3rd Pillar: Efficient Payment and Settlements System.

If transactions are the lifeblood of market economy, then the payments and settlements system is the circulatory system for these transactions.
-

Director Bella Santos, head of the BSP's Payments and Settlements Office

Bangko Sentral ng Pilipinas (BSP): Central Banking as the Agent of Efficient Payment and Settlement System

As the Philippines central bank, the Bangko Sentral ng Pilipinas (BSP) takes the lead in maintaining a safe, sound, and efficient payments and settlements system for the country. This enables people to make safe, timely and accurate settlements of financial transactions.

Everyday, millions of payment transactions are being made among various parties within the Philippines as well as between the Philippines and other countries. Some transactions are simple involving small amounts. Example of these are payments settled in cash, checks, scored valued cards as well as credit and debit cards. Other transaction are more complex involving large payments. Examples are inter-bank loans, purchases and sales of government securities, settlements of the peso leg of foreign currency sales and purchases as well as high-value customer payments. Transactions between banks using their accounts maintained with the BSP make up a critical area of supervision. BSP, through their payment and settlement system enables people to make safe, timely and accurate settlements of financial transactions. Efficient payment systems are important because they allow the safe and timely completion of big ticket transactions. These big tickets include the following: Interbank loan transactions, purchase and sale of government securities, foreign currency transactions, and interbank settlement of ATM transactions. Undoubtedly, the payments and settlements system plays a crucial role in the Philippine economy.

It also provides the necessary infrastructure through the operation of the Philippines real time gross settlement system or the Philippine Payment and Settlement System (PhilPaSS). PhilPass facilitates transactions between banks through their accounts maintained with the BSP. PhilPaSS is the real-time gross settlement system operated and maintained by the BSP. It facilitates the processing of payments and settlements between banks. It enables the final and irrevocable settlement of interbank transactions. With PhilPaSS, transactions are processed and settled in real time. Eliminating the risk involve in the settlements process. It also enables the high-value payment transactions between participating institutions through the deposit accounts which they maintain with the BSP. Under the system, banks and other non-banks with quasi-banking functions (NBQBs) could settle their payments in real time. The banks and NBQBs send electronic messages to the BSP through the PhilPaSS, instructing the central monetary authority to debit their account with the BSP and credit the account of the payee bank.

Core Principles for Systemically Important Payment Systems The BSP adheres closely to the Core Principles for systemically important payments systems in the design and operation of the PhilPaSS. The report on the Core Principles was published in January 2001 by the Committee on Payment and Settlement System. The report was addressed to all central banks, other interested public sector owners and operators of payment systems. The report explicitly states that the safety and efficiency of payment systems are public policy objectives that should be pursued by central banks. Core Principles for systemically important payments systems I. The system should have a well-founded legal basis. The systems rules and procedures should enable participants to II. have a clear understanding of the systems impact on each of the financial risks they incur through participation in it. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the III. respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks. IV. The system should provide prompt final settlement on the day of

V.

VI. VII. VIII. IX. X.

value, preferably during the day and at a minimum at the end of the day. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring timely completion of daily settlements in the event of an inability to settle by the participant with the largest settlement obligation. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing. The system should provide a means of making payments which is practical for its users and efficient for the economy. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access. The systems governance arrangements should be effective, accountable and transparent.

The BSP ensures that the payment infrastructure meets the highest standards for safety, soundness and operational resilience. It makes sure that the new tools provided by rapid technological advances are used in the design of payment systems.

With the third pillar of central banking, the BSP sees to it that payments are made safely, promptly and accurately.