OFFICE OF THE GOVERNOR

CIRCULAR NO. _____

Series of 2020

Subject: Payment System Oversight Framework

The Monetary Board, in its Resolution No. ____ dated _____________ 2020,
approved the Payment System Oversight Framework, which sets out how the Bangko
Sentral ng Pilipinas (BSP) shall fulfill its oversight function pursuant to Republic Act (R.A.)
No. 11127 or the National Payment Systems Act (NPSA) and The New Central Bank Act as
amended by R.A. No. 11211.

Section 1. The following Sections shall be created in the Manual of Regulations for
Payment Systems (MORPS):

Part 2 Payment System Oversight

A. Payment System Oversight Framework

Section 201. Policy Statement. A payment system is the set of payment

instruments, processes, procedures and participants that ensures the circulation of
money or movement of funds1. As a safe and efficient payment system ensures
settlement of time-critical financial transactions, it is indispensable to the smooth
functioning of financial markets, and to maintaining monetary and financial stability.
Also, by facilitating the exchange of goods and services and reducing transaction cost,
a reliable payment system is vital in sustaining inclusive economic growth. Cognizant
of these crucial roles of a payment system, the Bangko Sentral adopts this oversight
framework for the effective governance of payment systems.

Section 202. Definition of Terms. Definition of terms under Section 4 of R.A. No.
11127 shall apply. Moreover, the following terms shall be defined as follows:
a. Payment System Management Body (PSMB) - a body established for the
purpose of organizing, managing, and governing the participants in the
payment system.
b. Financial Market Infrastructures (FMI) - a “multilateral system among
participating institutions, including the operator of the system, used for the
purposes of clearing, settling, or recording payments, securities, derivatives
or other financial transactions”2
c. Systemically important payment system (SIPS) - a payment system that has
the potential to trigger or transmit systemic disruptions;
d. Prominently important payment system (PIPS) – a payment system that could
have major economic effects and undermine the confidence of the public in
payment systems or in the currency in general.3

1
Republic Act No 11127, The National Payment Systems Act
2
CPSS-IOSCO “Principles for financial market infrastructures” (2012)
3
ECB, “Oversight standards for retail payments” (June 2003) as cited in the Bank for International
Settlements (BIS) “Central Bank Oversight of Payment and Settlement Systems” (May 2005)

A. Mabini St., Malate 1004 Manila, Philippines •87087701 • www.bsp.gov.ph • bspmail@bsp.gov.ph

 e. Payment service providers (PSPs) – BSP-supervised financial institutions
(BSFIs) that provide payment and financial services to end users.
f. Critical Service Provider (CSP) of a designated payment system - a CSP
pertains to an entity that supports the delivery of activities directly related to
the essential operations of an FMI. A service provider shall also be considered
a CSP when it supplies important services to several key systems, or it is a
dominant player controlling a significant portion of the outsourcing market.

Section 203. Responsibility for Oversight. The Bangko Sentral, through an

appropriate oversight department, is primarily responsible for overseeing the
payment system in accordance with this framework. The Bangko Sentral’s oversight
function covers the payment system that it owns and operates. Relative to this, it shall
adopt internal safeguards to ensure independence between its overseer and operator
functions.

Section 204. Objectives of the Oversight Function. The Bangko Sentral

establishes an oversight function primarily to achieve the twin objectives of safety and
efficiency in the payment system.

Safety builds and preserves confidence in the financial system. This objective
requires reliability and integrity of the system as well as effective management of
payment-related risks, including cyber security breaches, operational and settlement
failures, and fraudulent transactions.

Efficiency is characterized by the presence of quick and affordable payment

means which are fit for the purpose of the transactions. Interoperability and healthy
competition among the PSPs and operators of payment systems (OPSs) are necessary
to achieve efficiency.

Section 205. Oversight Activities4. Consistent with the principle of

proportionality which is anchored on a risk-based oversight approach, the Bangko
Sentral performs the following oversight activities depending on the criticality of a
payment system, including its participants, and on its impact on the country’s payment
system as a whole.

a. Monitor existing and planned systems. The Bangko Sentral monitors existing
and planned systems to obtain an in-depth knowledge of the functioning of
payment systems and how these systems interact with each other in the
broader financial system. Relative to this activity, the Bangko Sentral adopts
the following policies.

(1) Registration. The OPS shall register with the Bangko Sentral in
accordance with the guidelines provided under Section 101 of the
MORPS.

4
The Bangko Sentral ‘s oversight activities are consistent with those provided in the “Central Bank Oversight
of Payment and Settlement Systems” issued by the Committee on Payment and Settlement Systems (CPSS).

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 (2) Off-site monitoring. The payment system participants shall submit
reports on payment and other financial transactions, key risk indicators,
incidents, and other statistics and information which are relevant to the
Bangko Sentral’s monitoring of payment systems. The submissions of
BSFIs and OPS to the appropriate oversight department shall conform to
the reporting governance framework of the Bangko Sentral.

(3) On-site activities. The Bangko Sentral may perform on-site inspection,
which includes review of contractual arrangements related to payment
systems, verification of compliance with relevant policies including those
that govern the pricing of payment services, and validation of the
representations made by participants in payment systems. The Bangko
Sentral shall not be precluded from conducting on-site inspections of
participants in non-designated payment systems in support of data
gathering, processing of application, thematic review, or any other
purpose relative to the Bangko Sentral’s discharge of its oversight function.

b. Assessing payment systems against safety and efficiency objectives. In

pursuit of these objectives, the Bangko Sentral conducts continuous
assessment of payment systems and the country’s payment system as a
whole, based on information gathered from its monitoring activities. The
Bangko Sentral adopts the following policies in connection with this activity.

(1) Internationally Accepted Standards and Practices (IASPs). Considering

that IASPs are established, thoroughly-developed, and generally-accepted
guidance prescribed by reputable international-standard setting bodies5,
which include multilateral agencies, the Bangko Sentral requires the
adoption of IASPs that promote safety and efficiency in the design and
operation of payment systems.

(2) Assessment Criteria. The Bangko Sentral categorizes payment systems

into large value payment systems (LVPS) and retail payment systems
(RPS)6. The Bangko Sentral shall adopt different sets of assessment criteria
in consideration of the distinct characteristics of each category, such as in
terms of system architecture, risk profile, and governance.

(3) Designation. The Bangko Sentral shall designate a payment which poses
or has the potential to pose systemic risk, or if designation is deemed
necessary to preserve public interest. Designation shall conform to the
criteria and the process provided in this framework.

5
Examples include: The World Bank (WB), The Bank of International Settlements (BIS) and The International
Organization of Securities Commissions (IOSCO)
6
For RPS, the National Retail Payment System (NRPS) framework covers all retail payment-related activities,
mechanisms, institutions and users. It applies to all domestic payments which are denominated in Philippine
Peso (PhP). Such payments include purchases of goods and services, domestic remittances, or fund transfers.

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 (4) Enforcement action. The Bangko Sentral may impose monetary and/or
administrative penalties and sanctions7 for violations committed by an
OPS, PSP, service provider, or any other participant in a payment system,
regardless of whether or not the system is designated by the Bangko
Sentral. Administrative penalties and sanctions include, among others,
(1) monetary penalties, (2) suspension, disqualification, or removal of
directors or officers, (3) cease and desist orders, or (4) revocation of
certificate of authority or registration with the Bangko Sentral, subject to
approval of the Monetary Board.

c. Inducing Change. The Bangko Sentral acts as a catalyst for change to the
payment system. It may induce change upon determination of emerging risks
or issues based on the information gathered through its monitoring and
assessing activities. The Bangko Sentral may pursue its reform agenda in
several ways, such as the following means:

(1) Moral suasion and stakeholder dialogue. The Bangko Sentral may
regularly conduct dialogues and collaborate with key stakeholders on
innovative approaches to improving the payment system and ensuring
that oversight expectations are in sync with industry initiatives and the
needs of the end users. Towards this end, a formal forum, led by the
Bangko Sentral with the key stakeholders as regular members, may be
created.

(2) Policy issuance. The Bangko Sentral may issue policies to enable
innovative payment solutions to thrive while keeping the associated risks
adequately managed and mitigated. These policies shall include principles
and requirement on various areas, such as, but not limited to governance,
risk management, consumer protection, data confidentiality, information
security, AML/CFT, and pricing mechanism. The policies shall be
developed in coordination with the Payment System Management Body
and other relevant oversight bodies. The scope of the policies shall not be
limited to designated payment systems.

(3) Leading by example. The Bangko Sentral shall consistently review the
safety and efficiency of the payment system it operates and it shall be
open to adoption of innovative approaches. When deemed necessary, the
Bangko Sentral shall implement programs which are responsive to the
needs of the participants and instrumental in advancing the development
of such a payment system.

Section 206. Scope of Oversight. The oversight function of the Bangko Sentral
shall cover the following institutions.

7
Consistent with Sections 19 and 20 of the NPSA

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 a. Payment System Management Body (PSMB). A PSMB shall be responsible
for the creation of payment system rules and agreements, and the
establishment of standards to ensure that payment transactions are safely
and efficiently cleared and settled with finality; provided, that the said rules,
agreements, and standards shall be subject to review and approval by the
Bangko Sentral. The Bangko Sentral may accredit a PSMB as support to
Bangko Sentral’s fulfillment of its role as overseer of the country’s payment
system. In performing this function, the PSMB shall be responsible for
managing the conduct and compliance of its members with applicable
regulations, rules, agreements, and standards. This body shall also be
responsible for instilling discipline among its members through imposition of
penalties and sanctions, among other means. The Bangko Sentral may
accredit several PSMBs or revoke the accreditation of a PSMB as it deems
necessary.

b. Financial Market Infrastructures (FMI). The Bangko Sentral focuses its

oversight on payment systems and on other FMIs that interlink with payment
systems. This framework includes provisions on cooperative oversight that
the Bangko Sentral shall pursue, when warranted, with other regulators
concerned to ensure effective and efficient consultation on the safety and
efficiency of FMIs. At the minimum, FMIs shall comply with the relevant
Principles for Financial Market Infrastructures (PFMI)8.

c. Operators of payment systems (OPS). The operators of designated payment

systems (ODPS) shall secure prior authority from the Bangko Sentral. All OPS
shall comply with the governance and risk management standards and the
reporting requirements of the Bangko Sentral. An OPS shall remain
financially and technically capable to ensure its system remains robust and
responsive to the needs of its participants.

d. Payment service providers (PSPs). PSPs shall ensure that the means they
make payment services available to end-users (i.e., electronic payment and
financial services) continuously comply with relevant regulatory
requirements, including, but not limited to, consumer protection,
information security, and AML/CFT. Additional regulatory compliance to
manage payments risk shall be required from the PSPs which are determined
by the Bangko Sentral as having a critical role in a designated payment
system.

e. Critical Service Provider (CSP) of a designated payment system. The Bangko

Sentral governs the CSPs as part of its oversight function. The Bangko Sentral
may engage in a cooperative oversight with its counterpart overseers in other
jurisdictions when a service provider supports multiple markets. At the

8
International standards for financial market infrastructures, i.e. payment systems, central securities
depositories, securities settlement systems, central counterparties and trade repositories, issued by the
Committee on Payments and Market Infrastructure (CPMI) and the International Organization of Securities
Commissions (IOSCO).

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 minimum, the CSPs shall conform to the principles for CSPs as provided in the
PFMI.

The depth of oversight over the abovementioned institutions shall vary given the
dynamic nature of payment systems, taking into consideration the function of the
payment system, institutions participating in the system, rules and agreements
governing the system, and the interrelationship of the system with other FMIs.

Section 207. Cooperative Oversight. As interlinkages are prominent within the

financial and monetary system, the Bangko Sentral may pursue cooperative oversight
with various local regulators, government agencies, and foreign regulators, as
necessary. This is to prevent regulatory arbitrage resulting from gaps, inefficiencies,
duplications, and inconsistencies in the regulations for related or interconnected FMIs.
As part of cooperative oversight, the Bangko Sentral shall agree on measures to
facilitate effective and efficient flow of information. Moreover, the Bangko Sentral
shall ensure that the process for cooperation and sharing of information is compliant
with relevant statutory provisions and consistent with the authorities’ responsibilities
provided in the PFMI.

a. Other local regulators and government agencies. The Bangko Sentral may
coordinate with other regulators including primary regulators of FMIs that
interact with payment systems. The grant, suspension, or revocation of any
government license necessary for the conduct of business of an OPS must be
done only with prior consultation with the Bangko Sentral9, being the primary
regulator of the OPS .

b. Foreign regulators. The Bangko Sentral’s cooperative oversight shall conform

to the arrangements entered into by the Philippines through regional and
global affiliations such as the EMEAP, SEACEN, and ASEAN. The Bangko
Sentral can directly coordinate with foreign regulators if a payment system
participant also operates in other jurisdictions or a payment system interacts
with FMIs in other countries.

B. Designation of a Payment System

Section 208. Designation Criteria. The Bangko Sentral shall designate a payment
system as a Systemically Important Payment System (SIPS) if the system poses or has
the potential to pose systemic risk. Also, the Bangko Sentral shall designate a payment
system as a Prominently Important Payment System (PIPS) if the system is necessary
to preserve public interest. In determining the importance of payment systems, the
Bangko Sentral shall take into account the following criteria, and any other
consideration that it may deem relevant for the purpose of designating payment
systems:
a. Market share
b. Aggregate settlement risk based on volume and value of transactions

9
Section 9 of R.A. 11127.

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 c. Nature of transactions that the system processes
d. Interdependence with other payment systems or FMIs
e. Absence of alternative payment system

Section 209. Designation. The determination of whether a payment system is to

be designated shall be based, among others, on information gathered from offsite
monitoring, interface with various stakeholders, on-site inspection, and cooperative
oversight dialogues. Once the designation criteria are met, the Bangko Sentral shall
initiate focused review on the payment system’s profile, including its current and
potential impact on the Philippine payment system. In the course of the assessment,
the Bangko Sentral may notify or dialogue with the concerned OPS on the possible
designation of the system.

Once a payment system has been designated, the Bangko Sentral shall notify in
writing the operator of the designated payment system, citing the reasons for the
designation. As applicable, a transitory provision for compliance with the regulatory
requirements for a designated payment system shall also be included in the
notification. Moreover, the Bangko Sentral shall disclose a designated payment
system to the participants of such a payment system and the public.

Section 210. Designated Payment System (DPS). The participants of a DPS shall
be subject to periodic assessment by the appropriate oversight department as
required by the Monetary Board. Assessments shall focus on the continuing
compliance of the participants in the DPS with laws, regulations, and standards issued
by IASPs, such as the PFMI, and on whether the factors considered for designation
continue to exist. The participants in a DPS shall be able to ensure and exhibit
adequate governance arrangements which shall be consistent with the principles set
out in relevant laws and regulations. These arrangements cover several areas of
concern including the participant’s access to the system, finality of settlement,
liquidity, credit, settlement and general business risk management, fair market
competition, reasonable pricing mechanism, independent assurance/audit, and
transparency.

Section 211. Operator of a Designated Payment System (ODPS). Recognizing

the role assumed by an operator in the maintenance and operation of a payment
system, the Bangko Sentral, through the Monetary Board, shall set the organizational
and operational requirements for an ODPS. At a minimum, an ODPS shall:
a. Secure prior authority to operate from the Bangko Sentral. A significant
modification of the business model of the DPS shall likewise require approval
prior to implementation;
b. Secure a certificate of authority to register from the Bangko Sentral prior to
registering the Articles of Incorporation and By-Laws, or any amendments
thereto, with the SEC. Likewise, any change in ownership of more than ten
percent (10%) of the voting stock of the ODPS shall require Bangko Sentral
approval;
c. Incorporate as a stock corporation;

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 d. Comply with the fit and proper rule set on qualifications and disqualifications
of individuals elected or appointed as directors or officers of the ODPS with
respect to their integrity, experience, education, training and competence.
In this regard, the officers and directors of an ODPS may be confirmed,
disqualified, suspended, removed, or watch-listed by the Monetary Board;
e. Comply with governance, risk management and internal control standards
set by the Bangko Sentral, including but not limited to the adoption of PFMI,
and additional regulatory requirements;
f. Comply with the outsourcing framework prescribed by the Bangko Sentral
including the scope and extent of the responsibility of the ODPS in regard to
the actions of its service provider(s), requirements on ensuring that
governance, risk management, and internal control standards are
consistently applied to the outsourcing arrangement and to the parties
involved, or any limitation of functions that may be outsourced. In this
regard, the ODPS is expected to establish accreditation and continuing
compliance requirements on its service provider(s) or participant OPS to
maintain the integrity of the payment system.
g. Exhibit high degree of security and operational reliability; and,
h. Adopt contingency requirements to ensure timely completion of processing
commitments.

An ODPS is expected to engage with the appropriate oversight department of

the Bangko Sentral to discuss how it intends to observe relevant standards.

Section 212. Designation of a Manager to Manage the Operations of the

ODPS. When a threat to the safety, efficiency and reliability of a designated payment
system exists as a result of the cases enumerated under Section 17 of R.A. No. 11127,
the Bangko Sentral, upon determination of its appropriate payment system oversight
department, and with prior approval of the Monetary Board, shall appoint without
need for prior court hearing, a manager of recognized competence in payment
systems, to manage the operations of the ODPS. The Monetary Board shall not be
precluded from replacing the manager assigned if it is deemed necessary. The
manager shall have the powers enumerated under Section 17 of R.A. No. 11127,
including, but not limited to:
a. Determining who among the previous officers may continue to perform their
function subject to the terms and conditions defined by the manager;
b. Assessing whether the threat continues to exist; and
c. Determining and recommending for approval by the Monetary Board
whether the ODPS may be permitted to resume management or may be
subject to revocation of its certificate of authority as an operator of a
designated payment system.

Section 213. Withdrawal of designation. The Bangko Sentral may withdraw the
designation of a payment system upon determination that the system no longer meets
the criteria provided in this framework. The ODPS shall be notified of the withdrawal
of the designation.

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 Section 2. The Bangko Sentral shall issue specific guidelines on certain sections of
the oversight framework, such as but not limited to the following provisions:
a. Reporting governance;
b. Oversight enforcement action;
c. Accreditation of a PSMB, including for revocation of the accreditation; and,
d. Requirements for large-value payment systems.

Section 3. Transitory provision. By virtue of the recognition of the Bangko Sentral

of the Philippine Payments Management, Inc. (PPMI) as a PSMB pursuant to the National
Retail Payment System (NRPS) Framework, the PPMI is hereby deemed provisionally
accredited, subject to its satisfactory demonstration to the Bangko Sentral of a
comprehensive and holistic framework on how the PPMI will discharge its self-regulatory
function consistent with the NPSA. In light of the provisional accreditation of the PPMI, it
shall be responsible for managing the conduct and compliance of its members with the
legal and regulatory requirements. To instill discipline among its members, the PPMI shall
adopt a policy on the imposition of penalties and sanctions to its erring members.

Section 4. This Circular shall take effect fifteen (15) calendar days following its
publication either in the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:

BENJAMIN E. DIOKNO
Governor
Date

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