BANGKo SenrnaL NG PII.

IPINAS

OFFICE OF THE GOVERNOR

CIRCULAR NO. 1107

Series of 2O2O

Subject: Prudential Requirements for Designated Clearing and Settlement Banks

The Monetary Board, in its Resolution No. 1606 dated 1,0 December 2O2O,
approved the prudential requirements for designated clearing and settlement banks for
purposes of compliance with directors, officers, stockholders and their related interests
(DOSRI) regulations, as well as foreign currency deposit unit (FCDU) asset cover and
minimum capital requirements.

Section 1. Section 342 of the Manual of Regulations for Banks (MORB) on the
transactions, covered and not covered is hereby amended to read, as follows:

Sec. 342 TRANSACTIONS, COVERED AND NOT COVERED

XXX

Transdctions not covered. The terms loans, other credit occommodations and
guorantees as used herein shall not refer to the following:

XXX

e. Interbank call loan transactions; and

f. Short-term exposures of designated clearing and settlement bank to other

financial institutions that own or control directly or indirectly such clearing
and settlement bank, pursuant to its function as designated clearing and
settlement bank. The term designated clearing and settlement bank shall
refer to the designated settlement bank as defined under ltem "j(L)" of
Section 362 (Exclusions from loan limit). For purposes of this Section, short-
term exposures shall cover payment transactions pertaining to fund transfer
services, check clearing, foreign exchange trades, security trades, security
custody services, and other short-term payment transactions that pass
through a clearing and settlement account. An exposure is considered short-
term if the placement of funds into a clearing and settlement account does
not exceed five (5) banking days. The designated clearing and settlement bank
shall adopt appropriate control measures to ensure that the account opened
in financial institutions that own or control directly or indirectly such clearing
and settlement bank is maintained exclusively for facilitating the clearing and
 settlement of short-term transactions as described in this Section, and said
account is not subject to a minimum balance requirement.

Applicobility to credit card operotions. xxx

XXX

Section 2.
Section 73 of the Manual of Regulations on Foreign Exchange
Transactions (MORFXT) on Foreign Currency Cover Requirements is hereby amended to
read, as follows:

Section 73. Foreign Currency Cover Requirements. Depository banks under the
foreign currency deposit and expanded foreign currency deposit systems shall
maintain at all times a LOO% cover for their foreign currency liabilities, except for
USD-denominated repurchase agreements (R/P) with the BSP. xxx. The foreign
currency cover shall consist of the net carrying amount of the following:

L. For banks authorized to operate an FCDU:

xxx

l. Due From Head Office/Branches/Agencies Abroad - FCDU, up to the extent

of the Due To Head Office/Branches/Agencies Abroad - FCDU. Any resulting
balance of Net Due From Head Office/Branches/Agencies Abroad - FCDU shall not
be eligibfe for IOO% asset cover: Provided. That in the case of a designated
clearing and settlement bank, Due From Head Office/Branches/Agencies Abroad
- FCDU representing deposits placed in the Head Office up to the extent of the
deposits maintained by other resident banks in the designated clearing and
settlement bank (as defined under ltem "f" of Section 342 of the MORB on
Trsnsoctions not covered/ relative to its function shall be considered as eligible
asset cover for the L00% asset cover requirement; Provided further, That the
designated clearing and settlement bank shall adopt appropriate control
measures to ensure that such deposits placed in the Head Office are appropriately
accounted for and segregated from the other items in the Due From Head
Office/Branches/Agencies Abroad - FCDU account; and

Section 3. Section 103 of the MORB is hereby amended to read, as follows:

Sec 103 LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS.

xxx

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Copitol requirements of foreign banks.

A. XXX

b. For foreign bank branches

(L) xxx

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(a) Any Net due from head office, branches and subsidiaries outside the
Philippines, excluding accumulated net earnings, shall be deducted from
capital.

For designated clearing and settlement banks, such Net Due from head
office, branches and subsidiaries account shall also exclude deposits placed
in the Head Office up to the extent of the deposits maintained by other
resident banks in the designated clearing and settlement bank relative to
its function as clearing and settlement bank (as defined under ltem "f" of
Section 342 of the MORB on Transoctions not covered): Provided, That the
designated clearing and settlement bank shall adopt appropriate control
measures to ensure that such deposits placed in the Head Office are
appropriately accounted for and segregated from the other items in the
Due From Head Office/Branches/Agencies account.

XXX

Risk-based capitol for foreign bonk bronch

A. XXX

XXX

c. Any Net due from head office, branches and subsidiaries outside the
Philippines, excluding accumulated net earnings shall be deducted from CET1
capital.

For designated clearing and settlement banks, such Net Due from head office,
branches and subsidiaries account shall also exclude deposits placed in the
Head Office up to the extent of the deposits maintained by other resident
banks in the designated clearing and settlement bank relative to its function
as clearing and settlement bank: Provided, That the designated clearing and
settlement bank shall adopt appropriate control measures to ensure that such
deposits placed in the Head Office are appropriately accounted for and
segregated from the other items in the Due From Head
Office/Branches/Agencies accou nt.

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 d. xxx

XXX

Section 4. Appendix 59 of the MORB is hereby amended to read, as follows:

Appendix 59 RISK-BASED CAPITAL ADEQUACY FRAMEWORK FOR THE

PHIL!PPINE BANKING SYSTEM

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Part ll. Qualifying capital

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Section B. Branches of Foreign Banks CET 1 Capital

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Regulatory adjustments to CET1 capital

11. The regulatory adjustments to CETL capital are provided in paragraph 4, as

applicable.

ln addition, the Net due from head office, branches and subsidiaries outside
the Philippines, excluding accumulated net earnings shall be deducted from
CETl capital.

For designated clearing and settlement banks, such Net Due from head office,
branches and subsidiaries account shall also exclude deposits placed in the
Head Office up to the extent of the deposits maintained by other resident
banks in the designated clearing and settlement bank relative to its function
as clearing and settlement bank (as defined under ltem "f" of Section 342 of
the MORB on Transactions not covered): Provided, That the designated
clearing and settlement bank shall adopt appropriate control measures to
ensure that such deposits placed in the Head Office are appropriately
accounted for and segregated from the other items in the Due From Head
Office/Branches/Agencies account: Provided further, That such deposits
placed in the head office which are excluded in the Net Due from account shall
be risk weighted based on the credit rating of the head office following the
applicable risk weights provided in Part V of this Appendix.

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 Section 5. The amendments to the reporting templates of the Foreign Currency
Cover Requirements, and the Risk-Based Capital Adequacy Ratio to implement the above
changes, including the guidelines for designated clearing and settlement banks are
provided in Annex A.

Section 6. This Circular shall take effect fifteen (15) calendar days after its
publication either in the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:

c c (.'
BENJAMIN E. DIOKNO
Governor

I December 2O2O

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 Annex A

Amendments to the Report on Compliance with the Expanded/Foreign Currency

Deposit Unit (E/FCDU) Cover Requirement and the CapitalAdequacy Ratio (CARI
Reports for Designated Clearing and Settlement Banks

Report on Compliance with the E/FCDU Cover Requirement

1. In computing for the "Net Due To Head Office (HO)/Branch (Br) Abroad - E/FCDU"
under item A.2, the Due From HO/Br/Agencies Abroad - FCDU representing deposits
placed in the HO up to the extent the deposits maintained by other resident banks in
the designated clearing and settlement bank relative to its function shall be excluded.
Footnote 1 will be amended to read as follows:

"Applicable to Philippine branches of foreign banks only. lf the resulting balance is a

Net Due from HO/Br Abroad, the amount to be shown as Net Due to HO/Br shall be
zero. Net Due from HO/Br Abroad shall not be eligible for the LOO% asset cover. In
the case of designated clearing and settlement bank, the deposits placed in the HO up
to the extent the deposits maintained by other resident banks therein relative to its
function shall be excluded first from the Due from HO, Branch Abroad before
computing for the net amount."

2. Pending the issuance of the revised Financial Reporting Package containing the
specific information on (a) the deposits placed in the HO and (b) the deposits
maintained by other resident banks in the designated clearing and settlement bank
relative to its function, the designated clearing and settlement bank shall submit the
via email to: [email protected] within (15) banking days after the end of each
reference period the following information:

Account Description FCDU/EFCDU

InUSS Peso Equiv.
Due from Head
Office/Branches/Agencies Abroad-
Philippine Branch of Foreign Banks -
Deposit in the Head Office relative to
clearing and settlement functions of
designated clearing and settlement
banks
Deposit Liabilities - Deposits by other
resident banks relative to clearing and
settlement functions of designated
clearing and settlement banks

CAR Report

3. In computing for qualifying capital under Part ll, the "Net Due from account" under
item 24 of A.2shall exclude the Due From HO/Branches/Agencies Abroad representing
deposits placed in the HO up to the extent of the deposits maintained by other
 resident banks in the designated clearing and settlement bank relative to its function.
Footnote 14 will also be amended to read as follows:

"The balance of Net Due from head office, branches and subsidiaries account shall
exclude accumulated earnings/losses that were included as part of CETl capital. In
the case of designated clearing and settlement banks, such Net Due from account shall
also exclude deposits placed in the HO booked in the Due from HO/Branches/Agencies
Abroad account up to the extent of the deposits maintained by other resident banks
therein relative to its function."

4. In computing for the risk weighted on-balance sheet assets under Part lll.L, such
deposits booked in HO/Branches/Agencies Abroad account will be risk weighted using
the percentage appropriate to the external credit rating of the HO. The same will be
temporarily mapped under "Due from Other Banks - E/FCDUs/OBUs/Non-Resident"
under ltem D, which will contain the following footnote:

"ln the case of designated clearing and settlement bank, this shall also include the Due
from HO/Branches/Agencies Abroad representing deposits placed in the HO up to the
extent of the deposits maintained by other resident banks therein relative to its
function."

5. The foregoing adjustments shall be reflected in the aforementioned reports starting

with the reference cut-off date as of end-December 2020.

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