by the maturities not exceeding twenty-five (25)
member-borrower plus his twelve (12) years and medium or long-term loans to
months salary or retirement pension from finance agricultural projects.
his employment, or up to seventy percent
(70%) of the fair market value of any property Sec. 4302S Basic Requirements in
acceptable as collateral on first mortgage that Granting Loans
he may put up by way of security: Provided, a. Application. A member-borrower
That direct indebtedness to an NSSLA of any applying for a loan must submit an application
member-borrower for money borrowed stating the purpose of the loan and such other
with the exception of money borrowed information as may be required by the
against obligations of the BSP or of the NSSLA. The loan application and other
Philippine Government, or borrowed with required documents shall form part of credit
the full guarantee of the Philippine information file of the member-borrower in
Government in the payment of principal the NSSLA.
and interest, shall not exceed fifteen b. Credit investigation. No loan shall
percent (15%) of the unimpaired capital be approved unless prior investigation has
and surplus of the NSSLA. been made to determine the credit standing
For purposes of this Section, regular of the applicant and/or the fair market value
income of persons who are self-employed of the property offered as security and the
shall be their average monthly income report thereon shall be made part of the loan
during the twelve (12)-month period application: Provided, however, That this
immediately preceding the date of loan requirement may be waived by an NSSLA
application. in the case of permanent employee or wage
b. Limitations on lending authority. earner who is borrowing an amount not
NSSLAs shall not commit to make any exceeding his deposit plus his twelve (12)
loan for amounts in excess of the total of months regular salary or retirement pension.
the following amounts: c. Credit information file/collateral
(1) Amount of cash available for loan file. An NSSLA shall maintain as far as
purposes; practicable, a credit information file which
(2) Amount of cash which can be must contain, among other things, the
readily realized upon the sale or member-borrower’s application and financial

Part III - Page 1
§§ 4302S - 4305S.5
05.12.31
record. Other information relative to the authorized by the member-borrower, to

member-borrower, where applicable, shall remit such deductions to the NSSLA
also be maintained which must contain concerned and to collect such reasonable fee
among other things, the collateral and other for his services as may be authorized by
documents pertinent to the loan. rules promulgated by the Monetary Board.
d. Loan approvals. Loans shall be
approved by the NSSLA’s board of trustees Sec. 4305S Interest and Other Charges. The
or if approved by a body or officer/s duly following rules shall govern the rates of interest
authorized by the board, such loan must and other charges on loans granted by NSSLAs.
be confirmed by the board of trustees.
e. Loan agreements. For each loan §§ 4305S.1 - 4305S.2 (Reserved)
granted by an NSSLA, a promissory note
must be executed by the member-borrower § 4305S.3 Interest in the absence of
in favor of the NSSLA expressing such contract. In the absence of express
particulars as the amount of the loan, date contract, the rate of interest for the loan or
granted, due date, interest rate and other forbearance of any money, goods or credit
similar information. and the rate allowed in judgment shall be
f. Inscription of lien. In case of twelve percent (12%) per annum.
mortgage loans, no release against an
approved loan shall be made before the § 4305S.4 Escalation clause; when
inscription of the mortgage. allowable. Parties to an agreement
pertaining to a loan or forbearance of money,
Sec. 4303S Loan Proceeds. NSSLAs shall goods or credits may stipulate that the rate
in no case require member-borrowers to of interest agreed upon may be increased
deposit a portion of the loan proceeds, in the event that the applicable maximum
whether in the form of savings or time rate of interest is increased by the Monetary
deposits. Where, subsequent to the release Board: Provided, That such stipulations are
of the loan proceeds, member-borrowers valid only if there is also a stipulation in the
open deposit accounts or make additional agreement that the rate of interest agreed
deposits to their existing accounts, no part upon shall be reduced in the event that the
of such new deposits shall be covered by a applicable maximum rate of interest is
stipulation prohibiting or limiting withdrawal reduced by law or by the Monetary Board:
while new portion of their loans are Provided, further, That the adjustment in the
outstanding: Provided, however, That this rate of interest agreed upon shall take effect
prohibition shall not apply in cases of loans on or after the effectivity of the increase or
secured by a hold-out on deposits to the decrease in the maximum rate of interest.
extent of the unencumbered amount of the
deposit existing at the time of the filing of § 4305S.5 Interest accrual on past
the above-mentioned loan application. due loans. NSSLAs shall not accrue
interest income on loans which are already
Sec. 4304S Loan Repayment. The treasurer, past due or on loan installments which are
cashier or paymaster of the firm in arrears, regardless of whether the loans
employing a member-borrower shall be are secured or unsecured. Interest on past
required, pursuant to R.A. No. 8367, to due loans or loans installments in arrears
make deductions from the salary, wage, shall be taken up as income only when
income or retirement pension of the actual payments thereon are received.
member-borrower in accordance with the Interest income on past due loan
terms of his loan, and all other deductions arising from discount amortization (and not

Part III - Page 2
§§ 4305S.5 - 4306S.3
05.12.31
from the contractual interest of the account) defaults for the purpose of obligations as
shall be accrued as provided in PAS 39. defined in Sec. 4143S(d); and
(As amended by Circular No. 494 dated 20 September 2005) d. All items in litigation as defined in
the Manual of Accounts for NSSLAs.
Sec. 4306S Past Due Accounts. Past due
accounts of an NSSLA shall, as a general § 4306S.2 Extension/renewal of loans
rule, refer to all accounts which are not paid Extension of the period of payment of loans
at maturity. may be allowed under the following
circumstances:
§ 4306S.1 Accounts considered past a. For production loans, the extension
due. The following shall be considered as shall not exceed one-half (1/2) of the original
past due: period: Provided, That thirty percent (30%)
a. A loan or receivable payable on of the loan shall have been paid. A second
demand not paid upon written demand as extension shall not exceed one-half (1/2) of
required herein or within one (1) year from the period of the first extension; and
date of grant or renewal, whichever comes b. For consumer loans, the extension
earlier. shall not exceed one-half (1/2) of the
NSSLAs shall, in case of non-payment original period: Provided, That thirty percent
of a demand loan, make a written demand (30%) of the loan shall have been paid.
within six (6) months following the grant Loans payable in periodic installments
of such loan. The demand shall indicate a may be renewed for the full amount of
period of payment which shall not be later loans: Provided, That at least thirty percent
than six (6) months from date of said (30%) of the loan shall have been paid.
demand.
b. The total outstanding balance of a loan § 4306S.3 Write-off of loans as bad
or receivable payable in installments, in debts. To maximize the protection of
accordance with the following schedules: members of NSSLAs against misfeasance
Mode of Payment Installments in Arrears and malfeasance of the trustees and officers
Monthly 6 or more thereof, the Monetary Board adopted the
Quarterly 2 or more following regulations on writing-off of loans
Semestral 1 or more
by NSSLAs.
Annual 1 or more
a. The term loan shall include all types
Provided, however, That when the total of credit accommodations granted to, and
amount of arrearages reaches twenty advances made by the NSSLA for the
percent (20%) of the total outstanding account of the borrowers/debtors, including
balance of the loan, the entire total the interest thereon recorded in the books.
outstanding balance of the loan shall be b. Writing-off of loans by an NSSLA
considered as past due, irrespective of the shall be made not more than twice a year
number of installments in arrears: Provided, by its board of trustees; and
further, That the modes of payment other c. Notice/application for write-off of
than those listed above (e.g., daily, weekly loans shall be submitted, in the prescribed
or semi-monthly), the entire outstanding form to the appropriate department of the
balance of the loan/receivable shall be SES at least thirty (30) days prior to the
considered as past due when the total intended date of write-off: Provided, That
amount of arrearages reaches ten percent no such loans with an aggregate outstanding
(10%) of the total loan/receivable balance; amount of P15,000 or more, as certified in
c. Any due and unpaid loan installment said notice/application, shall be written-off
or portion hereof, from the time the obligor without the prior approval of:

Part III - Page 3
§§ 4306S.3 - 4307S.1
07.12.31
(1) The Monetary Board, in case of (4) Any purchase, or other acquisition
loans to trustees and officers of the NSSLA, of, or any credit upon the security of any
direct or indirect; or obligation or claim arising out of any of
(2) The head of the appropriate the foregoing; and
department of the SES, subject to (5) Any transaction or series of
confirmation by the Monetary Board, in transactions having a similar purpose or
case of loans other than those mentioned effect.
in Item “(1)” above. b. Transactions not covered
Considering that the specific purpose
§ 4306S.4 Updating of information of the law is the full disclosure of the true
provided to credit information bureaus cost of credit, the following categories of
NSSLAs which have provided adverse credit transactions are outside the scope
information, such as the past due or of the above regulations:
litigation status of loan accounts, to credit (1) Credit transactions which do not
information bureaus, or any organization involve the payment of any finance charge
performing similar functions, shall submit by the debtor; and
monthly reports to these bureaus or (2) Credit transactions in which the
organizations on the full payment or debtor is the one specifying a definite and
settlement of the previously reported fixed set of credit terms such as bank deposits,
accounts within five (5) business days from insurance contracts, sale of bonds, etc.
the end of the month when such full
payment was received. For this purpose, § 4307S.1 Definition of terms
it shall be the responsibility of the a. Creditor (who shall furnish the
reporting NSSLAs to ensure that their information) means any person engaged
disclosure of any information about their in a finance charge.
borrowers/clients is with the consent of The term creditor shall include, but shall
borrowers concerned. not be limited to, banks and banking
(Circular No. 589 dated 18 December 2007) institutions, insurance and bonding
companies, savings and loan associations,
Sec. 4307S “Truth in Lending Act” credit unions, financing companies,
Disclosure Requirements. NSSLAs are installment houses, real estate dealers,
required to strictly adhere to the provisions lending investors, pawnshops, and any
of R. A. No. 3765, otherwise known as other person or entity engaged in the
the “Truth in Lending Act,” and shall make business of extending credit who requires
the true and effective cost of borrowing an as an incident to the extension of credit,
integral part of every loan contract. the payment of a finance charge.
a. Transactions covered b. Person means any individual,
(1) Any loan, mortgage, deed of trust, corporation, partnership, NSSLA, or other
advance and discount; organized group of persons, or the legal
(2) Any conditional sales contract, any successor or representative of the foregoing,
contract to sell, or sale or contract of sale and includes the Philippine Government or
of property or services, either for present any agency thereof, or any other
or future delivery, under which, part or all government, or any of its political
of the price is payable subsequent to the subdivisions, or any agency of the foregoing.
making of such sale or contract; c. Cash price or delivered price (in
(3) Any option, demand, lien, pledge, case of trade transactions) is the amount of
or other claim against, or for delivery of, money which would constitute full
property or money; payment upon delivery of the property

Part III - Page 4
§§ 4307S.1 - 4307S.2
05.12.31
(except money) or service purchased at the In the case of single payment upon
creditor’s place of business. In the case of maturity, the simple annual rate (R) in
financial transactions, cash price represents percent is determined by the following
the amount of money received by the method:
debtor upon consummation of the credit finance charge 12
transaction, net of finance charges R = amount to x maturity period x 100
collected at the time the credit is extended be financed in months
(if any).
d. Down payment represents the In the case of the normal installment
amount paid by the debtor at the time of type of credit of at least one (1) year in
the transaction in partial payment for the duration, where installment payments of
property or service purchased. equal amount are made in regular time
e. Trade-in represents the value of an periods spaced not more than one (1) year
asset, agreed upon by the creditor and apart, R in percent is computed by the
debtor, given at the time of the transaction following method:
in partial payment for the property or No. of payments
service purchased. finance charge in a year
f. Non-finance charges correspond to R = 2 x amount to x total number x 100
be financed of payments
the amounts advanced by the creditor for
plus one
items normally associated with the
ownership of the property or of the In cases where the credit matures in
availment of the service purchased which less than one (1) year [e.g., installment
are not incident to the extension of credit. payments are required every month for six
For example, in the case of the purchase (6) months], the same formula will apply
of an automobile on credit, the creditor except that the number of payments in a
may advance the insurance premium as year would refer to the number of
well as the registration fee for the account installment periods, as defined in the credit
of the debtor. contract, as if the credit matures in one (1)
g. Amount to be financed consists of year. For example, the number of
the cash price plus non-finance charges less payments in a year would be twelve (12)
the amount of the down payment and value for this purpose in cases where six (6)
of the trade-in. monthly installment payments are called
h. Finance charge represents the for in the credit transaction1.
amount to be paid by the debtor incident In cases where credit terms provide for
to the extension of credit such as interest premium or penalty charges depending
or discounts, collection fees, credit on, say, the timelines of the debtor’s
investigation fees, attorney’s fees, and other payments, the annual rate to be disclosed
service charges. The total finance charge in writing shall be the rate for regular
represents the difference between (i) the payments, i.e., the premium and penalty
aggregate consideration (down payment need not be taken into account in the
plus installments) on the part of the debtor, determination of the annual rate. Such
and (ii) the sum of the cash price and premium or penalty charges shall,
non-finance charges. however, be indicated in the credit contract.
i. Simple annual rate is the uniform
percentage which represents the ratio, on § 4307S.2 Information to be disclosed
an annual basis, between the finance NSSLAs shall furnish to each person to
charges and the amount to be financed. whom credit is extended, prior to the
1
This can be determined by dividing twelve (12), the number of months in a year, by the number or fraction of months
between installment payments.

Part III - Page 5
§§ 4307S.2 - 4307S.5
05.12.31
consummation of the transaction, a clear payment of finance charges therefor. Such

statement in writing setting forth the copies shall be available for inspection or
following information to be disclosed. examination by the appropriate
a. The cash price or delivered price department of the SES.
of the property or service to be acquired;
b. The amounts, if any, to be credited § 4307S.4 Posters. An abstract of
as down payment and/or trade-in; R.A. No. 3765 (Appendix S-5) shall be
c. The difference between the reproduced in a format which is sixty (60)
amounts set forth under Items “a” and “b”; cm. wide and seventy-five (75) cm. long,
d. The charges, individually itemized, and posted on a conspicuous place in the
which are paid or to be paid by such person NSSLAs’ place(s) of business.
in connection with the transaction but which
are not incident to the extension of credit; § 4307S.5 Penal provisions
e. The total amount to be financed; a. NSSLAs which in connection with
f. The finance charges expressed in any credit transaction fail to disclose to any
terms of pesos and centavos; and person any information in violation of this
g. The percentage that the finance charge Section or any regulation issued hereafter
bears to the total amount to be financed shall be liable to such person in the amount
expressed as a simple annual rate on the of P100 or in an amount equal to twice the
outstanding unpaid balance of the obligation. finance charge required by such NSSLAs
The contract covering the credit in connection with such transactions,
transaction, or any other document to be whichever is the greater, except that such
acknowledged and signed by the debtor, liability shall not exceed P2,000 on any
shall indicate the above seven (7) items of credit transaction. Action to recover such
information. In addition, the contract or penalty may be brought by such person
document shall specify additional charges, within one (1) year from the date of the
if any, which will be collected in case occurrence of the violation, in any court of
certain stipulations in the contract are not competent jurisdiction. In any action under
met by the debtor. this Subsection in which any person is
In case the seven (7) items of entitled to a recovery, the NSSLAs shall
information mentioned in this Subsection be liable for reasonable attorney’s fees and
are not disclosed in the contract covering court costs as determined by the court.
the credit transaction, said items to the b. Except as specified in Item “a”
extent applicable, shall be disclosed in above, nothing contained in this rule shall
another document in the form (Appendix affect the validity or enforceability of any
S-4) prescribed by the Monetary Board, to contract or transaction.
be signed by the debtor and appended to c. Any person who willfully violates
the main contract. A copy of the disclosure any provision of this Section or regulation
statement shall be furnished the borrower. issued hereafter shall be fined by not less
than P1,000 nor more than P5,000 or
§ 4307S.3 Inspection of contracts imprisonment for not less than six (6) months,
covering credit transactions. NSSLAs shall nor more than one (1) year or both.
keep in their office or place of business copies d. No punishment or penalty
of contracts covering all credit transactions provided by this Section shall apply to the
entered into by them which involve the Philippine Government or any agency or
extension of credit to another and the any political subdivision thereof.

Part III - Page 6
§§ 4308S - 4370S
08.12.31
Secs. 4308S – 4311S (Reserved) Secs. 4322S - 4335S (Reserved)
Sec. 4312S Grant of Loans and Other C. - D. (RESERVED)

Credit Accomodations. (Deleted by Circular
No. 622 dated 16 September 2008) Secs. 4336S - 4355S (Reserved)
§ 4312S.1 General guidelines. (Deleted E. LOANS/CREDIT

by Circular No. 622 dated 16 September 2008) ACCOMMODATIONS TO TRUSTEES,
OFFICERS, STOCKHOLDERS AND
§§ 4312S.2 - 4312S.3 (Reserved) THEIR RELATED INTERESTS
§ 4312S.4 Signatories. (Deleted by Sec. 4356S General Policy. The transactions

Circular No. 622 dated 16 September 2008) of all trustees or officers with the NSSLA
shall not be under terms more favorable
Secs. 4313S – 4320S (Reserved) than those transacted with other members.
B. SECURED LOANS Sec. 4357S Direct/Indirect Borrowings;

Ceilings. No NSSLA shall directly or
Sec. 4321S Kinds of Security. Loans by indirectly make any loan to any trustee or
an NSSLA may be secured by any or all of officer of such NSSLA, either for himself
the following: or as agent or as partner of another, except
a. Mortgages on registered real estate; with the written approval of the majority
b. Chattel mortgages on harvested or of the trustees of the NSSLA, excluding the
stored crops of non-perishable character; trustee concerned: Provided, That the
c. Chattel mortgages on livestock, aggregate loans to such trustees and
tools, equipment or machinery, supplies officers shall not exceed twenty percent
or materials, merchandise and other (20%) of the total capital contributions of
personal properties; the NSSLA.
d. Assignment of quedans which
gives the right of disposal of readily Sec. 4358S Records; Reports. In all cases
marketable products; of accommodations granted to trustees and
e. Time and/or savings deposits and/or officers under Sec. 4357S, the written
capital contribution; approval of the majority of the trustees of
f. Pledge of bonds, stock and other the NSSLA, excluding the trustee
securities of the GOCC and other bonds, concerned, shall be entered upon the
stocks or securities which are non-speculative records of the NSSLA and a copy of such
in nature; entry shall be transmitted forthwith to the
g. Land transfer certificates issued by appropriate department of the SES within
the government to tenant farmers, under twenty (20) business days from the date of
the agrarian reform program to the extent approval.
of sixty percent (60%) of the value of the
farm holdings: Provided, That a certification Secs. 4359S - 4369S (Reserved)
shall be first secured from the office of the
Registry of Deeds to the effect that the Land Sec. 4370S Sanctions. The office of any
Transfer Certificate being presented is trustee or officer of an NSSLA who violates
valid; and the provisions of these rules on
h. Other securities as may be accommodations granted to trustee and
approved by the Monetary Board. officers shall immediately become vacant

Part III - Page 7
§§ 4370S - 4399S
08.12.31
and said trustees or officer shall be improvements for its offices, in amount not
punished by imprisonment of not more exceeding at any one time ten percent
than one (1) year nor more than ten (10) (10%), of its total capital contribution.
years and by a fine of not less than
P5,000 nor more than P50,000 pursuant §§ 4391S.1 - 4391S.2 (Reserved)
to Section 15 of R.A. No. 8367.
§ 4391S.3 Investments in debt and
F. - I. (RESERVED) marketable equity securities. The
classification, accounting procedures,
Secs. 4371S - 4390S (Reserved) valuation, sales and transfers of
investments in debt securities and
J. OTHER OPERATIONS marketable equity securities shall be in
accordance with the guidelines in
Sec. 4391S Fund Investments. An NSSLA Appendices Q-20 and Q-20-a.
may invest its funds in any or all of the Penalties and sanctions. The following
following: penalties and sanctions shall be imposed
a. In bonds and securities in an on FIs and concerned officers found to
aggregate amount not exceeding ten percent violate the provisions of these regulations:
(10%) of its total assets; any investment in a. Fines of P2,000/banking day to be
excess of ten percent (10%) shall require the imposed on NSSLAs for each violation,
prior approval of the BSP: Provided, That reckoned from the date the violation was
NSSLAs may invest available funds in excess committed up to the date it was
of ten percent (10%) of total assets in sound corrected; and
non-speculative enterprise, particularly in b. Sanctions to be imposed on
readily marketable and high grade concerned officers:
commercial papers, bonds and securities (1) First offense – reprimand the
issued by the Government of the Philippines officers responsible for the violation; and
or any of its political subsidiaries, (2) Subsequent offenses–suspension-
instrumentalities or corporations including of ninety (90) days without pay for officers
GOCCs, subject to the following conditions: responsible for the violation.
(1) The credit needs of the members (Circular No. 476 dated 16 February 2005 as amended by
shall be served/satisfied first; Circular Nos. 628 dated 31 October 2008 and 626 dated
(2) The investment in any one (1) 23 October 2008)
corporation (excluding the Government of
the Philippines, any of its political §§ 4391S.4 - 4391S.10 (Reserved)
subdivisions, instrumentalities, or
corporations including GOCCs), shall not Secs. 4392S - 4395S (Reserved)
exceed twenty-five percent (25%) of the
NSSLA’s combined capital accounts; and K. MISCELLANEOUS PROVISIONS
(3) The additional investment may be
up to another ten percent (10%) of the Secs. 4396S - 4398S (Reserved)
NSSLA’s total assets;
b. In real property, in an aggregate Sec. 4399S General Provision on
amount not exceeding at any one time five Sanctions. Unless otherwise provided,
percent (5%) of the total assets of such any violation of the provisions of this
NSSLA; and Part shall be subject to the sanctions
c. In furniture, fixtures, furnishings provided in Sections 34, 35, 36 and 37
and equipment, and leasehold of R.A. No. 7653, whenever applicable.

Part III - Page 8
§§ 4401S - 4499S
05.12.31
PART FOUR
Sections 4401S - 4499S (Reserved)

Part IV - Page 1
§§ 4501S - 4599S
05.12.31
PART FIVE
Sections 4501S - 4599S (Reserved)

Part V - Page 1
§§ 4601S - 4601S.1
07.12.31
PART SIX
MISCELLANEOUS
A. OTHER OPERATIONS or transactions. They shall be meted with

one (1)-time monetary penalty on a per
Sec. 4601S Fines and Other Charges. The transaction basis.
following regulations shall govern (3) Continuing penalty refers to the
imposition of monetary penalties on monetary penalty imposed on continuing
NSSLAs, their trustees and/or officers and offenses/violations on a per calendar day
the payment of such penalties or fines and basis reckoned from the time the offense/
other charges by NSSLAs. violation occurred or was committed until
(As amended by Circular No. 585 dated 15 October 2007) the same was corrected/rectified.
(4) Transactional penalty refers to a one
§ 4601S.1 Guidelines on the imposition (1)-time penalty imposed on a transactional
of monetary penalties; Payment of offense/violation.
penalties or fines. The following are the b. Basis for the computation of the
guidelines on the imposition of monetary period or duration of penalty. The
penalties on NSSLAs, their trustees and/or computation of the period or duration of all
officers and the payment of such penalties penalties shall be based on calendar days.
or fines and other charges by NSSLAs: For this purpose the terms “per banking
a. Definition of terms. For purposes day”, “per business day”, “per day” and/or
of the imposition of monetary penalties, “a day” as used in this Manual, and other
the following definitions are adopted: BSP rules and regulations shall mean “per
(1) Continuing offenses/violations are calendar day” and/or “calendar day” as the
acts, omissions or transactions entered case may be.
into, in violation of laws, BSP rules and c. Additional charge for late payment
regulations, Monetary Board directives, of monetary penalty. Late payment of
and orders of the Governor which persist monetary penalty shall be subject to an
from the time the particular acts were additional charge of six percent (6%) per
committed or omitted or the transactions annum to be computed from the time said
were entered into until the same were penalty becomes due and payable up to the
corrected/rectified by subsequent acts or time of actual payment.
transactions. They shall be penalized on d. Appeal or request for
a per calendar day basis from the time the reconsideration. A one (1)-time appeal or
acts were committed/omitted or the request for reconsideration on the monetary
transactions were effected up to the time penalty approved by the Governor/
they were corrected/rectified. Monetary Board to be imposed on the
(2) Transactional offenses/violations NSSLA, its directors and/or officers shall
are acts, omissions or transactions entered be allowed: Provided, That the same is
into in violation of laws, BSP rules and filed with the appropriate department of
regulations, Monetary Board directives, the SES within fifteen (15) calendar days
and orders of the Governor which cannot from receipt of the Statement of Account/
be corrected/rectified by subsequent acts billing letter. The appropriate department of

Part VI - Page 1
§§ 4601S.1 - 4631S
07.12.31
the SES shall evaluate the appeal or request Secs. 4602S - 4630S (Reserved)
for reconsideration of the NSSLA/individual
and make recommendations thereon within Sec. 4631S Revocation/Suspension of
thirty (30) calendar days from receipt thereof. NSSLA License. In reference to Section 22
The appeal or request for reconsideration of R.A. No. 8367 or the "Revised Non-Stock
on the monetary penalty approved by the Savings and Loan Association Act of 1997",
Governor/Monetary Board shall be the Monetary Board, upon due notice and
elevated to the Monetary Board for hearing, has the authority to either revoke
resolution/decision. The running of the or suspend the license of any NSSLA for such
penalty period in case of continuing period as it deems necessary, based on any of
penalty and/or the period for computing the following grounds:
additional charge shall be interrupted from a. Suspension of license:
the time the appeal or request for (1) Repeated violations (uncorrected
reconsideration was received by the similar examination findings for the last
appropriate department of the SES up to the two examinations, regular or special,) of
time that the notice of the Monetary Board any of the provisions of R.A. No. 8367, and/
decision was received by the NSSLA/ or any rules or regulations promulgated to
individual concerned. implement said law, or BSP directives and/
e. Due date; payment of penalty or or instructions;and
fines by NSSLAs. The penalty approved by (2) Paid-up capital is impaired by
the Governor/MB to be imposed on the continuing losses for the last two (2) fiscal
NSSLA, its directors and/or officers shall years.
become due and payable fifteen (15) Lifting of the suspension of license shall
calendar days from receipt of the Statement be approved by the Monetary Board upon
of Account from the BSP. For NSSLAs which recommendation of the appropriate BSP
maintain DDA with the BSP, penalties supervising department.
which remain unpaid after the lapse of the b. Revocation of license:
fifteen-day period shall be automatically (1) When the solvency of the NSSLA
debited against their corresponding DDA is imperiled by losses and irregularities;
on the following business day without (2) When the NSSLA willfully violates
additional charge. If the balance of the any provision of R.A. No. 8367, any rule
concerned NSSLA’s DDA is insufficient or regulation promulgated to implement
to cover the amount of the penalty, said said law and BSP directives and/or
penalty shall already be subject to an instructions;
additional charge of six percent (6%) per (3) When the NSSLA is conducting
annum to be reckoned from the business day business in an unsafe and unsound manner;
immediately following the end of said fifteen (4) When it is unable to pay its
(15)-day period up to the day of actual liabilities as they become due in the
payment. ordinary course of business;
Failure to settle the full amount of the (5) When it has insufficient realizable
fines within the period or on the day assets, as determined by the BSP, to meet
prescribed herein shall, in addition to the its liabilities;
additional penalty as provided in Item “c” (6) When it cannot continue in
above, make an NSSLA, its trustees and business without involving probable losses
officers liable to the sanctions imposed to its members or creditors; and
under Sec. 4199S. (7) When it has willfully violated a
(As amended by Circular No. 585 dated 15 October 2007) cease and desist order of the Monetary

Part VI - Page 2
§§ 4631S - 4653S
05.12.31
Board involving acts or transactions which department of the SES at least thirty (30)
amount to fraud or a dissipation of assets days before taking steps to effect
of the institution. dissolution.
As to the effects of the revocation/
suspension of license of the NSSLA, the Sec. 4652S Confidential Information
NSSLA is prohibited from engaging in the No trustee, officer or employee of
business of accumulating the savings of NSSLAs or of the BSP shall disclose any
its members and using such accumulations information relating to member-borrowers
for loans to its members, subject to and their applications or to the operations
applicable sanctions and penalties of the NSSLAs unless permitted by the
provided by law in case of violation Monetary Board of the BSP: Provided,
thereof. After the cessation of its operations however, That in the case of NSSLAs under
due to revocation of its license, the NSSLA examination, the head of the appropriate
should proceed with its dissolution, in department of the SES may furnish findings
accordance with the provisions under the of examination to the office or firm where
Corporation Code. The dissolution of a such NSSLAs do business.
corporation involves the termination of its All deposits of whatever nature with
corporate existence, at least, as far as the NSSLAs are considered absolutely
right to go on doing ordinary business is confidential in nature, and may not be
concerned, and the winding up its affairs, examined, inquired or looked into by any
the payments of its debts and distribution person, government official, bureau or
of its assets among the members or office, except upon written permission of
stakeholders or other persons involved. the depositor, or in cases of impeachment,
The board of trustees of the corporation or upon order of competent court in cases
also has the option of adopting a plan for of bribery or dereliction of duty of public
the distribution of its assets, as stated under officials or in cases where the money
Section 95 of the Corporation Code. deposited or invested is the subject matter
After the revocation/suspension of its of litigation.
license, the Monetary Board may direct No official or employee of NSSLAs
the board of trustees of the NSSLA to shall disclose to any person any
proceed with the voluntary dissolution of information concerning said deposits,
the corporation. In the event that the board except in cases mentioned in the
of trustees refuses to effectuate such preceding paragraph. Any official or
dissolution, the Monetary Board may refer employee of NSSLAs who violates this
the matter to the Solicitor General for the Section shall be punished under R. A. No.
filing of a quo warranto case against the 1405, as amended.
corporation in accordance with the
provision under the Corporation Code. Sec. 4653S Examination by the BSP. The
head of the appropriate department of the
Secs. 4632S - 4650S (Reserved) SES, personally or by deputy, shall make
at least once a year and at such other times
B. SUNDRY PROVISIONS as he or the Monetary Board may deem
necessary and expedient, an examination,
Sec. 4651S Notice of Dissolution inspection or investigation of the books
NSSLAs contemplating to dissolve shall and records, business affairs,
give written notice thereof to the administration and financial condition of
Monetary Board through the appropriate NSSLAs.

Part VI - Page 3
§§ 4654S - 4657S.9
06.12.31
Sec. 4654S Applicability of Other Rules §4657S.1 Accounting for NSSLAs

Other rules and regulations applicable premises; Other fixed assets. NSSLA
to the examination of thrift banks, premises, furniture, fixture and equipment
insofar as they are applicable and not shall be accounted for using the cost model
inconsistent with these rules shall apply under PAS 16 “Property, Plant and
to NSSLAs. Equipment.”
(Circular No. 494 dated 20 September 2005)
Sec. 4655S Annual Fees on Non-Stock
Savings and Loan Association. For §4657S.2 (Reserved)
purposes of computing the annual fees
chargeable against NSSLAs, the term Total § 4657S.3 Reclassification of real and
Assessable Assets shall be the amount other properties acquired as NSSLA
referred to as the total assets under Section premises. ROPA reclassified either as Real
28 of R.A. No. 7653 {end-of-quarter total Property-Land or Real Property-Building
assets per balance sheet, after deducting shall be booked at their ROPA balance,
cash on hand and amounts due from net of any valuation reserves: Provided,
banks, including the BSP and banks That only such acquired asset or a portion
abroad}. thereof that will be immediately used or
Average Assessable Assets (AAAs) earmarked for future use may be
shall be the summation of end-of-quarter reclassified and booked as Real Property-
total assessable assets divided by the number Land/Building.
of quarters in operation during the particular NSSLAs, prior to the reclassification of
assessment period. their ROPA accounts to Real Property-
The prescribed rate of annual fees for Land/Building, shall first secure prior BSP
NSSLAs, assessable only when actual approval before effecting the
examination is conducted for the year, shall reclassification and shall submit, in case of
be one-fortieth of one percent (1/40 of 1%) future use, justification and plans for
of AAAs for 2002 or P100,000 whichever expansion/use.
is lower, payable within thirty (30) days
from receipt of the bill. Failure to pay the §§ 4657S.4 - 4657S.8 (Reserved)
bill within the prescribed period shall
subject the NSSLAs to administrative § 4657S.9 Batas Pambansa Blg. 344 –
sanctions. An Act to Enhance the Mobility of
Disabled Persons by Requiring Certain
Sec. 4656S Basic Law Governing Non- Buildings, Institutions, Establishments and
Stock Savings and Loan Associations Public Utilities to Install Facilities and
R.A. No. 8367, as amended, known as Other Devices. In order to promote the
the “Revised Non-Stock Savings and realization of the rights of disabled persons
Loan Association Act of 1997”, regulates to participate fully in the social life and the
the organization and operation of development of the societies in which they
NSSLAs. live and the enjoyment of the opportunities
available to other citizens, no license or
Sec. 4657S NSSLA Premises and Other permit for the construction, repair or
Fixed Assets. The following rules shall renovation of public and private buildings
govern the premises and other fixed assets for public use, educational institutions,
of NSSLAs. airports, sports and recreation centers and

Part VI - Page 4
§§ 4657S.9 - 4691S.8
08.12.31
complexes, shopping centers or b. Exchange rate – rate of conversion

establishments, public parking places, from foreign currency to local currency,
workplaces, public utilities, shall be e.g., peso-dollar rate;
granted or issued unless the owner or c. Exchange rate differential/spread –
operator thereof shall install and foreign exchange mark-up or the
incorporate in such building, establishment difference between the prevailing BSP
or public utility, such architectural facilities reference/guiding rate and the exchange/
or structural features as shall reasonably conversion rate;
enhance the mobility of disabled persons d. Other currency conversion charges -
such as sidewalks, ramps, railings and the commissions or service fees, if any;
like. If feasible, all such existing buildings, e. Other related charges – e.g.,
institutions, establishments, or public surcharges, postage, text message or
utilities may be renovated or altered to telegram;
enable the disabled persons to have access f. Amount/currency paid out in the
to them. recipient country - exact amount of money
the recipient should receive in local
Secs. 4658S - 4659 (Reserved) currency or foreign currency; and
g. Delivery time to recipients/
Sec. 4660S Disclosure of Remittance beneficiaries - delivery period of
Charges and Other Relevant Information remittance to beneficiary stated in number
It is the policy of the BSP to promote the of days, hours or minutes.
efficient delivery of competitively-priced Non-bank remittance service providers
remittance services by banks and other shall likewise post said information in
remittance service providers by promoting their respective websites and display
competition and the use of innovative them prominently in conspicuous places
payment systems, strengthening the within their premises and/or remittance/
financial infrastructure, enhancing access service centers.
to formal remittance channels in the source (Circular No. 534 dated 26 June 2006)
and destination countries, deepening the
financial literacy of consumers, and Secs. 4661S - 4690S (Reserved)
improving transparency in remittance
transactions, consistent with sound Sec. 4691S Anti-Money Laundering
practices. Regulations. Banks, OBUs, QBs, trust
Towards this end, NBFIs under BSP entities, NSSLAs, pawnshops, and all
supervision, including FXDs/MCs and other institutions, including their
RAs, providing overseas remittance subsidiaries and affiliates supervised and/or
services shall disclose to the remittance regulated by the BSP, otherwise known
sender and to the recipient/beneficiary, as “covered institutions” shall comply
the following minimum items of with the provisions of R.A. No. 9160, as
information regarding remittance amended, otherwise known as the
transactions, as defined herein: “Anti-Money Laundering Act of 2001”
a. Transfer/remittance fee – charge and its Revised IRRs in Appendix S-7 and
for processing/sending the remittance those in Appendix S-6.
from the country of origin to the country (As amended by Circular No. 612 dated 13 June 2008)
of destination and/or charge for receiving
the remittance at the country of destination; §§ 4691S.1 - 4691S.8 (Reserved)

Part VI - Page 5
§§ 4691S.9 - 4695S
08.12.31
§ 4691S.9 Sanctions and penalties (2) Its political subdivisions and

a. Whenever a covered institution instrumentalities;
violates the provisions of Section 9 of (3) GOCCs; and
R.A. No. 9160, as amended, or of this (4) Private entities or institutions
Section, the officer(s) or other persons registered with or supervised or regulated
responsible for such violation shall be either by the BSP or SEC or IC.
punished by a fine of not less than P50,000 Valid IDs include the following:
nor more than P200,000 or by (a) Passport
imprisonment of not less than two (2) years (b) Driver’s license
nor more than ten (10) years, or both, at (c) PRC ID
the discretion of the court pursuant to (d) NBI clearance
Section 36 of R.A. No. 7653, otherwise (e) Police clearance
known as “The New Central Bank Act”. (f) Postal ID
b. Without prejudice to the criminal (g) Voter’s ID
sanctions prescribed above against the (h) Barangay certification
culpable persons, the Monetary Board may, (i) GSIS e-Card
at its discretion, impose upon any covered (j) SSS card
institution, its directors and/or officers for (k) Senior Citizen card
any violation of Section 9 of R.A. No. 9160, (l) OWWA ID
as amended, the administrative sanctions (m) OFW ID
provided under Section 37 of R.A. No. 7653. (n) Seaman’s Book
(o) Alien Certification of Registration/
Secs. 4692S - 4694S (Reserved) Immigrant Certificate of Registration
(p) Government office and GOCC ID
Sec. 4695S Valid Identification (ID) Cards (e.g., AFP, HDMF IDs)
for Financial Transactions. The following (q) Certification from the NCWDP
guidelines govern the acceptance of (r) DSWD certification
valid ID cards for all types of financial (s) IBP ID; and
transactions by NSSLAs, including (t) Company IDs issued by private
financial transactions involving OFWs, in entities or institutions registered with or
order to promote access of Filipinos to supervised or regulated either by the BSP,
services offered by formal FIs, SEC or IC.
particularly those residing in the remote b. Students who are beneficiaries of
areas, as well as to encourage and remittances/fund transfers who are not
facilitate remittances of OFWs through yet of voting age may be allowed to
the banking system: present the original and submit a clear
a. C l i e n t s w h o e n g a g e i n a copy of one (1) valid photo-bearing
financial transaction with covered school ID duly signed by the principal
institutions for the first time shall be or head of the school.
required to present the original and c. NSSLAs shall require their clients
submit a clear copy of at least one (1) to submit a clear copy of one (1) valid ID
valid photo-bearing ID document on a one-time basis only, or at the
issued by an official authority. commencement of a business relationship.
For this purpose, the term official They shall require their clients to
authority shall refer to any of the following: submit an updated photo and other
(1) Government of the Republic of the relevant information whenever the
Philippines; need for it arises.

Part VI - Page 6
§§ 4695S - 4699S
08.12.31
The foregoing shall be in addition to It also includes any movement of funds by

the customer identification requirements any means with a covered institution.
under Rule 9.1.c of the Revised IRRs of (Circular No. 564 dated 03 April 2007 as amended by Circular
R.A. No. 9160, as amended (Appendix S-7) No. 608 dated 20 May 2008)
For purposes of this Section, financial
transactions may include remittances, Secs. 4696S - 4698S (Reserved)
among others, as falling under the
definition of transaction. Under the Sec. 4699S General Provision on
Anti-Money Laundering Act of 2001, as Sanctions. Unless otherwise provided,
amended, a financial transaction is any act any violation of the provisions of this
establishing any right or obligation or Part shall be subject to the sanctions
giving rise to any contractual or legal provided in Sections 34, 35, 36 and 37
relationship between the parties thereto. of R. A. No. 7653, whenever applicable.

Part VI - Page 7
APP. S-1
05.12.31
SAFEGUARDS IN BONDING OF NSSLA ACCOUNTABLE

OFFICERS AND EMPLOYEES
(Appendix to Sec. 4145S)
1. The Teller. He should not be depository bank will accept them and
allowed to accumulate more than a specific solely for deposit to its account. Thus, even
maximum amount to be determined by the in the remote possibility that someone
association but in no case to exceed presents a COCI stolen from the association
P10,000 in cash at any given time while in to one of its depository banks, it will not be
the performance of his duties. The accepted for encashment.
procedures in this regard are as follows: 2. The COCIs Clerk. In view of the
a. Cash. All cash in excess of the fact that all COCIs received by the tellers
maximum amount determined by the are stamped “non-negotiable” as detailed
association shall be turned over to the above, the COCIs clerk who records and
cashier. When deposits received by a teller processes these checks carries no
will increase his cash in excess of the accountabilities whatsoever. From the
maximum limit, the teller shall moment that a check is received up to the
immediately make a cash turn-over of, at moment that it is deposited to the account
least, the excess. Thus, although his of the association with one of its depository
transactions during the day may total more banks, that check is just a piece of paper to
than the maximum limit, the amount of be processed and recorded. It will only
money directly in his custody at any given reassume its negotiability upon its receipt
time will never exceed the limit. by the association’s depository bank. In
b. Checks and Other Cash Items cases, however, where checks are
(COCIs). All COCIs received by a teller received by mail, the COCIs clerk shall be
should be stamped as “non-negotiable.” charged with the duty of stamping the
The stamping should be made diagonally checks as “non-negotiable.”
on the face of the check. Thus, all checks 3. As an added precautionary
that are received by the tellers lose their measure, the manager/accountant/loan
further negotiability. There should, officer should check from time to time
however, be an agreement with the whether all COCIs received are stamped
association’s depository banks whereby “non-negotiable.” In the event that a COCI
they will accept for deposit only to the is not so stamped and it results in financial
account of the association the COCI loss on the part of the association, the
previously stamped by the tellers as “non- employee charged with the duty to stamp
negotiable.” Therefore, only the association and who failed to do so, shall be held
and nobody else can further negotiate these personally responsible, together with the
checks, and only the association’s manager/accountant/loan officer, for the loss.

Appendix S-I - Page 1
LIST OF REPORTS REQUIRED FROM NON-STOCK SAVINGS AND LOAN ASSOCIATIONS
A-2 BSP 7-26-02H 4162S Consolidated Statement of Condition Quarterly on or before the end Original to SDC
(As of the immediate
amended following month
by M-029
dated
09.24.07)
A-2 Unnumbered 4691S Report on Suspicious Transactions As 10th business day Original and duplicate -
(Rev. May transaction from date of Anti-Money Laundering
2002 as occurs transaction/knowledge Council (AMLC)
amended
by Cir.
No. 612
dated
06.03.08)
A-2 Unnumbered 4691S Report on Covered Transactions -do- -do- -do-
A-3 BSP 7-26-03H 4162S Consolidated Statement of Income and Expenses Quarterly on or before the end of Original to SDC
(As the immediate
amended following month
by M-029
dated
09.24.07)
Appendix S-2 - Page 1
A-3 BSP 7-26-18.1H 4358S Copy of entry in NSSLA records of written approval of As 20th business day Original - ISD I
majority of directors on credit accommodation to approved from date of approval
directors and officers with accompanying Certification
on Loans Granted to Directors/Officers
S Regulations
08.12.31
APP. S-2
08.12.31
APP. S-2
S Regulations
A-3 Unnumbered 4162S Report on Borrowings of BSP Personnel Quarterly 15th banking days after Original to SDC
(CL-050 end of reference quarter
dated
10.04.07
and
CL-059
dated
11.28.07)
B 4172S Audited/Unaudited Financial Statements required in Annually 120th/60th day after Original - ISD I
Sec. 4181S accompanied by annual report 1 (to end of fiscal year as
members, if any) required in Sec. 4181S
B BSP 7-26-01H 4162S Information Sheet Annually2 30th day after calendar -do-
year-end
4162S After2
Biographical Data of Directors/Officers 7th baking day from Electronic mail or

SES II - If submitted in diskette form - Notarized first page of election or the date of the meeting diskette form to SDC or if
Form 15 each of the directors'/officers' bio-data saved in appointment of the board of hard copy original to
(NP08- diskette and control prooflist and as directors in which the appropriate department
TB) As - If sent by electronic mail - Notarized first page of changes directors/officers are of the SES, duplicate to
amended Biographical Data or Notarized list of names of occur elected or appointed SDC
by Directors/Officers whose Biographical Data were
M-024 submitted thru electronic mail to be faxed to SDC (CL
dated dated 01.09.01)
07.31.08
B BSP 7-26-20H 4162S Report on Crimes/Losses As crime/ See Annex S-2-a for -do-
incident guidelines on reporting
occurs crimes and losses
B BSP 7-26-25H 4126S Dividends Declaration As declared 10th business day after -do-
date of declaration
1
Required of NSSLAs with total resources of P 10 million or more
2
Not required where no change occurs

B - 4126S Report of Discrepancies of Accounts Everytime a 15th day from -do-

discrepancy discovery of
occurs1 discrepancy
B - 4306S.3 Notice/Application for Write-Off of Loans As write-off 30th day prior to the -do-
occurs intended date of write-off
B - 4162S.1 Board Resolution on NSSLA's signatories to reports As 3rd day from date of -do-
submitted to Bangko Sentral authorized resolution
B Unnumbered 4691S Plan of action to comply with Anti-Money Launder- - 30th business day -do-
ing requirements from 31 July 2000 or
from opening of the
institution
Unnumbered 4691S Certification of compliance with existing anti-money Annually 20th business day after -do-
(no prescribed form) laundering regulations end of reference year
4162S Audit Engagement Contract As contract 15th calendar day -do-

is signed from date of signing of
contract
Appendix S-2 - Page 2a
S Regulations
08.12.31
APP. S-2
1
Not required where the discrepancies do not exceed 1% of NSSLA's net worth or P100,000, whichever is lower
(Next Page is Page 3)

APP. S-2
05.12.31
Annex S-2-a
1. NSSLAs shall report on the a crime, when the amount involved per
following matters through the incident is P20,000 or more.
appropriate supervising and examining 2. The following guidelines shall be
department: observed in the preparation and
a. Crimes whether consummated, submission of the report.
frustrated or attempted against property/ a. The report shall be prepared in
facilities (such as robbery, theft, two (2) copies and shall be submitted
swindling or estafa, forgery and other within five (5) business days from
deceits) and other crimes involving loss/ knowledge of the crime or incident, the
destruction of property of the NSSLA original to the appropriate supervising
when the amount involved in each crime department and the duplicate to the BSP
is P20,000 or more. Security Coordinator, thru the Director,
Crimes involving NSSLA personnel, Security Investigation and Transport
regardless of whether or not such crimes Department.
involve the loss/destruction of property b. Where a thorough investigation
of the NSSLA, even if the amount and evaluation of facts is necessary to
involved is less than those above complete the report, an initial report
specified, shall likewise be reported to submitted within the five (5)-business day
the BSP. deadline may be accepted: Provided,
b. Incidents involving material loss, That a complete report is submitted not
destruction or damage to the institution’s later than fifteen (15) business days from
property/facilities, other than arising from termination of investigation.

APP. S-3
05.12.31

(Appendix to Subsec. 4162S.1)
Category A-1 reports shall be signed managers/officers in-charge. Likewise, the

by the chief executive officer, or in his signing authority in this category shall be
absence, by the executive vice-president, contained in a resolution approved by the
and by the comptroller, or in his absence, board of directors in the format prescribed
by the chief accountant, or by officers in Annex S-3-b.
holding equivalent positions. The
designated signatories in this category, Categories A-3 and B reports shall be
including their specimen signatures, shall signed by officers or their alternates, who
be contained in a resolution approved by shall be duly designated by the board of
the board of directors in the format directors. A copy of the board resolution,
prescribed in Annex S-3-a. with format as prescribed in Annex S-3-c.
Category A-2 reports of head offices Copies of the board resolutions on the
shall be signed by the president, executive report signatory designations shall be
vice-presidents, vice-presidents or officers submitted to the appropriate supervising
holding equivalent positions. Such reports and examining department of the BSP
of other offices/units (such as branches) within three (3) business days from the date
shall be signed by their respective of resolution.

APP. S-3
05.12.31
Annex S-3-a
Whereas, it is required under Subsec. 4162S.1 that Category A-1 reports be signed by the
Chief Executive Officer, or in his absence, by the Executive Vice-President, and by the
Comptroller, or in his absence, by the Chief Accountant, or by officers holding equivalent positions.
resolved that:
1. Mr.____________ President _________________
Specimen Signature
or
Executive
Specimen Signature
and
3. Mr.____________ Comptroller _________________
Specimen Signature
or
Chief
4. Mr.____________ Accountant _________________
Specimen Signature
_________________________
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
______________________
CORPORATE SECRETARY

APP. S-3
05.12.31
Annex S-3-b
Whereas, it is required under Subsec. 4162S.1 that Category A-2 reports of head offices
be signed by the President, Executive Vice-Presidents, Vice-Presidents or officers holding
resolved that:
_____________ ________________ __________ _________
_________________________
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
______________________
CORPORATE SECRETARY

APP. S-3
05.12.31
Annex S-3-c
FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES

A-3 AND B REPORTS
Whereas, it is required under Subsec. 4162S.1 that Categories A-3 and B reports be
signed by officers or their alternates;
Whereas, we the members of the Board of Directors of (Name of Institution) , are
conscious that, in designating the officials who would sign said Categories A-3 and B reports,
we are actually empowering and authorizing said officers to represent and act for or in
behalf of the Board of Directors in particular and (Name of Institution) in general;
Whereas, this Board has full faith and confidence in the institution's authorized signatories
resolved that:
Name of Authorized Signatory/Alternate Specimen Signature Position Title Report
1. Authorized
(Alternate)
2. Authorized
(Alternate)
etc.
_________________________
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
______________________
CORPORATE SECRETARY

APP S-4
05.12.31
FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION

______________________________
(Business Name of Creditor)
DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT

OR INSTALLMENT PLAN)
(As required under R.A. 3765, Truth in Lending Act)
Name of Borrower
Address
1. Cash/Purchase Price ________________or Net Proceeds of Loan P

(Item Purchased)
2. LESS: Downpayment and/or Trade-in Value (Not applicable for loan

transaction)
3. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan
4. Non-Finance Charges [Advanced by Seller/Creditor]:

a. Insurance Premium P
b. Taxes
c. Registration Fees
d. Documentary/Science Stamps
e. Notarial Fees
f. Others:
___________________
___________________
___________________
Total Non-Finance Charges
5. Amount to be Financed (Items 3 + 4) P

APP. S-4
05.12.31
6. Finance Charges*
a. Interest _______% p.a.
from ________ to ________
P
[ ] Simple [ ] Monthly
[ ] Compound [ ] Quarterly
[ ] Semi-Annual
[ ] Annual
b. Discounts
c. Service/Handling Charges
d. Collection Charges
e. Credit Investigation Fees
f. Appraisal Fees
g. Attorney’s/Legal Fees
h. Other charges incidental to the
extension of credit (specify):
_______________
_______________
_______________
Total Non-Finance Charges P
7. Percentage of Finance Charges to Total Amount Financed

(Computed in accordance with Subsec. 4307S.1) _______________%
8. Effective Interest Rate _______________%

(Method of computation attached)
9. Payment
a. Single Payment due ____________________ P
(Date)
b. Total Installment Payments
(Payable in __________ weeks/months @ P__________) P
*Time price differential should be disclosed as a finance charge. If an itemization cannot be made, a lump-sum figure may
be reported under Other charges incidental to the extension of credit in Item 6h.

APP S-4
05.12.31
10. Additional charges in case certain stipulations in the contract are not met by the
debtor:
Nature Rate Amount

____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
CERTIFIED CORRECT:
_______________________
(Signature of Creditor/
Authorized Representative
Over Printed Name)
_________________________
Position
I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE

CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND
FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF.
__________________________
(Signature of Buyer/Borrower
Over Printed Name)
DATE ____________________
NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY

OF THIS PAPER WHICH YOU SHALL SIGN.

APP. S-5
05.12.31
ABSTRACT OF “TRUTH IN LENDING ACT” (Republic Act No. 3765)

Section 1. This Act shall be known as the (7) the percentage that the finance
“Truth in Lending Act.” charge bears to the total amount to be
financed expressed as a simple annual rate
Sec. 2. Declaration of Policy. It is hereby on the outstanding unpaid balance of the
declared to be the policy of the State to protect obligation.
its citizens from a lack of awareness of the
xxx xxx xxx
true cost of credit to the user by assuring a
full disclosure of such cost with a view of
Sec. 6. (a) Any creditor who in connection
preventing the uninformed use of credit to
with any credit transaction fails to disclose to
the detriment of the national economy.
any person any information in violation of
xxx xxx xxx this Act or any regulation issued thereunder
shall be liable to such person in the amount
Sec. 3. As used in this Act, the term - of P100 or in an amount equal to twice the
finance charge required by such creditor in
xxx xxx xxx
connection with such transaction, whichever
(3) “Finance charge” includes interest, fees, is the greater, except that such liability shall
service charges, discounts, and such other not exceed P2,000 on any credit transaction.
charges incident to the extension of credit
xxx xxx xxx
as the Board may by regulation prescribe.
(c) Any person who willfully violates
xxx xxx xxx
any provision of this Act or any regulation
issued thereunder shall be fined by not less
Sec. 4. Any creditor shall furnish to each
than P1,000 nor more than P5,000 or
person to whom credit is extended, prior
imprisonment for not less than 6 months
to the consummation of the transaction a
nor more than one year or both.
clear statement in writing setting forth, to
xxx xxx xxx
the extent applicable and in accordance
with rules and regulations prescribed by (d) Any final judgment hereafter
the Board, the following information: rendered in any criminal proceeding under
(1) the cash price or delivered price this Act to the effect that a defendant has
of the property or service to be acquired; willfully violated this Act shall be prima
(2) the amounts, if any, to be credited facie evidence against such defendant in
as down payment and/or trade-in; an action or proceeding brought by any
(3) the difference between the other party against such defendant under
amounts set forth under clauses (1) and (2); this Act as to all matters respecting which
(4) the charges, individually itemized, said judgment would be an estoppel as
which are paid or to be paid by such person between the parties thereto.
in connection with the transaction but which
are not incident to the extension of credit; Sec. 7. This Act shall become effective
(5) the total amount to be financed; upon approval.
(6) the finance charge expressed in
terms of pesos and centavos; and Approved, 22 June 1963.

APP. S-6
05.12.31

(Appendix to Section 4691S)
Banks, quasi-banks, trust entities and (2) Verification of the authority and
all other institutions, and their subsidiaries identification of the person purporting to
and affiliates supervised or regulated by act on behalf of the client.
the BSP (covered institutions) shall strictly b. In case of doubt as to whether
comply with the provisions of Section 9 their purported clients or customers are
of R.A. No. 9160 and the following rules acting for themselves or for another,
and regulations on anti-money laundering. reasonable measures should be taken to
obtain the true identity of the persons on
1. Customer identification. Covered whose behalf an account is opened or a
institutions shall establish and record the transaction conducted.
true identity of its clients based on official c. The provisions of existing laws to
documents. They shall maintain a system the contrary notwithstanding, anonymous
of verifying the true identity of their accounts, accounts under fictitious names,
clients and, in case of corporate clients, and all other similar accounts shall be
require a system of verifying their legal absolutely prohibited. In case where
existence and organizational structure, as numbered accounts is allowed (i.e., peso
well as the authority and identification of and foreign currency non-checking
all persons purporting to act on their numbered accounts), covered institutions
behalf. should ensure that the client is identified
When establishing business relations in an official or other identifying
or conducting transactions (particularly documents.
opening of deposit accounts, accepting The BSP may conduct annual testing
deposit substitutes, entering into trust and solely limited to the determination of the
other fiduciary transactions, renting of existence and the identity of the owners
safety deposit boxes, performing of such accounts.
remittances and other large cash Covered institutions shall phase out
transactions) covered institutions should within a period of one (1) year from 2 April
take reasonable measures to establish and 2001 or upon their maturity, whichever is
record the true identity of their clients. earlier, anonymous accounts or accounts
Said client identification may be based on under fictitious names as well as
official or other reliable documents and numbered accounts being kept or
records. managed by them, which are not
a. In cases of corporate and other expressly allowed under existing law.
legal entities, the following measures d. The identity of existing clients or
should be taken, when necessary: beneficial owners of deposits and other
(1) Verification of the legal existence funds held or being managed by the
and structure of the client from the covered institutions should be renewed/
appropriate agency or from the client itself updated at least every other year.
or both, proof of incorporation, including e. All records of all transactions of
information concerning the customer’s covered institutions shall be maintained
name, legal form, address, directors, and safely stored for five (5) years from
principal officers and provisions regulating the dates of transactions. With respect to
the power behind the entity. closed accounts, the records on customer

APP. S-6
05.12.31
identification, account files and business 4. Required reporting of certain

correspondence, shall be preserved and transactions. If there is reasonable ground
safely stored for at least five (5) years from to believe that the funds are proceeds of
the dates when they were closed. an unlawful activity as defined under R.A.
Such records must be sufficient to permit No. 9160 and/or its IRRs, the transactions
reconstruction of individual transactions so involving such funds or attempts to transact
as to provide, if necessary, evidence for the same, should be reported to the Anti-
prosecution of criminal behaviour. Money Laundering Council (AMLC) in
f. Special attention should be given accordance with Rules 5.2 and 5.3 of the
to all complex, unusual large transactions, AMLA IRRs.
and all unusual patterns of transactions, a. Report on suspicious transactions.1
which have no apparent or visible lawful Banks shall report covered transactions and
purpose. The background and purpose of suspicious transactions, as defined in Rules
such transactions should, as far as possible, 5.2 and 5.3 of the AMLA IRRs, to the AMLC
be examined, the findings established in using the forms prescribed by the AMLC.
writing, and be available to help Reportable transactions shall include the
supervisors, auditors and law enforcement following:
agencies. (1) Outward remittances without
g. Covered institutions should not, or visible lawful purpose;
should at least avoid, transacting business (2) Inward remittances without visible
with criminals. Reasonable measures lawful purpose or without underlying trade
should be adopted to prevent the use of transactions;
their facilities for laundering of proceeds (3) Unusual purchases of foreign
of crimes and other illegal activities. exchange without visible lawful purpose;
(4) Unusual sales of foreign exchange
2. Programs against money whose sources are not satisfactorily
laundering. Programs against money established;
laundering should be developed. These (5) Complex, unusual large
programs, should include, as a minimum: transactions, and all unusual patterns of
a. The development of internal transactions, which have no apparent or
policies, procedures and controls, visible lawful purpose;
including the designation of compliance (6) Funds being managed or held as
officers at management level, and deposit substitutes if there is reasonable
adequate screening procedures to ensure ground to believe that the same are proceeds
high standards when hiring employees; of criminal and other illegal activities; and
b. An ongoing employee training (7) Suspicious Transaction Indicators
program; and or “Red Flags” as a Guide in the
c. An audit function to test the system. Submission to the AMLC of Reports of
Suspicious Transactions Relating To
3. Submission of plans of action Potential or Actual Financing of Terrorism.
Covered institutions shall submit a plan of (a) Wire transfers between accounts,
action on how to comply with the without visible economic or business
requirements of App. S-6 nos. 1, 2 and 4 purpose, especially if the wire transfers are
within thirty (30) business days from 31 effected through countries which are
July 2000 or from opening of the identified or connected with terrorist
institution. activities.
1
Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex S-6-b)

APP. S-6
05.12.31
(b) Sources and/or beneficiaries of (o) Incongruities between apparent

wire transfers are citizens of countries sources and amount of funds raised or
which are identified or connected with moved by the NGO.
terrorist activities. (p) Any other transaction that is similar,
(c) Repetitive deposits or withdrawals identical or analogous to any of the
that cannot be explained or do not make foregoing.
sense. (8) All other suspicious transactions/
(d) Value of the transaction is over and activities which can be reported without
above what the client is capable of earning. violating any law.
(e) Client is conducting a transaction The report on suspicious transactions
that is out of the ordinary for his known shall provide the following minimum
business interest. information:
(f) Deposits being made by (a) Name or names of the parties
individuals who have no known involved.
connection or relation with the account (b) A brief description of the
holder. transaction or transactions.
(g) An individual receiving remittances, (c) Date or date the transaction(s)
but has no family members working in the occurred.
country from which the remittance is (d) Amount(s) involved in every
made. transaction.
(h) Client was reported and/or (e) Such other relevant information
mentioned in the news to be involved in which can be of help to the authorities
terrorist activities. should there be an investigation.
(i) Client is under investigation by law b. Exemption from Bank Secrecy
enforcement agencies for possible Law. When reporting covered transactions
involvement in terrorist activities. to the AMLC, covered institutions and their
(j) Transactions of individuals, officers, employees, representatives,
companies or non-governmental agents, advisors, consultants or associates
organizations (NGOs) that are affiliated or shall not be deemed to have violated R.A.
related to people suspected of being No. 1405, as amended; R.A. No. 6426, as
connected to a terrorist group or a group amended; R.A. No. 8791 and other similar
that advocates violent overthrow of a laws, but are prohibited from
government. communicating, directly or indirectly, in
(k) Transactions of individuals, any manner or by any means, to any person
companies or NGOs that are suspected as the fact that a covered transaction report
being used to pay or receive funds from was made, the contents thereof, or any
revolutionary taxes. other information in relation thereto. In
(l) The NGO does not appear to have case of violation thereof, the concerned
expenses normally related to relief or officer, employee, representative, agent,
humanitarian effort. advisor, consultant or associate of the
(m) The absence of contributions from covered institution, shall be criminally
donors located within the country of origin liable. However, no administrative,
of the NGO. criminal or civil proceedings, shall lie
(n) A mismatch between the pattern against any person for having made a
and size of financial transactions on the one covered transaction report in the regular
hand and the stated purpose and activity performance of his duties and in good faith,
of the NGO on the other. whether or not such reporting results in any

APP. S-6
05.12.31
criminal prosecution under R.A. No. 9160 concerned officer, employee,

or any other Philippine law. representative, agent, advisor, consultant
c. Prohibition from disclosure of the or associate of the covered institution, or
covered transaction report. When media shall be held criminally liable.
reporting covered transactions to the
AMLC, covered institutions and their 5. Certification of compliance with
officers, employees, representatives, anti-money laundering regulations.
agents, advisors, consultants or associates Covered institution shall submit annually
are prohibited from communicating, to the BSP thru the appropriate supervising
directly or indirectly, in any manner or by and examining department a certification
any means, to any person, entity, the (Annex S-6-a) signed by the President or
media, the fact that a covered transaction officer of equivalent rank and by their
report was made, the contents thereof, or Compliance Officer to the effect that they
any other information in relation thereto. have monitored compliance with existing
Neither may such reporting be published anti-money laundering regulations.
or aired in any manner or form by the mass The certification shall be submitted in
media, electronic mail, or other similar accordance with Appendix S-2 and shall
devices. In case of violation thereof, the be considered a Category A-2 report.

APP. S-6
05.12.31
Annex S-6-a
CERTIFICATION
hereby certify:
1. That we have monitored (Name of NSSLA)’s compliance with R.A. No. 9160 (Anti-
Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259
and 302;
2. That the NSSLA is complying with the required customer identification, documen-
tation of all new clients, and continued monitoring of customer’s activities;
3. That the NSSLA is also complying with the requirement to record all transactions
4. That the NSSLA does not maintain anonymous or fictitious accounts; and
5. That we conduct regular anti-money laundering training sessions for all NSSLA
________________________ _________________________
(Name of President or officer (Name of Compliance Officer)
of equivalent rank)
SUBSCRIBED AND SWORN to before me, _____ this ____ day of ____________,
affiant/s exhibiting to me their Residence Certificates as follows:

Page No. _________;
Book No. _________;
Series of 20___

APP. S-6
05.12.31
Annex S-6-b

SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS*
(Annex to Appendix S-6)
1. All covered institutions are required their respective transaction amounts, said
to file Suspicious Transaction Reports (STRs) covered institutions shall be required to file
on transactions involving all kinds of CTRs on its clients whose transactions
monetary instruments or property. exceed P500,000 and are included in the
2. Banks shall file covered transaction bulk transactions.
reports (CTRs) on transactions involving all 5. With respect to insurance
banks, shall file CTRs on transactions in exceeds P500,000, such amount shall be
cash or foreign currency or other monetary reported as a covered transaction, even if
instruments (other than checks) or the amounts of the amortizations are less
transactions in the stock exchange, only the be filed upon payment of the first premium
brokers-dealers shall be required to file amount, regardless of the mode of
transfer agents are exempt from filing CTRs. company shall file the CTR only once every
They, are however, required to file STRs year until the policy matures or rescinded,
when the transactions that pass through whichever comes first.
them are deemed to be suspicious. 6. The submission of CTRs is deferred
i.e., deposits of premium payments in bulk deferred and covered institutions are
or settlements of trade, and the bulk mandated to submit such STRs when the
*a. The Anti-Money Laundering Council (AMLC), in the exercise of its authority under Sections 7(1) and 9 of Republic Act No.
9160, otherwise known as the “Anti-Money Laundering Act of 2001”, as amended, and its Revised Implementing Rules and
Regulations, resolved to:
(1) Defer reporting by covered institutions to AMLC of the following “non-cash, no/low risk covered transactions:
· Transactions between banks and the BSP;
· Transactions between banks operating in the Philippines;
· Internal operating expenses of the banks;
· Transactions between banks and government agencies;
· Transactions involving transfer of funds from one deposit account to another deposit account of the same person within
the same bank;
· Roll-overs of placements of time deposits; and
· Loan interest/principal payment debited against borrower’s deposit account maintained with the lending bank.
(2) Request the BSP-supervised institutions, through the Association of Bank Compliance Officers (ABCOMP), to determine
and report to AMLC the specific transactions falling within the purview of the aforesaid BSP-identified categories on “non-cash,
no/low risk” covered transactions.
b. All covered institutions should:
(1) Submit corresponding electronic copy versions, in the required format, of those STRs previously submitted in hard copy
or the hard copy version of those submitted only in electronic form, as the case may be, retroactive to 05 January 2004; and
(2) Re-submit in required electronic form, those CTRs that have been submitted previously in hard copy or in diskette not
in the required format, retroactive to 23 March 2003.

APP. S-7
05.12.31


Pilipinas (BSP).
BSP.
the Philippines shall extend cooperation in those entities authorized to transact
transnational investigations and insurance business in the Philippines,
prosecutions of persons involved in money whether life or non-life and whether

APP. S-7
05.12.31

APP. S-7
05.12.31

security of which it is the issuer. of a regular business, issues or promulgates,
(g) A closed-end investment company analyzes reports concerning the capital
includes an investment company other than market, except:
and formally established plan, exclusively newspaper, news, business or
for the collective investment and financial publication of general and
reinvestment of certain money representing regular circulation, including their
participation in the plan received by it in its employees;
capacity as trustee, for the purpose of (d) any contract market;
administration, holding or management of (e) such other person not within the
such funds and/or properties for the use, intent of this definition, provided
benefit or advantage of the trustor or of that the furnishing of such service
others known as beneficiaries. by the foregoing persons is solely
(i) A pre-need company or issuer incidental to the conduct of their
includes any corporation supervised and/ business or profession.
or regulated by the SEC and is authorized (3) any person who undertakes the
or licensed to sell or offer for sale pre-need management of portfolio securities of investment
plans. Pre-need plans are contracts which companies, including the arrangement of
provide for the performance of future purchases, sales or exchanges of securities.
service(s) or payment of future monetary (l) A moneychanger includes any
consideration at the time of actual need, person in the business of buying or selling
payable either in cash or installment by the foreign currency notes.
planholder at prices stated in the contract with (m) A money payment, remittance and
or without interest or insurance coverage and transfer company includes any person
includes life, pension, education, internment offering to pay, remit or transfer or transmit
and other plans, which the Commission may, money on behalf of any person to another
from time to time, approve. person.
(j) A foreign exchange corporation (n) “Customer” refers to any person or
includes any enterprise which engages or entity that keeps an account, or otherwise
purports to engage, whether regularly or on transacts business, with a covered institution
an isolated basis, in the sale and purchase and any person or entity on whose behalf
of foreign currency notes and such other an account is maintained or a transaction is
foreign-currency denominated non-bank conducted, as well as the beneficiary of said
under its articles of incorporation. beneficiary of a trust, an investment fund, a
(k) Investment Advisor/Agent/ pension fund or a company or person
in the business of advising others, either any insurance policy holder, whether actual
directly or through circulars, reports, or prospective.

APP. S-7
05.12.31

Rule 3.b. Covered Transaction is a life or non-life, and contracts of suretyship;
amount in excess of Php500,000.00 within title thereto passes to another by
that is about to be, is being or has been Rule 3.g. Supervising Authority refers to
Rule 3.c. Monetary Instrument refers to: the authority to require and ask assistance

APP. S-7
05.12.31

APP. S-7
05.12.31

APP. S-7
05.12.31


APP. S-7
05.12.31

APP. S-7
05.12.31

APP. S-7
05.12.31


by the AMLC;

APP. S-7
05.12.31

APP. S-7
05.12.31

APP. S-7
05.12.31

RULE 9

APP. S-7
05.12.31


APP. S-7
05.12.31
required under the provisions of these Rule 9.2.c. Closed Accounts.- With respect

APP. S-7
05.12.31

APP. S-7
05.12.31
the issuance of a freeze order on any monetary instrument or property and
monetary instrument or property subject related web of accounts subject thereof.

APP. S-7
05.12.31

order; and
BANK DEPOSITS

APP. S-7
05.12.31

APP. S-7
05.12.31

APP. S-7
05.12.31

APP. S-7
05.12.31


APP. S-7
05.12.31
prescribed herein.

APP. S-7
05.12.31

RULE 17

APP. S-7
05.12.31


APP. S-7
05.12.31

APP. S-8
06.12.31

REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF NSSLAs
A. GENERAL REQUIREMENTS obligations which are normally available

Only external auditors included in the to other credit card holders and fully
list of BSP selected external auditors shall be secured auto loans and housing loans
engaged by banks, QBs, trust entities or which are not past due) with the bank, QB,
NSSLAs for regular audit or special trust entity or NSSLA, its subsidiaries and
engagements. The external auditor to be affiliates at the time of signing the
hired shall also be in-charge of the audit of engagement and during the engagement.
the entity’s subsidiaries and affiliates engaged In the case of partnership, this prohibition
in allied activities: Provided, That the external shall apply to the partners and the auditor-
auditor shall be changed or the lead and in-charge of the engagement;
concurring partner shall be rotated every five 3. The external auditor must not be
(5) years or earlier: Provided, further, That currently engaged nor was engaged during
the rotation of the lead and concurring partner the preceding year in providing the
shall have an interval of at least two (2) years. following services to the bank, QB, trust
Banks, QBs, trust entities or NSSLAs entity or NSSLA its subsidiaries and
which have engaged their respective affiliates:
external auditors for a consecutive period of a. Internal audit functions;
five (5) years or more as of 26 November b. Information systems design,
2003 (effectivity of Circular No. 410) shall implementation and assessment; and
have a one (1) year period from said date c. Such other services which could
within which to either change their external affect his independence as may be
auditors or rotate the lead and/or concurring determined by the Monetary Board;
partner. The following are the selection 4. The external auditor, auditor-in-
requirements for external auditors: charge and members of the audit team
to acquire any direct or indirect financial GAAS and the Code of Professional Ethics
interest in the bank, QB, trust entity or for CPAs;
NSSLA, its subsidiaries and affiliates, or if 5. The external auditor should have
his independence is considered impaired the following track record in conducting
under the circumstances specified in the external audits:
Code of Professional Ethics for CPAs. In a. The external auditor for a UB or KB
the case of a partnership, this limitation shall must have at least twenty (20) existing
apply to the partners, associates and the corporate clients with resources of at least
auditor-in-charge of the engagement and P50.0 million each and at least one (1)
members of their immediate family; existing client UB or KB in the regular audit
2. The external auditor and the or in lieu thereof, the external auditor or
members of the audit team do not have/ the auditor-in-charge of the engagement
shall not have outstanding loans or any must have at least five (5) years experience
credit accommodations (except credit card in the regular audit of UBs or KBs;

APP. S-8
06.12.31
b. The external auditor for a TB, QB, managing partner, in case of partnership
bank, trust entity and national Coop Bank and shall be submitted to the appropriate
must have at least ten (10) existing corporate department of the SES together with the
clients with resources of at least P25.0 million following documents/information:
each and at least one (1) existing client TB, 1. An undertaking:
QB, trust entity or national Coop Bank in the a. That the external auditor, partners,
regular audit or in lieu thereof, the external associates, auditor-in-charge of the
auditor or the auditor-in-charge of the engagement and the members of their
engagement must have at least five (5) years immediate family shall not acquire any
experience in the regular audit of TBs, QBs, direct or indirect financial interest with a
trust entities or national Coop Banks: bank, QB, trust entity, NSSLA, its
Provided, That an external auditor who has subsidiaries and affiliates. Neither shall
been selected by the BSP to audit a UB or the external auditor, partners, associates
KB is automatically qualified to audit a TB, and auditor-in-charge accept an audit
QB, trust entity or national Coop Bank; and engagement with a bank, QB, trust entity,
c. The external auditor for an RB or NSSLA, its subsidiaries and affiliates
local Coop Bank must have at least three where they or any member of their
(3) years track record in conducting external immediate family have any direct or
audit: Provided, That an external auditor indirect financial interest and that their
who has been selected by the BSP to audit independence is not considered impaired
a UB, KB, TB, QB, trust entity and national under the circumstances specified in the
Coop bank is automatically qualified to Code of Professional Ethics for CPAs;
audit an RB, local Coop Bank and NSSLA; b. That the external auditor, partners,
6. A bank, QB, trust entity or NSSLA associates, auditor-in-charge and
shall not engage the services of an external members of the audit team do not have
auditor whose partner or auditor-in-charge nor shall apply for loans or any credit
of audit engagement during the preceding accommodations (except normal credit
year had been hired or employed by the card obligations and fully secured auto
bank, QB, trust entity, NSSLA, its loans and housing loans) nor shall accept
subsidiaries and affiliates as chief executive an audit engagement with a bank, QB,
officer, chief financial officer, controller, chief trust entity, NSSLA, its subsidiaries and
accounting officer or any position of affiliates where they have outstanding
equivalent rank; and loans or any credit accommodations
available to the BSP upon request. Working QB, trust entity, NSSLA, its subsidiaries
papers shall include, but shall not be limited and affiliates where he was engaged
to, pre-audit analysis, audit scope and during the preceding year in providing the
detailed work program. following services:
1. Internal audit functions;
B. APPLICATION AND PRE-QUALIFICATION 2. Information systems design,
REQUIREMENTS implementation and assessment; and
The application for BSP selection shall 3. Such other services, which could
be signed by the external auditor or the affect his independence as may be

APP. S-8
06.12.31
determined by the Monetary Board from a TB, QB, trust entity, NSSLA, and national
time to time. Coop Bank, list of existing corporate clients
This requirement shall not, however, with resources of at least P25.0 million
affect audit engagement existing as of each; and list of existing clients and/or
26 November 2003 (effectivity of details of three (3) years track record in
Circular No. 410). external audit for external auditors of an RB,
d. That the external auditor and NSSLA and a local Coop Bank;
members of the audit team shall adhere to b. If the external auditor for a UB or
the highest standards of professional KB has no existing UB or KB client, and
conduct and shall carry out their services the external auditor for a TB, QB, trust entity
in accordance with relevant ethical and and national Coop Bank, has no existing
technical standards of the accounting client TB or national Coop Bank, a
profession; notarized certification that the external
e. That the lead or concurring partner auditor or the auditor-in-charge of the
and auditor-in-charge shall not accept engagement has at least five (5) years
employment with the bank,QB, trust entity, experience in the regular audit of banks of
NSSLA, its subsidiaries and affiliates being appropriate category mentioning the banks
audited during the engagement period and they have audited;
within a period of one (1) year after the c. Updated PRC license (for individual
audit engagement; auditors) and business license for the
f. That the external auditor shall not partnership;
accept an audit engagement with a bank, QB, d. Copy of the proposed engagement
trust entity, NSSLA, its subsidiaries and contract between the bank, QB, trust entity
affiliates where an officer (i.e., chief or NSSLA and the external auditor where
executive officer, chief financial officer, applicable; and
controller, chief accounting officer or other e. Certification from PRC that the
senior officer of equivalent rank) had been a external auditor, lead partner, concurring
partner of the external auditor or had worked partner, auditor-in-charge and members of
for the audit firm and had been the auditor- the audit team have no derogatory
in-charge of the audit engagement of said information, previous conviction or any
entities during the year immediately pending investigation. However, in the
preceding the engagement; event that the certification cannot be
g. That the external auditor shall keep obtained because of the pendency of a case,
all audit or review working papers for at least the BSP may dispense with this
five (5) years in sufficient detail to support requirement upon determination by the
the conclusions in the audit report; and Monetary Board that the case involves
h. That the audit work shall include purely legal question, or does not, in any
assessment of the audited institution’s way, negate the auditor’s adherence to the
compliance with BSP rules and regulations, highest standards of professional conduct
such as, but not limited to the following: nor degrade his integrity and objectivity.
1. CAR; and
2. Loans and other risk assets review C. REQUIRED REPORTS
and classification. 1. To enable the BSP to take timely
2. Other documents/information: and appropriate remedial action, the
a. List of existing corporate clients external auditor must report to the BSP
with resources of at least P50.0 million within thirty (30) calendar days after
each for external auditor of a UB or KB; for discovery, the following cases:

APP. S-8
06.12.31
a. Any material finding involving fraud D. DEFINITION OF TERMS

or dishonesty (including cases that were For purposes of these guidelines, the
resolved during the period of audit); and following terms shall be defined as
b. Any potential losses the aggregate follows:
of which amounts to at least one percent 1. Subsidiary. A corporation or firm
(1%) of the capital. more than fifty percent (50%) of the
2. The external auditor shall report outstanding voting stock of which is
directly to the BSP within fifteen (15) calendar directly or indirectly owned, controlled or
days the occurrence of the following: held with power to vote by a bank, QB,
a. Termination or resignation as trust entity or NSSLA.
external auditor and stating the reason 2. Affiliate. A corporation, not more
therefor; than fifty percent (50%) but not less than
b. Discovery of a material breach of ten percent (10%) of the outstanding voting
laws or BSP rules and regulations such as, stock of which is directly or indirectly
but not limited to: owned, controlled or held with power to
1. CAR; and vote by a bank, QB, trust entity, NSSLA
2. Loans and other risk assets review and a juridical person that is under
and classification. common control with the bank, QB, trust
c. Findings on matters of corporate entity or NSSLA.
governance that may require urgent action 3. Control. Exists when the parent
by the BSP; owns directly or indirectly more than one
3. In case there are no matters to half of the voting power of an enterprise
report (e.g., fraud, dishonesty, breach of unless, in exceptional circumstance, it can
laws, etc.) the external auditor shall submit be clearly demonstrated that such
directly to the BSP within fifteen (15) ownership does not constitute control.
calendar days after the closing of the audit Control may also exist even when
engagement a notarized certification that ownership is one half or less of the voting
there is none to report. power of an enterprise when there is:
The management of the bank, QB, a. Power over more than one-half of
trust entity, NSSLA, its subsidiaries and the voting rights by virtue of an agreement
affiliates shall be informed of the adverse with other stockholders;
findings and the external auditor’s report b. Power to govern the financial and
to the BSP shall include its explanation and/ operating policies of the enterprise under
or corrective action. a statute or an agreement;
The management of the bank, QB, c. Power to appoint or remove the
trust entity, NSSLA, its subsidiaries and majority of the members of the board of
affiliates shall be given the opportunity to directors or equivalent governing body;
be present in the discussions between the d. Power to cast the majority votes at
BSP and the external auditor regarding the meetings of the board of directors or
audit findings, except in circumstances equivalent governing body; or
where the external auditor believes that e. Any other arrangement similar to
the entity’s management is involved in any of the above.
fraudulent conduct. 4. Associate. Any director, officer,
It is, however, understood that the manager or any person occupying a similar
accountability of an external auditor is based status or performing similar functions in the
on matters within the normal coverage of an audit firm including employees performing
audit conducted in accordance with GAAS. supervisory role in the auditing process.

APP. S-8
06.12.31
5. Partner. All partners including G. AUDIT ENGAGEMENT CONTRACT

those not performing audit Banks, QBs, trust entities, and
engagements. NSSLAs, shall submit the audit
6. Lead Partner. Also referred to as engagement contract between them, their
the engagement partner/partner-in- subsidiaries and affiliates and the external
charge/managing partner who is auditor to the appropriate department of
responsible for signing the audit report on the SES within fifteen (15) calendar days
the consolidated financial statements of from signing thereof. Said contract shall
the audit client, and where relevant, the include the following provisions:
list of BSP-selected external auditors 3. That both parties shall comply with
shall apply to the audit firm only and all of the requirements under these
not to the individual signing partners or guidelines.
auditors under its employment. The BSP
will circularize to all banks, QBs, trust H. DELISTING OF EXTERNAL
entities and NSSLAs the list of selected AUDITORS
external auditors once a year. The BSP, 1. Grounds for delisting
however, shall not be liable for any External auditors may be delisted from
damage or loss that may arise from its the list of BSP-selected external auditor for
selection of the external auditors to be the bank, QB, trust entity or NSSLA for
engaged by banks, QBs, trust entities, or violation of, or non-compliance with any
NSSLAs, for regular audit or special provision of these guidelines or in case of
engagements. dissolution of the audit firm except when
said dissolution was solely for the purpose
F. SPECIFIC REVIEW of admitting new partner/s and the new
When warranted by supervisory partner/s have complied with the
concern, the Monetary Board may, at the requirements of these guidelines.
expense of the bank, QB, trust entity, 2. Procedure for delisting
NSSLA, its subsidiaries and affiliates An external auditor shall only be
require the external auditor to undertake delisted upon prior notice to him and after
a specific review of a particular aspect of giving him the opportunity to be heard and
the operations of these institutions. The defend himself by presenting witnesses/
report shall be submitted to the BSP and evidence in his favor. Delisted external
the audited institution simultaneously, auditor may re-apply for BSP selection after
within thirty (30) calendar days after the the period prescribed by the Monetary
conclusion of said review. Board.

APP. S-8
06.12.31
I. AUDIT BY THE BOARD OF created by the board, an annual balance

DIRECTORS sheet audit of the bank, QB, trust entity
Pursuant to Section 58 of R.A. No. or NSSLA to review the internal audit and
8791, otherwise known as “The General the internal control system of the
Banking Law of 2000” the Monetary Board concerned entity and to submit a report
may also direct the board of directors of a of such audit to the Monetary Board within
bank, QB, trust entity, NSSLA or the thirty (30) calendar days after the
individual members thereof, to conduct, conclusion thereof.
either personally or by a committee (As amended by Circular No. 529 dated 11 May 2006)

P REGULATIONS
(Regulations Governing Pawnshops)
TABLE OF CONTENTS
SECTION 4101P Scope of Authority of Pawnshops

4101P.1 Form of organization
4101P.2 Organizational requirements
4101P.3 Prior Bangko Sentral licensing to perform quasi-
banking functions
4101P.4 Posting of BSP Certificate and Authority to
Operate
SECTION 4102P Definition of Terms
SECTIONS 4103P - 4105P (Reserved)
B. CAPITALIZATION
SECTION 4106P Capital of Pawnshops
C. - F. (RESERVED)
G. DIRECTORS/TRUSTEES, OFFICERS AND EMPLOYEES
SECTION 4141P Bonding of Officers and Employees
SECTION 4142P (Reserved)
i
SECTION 4143P Disqualification of Directors/Trustees and Officers
4143P.1 Persons disqualified to become directors/trustees
4143P.2 Persons disqualified to become officers
4143P.3 Disqualification procedures
4143P.4 Effect of possession of disqualifications
4143P.5 (Reserved)
4143P.6 Watchlisting
SECTION 4151P Establishment of Branches

4151P.1 Definition of term
4151P.2 Operations and functions
4151P.3 Basis for establishment
4151P.4 Capital requirement
4151P.5 Documentary requirements
4151P.6 Date of opening for business
I. BUSINESS DAYS AND HOURS
SECTION 4156P Business Days and Hours
J. RECORDS AND REPORTS
SECTION 4161P Records

4161P.1 Uniform system of accounts
4161P.2 Philippine Financial Reporting Standards/
SECTION 4162P Reports

4162P.1 Categories of and signatories to reports
4162P.2 Manner of filing
4162P.3 Sanctions
ii
K. INTERNAL CONTROL
SECTION 4171P Safekeeping of Pawns and Records and Insurance of Office

Building
SECTION 4172P Separation of Pawnshop Business from Other Businesses
SECTION 4181P Business Name
SECTION 4182P Closing or Transfer of Business
SECTION 4190P Duties and Responsibilities of Pawnshops and their Directors/

Officers in All Cases of Outsourcing of Pawnshop Functions
SECTION 4192P Prompt Corrective Action Framework
SECTION 4193P Supervision by Risks
SECTION 4194P Market Risk Management
SECTION 4195P Liquidity Risk Management
SECTION 4199P General Provision on Sanctions
PART TWO - BORROWING OPERATIONS
A. - J. (RESERVED)
K. OTHER BORROWINGS
SECTION 4286P Borrowings Constituting Quasi-Banking Functions
iii
PART THREE - LOANS AND INVESTMENTS
A. LOANS IN GENERAL
SECTION 4301P Loan Limits
SECTION 4302P Interest and Other Charges
SECTION 4303P Past Due Accounts; Renewal/Redemption of Pawns
SECTION 4305P Interest Accrual on Past Due Loans
B. SECURED LOANS
SECTION 4321P Kinds of Security
SECTION 4322P Pawn Ticket

4322P.1 Contents of pawn ticket
4322P.2 Sanctions
SECTION 4323P Reminder to Pawner; Notice to the Public
SECTION 4324P Public Auction of Pawns
C. - J. (RESERVED)
SECTIONS 4336P- 4395P (Reserved)
K. MISCELLANEOUS
iv
PART FOUR (RESERVED)
PART FIVE (RESERVED)
A. OTHER OPERATIONS
SECTION 4601P Fines and Other Charges

4601P.1 Guidelines on the imposition of monetary
penalties
SECTION 4651P Supervisory Powers of the Bangko Sentral
SECTION 4652P Basic Law Governing Pawnshops
SECTION 4653P Accounting for Pawnshop Premises; Other Fixed Assets
SECTION 4657P Batas Pambansa Blg. 344 - An Act to Enhance the Mobility of
Disabled Persons by Requiring Certain Buildings, Institutions,
Establishments and Public Utilities to Install Facilities and Other
Devices
SECTION 4660P Disclosure of Remittance Charges and Other Relevant

Information
v
SECTION 4691P Anti-Money Laundering Regulations
4691P.1 - 4691P.8 (Reserved)
4691P.9 Sanctions and penalties
SECTION 4695P Valid Identification (ID) Cards for Financial Transactions
SECTION 4699P Administrative Sanctions
vi
List of Appendices
08.12.31
LIST OF APPENDICES
No. SUBJECT MATTER
P-1 Chart of Accounts and Description of Loan Register of Pawnshops
P-2 List of Reports Required from Pawnshops

Annex P-2-a - Reporting Guidelines on Crimes/Losses
P-3 Guidelines on Prescribed Reports Signatories and Signatory Authorization

Annex P-3-a - Format of Resolution for Signatories of Category A-1
Reports
Annex P-3-b - Format of Resolution for Signatories of Category A-2
Reports
Annex P-3-c - Format of Resolution for Signatories of Categies A-3
and B Reports
P-4 Standard Pawn Ticket
P-4-a Terms and Conditions of Standard Pawn Ticket
P-5 Anti-Money Laundering Regulations

Annex P-5-a - Certification of Compliance with Anti-Money
Annex P-5-b - Rules on Submission of Covered Transaction Reports
Institutions
P-6 Revised Implementing Rules and Regulations R.A. No. 9160, as

Manual of Regulations for Non-Bank Financial Institutions P Regulations

§§ 4101P - 4101P.2
08.12.31
PART ONE
A. SCOPE OF AUTHORITY percent (70%) of the members entitled to

vote shall be citizens of the Philippines.
Section 4101P Scope of Authority of Pawnshops registered as a corporation
Pawnshops. A duly organized and licensed with foreign equity participation in excess of
pawnshop has, in general, the power to thirty percent (30%) of the voting stock, or
engage in the business of lending money members entitled to vote, of the pawnshop
on the security of personal property within may retain the percentage of foreign equity
the framework and limitations of P.D. No. as of 29 January 1973, and said percentage
114 and the following regulations, subject shall not be increased, but may be reduced
to the regulatory and supervisory powers and once reduced, shall not be increased
of the Bangko Sentral ng Pilipinas (BSP). thereafter beyond thirty percent (30%) of the
voting stock, or number of members entitled
§ 4101P.1 Form of organization. A to vote, of such pawnshop.
pawnshop may be established as a single The percentage of foreign-owned
proprietorship, a partnership or voting stock in a pawnshop corporation
corporation. shall be determined by the citizenship of
Only Filipino citizens may establish its individual stockholders. If the voting
and own a pawnshop organized as a single stock in a pawnshop corporation is held by
proprietorship. A pawnshop established another corporation, the percentage of
as a single proprietorship by a non-Filipino foreign ownership in that pawnshop, shall
owner prior to 29 January 1973 may be computed on the basis of the foreign
continue as such during the lifetime of the citizenship of the individuals owning
registered owner. voting stocks in, or members entitled to
If a pawnshop is organized as a vote of, the stockholder corporation.
partnership, at least seventy percent (70%)
of its capital shall be owned by Filipino § 4101P.2 Organizational requirements1
citizens. Pawnshops established as Any person or entity desiring to establish
partnerships prior to 29 January 1973, with a pawnshop shall register with the Bureau
non-Filipino partners whose aggregate of Trade Regulation and Consumer
holdings amount to more than thirty percent Protection (BTRCP), in the case of a single
(30%) of the capital may retain the proprietorship, or with the Securities and
percentage of their aggregate holdings as of Exchange Commission (SEC), in the case
29 January 1973, and said percentage shall of a partnership/corporation.
not be increased, but may be reduced, and Pawnshops with foreign equity
once reduced shall not be increased participation shall also register with the
thereafter beyond thirty percent (30%) of the Board of Investments.
capital stock of such pawnshop. After registering with the BTRCP or
In the case of a pawnshop organized with the SEC, the single proprietorship or
as a corporation, at least seventy percent the partnership/corporation, as the case
(70%) of the voting stock therein shall be may be, shall secure a business license
owned by citizens of the Philippines, or if from the city or municipality where the
there be no capital stock, at least seventy pawnshop is to be established and operated,
1
See SEC Circular No. 3 dated 16 February 2006.

Part I - Page 1
§§ 4101P.2 - 4101P.3
08.12.31
in accordance with the requirements of the (c) participations;

pertinent ordinance in that city or (d) certificates of assignment or
municipality. similar instruments with recourse;
The following documents shall be filed with (e) trust certificates;
the BTRCP, the SEC and/or the BSP in (f) repurchase agreements; and
accordance with the forms prescribed by them: (g) such other instruments as the
a. Application under oath (BTRCP) form; Monetary Board may determine; and
b. Articles of Partnership/Incorporation (4) Purpose:
(for partnerships and/or corporations); (a) relending, or
c. List of partners/stockholders/ (b) purchasing receivables or other
directors/officers; obligations.
d. Personal data sheet of owners/ As used in the definition of quasi-
partners/incorporators/directors/officers; banking functions, the following terms and
e. Projected financial statements phrases shall be understood as follows:
covering the first twelve (12) months of Borrowing shall refer to all forms of
operations; obtaining or raising funds through any of
f. Certificate of incorporation or the methods and for any of the purposes
registration with SEC or BTRCP; provided in (3) and (4) above, whether the
g. City/municipal license; and borrower’s liability thereby is treated as
h. Such other documents as may be real or contingent.
required by the BTRCP, the SEC, or the BSP. For the borrower’s own account shall
Before commencing actual business refer to the assumption of liability in one’s
operations, the single proprietorship, own capacity and not in representation, or
partnership or corporation shall file with as an agent or trustee, of another.
the BSP an information sheet signed by the Purchasing of receivables or other
proprietor, managing partner or president obligations shall refer to the acquisition of
under oath. claims collectible in money, including
(As amended by CL-2008-078 dated 15 December 2008) interbank borrowings or borrowings
between financial institutions, or of
§ 4101P.3 Prior Bangko Sentral securities, of any amount and maturity, from
licensing to perform quasi-banking domestic or foreign sources.
functions. Pawnshops desiring to engage Relending shall refer to the extension of
in quasi-banking functions shall first obtain loans by an institution with antecedent
a Certificate of Authority from the BSP borrowing transactions. Relending shall be
pursuant to BSP regulations. presumed in the absence of express
a. Definition of quasi-banking stipulation, when the institution is regularly
functions. Quasi-banking functions consist engaged in lending.
of the following: Regularly engaged in lending shall refer
(1) Borrowing funds for the borrower’s to the practice of extending loans, advances,
own account; discounts or rediscounts as a matter of
(2) Twenty (20) or more lenders at any business, i.e., continuous or consistent
one time; lending as distinguished from isolated
(3) Methods of borrowing: issuance, lending transactions.
endorsement, or acceptance of debt instruments b. Guidelines on lender count. The
of any kind, other than deposits, such as: following guidelines shall govern lender
(a) acceptances; count on borrowings or funds mobilized
(b) promissory notes; by pawnshops:
P Regulations Manual of Regulations for Non-Bank Financial Institutions

Part I - Page 2
§§ 4101P.3 - 4101P.4
08.12.31
(1) For purposes of ascertaining the (5) Each buyer, assignee, and/or
number of lenders/placers to determine indorsee shall be counted in determining
whether or not a pawnshop is engaged in the number of lenders/placers of funds
quasi-banking functions, the names of mobilized through sale, assignment, and/
payees on the face of each debt instrument or endorsement of securities or receivables
shall serve as the primary basis for counting on a without recourse basis whenever the
the lenders/placers except when proof to terms and/or attendant documentation,
the contrary is adduced such as the official practice, or circumstances indicate that the
receipts or documents other than the debt sale, assignment, and/or endorsement
instrument itself. In such case the actual/ thereof legally obligates the pawnshop to
real lenders/placers as appearing in such repurchase or reacquire the securities/
proof, shall be the basis for counting the receivables sold, assigned, endorsed or to
number of lenders/placers. pay the buyer, assignee, or indorsee at
In a debt instrument issued to two (2) or some subsequent time.
more named payees under an and/or and or (6) Funds obtained by way of advances
arrangement, the number of payees from stockholders, directors/trustees or
appearing on the instrument shall be the basis officers, regardless of nature, shall be
for counting the number of lenders/placers: considered borrowed funds or funds
Provided, however, That a debt instrument mobilized and such stockholders, directors/
issued in the name of a husband and wife trustees or officers shall be counted in
followed by the word spouses, whether determining the number of lenders/placers.
under an and, and/or, or or arrangement or
in the name of a designated payee under an § 4101P.4 Posting of BSP Certificate
in trust for (ITF) arrangement shall be counted and Authority to Operate1. Pawnshops
as one (1) borrowing/placement. shall permanently display the original copy
(2) Each debt instrument payable to of the Certificate of Registration (COR) or
bearer, shall be counted as one (1) lender/ Authority to Operate (AO) issued by the
placer, except when the pawnshop can BSP to their head office or branch,
prove that there is only one owner for respectively, in a conspicuous place in their
several debt instruments so payable. premises, preferably at the window or door
(3) Two (2) or more debt instruments that is clearly visible to the general public.
issued to the same payee, irrespective of Failure to display the original copy of
the date and amount, shall be counted as the COR or AO shall be deemed a
one (1) borrowing or placement. violation subject to a penalty of one
(4) Debt instruments underwritten by thousand pesos (P1,000.00) each for the first
investment houses or traded by securities three (3) offenses.
dealers/brokers whether on a firm, standby For subsequent violation, automatic
or best-efforts basis shall be counted on the cancellation of the COR or AO issued to
basis of the number of purchasers thereof the pawnshop head office or branch, as the
and shall not be treated as having been case may be, and issuance of a letter to
issued solely to the underwriter or trader: the city or municipality concerned advising
Provided, however, That in case of unsold them of the cancellation of the COR/AO
debt instruments in a firm commitment and recommending the revocation of their
underwriting, the underwriter shall be business/mayor’s permit(s). It is understood
counted as a lender. that if the COR of the head office is
1
Posting of BSP Certificate and Authority to Operate shall be effective starting 28 February 2009.

Part I - Page 3
§§ 4101P.4 - 4141P
08.12.31
cancelled, the AO of the branch(es) is/are Secs. 4103P - 4105P (Reserved)

likewise cancelled.
(M- 2008-003 dated 22 January 2008) B. CAPITALIZATION
Sec. 4102P Definition of Terms Sec. 4106P Capital of Pawnshops

a. Pawnshop shall refer to a person or Pawnshops shall have a minimum paid-in
entity engaged in the business of lending capital of P100,000.
money on personal property delivered as Paid-in capital shall mean cash and
security for loans. The term shall be other properties, including real estate and
synonymous, and may be used improvements thereon: Provided, That
interchangeably, with pawnbroker or such properties are necessary for the
pawnbrokerage. conduct of the pawnshop business.
b. Pawner shall refer to the borrower Properties forming part of capital in
from a pawnshop. accordance with the preceding paragraph
c. Pawnee shall refer to the may be valued at acquisition cost less
pawnshop or pawnbroker. depreciation or at any other value not
d. Pawn is the personal property exceeding the appraised value as fixed
delivered by the pawner to the pawnee as by an independent appraiser, at the
security for a loan. option of the contributor, partner or
e. Pawn ticket is the pawnbroker’s proprietor.
receipt for a pawn. The value of properties forming part of
f. Property shall include only such capital in accordance with the immediately
personal property as may actually be preceding two paragraphs shall not exceed
delivered to the control and possession of twenty-five percent (25%) of paid-in capital
the pawnee. and surplus: Provided, however, That for
g. Voting stock is that portion of the pawnshops existing as at 29 January 1973
authorized capital which is subscribed and whose value of properties exceeds the
entitled to vote. prescribed ratio, such percentage may be
h. Vital records shall consist of the retained or reduced but shall not be
Loans Extended/Paid Registers, General increased thereafter. Should the ratio, on
Ledger/Journal covering the current and at the other hand, fall below the prescribed
least the preceding two (2) years of level, it may be increased but not beyond
operations, unused accountable forms and twenty-five percent (25%).
permanent pawnshop records, e.g., articles
of incorporation/co-partnership, stock Secs. 4107P - 4110P (Reserved)
certificates, etc.
i. Bulky pawns shall refer to C. - F. (RESERVED)
household appliances, office machines and
the like, which occupy considerable Secs. 4111P - 4140P (Reserved)
amount of space, i.e., measuring at least
1.5 x 1.5 x 0.5 feet. G. DIRECTORS/TRUSTEES, OFFICERS
j. Premises shall refer to the area AND EMPLOYEES
where the pawnshop conducts its business
and maintains office. It includes office or Sec. 4141P Bonding of Officers and
storage spaces maintained and/or used by Employees. Accountable officers and
the pawnshop which are adjacent to the employees, especially those who have
pawnshop’s location. access to pawned articles, of pawnshops

Part I - Page 4
§§ 4141P - 4143P.1
07.12.31
shall be required to post bonds of reputable trustees, the following are disqualified from
companies accredited by the Insurance becoming directors/trustees of pawnshops:
Commissioner. a. Permanently disqualified
Directors/trustees/officers/employees
Sec. 4142P (Reserved) permanently disqualified by the Monetary
Board from holding a director/trustee
Sec. 4143P Disqualification of Directors/ position:
Trustees and Officers. The following (1) Persons who have been convicted
regulations shall govern the disqualification by final judgment of the court for offenses
of pawnshop directors/trustees and officers. involving dishonesty or breach of trust such
as estafa, embezzlement, extortion,
§ 4143P.1 Persons disqualified to forgery, malversation, swindling and theft;
become directors/trustees. Without (2) Persons who have been convicted
prejudice to specific provisions of law by final judgment of the court for violation
prescribing disqualifications for directors/ of banking laws;
(Next Page is Part I - Page 5)

Part I - Page 4a
§ 4143P.1
07.12.31
(3) Persons who have been judicially of others or where he/she acts as a guarantor,
declared insolvent, spendthrift or endorser or surety for loans from such FIs;
incapacitated to contract; or (ii) The spouse or child under the
(4) Directors/trustees, officers or parental authority of the director/trustee or
employees of closed institutions under the officer;
supervisory and regulatory powers of the (iii) Any person whose borrowings or
BSP who were responsible for such loan proceeds were credited to the account
institutions’ closure as determined by the of, or used for the benefit of a director/
Monetary Board. trustee or officer;
b. Temporarily disqualified (iv) A partnership of which a director/
Directors/trustees/officers/employees trustee or officer, or his/her spouse is the
disqualified by the Monetary Board from managing partner or a general partner
holding a director/trustee position for a owning a controlling interest in the
specific/indefinite period of time. Included partnership; and
are: (v) A corporation, association or firm
(1) Persons who refuse to fully wholly-owned or majority of the capital of
disclose the extent of their business which is owned by any or a group of
interest to the appropriate department of persons mentioned in the foregoing Items
the SES when required pursuant to a “(i)”, “(ii)” and “(iv)”;
provision of law or of a circular, This disqualification shall be in effect
memorandum or rule or regulation of the as long as the delinquency persists.
BSP. This disqualification shall be in effect (4) Persons convicted for offenses
as long as the refusal persists; involving dishonesty, breach of trust or
(2) Directors/trustees who have been violation of banking laws but whose
absent or who have not participated for conviction has not yet become final and
whatever reasons in more than fifty percent executory;
(50%) of all meetings, both regular and (5) Directors/trustees and officers of
special, of the board of directors/trustees closed institutions under the supervisory
during their incumbency, or any twelve and regulatory powers of the BSP pending
(12)-month period during said their clearance by the Monetary Board;
incumbency. This disqualification applies (6) Directors/trustees disqualified for
for purposes of the succeeding election; failure to observe/discharge their duties
(3) Persons who are delinquent in the and responsibilities prescribed under
payment of their obligations as defined existing regulations. This disqualification
hereunder: applies until the lapse of the specific period
(a) Delinquency in the payment of of disqualification or upon approval by the
obligations means that an obligation of a Monetary Board on recommendation by
person with the institution where he/she the appropriate department of the SES of
is a director/trustee or officer, or at least such directors’/trustees' election/reelection;
two (2) obligations with other FIs, under (7) Persons dismissed from
different credit lines or loan contracts, are employment for cause. This disqualification
past due pursuant to Secs. X306, 4308Q, shall be in effect until they have cleared
4306S and 4303P; themselves of involvement in the alleged
(b) Obligations shall include all irregularity or upon clearance, on their
borrowings from any FI obtained by: request, from the Monetary Board after
(i) A director/trustee or officer for his showing good and justifiable reasons, or
own account or as the representative or agent after the lapse of five (5) years from the

Part I - Page 5
§§ 4143P.1 - 4143P.3
07.12.31
time they were officially advised by the responsible for determining the existence
appropriate department of the SES of their of the ground for disqualification of the
disqualification; institution’s director/trustee/officer or
(8) Those under preventive employee and for reporting the same to
suspension; and the BSP. While the concerned institution
(9) Persons with derogatory records may conduct its own investigation and
with the NBI, court, police, Interpol and impose appropriate sanction/s as are
monetary authority (central bank) of other allowable, this shall be without prejudice
countries (for foreign directors/trustees and to the authority of the Monetary Board to
officers) involving violation of any law, rule disqualify a director/trustee/officer/employee
or regulation of the Government or any of from being elected/appointed as director/
its instrumentalities adversely affecting the trustee/officer in any FI under the supervision
integrity and/or ability to discharge the of the BSP. Grounds for disqualification made
duties of a director/trustee/officer. This known to the institution shall be reported
disqualification applies until they have to the appropriate department of the SES
cleared themselves of involvement in the of the BSP within seventy-two (72) hours
alleged irregularity. from knowledge thereof.
(As amended by Circular No. 584 dated 28 September 2007) b. On the basis of knowledge and
evidence on the existence of any of the
§ 4143P.2 Persons disqualified to grounds for disqualification mentioned in
become officers Subsecs. 4143P.1 and 4143P.2, the director/
a. The disqualifications for directors/ trustee or officer concerned shall be notified
trustees mentioned in Subsec. 4143P.1 in writing either by personal service or
shall likewise apply to officers, except through registered mail with registry return
those stated in Item “b(2)”. receipt card at his/her last known address
b. Except as may be authorized by the by the appropriate department of the SES
Monetary Board or the Governor, the of the existence of the ground for his/her
spouse or a relative within the second disqualification and shall be allowed to
degree of consanguinity or affinity of any submit within fifteen (15) calendar days
person holding the position of chairman, from receipt of such notice an explanation
president, executive vice president or any on why he/she should not be disqualified
position of equivalent rank, general and included in the watchlisted file,
manager, treasurer, chief cashier or chief together with the evidence in support of his/
accountant is disqualified from holding or her position. The head of said department
being elected or appointed to any of said may allow an extension on meritorious
positions in the same pawnshop and the ground.
spouse or relative within the second degree c. Upon receipt of the reply/
of consanguinity or affinity of any person explanation of the director/trustee/officer
holding the position of manager, cashier, concerned, the appropriate department of
or accountant of a branch or office of a the SES shall proceed to evaluate the case.
pawnshop is disqualified from holding or The director/trustee/officer concerned shall
being appointed to any of said positions in be afforded the opportunity to defend/clear
the same branch or office. himself/herself.
d. If no reply has been received from
§ 4143P.3 Disqualification procedures the director/trustee/officer concerned upon
a. The board of directors/trustees and the expiration of the period prescribed
management of every institution shall be under Item “b” above, said failure to reply

Part I - Page 6
§ 4143P.3
07.12.31
shall be deemed a waiver and the her inclusion in the masterlist of

appropriate department of the SES shall permanently disqualified persons.
proceed to evaluate the case based on g. If the disqualification is based on
available records/evidence. dismissal from employment for cause, the
e. If the ground for disqualification is appropriate department of the SES shall,
delinquency in the payment of obligation, as much as practicable, endeavor to
the concerned director/trustee or officer shall establish the specific acts or omissions
be given a period of thirty (30) calendar days constituting the offense or the ultimate facts
within which to settle said obligation or, which resulted in the dismissal to be able
restore it to its current status or, to explain to determine if the disqualification of the
why he/she should not be disqualified and director/trustee/officer concerned is
included in the watchlisted file, before the warranted or not. The evaluation of the
evaluation on his disqualification and case shall be made for the purpose of
watchlisting is elevated to the Monetary Board. determining if disqualification would be
f. For directors/trustees/officers of appropriate and not for the purpose of
closed banks, the concerned department passing judgment on the findings and
of the SES shall make appropriate decision of the entity concerned. The
recommendation to the Monetary Board appropriate department of the SES may
clearing said directors/trustees/officers decide to recommend to the Monetary
when there is no pending case/complaint Board a penalty lower than disqualification
or evidence against them. When there is (e.g., reprimand, suspension, etc.) if, in its
evidence that a director/trustees/officer has judgment the act committed or omitted by
committed irregularity, the appropriate the director/trustees/officer concerned does
department of the SES shall make not warrant disqualification.
recommendation to the Monetary Board h. All other cases of disqualification,
that his/her case be referred to the OSI for whether permanent or temporary shall be
further investigation and that he/she be elevated to the Monetary Board for approval
included in the masterlist of temporarily and shall be subject to the procedures
disqualified persons until the final provided in Items “a”, “b”, “c” and “d” above.
resolution of his/her case. Directors/ i. Upon approval by the Monetary
trustees/officers with pending cases/ Board, the concerned director/trustees/
complaints shall also be included in said officer shall be informed by the appropriate
masterlist of temporarily disqualified department of the SES in writing either by
persons upon approval by the Monetary personal service or through registered mail
Board until the final resolution of their with registry return receipt card, at his/her
cases. If the director/trustees/officer is last known address of his/her
cleared from involvement in any disqualification from being elected/
irregularity, the appropriate department appointed as director/trustee/officer in any
of the SES shall recommend to the FI under the supervision of BSP and/or of
Monetary Board his/her delisting. On the his/her inclusion in the master list of
other hand, if the director/trustee/officer watchlisted persons so disqualified.
concerned is found to be responsible for j. The board of directors/trustees of
the closure of the institution, the the concerned institution shall be
concerned department of the SES shall immediately informed of cases of
recommend to the Monetary Board his/ disqualification approved by the Monetary
her delisting from the masterlist of Board and shall be directed to act thereon
temporarily disqualified persons and his/ not later than the following board meeting.

Part I - Page 7
§§ 4143P.3 - 4143P.6
07.12.31
Within seventy-two (72) hours thereafter, the directors/trustees/officers under the

corporate secretary shall report to the following procedures:
Governor of the BSP through the appropriate a. Watchlist categories. Watchlisting
department of the SES the action taken by shall be categorized as follows:
the board on the director/trustee/officer (1) Disqualification File “A”
involved. (Permanent) – Directors/trustees/officers/
k. Persons who are elected or employees permanently disqualified by
appointed as director/trustees or officer in the Monetary Board from holding a director/
any of the BSP-supervised institutions for trustee/officer position.
the first time but are subject to any of the (2) Disqualification File “B”
grounds for disqualification provided for (Temporary) – Directors/trustees/officers/
under Subsecs. 4143P.1 and 4143P.2 shall employees temporarily disqualified by the
be afforded the procedural due process Monetary Board from holding a director/
prescribed above. trustee/officer position.
l. Whenever a director/trustee/officer b. Inclusion of directors/trustees/
is cleared in the process mentioned under officers/employees in the watchlist. Upon
Item “c” above or, when the ground for recommendation by the appropriate
disqualification ceases to exist, he/she department of the SES, the inclusion of
would be eligible to become director/trustees directors/trustees/officers/employees in
or officer of any bank, QB, trust entity or any watchlist disqualification files “A” and “B” on
institution under the supervision of the BSP the basis of decisions, actions or reports of
only upon prior approval by the Monetary the courts, institutions under the supervisory
Board. It shall be the responsibility of the and regulatory powers of the BSP,NBI or
appropriate department of the SES to other administrative agencies shall first be
elevate to the Monetary Board the lifting approved by the Monetary Board.
of the disqualification of the concerned c. Notification of directors/trustees/
director/trustee/officer and his/her delisting officers/employees. Upon approval by the
from the masterlist of watchlisted persons. Monetary Board, the concerned director/
(As amended by Circular No. 584 dated 28 September 2007) trustee/officer/employee shall be informed
through registered mail, with registry
§ 4143P.4 Effect of possession of return receipt card, at his last known
disqualifications. Directors/trustees/ address of his inclusion in the masterlist
officers elected or appointed possessing of watchlisted persons disqualified to be a
any of the disqualifications as enumerated director/trustee/officer in any institution
herein, shall vacate their respective under the supervisory and regulatory
positions immediately. powers of the BSP.
d. Confidentiality. Watchlisting shall
§ 4143P.5 (Reserved) be for internal use only and may not be
accessed or queried upon by outside
§ 4143P.6 Watchlisting. To provide parties including such institutions under
the BSP with a central information file to the supervisory and regulatory powers of
be used as reference in passing upon and the BSP, except with the authority of the
reviewing the qualifications of persons person concerned and with the approval
elected or appointed as directors/trustee or of the Deputy Governor, SES, the
officer of an institution under the supervisory Governor, or the Monetary Board.
and regulatory powers of the BSP, the SES The BSP will disclose information on
shall maintain a watchlist of disqualified its watchlist files only upon submission of

Part I - Page 8
§§ 4143P.6 - 4151P.3
07.12.31
a duly accomplished and notarized with any institution under the supervisory
authorization from the concerned person and regulatory powers of the BSP.
and approval of such request by the Deputy (As amended by CL-2007-001 dated 04 January 2007 and
Governor, SES or the Governor or the CL-2006-046 dated 21 December 2006)
Monetary Board. The prescribed
authorization form to be submitted to the Secs. 4144P - 4150P (Reserved)
concerned department of the SES is in
Appendix Q-45. H. BRANCHES AND OTHER OFFICES
Pawnshops can gain access to
information in the said watchlist for the sole Sec. 4151P Establishment of Branches
purpose of screening their applicants for No pawnshop shall open, maintain or
hiring and/or confirming their elected operate a branch office without first
directors/trustees and appointed officers. applying for and obtaining from the BSP,
Pawnshops must obtain the said through the appropriate department of the
authorization on an individual basis. SES, authority to operate such branch
e. Delisting. All delistings shall be which shall be processed in accordance
approved by the Monetary Board upon with the following guidelines.
recommendation of the appropriate
department of the SES except in cases of § 4151P.1 Definition of term. As
persons known to be dead where delisting used in these rules the term branch office
shall be automatic upon proof of death and shall include any place of business
need not be elevated to the Monetary outside the main office of a pawnshop,
Board. Delisting may be approved by the where pawnshop operations or
Monetary Board in the following cases: transactions or any phase thereof are
(1) Watchlist - Disqualification File conducted by said pawnshop under the
“B” (Temporary) - control and supervision of a head or main
(a) After the lapse of the specific office.
period of disqualification;
(b) When the conviction by the court § 4151P.2 Operations and functions
for crimes involving dishonesty, breach of The operations/transactions of a branch
trust and/or violation of banking laws office shall likewise be governed by the
becomes final and executory, in which provisions of P.D. No. 114 governing
case the director/trustee/officer/employee operations/transactions of a head office, as
is relisted to Watchlist – Disqualification well as by other pertinent laws, BSP rules
File “A” (Permanent); or and regulations.
(c) Upon favorable decision or The primary purpose of branching
clearance by the appropriate body, i.e., shall be to provide an additional source of
court, NBI, institutions under the credit to small borrowers left unserved by
supervisory and regulatory powers of the the banking and other FIs.
BSP, or such other agency/body where the
concerned individual had derogatory § 4151P.3 Basis for establishment
record. Branch offices shall be allowed on the basis
Directors/trustees/officers/employees of the head office’s ability to conduct
delisted from the Watchlist – operations, as well as correspondent
Disqualification File “B” other than those arrangements. The appropriate
upgraded to Watchlist – Disqualification department of the SES shall not process
File “A” shall be eligible for re-employment an application for branching of a pawnshop

Part I - Page 9
§§ 4151P.3 - 4161P
05.12.31
which has an approved but unopened discretion, remain open beyond the above
branch. requirement for as long as they deem it
necessary. The business hours and
§ 4151P.4 Capital requirement.Upon business days shall be posted
compliance with the minimum paid-in conspicuously at all times at the door of
capital of P100,000, permission to open a the pawnshop.
maximum of one (1) branch may be Exemption from the above
granted, subject to the provisions of the rules requirement shall be granted to
on branching. pawnshops in troubled areas after due
Additional paid-in capital of P100,000 evaluation of their requests.
shall be required for each additional branch. Special public holidays proclaimed for
local government shall be regular working
§ 4151P.5 Documentary requirements days.
The following documents shall be filed
with the appropriate department of the SES Secs. 4157P - 4160P (Reserved)
of the BSP in connection with an
application to operate a branch: J. RECORDS AND REPORTS
a. Bank certification on paid-in
capital deposit; Sec. 4161P Records. The accounting
b. Bio-data of the proposed manager period of all pawnshops shall be on the
and accountable employees; calendar year basis.
c. Information on branch location, The accounting records of pawnshops
facilities (such as vault), bonding and shall consist of records of original entry and
insurance; books of final entry.
d. Certified true copy of the board The records of original entry shall consist
resolution authorizing the establishment of pawn tickets, official receipts, vouchers
of the branch (in case of corporation); and and other supporting documents. The books
e. Business and/or economic of final entry shall consist of the general
justification (including data) for the ledger, subsidiary ledgers and registers of
establishment of the branch, etc. loans extended and loans paid.
Pawnshops may use any form of
§ 4151P.6 Date of opening for register: Provided, That (a) it contains
business. A branch office shall open for spaces and columns adequate to
business within six (6) months from receipt substantially reflect the data required by
of its authority to operate said branch, the BSP, (b) said register is with a
otherwise, the authority is automatically permanent binding, and (c) no register with
revoked. loose leaves or detachable pages shall be
allowed. The Chart of Accounts and
Secs. 4152P - 4155P (Reserved) Description of Loan Registers of Pawnshops
provided in Appendix P-1 shall be followed.
I. BUSINESS DAYS AND HOURS No pawnbroker or other persons shall
alter or erase any entry made in the
Sec. 4156P Business Days and Hours registers of a pawnshop.
Pawnshops shall transact business at a No pawnshop shall destroy or dispose
minimum of five (5) days a week, for a of any record, ledger, book, or document
minimum of six (6) hours a day, both to for at least three (3) years from the date
be selected by them. They may, at their thereof.

Part I - Page 10
§§ 4161P.1 - 4162P
07.12.31
§ 4161P.1 Uniform System of b. For purposes of preparing separate

Accounts. Pawnshops shall strictly adopt/ financial statements, financial/non-financial
implement the Uniform System of allied/non-allied subsidiaries/associates,
Accounts prescribed for pawnshops in the including insurance subsidiaries/associates,
recording of daily transactions including shall also be accounted for using the equity
reportorial requirements. method; and
c. FIs shall be required to meet the
§ 4161P.2 Philippine Financial Reporting BSP recommended valuation reserves.
Standards/Philippine Accounting Standards Government grants extended in the
Statement of policy. It is the policy of the form of loans bearing nil or low interest
BSP to promote fairness, transparency and rates shall be measured upon initial
accuracy in financial reporting. It is in this recognition at its fair value (i.e., the present
light that the BSP aims to adopt all PFRS value of the future cash flows of the
and PAS issued by the ASC to the greatest financial instrument discounted using the
extent possible. market interest rate). The difference
Pawnshops shall adopt the PFRS and between the fair value and the net
PAS which are in accordance with generally proceeds of the loan shall be recorded
accepted accounting principles in recording under “Unearned Income-Others”, which
transactions and in the preparation of shall be amortized over the term of the loan
financial statements and reports to BSP. using the effective interest method.
However, in cases where there are The provisions on government grants
differences between BSP regulations and shall be applied retroactively to all
PFRS/PAS as when more than one (1) option outstanding government grants received.
are allowed or certain maximum or Pawnshops that adopted an accounting
minimum limits are prescribed by the PFRS/ treatment other than the foregoing shall
PAS, the option or limit prescribed by BSP consider the adjustment as a change in
regulations shall be adopted by all banks/ accounting policy, which shall be accounted
FIs. for in accordance with PAS 8.
For purposes hereof, the PFRS/PAS shall Notwithstanding the exceptions in
refer to issuances of the ASC and approved Items “a”, “b” and “c”, the audited annual
by the PRC. financial statements required to be
Accounting treatment for prudential submitted to the BSP in accordance with
reporting. For prudential reporting, FIs shall Appendix P-2 shall in all respect be PFRS/
adopt in all respect the PFRS and PAS except PAS compliant: Provided, That FIs shall
as follows: submit to the BSP adjusting entries
a. In preparing consolidated financial reconciling the balances in the financial
statements, only investments in financial statements for prudential reporting with that
allied subsidiaries except insurance in the audited annual financial statements.
subsidiaries shall be consolidated on a line- (As amended by Circular No. 572 dated 22 June 2007)
by-line basis; while insurance and non-
financial allied subsidiaries shall be Sec. 4162P Reports. Pawnshops shall
accounted for using the equity method. submit to the appropriate department of the
Financial/non-financial allied/non-allied SES of the BSP the reports listed in Appendix
associates shall be accounted for using the P-2 in the forms as may be prescribed by
equity method in accordance with the the Deputy Governor, SES, BSP.
provisions of PAS 28 “Investments in Any change in, or amendment to, the
Associates”. articles of incorporation/co-partnership,

Part I - Page 11
§§ 4162P - 4162P.3
07.12.31
by-laws or material documents required to (2) Faulty report shall refer to an

be submitted to the BSP shall be reported inaccurate/improperly accomplished
by submitting copies of the amended articles report.
of incorporation, by-laws or material (3) Willful delay or default in the
document to the appropriate department of submission of reports shall refer to the
the SES within fifteen (15) days following failure of a pawnshop to submit a report
such change. on time. Failure to submit a report on
(As amended by CL-2007-059 dated 28 November 2007, time due to fortuitous events, such as fire
CL-2007-050 dated 04 October 2007, and M-2007-028 dated and other natural calamities and public
24 September 2007) disorders, including strike or lockout
affecting a pawnshop as defined in the
§ 4162P.1 Categories of and Labor Code or a national emergency
signatories to reports. Reports required affecting operations of pawnshops, shall
to be submitted to the BSP are classified not be considered as willful delay.
into Categories A-1, A-2, A-3 and B reports (4) False Statement shall refer to
as indicated in the list of reports required any untruthful data or information or
to be submitted to the BSP in Appendix P-2. falsehoods made in a report to the BSP
Appendix P-3 prescribes the signatories or its authorized agents, with intent to
for each report category and the deceive or mislead. Any false
requirements on signatory authorization. statement which tends to favor the
Reports submitted in computer media shall pawnshop submitting the report shall be
be subject to the same requirements. prima facie evidence of intent to
A report submitted to the BSP under deceive or mislead.
the signature of an officer who is not (5) Repeated violation shall mean the
authorized in accordance with the commission of the same offense for at
requirements in this Subsection shall be least two (2) times.
considered as not having submitted. (6) Persistent violation shall mean the
commission of the same offense for at
§ 4162P.2 Manner of filing. The least three (3) times.
submission of the reports shall be effected (7) Offense shall refer to submission
by filing them personally with the of faulty report, willful delay in
appropriate department of the SES or with submission of reports, or making of false
the BSP Regional Offices/Units, or by statements in reports.
sending them by registered mail or special b. Fine for submission of faulty
delivery through private couriers, unless report. Any pawnshop which submits a
otherwise specified in the circular or faulty report shall pay to the BSP a fine of
memorandum of the BSP. P30 per day which shall accrue beginning
on the sixth business day from the day
§ 4162P.3 Sanctions the written notice of faulty report is
a. Definition of terms. For purposes received by the pawnshop concerned
of these rules, the following definitions until a correct report is submitted.
shall apply: c. Fines for willful delay in
(1) Report shall refer to any report or submission of reports. Pawnshops
statement required of a pawnshop to be incurring willful delay in the submission
submitted to the BSP periodically or within of required reports shall pay a fine in
a specified period. accordance with the following schedule:

Part I - Page 12
§ 4162P.3
07.12.31
I. For Categories A-1, A-2 and A-3 reports (2) On repeated P600 and P120
violations for every day of
Per day of default P 90
delay in payment
until the report is filed until the fine is
II. For Category B reports fully paid
Per day of default P 30 (3) On persistent Suspension, after
until the report is filed violations due hearing, of
the pawnshop's
directors/officers/
Delay or default shall start to run on proprietor/
the day following the last day required for managing partner
the submission of reports. However,
should the last day of filing fall on a Any false statement made in a
non-working day in the locality where the previous report which was not
reporting pawnshop is situated, delay or immediately known but was discovered
default shall start to run on the day following only in later reports shall constitute only
the next working day. The due date/deadline one (1) violation. The penalty shall operate
for submission of reports to BSP as prescribed on the sixth working day counted from
under Sec. 4162P governing the frequency receipt of notice of submission of a false
and deadlines indicated in Appendix P-2 statement from the BSP or its authorized
shall be automatically moved to the next agents until a correct statement is submitted.
banking day whenever a half-day e. Manner of collection and payment
suspension of business operations in of fines. A pawnshop shall be billed by the
government offices is declared due to an appropriate department of the SES. The
emergency such as typhoon, floods, etc. pawnshop shall thereupon remit the
For the purpose of establishing delay amount of the fine to the BSP thru the
or default, the date of acknowledgment by appropriate department of the SES. Failure
the appropriate department of the SES or of a pawnshop to effect the settlement of
the BSP Regional Offices/Units appearing the full amount of the fine within a period
on the copies of such reports filed or of fifteen (15) days from receipt of the bill
submitted or the date of mailing postmarked shall subject it to other administrative
on the envelope or the date of registry or sanctions and/or to the penal provisions of
special delivery receipt, as the case may be, P.D. No. 114.
shall be considered as the date of filing. f. Appeal to the Monetary Board. A
Delayed schedules or attachments and pawnshop may appeal to the Monetary
amendments shall be considered late Board a ruling of the appropriate
reporting subject to the above penalties. department of the SES imposing any
d. Fines for making false statements. penalty prescribed herein.
Any pawnshop which makes a false g. Payment of the penalties by
statement in any of its reports to the BSP installments
or its authorized agents shall pay to the (1) The head of the appropriate
BSP a fine in accordance with the following department of the SES may approve
schedule: requests for payment of penalties by
(1) On the first and P300 and P60 for installments: Provided, That the
second offense, a every day of delay
fine payable on the in payment until the
pawnshop’s cash position is not sufficient
day following the fine is fully paid to pay the penalty in full, as determined
receipt of BSP advice by that department based on the pawnshop’s

Part I - Page 13
§§ 4162P.3 - 4182P
08.12.31
latest statement of condition duly certified which are kept inside a fireproof vault,
by its president/manager/proprietor/ must be insured against fire.
managing partner, as the case may be. The
request shall be made in writing. Sec. 4172P Separation of Pawnshop
(2) The maximum number of Business from Other Businesses. Any
installment payments shall be in person or entity engaged in the pawnshop
accordance with the following schedule: business and, at the same time, engaged
Amount of Penalty No. of Installments
in other businesses not directly related nor
P500 and below Two (2) equal monthly incidental to the business of a pawnshop,
installments shall keep such businesses distinct and
P501 - 750 Three (3) equal monthly
installments separate from the pawnshop operation.
P751 - 1,000 Four (4) equal monthly
installments
P1,001 - 2,000 Six (6) equal monthly
Secs. 4173P - 4180P (Reserved)
installments
P2,001 - 5,000 Eight (8) equal monthly L. MISCELLANEOUS PROVISIONS
installments
P5,001 and above Ten (10) equal monthly
installments Sec. 4181P Business Name1. No person
or entity shall advertise or hold itself out
Default in payment of any installment as being engaged in pawnshop operations
shall render the unpaid amount payable in or use in connection with its business title
full. the words pawnshop, pawnbroker,
h. The appropriate department of the pawnbrokerage, or words of similar
SES shall refuse registration of new import, or transact in any manner the
pawnshops the owner(s) of which owned business of a pawnshop without having first
another pawnshop which closed or ceased complied with the provisions of
operations without paying previously P.D. No. 114 and of these regulations.
assessed penalties. (As amended by CL Nos. 053 dated 21 August 2008 and
(As amended by Circular No. 585 dated 15 October 2007) 007 dated 05 February 2008)
Secs. 4163P - 4170P (Reserved) Sec. 4182P Closing or Transfer of Business

No pawnshop shall close or transfer its
K. INTERNAL CONTROL place of business within three (3) months
following the maturity of any loan or
Sec. 4171P Safekeeping of Pawns and pledge, or before any pawn shall have
Records and Insurance of Office Building been sold or disposed of as provided for
Pawns must be kept inside the safe or under existing regulations.
concrete vault; however, bulky pawns Any pawnshop may transfer its place
may be placed outside the safe or vault but of business from one location to another
within the pawnshop premises. within the territorial limits of the city or
Vital records must be kept inside the safe municipality upon compliance with the
or vault when not in use. Other pawnshop following requirements:
records/documents may be placed in filing a. Notice of transfer shall be published
cabinets/shelves outside the vault or safe in English and in Pilipino or in the local
but within the pawnshop premises. dialect in two (2) daily newspapers of general
The office building/premises and all circulation in the city or municipality where
pawns of the pawnshop, except those the pawnshop is closing business, and
1
See SEC Circular Nos. 5 dated 17 July 2008 and 14 dated 24 October 2000.

Part I - Page 14
§§ 4182P - 4195P
08.12.31
posted in a conspicuous place in the on how QBs should identify, measure,

premises to be vacated and to be monitor and control risks shall govern the
transferred to; supervision by risks of pawnshops to the
b. The notice shall be published for extent applicable.
at least three (3) consecutive days, the last The guidelines set forth the expectations
day of which shall be five (5) days before of the BSP with respect to the management
the actual transfer; and of risks and are intended to provide more
c. Notice shall contain the following consistency in how the risk-focused
information: supervision function is applied to these risks.
(1) Date of transfer; The BSP will review the risks to ensure that
(2) Address of the premises to be a pawnshop’s internal risk management
vacated; and processes are integrated and comprehensive.
(3) Address of the premises to which All pawnshops should follow the guidance
the pawnshop intends to transfer. in risk management efforts.
In remote areas where newpapers are (Circular No. 510 dated 03 February 2006)
not available, the publication shall be
complied with by posting notices at the Sec. 4194P Market Risk Management
city hall or municipal building of the city The guidelines on market risk management
or municipality where the pawnshop has for QBs as shown in Appendix Q-43 shall
its place of business. govern the market risk management of
pawnshops to the extent applicable.
Secs. 4183P - 4189P (Reserved) The guidelines set forth the
expectations of the BSP with respect to
Sec. 4190P Duties and Responsibilities of the management of market risk and are
Pawnshops and their Directors/ Officers intended to provide more consistency in
in All Cases of Outsourcing of Pawnshop how the risk-focused supervision is
Functions. The rules on outsourcing of applied to this risk. Pawnshops are
banking functions as shown in Appendix expected to have an integrated approach
Q-37 shall be adopted in so far as they are to risk management to identify measure,
applicable to pawnshops. monitor and control risks. Market risk
(As amended by Circular Nos. 610 dated 26 May 2008, should be reviewed together with other
596 dated 11 January 2008, 548 dated 25 September 2006 and risks to determine overall risk profile.
543 dated 08 September 2006) The BSP is aware of the increasing
diversity of financial products and that
Sec. 4191P (Reserved) industry techniques for measuring and
managing market risk are continuously
Sec. 4192P Prompt Corrective Action evolving. As such, the guidelines are
Framework. The framework for the intended for general application; specific
enforcement of prompt corrective action application will depend to some extent on
(PCA) on banks which is in Appendix Q-40, the size, complexity and range of activities
shall govern the PCA taken on pawnshops undertaken by pawnshops.
to the extent applicable, or by analogy. (Circular No. 544 dated 15 September 2006)
(Circular No. 523 dated 31 March 2006)
Sec. 4195P Liquidity Risk Management
Sec. 4193P Supervision by Risks. The The guidelines on liquidity risk
guidelines on supervision by risk in management for QBs as shown in
Appendix Q-42 which provide guidance Appendix Q-44 shall govern the liquidity

Part I - Page 15
§§ 4195P - 4199P
06.12.31
risk management of pawnshops to the These guidelines are intended for

extent applicable. general application; specific application
The guidelines set forth the expectations will depend on the size and sophistication
of the BSP with respect to the management of a particular pawnshop and the nature
of liquidity risk and are intended to provide and complexity of its activities.
more consistency in how the risk-focused (Circular No. 545 dated 15 September 2006)
supervision function is applied to this risk.
Pawnshops are expected to have an Secs. 4196P - 4198P (Reserved)
integrated approach to risk management to
identify, measure, monitor and control risks. Sec. 4199P General Provision on Sanctions.
Liquidity risk should be reviewed together with Any violation of the provisions of this Part
other risks to determine overall risk profile. shall be subject to Section 18 of P.D. No. 114.

Part I - Page 16
§§ 4201P - 4299P
05.12.31
PART TWO
BORROWING OPERATIONS
A. – J. (RESERVED) banking functions as defined in Subsec.

4101P.3, shall be subject to prior BSP
Secs. 4201P – 4285P (Reserved) authority on performance of quasi-banking
functions under BSP regulations.
K. OTHER BORROWINGS
Secs. 4287P – 4298P (Reseved)
Section 4286P Borrowings Constituting
Quasi-Banking Functions. Borrowing from Sec. 4299P General Provision on
twenty (20) or more lenders for the purpose Sanctions. Any violation of the provisions
of relending or purchase of receivables or of this Part shall be subject to Sections 36
other obligations, which constitutes quasi- and 37 of R.A. No. 7653.

Part II - Page 1
§§ 4301P - 4322P
06.12.31
PART THREE
LOANS AND INVESTMENTS
A. LOANS IN GENERAL shall be computed upon redemption

based on the sum of the principal loan and
Section 4301P Loan Limits. Pawnshops interest earned as of the date of maturity.
may grant such amount of loans as may The procedures to be followed in case the
be agreed upon between the parties: pawner fails to redeem his pawn are
Provided, That the amount of a loan shall prescribed in Sec. 4323P.
in no case be less than thirty percent (30%)
of the appraised value of the security Sec. 4304P (Reserved)
offered for the loan, unless the pawner
manifests in writing that he is applying for Sec. 4305P Interest Accrual on Past
a lesser amount. Pawnshops shall not Due Loans. Interest income on past due
under-appraise the security offered for the loan arising from discount amortization
loan for the purpose of defeating the (and not from the contractual interest of
restriction prescribed by this Section. the account) shall be accrued as
provided in PAS 39.
Sec. 4302P Interest and Other Charges (Circular No. 494 dated 20 September 2005)
The rate of interest, including commissions,
premiums, fees and other charges, on any Sec. 4306P - 4320P (Reserved)
loan or forbearance of money extended
by a pawnshop shall not be subject to any B. SECURED LOANS
ceiling.
No pawnshop shall collect interest on Sec. 4321P Kinds of Security. Only
loans in advance for a period of more than personal property that is capable of being
one (1) year. physically delivered to the control and
possession of the pawnshop shall be
Sec. 4303P Past Due Accounts; Renewal/ accepted as security for loans. Certain
Redemption of Pawns. A loan may be specified chattels, such as guns, knives,
renewed for such amount and period as or similar weapons, whose reception in
may be agreed upon between the pawn is expressly prohibited by other
pawnshop and the pawner, subject to the laws, decrees, or regulations, shall not be
same conditions as are provided in this Part accepted by pawnshops as security for
for new loans. loans.
A pawner who fails to pay or renew
his obligation with a pawnshop on the date Sec. 4322P Pawn Ticket. Pawnshops
it falls due shall have ninety (90) days from shall at the time of the loan, deliver to each
the date of maturity of the loan within pawner a pawn ticket which shall contain
which to redeem the pawn by paying the the following:
principal amount of the loan plus the a. Name and residence of the
amount of interest that shall have accrued pawner;
thereon. The amount of interest due and b. Date the loan is granted;
payable after the maturity date of the loan c. Amount of the principal loan;

Part III - Page 1
§§ 4322P - 4324P
05.12.31
d. Interest rate in percent; Sec. 4323P Reminder to Pawner; Notice

e. Period of maturity; to the Public. On or before the expiration
f. Description of the pawn; of the ninety (90)-day grace period allowed
g. Expiry date of redemption period; in Sec. 4303P, the pawnshop shall duly
h. Signature of the pawnshop's notify the pawner in writing that the pawn
authorized representative; shall be sold or otherwise disposed of in
i. Signature or thumbmark of the the event that the pawner fails to redeem
pawner or his authorized representative; the pawn within the ninety (90)-day grace
and period, specifying in the same notification
j. Such other terms and conditions as the date, hour and place where the sale
may be agreed upon between the shall take place. If upon the expiration of
pawnshop and the pawner. the ninety (90)-day grace period, the
pawner fails to redeem his pawn, the
§ 4322P.1 Contents of pawn ticket pawnshop may sell or dispose of the pawn
The contents of the face of the standard only after it has published a notice of public
pawn ticket, prescribed for pawnshops auction of unredeemed articles held as
pursuant to the requirements of P.D. No. security for loans in at least two (2)
114, and the terms and conditions on the newspapers circulated in the city or
reverse side thereof, are prescribed in municipality where the pawnshop has its
Appendices P-4 and P-4-a. Suplusage data place of business, six (6) days prior to the
shall be avoided. date set for the public auction.
Additional terms and conditions which The notice shall be in English and in
pawnshops may wish to incorporate shall Pilipino or in the local dialect and shall
be subject to prior approval by the contain the following:
appropriate department of the SES. a. Name and address of the owner of
Pawn tickets shall not be smaller than the pawnshop; and
8" x 5". b. Date and hour of the auction sale.
Pawn tickets shall at least be in In remote areas where newspapers are
duplicate. The first copy shall contain the neither published nor circulated, the
word "Original" and the second copy shall publication shall be complied with by posting
be marked "Duplicate". notices at the city hall or municipal building
Pawn tickets shall be serially of the city or municipality and in two (2) other
numbered. conspicuous public places where the
Pawnshops may choose the color and pawnshop has its place of business.
quality of the paper used as pawn ticket.
Sec. 4324P Public Auction of Pawns. No
§ 4322P.2 Sanctions. Any pawnshop pawnshop shall sell or otherwise dispose
which violates or fails to comply with the of any article or thing received as security
requirements of Subsec. 4322P.1 shall pay for a loan except by public auction at any
a fine of P500 and shall be liable for such of the following places:
other administrative sanctions as the BSP a. Pawnshop's place of business; or
may impose. The owner, partner, manager, b. Any public place within the
or officer-in-charge of the pawnshop territorial limits of the municipality or city
responsible for the violation or non- where the pawnshop conducts its business.
compliance shall be jointly liable with the The auction shall be conducted under
pawnshop. the control and direction of a duly licensed

Part III - Page 2
§§ 4324P - 4399P
05.12.31
auctioneer. In cities and municipalities C. - J. (RESERVED)

where there is no duly licensed auctioneer,
the public auction may be conducted by a Secs. 4336P - 4395P (Reserved)
notary public of the city or province where
the pawnshop has its place of business. K. MISCELLANEOUS
The Auction Sheet/Book containing
entries of auctioned pawned articles duly Secs. 4396P - 4398P (Reserved)
signed by the auctioneer or notary public
under oath shall be maintained by the Sec. 4399P General Provisions on
pawnshop. Sanctions. Any violation of the provisions
of this Part shall be subject to Section 18
Sècs. 4325P - 4335P (Reserved) of P.D. No. 114.

Part III - Page 3
§§ 4401P - 4499P
05.12.31
PART FOUR
Sections. 4401P - 4499P (Reserved)

Part IV - Page 1
§§ 4501P - 4599P
05.12.31
PART FIVE
Sections. 4501P - 4599P (Reserved)

Part V - Page 1
§§ 4601P - 4601P.1
07.12.31
PART SIX
MISCELLANEOUS
A. OTHER OPERATIONS (3) Continuing penalty refers to the

monetary penalty imposed on continuing
Sec. 4601P Fines and Other Charges. The offenses/violations on a per calendar day
following regulations shall govern basis reckoned from the time the offense/
imposition of monetary penalties on violation occurred or was committed until
pawnshops, their trustees and/or officers the same was corrected/rectified.
and the payment of such penalties or fines (4) Transactional penalty refers to a
and other charges by pawnshops. one (1)-time penalty imposed on a
(Circular No. 585 dated 15 October 2007) transactional offense/violation.
b. Basis for the computation of the
§4601P.1 Guidelines on the imposition period or duration of penalty. The
of monetary penalties; Payment of computation of the period or duration of
penalties or fines. The following are the all penalties shall be based on calendar
guidelines on the imposition of monetary days.
penalties on pawnshops, their directors For this purpose the terms “per banking
and/or officers. day”, “per business day”, “per day” and/or
a. Definition of terms. For purposes “a day” as used in this Manual, and other
of the imposition of monetary penalties, BSP rules and regulations shall mean “per
the following definitions are adopted: calendar day” and/or “calendar day” as the
(1) Continuing offenses/violations are case may be.
acts, omissions or transactions entered into, c. Additional charge for late payment
in violation of laws, BSP rules and of monetary penalty. Late payment of
regulations, Monetary Board directives, monetary penalty shall be subject to an
and orders of the Governor which persist additional charge of six percent (6%) per
from the time the particular acts were annum to be computed from the time said
committed or omitted or the transactions penalty becomes due and payable up to
were entered into until the same were the time of actual payment. The penalty
corrected/rectified by subsequent acts or approved by the Governor/MB to be
transactions. They shall be penalized on a imposed on the pawnshop, its directors
per calendar day basis from the time the and/or officers shall become due and
acts were committed/omitted or the payable fifteen (15) calendar days from
transactions were effected up to the time receipt of the Statement of Account from
they were corrected/rectified. the BSP. For pawnshops which maintain
(2) Transactional offenses/violations DDA with the BSP, penalties which remain
are acts, omissions or transactions entered unpaid after the lapse of the fifteen-day
into in violation of laws, BSP rules and period shall be automatically debited
regulations, Monetary Board directives, against their corresponding DDA on the
and orders of the Governor which cannot following business day without additional
be corrected/rectified by subsequent acts charge. If the balance of the concerned
or transactions. They shall be meted with pawnshop’s DDA is insufficient to cover
one (1)-time monetary penalty on a per the amount of the penalty, said penalty shall
transaction basis. already be subject to an additional charge

Part VI - Page 1
§§ 4601P.1 - 4657P
07.12.31
of six percent (6%) per annum to be records, business affairs, administration,

reckoned from the business day and financial condition of any pawnshop,
immediately following the end of said whenever said official deems it necessary
fifteen (15)-day period up to the day of for the effective implementation of P.D.
actual payment. No. 114, and other pertinent rules and
d. Appeal or request for regulations. Said official and his duly
reconsideration. A one (1)-time appeal or designated representatives may
request for reconsideration on the administer oaths to any director, officer,
monetary penalty approved by the or employee of the pawnshop.
Governor/Monetary Board to be imposed If, upon such examination, inspection,
on the pawnshop, its directors and/or or investigation, the official or his deputies
officers shall be allowed: Provided, That the shall establish that the pawnshop is
same is filed with the appropriate violating or is not complying with the
department of the SES within fifteen (15) requirements of P.D. No. 114 and of the
calendar days from receipt of the Statement provisions of other pertinent rules and
of Account/billing letter. The appropriate regulations, said official shall immediately
department of the SES shall evaluate the inform the Monetary Board of his findings
appeal or request for reconsideration of the and recommendations, and the Monetary
pawnshop/individual and make Board shall take appropriate actions to stop
recommendations thereon within thirty such violation or non-compliance, and
(30) calendar days from receipt thereof. The punish the persons responsible.
appeal or request for reconsideration on the
monetary penalty approved by the Sec. 4652P Basic Law Governing
Governor/Monetary Board shall be Pawnshops. P.D. No. 114, known as the
elevated to the Monetary Board for Pawnshop Regulation Act, regulates the
resolution/decision. The running of the establishment and operation of
penalty period in case of continuing pawnshops.
penalty and/or the period for computing
additional charge shall be interrupted from Sec. 4653P Accounting for Pawnshop
the time the appeal or request for Premises; Other Fixed Assets. Pawnshop
reconsideration was received by the premises, furniture, fixture and equipment
appropriate department of the SES up to shall be accounted for using the cost model
the time that the notice of the Monetary under PAS 16 “Property, Plant and
Board decision was received by the Equipment.”
pawnshop/individual concerned. (Circular No. 494 dated 20 September 2005)
(Circular No. 585 dated 15 October 2007)
4654P - 4656P (Reserved)
Secs. 4602P - 4650P (Reserved)
Sec. 4657P Batas Pambansa Blg. 344 –
B. SUNDRY PROVISIONS An Act to Enhance the Mobility of
Disabled Persons by Requiring Certain
Section 4651P Supervisory Powers of the Buildings, Institutions, Establishments and
Bangko Sentral. The head of the Public Utilities to Install Facilities and
appropriate department of the SES and his Other Devices. In order to promote the
duly designated representatives are realization of the rights of disabled persons
authorized to conduct an examination, to participate fully in the social life and the
inspection, or investigation of books, development of the societies in which they

Part VI - Page 2
§§ 4657P - 4691P
08.12.31
live and the enjoyment of the opportunities the country of origin to the country of
available to other citizens, no license or destination and/or charge for receiving the
permit for the construction, repair or remittance at the country of destination;
renovation of public and private buildings b. Exchange rate – rate of conversion
for public use, educational institutions, from foreign currency to local currency,
airports, sports and recreation centers and e.g., peso-dollar rate;
complexes, shopping centers or c. Exchange rate differential/spread -
establishments, public parking places, foreign exchange mark-up or the
workplaces, public utilities, shall be difference between the prevailing BSP
granted or issued unless the owner or reference/guiding rate and the exchange/
operator thereof shall install and conversion rate;
incorporate in such building, establishment d. Other currency conversion charges -
or public utility, such architectural facilities commissions or service fees, if any;
or structural features as shall reasonably e. Other related charges -
enhance the mobility of disabled persons e.g., surcharges, postage, text message or
such as sidewalks, ramps, railings and the telegram;
like. If feasible, all such existing buildings, f. Amount/currency paid out in the
institutions, establishments, or public recipient country - exact amount of money
utilities may be renovated or altered to the recipient should receive in local
enable the disabled persons to have access currency or foreign currency; and
to them. g. Delivery time to recipients/
beneficiaries - delivery period of
Secs. 4658P - 4659P (Reserved) remittance to beneficiary stated in number
of days, hours or minutes.
Sec. 4660P Disclosure of Remittance Non-bank remittance service providers
Charges and Other Relevant Information shall likewise post said information in their
It is the policy of the BSP to promote the respective websites and display them
efficient delivery of competitively-priced prominently in conspicuous places within
remittance services by banks and other their premises and/or remittance/service
remittance service providers by promoting centers.
competition and the use of innovative (Circular No. 534 dated 26 June 2006)
payment systems, strengthening the financial
infrastructure, enhancing access to formal Secs. 4661P - 4690P (Reserved)
remittance channels in the source and
destination countries, deepening the Sec. 4691P Anti-Money Laundering
financial literacy of consumers, and Regulations. Banks, OBUs, QBs, trust
improving transparency in remittance entities, NSSLAs, pawnshops, and all other
transactions, consistent with sound practices. institutions, including their subsidiaries and
Towards this end, NBFIs under BSP affiliates supervised and/or regulated by the
supervision, including FXDs/MCs and RAs, BSP, otherwise known as “covered
providing overseas remittance services institutions” shall comply with the
shall disclose to the remittance sender and provisions of R.A. No. 9160, as amended,
to the recipient/beneficiary, the following otherwise known as the “Anti-Money
minimum items of information regarding Laundering Act of 2001” and its Revised
remittance transactions, as defined herein: IRRs in Appendix P-6 and those in
a. Transfer/remittance fee – charge Appendix P-5.
for processing/sending the remittance from (As amended by Circular No. 612 dated 13 June 2008)

Part VI - Page 3
§§ 4691P.1 - 4695P
08.12.31
§§ 4691P.1 - 4691P.8 (Reserved) (2) Its political subdivisions and

instrumentalities;
§ 4691P.9 Sanctions and penalties (3) GOCCs; and
a. Whenever a covered institution (4) Private entities or institutions
violates the provisions of Section 9 of registered with or supervised or regulated
R.A. No. 9160, as amended, or of this either by the BSP or SEC or IC.
Section, the officer(s) or other persons Valid IDs include the following:
responsible for such violation shall be (a) Passport
punished by a fine of not less than P50,000 (b) Driver’s license
nor more than P200,000 or by (c) PRC ID
imprisonment of not less than two (2) years (d) NBI clearance
nor more than ten (10) years, or both, at (e) Police clearance
the discretion of the court pursuant to (f) Postal ID
Section 36 of R.A. No. 7653, otherwise (g) Voter’s ID
known as “The New Central Bank Act”. (h) Barangay certification
b. Without prejudice to the criminal (i) GSIS e-Card
sanctions prescribed above against the (j) SSS card
culpable persons, the Monetary Board may, (k) Senior Citizen card
at its discretion, impose upon any covered (l) OWWA ID
institution, its directors and/or officers for any (m) OFW ID
violation of Section 9 of R.A. No. 9160, as (n) Seaman’s Book
amended, the administrative sanctions (o) Alien Certification of Registration/
provided under Section 37 of R.A. No. 7653. Immigrant Certificate of Registration
(p) Government office and GOCC ID
Secs. 4692P - 4694P (Reserved) (e.g., AFP, HDMF IDs)
(q) Certification from the NCWDP
Sec. 4695P Valid Identification (ID) Cards (r) DSWD certification
for Financial Transactions. The following (s) IBP ID; and
guidelines govern the acceptance of valid (t) Company IDs issued by private
ID cards for all types of financial entities or institutions registered with or
transactions by pawnshops, including supervised or regulated either by the BSP,
financial transaction involving OFWs, in SEC or IC.
order to promote access of Filipinos to b. Students who are beneficiaries of
services offered by formal FIs, particularly remittances/fund transfers who are not
those residing in the remote areas, as well yet of voting age may be allowed to
as to encourage and facilitate remittances present the original and submit a clear
of OFWs through the banking system: copy of one (1) valid photo-bearing
a. Clients who engage in a financial school ID duly signed by the principal
transaction with covered institutions for the or head of the school.
first time shall be required to present the c. Pawnshops shall require their
original and submit a clear copy of at least clients to submit a clear copy of one (1)
one (1) valid photo-bearing ID document valid ID on a one-time basis only, or at
issued by an official authority. the commencement of a business
For this purpose, the term official authority relationship. They shall require their
shall refer to any of the following: clients to submit an updated photo and
(1) Government of the Republic of the other relevant information whenever the
Philippines; need for it arises.

Part VI - Page 4
§§ 4695P - 4699P
08.12.31
The foregoing shall be in addition to a. For a violation consummated at a

the customer identification requirements single instance and not punishable on a
under Rule 9.1.c of the Revised IRRs of per-day basis, a fine of not more than P500;
R.A. No. 9160, as amended (Appendix P-6). or for a violation which is continuing and
For purposes of this Section, financial punishable on a per-day basis, a fine of not
transactions may include remittances, more than P600 for every day of violation
among others, as falling under the or non-compliance; and/or
definition of transaction. Under the b. Suspension or, after due hearing,
Anti-Money Laundering Act of 2001, as removal of partners/directors or officers.
amended, a financial transaction is any For purposes of this Section, the
act establishing any right or obligation or phrase any commission of irregularities
giving rise to any contractual or legal in the conduct of its business shall
relationship between the parties thereto. include any act or omission described
It also includes any movement of funds hereunder:
by any means with a covered institution. (1) Failure to produce pawn upon
(Circular No. 564 dated 03 April 2007 as amended by Circular redemption or in any other case where
No. 608 dated 20 May 2008) the pawnshop has the obligation to
produce the pawn;
Secs. 4696P - 4698P (Reserved) (2) Allowing the redemption of pawn
without the surrender of the corresponding
Sec. 4699P Administrative Sanctions. The original pawn ticket/substitute pawn ticket/
Monetary Board shall impose upon affidavit of loss;
pawnshops, their owners, partners, (3) Falsifying pawn tickets;
directors and officers for any violation of (4) Actual collection of interest in
the provisions of the rules on pawnshops, advance and or service charges without
P.D. No. 114, pertinent laws or any order reflecting the same on the pawn ticket;
or instruction of the Monetary Board (5) Tampering or substitution of pawn;
or its authorized official; or any (6) Failure to issue official receipts for
commission of irregularities in the amounts collected; and
conduct of its business, the following (7) Any other act or omission analogous
administrative sanctions: to the above-enumerated acts and omissions.

Part VI - Page 5
APP. P-1
05.12.31
CHART OF ACCOUNTS AND DESCRIPTION

OF LOAN REGISTER OF PAWNSHOPS
(Appendix to Sec. 4161P)
A. General Ledger. The General Ledger (4) Income - This account represents the
is the controlling record of all subsidiary "general ledger control" account for all
ledger accounts. The general ledger income of the pawnshop. An "Income
accounts shall be grouped as follows: Subsidiary Ledger" shall be maintained
and the total of this ledger shall equal the
(1) Assets - Asset accounts shall consist balance of "Income Control" account of
of the following: the general ledger at all times.
(a) Cash on hand and in banks; The "Income Subsidiary Ledger" shall
(b) Pledge loans; contain the following accounts:
(c) Land; (a) Interests - pledge loans;
(d) Building; (b) Service charges;
(e) Furniture and fixtures; (c) Gain or loss at auction sale;
(f) Office equipment; (d) Interests on securities; and
(g) Leasehold improvements; (e) Other income
(h) Investment in securities; and
(I) Other assets. (5) Expenses - The expenses account shall
Other assets shall include all assets not include the following:
included in any of the above classification, (a) Salaries and allowances;
such as prepaid expenses, advances, (b) Interest on borrowed money;
accounts receivables. (c) Rental;
(d) Depreciation;
(2) Liabilities - Liabilities represent (e) Light and water;
obligations of the pawnshop, such as: (f) Taxes and licenses;
(a) Loans payable; (g) SSS contribution;
(b) Accounts payable; and (h) Costs of telephone, postage and/
(c) Other liabilities. or telegram;
Other liabilities are liabilities not included (i) Stationery and/or supplies; and
in the above classification, such as SSS (j) Miscellaneous expenses.
Premiums and medicare, tax withheld, accruals.
B. Registers. The following registers shall
(3) Capital - Capital at the end of the year be maintained to trace loan transactions.
is the excess of assets over liabilities, or
the sum of paid-in capital, surplus or (1) Loans Extended Register - Every
retained earnings accounts and net income pawnbroker shall keep a "Loans Extended
for the year. The accounts under this group Register" in which shall be entered in ink,
shall consist of the following: at the time of each loan or pledge
(a) Capital/capital stock; transaction, an accurate account and
(b) Drawings; description in English, with corresponding
(c) Retained earnings; and translation in the local dialect, the following
(d) Net income for the year. minimum data:

Appendix P-1 - Page 1
APP. P-1
05.12.31
(a) Date of transaction; (k) Signature or thumbmark of the pawner

(b) Number of pawn ticket; and the name of the pawner written by
(c) Amount of money loaned or and signature of the witness to the
principal; thumbmarking.
(d) Rate of interest to be paid, in percent;
(e) Service charge collected; (2) Loans Paid Register - A "Loans Paid
(f) Description of pawn; Register" shall be maintained in which shall
(g) Appraised value of pawn; be entered in ink, the principal and interest
(h) Name of pawner; payments of loans. It shall contain the
(i) Address of pawner; following minimum data:
(j) Description of the pawner, (a) Date of payment;
including: (b) Number of pawn ticket;
(i) Nationality; (c) Name of pawner;
(ii) Sex; and (d) Principal amount; and
(iii) General appearance; and (e) Amount of interest paid.

LIST OF REPORTS REQUIRED FROM PAWNSHOPS
A-2 BSP 7-26-02.C 4162P CSOC Annually on or before 31st Original - SDC
(As (head office and branches) January following end For HO, schedule of
amended of the reference year listing of its branches
by M-028
dated
09.24.07)
A-2 BSP 7-26-03.C 4162P CSIE -do- -do- Original - ISD1

(As (head office and branches)
amended
M-028
dated
09.24.07)
A-2 BSP 7-26-02.1C 4161P Breakdown of Pledged Loans According to Size -do- January 31st -do-
A-2 Unnumbered 4691P Report on Suspicious Transactions As 10th business day To be submitted to the
(Rev. May transaction from date of Anti-Money Laundering
2002 as occurs transaction/knowledge Council
amended
by Cir. No.
612 dated
06.03.08)
A-2 Unnumbered 4691P Report on Covered Transactions -do- -do- -do-

A-2 Unnumbered 4691P Certification of compliance with existing anti-money Annually 20th business day after Original - ISD1
laundering regulations end of reference year
P Regulations
08.12.31
APP. P-2
1
Formerly SED V
08.12.31
APP. P-2
P Regulations
A-3 Unnumbered 4162P Report on the Borrowings of BSP Personnel -do- 15th banking days after Original - SDC
(CL-059 end of reference quarter
dated
11.28.07
and
CL-050
dated
10.04.07)
B BSP 7-26-01.C 4101P.2 Information Sheet Upon within 15th day as Original - ISD1
registration change/s occur/s
B BSP 7-26-01.1C 4101P.2 Personal Data Sheet of Owner/Partner/Incorporator/ -do- - -do-

Director/Officer
B Unnumbered 4162P Annual Report of Management to Stockholders Annually 31st March following Original - ISD1
(no prescribed form) Covering Results of Operations for the Previous Year end of each year
B 4162P Audited Financial Statement for the Previous Year -do- -do- -do-
Ended Prepared by the External Auditor
B 4162P Loss/Destruction of Pawned Articles/Pawnshop As incident See Annex P-2-a for -do-
Property Caused by Crimes or Fortuitous Events occurs guidelines on
reporting crimes and
losses
B Unnumbered 4691P Plan of action to comply with Anti-Money Laundering - 30th business day from -do-
requirements 31 July 2000 or from
opening of the institution
B General Information Sheet Annually 30th day from date of Drop Box - SEC Central
annual stockholders' Receiving Section
meeting Original - SEC
Duplicate - BSP
1
Formerly SED V
APP. P-2
05.12.31
Annex P-2-a
1. Pawnshops shall report on the if no pawned article is involved, the

following matters through the appropriate amount involved per incident is P20,000
SED: or more.
a. Crimes whether consummated,
frustrated or attempted against pawned 2. The following guidelines shall be
articles/property/facilities (such as robbery, observed in the preparation and submission
theft, swindling or estafa, forgery and other of the report.
deceits) and other crimes involving loss/ a. The report shall be prepared in two
destruction of pawn/property of the (2) copies and shall be submitted within five
pawnshop: Provided, That if no pawned (5) business days from knowledge of the
article is involved, the amount involved crime or incident, the original to the
in each crime is P20,000 or more. appropriate SED and the duplicate to the
Crimes involving the pawnshop BSP Security Coordinator, thru the Director,
personnel, regardless of whether or not Security Investigation and Transport
such crimes involve the loss/destruction Department.
of pawned articles/property of the b. Where a thorough investigation and
pawnshop, even if the amount involved evaluation of facts is necessary to complete
is less than those above specified, shall the report, an initial report submitted within
likewise be reported to the BSP. the five (5) business day deadline may be
b. Incidents involving material loss, accepted: Provided, That a complete report
destruction or damage to the institution's is submitted not later than fifteen (15)
pawned articles/property/facilities, other business days from termination of
than arising from a crime: Provided, That investigation.

APP. P-3
05.12.31

(Appendix to Subsec. 4162P.1 )
Category A-1 reports shall be signed Categories A-3 and B reports shall be
by the chief executive officer, or in his signed by officers or their alternates, who
absence, by the executive vice-president, shall be duly designated in a resolution
and by the comptroller, or in his absence, approved by the board of directors in the
by the chief accountant, or by officers format as prescribed in Annex P-3-c.
holding equivalent positions. The
designated signatories in this category, Copies of the board resolutions on the
including their specimen signatures, shall report signatory designations shall be
be contained in a resolution approved by submitted to the appropriate SED of the
the board of directors in the format BSP within three (3) days from the date of
prescribed in Annex P-3-a. resolution.
Category A-2 reports of head offices In the case of pawnshops organized as

shall be signed by the president, single proprietorship or partnership, the
executive vice-presidents, vice- reports shall be signed by the proprietor
presidents or officers holding equivalent or managing partner, as the case may be,
positions. Such reports of other offices/ in place of chief executive officer or
units (such as branches) shall be signed president. Other signatories shall be
by their respective managers/officers in- authorized by the proprietor/managing
charge. Likewise, the signing authority partner in a letter of authority to be submitted
in this category shall be contained in a to the appropriate SED of the BSP indicating
resolution approved by the board of the names, positions and specimen
directors in the format prescribed in signatures of the designated signatories as
Annex P-3-b. well as the reports they are to sign.

APP. P-3
05.12.31
Annex P-3-a
Whereas, it is required under Subsec. 4162S.1 that Category A-1 reports be signed by
the chief executive officer, or in his absence, by the executive vice-president, and by the
comptroller, or in his absence, by the chief accountant, or by officers holding equivalent positions.
resolved that:
1. Mr.____________ President _________________
Specimen Signature
or
Executive
Specimen Signature
and
3. Mr.____________ Comptroller _________________
Specimen Signature
or
Chief
4. Mr.____________ Accountant _________________
Specimen Signature
___________________________
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
_______________________
CORPORATE SECRETARY

APP. P-3
05.12.31
Annex P-3-b
Whereas, it is required under Subsec. 4162P.1 that Category A-2 reports of head offices
be signed by the president, executive vice-presidents, vice-presidents or officers holding
resolved that:
_____________ ________________ __________ _________
__________________________
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
________________________
CORPORATE SECRETARY

APP. P-3
05.12.31
Annex P-3-c
FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES

A-3 AND B REPORTS
Whereas, it is required under Subsec. 4162P.1 that Categories A-3 and B reports be
signed by officers or their alternates;
Whereas, we the members of the Board of Directors of (Name of Institution) , are
conscious that, in designating the officials who would sign said Categories A-3 and B reports,
we are actually empowering and authorizing said officers to represent and act for or in
behalf of the Board of Directors in particular and (Name of Institution) in general;
Whereas, this Board has full faith and confidence in the institution's authorized signatories
resolved that:
Name of Authorized Signatory/Alternate Specimen Signature Position Title Report
1. Authorized
(Alternate)
2. Authorized
(Alternate)
etc.
___________________________
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
___________________ ___________________
DIRECTOR DIRECTOR
ATTESTED BY:
________________________
CORPORATE SECRETARY

APP. P-4
05.12.31
Serial No.
STANDARD PAWN TICKET

(Appendix to Subsec. 4322P.1)
(Name of Pawnshop)
(Address of Pawnshop)
Date Loan Granted: , 20 Maturity Date ,20

Expiry Date of Redemption Period:
,20
Mr./Mrs./Miss a resident of
for a loan of PESOS (P ) with an interest
of percent ( %) P.M./P.A., has pledged to this Pawnee in security
for the loan article(s) described below appraised at PESOS
(P ) subject to the terms
and conditions stated on the reverse side hereof.
(Description of the pawn)

Principal P
Interest P
Service Charge P
Net Proceeds P
(Signature or Thumbmark) (Signature or Thumbmark)

Pawner Pawnshop's Authorized Representative
PAWNER IS ADVISED TO READ AND UNDERSTAND THE TERMS AND CONDITIONS

ON REVERSE SIDE HEREOF

APP. P-4-a
05.12.31
TERMS AND CONDITIONS OF STANDARD PAWN TICKET
1. The pawner hereby accepts the of the ninety (90)-day grace period, that
pawnshop's appraisal as proper. the pawn shall be sold or disposed of in
the event the pawner fails to redeem the
2. The interest rate stipulated herein is in pawn within the ninety (90)-day grace
accordance with the existing policy of the period.
Monetary Board.
7. The parties hereby agree that this ticket
The pawnshop hereby agrees not to shall be surrendered at maturity date upon
collect in advance interest for a period of payment of the loan. In case of loss or
more than one (1) year. destruction of this ticket, the pawner hereby
undertakes to personally present an affidavit
3. The service charge is equivalent to one to the pawnshop before the redemption
percent (1%) of the principal loan, but not period expires. It is hereby agreed upon that
exceeding five pesos (P5.00). No other the pawnshop has a period of two (2) days
charges shall be collected. within which to verify from its records before
(1) indicating on the affidavit that it shall take
4. This loan is renewable for such amount the place of the original pawn ticket for
and period as may be agreed upon between purposes of redemption; or (2) issuing a
the pawnshop and the pawner, subject to substitute ticket, the original pawn ticket
the requirements of P.D. No. 114 for a new thereby being deemed cancelled.
loan.
8. The pawner hereby agrees not to assign,
5. Upon maturity of this loan, as indicated sell or in any other way alienate the pawn
on the face of this ticket, the pawner still securing this loan as evidenced by the pawn
has ninety (90) days from maturity date ticket without prior written consent of the
within which to redeem the pawn by paying pawnshop and subject to the terms and
the principal loan plus the interest that shall conditions of this contract.
have accrued thereon. The amount of
interest due and payable after the maturity 9. In case of pre-payment of this loan by
date of the loan and during the redemption pawner, the interest collected in advance
period shall be computed upon redemption shall accrue in full to the pawnshop.
at the same rate of interest provided in No.
2 based on the sum of the principal loan 10. The pawner shall not be entitled to the
and interest earned as of the date of excess of the public auction sale price
maturity. over the amount of principal interest and
service fee; neither shall the pawnshop be
6. The pawnshop shall send a written entitled to recover the defeciency from the
reminder to pawner, before the expiration pawner.

Appendix P-4-a - Page 1
APP. P-5
05.12.31

(Appendix to Section 4691P)
Banks, quasi-banks, trust entities and all (2) Verification of the authority and
other institutions, and their subsidiaries and identification of the person purporting to
affiliates supervised or regulated by the act on behalf of the client.
BSP (covered institutions) shall strictly b. In case of doubt as to whether their
comply with the provisions of Section 9 of purported clients or customers are acting
R.A. No. 9160 and the following rules and for themselves or for another, reasonable
regulations on anti-money laundering. measures should be taken to obtain the true
identity of the persons on whose behalf an
1. Customer identification. Covered account is opened or a transaction
institutions shall establish and record the conducted.
of verifying the true identity of their clients accounts, accounts under fictitious names,
and, in case of corporate clients, require a and all other similar accounts shall be
system of verifying their legal existence absolutely prohibited. In case where
and organizational structure, as well as the numbered accounts is allowed (i.e., peso
authority and identification of all persons and foreign currency non-checking
purporting to act on their behalf. numbered accounts), covered institutions
When establishing business relations or should ensure that the client is identified
conducting transactions (particularly in an official or other identifying
opening of deposit accounts, accepting documents.
deposit substitutes, entering into trust and The BSP may conduct annual testing
other fiduciary transactions, renting of solely limited to the determination of the
safety deposit boxes, performing existence and the identity of the owners of
remittances and other large cash such accounts.
transactions) covered institutions should Covered institutions shall phase out
take reasonable measures to establish and within a period of one (1) year from 2 April
record the true identity of their clients. Said 2001 or upon their maturity, whichever is
client identification may be based on earlier, anonymous accounts or accounts
official or other reliable documents and under fictitious names as well as numbered
records. accounts being kept or managed by them,
a. In cases of corporate and other legal which are not expressly allowed under
entities, the following measures should be existing law.
taken, when necessary: d. The identity of existing clients or
(1) Verification of the legal existence beneficial owners of deposits and other
and structure of the client from the funds held or being managed by the
appropriate agency or from the client itself covered institutions should be renewed/
or both, proof of incorporation, including updated at least every other year.
information concerning the customer’s e. All records of all transactions of
name, legal form, address, directors, covered institutions shall be maintained
principal officers and provisions regulating and safely stored for five (5) years from the
the power behind the entity. dates of transactions. With respect to closed

APP. P-5
05.12.31
accounts, the records on customer 4. Required reporting of certain

identification, account files and business transactions. If there is reasonable ground
correspondence, shall be preserved and to believe that the funds are proceeds of
safely stored for at least five (5) years from an unlawful activity as defined under R.A.
the dates when they were closed. No. 9160 and/or its IRRs, the transactions
Such records must be sufficient to involving such funds or attempts to transact
permit reconstruction of individual the same, should be reported to the Anti-
transactions so as to provide, if necessary, Money Laundering Council (AMLC) in
evidence for prosecution of criminal accordance with Rules 5.2 and 5.3 of the
behaviour. AMLA IRRs.
f. Special attention should be given a. Report on suspicious transactions.1
to all complex, unusual large transactions, Banks shall report covered transactions and
and all unusual patterns of transactions, suspicious transactions, as defined in Rules
which have no apparent or visible lawful 5.2 and 5.3 of the AMLA IRRs, to the AMLC
purpose. The background and purpose of using the forms prescribed by the AMLC.
such transactions should, as far as possible, Reportable transactions shall include the
be examined, the findings established in following:
writing, and be available to help (1) Outward remittances without
supervisors, auditors and law enforcement visible lawful purpose;
agencies. (2) Inward remittances without visible
g. Covered institutions should not, or lawful purpose or without underlying trade
should at least avoid, transacting business transactions;
with criminals. Reasonable measures (3) Unusual purchases of foreign
should be adopted to prevent the use of exchange without visible lawful purpose;
their facilities for laundering of proceeds (4) Unusual sales of foreign exchange
of crimes and other illegal activities. whose sources are not satisfactorily
established;
2. Programs against money (5) Complex, unusual large
laundering. Programs against money transactions, and all unusual patterns of
laundering should be developed. These transactions, which have no apparent or
programs, should include, as a minimum: visible lawful purpose;
a. The development of internal (6) Funds being managed or held as
policies, procedures and controls, including deposit substitutes if there is reasonable
the designation of compliance officers at ground to believe that the same are
management level, and adequate proceeds of criminal and other illegal
screening procedures to ensure high activities; and
standards when hiring employees; (7) Suspicious Transaction Indicators or
b. An ongoing employee training “Red Flags” as a guide in the submission
program; and to the AMLC of reports of suspicious
c. An audit function to test the system. transactions relating to potential or actual
financing of terrorism.
3. Submission of plans of action (a) Wire transfers between accounts,
Covered institutions shall submit a plan of without visible economic or business
action on how to comply with the purpose, especially if the wire transfers are
requirements of App. P-5 nos. 1, 2 and 4 effected through countries which are
within thirty (30) business days from July identified or connected with terrorist
31, 2000 or from opening of the institution. activities.
1
Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex P-5-b).

APP. P-5
05.12.31

individuals who have no known connection involved.
or relation with the account holder. (b) A brief description of the
(g) An individual receiving transaction or transactions.
remittances, but has no family members (c) Date or date the transaction(s)
working in the country from which the occurred.
remittance is made. (d) Amount(s) involved in every
(h) Client was reported and/or transaction.
mentioned in the news to be involved in (e) Such other relevant information
terrorist activities. which can be of help to the authorities
(i) Client is under investigation by should there be an investigation.
law enforcement agencies for possible b. Exemption from Bank Secrecy
involvement in terrorist activities. Law. When reporting covered transactions
(j) Transactions of individuals, to the AMLC, covered institutions and their
companies or non-governmental officers, employees, representatives,
organizations (NGOs) that are affiliated or agents, advisors, consultants or associates
related to people suspected of being shall not be deemed to have violated R.A.
connected to a terrorist group or a group No. 1405, as amended; R.A. No. 6426, as
that advocates violent overthrow of a amended; R.A. No. 8791 and other similar
government. laws, but are prohibited from
(k) Transactions of individuals, communicating, directly or indirectly, in
companies or NGOs that are suspected as any manner or by any means, to any person
being used to pay or receive funds from the fact that a covered transaction report
revolutionary taxes. was made, the contents thereof, or any
(l) The NGO does not appear to have other information in relation thereto. In
expenses normally related to relief or case of violation thereof, the concerned
humanitarian effort. officer, employee, representative, agent,
(m) The absence of contributions from advisor, consultant or associate of the
donors located within the country of origin covered institution, shall be criminally
of the NGO. liable. However, no administrative,
(n) A mismatch between the pattern criminal or civil proceedings, shall lie
and size of financial transactions on the one against any person for having made a
hand and the stated purpose and activity of covered transaction report in the regular
the NGO on the other. performance of his duties and in good faith,

APP. P-5
05.12.31
APP. P-5
05.12.31
whether or not such reporting results in any advisor, consultant or associate of the
criminal prosecution under R.A. 9160 or any covered institution, or media shall be held
other Philippine law. criminally liable.
c. Prohibition from disclosure of the
covered transaction report. When 5. Certification of compliance
reporting covered transactions to the with anti-money laundering
AMLC, covered institutions and their regulations. Covered institution shall
officers, employees, representatives, submit annually to the BSP thru the
agents, advisors, consultants or associates appropriate supervising and
are prohibited from communicating, examining department a certification
directly or indirectly, in any manner or by (Annex P-5-a) signed by the President
any means, to any person, entity, the media, or officer of equivalent rank and by
the fact that a covered transaction report their Compliance Officer to the effect
was made, the contents thereof, or any other that they have monitored compliance
information in relation thereto. Neither with existing anti-money laundering
may such reporting be published or aired regulations.
in any manner or form by the mass media, The certification shall be submitted
electronic mail, or other similar devices. in accordance with Appendix P-2 and
In case of violation thereof, the concerned shall be considered a Category A-2
officer, employee, representative, agent, report.

APP. P-5
05.12.31
Annex P-5-a
CERTIFICATION
hereby certify:
1. That we have monitored (Name of Pawnshop)’s compliance with R.A. No. 9160
(Anti-Money Laundering Act of 2001), as well as with BSP Circular Nos. 251, 253,
259 and 302;
2. That the Pawnshop is complying with the required customer identification, docu-
mentation of all new clients, and continued monitoring of customer’s activities;
3. That the Pawnshop is also complying with the requirement to record all transactions
4. That the Pawnshop does not maintain anonymous or fictitious accounts; and
5. That we conduct regular anti-money laundering training sessions for all Pawnshop
(Name of President or officer of equivalent rank) (Name of Compliance Officer)
SUBSCRIBED AND SWORN to before me, _____ this ____ day of ___________, affiant/s
exhibiting to me their Community Tax Certificate No.(s) as follows:

Page No. _________;
Book No. _________;
Series of 20___

APP. P-5
05.12.31
Annex P-5-b

SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS
1. All covered institutions are required their respective transaction amounts, said
to file Suspicious Transaction Reports (STRs) covered institutions shall be required to file
on transactions involving all kinds of CTRs on its clients whose transactions
monetary instruments or property. exceed P500,000 and are included in the
bulk transactions.
2. Banks shall file Covered Transaction
Reports (CTRs) on transactions involving all 5. With respect to insurance
quarterly, semi-annually or annually),
3. Covered institutions, other than exceeds P500,000, such amount shall be
banks, shall file CTRs on transactions in reported as a covered transaction, even
cash or foreign currency or other monetary if the amounts of the amortizations are
instruments (other than checks) or less than the threshold amount. The CTR
properties. Due to the nature of the shall be filed upon payment of the first
transactions in the stock exchange, only the premium amount, regardless of the mode
brokers-dealers shall be required to file of payment. Under this rule, the
CTRs and STRs. The PSE, PCD, SCCP and insurance company shall file the CTR
transfer agents are exempt from filing CTRs. only once every year until the policy
They, are however, required to file STRs matures or rescinded, whichever comes
when the transactions that pass through first.
them are deemed to be suspicious.
6. The submission of CTRs is deferred
i.e., deposits of premium payments in bulk deferred and covered institutions are
or settlements of trade, and the bulk mandated to submit such STRs when the

APP. P-6
05.12.31


Pilipinas (BSP).
BSP.
the Philippines shall extend cooperation those entities authorized to transact
in transnational investigations and insurance business in the Philippines,
prosecutions of persons involved in money whether life or non-life, and whether

APP. P-6
05.12.31

APP. P-6
05.12.31

security of which it is the issuer. of a regular business, issues or promulgates,
(g) A closed-end investment company analyzes reports concerning the capital
includes an investment company other than market, except:
and formally established plan, exclusively newspaper, news, business or
for the collective investment and financial publication of general and
reinvestment of certain money representing regular circulation, including their
participation in the plan received by it in its employees;
capacity as trustee, for the purpose of (d) any contract market;
administration, holding or management of (e) such other person not within the
such funds and/or properties for the use, intent of this definition, provided
benefit or advantage of the trustor or of that the furnishing of such service
others known as beneficiaries. by the foregoing persons is solely
(i) A pre-need company or issuer incidental to the conduct of their
includes any corporation supervised and/ business or profession.
or regulated by the SEC and is authorized (3) any person who undertakes the
or licensed to sell or offer for sale pre-need management of portfolio securities of investment
plans. Pre-need plans are contracts which companies, including the arrangement of
provide for the performance of future purchases, sales or exchanges of securities.
service(s) or payment of future monetary (l) A moneychanger includes any
consideration at the time of actual need, person in the business of buying or selling
payable either in cash or installment by the foreign currency notes.
planholder at prices stated in the contract with (m) A money payment, remittance and
or without interest or insurance coverage and transfer company includes any person
includes life, pension, education, internment offering to pay, remit or transfer or transmit
and other plans, which the Commission may, money on behalf of any person to another
from time to time, approve. person.
(j) A foreign exchange corporation (n) “Customer” refers to any person or
includes any enterprise which engages or entity that keeps an account, or otherwise
purports to engage, whether regularly or on transacts business, with a covered institution
an isolated basis, in the sale and purchase and any person or entity on whose behalf
of foreign currency notes and such other an account is maintained or a transaction is
foreign-currency denominated non-bank conducted, as well as the beneficiary of said
under its articles of incorporation. beneficiary of a trust, an investment fund, a
(k) Investment Advisor/Agent/ pension fund or a company or person
in the business of advising others, either any insurance policy holder, whether actual
directly or through circulars, reports, or prospective.

APP. P-6
05.12.31

amount in excess of Php500,000.00 within title thereto passes to another by

APP. P-6
05.12.31

APP. P-6
05.12.31

APP. P-6
05.12.31


APP. P-6
05.12.31

APP. P-6
05.12.31

APP. P-6
05.12.31


by the AMLC;

APP. P-6
05.12.31

APP. P-6
05.12.31

APP. P-6
05.12.31

RULE 9

APP. P-6
05.12.31


APP. P-6
05.12.31
required under the provisions of these Rule 9.2.c. Closed Accounts.- With respect

APP. P-6
05.12.31

APP. P-6
05.12.31

APP. P-6
05.12.31

order; and
BANK DEPOSITS

APP. P-6
05.12.31

APP. P-6
05.12.31

APP. P-6
05.12.31

APP. P-6
05.12.31


APP. P-6
05.12.31
prescribed herein.

APP. P-6
05.12.31

RULE 17

APP. P-6
05.12.31


APP. P-6
05.12.31

N REGULATIONS
(Regulations Governing Other Non-Bank Financial Institutions)
TABLE OF CONTENTS
SECTION 4101N Applicable Regulations on Trust and Other Fiduciary

Activities
SECTION 4102N Minimum Capital for Investment Houses
SECTION 4103N Prior Bangko Sentral Authority on Quasi-Banking Functions

4103N.1 Quasi-banking functions
4103N.2 Transactions not considered quasi-banking
4103N.3 Delivery of securities
4103N.4 Securities custodianship operations
SECTION 4104N Anti-Money Laundering Regulations

4104N.1 - 4104N.8 (Reserved)
4104N.9 Sanctions and penalties
SECTIONS 4105N - 4109N (Reserved)

4109N.1 - 4109N.15 (Reserved)
4109N.16 Qualification and accreditation of non-bank
financial institutions acting as trustee on any
mortgage or bond issuance by any municipality,
GOCC, or any body politic
SECTION 4140N Interlocking Directorships and Officerships

4140N.1 Representatives of government
SECTION 4143N Disqualification of Directors and Officers

4143N.1 Persons disqualified to become directors
4143N.2 Persons disqualified to become officers
4143N.3 Disqualification procedures
4143N.4 Effect of possession of disqualifications
4143N.5 (Reserved)
4143N.6 Watchlisting
i
SECTION 4144N Securities Custodianship and Securities Registry Operations
4144N.1 Statement of policy
4144N.2 Applicability of this regulation
4144N.3 Prior Bangko Sentral approval
4144N.4 Application for authority
4144N.5 Pre-qualification requirements for a securities
custodian/registry
4144N.6 Functions and responsibilities of a securities
custodian
4144N.7 Functions and responsibilities of a securities
registry
4144N.8 Protection of securities of the customer
4144N.9 Independence of the registry and custodian
4144N.10 Registry of scripless securities of the Bureau of
the Treasury
4144N.11 Confidentiality
4144N.12 Compliance with anti-money laundering laws
regulations
4144N.13 Basic security deposit
4144N.14 Reportorial requirements
4144N.15 - 4144N.28 (Reserved)
4144N.29 Sanctions
SECTION 4150N Rules of Procedure on Administrative Cases Involving

Directors and Officers of Trust Entities
SECTION 4157N Batas Pambansa Blg. 344 - An Act to Enchance the Mobility
of Disabled Persons by Requiring Certain Buildings,
Institutions, Establishments and Public Utilities to Install
Facilities and other Devices
SECTION 4161N Philippine Financial Reporting Standards/Philippine

Accounting Standards
SECTION 4162N Reports

4162N.1 Categories and signatories of reports
4162N.2 Manner of filing
4162N.3 Sanctions in case of willful delay in the
submission of reports
ii
SECTION 4163N (Reserved)
SECTION 4164N Internal Audit Function

4164N.1 Status
4164N.2 Scope
4164N.3 Qualification standards of the internal auditor
4164N.4 Code of Ethics and Internal Auditing Standards
SECTION 4172N Financial Audit

4172N.1 Audited financial statements of NBFIs
4172N.2 Posting of audited financial statements
SECTION 4180N Selection, Appointment and Reporting Requirements for

SECTION 4181N Publication Requirements
SECTION 4190N Duties and Responsibilities of NBFIs and their Directors/

Officers in All Cases of Outsourcing of NBFI Functions
SECTION 4192N Prompt Corrective Action Framework
SECTION 4193N Supervision by Risks
SECTION 4194N Market Risk Management
SECTION 4195N Liquidity Risk Management
SECTION 4301N Credit Card Operations; General Policy

4301N.1 Definition of terms
4301N.2 Risk management system
4301N.3 Minimum requirements
iii
4301N.4 Information to be disclosed
4301N.5 Interest accrual on past due loans
4301N.6 Finance charges
4301N.7 Deferral charges
4301N.8 Late payment/penalty fees
4301N.9 Confidentiality of information
4301N.10 Suspension, termination of effectivity and
reactivation
4301N.11 Inspection of records covering credit card
transactions
4301N.12 Offsets
4301N.13 Handling of complaints
4301N.14 Unfair collection practices
4301N.15 Sanctions
SECTION 4302N Classification of Credit Card Receivables
SECTION 4303N Updating of Information Provided to Credit Information

Bureaus
SECTION 4312N Grant of Loans and Other Credit Accommodations

4312N.1 General guidelines
4312N.2 Purpose of loans and other credit
accommodations
4313N.3 Prohibited use of loan proceeds
4312N.4 Signatories
4312N.5 Sanctions
SECTION 4313N Bank DOSRI Rules and Regulations Applicable to Government

Borrowings in Government-Owned or Controlled Financial
Institutions
SECTION 4314N Loans Against Personal Security
SECTION 4391N Investment in Debt and Marketable Equity Securities
iv
SECTION 4511N Foreign Exchange Dealers/Money Changers and/or

Remittance Agents Operations
4511N.1 Registration
4511N.2 Application for registration
4511N.3 Applicability of other laws/regulations
4511N.4 Required seminar/training
4511N.5 Sale and purchase of foreign currencies by FXDs/
MCs
4511N.6 Application to sell/purchase foreign currencies by
FXDs/MCs
4511N.7 Additional requirement
4511N.8 Requirements for remittance agents
4511N.9 AMLC reportorial requirements
4511N.10 - 4511N.14 (Reserved)
4511N.15 Sanctions
4511N.16 Industry association
SECTION 4601N Fines and Other Charges

4601N.1 Guidelines on the imposition of monetary penalties;
Payment of penalties or fines
SECTION 4603N Non-Bank BSP Supervised Entities
SECTIONS 4604N- 4652N (Reserved)
SECTION 4653N Accounting for Financial Institution Premises; Other Fixed

Assets
SECTION 4660N Disclosure of Remittance Charges and Other Relevant

Information
v
SECTION 4695N Valid Identification (ID) Cards for Financial Transactions
SECTION 4699N General Provision on Sanctions
vi
List of Appendices
08.12.31
LIST OF APPENDICES
No. SUBJECT MATTER
N-1 List of Reports Required from Non-Bank Financial Institutions
N-2 Guidelines on Prescribed Reports Signatories and Signatory Authorization

Annex N-2-a - Format of Resolution for Signatories of Category A-2
Reports
Annex N-2-b - Format of Resolution for Signatories of Category B
Reports
N-3 Anti-Money Laundering Regulations

Annex N-3-a - Certification of Compliance with Anti-Money
Annex N-3-b - Rules on Submission of Covered Transaction Reports
Institutions
N-4 Revised Implementing Rules and Regulations R.A. No. 9160, as

N-5 Guidelines to Govern the Selection, Appointment and the Reporting

Requirement for External Auditors of NBFIs
N-6 Qualification Requirements for a Bank/NBFI Applying for Accreditation

to Act as Trustee on any Mortgage or Bond Issued by any Municipality,
Government-Owned or Controlled Corporation, or any Body Politic
N-7 Format Certification
N-8 Registration and Operations of Foreign Exchange Dealers/Money

Changers and Remittance Agents
Manual of Regulations for Non-Bank Financial Institutions N Regulations

§§ 4101N - 4103N.1
05.12.31
BSP Manual of Regulations for Non-Bank Financial Institutions
N Regulations
(Regulations Governing Other Non-Bank Financial Institutions)
Section 4101N Applicable Regulations on c. Methods of borrowing: issuance,

Trust and Other Fiduciary Activities. Trust endorsement, or acceptance of debt
operations and investment management instruments of any kind, other than
activities of non-bank financial institutions deposits, such as:
not performing quasi-banking functions (1) acceptances;
shall be subject to the applicable regulations (2) promissory notes;
on such activities of non-bank financial (3) participations;
institutions performing quasi-banking (4) certificates of assignment or similar
functions in Part IV of the Q Regulations of instruments with recourse;
this Manual, to the regulations in the other (5) trust certificates;
parts of the Q Regulations addressed also (6) repurchase agreements; and
to trust entities and to the regulations (7) such other instruments as the
implementing the Truth in Lending Act in Monetary Board may determine; and
Sec. 4309Q. d. Purpose:
(1) relending, or
Sec. 4102N Minimum Capital for (2) purchasing receivables or other
Investment Houses. Investment houses obligations.
not performing quasi-banking functions As used in the definition of quasi-
shall also be subject to the minimum capital banking functions, the following terms and
requirement in Sec. 4107Q of this Manual. phrases shall be understood as follows:
Borrowing shall refer to all forms of
Sec. 4103N Prior Bangko Sentral obtaining or raising funds through any of
Authority on Quasi-Banking Functions the methods and for any of the purposes
Borrowing by non-bank financial provided in c and d, above whether the
institutions (NBFIs) from twenty (20) or borrower’s liability thereby is treated as
more lenders for the purpose of relending real or contingent.
or purchase of receivables or other For the borrower’s own account shall
obligations, which constitutes quasi- refer to the assumption of liability in one’s
banking functions, shall be subject to prior own capacity and not in representation, or
Bangko Sentral ng Pilipinas (BSP) authority as an agent or trustee, of another.
on performance of quasi-banking functions Purchasing of receivables or other
under BSP regulations. obligations shall refer to the acquisition of
claims collectible in money, including
§ 4103N.1 Quasi-banking functions interbank borrowings or borrowings
Quasi-banking functions shall consist of the between financial institutions, or of
following: securities, of any amount and maturity,
a. Borrowing funds for the borrower’s from domestic or foreign sources.
own account; Relending shall refer to the extension
b. Twenty (20) or more lenders at any of loans by an institution with antecedent
one (1) time; borrowing transactions. Relending shall be

Page 1
§§ 4103N.1 - 4103N.2
05.12.31
presumed in the absence of express 4. Debt instruments underwritten by

stipulation, when the institution is investment houses or traded by securities
regularly engaged in lending. dealers/brokers whether on a firm, standby
Regularly engaged in lending shall or best efforts basis shall be counted on
refer to the practice of extending loans, the basis of the number or purchasers
advances, discounts or rediscounts as a thereof and shall not be treated as having
matter of business, i.e., continuous or been issued solely to the underwriter or
consistent lending as distinguished from trader: Provided, however, That in case
isolated lending transactions. of unsold debt instruments in a firm
The following guidelines shall govern commitment underwriting, the
lender count on borrowings or funds underwriter shall be counted as a lender.
mobilized by NBFIs not performing quasi- 5. Each buyer, assignee, and/or
banking functions: indorsee shall be counted in determining
1. For purposes of ascertaining the the number of lenders/placers of funds
number of lenders/placers to determine mobilized through sale, assignment, and/
whether or not an NBFI is engaged in or indorsement of securities or receivables
quasi-banking functions, the names of on a without recourse basis whenever the
payees on the face of each debt instrument terms and/or attendant documentation,
shall serve as the primary basis for counting practice, or circumstances indicate that the
the lenders/placers except when proof to sale, assignment, and/or indorsement
the contrary is adduced such as the official thereof legally obligates the NBFI not
receipts or documents other than the debt performing quasi-banking functions to
instrument itself. In such case the actual/ repurchase or reacquire the securities/
real lenders/placers as appearing in such receivables sold, assigned, indorsed or to
proof, shall be the basis for counting the pay the buyer, assignee, or indorsee at
number of lenders/placers. some subsequent time.
In a debt instrument issued to two (2) or 6. Funds obtained by way of
more named payees under an and/or and or advances from stockholders, directors, or
arrangement, the number of payees officers, regardless of nature, shall be
appearing on the instrument shall be the basis considered borrowed funds or funds
for counting the number of lenders/placers: mobilized and such stockholders,
Provided, however, That a debt instrument directors or officers shall be counted in
issued in the name of a husband and wife determining the number of lenders/
followed by the word spouses, whether placers.
under an and, and/or or or arrangement or
in the name of a designated payee under an § 4103N.2 Transactions not
in trust for (ITF) arrangement shall be counted considered quasi-banking. The following
as one borrowing/placement. shall not constitute quasi-banking:
2. Each debt instrument payable to a. Borrowing by commercial,
bearer shall be counted as one (1) lender/ industrial and other non-financial
placer, except when the NBFI can prove companies, through the means listed in
that there is only one (1) owner for several Subsec. 4103N.1 for the limited purpose
debt instruments so payable. of financing their own needs or the needs
3. Two (2) or more debt instruments of their agents or dealers; and
issued to the same payee, irrespective of b. The mere buying and selling
the date and amount shall be counted as without recourse of instruments mentioned
one (1) borrowing or placement. in Subsec. 4103N.1: Provided, That:
N Regulations Manual of Regulations for Non-Bank Financial Institutions

Page 2
§§ 4103N.2 - 4103N.3
07.12.31
(1) The institution selling without § 4103N.3 Delivery of securities1

recourse shall indicate or stamp in a. Securities sold on a without recourse
conspicuous print on the instrument/s, as basis allowed under Subsec. 4101Q.3(b)
well as on the confirmation of sale, the shall be delivered physically to the purchaser,
phrase without recourse or sans recourse or to his designated custodian duly accredited
and the following statement: by the BSP, if certificated, or by means of
book-entry transfer to the appropriate
(Name of non-bank) assumes
securities account of the purchaser or his
no liability for the payment,
designated BSP accredited custodian in a
directly or indirectly, of
registry for said securities, if immobilized
this instrument.
or dematerialized, while the confirmation
(2) In the absence of the phrase of sale or document of conveyance by the
without recourse or sans recourse and the seller shall be physically delivered to the
above-required accompanying statement, purchaser. The custodian shall hold the
the instrument so issued, endorsed or securities in the name of the buyer:
accepted shall automatically be considered Provided, That an NBFI authorized by the
as falling within the purview of the rules BSP to perform custodianship function may
on quasi-banking: not be allowed to be custodian of securities
Provided, further, That any of the issued or sold on a without recourse basis
following practices or practices similar and/ by said NBFI, its subsidiaries or affiliates,
or tantamount thereto in connection with a or of securities in bearer form.
without recourse transaction renders such The delivery shall be effected upon
transaction as with recourse and within the payment and shall be evidenced by a
purview of the rules on quasi-banking. securities delivery receipt duly signed by
(a) Issuance of postdated checks by a the authorized officer of the custodian and
financial intermediary, whether for its own delivered to the purchaser.
account or as an agent of the debt Sanctions. Violation of any provision
instrument issuer, in payment of the debt of Item "a" shall be subject to the following
instrument sold, assigned or transferred sanctions/penalties:
without recourse; (1) Monetary penalties
(b) Issuance by a financial intermediary First offense – Fine of P10,000 a day
of any form of guaranty on sale transactions for each violation reckoned from the date
or on negotiations or assignment of debt the violation was committed up to the date
instruments without recourse; or it was corrected.
(c) Payment with the funds of the Subsequent offenses – Fine of P20,000
financial intermediary which assigned, sold a day for each violation reckoned from the
or transferred the debt instrument without date the violation was committed up to the
recourse, unless the financial intermediary date it was corrected.
can show that the issuer has with the said (2) Other sanctions
financial intermediary funds corresponding First offense – Reprimand for the
to the amount of the obligation. directors/officers responsible for the violation.
Any investment house violating the Subsequent offense –
provisions of this Subsection shall be subject (a) Suspension for ninety (90) days
to the sanctions provided in Sections 12 and without pay of directors/officers
16 of P.D. No. 129, as amended. responsible for the violation;
1
Effective 16 November 2004 under Circular No. 450 dated 06 September 2004.

Page 3
§§ 4103N.3 - 4103N.4
07.12.31
(b) Suspension or revocation of the (1) the custody arrangements with

accreditation to perform custodianship clients have been in existence prior to 05
function; November 2004 (effectivity date of Circular
(c) Suspension or revocation of the 457 dated 14 October 2004);
authority to engage in quasi-banking (2) the dealing NBFI under BSP
function; and/or supervision had been informed in writing
(d) Suspension or revocation of the by the client that he is not willing to have
authority to engage in trust and other his existing securities delivered to a third
fiduciary business. party custodian;
b. The guidelines to implement the (3) any BSP-regulated institution shall
delivery by the seller of securities to the not enter into securities transactions with
buyer or to his designated third party a client who has outstanding securities not
custodian are shown in Appendix Q-38. delivered to a BSP accredited third party
Sanctions. Violation of any of the custodian; and
provisions of Appendix Q-38 shall be (4) it shall be the responsibility of any
subject to the sanctions/penalties under BSP-regulated institution to satisfy itself that
Subsec. 4144N.29. the person purchasing securities from it has
(As amended by M-2007-002 dated 23 January 2007, no outstanding securities holdings which
M-2006-009 dated 18 July 2006, M-2006-002 dated 05 June were not delivered to a BSP accredited third
2006 and Circular No. 524 dated 31 March 2006) party custodian.
Sanctions. Without prejudice to the
§ 4103N.4 Securities custodianship penal and administrative sanctions
operations provided for under Sections 36 and 37,
a. Securities sold on a without respectively, of the R.A. No. 7653,
recourse basis shall be delivered to the violation of any provision of this Subsection
purchaser, or to his designated custodian shall be subject to the following sanctions/
duly accredited by the BSP: Provided, That penalties:
the other entity authorized by the BSP to (1) First offense –
perform custodianship function may not be (a) Fine of up to P10,000 a day for the
allowed to be custodian of securities issued institution for each violation reckoned from
or sold on a without recourse basis by said the date the violation was committed up
entity, its subsidiaries or affiliates, or of to the date it was corrected; and
securities in bearer form. Existing securities (b) Reprimand for the directors/officers
being held under custodianship by other responsible for the violation.
entities under BSP supervision, which are (2) Second offense -
not in accordance with said regulation, (a) Fine of up to P20,000 a day for the
must therefore, be delivered to a BSP institution for each violation reckoned from
accredited third party custodian. the date the violation was committed up
However, other FIs under BSP to the date it was corrected; and
supervision may maintain custody of (b) Suspension for ninety (90) days
existing securities of their clients who are without pay of directors/officers
unable or unwilling to take delivery responsible for the violation.
pursuant to the provisions of this (3) Subsequent offenses –
Subsection but who declined to deliver (a) Fine of up to P30,000 a day for the
their existing securities to a BSP accredited institution for each violation from the date
third party custodian subject to the the violation was committed up to the date
following conditions: it was corrected;

Page 4
§§ 4103N.4 - 4109N.16
08.12.31
(b) Suspension or revocation of the officers for any violation of Section 9 of R.A.
authority to act as securities custodian No. 9160, as amended, the administrative
and/or registry; and sanctions provided under Section 37 of
(c) Suspension for 120 days without R.A. No. 7653.
pay of the directors/officers responsible for
the violation. Secs. 4105N - 4109N (Reserved)
b. Sec. 4144N and its subsections
shall also govern the securities §§ 4109N.1 - 4109N.15 (Reserved)
custodianship and securities registry
operations relative to the sale of securities § 4109N.16 Qualification and
on a without recourse basis. accreditation of non-bank financial
(As amended by M-2006-009 dated 18 July 2006, M-2006-002 institutions acting as trustee on any
dated 05 June 2006 and Circular No. 524 dated 31 March 2006) mortgage or bond issuance by any
municipality, GOCC, or any body politic
Sec. 4104N Anti-Money Laundering a. Applicability. NBFIs duly
Regulations. Banks, OBUs, QBs, trust accredited by the BSP may act as trustee
entities, NSSLAs, pawnshops, and all other on any mortgage or bond issued by any
institutions, including their subsidiaries and municipality, GOCC, or any body politic.
affiliates supervised and/or regulated by the b. Application for accreditation. An
BSP, otherwise known as "covered NBFI desiring to act as trustee on any
institutions” shall comply with the provisions mortgage or bond issued by any
of R.A. No. 9160, as amended, otherwise municipality, GOCC, or any body politic
known as the “Anti-Money Laundering Act shall file an application for accreditation
of 2001” and its Revised Implementing Rules with the appropriate department of the SES.
and Regulations (IRRs) in Appendix N-4 and The application shall be signed by the
those in Appendix N-3. president or officer of equivalent rank of
(As amended by Circular No. 612 dated 13 June 2008) the NBFI and shall be accompanied by the
following documents:
§§ 4104N.1 - 4104N.8 (Reserved) (1) certified true copy of the resolution
of the institution’s board of directors
§ 4104N.9 Sanctions and penalties authorizing the application; and
a. Whenever a covered institution (2) a certification signed by the president
violates the provisions of Section 9 of R.A. or officer of equivalent rank that the institution
No. 9160, as amended the officer(s) or has complied with all the qualification
other persons responsible for such violation requirements for accreditation.
shall be punished by a fine of not less than c. Qualification requirements. An
P50,000 nor more than P200,000 or by NBFI applying for accreditation to act as
imprisonment of not less than two (2) years trustee on any mortgage or bond issued
nor more than ten (10) years, or both, at by any municipality, GOCC, or any body
the discretion of the court pursuant to politic must comply with the requirements
Section 36 of R.A. No. 7653, otherwise in Appendix N-6.
known as “The New Central Bank Act”. d. Independence of the trustee. An
b. Without prejudice to the criminal NBFI is prohibited from acting as trustee
sanctions prescribed above against the of a mortgage or bond issuance if any
culpable persons, the Monetary Board elective or appointive official of the LGU,
may, at its discretion, impose upon any GOCC, or body politic which issued said
covered institution, its directors and/or mortgage or bond and/or his related

Page 5
§ 4109N.16
05.12.31
interests own such number of shares of the f. Waiver of confidentiality. An NBFI

NBFI that will allow him or his related designated as trustee of any mortgage or
interests to elect at least one (1) member bond issued by any municipality, GOCC, or
of the board of directors of such NBFI or is any body politic shall submit to the
directly or indirectly the registered or appropriate department of the SES a waiver
beneficial owner of more than ten percent of the confidentiality of information under
(10%) of any class of its equity security. Sections 2 and 3 of R.A. No. 1405, as
e. Investment and management of amended, duly executed by the issuer of the
the funds. A domestic NBFI designated as mortgage or bond in favor of the BSP.
trustee of a mortgage or bond issuance g. Reportorial requirements. An NBFI
may hold and manage, in accordance with authorized by the BSP to act as trustee of the
the provisions of the trust indenture or proceeds of mortgage or bond issuance of a
agreement, the proceeds of the mortgage municipality, GOCC, or body politic shall
or bond issuance and such assets and funds comply with reportorial requirements that
of the issuing municipality, GOCC, or may be prescribed by the BSP.
body politic as may be required to be h. Applicability of the rules and
delivered to the trustee under the trust regulations on trust, other fiduciary
indenture/agreement, subject to the business and investment management
following conditions/restrictions: activities. The provisions of the Rules and
(1) Pending the utilization of such funds Regulations on Trust, Other Fiduciary
pursuant to the provisions of the trust Business and Investment Management
indenture/agreement, the same shall only be Activities not inconsistent with the
(i) deposited in any bank authorized to accept provisions of this Subsection shall form part
deposits from the Government or of these rules.
government entities: Provided, That the i. Sanctions. Without prejudice to the
depository bank is not a subsidiary or affiliate penal and administrative sanctions provided
of the trustee NBFI, or (ii) invested in peso- for under Sections 36 and 37, respectively,
denominated treasury bills acquired/ of R.A. No. 7653, violation of any provision
purchased from any securities dealer/entity, of this Subsection shall be subject to the
other than the trustee or any of its unit/ following sanctions/penalties depending on
department, its subsidiary or affiliate. the gravity of the offense:
(2) Investments of funds constituting or (1) First offense –
forming part of the sinking fund created as (a) Fine of up to P10,000 a day for
the primary source for the payment of the institution for each violation reckoned
the principal and interests due the mortgage from the date the violation was
or bonds shall also be limited to deposits in committed up to the date it was
any bank authorized to accept deposits corrected; and
from the Government or government entities (b) Reprimand for the directors/officers
and investments in government securities responsible for the violation.
that are consistent with such purpose which (2) Second offense –
must be acquired/purchased from any (a) Fine of up to P20,000 a day for the
securities dealer/entity, other than the institution for each violation reckoned from
trustee or any of its unit/department, its the date the violation was committed up
subsidiary or affiliate. to the date it was corrected;

Page 6
§§ 4109N.16 - 4140N
07.12.31
(b) Suspension for ninety (90) days companies, insurance agencies/brokers,

without pay for directors/officers venture capital corporations, FX dealers,
responsible for the violation; and money changers, lending investors,
(c) Revocation of the authority to act as pawnshops, fund managers, mutual
trustee on any mortgage or bond issuance building and loan associations, remittance
by any municipality, GOCC, or body politic. agents and all other NBFIs without quasi-
(3) Subsequent offense – banking functions.
(a) Fine of up to P30,000 a day for the a. Interlocking directorships
institution for each violation reckoned from While concurrent directorship may be
the date the violation was committed up the least prejudicial of the various
to the date it was corrected; relationships cited in this Section to the
(b) Suspension or revocation of the trust interests of the FIs involved, certain
license; measures are still necessary to safeguard
(c) Suspension for 120 days without against the disadvantages that could result
pay of the directors/officers responsible for from indiscriminate concurrent directorship.
the violation. (1) Except as may be authorized by the
Monetary Board or as otherwise provided
Secs. 4110N - 4139N (Reserved) hereunder, there shall be no concurrent
directorships between QBs or between a
Sec. 4140N Interlocking Directorships QB and a bank; and
and/or Officerships. In order to safeguard (2) Without the need for prior approval
against the excessive concentration of of the Monetary Board, concurrent
economic power, unfair competitive directorships between entities not involving
advantage or conflict of interest situations an investment house shall be allowed in the
to the detriment of others through the following cases:
exercise by the same person or group of (a) A bank and one (1) or more of its
persons of undue influence over the policy- subsidiary bank/s, QB/s, and NBFI/s; and
making and/or management functions of (b) A QB and an NBFI.
similar FIs while at the same time allowing For purposes of the foregoing, a
banks, QBs and NBFIs without quasi- husband and his wife shall be considered
banking functions to benefit from as one (1) person.
organizational synergy or economies of b. Interlocking directorships and
scale and effective sharing of managerial officerships.
and technical expertise, the following In order to prevent any conflict of
regulations shall govern interlocking interest resulting from the exercise of
directorships and/or officerships within the directorship coupled with the reinforcing
financial system consisting of banks, QBs influence of an officer’s decision-making
and NBFIs. and implementing powers, the following
For purposes of this Section, QBs shall rules shall be observed.
refer to investment houses, finance (1) Except as may be authorized by the
companies, trust entities and all other QBs Monetary Board or as otherwise provided
while NBFIs shall refer to investment hereunder, there shall be no concurrent
houses, finance companies, trust entities, directorship and officership between QBs,
insurance companies, securities dealers/ or between a QB and a bank, and between
brokers, credit card companies, NSSLAs, a QB and an NBFI.
holding companies, investment companies, (2) Without the need for prior approval
government NBFIs, asset management of the Monetary Board, concurrent

Page 7
§ 4140N
07.12.31
directorship and officership between a bank (3) Between a QB and not more than
and one (1) or more of its subsidiary two (2) of its subsidiary QB/s, and NBFI/s;
bank/s, QB/s, and NBFI/s, other than (4) Between a bank and not more than
investment house/s, shall be allowed. two (2) of its subsidiary bank/s, QB/s, and
c. Interlocking officerships. NBFIs, other than investment house/s;
A concurrent officership in different FIs (5) Between a bank and not more than
may present more serious problems of self- two (2) of its subsidiary QB/s, and NBFI/s.
dealing and conflict of interest. Multiple Aforementioned concurrent officerships
positions may result in poor governance may be allowed, subject to the following
or unfair competitive advantage. conditions:
Considering the full-time nature of officer (a) that the positions do not involve any
positions, the difficulties of serving two (2) functional conflict of interests;
offices at the same time, and the need for (b) that any officer holding the positions
effective and efficient management, the of president, chief executive officer, chief
following rules shall be observed: operating officer or chief financial officer
As a general rule, there shall be no may not be concurrently appointed to any
concurrent officerships, including of said positions or their equivalent;
secondments, between QBs or between (c) that the officer involved, or his
a QB and a bank or between a QB and an spouse or any of his relatives within the
NBFI. For this purpose, secondment shall first degree of consanguinity or affinity or
refer to the transfer/detachment of a person by legal adoption, or a corporation,
from his regular organization for temporary association or firm wholly- or majority-
assignment elsewhere where the seconded owned or controlled by such officer or his
employee remains the employee of the relatives enumerated above, does not own
home employer although his salaries and in his/its own capacity more than twenty
other remuneration may be borne by the percent (20%) of the subscribed capital
host organization. stock of the entities in which the QB has
However, subject to prior approval of equity investments; and
the Monetary Board, concurrent officerships, (d) that where any of the positions
including secondments, may be allowed in involved is held on full-time basis, adequate
the following cases: justification shall be submitted to the
(1) Between a QB, other than an Monetary Board; or
investment house, and not more than (6) Concurrent officership positions
two (2) of its subsidiary bank/s, QB/s, and in the same capacity which do not involve
NBFI/s, other than investment house/s; management functions, i.e., internal
(2) Between two (2) QBs, or between auditors, corporate secretary, assistant
a QB, other than an investment house, and corporate secretary and security officer,
a bank, or between a QB and an NBFI: between a QB and one (1) or more of its
Provided, That at least twenty percent subsidiary QB/s and NBFI/s, or between a
(20%) of the equity of each of the banks, bank and one (1) or more of its subsidiary
QBs or NBFIs is owned by a holding QBs and NBFIs, or between bank/s, QB/s
company or a QB/bank and the and NBFI/s, other than investment house/s:
interlocking arrangement is necessary Provided, That at least twenty percent (20%)
for the holding company or the QB/bank of the equity of each of the banks, QBs and
to provide technical expertise or NBFIs is owned by a holding company
managerial assistance to its subsidiaries/ or by any of the banks/QBs within the
affiliates; group.

Page 8
§§ 4140N - 4143N.1
07.12.31
For purposes of this Section, members Board from holding a director/trustee

of a group or committee, including sub- position:
groups or sub-committees, whose duties (1) Persons who have been convicted
include functions of management such as by final judgment of the court for offenses
those ordinarily performed by regular involving dishonesty or breach of trust such
officers, shall likewise be considered as as estafa, embezzlement, extortion,
officers. forgery, malversation, swindling and theft;
It shall be the responsibility of the (2) Persons who have been convicted
Corporate Governance Committee to by final judgment of the court for violation
conduct an annual performance evaluation of banking laws;
of the board of directors and senior (3) Persons who have been judicially
management. When a director or officer has declared insolvent, spendthrift or
multiple positions, the Committee should incapacitated to contract; or
determine whether or not said director or (4) Directors, trustees, officers or
officer is able to and has been adequately employees of closed institutions under the
carrying out his/her duties and, if necessary, supervisory and regulatory powers of the
recommend changes to the board based upon BSP who were responsible for such
said performance/review. institutions’ closure as determined by the
(Circular No. 592 dated 28 December 2007) Monetary Board.
b. Temporarily disqualified
§ 4140N.1 Representatives of Directors/trustees/officers/employees
government. The provisions of this Section disqualified by the Monetary Board from
shall apply to persons appointed to such holding a director/trustee position for a
positions as representatives of the specific/indefinite period of time. Included
government or government-owned or are:
controlled entities unless otherwise (1) Persons who refuse to fully
provided under existing laws. disclose the extent of their business
(Circular No. 592 dated 28 December 2007) interest to the appropriate department of the
SES when required pursuant to a provision
Secs. 4141N - 4142N (Reserved) of law or of a circular, memorandum or rule
or regulation of the BSP. This
Sec. 4143N Disqualification of Directors disqualification shall be in effect as long as
and Officers. The following regulations the refusal persists;
shall govern the disqualification of directors (2) Directors who have been absent or
and officers of institutions under the who have not participated for whatever
supervisory and regulatory powers of the reasons in more than fifty percent (50%)
BSP other than banks, QBs, NSSLAs and of all meetings, both regular and special,
pawnshops. of the board of directors during their
incumbency, or any twelve (12)-month
§ 4143N.1 Persons disqualified to period during said incumbency. This
become directors. Without prejudice to disqualification applies for purposes of the
specific provisions of law prescribing succeeding election;
disqualifications for directors, the following (3) Persons who are delinquent in the
are disqualified from becoming directors: payment of their obligations as defined
a. Permanently disqualified hereunder:
Directors/trustees/officers/employees (a) Delinquency in the payment of
permanently disqualified by the Monetary obligations means that an obligation of a

Page 9
§§ 4143N.1 - 4143N.2
07.12.31
person with the institution where he/she upon approval by the Monetary Board on
is a director or officer, or at least two (2) recommendation by the appropriate
obligations with other FIs, under different department of the SES of such directors’
credit lines or loan contracts, are past due election/reelection;
pursuant to Secs. X306, 4308Q, 4306S and (7) Persons dismissed from employment
4303P; for cause. This disqualification shall be in
(b) Obligations shall include all effect until they have cleared themselves
borrowings from any FI obtained by: of involvement in the alleged irregularity
(i) A director, trustee or officer for his or upon clearance, on their request, from
own account or as the representative or the Monetary Board after showing good
agent of others or where he/she acts as a and justifiable reasons, or after the lapse
guarantor, endorser or surety for loans from of five (5) years from the time they were
such FIs; officially advised by the appropriate
(ii) The spouse or child under the department of the SES of their disqualification;
parental authority of the director, trustee (8) Those under preventive
or officer; suspension; and
(iii) Any person whose borrowings or (9) Persons with derogatory records
loan proceeds were credited to the account with the NBI, court, police, Interpol and
of, or used for the benefit of a director, monetary authority (central bank) of other
trustee or officer; countries (for foreign directors and officers)
(iv) A partnership of which a director, involving violation of any law, rule or
trustee or officer, or his/her spouse is the regulation of the Government or any of its
managing partner or a general partner instrumentalities adversely affecting the
owning a controlling interest in the integrity and/or ability to discharge the
partnership; and duties of a director/trustee/officer. This
(v) A corporation, association or firm disqualification applies until they have
wholly-owned or majority of the capital of cleared themselves of involvement in the
which is owned by any or a group of persons alleged irregularity.
mentioned in the foregoing Items “(i)”, (As amended by Circular No. 584 dated 28 September 2007)
“(ii)” and “(iv)”;
This disqualification shall be in effect § 4143N.2 Persons disqualified to
as long as the delinquency persists. become officers
(4) Persons convicted for offenses a. The disqualifications for directors
involving dishonesty, breach of trust or mentioned in Subsec. 4143N.1 shall
violation of banking laws but whose likewise apply to officers, except those
conviction has not yet become final and stated in Item “b(2)”.
executory; b. Except as may be authorized by the
(5) Directors, trustees and officers of Monetary Board or the Governor, the
closed institutions under the supervisory spouse or a relative within the second degree
and regulatory powers of the BSP pending of consanguinity or affinity of any person
their clearance by the Monetary Board; holding the position of chairman, president,
(6) Directors and trustees disqualified executive vice president or any position of
for failure to observe/discharge their equivalent rank, general manager, treasurer,
duties and responsibilities prescribed chief cashier or chief accountant is
under existing regulations. This disqualified from holding or being elected
disqualification applies until the lapse of or appointed to any of said positions in the
the specific period of disqualification or same NBFI; and the spouse or relative within

Page 10
§§ 4143N.2 - 4143N.3
07.12.31
the second degree of consanguinity or affinity c. Upon receipt of the reply/

of any person holding the position of explanation of the director/officer
manager, cashier, or accountant of a branch concerned, the appropriate department of
or office of an NBFI is disqualified from the SES shall proceed to evaluate the case.
holding or being appointed to any of said The director/officer concerned shall be
positions in the same branch or office. afforded the opportunity to defend/clear
himself/herself.
§ 4143N.3 Disqualification procedures d. If no reply has been received from
a. The board of directors and the director/officer concerned upon the
management of every institution shall be expiration of the period prescribed under
responsible for determining the existence Item “b” above, said failure to reply shall
of the ground for disqualification of the be deemed a waiver and the appropriate
institution’s director/officer or employee department of the SES shall proceed to
and for reporting the same to the BSP. evaluate the case based on available
While the concerned institution may records/evidence.
conduct its own investigation and impose e. If the ground for disqualification is
appropriate sanction/s as are allowable, this delinquency in the payment of obligation,
shall be without prejudice to the authority the concerned director or officer shall be
of the Monetary Board to disqualify a given a period of thirty (30) calendar days
director/officer/employee from being within which to settle said obligation or,
elected/appointed as director/officer in any restore it to its current status or, to explain
FI under the supervision of the BSP. why he/she should not be disqualified and
Grounds for disqualification made known included in the watchlisted file, before the
to the institution shall be reported to the evaluation on his disqualification and
appropriate department of the SES within watchlisting is elevated to the Monetary
seventy-two (72) hours from knowledge Board.
thereof. f. For directors/officers of closed
b. On the basis of knowledge and banks, the concerned department of the
evidence on the existence of any of the SES shall make appropriate
grounds for disqualification mentioned in recommendation to the Monetary Board
Subsecs. 4143N.1 and 4143N.2, the clearing said directors/officers when there
director or officer concerned shall be is no pending case/complaint or evidence
notified in writing either by personal against them. When there is evidence that
service or through registered mail with a director/officer has committed
registry return receipt card at his/her last irregularity, the appropriate department of
known address by the appropriate the SES shall make recommendation to the
department of the SES of the existence of Monetary Board that his/her case be
the ground for his/her disqualification referred to the OSI for further investigation
and shall be allowed to submit within and that he/she be included in the masterlist
fifteen (15) calendar days from receipt of of temporarily disqualified persons until the
such notice an explanation on why he/ final resolution of his/her case. Directors/
she should not be disqualified and officers with pending cases/complaints shall
included in the watchlisted file, together also be included in said masterlist of
with the evidence in support of his/her temporarily disqualified persons upon
position. The head of said department approval by the Monetary Board until the
may allow an extension on meritorious final resolution of their cases. If the director/
ground. officer is cleared from involvement in any

Page 10a
§§ 4143N.3 - 4143N.5
07.12.31
irregularity, the appropriate department of officer in any FI under the supervision of

the SES shall recommend to the Monetary BSP and/or of his/her inclusion in the
Board his/her delisting. On the other hand, masterlist of watchlisted persons so
if the director/officer concerned is found to disqualified.
be responsible for the closure of the j. The board of directors of the
institution, the concerned department of the concerned institution shall be immediately
SES shall recommend to the Monetary informed of cases of disqualification
Board his/her delisting from the masterlist approved by the Monetary Board and shall
of temporarily disqualified persons and his/ be directed to act thereon not later than the
her inclusion in the masterlist of following board meeting. Within
permanently disqualified persons. seventy-two (72) hours thereafter, the
g. If the disqualification is based on corporate secretary shall report to the
dismissal from employment for cause, the Governor of the BSP through the
appropriate department of the SES shall, as appropriate department of the SES the
much as practicable, endeavor to establish action taken by the board on the director/
the specific acts or omissions constituting officer involved.
the offense or the ultimate facts which k. Persons who are elected or
resulted in the dismissal to be able to appointed as director or officer in any of
determine if the disqualification of the the BSP-supervised institutions for the first
director/officer concerned is warranted or time but are subject to any of the grounds
not. The evaluation of the case shall be made for disqualification provided for under
for the purpose of determining if Subsecs. 4143N.1 and 4143N.2, shall be
disqualification would be appropriate and afforded the procedural due process
not for the purpose of passing judgment on prescribed above.
the findings and decision of the entity l. Whenever a director/officer is
concerned. The appropriate department of cleared in the process mentioned under Item
the SES may decide to recommend to the “c” above or, when the ground for
Monetary Board a penalty lower than disqualification ceases to exist, he/she would
disqualification (e.g., reprimand, suspension, be eligible to become director or officer of
etc.) if, in its judgment the act committed any bank, QB, trust entity or any institution
or omitted by the director/officer under the supervision of the BSP only upon
concerned does not warrant disqualification. prior approval by the Monetary Board. It
h. All other cases of disqualification, shall be the responsibility of the appropriate
whether permanent or temporary shall be department of the SES to elevate to the
elevated to the Monetary Board for approval Monetary Board the lifting of the
and shall be subject to the procedures disqualification of the concerned director/
provided in paragraphs “a”, “b”, “c” and officer and his/her delisting from the
“d” above. masterlist of watchlisted persons.
i. Upon approval by the Monetary (As amended by Circular No. 584 dated 28 September 2007)
Board, the concerned director/officer shall
be informed by the appropriate § 4143N.4 Effect of possession of
department of the SES in writing either disqualifications. Directors/officers elected
by personal service or through or appointed possessing any of the
registered mail with registry return disqualifications as enumerated herein, shall
receipt card, at his/her last known vacate their respective positions immediately.
address of his/her disqualification from
being elected/appointed as director/ § 4143N.5 (Reserved)

Page 10b
§ 4143N.6
07.12.31
§ 4143N.6 Watchlisting. To provide accessed or queried upon by outside parties

the BSP with a central information file to including such institutions under the
be used as reference in passing upon and supervisory and regulatory powers of the
reviewing the qualifications of persons BSP, except with the authority of the person
elected or appointed as trustee or officer concerned and with the approval of the
of an institution under the supervisory and Deputy Governor, SES, the Governor, or
regulatory powers of the BSP, the SES shall the Monetary Board.
maintain a watchlist of disqualified The BSP will disclose information on
directors/trustees/officers under the its watchlist files only upon submission of
following procedures: a duly accomplished and notarized
a. Watchlist categories. Watchlisting authorization from the concerned person
shall be categorized as follows: and approval of such request by the Deputy
(1) Disqualification File “A” Governor, SES or the Governor or the
(Permanent) –Directors/trustees/officers/ Monetary Board. The prescribed
employees permanently disqualified by authorization form to be submitted to the
the Monetary Board from holding a director/ appropriate department of the SES is in
trustee/officer position. Appendix Q-45.
(2) Disqualification File “B” FIs can gain access to information in
(Temporary) – Directors/trustees/officers/ the said watchlist for the sole purpose of
employees temporarily disqualified by the screening their applicants for hiring and/or
Monetary Board from holding a director/ confirming their elected directors and
trustee/officer position. appointed officers. FIs must obtain the said
b. Inclusion of directors/trustees/ authorization on an individual basis.
officers/employees in the watchlist. Upon e. Delisting. All delistings shall be
recommendation by the appropriate approved by the Monetary Board upon
department of the SES, the inclusion of recommendation of the appropriate
directors/trustees/officers/employees in department of the SES except in cases of
watchlist disqualification files “A” and persons known to be dead where delisting
“B” on the basis of decisions, actions or shall be automatic upon proof of death and
reports of the courts, institutions under need not be elevated to the Monetary
the supervisory and regulatory powers Board. Delisting may be approved by the
of the BSP, NBI or any other Monetary Board in the following cases:
administrative agencies shall first be (1) Watchlist - Disqualification File “B”
approved by the Monetary Board. (Temporary) -
c. Notification of directors/trustees/ (a) After the lapse of the specific period
officers/employees. Upon approval by of disqualification;
the Monetary Board, the concerned (b) When the conviction by the court
director/trustee/officer/employee shall be for crimes involving dishonesty, breach of
informed through registered mail, with trust and/or violation of banking laws
registry return receipt card, at his last known becomes final and executory, in which case
address of his inclusion in the masterlist of the director/trustee/officer/employee is
watchlisted persons disqualified to be a relisted to Watchlist – Disqualification File
director/trustee/officer in any institution “A” (Permanent); or
under the supervisory and regulatory (c) Upon favorable decision or
powers of the BSP. clearance by the appropriate body, i.e.,
d. Confidentiality. Watchlisting shall court, NBI, institutions under the
be for internal use only and may not be supervisory and regulatory powers of the

Page 10c
§§ 4143N.6 - 4144N.5
07.12.31
BSP, or such other agency/body where the in Section 3 of the SRC, whether exempt
concerned individual had derogatory record. or required to be registered with the SEC,
Directors/trustees/officers/employees that are sold, borrowed, purchased, traded,
delisted from the Watchlist – held under custody or otherwise transacted
Disqualification File “B” other than those in the Philippines where at least one (1) of
upgraded to Watchlist – Disqualification the parties is a bank or an NBFI under BSP
File “A” shall be eligible for re-employment supervision. However, this regulation
with any institution under the supervisory and shall not cover the operations of stock and
regulatory powers of the BSP. transfer agents duly registered with the SEC
(As amended by CL-2007-001 dated 04 January 2007; and pursuant to the provisions of
CL-2006-046 dated 21 December 2006) SRC Rule 36-4.1 and whose only function
is to maintain the stock and transfer book
Sec. 4144N Securities Custodianship and for shares of stock.
Securities Registry Operations. The
following rules and regulations shall § 4144N.3 Prior Bangko Sentral
govern securities custodianship and approval. NBFIs under BSP supervision
securities registry operations of NBFIs may act as securities custodian and/or registry
under BSP supervision. only upon prior Monetary Board approval.
The guidelines to implement the
delivery by the seller of securities to the § 4144N.4 Application for authority
buyer or to his designated third party A BSP-supervised entity desiring to act as
custodian are shown in Appendix Q-38. securities custodian and/or registry shall
Violation of any provision of the file an application with the appropriate
guidelines in Appendix Q-38 shall be department of the SES. The application
subject to the sanctions/penalties under shall be signed by the highest ranking
Subsec. 4144N.29. officer of the NBFI and shall be
(As amended by M-2007-002 dated 23 January 2007; M-2006- accompanied by a certified true copy of
009 dated 06 July 2006, M-2006-002 dated 05 June 2006 and the resolution of the NBFI’s board of
Circular No. 524 dated 31 March 2006) directors authorizing the NBFI to engage
in securities custodianship and/or registry.
§ 4144N.1 Statement of policy. It is
the policy of the BSP to promote the § 4144N.5 Pre-qualification
protection of investors in order to gain their requirements for a securities custodian/
confidence and encourage their registry
participation in the development of the a. It must be an NBFI under BSP
domestic capital market. Therefore, the supervision;
following rules and regulations are b. It must have complied with the
promulgated to enhance transparency of minimum capital accounts required under
securities transactions with the end in view existing regulations not lower than an
of protecting investors. adjusted capital of P 300.0 million or such
amounts as may be required by the
§ 4144N.2 Applicability of this Monetary Board in the future;
regulation. This regulation shall govern c. It must have a CAMELS composite
securities custodianship and securities rating of at least "4" (as rounded off) in the
registry operations of banks and NBFIs last regular examination;
under BSP supervision. It shall cover all d. It must have in place a
their transactions in securities as defined comprehensive risk management system

Page 10d
§ 4144N.5
05.12.31
approved by its board of directors a manual of operations (which includes

appropriate to its operations characterized custody and/or registry operations) and
by a clear delineation of responsibility for other related documents embodying the
risk management, adequate risk risk management system must be
measurement systems, appropriately submitted to the appropriate department
structured risk limits, effective internal of the SES at the time of application for
control and complete, timely and efficient authority and within thirty (30) days from
risk reporting systems. In this connection, updates;

Page 10e
§§ 4144N.5 - 4144N.6
05.12.31
e. It must have adequate l. It shall be conducted in a separate

technological capabilities and the necessary unit headed by a qualified person with at
technical expertise to ensure the least two (2) years experience in custody/
protection, safety and integrity of client registry operations; and
assets, such as: m. It can interface with the clearing and
(1) It can maintain an electronic settlement system of any recognized
registry dedicated to recording of exchange in the country capable of achieving
accountabilities to its clients; and a real time gross settlement of trades.
(2) It has an updated and
comprehensive computer security system § 4144N.6 Functions and
covering system, network and responsibilities of a securities custodian
telecommunication facilities that will: A securities custodian shall have the
(a) limit access only to authorized users; following basic functions and
(b) preserve data integrity; and responsibilities:
(c) provide for audit trail of transactions. a. Safekeeps the securities of the
f. It has complied, during the period client;
immediately preceding the date of b. Holds title to the securities in a
application, with the following: nominee capacity;
(1) ceilings on credit accommodation c. Executes purchase, sale and other
to DOSRI; and instructions;
(2) single borrower’s limit. d. Performs at least a monthly
g. It has no reserve deficiencies reconciliation to ensure that all positions
during the eight (8) weeks immediately are properly recorded and accounted for;
preceding the date of application; e. Confirms tax withheld;
h. It has set up the prescribed f. Represents clients in corporate
allowances for probable losses, both general actions in accordance with the direction
and specific, as of date of application; provided by the securities owner;
i. It has not been found engaging in g. Conducts mark-to-market valuation
unsafe and unsound practices during the and statement rendition;
last six (6) months preceding the date of h. Does earmarking of encumbrances
application; or liens such as, but not limited to, deeds
j. It has generally complied with of assignment and court orders; and
laws, rules and regulations, orders or In addition to the above basic functions,
instructions of the Monetary Board and/or it may perform the following value-added
BSP Management; service to clients:
k. It has submitted additional i. Acts as a collecting and paying
documents/information which may be agent: Provided, That the management of
requested by the appropriate SED, such as, funds that may be collected shall be clearly
but not limited to: defined in the custody contract or in a
(1) Standard custody/registry agreement separate document or agreement attached
and other standard documents; thereto: Provided, further, That the
(2) Organizational structure of the custodian shall immediately make known
custody/registry business; to the securities owner all payments made
(3) Transaction flow; and and collections received with respect to the
(4) For those already in the custody or securities under custody; and
registry business, a historical background j. Securities borrowing and lending
for the past three (3) years; operations as agent.

Page 11
§§ 4144N.7 - 4144N.9
05.12.31
§ 4144N.7 Functions and fees and provision for succession in the

responsibilities of a securities registry event the custodian can no longer discharge
a. Maintains an electronic registry its functions. It shall be accepted in writing
book; by the counterparties.
b. Delivers confirmation of transactions The governing custodianship
and other documents within agreed trading agreement shall be pre-numbered and this
periods; number shall be referred to in all
c. Issues registry confirmations for amendments and supplements thereto.
transfers of ownership as it occurs; c. Confirmation of custody. The
d. Prepares regular statement of custodian shall issue a custody confirmation
securities balances at such frequency as to the purchaser or borrower of securities
may be required by the owner on record but to evidence receipt or transfer of securities
not less frequent than every quarter; and as they occur. It shall contain, as a
e. Follows appropriate legal minimum, the following information on
documentation to govern its relationship with the securities under custody:
the Issuer. (1) Owner of securities;
(2) Issuer;
§ 4144N.8 Protection of securities of (3) Securities type;
the customer. A custodian must incorporate (4) Identification or serial numbers;
the following procedures in the discharge (5) Quantity;
of its functions in order to protect the (6) Face value; and
securities of the customer: (7) Other information, which may be
a. Accounting and recording for requested by the parties.
securities. Custodians must employ d. Periodic reporting. The custodian
accounting and safekeeping procedures that shall prepare at least quarterly (or as
fully protect customer securities. It is frequent as the owner of securities will
essential that custodians segregate customer require) securities statements delivered to
securities from one another and from its the registered owner’s address on record.
proprietary holdings to protect the same from Said statement shall present detailed
the claims of its general creditors. information such as, but not limited to,
All securities held under custodianship inventory of securities, outstanding
shall be recorded in the books of the balances, and market values.
custodian at the face value of said securities
in a separate subsidiary ledger account § 4144N.9 Independence of the
“Securities Held Under Custodianship” if registry and custodian. A BSP-accredited
booked in the Bank Proper or the subsidiary securities registry must be a third party with
ledger account “Safekeeping and no subsidiary/affiliate relationship with the
Custodianship – Securities Held Under issuer of securities while a BSP-accredited
Custodianship”, if booked in the Trust custodian must be a third party with no
Department: Provided, That securities held subsidiary/affiliate relationship with the
under custodianship where the custodian also issuer or seller of securities. An NBFI
performs securities borrowing and lending as accredited by BSP as securities custodian
agent shall be booked in the Trust Department. may, however, continue holding securities
b. Documentation. The appropriate it sold under the following cases:
documentation for custodianship shall be a. where the purchaser is a related
made and it shall clearly define, among entity acting in its own behalf and not as
others, the authority, role, responsibilities, agent or representative of another;

Page 12
§§ 4144N.9 - 4144N.13
05.12.31
b. where the purchaser is a non- The management shall likewise ensure the
resident with existing global custody confidentiality of client accounts of the
agreement governed by foreign laws and custody or registry unit from other units
conventions wherein the NBFI is designated within the same organization.
as custodian or sub-custodian; and
c. upon approval by the BSP, where § 4144N.12 Compliance with anti-
the purchaser is an insurance company money laundering laws/regulations. For
whose custody arrangement is either purposes of compliance with the
governed by a global custody agreement requirements of R.A. No. 9160, otherwise
where the NBFI is designated as custodian known as the “Anti-Money Laundering Act
or sub-custodian or by a direct custody of 2001,” as amended, particularly the
agreement with features at par with the provisions regarding customer
standards set under this Subsection drawn identification, record keeping and reporting
or prepared by the parent company owning of suspicious transactions, a BSP-accredited
more than fifty percent (50%) of the capital custodian may rely on referral by the seller/
stock of the purchaser and executed by the issuer of securities: Provided, That it
purchaser itself and its custodian. maintains a record of such referral together
Purchases by non-residents and with the minimum identification,
insurance companies that are exempted information/documents required under the
from the independence requirement of this law and its implementing rules and
Subsection shall, however, be subject to regulations.
all other provisions of this Subsection. A BSP accredited custodian must
maintain accounts only in the true and full
§ 4144N.10 Registry of Scripless name of the owners of the security.
Securities of the Bureau of the Treasury However, said securities owners may be
The Registry of Scripless Securities (RoSS), identified by number or code in reports and
operated by the Bureau of the Treasury, correspondences to keep his identity
which is acting as a registry for government confidential.
securities is deemed to be automatically Securities subject of pledge and/or
accredited for purposes of this Section and deed of assignment as of 14 October 2004
is likewise exempted from the (date of Circular 457), may be held by a
independence requirement under Subsec. lending NBFI up to the original maturity
4144N.9. However, securities registered of the loan or full payment thereof,
under the RoSS shall only be considered whichever comes earlier.
delivered if said securities were transferred
by means of book entry to the appropriate § 4144N.13 Basic security deposit
securities account of the purchaser or his Securities held under custodianship
designated custodian. Book entry transfer whether booked in the Trust Department
to a sub-account for clients under the primary or carried in the regular books of the NBFI
account of the seller shall not constitute shall be subject to a security deposit for
delivery for purposes of this Section. faithful performance of duties at the rate of
1/25 of one percent (1%) of the total face
§ 4144N.11 Confidentiality. A BSP- value or P500,000 whichever is higher.
accredited securities custodian/registry However, securities held under
shall not disclose to any unauthorized custodianship where the custodian also
person any information relative to the performs securities borrowing and lending
securities under its custodianship/registry. as agent shall be subject to a higher basic

Page 13
§§ 4144N.13 - 4157N
05.12.31
security deposit of one percent (1%) of the c. Subsequent offenses–

total face value. For this purpose, the (1) Fine of up to P30,000 a day for the
following subsidiary ledger account shall institution for each violation from the date
be created in the Trust Department Books: the violation was committed up to the date
“Safekeeping and Custodianship - it was corrected;
Securities Held Under Custodianship with (2) Suspension or revocation of the
Securities Borrowing and Lending As authority to act as securities custodian and/
Agent” or registry; and
Compliance shall be in the form of (3) Suspension for one hundred twenty
government securities deposited with the (120) days without pay of the directors/
BSP eligible pursuant to existing officers responsible for the violation.
regulations governing security for the
faithful performance of trust and other Secs. 4145N – 4149N (Reserved)
fiduciary business.
Sec. 4150N Rules of Procedure on
§ 4144N.14 Reportorial requirements Administrative Cases Involving Directors
An accredited securities custodian shall and Officers of Trust Entities. The rules
comply with reportorial requirements that of procedure on administrative cases
may be prescribed by the BSP, which shall involving directors and officers of quasi-
include as a minimum, the face and banks in Sec. 4150Q shall apply to directors
market value of securities held under and officers of trust entities.
custodianship.
Secs. 4151N – 4156N (Reserved)
§§ 4144N.15 - 4144N.28 (Reserved)
Sec. 4157N Batas Pambansa Blg. 344 –
§ 4144N.29 Sanctions. Without An Act To Enhance The Mobility Of
prejudice to the penal and administrative Disabled Persons By Requiring Certain
sanctions provided for under Sections 36 Buildings, Institutions, Establishments And
and 37, respectively, of the R.A. No. 7653, Public Utilities To Install Facilities And
violation of any provision of this Section Other Devices. In order to promote the
shall be subject to the following sanctions/ realization of the rights of disabled persons
penalties: to participate fully in the social life and the
a. First offense – development of the societies in which they
(1) Fine of up to P10,000 a day for the live and the enjoyment of the opportunities
institution for each violation reckoned available to other citizens, no license or
from the date the violation was committed permit for the construction, repair or
up to the date it was corrected; and renovation of public and private buildings
(2) Reprimand for the directors/ for public use, educational institutions,
officers responsible for the violation. airports, sports and recreation centers and
b. Second offense - complexes, shopping centers or
(1) Fine of up to P20,000 a day for the establishments, public parking places,
institution for each violation reckoned workplaces, public utilities, shall be granted
from the date the violation was committed or issued unless the owner or operator
up to the date it was corrected; and thereof shall install and incorporate in such
(2) Suspension for ninety (90) days building, establishment or public utility,
without pay of directors/officers such architectural facilities or structural
responsible for the violation. features as shall reasonably enhance the

Page 14
§§ 4157N - 4161N
07.12.31
mobility of disabled persons such as Financial/non-financial allied/non-allied

sidewalks, ramps, railings and the like. If associates shall be accounted for using the
feasible, all such existing buildings, equity method in accordance with the
institutions, establishments, or public provisions of PAS 28 “Investments in
utilities may be renovated or altered to Associates”.
enable the disabled persons to have access b. For purposes of preparing separate
to them. financial statements, financial/non-financial
allied/non-allied subsidiaries/associates,
Secs. 4158N-4160N (Reserved) including insurance subsidiaries/associates,
shall also be accounted for using the equity
Sec. 4161N Philippine Financial Reporting method; and
Standards/Philippine Accounting Standards c. FIs shall be required to meet the
Statement of policy. It is the policy of BSP recommended valuation reserves.
the BSP to promote fairness, transparency Government grants extended in the
and accuracy in financial reporting. It is in form of loans bearing nil or low interest
this light that the BSP aims to adopt all PFRS rates shall be measured upon initial
and PAS issued by the ASC to the greatest recognition at its fair value (i.e., the present
extent possible. value of the future cash flows of the
Other NBFIs not performing quasi- financial instrument discounted using the
banking functions shall adopt the PFRS and market interest rate). The difference
PAS which are in accordance with between the fair value and the net
generally accepted accounting principles proceeds of the loan shall be recorded
in recording transactions and in the under “Unearned Income-Others”, which
preparation of financial statements and shall be amortized over the term of the
reports to BSP. However, in cases where loan using the effective interest method.
there are differences between BSP The provisions on government grants
regulations and PFRS/PAS as when more shall be applied retroactively to all
than one (1) option are allowed or certain outstanding government grants received.
maximum or minimum limits are FI that adopted an accounting treatment
prescribed by the PFRS/PAS, the option or other than the foregoing shall consider the
limit prescribed by BSP regulations shall adjustment as a change in accounting
be adopted by banks. policy, which shall be accounted for in
For purposes hereof, the PFRS/PAS accordance with PAS 8.
shall refer to issuances of the ASC and Notwithstanding the exceptions in
approved by the PRC. Items “a”, “b” and “c”, the audited annual
Accounting treatment for prudential financial statements required to be
reporting. For prudential reporting, FIs submitted to the BSP in accordance with
shall adopt in all respect the PFRS and PAS the provision of Sec. 4172N shall in all
except as follows: respect be PFRS/PAS compliant: Provided,
a. In preparing consolidated financial That FIs shall submit to the BSP adjusting
statements, only investments in financial entries reconciling the balances in the
allied subsidiaries except insurance financial statements for prudential
subsidiaries shall be consolidated on a reporting with that in the audited annual
line-by-line basis; while insurance and financial statements.
non-financial allied subsidiaries shall be (As amended by Circular Nos. 572 dated 22 June 2007 and
accounted for using the equity method. 494 dated 20 September 2004)

Page 15
§§ 4162N - 4162N.3
07.12.31
Sec. 4162N Reports. NBFIs without § 4162N.3 Sanctions in case of willful

quasi-banking functions but are delay in the submission of reports
subsidiaries/affiliates of banks and QBs and a. Definition of terms. For purposes
investment houses without quasi-banking of this Subsection, the following definitions
functions but with trust operations shall shall apply:
submit to the appropriate department of the (1) Report shall refer to any report or
SES the reports listed in Appendix N-1 in statement required of an NBFI to be
the forms as may be prescribed by the submitted to the BSP periodically or within
Deputy Governor, SES, BSP. a specified period.
Any change in, or amendment to, the (2) Willful delay in the submission of
articles of incorporation, by-laws or reports shall refer to the failure of an NBFI
material documents required to be to submit a report on time. Failure to submit
submitted to the BSP shall be reported a report on time due to fortuitous events,
by submitting copies of the amended such as fire and other natural calamities and
articles of incorporation, by-laws, or public disorders, including strike or lockout
material documents to the appropriate affecting an NBFI as defined in the Labor
department of the SES within fifteen (15) Code or national emergency affecting
days following such change. operations of NBFIs, shall not be considered
as willful delay.
§ 4162N.1 Categories and signatories b. Fines for willful delay in submission
of reports. Reports required to be submitted of reports. NBFIs incurring willful delay in
to the BSP are classified into Categories the submission of required reports shall pay
A-2 and B reports as indicated in the list of a fine in accordance with the following
reports required to be submitted to the BSP schedule:
in Appendix N-1.
Appendix N-2 prescribes the I. For Categories A-2 reports
signatories for each report category and the Per day of default
requirements on signatory authorization. until the report is filed P300
Reports submitted by NBFIs in computer
media shall be subject to the same II. For Category B reports
requirements. Per day of default
A report submitted to the BSP under until the report is filed P 60
the signature of an officer who is not
authorized in accordance with the Delay or default shall start to run on
requirements in this Subsection shall be the day following the last day required
considered as not having been for the submission of reports. However,
submitted. should the last day of filing fall on a
non-working day in the locality where
§ 4162N.2 Manner of filing. The the reporting FI is situated, delay or
submission of the reports shall be effected default shall start to run on the day
by filing them personally with the following the next working day. The due
appropriate department of the SES or with date/deadline for submission of reports
the BSP Regional Offices/Units, or by to BSP as prescribed under Sec. 4162N
sending them by registered mail or special governing the frequency and deadlines
delivery through private couriers unless indicated in Appendix N-1 shall be
otherwise specified in the circular or automatically moved to the next business
memorandum of the BSP. day whenever a half-day suspension of

Page 16
§§ 4162N.3 - 4164N.3
07.12.31
business operations in government offices provide the appropriate resources and

is declared due to an emergency such as staffing that would enable internal audit to
typhoon, floods, etc. achieve its objectives.
For purposes of establishing delay or
default, the date of acknowledgment by the § 4164N.2 Scope. The scope of
appropriate department of the SES or the BSP internal audit shall include:
Regional Offices/Units appearing on the a. Examination and evaluation of the
copies of such reports filed or submitted, or adequacy and effectiveness of the internal
the date of mailing postmarked on the control systems;
envelope/the date of registry/special b. Review of the application and
delivery receipt, as the case may be, shall effectiveness of risk management
be considered as the date of filing by the procedures and risk assessment
NBFI. methodologies;
c. Manner of payment or collection c. Review of the management and
of fines – NBFIs shall, within fifteen (15) financial information systems, including
calendar days from receipt of the statement the electronic information system and
of account from the appropriate department electronic banking services;
of the BSP, pay the fines imposed thereon d. Assessment of the accuracy and
for willful delay on the submission of reliability of the accounting system and of
reports. the resulting financial reports;
(As amended by Circular No. 585 dated 15 October 2007) e. Review of the systems and
procedures of safeguarding assets;
Sec. 4163N (Reserved) f. Review of the system of assessing
capital in relation to the estimate of
Sec. 4164N Internal Audit Function organizational risk;
Internal audit is an independent, objective g. Transaction testing and assessment
assurance and consulting function of specific internal control procedures; and
established to examine, evaluate and h. Review of the compliance system
improve the effectiveness of risk and the implementation of established
management, internal control, and policies and procedures.
governance processes of an organization.
§ 4164N.3 Qualification standards of
§ 4164N.1 Status. The internal audit the internal auditor. The internal auditor of
function must be independent of the subsidiaries and/or affiliates of a UB or a KB
activities audited and from day-to-day must be a CPA and must have at least five
internal control process. It must be free to (5) years experience in the regular audit
report audit results, findings, opinions, (internal or external) of a UB or KB as auditor-
appraisals and other information to the in-charge, senior auditor or audit manager.
appropriate level of management. It shall He must possess the knowledge, skills, and
have authority to directly access and other competencies to examine all areas in
communicate with any officer or which the institution operates. Professional
employee, to examine any activity or competence as well as continuing training
entity of the institution, as well as to access and education shall be required to face up
any records, files or data whenever to the increasing complexity and diversity
relevant to the exercise of its assignment. of the institution’s operations.
The Audit Committee or senior management The internal auditor of subsidiaries and/
should take all necessary measures to or affiliates of a TB, QB, trust entity or

Page 17
§§ 4164N.3 - 4172N
06.12.31
national cooperative bank must be a CPA performance of audit work, management

with at least five (5) years experience in of internal audit, quality assurance
the regular audit (internal or external) of a reviews, communication and monitoring
TB, QB, trust entity or national cooperative of results.
bank as auditor-in-charge, senior auditor or
audit manager or, in lieu thereof, at least Secs. 4165N - 4171N (Reserved)
three (3) years experience in the regular audit
(internal or external) of a UB or KB as auditor- Sec. 4172N Financial Audit. NBFIs shall
in-charge, senior auditor or audit manager. cause an annual financial audit by an
The internal auditor of subsidiaries and/ external auditor acceptable to the BSP not
or affiliates of an RB, NSSLA or local later than thirty (30) calendar days after the
cooperative bank must be at least an close of the calendar year or the fiscal year
accounting graduate with two (2) years adopted by the FI. Report of such audit shall
experience in external audit or in the be submitted to the board of directors and
regular audit of an RB, NSSLA or local coop the appropriate department of the SES not
bank or, in lieu thereof, at least one (1) year later than 120 calendar days after the close
experience in the regular audit (internal or of the calendar year or the fiscal year
external) of a UB, KB, TB, QB, trust entity adopted by the FI. The report to the BSP shall
or national coop bank as auditor-in-charge, be accompanied by the: (1) certification by
senior auditor or audit manager. the external auditor on the: (a) dates of
A qualified internal auditor of a UB or start and termination of audit; (b) date of
a KB shall be qualified to audit TBs, QBs, submission of the financial audit report and
trust entities, national cooperative banks, certification under oath stating that no
RBs, NSSLAs, local coop banks, subsidiaries material weakness or breach in the internal
and affiliates engaged in allied activities, and control and risk management systems was
other FIs under BSP supervision. noted in the course of the audit of the FI to
A qualified internal auditor of a TB or the board of directors; and (c) the absence
national coop bank shall likewise be of any direct or indirect financial interest and
qualified to audit QBs, trust entities, RBs, other circumstances that may impair the
NSSLAs, local coop banks, subsidiaries and independence of the external auditor; (2)
affiliates engaged in allied activities, and reconciliation statement between the AFS
other FIs under BSP supervision. and the balance sheet and income statement
for FI and trust department submitted to the
§ 4164N.4 Code of Ethics and Internal BSP including copies of adjusting entries on
Auditing Standards. The internal auditor the reconciling items; and (3) other
should conform with the Code of information that may be required by the BSP.
Professional Ethics for CPAs and ensure In addition, the external auditor shall be
compliance with sound internal auditing required by the FI to submit to the board of
standards, such as the Institute of Internal directors, a LOC indicating any material
Auditors’ International Standards for the weakness or breach in the institution’s
Professional Practice of Internal Auditing internal control and risk management
(e-mail: standards@theiia.org; Web: http:// systems within thirty (30) calendar days after
www.theiia.org.) and other supplemental submission of the financial audit report. If
standards issued by regulatory authorities/ no material weakness or breach is noted to
government agencies. The standards warrant the issuance of an LOC, a
address independence and objectivity, Certification under oath stating that no
professional proficiency, scope of work, material weakness or breach in the internal

Page 18
§ 4172N
06.12.31
control and risk management systems was statements will not be detected or
noted in the course of the audit of the FI prevented by the entity’s internal control.
shall be submitted in its stead, together A material weakness does not mean that a
with the financial audit report. material misstatement has occurred or will
Material weakness shall be defined as occur, but that it could occur. A control
a significant control deficiency, or deficiency exists when the design or
combination of deficiencies, that results operation of a control does not allow
in more than a remote likelihood that a management or employees, in the
material misstatement of the financial normal course of performing their assigned

Page 18a
§ 4172N
06.12.31
functions, to prevent or detect or risk management systems, the Monetary

misstatements on a timely basis. A Board may, upon recommendation of the
significant deficiency is a control appropriate department of the SES, require
deficiency, or combination of control the financial audit to be conducted by an
deficiencies, that adversely affects the external auditor acceptable to the BSP, at
entity’s ability to initiate, authorize, record, the expense of the institution concerned:
process, or report financial data reliably in Provided, further, That when circumstances
accordance with generally accepted such as, but not limited to, loans from
accounting principles. The term more than multilateral financial institutions,
remote likelihood shall mean that future privatization, or public listing warrant, the
events are likely to occur or are reasonably financial audit of the concerned institution
possible to occur. by an acceptable external auditor may also
The board of directors, in a regular or be allowed.
special meeting, shall consider and act on Banks and other FIs under the
the financial audit report and the concurrent jurisdiction of the BSP and COA
certification under oath submitted in lieu shall, however, submit a copy of the AAR
of the LOC and shall submit, within thirty of the COA to the appropriate department
(30) banking days after receipt of the of the SES within thirty (30) banking days
reports, a copy of its resolution to the after receipt of the report by the board of
appropriate department of the SES. The directors. The AAR shall be accompanied
resolution shall show, among other things, by the: (1) certification by the institution
the actions(s) taken on the reports and the concerned on the date of receipt of the
names of the directors present and absent. AAR by the board of directors; (2)
The board shall likewise consider and reconciliation statement between the AFS
act on the LOC and shall submit, within in the AAR and the balance sheet and
thirty (30) banking days after receipt income statement of the FI and trust
thereof, a copy of its resolution together department submitted to the BSP, including
with said LOC to the appropriate department copies of adjusting entries on the
of SES. The resolution shall show the reconciling items; and (3) other information
action(s) taken on the findings and that may be required by the BSP.
recommendations and, the names of the The board of directors of said institutions, in
directors present and absent, among other a regular or special meeting, shall consider and
things. act on the AAR, as well as on the comments
The LOC shall be accompanied by the and observations and shall submit, within
certification of the external auditor of the date thirty (30) banking days after receipt of the
of its submission to the board of directors. report, a copy of its resolution to the
Government-owned or controlled appropriate department of the SES. The
banks, including their subsidiaries and resolution shall show the action(s) taken
affiliates, as well as other FIs under BSP on the report, including the comments and
supervision which are under the observations and the names of the directors
concurrent jurisdiction of the COA shall be present and absent, among other things.”
exempt from the aforementioned annual FIs as well as external auditors shall
financial audit by an acceptable external strictly observe the requirements in the
auditor: Provided, That when warranted by submission of the financial audit report and
supervisory concern such as material reports required to be submitted under
weakness/breach in internal control and/ Appendix Q-33.

Page 19
§§ 4172N - 4180N
06.12.31
The audited annual financial statements Sec. 4180N Selection, Appointment and
required to be submitted shall in all respect Reporting Requirements for External
be PFRS/PAS compliant: Provided, That FIs Auditors; Sanction; Effectivity. Under
shall submit to the BSP adjusting entries Section 58, R.A. No. 8791, the Monetary
reconciling the balances in the financial Board may require subsidiaries and
statements for prudential reporting with affiliates of banks and QBs to engage the
that in the audited annual financial services of an independent auditor to be
statements. chosen by the subsidiaries and affiliates
The reports and certifications of of banks and QBs concerned from a list of
institutions concerned, schedules and CPAs acceptable to the Monetary Board.
attachments required under this Subsection It is the policy of the BSP to promote
shall be considered Category B reports, high ethical and professional standards in
delayed submission of which shall be public accounting practice and to
subject to the penalties under Subsec. encourage coordination and sharing of
4162N.3 information between external auditors and
(As amended by Circular Nos. 554 dated 22 December 2006 regulatory authorities of banks, QBs,
and 540 dated 09 August 2006) NSSLAs, and/or trust entities to ensure
effective audit and supervision of these
§4172N.1 Audited Financial institutions and to avoid unnecessary
Statements of NBFIs. The following rules duplication of efforts. In furtherance of this
shall govern the utilization and submission policy and to ensure that reliance by
of AFS of NBFIs. regulatory authorities and the public on
For purposes of this Section, AFS shall the opinion of external auditors is well
include the balance sheets, income placed, the BSP hereby prescribes the
statements, statements of changes in rules and regulations that shall govern the
equity, statements of cash flows and notes selection, appointment, reporting
to financial statements which shall include requirements and delisting for external
among other information, disclosure of the auditors of banks, QBs, NSSLAs, and/or
volume of past due loans as well as loan- trust entities, their subsidiaries and
loss provisions. On the other hand, affiliates engaged in allied activities and
financial audit report shall refer to the AFS other financial institutions which under
and the opinion of the auditor. The AFS of special laws are subject to BSP
NBFIs with subsidiaries shall be presented supervision.
side by side on a solo basis (parent) and on The selection of external auditors shall
a consolidated basis (parent and be valid for a period of three (3) years.
subsidiaries). BSP selected external auditors shall apply
(Circular No. 540 dated 09 August 2006) for the renewal of their selection every
three (3) years. The provisions of Items
§ 4172N.2 Posting of audited financial “A” and “B” of Appendix N-5 shall likewise
statements. FIs shall post in conspicuous apply for each application for renewal.
places in their head offices, all their The SES shall make an annual
branches and other offices, as well as in assessment of the performance of external
their respective websites, their latest auditors and will recommend deletion
financial audit report. from the list even prior to the three (3) -
(Circular No. 540 dated 09 August 2006) year renewal period, if based on
assessment, the external auditors’ report
Secs. 4173N – 4179N (Reserved) did not comply with BSP requirements.

Page 20
§§ 4180N - 4192N
08.12.31
External auditors who meet the the BSP may require within twenty (20)
requirements specified in this Section shall working days from receipt of call letter, in
be included in the list of BSP selected any newspaper of general circulation in the
external auditors. In case of partnership, country in the prescribed format.
inclusion in the list of BSP selected external The CSOC of a QB/trust entity and its
auditors shall apply to the audit firm only subsidiaries and associates shall conform
and not to the individual signing partners with the guidelines of PAS 27
or auditors under its employment. “Consolidated and Separate Financial
The BSP will circularize to all banks, Statements”, except that for purposes of
QBs, trust entities and NSSLAs the list of consolidated financial statements, only
selected external auditors once a year. The investments in financial allied subsidiaries
BSP, however, shall not be liable for any except insurance subsidiaries shall be
damage or loss that may arise from its selection consolidated on a line-by-line basis; while
of the external auditors to be engaged by banks, insurance and non-financial allied
QBs, trust entities or NSSLAs for regular audit subsidiaries shall be accounted for using
or special engagements. the equity method. Financial/non-financial
a. Rules and regulations. The rules allied/non-allied associates shall be
and regulations to govern the selection accounted for using the equity method in
and delisting by the BSP of external accordance with the provisions of PAS 28
auditors of trust entities and banks’/QBs’/ “Investments in Associates”. For purposes
trust entities’ subsidiaries and affiliates of separate financial statements,
engaged in allied activities and other investments in financial/non-financial
financial institutions are shown in allied/non-allied subsidiaries/associates,
Appendix N-5. including insurance subsidiaries/
b. Sanctions. The applicable sanctions/ associates, shall be accounted for using
penalties prescribed under Sections 36 and the equity method.
37 of R. A. No. 7653 to the extent (As amended by Circular No. 494 dated 20 September 2004)
applicable shall be imposed on the trust
entity, its audit committee and the Secs. 4182N - 4189N (Reserved)
directors approving the hiring of external
auditors who are not in the BSP list of Sec. 4190N Duties and Responsibilities of
selected auditors for banks, QBs, NSSLAs, NBFIs and their Directors/Officers in All
and/or trust entities, or for hiring, and/or Cases of Outsourcing of NBFI Functions. The
retaining the services of the external rules on outsourcing of banking functions as
auditor in violation of any of the provisions shown in Appendix Q-37 shall be adopted
of this Section and for non-compliance with in so far as they are applicable to FIs.
the Monetary Board directive under Item “I” (As amended by Circular Nos. 610 dated 26 May 2008,
in Appendix N-5. Erring external auditors 596 dated 11 January 2008, 548 dated 25 September 2006 and
may also be reported by the BSP to the 543 dated 08 September 2006)
PRC for appropriate disciplinary action.
(As amended by Circular No. 529 dated 11 May 2006) Sec. 4191N (Reserved)
Sec. 4181N Publication Requirements Sec. 4192N Prompt Corrective Action

The quarterly CSOC of a trust entity and Framework. The framework for the
its subsidiaries and affiliates shall be enforcement of PCA on banks which is in
published side by side with the statement Appendix Q-40, shall govern the PCA taken
of condition of its head office and its on FIs to the extent applicable, or by analogy.
branches/other offices as of such dates as (Circular No. 523 dated 31 March 2006)

Page 20a
§§ 4193N - 4301N.1
06.12.31
Sec. 4193N Supervision by Risks. The Sec. 4195N Liquidity Risk Management
guidelines on supervision by risk in The guidelines on liquidity risk
Appendix Q-42 which provide guidance management for QBs as shown in
on how QBs should identify, measure, Appendix Q-44 shall govern the liquidity
monitor and control risks shall govern the risk management of FIs to the extent
supervision by risks of FIs to the extent applicable.
applicable. The guidelines set forth the
The guidelines set forth the expectations of the BSP with respect to the
expectations of the BSP with respect to management of liquidity risk and are
the management of risks and are intended intended to provide more consistency in
to provide more consistency in how the how the risk-focused supervision function
risk-focused supervision function is is applied to this risk. FIs are expected to
applied to these risks. The BSP will have an integrated approach to risk
review the risks to ensure that an FI’s management to identify, measure, monitor
internal risk management processes are and control risks. Liquidity risk should be
integrated and comprehensive. All FIs reviewed together with other risks to
should follow the guidance in risk determine overall risk profile.
management efforts. These guidelines are intended for
(Circular No. 510 dated 03 February 2006) general application; specific application
will depend on the size and sophistication
Sec. 4194N Market Risk Management of a particular FI and the nature and
The guidelines on market risk complexity of its activities.
management for QBs as shown in (Circular No. 545 dated 15 September 2006)
Appendix Q-43 shall govern the market
risk management of FIs to the extent Secs. 4196N - 4200N (Reserved)
applicable.
The guidelines set forth the Secs. 4201N - 4300N (Reserved)
expectations of the BSP with respect to
the management of market risk and are Sec. 4301N Credit Card Operations;
intended to provide more consistency in General Policy. The BSP shall foster the
how the risk-focused supervision is development of consumer credit through
applied to this risk. FIs are expected to innovative products such as credit cards
have an integrated approach to risk under conditions of fair and sound
management to identify, measure, consumer credit practices. The BSP
monitor and control risks. Market risk likewise encourages competition and
should be reviewed together with other transparency to ensure more efficient
risks to determine overall risk profile. delivery of services and fair dealings with
The BSP is aware of the increasing customers.
diversity of financial products and that Towards this end, the following rules
industry techniques for measuring and and regulations shall govern the credit card
managing market risk are continuously operations of subsidiary/affiliate credit card
evolving. As such, the guidelines are companies of banks/QBs, aligned with
intended for general application; specific global best practices.
application will depend to some extent
on the size, complexity and range of § 4301N.1 Definition of terms
activities undertaken by individual FIs. a. Credit card. Means any card, plate,
(Circular No. 544 dated 15 September 2006) coupon book or other credit device

Page 20b
§§ 4301N.1 - 4301N.2
05.12.31
existing for the purpose of obtaining or other financial institution through

money, property, labor or services on credit. any one (1) or a combination of any of
b. Credit card receivables. Represents the following:
the total outstanding balance of credit (1) Ownership, control or power to
cardholders arising from purchases of vote, whether by permanent or temporary
goods and services, cash advances, annual proxy or voting trust, or other similar
membership/renewal fees as well as interest, contracts, by a bank or other financial
penalties, insurance fees, processing/ institution of at least ten percent (10%) or
service fees and other charges. more of the outstanding voting stock of the
c. Minimum amount due or minimum entity, or vice-versa;
payment required. Means the minimum (2) Interlocking directorship or
amount that the credit cardholder needs to officership, except in cases involving
pay on or before the payment due date for a independent directors as defined under
particular billing period/cycle as defined under existing regulations;
the terms and conditions or reminders stated (3) Common stockholders owning at
in the statement of account/billing statement least ten percent (10%) of the outstanding
which may include: (1) total outstanding voting stock of each financial institution
balance multiplied by the required payment and the entity; or
percentage or a fixed amount whichever is (4) Management contract or any
higher; (2) any amount which is part of any arrangement granting power to the bank
fixed monthly installment that is charged to or other financial institution to direct or
the card; (3) any amount in excess of the cause the direction of management and
credit line; and (4) all past due amounts, if any. policies of the entity, or vice-versa.
d. Default or delinquency. Shall mean
non-payment of, or payment of any amount § 4301N.2 Risk management system
less than, the “Minimum Amount Due” or To safeguard their interests, subsidiary/
“Minimum Payment Required” within two affiliate credit card companies of banks/QBs
(2) cycle dates, in which case, the “Total are required to establish an appropriate
Amount Due” for the particular billing period system for managing risk exposures from
as reflected in the monthly statement of account credit card operations which shall be
may be considered in default or delinquent. documented in a complete and concise
e. Acceleration clause. Shall mean manner. The risk management system shall
any provision in the contract between the cover the organizational set-up, records and
bank and the cardholder that gives the bank reports, accounting, policies and procedures
the right to demand the obligation in full and internal control.
in case of default or non-payment of any Written policies, procedures and
amount due or for whatever valid reason. internal control guidelines shall be
f. Subsidiary refers to a corporation established on the following aspects of
or firm more than fifty percent (50%) of credit card operations:
the outstanding voting stock of which is a. Requirements for application;
directly or indirectly owned, controlled or b. Solicitation and application
held with the power to vote by a bank or processing;
other financial institution. c. Determination and approval of
g. A f f i l i a t e r e f e r s t o a n e n t i t y credit limits;
linked directly or indirectly to a bank d. Pre-approved cards;

Page 20c
§§ 4301N.2 - 4301N.4
05.12.31
e. Issuance, distribution and All credit card applications, especially

activation of cards; those solicited by third party representatives/
f. Supplementary or extension cards; agents, shall undergo a strict credit risk
g. Cash advances; assessment process and the information
h. Billing and payments; stated thereon validated and verified by
i. Deferred payment program or persons other than those handling marketing.
special installment plans;
j. Collection of past due accounts; § 4301N.4 Information to be
k. Handling of accounts for write-off; disclosed. Subsidiary/affiliate credit card
l. Suspension, cancellation and companies of banks/quasi-banks shall
withdrawal or termination of card; disclose to each person to whom the credit
m. Renewal of cards, upgrade or card privilege is extended in the
downgrade of credit limit; agreement, contract or any equivalent
n. Lost or stolen cards and their document governing the issuance or use
replacement; of the credit card or any amendment
o. Accounts of DOSRI and employees; thereto or in such other statement
p. Disposition of errors and/or questions furnished the cardholder from time to
about the billing statement/statement of time, prior to the imposition of the charges
account and other customers’ complaints; and and to the extent applicable, the following
q. Dealings with marketing agents/ information:
collection agents. a. non-finance charges, individually
itemized, which are paid or to be paid by
§ 4301N.3 Minimum requirements the cardholder in connection with the
Before issuing credit cards, subsidiary/ transaction but which are not incident to
affiliate credit card companies of banks/ the extension of credit;
quasi-banks must exercise proper b. the percentage that the interest
diligence by ascertaining that applicants bears to the total amount to be financed
possess good credit standing and are expressed as a simple monthly or annual
financially capable of fulfilling their credit rate, as the case may be, on the
commitments. The net take home pay of outstanding balance of the obligation;
applicants who are employed, the net c. the effective interest rate per
monthly receipts of those engaged in trade annum;
or business, or the net worth or cash flow d. for installment loans, the number
inferred from deposits of those who are of installments, amount and due dates or
neither employed nor engaged in trade or periods of payment schedules to repay the
business or the credit behavior exhibited indebtedness;
by the applicant from his other existing e. the default, late payment/penalty
credit cards, or other lifestyle indicators fees or similar delinquency-related
such as but not limited to club charges payable in the event of late
memberships, ownership and location of payments;
residence and motor vehicle ownership f. the conditions under which interest
shall be determined and used as basis for may be imposed, including the time
setting credit limits. The gross monthly period, within which any credit extended
income may also be used provided may be repaid without interest;
reasonable deductions are estimated for g. the method of determining the
income taxes, premium contributions, loan balance upon which interest and/or
amortizations and other deductions. delinquency charges may be imposed;

Page 21
§§ 4301N.4 - 4301N.9
05.12.31
h. the method of determining the § 4301N.7 Deferral charges. The

amount of interest and/or delinquency bank and the cardholder may, prior to the
charges, including any minimum or fixed consummation of the transaction, agree in
amount imposed as interest and/or writing to a deferral of all or part of one or
delinquency charge; more unpaid installments and the bank
i. where one (1) or more periodic may collect a deferral charge which shall
rates may be used to compute interest, not exceed the rate previously disclosed
each such rate, the range of balances to pursuant to the provisions on disclosure.
which it is applicable, and the
corresponding simple annual rate; and § 4301N.8 Late payment/penalty
j. other fees, such as membership/ fees. No late payment or penalty fee shall
renewal fees, processing fees, collection be collected from cardholders unless the
fees, credit investigation fees and collection thereof is fully disclosed in the
attorney’s fees. contract between the issuer and the
k. for transactions made in foreign cardholder: Provided, That late payment
currencies and/or outside the Philippines, or penalty fees shall be based on the
for dual currency accounts (peso and dollar unpaid minimum amount due or a
billings), as well as payments made by prescribed minimum fixed amount:
credit cardholders in any currency other Provided, further, That said late payment
than the billing currency: the application or penalty fees may be based on the total
of payments; the manner of conversion from outstanding balance of the credit card
the transaction currency and payment obligation, including amounts payable
currency to Philippine pesos or billing under installment terms or deferred
currency; definition or general description payment schemes, if the contract between
of verifiable blended exchange/conversion the issuer and the cardholder contains an
rates (e.g., MASTERCARD and/or VISA “acceleration clause” and the total
International rates on the day the item was outstanding balance of the credit card is
processed/posted to the billing statement, classified and reported as past due.
plus mark-up, if any) including conversion
commission; and/or other currency § 4301N.9 Confidentiality of
conversion charges and costs arising from information. Subsidiary/affiliate credit
the purchase by the card company of card companies of banks/quasi-banks shall
foreign currency to settle the customer’s keep strictly confidential the data on the
transactions shall also be disclosed. cardholder or consumer, except under the
following circumstances:
§ 4301N.5 Interest accrual on past
due loans. Interest income on past due a. disclosure of information is with the
loans arising from discount amortization consent of the cardholder or consumer;
(and not from the contractual interest of the b. release, submission or exchange
accounts) shall be accrued as provided in of customer information with other
PAS 39. financial institutions, credit information
bureaus, credit card issuers, their
§ 4301N.6 Finance charges. The subsidiaries and affiliates;
amount of finance charges in connection c. upon orders of court of competent
with any credit card transaction shall refer jurisdiction or any government office or
to interest charged to the cardholder. agency authorized by law, or under such

Page 22
§§ 4301N.9 - 4301N.14
05.12.31
conditions as may be prescribed by the pursuant to the provisions of Articles 1278

Monetary Board; to 1290 of the New Civil Code of the
d. disclosure to collection agencies, Philippines, as amended the use of his credit
counsels and other agents of the bank or card will subject his deposit/s with the bank
card company to enforce its rights against to offset against any amount/s due and
the cardholder; payable on his credit card which have not
e. disclosure to third party service been paid in accordance with the terms of the
providers solely for the purpose of assisting agreement/contract.
or rendering services to the bank or card
company in the administration of its credit § 4301N.13 Handling of complaints
card business; and Subsidiary/affiliate credit card companies of
f. disclosure to third parties such as banks/QBs shall give cardholders at least
insurance companies, solely for the purpose twenty (20) calendar days from statement
of insuring the bank from cardholder default date to examine charges posted in his/her
or other credit loss, and the cardholder from statement of account and inform the credit
fraud or unauthorized charges. card company in writing of any billing error
or discrepancy. Within ten (10) calendar
§ 4301N.10 Suspension, termination of days from receipt of such written notice, the
effectivity and reactivation. Subsidiary/ credit card company shall send a written
affiliate credit card companies of banks/QBs acknowledgement to the cardholder unless
shall formulate criteria or parameters for the action required is taken within such ten
suspension, revocation and reactivation of (10)-day period.
the right to use the card and shall include Not later than two (2) billing cycles or
in their contract with cardholders a two (2) months which in no case shall
provision authorizing the issuer to suspend exceed ninety (90) days after receipt of the
or terminate its effectivity, if circumstances notice and prior to taking any action to
warrant. collect the contested amount, or any part
thereof, banks/subsidiary credit card
§ 4301N.11 Inspection of records companies shall make appropriate
covering credit card transactions corrections in their records and/or send a
Subsidiary/affiliate credit card companies of written explanation or clarification to the
banks/QBs shall make available for inspection cardholder after conducting an
or examination by the appropriate department investigation. Nothing in this Subsection
of the SES complete and accurate files on card shall be construed to prohibit any action by
applicant/cardholder to support the the bank/subsidiary credit card company to
consideration for approval of the application collect any amount which has not been
and determination of the credit limit which indicated by the cardholder to contain a
shall be in accordance with the verified debt billing error or apply against the credit limit
repayment ability and/or net worth of the of the cardholder the amount indicated to
card applicant/cardholder. be in error.
§ 4301N.12 Offsets. For purposes of § 4301N.14 Unfair collection

transparency and adequate disclosure, the practices. Subsidiary/affiliate credit card
credit card issuer shall inform/notify the companies of banks/QBs, collection
credit cardholder in the agreement, contract agencies, counsels and other agents may
or any equivalent document governing the resort to all reasonable and legally
issuance or use of the credit card that, permissible means to collect amounts due

Page 23
§§ 4301N.14 - 4312N
07.12.31
them under the credit card agreement: b. Prohibition of the bank concerned
Provided, That in the exercise of their rights from the extension of additional credit
and performance of duties, they must accommodation against personal security;
observe good faith and reasonable conduct and
and refrain from engaging in unscrupulous c. Penalties and sanctions provided
or untoward acts. Without limiting the under Sections 36 and 37 of R.A. No. 7653.
general application of the foregoing, the
following conduct is a violation of this Sec. 4302N Classification of Credit Card
Subsection: Receivables. Credit card receivables shall
a. the use or threat of violence or other be classified in accordance with age as
criminal means to harm the physical person, follows:
reputation, or property of any person; No. of days past due Classification
b. the use of obscenities, insults, or 91 - 120 Substandard
profane language which amount to a criminal 121 - 180 Doubtful
act or offense under applicable laws; 181 or more Loss
c. disclosure of the names of credit The foregoing is the minimum
cardholders who allegedly refuse to pay classification requirement. Management
debts, except as allowed under Subsec. may therefore formulate additional specific
4301N.9; guidelines.
d. threat to take any action that cannot
legally be taken; Sec. 4303N Updating of Information
e. communicating or threat to Provided to Credit Information Bureaus
communicate to any person credit FIs which have provided adverse
information which is known to be false, information, such as the past due or
including failure to communicate that a debt litigation status of loan accounts, to credit
is being disputed; information bureaus, or any organization
f. any false representation or deceptive performing similar functions, shall submit
means to collect or attempt to collect any monthly reports to these bureaus or
debt or to obtain information concerning a organizations on the full payment or
cardholder; and settlement of the previously reported
g. making contact at unreasonable/ accounts within five (5) business days from
inconvenient times or hours which shall be the end of the month when such full
defined as contact before 6:00 A.M. or after payment was received. For this purpose, it
10:00 P.M., unless the account is past due shall be the responsibility of the reporting
for more than sixty (60) days or the FIs to ensure that their disclosure of any
cardholder has given express permission or information about their borrowers/clients is
said times are the only reasonable or with the consent of borrowers/clients
convenient opportunities for contact. concerned.
(Circular No. 589 dated 18 December 2007)
§ 4301N.15 Sanctions. Violations of the
provisions of this Section shall be subject Secs. 4304N – 4311N (Reserved)
to any or all of the following sanctions
depending upon their severity: Sec. 4312N Grant of Loans and Other
a. Disqualification of the bank Credit Accommodations. The following
concerned from the credit facilities of the regulations shall be observed in the grant
BSP except as may be allowed under Section of loans and other credit
84 of R.A. No. 7653; accommodations.

Page 24
§ 4312N.1
08.12.31
§ 4312N.1 General guidelines these documents remain valid unless

Consistent with safe and sound business revoked.
practices, an NBFI shall grant loans or other Should the document(s) submitted prove
credit accommodations only in amounts to be spurious or incorrect in material detail,
and for the periods of time essential for the NBFI may terminate any loan or other
the effective completion of the operation credit accommodation granted on the basis
to be financed. of said document(s) and shall have the right
Before granting loans or other credit to demand immediate repayment or
accommodations, an NBFI must ascertain that liquidation of the obligation. Moreover, the
the borrower, co-maker, endorser, surety and/ NBFI may seek redress from the court for
or guarantor, if applicable, is/are financially any harm done by the borrower’s submission
capable of fulfilling his/their commitments of spurious documents.
to the NBFI. For this purpose, an NBFI shall The required submission of additional
obtain adequate information on his/their documents shall cover loans, other credit
credit standing and financial capacities. accommodations, and credit lines granted,
In addition to the usual information restructured, renewed or extended after
sheet about the borrower, an NBFI shall 02 November 2006, including any
require from the credit applicant the availment and/or re-availment against
following: existing credit lines, except:
a. A copy of the latest ITR of the (1) Microfinance loans. This represents
borrower and his co-maker, if applicable, small loans granted to the basic sectors such
duly stamped as received by the BIR; as farmer-peasant, artisanal fisher folk,
b. Except as otherwise provided by workers in the formal and informal sector,
law and in other regulations, if the migrant workers, indigenous peoples and
borrower is engaged in business, a copy cultural communities, women, differently-
of the borrower’s latest financial abled persons, senior citizens, victims of
statements as submitted for taxation calamities and disasters, youth and students,
purposes to the BIR; and children, and urban poor, as defined in the
c. A waiver of confidentiality of client Social Reform and Poverty Alleviation Act
information and/or an authority of the NBFI of 1997 (R.A. No. 8425), and other loans
to conduct random verification with the granted to poor and low-income
BIR in order to establish authenticity of the households for their microenterprises and
ITR and accompanying financial statements small businesses. The maximum principal
submitted by the client. amount of microfinance loans shall not
The documents under Items “a” and exceed P150,000 and may be amortized
”b” above shall be required to be submitted on a daily, weekly, semi-monthly or
annually for as long as the loan and/or credit monthly basis, depending on the cash flow
accommodation is outstanding. The conditions of the borrowers. Said loans are
consistency of the data/figures in said ITRs usually unsecured, for relatively short
and financial statements shall also be periods of time (180 days) and often
checked and considered in the evaluation of featuring joint and several guarantees of
the financial capacity and creditworthiness one (1) or more persons;
of credit applicants. The waiver of (2) Loans to registered BMBEs;
confidentiality of client information and/or (3) Interbank loans;
an authority of the NBFI to conduct random (4) Loans secured by hold-outs on or
verification with the BIR need not be assignment of deposits or other assets
submitted annually since once submitted considered non-risk by the Monetary Board;

Page 25
§§ 4312N.1- 4312N.2
08.12.31
(5) Loans to individuals who are not least three (3) months immediately
required to file ITRs under BIR regulations, preceding the date of loan application, and
as follows: financial statements submitted for taxation
(a) Individuals whose gross purposes to the BIR, as may be applicable
compensation income does not exceed at the time the loans were granted,
their total personal and additional restructured, renewed, or extended.
exemptions, or whose compensation For purposes of this Section, the
income derived from one (1) employer following definitions shall apply:
does not exceed P60,000 and the income 1. Micro and small enterprises shall be
tax on which has been correctly withheld; defined as any business activity or enterprise
(b) Those whose income has been engaged in industry, agribusiness and/or
subjected to final withholding tax; services whether single proprietorship,
(c) Senior citizens not required to file cooperative, partnership or corporation
a return pursuant to R.A. No. 7432, as whose total assets, inclusive of those arising
amended by R.A. No. 9257, in relation to from loans but exclusive of the land on which
the provisions of the NIRC or the Tax the particular business entity’s office, plant
Reform Act of 1997; and and equipment are situated, must have a
(d) An individual who is exempt from value of up to P3.0 million and P15.0 million,
income tax pursuant to the provisions of the respectively, or as may be defined by the
NIRC and other laws, general or special; and MSME Development Council or other
(6) Loans to borrowers, whose only competent government agency.
source of income is compensation and the 2. Consumer loans is defined to include
corresponding taxes on which has been housing loans, loans for purchase of car,
withheld at source: Provided, That the household appliance(s), furniture and fixtures,
borrowers submitted, in lieu of the ITR, a loans for payment of educational and hospital
copy of their Employer’s Certificate of bills, salary loans and loans for personal
Compensation Payment/Tax Withheld (BIR consumption, including credit card loans.
Form 2316) or their payslips for at least (As amended by Circular Nos. 622 dated 16 September 2008,
three (3) months immediately preceding and 549 dated 09 October 2006)
the date of loan application.
Loans to micro and small enterprises § 4312N.2 Purpose of loans and other
which are not specifically exempted from credit accommodations. Before granting a
the additional documentary requirements loan or other credit accommodation, an NBFI
specified under the third paragraph of this shall ascertain the purpose of the loan or other
Subsection shall be exempted from said credit accommodation which shall be clearly
additional documentary requirement up to stated in the application and in the contract
31 December 2011. between the NBFI and borrower. The
Consumer loans, with original amounts proceeds of a loan or other credit
not exceeding P2.0 million, are exempted accommodation shall be utilized only for the
from updating requirements or the required purpose(s) stated in the application and
annual submission of the same requirements contract; otherwise, the NBFI may terminate
forwarded during the initial submission under the loan or other credit accommodation and
this Subsection but not in their restructuring, demand immediate repayment of the
renewal, or extensions or availment/ obligation. Notwithstanding the preceding
re-availment against existing credit lines: sentence, the proceeds of a loan or other
Provided, That these loans are supported by credit accommodation may be utilized by
ITRs or by BIR Form 2316 or payslips for at the borrower for a purpose(s) other than

Page 26
§§ 4312N.2 - 4313N
08.12.31
that originally stated in the application and to loans, other credit accommodations,
contract: Provided, That such other and guarantees granted to the National
purpose(s) is/are among those for which Government or Republic of the
the lending NBFI may grant loans and Philippines, its political subdivisions and
other credit accommodations under instrumentalities as well as GOCCs,
existing laws and regulations: Provided, subject to the following clarifications:
further, That such utilization shall be with a. Loans, other credit accommodations,
prior written approval of duly authorized and guarantees to the Republic of the
officer(s)/committee/board of directors of Philippines and/or its agencies/departments/
the lending NBFI and such written approval bureaus shall be considered: (1) non-risk; and
shall form part of the contract between the (2) not subject to any ceiling;
NBFI and the borrower. b. Loans, other credit accommodations,
(Circular No. 622 dated 16 September 2008) and/or guarantees to: (1) GOCCs; and
(2) corporations where the Republic of the
§ 4312N.3 Prohibited use of loan Philippines, its agencies/departments/
proceeds. NBFIs are prohibited from bureaus, and/or GOCCs own at least
requiring their borrowers to acquire shares twenty percent (20%) of the subscribed
of stock of the lending NBFI out of the loan capital stock shall be considered indirect
or other credit accommodation proceeds borrowings of the Republic of the
from the same NBFI. Philippines and shall form part of the
(Circular No. 622 dated 16 September 2008) individual ceiling as well as the aggregate
ceiling: Provided, That the following loans,
§ 4312N.4 Signatories. NBFIs shall other credit accommodations, and/or
require that loans and other credit guarantees to GOCCs and corporations
accommodations be made under the where the Republic of the Philippines, its
signature of the principal borrower and, in agencies/departments/bureaus, and/or
the case of unsecured loans and other GOCCs own at least twenty percent (20%)
credit accommodations to an individual of the subscribed capital stock, shall be
borrower, at least one (1) co-maker, except excluded from the thirty percent (30%)
that a co-maker is not required when the ceiling on unsecured loans under
principal borrower has the financial Secs. X330 and X331 of the MORB:
capacity and a good track record of paying (1) Loans, other credit accommodations,
his obligations. and/or guarantees for the purpose of
(As amended by Circular No. 622 dated 16 September 2008) undertaking priority infrastructure projects
consistent with the Medium-Term
§ 4312N.5 Sanctions. Any violation of Development Plan/Medium-Term Public
the provisions of this Section shall be Investment Program of the National
subject to the sanctions provided under Government, duly certified as such by the
Sections 36 and 37 of R.A. No. 7653. Secretary of Socio-Economic Planning;
(2) Loans, other credit accommodations,
Sec. 4313N Bank DOSRI Rules and and/or guarantees granted to participating
Regulations Applicable to Government financial institutions (PFIs) in the lending
Borrowings in Government-Owned programs of the government wherein the
Or -Controlled Financial Institutions. The funds borrowed are intended for relending
provisions of Secs. X326 to X337 of the to other PFIs or end-user borrowers; and
Manual of Regulations for Banks (MORB), (3) Loans, other credit accommodations,
to the extent applicable, shall also apply and/or guarantees granted for the purpose

Page 26a
§§ 4313N - 4391N
08.12.31
of providing (i) wholesale and retail loans other credit accommodations, and
to the agricultural sector and MSMEs; guarantees to the Republic of the Philippines
and/or (ii) rediscounting and guarantee and/or its agencies/departments/bureaus; and
facilities for loans granted to the said sector h. A director of the lending institution
or enterprises; shall be excluded in the deliberation as
c. Loans, other credit accommodations, well as in the determination of majority of
and/or guarantees granted to state the directors in cases of loans, other credit
universities and colleges (SUCs) shall be accommodations, and guarantees to the
excluded from the thirty percent (30%) borrowing government entity other than
ceiling on unsecured loans under Secs. the Republic of the Philippines, its
X330 and X331 of the MORB; agencies, departments or bureaus where
d. In view of the fiscal autonomy said director is also a director, officer or
granted under R.A. No. 7653 and the stockholder under existing DOSRI
independence prescribed under the regulations.
Constitution, the BSP shall be considered (Circular No. 514 dated 06 March 2006 as amended by Circular
an independent entity, hence, not a related Nos. 635 dated 10 November 2008, 616 dated 30 July 2008,
interest of the Republic of the Philippines and 580 dated 09 September 2007)
and/or its agencies/departments/bureaus.
Loans, other credit accommodations and Sec. 4314N Loans Against Personal
guarantees of the BSP shall be considered: Security. The grant, renewal, restructuring
(1) non-risk; and (2) not subject to any ceiling; or extension of unsecured loans shall, in
e. LGUs shall be considered separate addition to the requirements of Section
from the Republic of the Philippines, other 4312N, be made under the signature of the
government entities, and from one another principal borrower and at least one (1)
due to the full autonomy in the exercise of co-maker, except that a co-maker is not
their proprietary functions and in the required when the principal borrower has
management of their economic enterprises the financial capacity and a good track
granted to them under the Local record of paying his obligations.
Government Code of the Philippines, (Circular No. 622 dated 16 September 2008)
subject to certain limitations provided by
law, hence, not a related interest of the Secs. 4315N-4390N (Reserved)
Republic of the Philippines and/or its
agencies/departments/bureaus; Sec. 4391N Investments in Debt and
f. Local Water Districts (LWDs), Marketable Equity Securities. The
although GOCCs shall be considered classification, accounting procedures,
separate from the Republic of the Philippines, valuation, sales and transfers of investments
other government entities, and from one in debt securities and marketable equity
another due to their fiscal independence securities shall be in accordance with the
from the National Government, hence, not guidelines in Appendices Q-20 and Q-20-a.
related interests of the Republic of the Penalties and sanctions. The following
Philippines and/or its agencies/department/ penalties and sanctions shall be imposed
bureaus, for purposes of these regulations; on FIs and concerned officers found to
g. A director who acts as a violate the provisions of these regulations:
government representative in the lending a. Fines of P2,000/day to be imposed
institution shall not be excluded in the on NBFIs for each violation, reckoned
deliberation as well as in the determination from the date the violation was committed
of majority of the directors in cases of loans, up to the date it was corrected; and

Page 26b
§§ 4391N - 4511N.3
08.12.31
b. Sanctions to be imposed on remittance agent, in the prescribed form

concerned officers: (Item “A”, Appendix N-8), must be duly
(1) First offense – reprimand the supported by the following documents:
officers responsible for the violation; and a. Incorporation papers duly
(2) Subsequent offenses – suspension authenticated by the SEC (for corporation/
of ninety (90) days without pay for officers partnership); or copy of the certificate of
responsible for the violation. registration duly authenticated by the
(Circular No. 476 dated 16 February 2005 as amended by Department of Trade and Industry (DTI) (for
Circular Nos. 628 dated 31 October 2008, 626 dated 23 October single proprietorship);
2008 and 585 dated 15 October 2007) b. Copy of business license/permit
from the city or municipality having
Secs. 4392N - 4400N (Reserved) territorial jurisdiction over the place of
establishment and operation;
Secs. 4401N - 4500N (Reserved) c. List of stockholders/partners/
proprietor/directors/principal officers as the
Secs. 4501N - 4510N (Reserved) case maybe;
d. Notarized Deed of Undertaking
Sec. 4511N Foreign Exchange Dealers/ (Item “B”, Appendix N-8) to strictly comply
Money Changers and/or Remittance with the requirements of all relevant laws,
Agents Operations. The following rules rules and regulations, signed either by the
and regulations shall govern the owner, partner, president or officer of
registration and operations of foreign equivalent rank; and
exchange dealers (FXDs)/money changers e. Any additional document which the
(MCs) and/or remittance agents: BSP may require from time to time.
FXDs/MCs and remittance agents
§ 4511N.1 Registration. Qualified existing prior to 12 May 2005 (effectivity
persons or non-bank institutions wishing date of Circular 471 dated 24 January 2005)
to act as FXDs/MCs and/or remittance may continue to operate as such: Provided,
agents are required to register with the BSP That an application for registration
before they can operate as such. supported by documents mentioned
For this purpose, the term money above has been filed within ninety (90)
changers, interchangeably referred to as calendar days from 12 May 2005.
foreign exchange dealers, shall refer to A certificate of registration to act as
those regularly engaged in the business of FXD/MC or remittance agent shall be
buying and/or selling foreign currencies. issued by the BSP and shall become the
Remittance agents, on the other hand, basis for an electronic registry of all BSP-
shall refer to persons or entities that offer registered FXDs/MCs and remittance
to remit, transfer or transmit money on agents in the country.
behalf of any person to another person and/
or entity. These include money or cash § 4511N.3 Applicability of other laws/
couriers, money transmission agents, regulations. FXDs/MCs and remittance
remittance companies and the like. agents are subject to the provisions of R.A.
No. 7653 and R.A. No. 9160, as amended,
§ 4511N.2 Application for registration and its implementing rules and regulations,
The application for a certificate of particularly on customer identification,
registration to act as FXD/MC and/or record keeping and reporting of covered

Page 26c
§§ 4511N.3 - 4511N.5
05.12.31
transactions and suspicious transactions as from such attendance or as new employees

well as those which may hereafter be are hired.
issued.
§ 4511N.5 Sale and purchase of
§ 4511N.4 Required seminar/training foreign currencies by FXDs/MCs. The
Prior to the issuance of the certificate of following minimum procedures shall be
registration, the officer(s) as well as the observed on sale and purchase of foreign
personnel directly involved in foreign currencies by FXDs/MCs:
exchange operations shall attend a seminar a. Official receipts, in case of sales, and
on the requirements of the Anti-Money accountable forms in case of purchases, shall
Laundering Act (AMLA) particularly on be issued in numerical order to evidence
customer identification, record keeping and sale/purchase of foreign currencies;
reporting of covered and suspicious b. The amount of foreign currencies
transactions, to be conducted by the AMLC sold shall be indicated in the official receipts
or by any of its recognized or accredited both in words and in figures. The staff
service providers. The provisions of this serving the particular transaction as well
Section shall also apply to officers as the person buying/selling foreign
appointed after the issuance of the currency shall sign in their usual signatures
certificate of registration. on the receipt;
The officer(s) in-charge and the c. A daily record of foreign exchange
personnel who attended the required transactions shall be maintained where
seminar shall echo the said training to all all foreign exchange sale and purchase
employees within thirty (30) calendar days transactions shall be posted chronologically.

Page 26d
§§ 4511N.5 - 4511N.8
05.12.31
The daily record shall be kept on file at the documents enumerated in Item “b” above
FXD/MC premises and shall be available unless there are changes thereto.
for AMLC inspection/examination any time; As a means of further identification,
d. All copies of cancelled receipts FXDs/MCs shall require the presentation
shall be marked and stamped of a government-issued identification
“CANCELLED” for internal control document such as SSS/GSIS/voter’s ID,
purposes; and driver’s license or passport.
e. Foreign exchange transactions A sample of application to sell/purchase
shall be conducted only at the entity’s foreign currencies is shown in Item “C”,
principal place of business and other Appendix N-8.
authorized branches.
§ 4511N.7 Additional requirement
§ 4511N.6 Application to sell/purchase FXDs/MCs shall require a notarized
foreign currencies by FXDs/MCs. FXDs/ application together with supporting
MCs shall require the seller or buyer of documents (Item “D”, Appendix N-8.) in
foreign currency to fill up and sign an case of sale of foreign exchange
application form, which shall contain the exceeding US$5,000 or its equivalent to
following minimum data and information: the same client. FXDs/MCs shall see to it
a. For individual customers – that this limit on the sale of foreign
(1) Date exchange is not breached by the
(2) Printed name and signature of splitting of a foreign exchange purchase
customer into smaller amounts so as to make it
(3) Present address appear that the purchase does not violate
(4) Permanent address the prescribed limit.
(5) Date and place of birth There is deemed to be splitting of
(6) Telephone number foreign exchange if the FXD/MC sells
(7) Nationality foreign exchange to any one purchaser
(8) Amount and currency sold/ within a fifteen (15) banking day period,
purchased in words and figures in such individual amounts which, when
(9) Source of foreign currency/ies or combined, amount to more than US$5,000
purpose of purchase or its equivalent.
b. For corporate/juridical customers –
In addition to a signed application § 4511N.8 Requirements for
containing the applicable information in remittance agents. RAs shall maintain
Item “a” above, photocopies of the accurate and meaningful originator
following documents shall be required: information on funds transferred/remitted by
(1) Articles of incorporation/ partnership requiring the sender/remitter to fill up and
(2) By-Laws sign an application form, which shall contain
(3) Official address or principal the following minimum data and information:
business address a. For individual customers -
(4) List of directors/partners/ principal (1) Date
stockholders (2) Printed name and signature of remitter
(5) Authority and identification of the (3) Present address
person purporting to act in behalf of the client. (4) Permanent address
For subsequent transactions with the (5) Date and place of birth
same corporate client, FXDs/MCs need not (6) Telephone number
require submission of additional (7) Nationality

Page 27
§§ 4511N.8 - 4511N.16
05.12.31
(8) Amount and currency to be remitted b. The client is not properly identified;
(9) Source of foreign currency c. The amount involved is not
(10) Name of and relationship with commensurate with the business or
beneficiary/ies financial capacity of the client;
b. For corporate/juridical customers d. Taking into account all known
In addition to a signed application circumstances, it may be perceived that
containing the applicable information in the client’s transaction is structured in order
Item “a” , a photocopy of the authority and to avoid being the subject of reporting
identification of the person purporting to requirements under the AMLA;
act in behalf of the client shall be required. e. Any circumstance relating to the
As a means of further identification, transaction which is observed to deviate
RAs shall require the presentation of a from the profile of the client and/or the
government-issued identification client’s past transactions with the covered
document such as SSS/GSIS/voter’s ID, institution;
driver’s license or passport. f. The transaction is in any way related
For purposes of compliance with the to an unlawful activity or any money
requirements, an RA may rely on the laundering activity or offense under the
referral of its office/correspondent bank AMLA that is about to be, is being or has
abroad: Provided, That the RA maintains a been committed; or
record of such referral together with the g. Any transaction that is similar,
minimum identification, information/ analogous or identical to any of the
documents required under the law and its foregoing.
implementing rules and regulations.
§ 4511N.10 - 4511N.14 (Reserved)
§ 4511N.9 AMLC reportorial
requirements. FXDs/MCs and RAs are § 4511N.15 Sanctions. Monetary
required to submit to the AMLC a report on penalties and other sanctions for the
covered transactions and suspicious following violations committed by erring
transactions within five (5) banking days from FXDs/MCs and RAs may be imposed:
the date of said transaction or from date the
FXDs/MCs and RAs gained information that Nature of Violation/ Sanctions/Penalties
the transaction was done for the purpose of Exception
laundering proceeds of criminal or other a.Operating without Applicable penalties
illegal activities or from the time the FXDs/ prior BSP registration under Section 36 of
MCs and RAs had reasonably suspected that R.A. No. 7653;
said transactions were entered into for the Watchlisting of
purpose of laundering proceeds of criminal partners/principal
and other illegal activities. officers
For this purpose, covered transactions shall b. Violation of any of Applicable penalty
refer to transactions in cash or other equivalent the provisions of prescribed under the
monetary instrument involving a total amount R.A. No. 9160, as Act
in excess of P500,000.00 within one (1) amended and its
banking day while suspicious transactions are IRR
transactions, regardless of amount, where any c. Other violations of Penalties and sanctions
of the following circumstances exists: the provisions/ which may be
a. There is no underlying legal or trade requirements in imposed by the
obligation, purpose or economic justification; this Section AMLC

Page 28
§§ 4511N.16 - 4601N.1
07.12.31
§ 4511N.16 Industry association one (1)-time monetary penalty on a per

Membership in an existing association of transaction basis.
BSP-registered FXDs/MCs as well as RAs (3) Continuing penalty refers to the
is encouraged. monetary penalty imposed on continuing
offenses/violations on a per calendar day
Secs. 4512N - 4600N (Reserved) basis reckoned from the time the offense/
violation occurred or was committed until
Sec. 4601N Fines and Other Charges. The the same was corrected/rectified.
following regulations shall govern (4) Transactional penalty refers to a one
imposition of monetary penalties on NBFIs, (1)-time penalty imposed on a transactional
their directors and/or officers and the offense/violation.
payment of such penalties or fines and other b. Basis for the computation of the
charges by these entities . period or duration of penalty. The
(Circular No. 585 dated 15 October 2007) computation of the period or duration of
all penalties shall be based on calendar
§4601N.1 Guidelines on the days.
imposition of monetary penalties; Payment For this purpose the terms “per banking
of penalties or fines. The following are the day”, “per business day”, “per day” and/or
guidelines on the imposition of monetary “a day” as used in this Manual, and other
penalties on NBFIs, their directors and/or BSP rules and regulations shall mean “per
officers and the payment of such penalties calendar day” and/or “calendar day” as the
or fines and other charges by these entities: case may be.
a. Definition of terms. For purposes c. Additional charge for late payment
of the imposition of monetary penalties, the of monetary penalty. Late payment of
following definitions are adopted: monetary penalty shall be subject to an
(1) Continuing offenses/violations are additional charge of six percent (6%) per
acts, omissions or transactions entered into, annum to be computed from the time said
in violation of laws, BSP rules and penalty becomes due and payable up to the
regulations, Monetary Board directives, time of actual payment. The penalty
and orders of the Governor which persist approved by the Governor/MB to be
from the time the particular acts were imposed on the NBFI, its directors and/or
committed or omitted or the transactions officers shall become due and payable
were entered into until the same were fifteen (15) calendar days from receipt of
corrected/rectified by subsequent acts or the Statement of Account from the BSP. For
transactions. They shall be penalized on a banks which maintain DDA with the BSP,
per calendar day basis from the time the penalties which remain unpaid after the
acts were committed/omitted or the lapse of the fifteen-day period shall be
transactions were effected up to the time automatically debited against their
they were corrected/rectified. corresponding DDA on the following
(2) Transactional offenses/violations business day without additional charge. If
are acts, omissions or transactions entered the balance of the concerned NBFI’s DDA
into in violation of laws, BSP rules and is insufficient to cover the amount of the
regulations, Monetary Board directives, penalty, said penalty shall already be subject
and orders of the Governor which cannot to an additional charge of six percent (6%)
be corrected/rectified by subsequent acts per annum to be reckoned from the business
or transactions. They shall be meted with day immediately following the end of said

Page 29
§§ 4601N.1 - 4660N
07.12.31
fifteen (15)-day period up to the day of cost model under PAS 16 “Property, Plant
actual payment. and Equipment.”
d. Appeal or request for (Circular No. 494 dated 20 September 2004)
reconsideration. A one (1)-time appeal or
request for reconsideration on the monetary Secs. 4654N - 4659N (Reserved)
penalty approved by the Governor/
Monetary Board to be imposed on the NBFI, Sec. 4660N Disclosure of Remittance
its directors and/or officers shall be allowed: Charges and Other Relevant Information
Provided, That the same is filed with the It is the policy of the BSP to promote the
appropriate department of the SES within efficient delivery of competitively-priced
fifteen (15) calendar days from receipt of remittance services by banks and other
the Statement of Account/billing letter. The remittance service providers by promoting
appropriate department of the SES shall competition and the use of innovative
evaluate the appeal or request for payment systems, strengthening the
reconsideration of the NBFI/individual and financial infrastructure, enhancing access to
make recommendations thereon within formal remittance channels in the source
thirty (30) calendar days from receipt and destination countries, deepening the
thereof. The appeal or request for financial literacy of consumers, and
reconsideration on the monetary penalty improving transparency in remittance
approved by the Governor/Monetary Board transactions, consistent with sound practices.
shall be elevated to the Monetary Board for Towards this end, NBFIs under BSP
resolution/decision. The running of the supervision, including FXDs/MCs and RAs,
penalty period in case of continuing penalty providing overseas remittance services shall
and/or the period for computing additional disclose to the remittance sender and to the
charge shall be interrupted from the time recipient/beneficiary, the following
the appeal or request for reconsideration minimum items of information regarding
was received by the appropriate department remittance transactions, as defined herein:
of the SES up to the time that the notice of a. Transfer/remittance fee – charge for
the Monetary Board decision was received processing/sending the remittance from the
by the NBFI/individual concerned. country of origin to the country of
(Circular No. 585 dated 15 October 2007) destination and/or charge for receiving the
remittance at the country of destination;
Sec. 4602N (Reserved) b. Exchange rate – rate of conversion
from foreign currency to local currency, e.g.,
Sec. 4603N Non-Bank BSP Supervised peso-dollar rate;
Entities. NBBSEs that may subsequently be c. Exchange rate differential/spread –
authorized to engage in FX forwards and foreign exchange mark-up or the difference
swaps as dealers shall be covered by the between the prevailing BSP reference/
provisions under Subsecs. 4603Q.14 to guiding rate and the exchange/conversion
4603Q.21, and 4603Q.26. rate;
(Circular No. 591 dated 27 December 2007) d. Other currency conversion charges -
commissions or service fees, if any;
Secs. 4604N - 4652N (Reserved) e. Other related charges–e.g.,
surcharges, postage, text message or telegram;
Sec. 4653N Accounting for Financial f. Amount/currency paid out in the
Institution Premises; Other Fixed Assets recipient country - exact amount of money
FI premises, furniture, fixture and the recipient should receive in local currency
equipment shall be accounted for using the or foreign currency; and

Page 30
§§ 4660N - 4695N
08.12.31
g. Delivery time to recipients/ (e) Police clearance

beneficiaries - delivery period of (f) Postal ID
remittance to beneficiary stated in number (g) Voter’s ID
of days, hours or minutes. (h) Barangay certification
Non-bank remittance service (i) GSIS e-Card
providers shall likewise post said (j) SSS card
information in their respective websites (k) Senior Citizen card
and display them prominently in (l) OWWA ID
conspicuous places within their premises (m) OFW ID
and/or remittance/service centers. (n) Seaman’s Book
(Circular No. 534 dated 26 June 2006) (o) Alien Certification of Registration/
Immigrant Certificate of Registration
Secs. 4661N - 4694N (Reserved) (p) Government office and GOCC ID
(e.g., AFP, HDMF IDs)
Sec. 4695N Valid Identification (ID) (q) Certification from the NCWDP
Cards for Financial Transactions. The (r) DSWD certification
following guidelines govern the (s) IBP ID; and
acceptance of valid ID cards for all types (t) Company IDs issued by private
of financial transactions by NBFIs, entities or institutions registered with or
including financial transactions involving supervised or regulated either by the BSP,
OFWs, in order to promote access of SEC or IC.
Filipinos to services offered by formal FIs, b. Students who are beneficiaries
particularly those residing in the remote of remittances/fund transfers who are
areas, as well as to encourage and facilitate not yet of voting age may be allowed
remittances of OFWs through the banking to present the original and submit a
system: clear copy of one (1) valid photo-bearing
a. Clients who engage in a financial school ID duly signed by the principal
transaction with covered institutions for or head of the school.
the first time shall be required to present c. NBFIs shall require their clients to
the original and submit a clear copy of at submit a clear copy of one (1) valid ID on
least one (1) valid photo-bearing ID a one-time basis only, or at the
document issued by an official authority. commencement of a business relationship.
For this purpose, the term official They shall require their clients to submit
authority shall refer to any of the following: an updated photo and other relevant
(1) Government of the Republic of the information whenever the need for it arises.
Philippines; The foregoing shall be in addition to
(2) Its political subdivisions and the customer identification requirements
instrumentalities; under Rule 9.1.c of the Revised IRRs of
(3) GOCCs; and R.A. No. 9160, as amended (Appendix N-4).
(4) Private entities or institutions For purposes of this Section, financial
registered with or supervised or regulated transactions may include remittances,
either by the BSP or SEC or IC. among others, as falling under the
Valid IDs include the following: definition of transaction. Under the
(a) Passport Anti-Money Laundering Act of 2001, as
(b) Driver’s license amended, a financial transaction is any act
(c) PRC ID establishing any right or obligation or
(d) NBI clearance giving rise to any contractual or legal

Page 31
§§ 4695N - 4699N
08.12.31
relationship between the parties Secs. 4696N-4698N (Reserved)

thereto. It also includes any movement
of funds by any means with a covered Sec. 4699N General Provision on
institution. Sanctions. Any violation of the preceding
(Circular No. 564 dated 03 April 2007 as amended by Circular provisions shall be subject to Section 36
No. 608 dated 20 May 2008) of R.A. No. 7653.

Page 32
LIST OF REPORTS REQUIRED FROM NON-BANK FINANCIAL INSTITUTIONS
(Appendix to Sec. 4162N)
A-2 BSP-7-26-02 4162N Consolidated Statement of Condition (CSOC) Monthly 15th banking days Email to SDC @
(M-008 after end of the sdcnbfi@bsp.gov.ph
dated reference month
02.14.08)
BSP-7-26-03B Consolidated Statement of Income and Expenses (CSIE)
Control Prooflist messengerial or postal

services
A-2 BSP-7-26-02 4162N Schedule of Loans/Receivables, Trading Account Monthly 15th business day from Original - Appropriate
Schedule 1 Securities (TAS) - Loans and Underwritten Debt end of reference month department of the SES
(IHs only) Securities Duplicate - SDC or
cc: mail/electronic
transmission
Separate report for

Head Office and each
Branch; and a
Consolidated Report
for Head Office and
Branches
A-2 BSP-7-26-02 4162N Schedule of Loans/Receivables and Trading Account -do- -do- -do-
Schedule 1 Securities - Loans
Appendix N-1 - Page 1
A-2 BSP-7-26-02 4162N Schedule of Trading Account Securities - Investments, - do - - do - -do-

Schedule 2 Available for Sale Securities and Investment in Bonds
(FCs only) and Other Debt Instruments (IBODI)
N Regulations
A-2 BSP-7-26-02 4162N Interest Rate and Maturities Matching - do - - do - - do -
APP. N-1
08.12.31
Schedule 3
08.12.31
APP. N-1
N Regulations
A-2 BSP-7-26-02 4162N Remaining Maturities of Selected Accounts Monthly 15th business day from Original - Appropriate
Schedule 4 end of reference month department of the SES
Duplicate - SDC or
cc:mail/electronic
transmission
A-2 BSP-7-26-02 4162N Schedule of Bills Payables and Bonds - do - - do - - do -

Schedule 5
A-2 BSP-7-26-02 4162N Data on Firm's Businesses - do - - do - - do -

Schedule 6
(FCs only)
A-2 BSP-7-26-03 4162N Statement of Income and Expenses - do - - do - - do -
A-2 BSP-7-26-23 Trust/Fund Management Operations - do - - do - - do -

(Entities w/Trust/
Fund Management
Only)
A-2 BSP-7-26-24 4162N Credit and Equity Exposures to Individuals/ Quarterly 15th business day from Electronic submission/
(Rev. Aug. Companies/Groups Aggregating P 1.0 Million and end of reference quarter diskette - SDC
2003 per above
CL dated Fax to SDC
08.06.03)
A-2 Unnumbered 4101N Report on required and available reserves on Peso- Weekly 3rd business day Original - Appropriate
(no prescribed form) denominated Common Trust Funds (CTFs), such other following reference department of the SES
(Entities with Trust/ managed peso funds and TOFA-Others week Duplicate - SDC or
Fund Management cc:mail/electronic
Only) transmission
A-2 Unnumbered 4144N.12 Report on Suspicious Transactions As 10th business day from To be submitted to the
(Rev. May transaction date of transaction/ Anti-Money Laundering
2002 as occurs knowledge Council (AMLC)
amended
by Cir. No.
612 dated
06.03.08)

A-2 Unnumbered 4144N.12 Report on Covered Transactions As 10th business day To be submitted to the
transaction from date of Anti-Money
occurs transaction/knowledge Laundering Council
A-2 Unnumbered 4144N.12 Certification of compliance with existing anti-money Annually 20th business day after To be submitted to the
laundering regulations end of reference year appropriate department
of the SES
A-2 Unnumbered (Cir. 609 Financial Reporting Package for Trust Institutions Quarterly 20th banking day after SDC
dated end of reference sdcnbfi-
05.26.08 Schedules: quarter frpti@bsp.gov.ph
as amended
by M-022 Balance Sheet
dated
06.26.08) A1 to A2 Main Report
B to B2 Details of Investments in Debt and

Equity Securities
C to C2 Details of Loans and Receivables
D to D2 Wealth/Assets/Fund Management -
UITF
E Fiduciary Accounts
E1 to E1b Other Fiduciary Services - UITF
Income Statement
Control Prooflist -do- -do- -do-
A-2 Unnumbered 4172N Audit Engagement Contract As contract 15th calendar day Appropriate
N Regulations
(no prescribed is signed from date of signing of department of the SES

form) contract
APP. N-1
08.12.31
4101N.16 Waiver of the Confidentiality of Information under As
Sections 2 and 3 of R.A. No. 1405, as amended transaction
occurs
08.12.31
APP. N-1
N Regulations
A-3 Unnumbered 4162N Report on Borrowings of BSP Personnel Quarterly 15 banking days after Original to SDC
(CL-050 end of reference
dated quarter
10.04.07
and
CL-059
dated
11.28.07)
B BSP-7-26-01 4162N Information Sheet Annually January 31st Original - Appropriate

Corporate stockholders
should also submit
Information Sheet
SES II Form 15 4162N Biographical Data of Directors/Officers After 7th banking day from Electronic mail or
(NP08-TB) (As - If submitted in diskette form - Notarized first page of election the date of the meeting diskette form to SDC or if
amended each of the directors'/officers' bio-data saved in diskette or of the board of hard copy original to
by M-2008- and control prooflist appointment directors in which the appropriate department
024 dated - If sent by electronic mail - Notarized first page of and as directors/officers are of the SES, Duplicate to
07.31.08) Biographical Data or Notarized list of names of changes elected or appointed SDC
Directors/Officers whose Biographical Data were occur
submitted thru electronic mail to be faxed to SDC
(CL dated 01.09.01)
B Unnumbered 4162N Change of List of Directors/Officers As change Immediately after Original - Appropriate
occurs change department of the SES
Duplicate - SDC
B Unnumbered 4162N Board Resolution on NBFIs signatories of reports As 3rd day from date of To be submitted to the
submitted to Bangko Sentral authorized resolution appropriate department
of the SES
B Unnumbered 4144N.12 Plan of action to comply with Anti-Money Laundering - 30th business day from
requirements 31 July 2000 or from
opening of the institution
B General Information Sheet Annually 30th day from date of Drop Box - SEC Central
annual stockholders' Receiving Section
meeting Original - SEC
Duplicate - BSP
APP. N-2
05.12.31

(Appendix to Subsec. 4162N.1)
Category A-2 reports of head offices Category B reports shall be signed by

shall be signed by the president, executive officers or their alternates, who shall be
vice-presidents, vice-presidents or officers duly designated in a resolution approved
holding equivalent positions. Such reports by the board of directors in the format as
of other offices/units (such as branches) prescribed in Annex N-2-b.
shall be signed by their respective Copies of the board resolutions on the
managers/officers in-charge. Likewise, the report signatory designations shall be
signing authority in this category shall be submitted to the appropriate supervising
contained in a resolution approved by the and examining department of the BSP
board of directors in the format prescribed within three (3) days from the date of
in Annex N-2-a. resolution.

APP. N-2
05.12.31
Annex N-2-a
Whereas, it is required under Subsec. 4162N.1 that Category A-2 reports of head offices
be signed by the president, executive vice-presidents, vice-presidents or officers holding
a resolution duly approved by the institution’s Board of Directors;
Whereas, this Board has full faith and confidence in the institution’s President (and/or
resolved that:
Name of Specimen Position Report
Officer Signature Title No.
are hereby authorized to sign the Category A-2 reports of _______________________________.

(Name of Institution)
Done in the City of ___________, Philippines, this _____ day of __________, 20__ .
DIRECTOR DIRECTOR
DIRECTOR DIRECTOR
DIRECTOR DIRECTOR
ATTESTED BY:
CORPORATE SECRETARY

APP. N-2
05.12.31
Annex N-2-b
FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY B REPORTS
Whereas, it is required under Subsec. 4162N.1 that Category B reports be signed by

officers or their alternates;
a resolution duly approved by the institution’s Board of Directors;
Whereas, we the members of the Board of Directors of (Name of Institution)_ are
conscious that, in designating the officials who would sign said Category B reports, we are
Whereas, this Board has full faith and confidence in the institution’s authorized signatories
resolved that:
Name of Authorized Specimen Position Report
Signatory/Alternate Signature Title No.
1. Authorized
(Alternate)
2. Authorized
(Alternate)
etc.
are hereby authorized to sign the Category B reports of _______________________________.

(Name of Institution)
Done in the City of __________, Philippines, this ____ day of ____________, 20__ .
DIRECTOR DIRECTOR
DIRECTOR DIRECTOR
DIRECTOR DIRECTOR
ATTESTED BY:
CORPORATE SECRETARY

APP. N-3
05.12.31

(Appendix to Section 4104N)
Banks, quasi-banks, trust entities and (2) Verification of the authority and
all other institutions, and their subsidiaries identification of the person purporting to
and affiliates supervised or regulated by act on behalf of the client.
the BSP (covered institutions) shall strictly b. In case of doubt as to whether their
comply with the provisions of Section 9 purported clients or customers are acting for
of R.A. No. 9160 and the following rules themselves or for another, reasonable
and regulations on anti-money laundering. measures should be taken to obtain the true
identity of the persons on whose behalf an
1. Customer identification. Covered account is opened or a transaction
institutions shall establish and record the conducted.
of verifying the true identity of their accounts, accounts under fictitious names,
clients and, in case of corporate clients, and all other similar accounts shall be
require a system of verifying their legal absolutely prohibited. In case where
existence and organizational structure, as numbered accounts is allowed (i.e., peso
well as the authority and identification and foreign currency non-checking
of all persons purporting to act on their numbered accounts), covered institutions
behalf. should ensure that the client is identified in
When establishing business relations or an official or other identifying documents.
conducting transactions (particularly The BSP may conduct annual testing
opening of deposit accounts, accepting solely limited to the determination of the
deposit substitutes, entering into trust and existence and the identity of the owners of
other fiduciary transactions, renting of safety such accounts.
deposit boxes, performing remittances and Covered institutions shall phase out
other large cash transactions) covered within a period of one (1) year from 2 April
institutions should take reasonable 2001 or upon their maturity, whichever is
measures to establish and record the true earlier, anonymous accounts or accounts
identity of their clients. Said client under fictitious names as well as numbered
identification may be based on official or accounts being kept or managed by them,
other reliable documents and records. which are not expressly allowed under
a. In cases of corporate and other legal existing law.
entities, the following measures should be d. The identity of existing clients or
taken, when necessary: beneficial owners of deposits and other
(1) Verification of the legal existence funds held or being managed by the covered
and structure of the client from the institutions should be renewed/updated at
appropriate agency or from the client least every other year.
itself or both, proof of incorporation, e. All records of all transactions of
including information concerning the covered institutions shall be maintained and
customer’s name, legal form, address, safely stored for five (5) years from the dates
directors, principal officers and of transactions. With respect to closed
provisions regulating the power behind accounts, the records on customer
the entity. identification, account files and business

APP. N-3
05.12.31
correspondence, shall be preserved and 4. Required reporting of certain

safely stored for at least five (5) years from transactions. If there is reasonable ground
the dates when they were closed. to believe that the funds are proceeds of an
Such records must be sufficient to unlawful activity as defined under R.A. No.
permit reconstruction of individual 9160 and/or its IRRs, the transactions
transactions so as to provide, if necessary, involving such funds or attempts to transact
evidence for prosecution of criminal the same, should be reported to the Anti-
behaviour. Money Laundering Council (AMLC) in
f. Special attention should be given accordance with Rules 5.2 and 5.3 of the
to all complex, unusual large transactions, AMLA IRRs.
and all unusual patterns of transactions, a. Report on suspicious transactions.1
which have no apparent or visible lawful Banks shall report covered transactions and
purpose. The background and purpose suspicious transactions, as defined in Rules
of such transactions should, as far as 5.2 and 5.3 of the AMLA IRRs, to the AMLC
possible, be examined, the findings using the forms prescribed by the AMLC.
established in writing, and be available Reportable transactions shall include the
to help supervisors, auditors and law following:
enforcement agencies. (1) Outward remittances without
g. Covered institutions should not, or visible lawful purpose;
should at least avoid, transacting business (2) Inward remittances without visible
with criminals. Reasonable measures should lawful purpose or without underlying trade
be adopted to prevent the use of their transactions;
facilities for laundering of proceeds of (3) Unusual purchases of foreign
crimes and other illegal activities. exchange without visible lawful purpose;
(4) Unusual sales of foreign exchange
2. Programs against money whose sources are not satisfactorily
laundering. Programs against money established;
laundering should be developed. These (5) Complex, unusual large
programs, should include, as a minimum: transactions, and all unusual patterns of
a. The development of internal transactions, which have no apparent or
policies, procedures and controls, including visible lawful purpose;
the designation of compliance officers at (6) Funds being managed or held as
management level, and adequate screening deposit substitutes if there is reasonable
procedures to ensure high standards when ground to believe that the same are proceeds
hiring employees; of criminal and other illegal activities; and
b. An ongoing employee training (7) Suspicious transaction indicators or
program; and “red flags” as a guide in the submission to
c. An audit function to test the system. the AMLC of reports of suspicious
transactions relating to potential or actual
3. Submission of plans of action. financing of terrorism.
Covered institutions shall submit a plan (a) Wire transfers between accounts,
of action on how to comply with the without visible economic or business
requirements of App. N-3 nos. 1, 2 and purpose, especially if the wire transfers are
4 within thirty (30) business days from effected through countries which are
31 July 2000 or from opening of the identified or connected with terrorist
institution. activities.
1
Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex N-3-b).

APP. N-3
05.12.31

individuals who have no known involved.
connection or relation with the account (b) A brief description of the
holder. transaction or transactions.
(g) An individual receiving (c) Date or date the transaction(s)
remittances, but has no family members occurred.
working in the country from which the (d) Amount(s) involved in every
remittance is made. transaction.
(h) Client was reported and/or (e) Such other relevant information
mentioned in the news to be involved in which can be of help to the authorities
terrorist activities. should there be an investigation.
(i) Client is under investigation by b. Exemption from Bank Secrecy Law.
law enforcement agencies for possible When reporting covered transactions to the
involvement in terrorist activities. AMLC, covered institutions and their officers,
(j) Transactions of individuals, employees, representatives, agents,
companies or non-governmental advisors, consultants or associates shall not
organizations (NGOs) that are affiliated or be deemed to have violated R.A. No. 1405,
related to people suspected of being as amended; R.A. No. 6426, as amended;
connected to a terrorist group or a group R.A. No. 8791 and other similar laws, but
that advocates violent overthrow of a are prohibited from communicating, directly
government. or indirectly, in any manner or by any means,
(k) Transactions of individuals, to any person the fact that a covered
companies or NGOs that are suspected transaction report was made, the contents
as being used to pay or receive funds from thereof, or any other information in relation
revolutionary taxes. thereto. In case of violation thereof, the
(l) The NGO does not appear to have concerned officer, employee, representative,
expenses normally related to relief or agent, advisor, consultant or associate of the
humanitarian effort. covered institution, shall be criminally liable.
(m) The absence of contributions from However, no administrative, criminal or civil
donors located within the country of origin proceedings, shall lie against any person for
of the NGO. having made a covered transaction report
(n) A mismatch between the pattern in the regular performance of his duties and
and size of financial transactions on the one in good faith, whether or not such reporting
hand and the stated purpose and activity results in any criminal prosecution under
of the NGO on the other. R.A. No. 9160 or any other Philippine law.

APP. N-3
05.12.31
c. Prohibition from disclosure of the agent, advisor, consultant or associate of

covered transaction report. When the covered institution, or media shall be
reporting covered transactions to the held criminally liable.
AMLC, covered institutions and their
officers, employees, representatives, 5. Certification of compliance with
agents, advisors, consultants or associates anti-money laundering regulations.
are prohibited from communicating, Covered institution shall submit annually
directly or indirectly, in any manner or by to the BSP thru the appropriate supervising
any means, to any person, entity, the and examining department a certification
media, the fact that a covered transaction (Annex N-3-a) signed by the President or
report was made, the contents thereof, or officer of equivalent rank and by their
any other information in relation thereto. Compliance Officer to the effect that they
Neither may such reporting be published have monitored compliance with existing
or aired in any manner or form by the mass anti-money laundering regulations.
media, electronic mail, or other similar The certification shall be submitted in
devices. In case of violation thereof, the accordance with Appendix N-1 and shall
concerned officer, employee, representative, be considered a Category A-2 report.

APP. N-3
05.12.31
Annex N-3-a
CERTIFICATION OF COMPLIANCE WITH

CERTIFICATION
hereby certify:
1. That we have monitored (Name of NBFI)’s compliance with R.A. No. 9160 (Anti-
Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259
and 302;
2. That the NBFI is complying with the required customer identification, documentation
of all new clients, and continued monitoring of customer’s activities;
3. That the NBFI is also complying with the requirement to record all transactions and
to maintain such records including the record of customer identification for at least
five (5) years;
4. That the NBFI does not maintain anonymous or fictitious accounts; and
5. That we conduct regular anti-money laundering training sessions for all NBFI officers
and selected staff members holding sensitive positions.
_______________________________________ ___________________________
(Name of President or officer of equivalent rank) (Name of Compliance Officer)
SUBSCRIBED AND SWORN to before me, _____ this ___ day of ___________, affiant/s
exhibiting to me their Community Tax Certificate No.(s) as follows:

Page No. _________;
Book No. _________;
Series of 20___

APP. N-3
05.12.31
Annex N-3-b

SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS
1. All covered institutions are required transactions do not distinguish clients and
to file Suspicious Transaction Reports (STRs) their respective transaction amounts, said
on transactions involving all kinds of covered institutions shall be required to file
monetary instruments or property. CTRs on its clients whose transactions
exceed P500,000.00 and are included in
2. Banks shall file covered transaction the bulk transactions.
reports (CTRs) on transactions involving all
kinds of monetary instruments or property, 5. With respect to insurance
i.e., in cash or non-cash, whether in companies, when the total amount of the
domestic or foreign currency. premiums for the entire year, regardless
of the mode of payment (monthly,
banks, shall file CTRs on transactions in cash exceeds P500,000.00, such amount shall
or foreign currency or other monetary be reported as a covered transaction, even
instruments (other than checks) or if the amounts of the amortizations are less
transactions in the stock exchange, only the be filed upon payment of the first premium
brokers-dealers shall be required to file amount, regardless of the mode of
transfer agents are exempt from filing company shall file the CTR only once every
CTRs. They, are however, required to file year until the policy matures or rescinded,
STRs when the transactions that pass whichever comes first.
through them are deemed to be
suspicious. 6. The submission of CTRs is deferred
until the AMLC directs otherwise.
4. Where the covered institution Submission of STRs, however, are not
engages in bulk transactions with a bank, deferred and covered institutions are
i.e., deposits of premium payments in bulk mandated to submit such STRs when the
or settlements of trade, and the bulk circumstances so require.
N Regulations Manual of Regulations for Non-Banks Financial Institutions

APP. N-4
05.12.31


Pilipinas (BSP).
BSP.
promulgated to prescribe the procedures twenty percent (20%) but not exceeding
and guidelines for the implementation of fifty percent (50%) of the voting stock of
the AMLA, as amended by R.A. No. 9194. which is owned by a bank, quasi-bank, trust
entity, or any other institution supervised
RULE 2 and/or regulated by the BSP.
declared the policy of the State to protect professional reinsurers, reinsurance
the integrity and confidentiality of bank brokers, holding companies, holding
accounts and to ensure that the Philippines company systems and all other persons
shall not be used as a money-laundering and entities supervised and/or regulated by
site for the proceeds of any unlawful the Insurance Commission (IC).
the Philippines shall extend cooperation those entities authorized to transact
in transnational investigations and insurance business in the Philippines,
prosecutions of persons involved in money whether life or non-life, and whether
insurer, any insurance contract, or as
Rule 3.a. Covered Institution refers to: surety, any contract of suretyship as a
vocation and not as merely incidental to
Rule 3.a.1. Banks, offshore banking any other legitimate business or activity of
units, quasi-banks, trust entities, non-stock the surety, doing any kind of business
savings and loan associations, pawnshops, specifically recognized as constituting the
and all other institutions, including their doing of an insurance business within the

APP. N-4
05.12.31
meaning of Presidential Decree (P.D.) Rule 3.a.3. (i) Securities dealers,

No. 612, as amended, including a brokers, salesmen, associated persons of
reinsurance business and doing or brokers or dealers, investment houses,
proposing to do any business in investment agents and consultants, trading
substance equivalent to any of the advisors, and other entities managing
foregoing in a manner designed to securities or rendering similar services, (ii)
evade the provisions of P.D. No. 612, mutual funds or open-end investment
as amended. companies, close-end investment
(b) An insurance agent includes any companies, common trust funds, pre-need
person who solicits or obtains insurance companies or issuers and other similar
on behalf of any insurance company or entities; (iii) foreign exchange
transmits for a person other than himself corporations, money changers, money
an application for a policy or contract of payment, remittance, and transfer
insurance to or from such company or companies and other similar entities, and
offers or assumes to act in the negotiation (iv) other entities administering or
of such insurance. otherwise dealing in currency,
(c) An insurance broker includes any commodities or financial derivatives based
person who acts or aids in any manner in thereon, valuable objects, cash substitutes
soliciting, negotiating or procuring the and other similar monetary instruments or
making of any insurance contract or in property supervised and/or regulated by
placing risk or taking out insurance, on the Securities and Exchange Commission
behalf of an insured other than himself. (SEC).
(d) A professional reinsurer includes (a) A securities broker includes a
any person, partnership, association or person engaged in the business of buying
corporation that transacts solely and and selling securities for the account of
exclusively reinsurance business in the others.
Philippines, whether domestic, (b) A securities dealer includes any
domestically incorporated or a branch of person who buys and sells securities for
a foreign entity. A contract of reinsurance his/her account in the ordinary course of
is one by which an insurer procures a third business.
person to insure him against loss or liability (c) A securities salesman includes a
by reason of such original insurance. natural person, employed as such or as an

APP. N-4
05.12.31

security of which it is the issuer. of a regular business, issues or
(g) A closed-end investment company promulgates, analyzes reports concerning
includes an investment company other the capital market, except:
than open-end investment company. (a) any bank or trust company;
and formally established plan, exclusively newspaper, news, business or financial
for the collective investment and publication of general and regular
reinvestment of certain money representing circulation, including their employees;
participation in the plan received by it in its (d) any contract market;
capacity as trustee, for the purpose of (e) such other person not within the
administration, holding or management of intent of this definition, provided that the
such funds and/or properties for the use, furnishing of such service by the foregoing
benefit or advantage of the trustor or of persons is solely incidental to the conduct
others known as beneficiaries. of their business or profession.
(i) A pre-need company or issuer (3) any person who undertakes the
includes any corporation supervised and/ management of portfolio securities of
or regulated by the SEC and is authorized investment companies, including the
or licensed to sell or offer for sale pre-need arrangement of purchases, sales or
plans. Pre-need plans are contracts which exchanges of securities.
provide for the performance of future (l) A moneychanger includes any
service(s) or payment of future monetary person in the business of buying or selling
consideration at the time of actual need, foreign currency notes.
payable either in cash or installment by the (m) A money payment, remittance
planholder at prices stated in the contract with and transfer company includes any person
or without interest or insurance coverage and offering to pay, remit or transfer or
includes life, pension, education, internment transmit money on behalf of any person
and other plans, which the Commission may, to another person.
from time to time, approve. (n) “Customer” refers to any person
(j) A foreign exchange corporation or entity that keeps an account, or
includes any enterprise which engages or otherwise transacts business, with a
purports to engage, whether regularly or covered institution and any person or
on an isolated basis, in the sale and entity on whose behalf an account is
purchase of foreign currency notes and such maintained or a transaction is conducted,
other foreign-currency denominated non- as well as the beneficiary of said
bank deposit transactions as may be transactions. A customer also includes the
authorized under its articles of incorporation. beneficiary of a trust, an investment fund,
(k) Investment Advisor/Agent/ a pension fund or a company or person
in the business of advising others, either any insurance policy holder, whether
directly or through circulars, reports, actual or prospective.

APP. N-4
05.12.31

amount in excess of PhP500,000.00 within title thereto passes to another by
any of the following circumstances exist: offense.
(1) Coins or currency of legal tender from the government agency having
of the Philippines, or of any other country; regulatory power and/or licensing authority

APP. N-4
05.12.31
Rule 3.i. Unlawful activity refers to any capacity, has secured or obtained, or will
act or omission or series or combination secure or obtain, any government permit
thereof involving or having relation, to the or license, in consideration for the help
(1) Kidnapping for ransom. advantage or preference in the discharge
(5) Delivery of prohibited drugs; not the public officer profited or will profit
(6) Distribution of prohibited drugs; thereby;
(7) Transportation of prohibited drugs; (18) Directly or indirectly having
Resort for prohibited users; business contract or transaction in
(9) Manufacture of prohibited drugs; connection with which he intervenes or
(10)Possession of prohibited drugs; takes part in his official capacity, or in
(11)Use of prohibited drugs; which he is prohibited by the Constitution
sources of prohibited drugs; and (19) Directly or indirectly becoming
of prohibited drugs. material interest in any transaction or act

APP. N-4
05.12.31
percentage, kickbacks or any other form
of pecuniary benefit from any person and/ (G) Piracy on the high seas under the
or entity in connection with any Revised Penal Code, as amended and P.D.
government contract or project or by No. 532;
reason of the office or position of the public (31) Piracy on the high seas;
officer concerned; (32) Piracy in inland Philippine waters;
(22) Plunder by the illegal or (33) Aiding and abetting pirates and
fraudulent conveyance or disposition of brigands.
assets belonging to the National Government
or any of its subdivisions, agencies, (H) Qualified theft under Article 310
instrumentalities or government-owned of the Revised Penal Code, as amended;
or-controlled corporations or their (34) Qualified theft.
subsidiaries;
(23) Plunder by obtaining, receiving or (I) Swindling under Article 315 of the
accepting, directly or indirectly, any shares Revised Penal Code, as amended;
of stock, equity or any other form of interest (35) Estafa with unfaithfulness or abuse
or participation including the promise of of confidence by altering the substance,
future employment in any business quality or quantity of anything of value
enterprise or undertaking; which the offender shall deliver by virtue
(24) Plunder by establishing agricultural, of an obligation to do so, even though such
industrial or commercial monopolies or other obligation be based on an immoral or
combinations and/or implementation of illegal consideration;
decrees and orders intended to benefit (36) Estafa with unfaithfulness or abuse
particular persons or special interests; of confidence by misappropriating or
(25) Plunder by taking undue converting, to the prejudice of another,
advantage of official position, authority, money, goods or any other personal
relationship, connection or influence to property received by the offender in trust
unjustly enrich himself or themselves at or on commission, or for administration,
the expense and to the damage and or under any other obligation involving the
prejudice of the Filipino people and the duty to make delivery or to return the
Republic of the Philippines. same, even though such obligation be
totally or partially guaranteed by a bond;
(E) Robbery and extortion under or by denying having received such
Articles 294, 295, 296, 299, 300, 301 and money, goods, or other property;
302 of the Revised Penal Code, as amended; (37) Estafa with unfaithfulness or abuse
(26) Robbery with violence or of confidence by taking undue advantage
intimidation of persons; of the signature of the offended party in
(27) Robbery with physical injuries, blank, and by writing any document above
committed in an uninhabited place and by such signature in blank, to the prejudice
a band, or with use of firearms on a street, of the offended party or any third person;
road or alley; (38) Estafa by using a fictitious name,
(28) Robbery in an uninhabited house or or falsely pretending to possess power,
public building or edifice devoted to worship. influence, qualifications, property, credit,

APP. N-4
05.12.31

article after fraudulent importation; pertinent laws through transactions
(54) Fraudulent practices against covered by or using electronic data
customs revenue. messages or electronic documents:

APP. N-4
05.12.31
registered in accordance with the registration statement duly filed with and
provisions of the E-Commerce Act; approved by the SEC;
(77) Unfair or unconscionable sales traded in an Exchange or any other trading
acts and practices; market;

APP. N-4
05.12.31

APP. N-4
05.12.31


by the AMLC;
monetary instrument or property proceeds of any unlawful activity shall be
represents, involves, or relates to, the prosecuted for a money laundering offense.
proceeds of any unlawful activity, transacts Accordingly, the reports required under Rule
or attempts to transact said monetary 9.3 (a) and (b) of these Rules shall include
instrument or property. those pertaining to any attempt by any
monetary instrument or property is
required under this Act to be disclosed and Rule 6.1. Prosecution of Money Laundering
filed with the Anti-Money Laundering (a) Any person may be charged with
Council (AMLC), fails to do so. and convicted of both the offense of money

APP. N-4
05.12.31

APP. N-4
05.12.31
to be proceeds of any unlawful activity as instrumentality of the government,
defined under Section 3(i) hereof; including government-owned and-controlled

APP. N-4
05.12.31

known probity. He shall be considered a shall apply even after their separation from
regular employee of the BSP with the rank the AMLA. In case of violation of this
of Assistant Governor, and shall be entitled provision, the person shall be punished in
to such benefits and subject to such rules and accordance with the pertinent provisions
regulations, as well as prohibitions, as are of the Central Bank Act.
RULE 9
record the true identity of its clients
Rule 8.3. Detail and Secondment. - The based on official documents. They shall

APP. N-4
05.12.31

who are acting as trustee, nominee, Juridical Entities. - Before establishing
agent or in any capacity for and on behalf business relationships, covered
of another, covered institutions shall institutions shall endeavor to ensure that
verify and record the true and full identity the customer is a corporate or juridical
of the person(s) on whose behalf a entity which has not been or is not in
transaction is being conducted. Covered the process of being, dissolved, wound
institutions shall also establish and record up or voided, or that its business or
the true and full identity of such trustees, operations has not been or is not in the
nominees, agents and other persons and the process of being, closed, shut down,
nature of their capacity and duties. In case a phased out, or terminated. Dealings
covered institution has doubts as to whether with shell companies and corporations,
such persons are being used as dummies in being legal entities which have no

APP. N-4
05.12.31
required under the provisions of these Rule 9.2.c. Closed Accounts. - With respect

APP. N-4
05.12.31
Should a transaction be determined amended, R.A. No. 8791 and other
to be both a covered and a suspicious similar laws, but are prohibited from
effectivity of R.A. No. 9194, or as may of violation thereof, the concerned
be determined by the AMLC, in order to officer and employee of the covered
allow the covered institutions to institution, shall be criminally liable.
configure their respective computer
systems; provided that, all covered Rule 9.3.d. Confidentiality Provisions. –
transactions during said deferment When reporting covered transactions or
period shall be submitted thereafter. suspicious transactions to the AMLC,
Transaction Report (CTR) and the prohibited from communicating, directly
Suspicious Transaction Report (STR) shall or indirectly, in any manner or by any
be in the forms prescribed by the AMLC. means, to any person, entity, or the
Transaction Reports, until such time as published or aired in any manner or form
the AMLC has issued new sets of forms. by the mass media, electronic mail, or

APP. N-4
05.12.31
of his duties and in good faith, whether or Rule 10.2. Definition of Probable Cause
Philippine law. reasonably discreet, prudent or cautious man
to believe that an unlawful activity and/or a
RULE 10 money laundering offense is about to be,
APPLICATION FOR FREEZE ORDERS is being or has been committed and that
the account or any monetary instrument

APP. N-4
05.12.31

order; and
BANK DEPOSITS
to the grounds for the identification of the AMLC may inquire into or examine
related web of accounts. deposit and investments with any banking
pending the decision of the Court of (b) Sections 4,5,6, 8, 9, 10, 12, 13, 14,

APP. N-4
05.12.31
and/or its authorized representative(s) full the Revised Rules of Court on civil
access to all records pertaining to the deposit forfeiture shall apply.
ensure compliance with this act, the BSP money laundering offense under Section
may inquire into or examine any particular 4 of the AMLA, the offender or any other

APP. N-4
05.12.31
court, or it has been commingled with of the order of a court in the requesting
other monetary instruments or property state ordering the forfeiture of said
belonging to either the offender himself or monetary instrument or property of a
a third person or entity, thereby rendering person who has been convicted of a
the same difficult to identify or be money laundering offense in the
segregated for purposes of forfeiture, the requesting state, and a certification or an
court may, instead of enforcing the order affidavit of a competent officer of the
of forfeiture of the monetary instrument or requesting state stating that the conviction
property or part thereof or interest therein, and the order of forfeiture are final and that
accordingly order the convicted offender no further appeal lies in respect of either.
to pay an amount equal to the value of said
monetary instrument or property. This Rule 13.3. Obtaining Assistance from
provision shall apply in both civil and Foreign States. - The AMLC may make a
criminal forfeiture. request to any foreign state for assistance
in (1) tracking down, freezing, restraining
RULE 13 and seizing assets alleged to be proceeds
MUTUAL ASSISTANCE AMONG STATES of any unlawful activity; (2) obtaining
Foreign State. - Where a foreign state offense or any other matter directly or
makes a request for assistance in the indirectly related thereto; (3) to the extent
investigation or prosecution of a money allowed by the law of the foreign state,
laundering offense, the AMLC may execute applying with the proper court therein for
the request or refuse to execute the same an order to enter any premises belonging
and inform the foreign state of any valid to or in the possession or control of, any or
reason for not executing the request or for all of the persons named in said request,

APP. N-4
05.12.31
and/or search any or all such persons believed to have any information, document,
named therein and/or remove any material or object which may be of
document, material or object named in said assistance to the investigation or
proper court in the foreign state: Provided, pursuant to said request, is to be produced;
That the request is accompanied by an (7) give all the particulars necessary for the
authenticated copy of the order of the issuance by the court in the requested state
Regional Trial Court ordering the forfeiture of the writs, orders or processes needed
of said monetary instrument or property by the requesting state; and (8) contain
of a convicted offender and an affidavit of such other information as may assist in the
the clerk of court stating that the conviction execution of the request.
Mutual Assistance. - The AMLC may authenticated if the same is signed or
refuse to comply with any request for certified by a judge, magistrate or
assistance where the action sought by the equivalent officer in or of, the requesting
request contravenes any provision of the state, and authenticated by the oath or
Constitution or the execution of a request affirmation of a witness or sealed with an
is likely to prejudice the national interest official or public seal of a minister, secretary
of the Philippines, unless there is a treaty of state, or officer in or of, the government
between the Philippines and the requesting of the requesting state, or of the person
state relating to the provision of assistance in administering the government or a

APP. N-4
05.12.31

and 13 (b) and (d) of the AMLA to receive of the AMLA. - The penalty of
and take action in respect of any request imprisonment ranging from seven (7) to
of foreign states for assistance in their own fourteen (14) years and a fine of not less
anti-money laundering operations. It is also than Php3.0 Million but not more than
authorized under Section 7 (7) of the AMLA twice the value of the monetary instrument
to cooperate with the National or property involved in the offense, shall
Government and/or take appropriate be imposed upon a person convicted
action in respect of conventions, under Section 4 (a) of the AMLA.
Council, and other international of the AMLA. - The penalty of
organizations of which the Philippines is a imprisonment from four (4) to seven (7)
member. However, the AMLC may refuse years and a fine of not less than Php1.5
to comply with any such request, Million but not more than Php3.0 Million,
convention, resolution or directive where shall be imposed upon a person convicted
the action sought therein contravenes the under Section 4 (b) of the AMLA.
execution thereof is likely to prejudice the Rule 14.1.c. Penalties under Section 4 (c) of
national interest of the Philippines. the AMLA. - The penalty of imprisonment
from six (6) months to four (4) years or a fine
Rule 13.8. Extradition. – The Philippines of not less than Php100,000.00 but not more
shall negotiate for the inclusion of money than Php500,000.00, or both, shall be
laundering offenses as defined under imposed on a person convicted under

APP. N-4
05.12.31
be less than Php100,000.00 but not to
exceed Php500,000.00. The imposition of Rule 14.5. Refusal by a Public Official or
the administrative sanctions shall be without Employee to Testify. - Any public official
against the persons responsible for the and refuses to do the same or purposely
violations. fails to testify shall suffer the same penalties
prescribed herein.
from six (6) months to one (1) year or a Confidentiality. – The punishment of
fine of not less than Php100,000.00 but not imprisonment ranging from three (3) to
entitled to avail the benefits of the Persecution. - The AMLA and these Rules
Probation Law. shall not be used for political persecution or

APP. N-4
05.12.31

Rule 15.2.b. - Where there is conviction formulate their respective money
for money laundering under Section 4 of laundering prevention programs in
the AMLA, the court shall issue a judgment accordance with Section 9 and other
of forfeiture in favor of the Government of pertinent provisions of the AMLA and
the Philippines with respect to the monetary these Rules, including, but not limited to,
RULE 17

APP. N-4
05.12.31
Rule 17.3. Training of Personnel. - RULE 19

Covered institutions shall provide all their APPROPRIATIONS FOR AND
responsible officers and personnel with BUDGET OF THE AMLC
efficient and effective training and continuing
education programs to enable them to fully Rule 19.1. Budget. – The budget of Php25.0
comply with all their obligations under the million appropriated by Congress under
AMLA and these Rules. the AMLA shall be used to defray the initial
operational expenses of the AMLC.
Oversight Committee as provided for maintenance and other operating expenses
under Section 19 of R.A. No. 9160, as and personnel services of the AMLC
amended by R.A. No. 9194. subject to reimbursement from the budget
of the AMLC as appropriated under the
RULE 18 AMLA and subsequent appropriations.
shall answer for indemnification for legal
Rule 18.1. Composition of Congressional costs and expenses reasonably incurred for
Oversight Committee. - There is hereby the services of external counsel in connection
created a Congressional Oversight with any civil, criminal or administrative
Committee composed of seven (7) members action, suit or proceedings to which
from the Senate and seven (7) members from members of the AMLC and the Executive
the House of Representatives. The members Director and other members of the Secretariat
from the Senate shall be appointed by the may be made a party by reason of the
Senate President based on the proportional performance of their functions or duties. The
representation of the parties or coalitions costs and expenses incurred in defending the

APP. N-4
05.12.31
by or on behalf of the member to repay
the amount advanced should it be RULE 22
ultimately determined that said member EFFECTIVITY OF THE RULES
is not entitled to such indemnification.
Rule 22. Effectivity. – These Rules shall
RULE 20 take effect after its approval by the
SEPARABILITY CLAUSE Congressional Oversight Committee and
fifteen (15) days after its complete
Rule 20. Separability Clause. – If any publication in the Official Gazette or in a
provision of these Rules or the application newspaper of general circulation.
thereof to any person or circumstance is
held to be invalid, the other provisions of RULE 23
these Rules, and the application of such TRANSITORY PROVISIONS
provision or Rule to other persons or
circumstances, shall not be affected thereby. Rule 23.1. - Transitory Provisions. -
Existing freeze orders issued by the AMLC
RULE 21 shall remain in force for a period of thirty
REPEALING CLAUSE (30) days after effectivity of this act, unless
extended by the Court of Appeals.
Rule 21. Repealing Clause. – All laws,
decrees, executive orders, rules and Rule 23.2. - Effect of R.A. No. 9194 on Cases
regulations or parts thereof, including the for Extension of Freeze Orders Resolved
relevant provisions of R.A. No. 1405, as by the Court of Appeals. - All existing freeze
amended; R.A. No. 6426, as amended; R.A. orders which the Court of Appeals has
No. 8791, as amended, and other similar extended shall remain effective, unless
laws, as are inconsistent with the AMLA, otherwise dissolved by the same court.

APP. N-5
06.12.31

REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF NBFIs
A. GENERAL REQUIREMENTS shall not have outstanding loans or any

Only external auditors included in the credit accommodations (except credit card
list of BSP selected external auditors shall obligations which are normally available
be engaged by banks, QBs, trust entities to other credit card holders and fully
or NSSLAs for regular audit or special secured auto loans and housing loans
engagements. The external auditor to be which are not past due) with the bank, QB,
hired shall also be in-charge of the audit of trust entity or NSSLA, its subsidiaries and
the entity’s subsidiaries and affiliates affiliates at the time of signing the
engaged in allied activities: Provided, That engagement and during the engagement.
the external auditor shall be changed or In the case of partnership, this prohibition
the lead and concurring partner shall be shall apply to the partners and the auditor-
rotated every five (5) years or earlier: in-charge of the engagement;
Provided, further, That the rotation of the 3. The external auditor must not be
lead and concurring partner shall have an currently engaged nor was engaged during
interval of at least two (2) years. the preceding year in providing the
Banks, QBs, trust entities or NSSLAs following services to the bank,QB, trust
which have engaged their respective entity or NSSLA its subsidiaries and
external auditors for a consecutive period affiliates:
of five (5) years or more as of 26 a. Internal audit functions;
November 2003 (effectivity of Circular No. b. Information systems design,
410) shall have a one (1) year period from implementation and assessment; and
said date within which to either change c. Such other services which could
their external auditors or rotate the lead affect his independence as may be
and/or concurring partner. The following determined by the Monetary Board;
are the selection requirements for external 4. The external auditor, auditor-in-
auditors: charge and members of the audit team
to acquire any direct or indirect financial GAAS and the Code of Professional Ethics
interest in the bank, QB, trust entity or for CPAs;
NSSLA, its subsidiaries and affiliates, or if 5. The external auditor should have
his independence is considered impaired the following track record in conducting
under the circumstances specified in the external audits:
Code of Professional Ethics for CPAs. In a. The external auditor for a UB or KB
the case of a partnership, this limitation shall must have at least twenty (20) existing
apply to the partners, associates and the corporate clients with resources of at least
auditor-in-charge of the engagement and P50.0 million each and at least one (1)
members of their immediate family; existing client UB or KB in the regular audit
2. The external auditor and the or in lieu thereof, the external auditor or
members of the audit team do not have/ the auditor-in-charge of the engagement

APP. N-5
06.12.31
must have at least five (5) years experience B. APPLICATION AND PRE-
in the regular audit of UBs or KBs; QUALIFICATION REQUIREMENTS
b. The external auditor for a TB, QB, The application for BSP selection shall
trust entity and national Coop Bank must be signed by the external auditor or the
have at least ten (10) existing corporate managing partner, in case of partnership
clients with resources of at least P25.0 and shall be submitted to the
million each and at least one (1) existing appropriate department of the SES
client TB, QB, trust entity or national together with the following documents/
Coop Bank in the regular audit or in lieu information:
thereof, the external auditor or the 1. An undertaking:
auditor-in-charge of the engagement a. That the external auditor, partners,
must have at least five (5) years associates, auditor-in-charge of the
experience in the regular audit of TBs, engagement and the members of their
QBs, trust entities or national Coop immediate family shall not acquire any
Banks: Provided, That an external auditor direct or indirect financial interest with a
who has been selected by the BSP to audit bank, QB, trust entity, NSSLA, its
a UB or KB is automatically qualified to subsidiaries and affiliates. Neither shall
audit a TB, QB, trust entity or national the external auditor, partners, associates
Coop Bank; and and auditor-in-charge accept an audit
c. The external auditor for an RB or engagement with a bank, QB, trust entity,
local Coop Bank must have at least three NSSLA, its subsidiaries and affiliates
(3) years track record in conducting where they or any member of their
external audit: Provided, That an external immediate family have any direct or
auditor who has been selected by the BSP indirect financial interest and that their
to audit a UB, KB, TB, QB, trust entity and independence is not considered impaired
national Coop Bank is automatically under the circumstances specified in the
qualified to audit an RB, local Coop Bank Code of Professional Ethics for CPAs;
and NSSLA; b. That the external auditor, partners,
6. A bank, QB, trust entity or NSSLA associates, auditor-in-charge and
shall not engage the services of an members of the audit team do not have
external auditor whose partner or auditor- nor shall apply for loans or any credit
in-charge of audit engagement during the accommodations (except normal credit
preceding year had been hired or card obligations and fully secured auto
employed by the bank, QB, trust entity, loans and housing loans) nor shall accept
NSSLA, its subsidiaries and affiliates as an audit engagement with a bank, QB,
chief executive officer, chief financial trust entity, NSSLA, its subsidiaries and
officer, controller, chief accounting officer affiliates where they have outstanding
or any position of equivalent rank; and loans or any credit accommodations
available to the BSP upon request. QB, trust entity, NSSLA, its subsidiaries
Working papers shall include, but shall not and affiliates where he was engaged
be limited to, pre-audit analysis, audit during the preceding year in providing the
scope and detailed work program. following services:

APP. N-5
06.12.31
1. Internal audit functions; 2. Loans and other risk assets review

2. Information systems design, and classification.
implementation and assessment; and 2. Other documents/information:
3. Such other services, which could a. List of existing corporate clients
affect his independence as may be with resources of at least P50.0 million
determined by the Monetary Board from each for external auditor of a UB or KB;
time to time. for a TB, QB, trust entity, NSSLA, and
This requirement shall not, however, national Coop Bank, list of existing
affect audit engagement existing as of 26 corporate clients with resources of at least
November 2003 (effectivity of Circular No. P25.0 million each; and list of existing
410). clients and/or details of three (3) years
d. That the external auditor and track record in external audit for external
members of the audit team shall adhere to auditors of an RB, NSSLA and a local Coop
the highest standards of professional Bank;
conduct and shall carry out their services b. If the external auditor for a UB or
in accordance with relevant ethical and KB has no existing UB or KB client, and
technical standards of the accounting the external auditor for a TB, QB, trust
profession; entity and national Coop Bank, has no
e. That the lead or concurring partner existing client TB or national Coop Bank,
and auditor-in-charge shall not accept a notarized certification that the external
employment with the bank, QB, trust auditor or the auditor-in-charge of the
entity, NSSLA, its subsidiaries and affiliates engagement has at least five (5) years
being audited during the engagement experience in the regular audit of banks
period and within a period of one (1) year of appropriate category mentioning the
after the audit engagement; banks they have audited;
f. That the external auditor shall not c. Updated PRC license (for
accept an audit engagement with a bank, individual auditors) and business license
QB, trust entity, NSSLA, its subsidiaries and for the partnership;
affiliates where an officer (i.e., chief d. Copy of the proposed engagement
executive officer, chief financial officer, contract between the bank, QB, trust entity
controller, chief accounting officer or other or NSSLA and the external auditor where
senior officer of equivalent rank) had been applicable; and
a partner of the external auditor or had e. Certification from PRC that the
worked for the audit firm and had been external auditor, lead partner, concurring
the auditor-in-charge of the audit partner, auditor-in-charge and members of
engagement of said entities during the year the audit team have no derogatory
immediately preceding the engagement; information, previous conviction or any
g. That the external auditor shall keep pending investigation. However, in the
all audit or review working papers for at event that the certification cannot be
least five (5) years in sufficient detail to obtained because of the pendency of a
support the conclusions in the audit report; case, the BSP may dispense with this
and requirement upon determination by the
h. That the audit work shall include Monetary Board that the case involves
assessment of the audited institution’s purely legal question, or does not, in any
compliance with BSP rules and regulations, way, negate the auditor’s adherence to the
such as, but not limited to the following: highest standards of professional conduct
1. CAR; and nor degrade his integrity and objectivity.

APP. N-5
06.12.31
C. REQUIRED REPORTS audit findings, except in circumstances

1. To enable the BSP to take timely where the external auditor believes that
and appropriate remedial action, the the entity’s management is involved in
external auditor must report to the BSP fraudulent conduct.
within thirty (30) calendar days after It is, however, understood that the
discovery, the following cases: accountability of an external auditor is
a. Any material finding involving based on matters within the normal
fraud or dishonesty (including cases that coverage of an audit conducted in
were resolved during the period of audit); accordance with GAAS.
and
b. Any potential losses the aggregate D. DEFINITION OF TERMS
of which amounts to at least one percent For purposes of these guidelines, the
(1%) of the capital. following terms shall be defined as
2. The external auditor shall report follows:
directly to the BSP within fifteen (15) 1. Subsidiary. A corporation or firm
calendar days the occurrence of the more than fifty percent (50%) of the
following: outstanding voting stock of which is
a. Termination or resignation as directly or indirectly owned, controlled or
external auditor and stating the reason held with power to vote by a bank, QB,
therefor; trust entity or NSSLA.
b. Discovery of a material breach of 2. Affiliate. A corporation, not more
laws or BSP rules and regulations such as, than fifty percent (50%) but not less than
but not limited to: ten percent (10%) of the outstanding voting
1. CAR; and stock of which is directly or indirectly
2. Loans and other risk assets review owned, controlled or held with power to
and classification. vote by a bank, QB, trust entity, NSSLA
c. Findings on matters of corporate and a juridical person that is under
governance that may require urgent action common control with the bank, QB, trust
by the BSP. entity or NSSLA.
3. In case there are no matters to 3. Control. Exists when the parent
report (e.g., fraud, dishonesty, breach of owns directly or indirectly more than one
laws, etc.) the external auditor shall submit half of the voting power of an enterprise
directly to the BSP within fifteen (15) unless, in exceptional circumstance, it can
calendar days after the closing of the audit be clearly demonstrated that such
engagement a notarized certification that ownership does not constitute control.
there is none to report. Control may also exist even when
The management of the bank, QB, ownership is one half or less of the voting
trust entity, NSSLA, its subsidiaries and power of an enterprise when there is:
affiliates shall be informed of the adverse a. Power over more than one-half of
findings and the external auditor’s report the voting rights by virtue of an agreement
to the BSP shall include its explanation and/ with other stockholders;
or corrective action. b. Power to govern the financial and
The management of the bank, QB, operating policies of the enterprise under
trust entity, NSSLA, its subsidiaries and a statute or an agreement;
affiliates shall be given the opportunity to c. Power to appoint or remove the
be present in the discussions between the majority of the members of the board of
BSP and the external auditor regarding the directors or equivalent governing body;

APP. N-5
06.12.31
d. Power to cast the majority votes at require the external auditor to undertake
meetings of the board of directors or a specific review of a particular aspect of
equivalent governing body; or the operations of these institutions. The
e. Any other arrangement similar to report shall be submitted to the BSP and
any of the above. the audited institution simultaneously,
4. Associate. Any director, officer, within thirty (30) calendar days after the
manager or any person occupying a similar conclusion of said review.
status or performing similar functions in the
audit firm including employees performing G. AUDIT ENGAGEMENT CONTRACT
supervisory role in the auditing process. Banks, QBs, trust entities, and
5. Partner. All partners including NSSLAs, shall submit the audit
those not performing audit engagements. engagement contract between them,
6. Lead Partner. Also referred to as their subsidiaries and affiliates and the
the engagement partner/partner-in-charge/ external auditor to the appropriate
managing partner who is responsible for department of the SES within fifteen (15)
signing the audit report on the calendar days from signing thereof. Said
consolidated financial statements of the contract shall include the following
audit client, and where relevant, the provisions:
list of BSP selected external auditors shall 3. That both parties shall comply with
apply to the audit firm only and not to the all of the requirements under these
individual signing partners or auditors guidelines.
under its employment. The BSP will
circularize to all banks, QBs, trust entities H. DELISTING OF EXTERNAL
and NSSLAs the list of selected external AUDITORS
auditors once a year. The BSP, however, 1. Grounds for delisting
shall not be liable for any damage or loss External auditors may be delisted from
that may arise from its selection of the the list of BSP selected external auditor
external auditors to be engaged by banks, for the bank, QB, trust entity or NSSLA
QBs, trust entities, or NSSLAs, for regular for violation of, or non-compliance with
audit or special engagements. any provision of these guidelines or in
case of dissolution of the audit firm
F. SPECIFIC REVIEW except when said dissolution was solely
When warranted by supervisory for the purpose of admitting new partner/s
concern, the Monetary Board may, at the and the new partner/s have complied
expense of the bank, QB, trust entity, with the requirements of these
NSSLA, its subsidiaries and affiliates guidelines.

APP. N-5
06.12.31
2. Procedure for delisting Banking Law of 2000” the Monetary Board

An external auditor shall only be may also direct the board of directors of a
delisted upon prior notice to him and after bank, QB, trust entity, NSSLA or the
giving him the opportunity to be heard and individual members thereof, to conduct,
defend himself by presenting witnesses/ either personally or by a committee
evidence in his favor. Delisted external created by the board, an annual balance
auditor may re-apply for BSP selection after sheet audit of the bank, QB, trust entity or
the period prescribed by the Monetary NSSLA to review the internal audit and the
Board. internal control system of the concerned
entity and to submit a report of such audit
I. AUDIT BY THE BOARD OF to the Monetary Board within thirty (30)
DIRECTORS calendar days after the conclusion
Pursuant to Section 58 of R.A. No. thereof.
8791, otherwise known as “The General (As amended by Circular No. 529 dated 11 May 2006)

APP. N-6
05.12.31
QUALIFICATION REQUIREMENTS
FOR A BANK/NBFI APPLYING FOR ACCREDITATION
TO ACT AS TRUSTEE ON ANY MORTGAGE OR BOND
ISSUED BY ANY MUNICIPALITY, GOVERNMENT-OWNED OR
CONTROLLED CORPORATION, OR ANY BODY POLITIC
A bank/NBFI applying for accreditation include among its powers or purposes,

to act as trustee on any mortgage or bond acting as trustee or administering any trust
issued by any municipality, government- or holding property in trust or on deposit
owned or controlled corporation, or any for the use, or in behalf of others;
body politic must comply with the f. The by-laws of the institution shall
following requirements: include among others, provisions on the
a. It must be a bank or NBFI under following:
BSP supervision; (1) The organization plan or structure
b. It must have a license to engage in of the department, office or unit which shall
trust and other fiduciary business; conduct the trust and other fiduciary
c. It must have complied with the business of the institution;
minimum capital accounts required (2) The creation of a trust committee,
under existing regulations, as follows: the appointment of a trust officer and
subordinate officers of the trust department;
UBs and KBs The amount required and
under existing regulations (3) A clear definition of the duties and
or such amount as may be responsibilities as well as the line and staff
required by the Monetary functional relationships of the various units,
Board in the future officers and staff within the organization.
g. The bank’s operation during the
Branches of The amount required under preceding calendar year and for the period
Foreign Banks existing regulations immediately preceding the date of
application has been profitable;
Thrift Banks P650.0 million or such h. It has not incurred net weekly
amounts as may be reserve deficiencies during the eight (8)
required by the Monetary weeks period immediately preceding the
Board in the future date of application;
i. It has generally complied with
NBFIs Adjusted capital of at least banking laws, rules and regulations, orders
P300.0 million or such or instructions of the Monetary Board and/
amount as may be required or BSP Management in the last two
by the Monetary Board in preceding examinations prior to the date
the future. of application, particularly on the following:
(1) election of at least two (2)
d. Its risk-based capital adequacy ratio independent directors;
is not lower than twelve percent (12%) at (2) attendance by every member of the
the time of filing the application; board of directors in a special seminar for
e. The articles of incorporation or board of directors conducted or accredited
governing charter of the institution shall by the BSP;

APP. N-6
05.12.31
(3) the ceilings on credit l. It has established a risk management

accommodations to DOSRI; system appropriate to its operations
(4) liquidity floor requirements for characterized by clear delineation of
government deposits; responsibility for risk management, adequate
(5) single borrower’s loan limit; and risk measurement systems, appropriately
(6) investment in bank premises and structured risk limits, effective internal
other fixed assets. controls and complete, timely and efficient
j. It maintains adequate provisions risk reporting system;
for probable losses commensurate to the m. It has a CAMELS Composite Rating of
quality of its assets portfolio but not lower at least "3" in the last regular examination with
than the required valuation reserves as management rating of not lower than "3"; and
determined by the BSP; n. It is a member of the PDIC in good
k. It does not have float items standing (for banks only).
outstanding for more than sixty (60) Compliance with the foregoing as well
calendar days in the “Due From/To Head as with other requirements under existing
Office/Branches/Other Offices” accounts regulations shall be maintained up to the time
and the “Due from Bangko Sentral” the trust license is granted. A bank that fails in
account exceeding one percent (1%) of the this respect shall be required to show compliance
total resources as of date of application; for another test period of the same duration.

APP. N-7
05.12.31
______________________________
Name of Bank
CERTIFICATION
Pursuant to the requirements of Subsec 4211N.12, I hereby certify that on all banking
days of the semester ended _____ that the ____________________ (NBFI) did not enter into
any repurchase agreement covering government securities, commercial papers and other
accordance with existing BSP regulations and that it has strictly complied with the pertinent
rules of the SEC and the BSP on the proper sale of securities to the public and performed the
necessary representations and disclosures on the securities particularly the following:
1. Informed and explained to the client all the basic features of the security being sold on
a without recourse basis, such as, but not limited to:
a. Issuer and its financial condition;

b. Term and maturity date;
c. Applicable interest rate and its computation;
d. Tax features (whether taxable, tax paid or tax-exempt);
e. Risk factors and investment considerations;
f. Liquidity feature of the instrument:
f.1. Procedures for selling the security in the secondary market (e.g., OTC or
exchange);
f.2. Authorized selling agents; and
f.3. Minimum selling lots.
g. Disposition of the security
g.1. Registry (address and contact numbers)

g.2. Functions of the registry
g.3. Pertinent registry rules and procedures
h. Collecting and Paying Agent of the principal and interest

i. Other pertinent terms and conditions of the security and if possible, a copy of the
prospectus or information sheet of the security.
2. Informed the client that pursuant to BSP Circular No. 392 dated 23 July 2003 –
• Securities sold under repurchase agreements shall be physically delivered, if
certificated, to a BSP-accredited custodian that is mutually acceptable to the client and
the NBFI, or by means of book-entry transfer to the appropriate securities account of the
BSP-accredited custodian in a registry for said securities, if immobilized or dematerialized,
and

APP. N-7
05.12.31
• Securities sold on a without recourse basis are required to be delivered physically

to the purchaser, or to his designated custodian duly accredited by the BSP, if certificated,
or by means of book-entry transfer to the appropriate securities account of the purchaser
or his designated custodian in a registry for said securities if immobilized or dematerialized
3. Clearly stated to the client that:
a. The NBFI does not guarantee the payment of the security sold on a “without recourse
basis” and in the event of default by the issuer, the sole credit risk shall be borne by the
client; and
b. The NBFI is not performing any advisory or fiduciary function.
_______________
Name of Officer
Position
Date _____________
his Community Tax Certificate No.(s) as indicated below:

Cert. No. Issued
Notary Public

APP. N-7
05.12.31
Annex N-7-a
______________________________
Name of NBFI
CERTIFICATION
Pursuant to the requirements of Subsec. 4211N.12, I hereby certify that as of 31

January 2005, the ____________________ (name of NBFI) does not have any outstanding
repurchase agreements covering government securities, commercial papers and other
accordance with existing BSP regulations.
____________________
Name of Officer
Position
SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiant
exhibiting his Community Tax Certificate as indicated below:

Cert. No. Issued
Notary Public

APP. N-8
05.12.31
REGISTRATION AND OPERATIONS OF FOREIGN EXCHANGE DEALERS/

MONEY CHANGERS AND REMITTANCE AGENTS
A. Application for Registration
Name of Applicant
Address
Telephone No./Fax No.
Date

A. Mabini St., Malate, Manila
Gentlemen:
We hereby apply for authority to act as (foreign exchange dealer/money changer or

remittance agent). We are currently engaged in this business since _____ (if applicable).
In support of this application, we submit the following documents:
o Incorporation papers duly authenticated by the Securities and Exchange Commission

(for corporation or partnership);
o Copy of the Certificate of Registration with the Department of Trade and Industry (for
single proprietorship);
o Copy of business license/permit from the city or municipality having territorial jurisdiction
over the place of establishment and operation;
o List of stockholders/partners/proprietor/directors/principal officers as the case maybe;
o Notarized Deed of Undertaking to strictly comply with the requirements of all relevant
laws, rules and regulations, signed by the owner, partner, president or officer of equivalent
rank.
Very truly yours,
___________________________________________
(Signature of authorized officer over printed name)
_________________________
Designation

APP. N-8
05.12.31
B. Deed of Undertaking
Name of Applicant
Address
Telephone No./Fax No.
DEED OF UNDERTAKING
I, (name and designation), of legal age and under oath, declare the following:
1. That I have been duly authorized by (name of institution) and its Board of Directors/
Partners/Owners to bind (name of institution) to strictly comply with all the requirements,
rules and regulations of the Bangko Sentral ng Pilipinas regarding the registration and
operations of foreign exchange dealers/money changers/remittance agents as well as the
provisions of the Anti-Money Laundering Act of 2001 (R.A. No. 9160, as amended by R.A.
No. 9194) and its implementing rules and regulations.
2. That I certify that (name of institution) undertakes to strictly comply with all the
requirements, rules and regulations of the Bangko Sentral ng Pilipinas regarding the licensing
and operations of foreign exchange dealers/money changers/remittance agents as well as
with all the provisions of the Anti-Money Laundering Act of 2001 (R.A. No. 9160) and its
implementing rules and regulations.
3. That I certify that (name of institution), through and with full knowledge and agreement
of its Board of Directors/Partners/Owners. Understands and accepts that in case of violations
of any of the aforementioned laws, rules and regulations, (name of institution) and its Board
of Directors/Partners/Owners/Stockholders/Officers/employees responsible for such violation/
s shall be subject to the administrative sanctions prescribed under Section 36 of R.A. No.
7653, otherwise known as the “New Central Bank Act” and other applicable laws, rules and
regulations.
_________________________
(Signature over printed name)
_________________________
Designation
Subscribed and sworn to before me this _____ of __________, 20____, affiant exhibiting
to me his/her Community Tax Certificate No. ___________________ issued at
_______________ on _______.
NOTARY PUBLIC

APP. N-8
05.12.31
C. Application to Sell/Purchase Foreign Currency
___________________________________________________________
Name of Foreign Exchange Dealer/Money Changer/Remittance Agent
________________________________
Address
APPLICATION TO SELL/PURCHASE FOREIGN CURRENCY
1. Date :_________________________
2. Printed Name of Customer :_________________________
3. Signature :_________________________
4. Present Address :_________________________
5. Date and Place of Birth :_________________________
6. Telephone Number :_________________________
7. Nationality :_________________________
8. Currency Sold/Purchased : US Dollar _____ Others (specify)
9. Amount Sold/Purchased : In figures _________________

In words _________________
10. Source of Foreign Currency :_________________________
__________ OFW/Balikbayan/Returning Resident

__________ Tourist
__________ Expatriate based in the Philippines
__________ Foreign Currency Deposit Account
Holder
__________ Domestic Resident – Excess Travel
Funds
__________ Others (please specify)
11. Purpose of Purchase :__________________________

APP. N-8
05.12.31
D. Minimum Documentary Requirements For the Sale of Foreign Currencies
A. Sale of foreign exchange for non-trade purposes under Section 2 of Circular No. 1389
s. 1993, as amended
Purpose Documents Required
1. Travel Funds (only for permanent Presentation of applicant’s passport, and/or

residents of the Philippines) passenger ticket, copies of which shall be
retained.
For travel funds over US$5,000, the

following shall be additionally required:
a. Copy of applicant’s/Sponsor's
Income Tax Return (ITR) duly stamped
by the BIR; or
b. Travel authority from the applicant’s
company/office/agency if he is being
sponsored by said company/office/
agency; and
c. Invitation from foreign sponsoring
institution, if applicable.
2. Educational Expenses/Student Maintenance 1. Statement of enrollment or acceptance

by the school abroad;
2. School bills/statements of account
covering tuition and other school fees;
and/or
3. Applicant’s notarized certification that
he is not under scholarship, or if under
scholarship, a notarized certification
that the amount applied for is to cover
his expenses, not being covered by the
scholarship.
3. Correspondence Studies 1. Proof of admission or enrollment in

AABs/NBBSEs/Forex Corp. may sell correspondence school; and/or
foreign exchange to cover tuition fees 2. Billings from the school abroad which
for correspondence studies, which shall shall include assessment of fees and
be directly remitted to the other charges related to the course.
correspondence school. Issuane of draft
may be payable to the correspondence
school.

APP. N-8
05.12.31
4. Medical Expenses 1. Travel documents of patient; and/or

2. Certification issued by hospital abroad
on the treatment to be administered to
the patient including cost estimate; or
statement of account with the hospital/
bills of expenses from hospital/treatment
center abroad, whichever is applicable.
5. Support of Dependents Abroad 1. Consular certificate or its equivalent

AABs may sell foreign exchange documents to prove that the dependent
covering the monthly living allowance is residing abroad dated not earlier than
abroad of a child not more than 21 years one year from FX application date; and
of age, spouse or parent of a Philippine 2. Certified true copy of birth certificate,
resident. marriage contract, adoption papers,
whichever is applicable, to prove that
dependent is the wife, husband, child
or parent of the remitter applicant;
6. Emigrants' Assets 1. Proof of residence of emigrant

beneficiary abroad;
2. Proof of ownership of the asset(s) by
emigrant/beneficiary abroad;
3. In case of income from real properties,
a statement of rentals/income earned;
4. In case of transfer of proceeds of capital
assets, copy of deed of sale;
5. In case of capital transfer of testate and
intestate inheritance and legacies:
i. Copy of court order approving
the partition and distribution of
estate;
ii. Copy of the extra-judicial
settlement and partition duly
registered with Register of
Deeds.
6. For transfer of proceeds of life insurance
benefits, proof of receipt of the proceeds
of the policy;
7. For remittance of proceeds of sales of
personal property, copy of deed of sale;
8. In case of transfer of proceeds of sale of
shares of stock, deed of sales or broker’s
sales invoice; and
9. In case of retirement benefits, evidence
of receipt of retirement benefits.

APP. N-8
05.12.31
7. Salary/bonus/divident/other benefits of 1. Employment contract/Certification of

foreign expatriates (including peso savings) employer on the amount of
compensation paid to the foreign
national during the validity of the
contract stating whether the same had
been paid in foreign exchange;
2. Photocopy of the ACR and DOLE Alien
Employment Permit of the foreign
national; and
3. If amount to be remitted comes from
sources other than salaries, information
regarding the sources supported by
appropriate documents should be
submitted.
8. Producers' Share in Movie Revenue/TV 1. Statement of remittance share rental;

Film Rentals and
2. Copy of distributorship contract.
9. Commssions on Exports due Foreign 1. Agency agreement; and

Agents 2. Agent’s Statement of Account/
Computation of commission in
accordance with agency agreement.
10. Freight Charges on Exports/Imports 1. Bills/Statements of account on freight

charges; and
2. Copy of Bill of Lading
11. Foreign Advertising Costs 1. Copy of advertising agreement; and

2. Original statement of accounts or bills
or invoices.
12. Subscriptions to foreign magazines or Billing/Statement of Account.

periodicals
13. Charters and Leases of Vessels/Aircrafts 1. Charter or Lease of Vessels/Aircrafts or

and other type of leases. lease agreement; and
2. Billing/Statement of Account
14. Membership dues and registration fees 1. Proof of membership in the foreign or
to associations abroad international association; and
2. Billings for membership dues/
registration fees.

APP. N-8
05.12.31
15. Port disbursements abroad of aircraft 1. Copy of contract or agreement; and

and vessels of Philippine registry or 2. Statement of accounts/bills/invoices.
chartered/leased by domestic operators
16. Mail fees/International settlement of 1. Copy of contract or agreement; and

accounts for telegraph, telegram, radio, 2. Statement of account/bills/invoices.
satellite and other communication facilities.
17. Salvage fees 1. Copy of contract for salvage services;

and
2. Statement of accounts/bills/invoices.
18. Income taxes due to Foreign 1. Copy of DOLE-approved contract of

Governments from foreign nationals employment; and
2. Copy of income tax return covering the
income tax payment sought to be
remitted.
19. Services/Consultancy/Management/ 1. Copy of the pertinent agreement; and

Distributorship Fees with foreign firms 2. Statement/Computation of fees due.
or individuals
20. Retainers' Fees 1. Copy of the agreement/contract; and

Foreign exchange payments by 2. Billings/invoices from the beneficiary.
residents to foreign professionals acting
as liaison, counsel, agent or
representative abroad
21. Insurance/Reinsurance Premium Billings/Invoices from foreign insurer/

reinsurer
22. Claims for losses and other paymentsof Billings/Invoices of insurance companies/
insurance companies/brokers abroad brokers abroad.
23. Net Peso Revenues of Foreign Airlines/ 1. Copy of the General Sales Agency or
Shipping Companies certified copy of the Bilateral Air
Agreements; and
2. Statement of Net Peso Revenues (Peso
Receipts less Disbursements) for the
period covered by the remittance.
24. Royalty/Copyright/Franchise/Patent/ 1. Copy of Contract/agreement; and

Licensing Fees 2. Statement/Computation of the Royalty/
Copyright/Patent/Licensing Fee

APP. N-8
05.12.31
25. Remittance of Net Peso Revenue Certification from the Ambassador/Embassy

collected by embassies of foreign countries authorized officer that the Peso amount
applied for conversion to foreign currency
is net of local expenses.
26. Payment of FX obligations by 1. Settlement report from international

Philippine credit card companies to credit card companies identifying the
international credit card companies (e.g. nature of various obligations;
Visa International and Mastercard 2. Schedule showing summary of the
International) including peso collection foreign currency billings received from
from local credit card holders as payment international credit card companies
of bills received from non-resident abroad and the corresponding peso
merchants and other fees/charges. collection thereof; and
3. Letter of undertaking or sworn
certification stating that local credit card
company has not purchased foreign
exchange in excess of the amount of
their foreign currency requirement.
B. Sale of Foreign Exchange for payment of foreign currency loans covered by Sections 22
to 31 of Circular 1389 s. 1993, as amended
Foreign Currency Loan Payments Documents should all be originals unless

otherwise indicated. FXDs/MCs shall
indicate sale of FX on the prescribed
documents
1. Medium/Long-term Foreign 1.a BSP registration letter and accompanying

currency Loans (with original “Schedule of Principal and Interest
maturities of over 1 year) Payments on BSP-registered Foreign
Credits" (Schedule RA-2); and where
applicable, “Schedule of Payment for
Fees & Other Charges on BSP-Registered
Foreign Loan” (Schedule RA-2.1). The FX
selling FXDs/MCs shall duly fill up the
originals of the appropriate schedules to
record the FX sale; and
1.b Copy of billing statement from creditor.

Amounts that may be purchased shall
be limited to maturing amounts on
schedules due dates indicated in the
registration letter. Remittance of FX
purchased shall coincide with the due
dates of the obligations to be serviced,
unless otherwise approved by the BSP.

APP. N-8
05.12.31
OR:
2.a BSP letter-authority for the borrower to
purchase FX to service specific loan
account/s and where applicable, the
“Schedule of Foreign Exchange
Purchases from the Banking System”.
The FX selling FXDs/MCs shall record
the date/s and amount/s of FX sold on
the original BSP letter-authority or
where there is an accompanying
schedule for FX purchases, on the
original of such schedule; and

be limited to the unutilized balance of
the letter-authority. Remittance of FX
1.a BSP approval or registration letter

1. Short-term Foreign Currency Loans showing loan terms and borrower’s
(with original maturity of up to 1 year) receiving copy of its report on the short-
term loans submitted to BSP’s
a. Loans from offshore creditors (banks International Department (ID). The FX
and non-banks) selling FXDs/MCs shall stamp “FX
SOLD”, the date’s of sale and the
amount/s involved on the original BSP
approval/registration letter; and
1.b Copy of billing statements from creditor.

be limited to: (a) amounts/rates
indicated in the BSP approval or
registration letter; or (b) the outstanding
balance of the loan indicated in the
report, whichever is lower. Remittance
of FX purchased shall coincide with the
due dates of the obligations to be
serviced, unless otherwise approved by
the BSP.

APP. N-8
05.12.31
1.a BSP approval or registration letter

b. Loans from FCDUs/OBUs showing loan terms or certification
from the lending bank on the amount
outstanding. The FX selling FXDs/MCs
shall stamp “FX SOLD”, the date/s of
sale and the amount/s involved on the
original BSP approval/registration letter
or bank certification; and
1.b. Copy of billing statement from creditor.

be limited to: (a) amounts/rates
indicated in the BSP approval or
registration letter; or (b) the outstanding
of the loan indicated in the bank
certification, whichever is lower.
Remittance of FX purchased shall
coincide with the due dates of the
obligations to be serviced, unless
otherwise approved by the BSP.
OR:
2.a For loans not requiring BSP approval/

registration, promissory note (PN)
certified as true copy by the Head of
the lending bank’s loans department
and certification from the lending bank:
i. on the principal amount still
outstanding;
ii. that the loan is eligible for
servicing with FX purchased
from the banking system in line
with existing regulations;
iii. that loan was used to finance trade
transactions (as well as pre-export
costs in the case of FCDU loans of
exporters) of the borrower; and
iv. the date when the loan account has
been reported to the appropriate
BSP department/office under the
prescribed forms. This may be
dispensed for new loans which
may not have been reported yet to
BSPas of date of application to
purchase FX.

APP. N-8
05.12.31
The FX selling FXDs/MCs shall

stamp “FX SOLD”, the date of sale
and the amount/s involved on the
originalcertification from the
lending bank; and

be limited to amounts/rates indicated
in the bank certification or PN,
whichever is lower. Remittance of FX
Note:
For unregistered foreign currency loans/
obligations to non-resident financial
institutions and FCDU loans not eligible to
be serviced with FX purchased from the
banking the system outstanding as of 27
October 2000 but which may be serviced
by FXDs/MCs, copies of the
following documents shall be required:
i. Loan agreement/promissory
notes; and
ii. Billing statements from creditor.
C. Sale of FX for capital repatriation/remittance of dividend/profits earnings and outward

investments under Sections 32 to 44 of Circular 1389 s. 1993, as amended
1. Capital Repatriation of: 1. If directly registered with BSP or if the
a. Investment in PSE-Listed securities selling/remitting bank is the registering
custodian bank:
a. Broker’s sales invoice; and
b. Original Bangko Sentral Registration
Document (BSRD).
2. If the selling/remitting bank is not the
registering custodian bank:
b. Original BSRD.
3. If the selling/remitting FXD/MC is not
the registering custodian bank:
b. Original BSRD Letter-Advice from
the registering custodian bank.

APP. N-8
05.12.31
b. Direct Foreign Equity Investments 1. Original BSRD;

2. Proof of sale or relevant documents
showing the amount to be repatriated;
in case of dissolution/capital reduction,
proof of distribution of funds/assets such
as statement of net assets for liquidation;
3. Clearance from appropriate department
of the BSP-Supervision and Examination
Sector (SES) for banks, or from the
Insurance Commission for insurance
companies, or from the Department of
Energy for oil companies;
4. Detailed computation of the amount
applied for in the attached format
prepared by authorized officer of
investee firm (Attachment 2); and
5. Pertinent audited financial statements.
c. Investments in Peso Government 1. Original BSRD; and

Securities, Money Market 2. Confirmation of Purchase (COP),
Instruments or 90-day Time Confirmation of Sale (COS) or Deed of Sale,
Deposits Matured Contract for Money Market
Instruments or Matured Certificate of Time
Deposit.
2. Remittance of Dividends/Profits/Earnings 1. Original BSRD or BSRD Letter-Advice

from Registering Custodian Bank (if
remitting/selling bank is not the registering
custodian bank for PSE-listed shares);
2. Schedule showing name/address of
investor, BSRD No., gross amount of
cash dividend, tax withheld and net
amount (for PSE-listed shares);
3. Board Resolution covering the dividend
declaration (evidenced by Corporate
Secretary’s Sworn Certification, for direct
equity investments or Dividend Notice, for
PSE-listed shares);
4. Audited/Interim Financial Statements
covering the dividend declaration period
(for direct foreign equity investments); and
5. For direct foreign equity investments,
clearance from BSP-SES (for banks),
Insurance Commission (for insurance
companies), or Department of Energy
or the National Power Corporation (for
oil/natural gas/geothermal companies).

APP. N-8
05.12.31
6. Detailed computation of the amount

applied for in the attached format
(Attachment 2).
3. Outward Investment 1. A project feasibility study, investment

proposal/subscription agreement,
bond/stock offering circular and such
other documents showing the nature
and place of the investment;
2. A written undertaking to inwardly remit
and sell for pesos thru AABs the
dividends/earnings or divestment
proceeds from outward investments
funded by FX purchased from AAB as
required therein;
3. BSP approval and registration (for
outward investment exceeding an
aggregate of US$6.0 million per
investor per year funded by FX
purchased from AAB(s);
4. Regardless of amount, submission of
clearance: (a) from the appropriate
department of the BSP- SES for
investments of banks; and (b) from the
Insurance Commission for investments
of insurance companies; and
5. Copy of investor’s latest ITR duly
stamped by the BIR.

APP. N-8
05.12.31
Annex N-8-a
Certificate of Registration of Foreign Exchange Dealers (FXDs)/

Money Changers (MCs) and Remittance Agents (RAs).
Banks are enjoined to require their clients FXDs/MCs and RAs to submit a copy of
their certificate of registration issued by the BSP. This requirement shall be considered as
part of “Know Your Customer” compliance procedures.
The certificates can be confirmed or verified with the BSP Supervision and Examination
Department V. The registration of FXDs/MCs and RAs with BSP is provided for under Sec.
4511N.
N Regulations Manual of Regulations for Non-Banks Financial Institutions

APP. N-8
05.12.31
Attachment 2
COMPUTATION SHEET
Name of FX Selling Bank: ________ _________ Date of FX Sale: ________
TYPE OF FOREIGN INVESTMENT TRANSACTION
Remittance of Cash Dividends/Profits
Repatriation of Capital
Name of Investee Firm: _ ______________________

_ ______________________
Name of Investor: _ ______________________
_ ______________________
REMITTANCE OF CASH DIVIDENDS/ PROFITS
Record Date: __________________

Payment Date: __________________
Amount of Dividends/Share
or Rate of Profits: __________________
Base Shares Dividends/Profits Total

BSRD No. Registered per share Amount (Php)
________ _ ___ __________ ____ ___________ ____ ____ ____ _______
_________ ____ _________ ______ ____________ ____ _____ __________
A. Gross Peso Amount Remittable _______________

B. Less: Taxes/Charges _______________
C. Net Peso Amount Remittable _______________
D. Foreign Exchange Applied for
Remittance (C/FX rate*) _______________
REPATRIATION OF CAPITAL
Total Amount/ Outstanding Balance Amount/No. Shares

No. of Shares Before this Applied
BSRD No. Registered Repatriation for Repatriation
__ ___ __ ___ ________ _______ ________________ _______ _ _______
A. Total No. of Shares/Amount Applied

For Repatriation _______________
B. Selling Price/Share (if applicable) _______________
C. Gross Peso Amount Repatriable (A x B) _______________
D. Taxes/Charges _______________
E. Net Peso Amount Repatriable (C – D) _______________
F. Foreign Exchange Applied for
Repatriation (E/FX rate *) _______________
Prepared by:
______ _ _
Signature over Printed Name Company Affiliation of
of Authorized Representative Investor’s Representative
of Applicant
________________
Date
* To be supplied by FX Selling Bank


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MANUAL OF REGULATIONS

FOR NON-BANK FIN AN

The 2008 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is

The updated MORNBFI incorporates regulatory policies issued to align banking

AMANDO M. TETANGCO, JR.

The 2008 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is

A multi-departmental Committee on the Updating of the Manual of Regulations for

The Committee is composed of Director Alberto A. Reyes (Central Point of Contact

The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Acting Manager

The Bangko Sentral ng Pilipinas

The 2005 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI)

A multi-departmental Committee on the Updating of the Manual of Regulations

The Committee is composed of Deputy Director Alberto A. Reyes (Central

The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst.

The Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas

Main caption on “Records”

Regulation addressed to quasi-banks

Part One on “Organization, Management and Administration"

Regulations addressed to NBFIs

To facilitate reference, running section headings consisting of the coded numbers of

PART ONE - ORGANIZATION, MANAGEMENT AND ADMINISTRATION

SECTION 4101Q Quasi-Banking Functions

SECTION 4102Q Statement of Policy

SECTION 4103Q Certificate of Authority from the Bangko Sentral

SECTION 4104Q Bangko Sentral Certificate of Authority

SECTION 4105Q Licensing of an Investment House

SECTION 4106Q Minimum Capitalization

SECTION 4107Q Minimum Capital of Investment House

SECTION 4108Q Sanctions

SECTIONS 4109Q - 4110Q (Reserved)

SECTION 4111Q Merger/Consolidation Involving Quasi-Banks

SECTION 4112Q Merger/Consolidation Incentives

SECTIONS 4113Q - 4115Q (Reserved)

D. RISK-BASED CAPITAL ADEQUACY RATIO

SECTION 4116Q Minimum Ratio

SECTION 4117Q Treatment of Equity Investment with Reciprocal

SECTION 4118Q Sanctions on Net Worth Deficiency

SECTIONS 4119Q - 4120Q (Reserved)

SECTIONS 4121Q - 4125Q (Reserved)

F. STOCK, STOCKHOLDERS AND DIVIDENDS

SECTION 4126Q Dividends

SECTIONS 4127Q - 4140Q (Reserved)

SECTION 4141Q Definition; Qualifications; Powers; Responsibilities and Duties

SECTION 4142Q Definition and Qualifications of Officers

SECTION 4143Q Disqualification of Directors/Trustees and Officers

SECTION 4144Q Interlocking Directorships and/or Officerships

SECTION 4145Q Profit Sharing of Directors/Trustees, Officers and Employees

SECTION 4146Q Monetary Board Confirmation of Directors/Trustees and Senior

SECTION 4147Q Compensation and Other Benefits of Directors/Trustees and

SECTION 4148Q (Reserved)

SECTION 4149Q Conducting Business in an Unsafe/Unsound Manner

H. BRANCHES AND OTHER OFFICES

SECTION 4151Q Establishment

SECTIONS 4152Q - 4155Q (Reserved)

SECTIONS 4156Q - 4160Q (Reserved)

J. RECORDS AND REPORTS

SECTION 4161Q Records

SECTION 4162Q Reports

SECTION 4163Q (Reserved)

SECTION 4164Q Internal Audit Function

SECTIONS 4165Q - 4170Q (Reserved)

SECTION 4171Q Internal Control Systems