01 Feb The Regulation of Payment Systems Under the National Payment Systems Act

A “payment system” is any organized process that ensures the circulation of money or movement of funds. It includes the participants, institutions, instruments, and technologies that makes it possible to enable a transaction. With the rise of e-commerce, however, new payment systems emerged to rival traditional payment systems such as credit cards, debit cards, and cheques. For instance, PayMaya, a prepaid online payment app, allows one to pay online even without a credit card. GCash, a mobile money wallet, allows the sending of money, purchase of items, and payment of bills. Coins.PH is another mobile wallet app that lets one pay bills, buy, sell, send, even receive bitcoins.

Payment systems reduce the cost of exchanging goods and services. They are fundamental to the functioning of all economies, whether they are developed, transitional, or developing.

To prevent the risk of payment systems failing and in order to provide an environment conducive to the sustainable growth of the economy, President Duterte has signed Republic Act 11127 or the National Payment Systems Act (NPSA) on October 30, 2018. The NPSA grants the Bangko Sentral ng Pilipinas (BSP) the power to oversee payment systems in the Philippines, to require the BSP’s prior approval before one can operate a payment system, and to impose fines and sanctions for violations of the law. This primer discusses how these payment systems are regulated under the NPSA.

Powers of the BSP

The NPSA authorizes the BSP to oversee the payment systems in the Philippines. The BSP may require participants of designated payment systems to comply, within a reasonable period, with the provisions of the NPSA. Operators must secure authorization from the BSP before they can operate a payment system. In granting the authority, the BSP will consider the capability of an operator with respect to financial resources, technical expertise, and reputation. The process includes an assessment of the ownership structure, governance, key personnel, business model, risk management, and financial resources of the operator.[1]

Under the NPSA, the BSP is also authorized to issue, through the Monetary Board, rules and regulations on the qualifications and disqualifications of individuals elected or appointed as directors or officers of operators of designated payment systems. The BSP may also suspend, disqualify remove any director or officer found unfit for the position.[2]

Striking Features

The NPSA puts in place several safeguards to ensure the efficiency and reliability of payment systems. These include requiring of Monetary Board’s prior approval in case of the transfer of shares of an operator, designating a manager of a payment system, and imposing fines and sanctions for violations of the law.

Prior Approval of Transfer of Ownership

The NPSA prohibits anyone from acquiring shares of an operator that will result in ownership or control, directly or indirectly, of more than ten percent (10%) of the voting stock of such operator, without obtaining the prior approval of the Monetary Board. Without Monetary Board approval, no such transfer or acquisition of shares shall have no legal effect, nor shall the same be recognized in the stock and transfer books of the operator or in the records of any government agency.[3]

Designation of a Manager

In order to avert disruptions in payment systems, the NPSA allows the BSP to designate a manager to manage the operations of the operator upon the existence of certain circumstances and with prior approval of the Monetary Board. The BSP may designate a manager when:

• The operator violates any existing laws, rules, and regulations;
• The operator fails to comply with any order of the Monetary Board
• The operator has no sufficient assets to give adequate protection to its participants or end-users;
• The operator’s capital has reached a level or is eroding in a manner that may detrimentally affects its participants, users, or the public in general; or
• The operator’s financial or business condition is considered by the Monetary Board to be prejudicial to the interests of its participants, users, or the public in general.[4]

The designation of the manager persists only while the above circumstances exist. During such time, the manager shall control, manage, and administer the operations of the operator. The powers, functions, duties, and the remunerations of the incumbent directors and officers will also be suspended. However, the manager may give his approval in writing for an officer to continue acting as such. [5]

Penalties and Sanctions

For violations of either the NPSA, the rules and regulations issued by the Monetary Board, or of any order or instruction of the Governor of the Bangko Sentral, the Monetary Board may impose fines not exceeding PhP 1 Million for each transactional violation, or PhP 100 Thousand a day for each continuing violation, depending on the nature and gravity of the violation or irregularity.[6]

The Monetary Board also has the power to suspend, disqualify, or remove any of the directors or officers of the operator of a designated payment system, in any of the following instances:

• Willful violation of the charter or by-laws of the operator;
• Willful delay in the submission of reports of publications thereof as required by the rules and regulations to be issued by the Monetary Board;
• Refusal to permit examination into the affairs of the operator of the designated payment system;
• Willful making of a false or misleading statement to the Monetary Board or Bangko Sentral examiners
• Willful failure or refusal to comply with any provision of this Act, rule or regulation, or any order issued by the Monetary Board pursuant to the NPSA, or any order or instruction of the Governor of the Bangko Sentral; and
• Willful commission of irregularities or the conduct of business that threatens the safety, efficiency, or reliability of a payment system as may be determined by the Monetary Board.[7]

The Monetary Board can also revoke the certificate of authority of an operator when the operator commits a violation of or has not complied with the provisions of the NPSA, the rules and regulations, or the orders issued by the Monetary Board involving:

• Acts or violations which amount to fraud or expose its participants or the public to material loss or damage; or
• Acts or violations which has been determined by the monetary Board to be a threat to the safety, efficiency, or reliability of the payment system or poses a risk to the stability of the monetary and financial system.[8]

In addition, any person or entity who willfully violates the NPSA, rule or regulations, directive or orders duly promulgated by the Monetary Board will be punished by a fine of not less than PhP 200 Thousand, but not more than PhP 2 Million. He may also be imprisoned for not less than two years nor more than ten years at the discretion of the court.[9]

Strong and reliable payment systems reduce the cost of exchanging goods and services, and are indispensable to the functioning of interbank, money, and capital markets. Indeed, with the BSP’s new oversight functions and its power to impose sanctions under the NPSA, the Philippines provides a safe and stable environment for payment systems to thrive and grow.

[1] Rep. Act No. 11127 (2018), otherwise known as “An Act Providing for the Regulation and Supervision of Payment Systems”, Section 6(b).

[2] Id, Section 6(d)(3).

[3] Id, Section 13, id.

[4] Id, Section 17.

[5] Id, Section 17(3).

[6] Id, Section 19(a).

[7] Id, Section 19(b).

[8] Id, Section 19(c)

[9] Id, Section 20.