Manual of Regulations for Non Banks Financial Inst Vol 2

FOREWORD

The 2011 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) isan 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 aconvenient reference and guide for said financial institutions in the conduct of their operations.

The updated MORNBFI incorporates regulatory policies issued to align bankingpractices on risk management, good corporate governance, capital adequacy, accounting andreporting with international standards. It also includes rules implementing legislative reformmeasures, the more significant of which are the General Banking Law of 2000, theAnti-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 facilitatecompliance with the supervisory and regulatory requirements of BSP that will contribute tothe enhancement of its partnership with financial institutions under its supervision, andultimately to the strengthening of the Philippine Banking System and the economy.

AMANDO M. TETANGCO, JR. Governor

PREFACE(2011 Edition)

The 2011 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) isthe latest updated edition from the initial issuance in 1996 . The updates consist of thesignificant policy developments and changes in statutory laws. It shall serve as the principalsource of banking regulations issued by the Monetary Board and the Governor of the BSPand shall be cited as the authority for enjoining compliance with the rules and regulationsembodied therein.

To accomplish the work of proposing revision to the Old Manual, the MonetaryBoard of the BSP, in its Resolution No. 1203 dated December 7, 1994, directed the creationof a multi-departmental Ad Hoc Review Committee. The Committee was officially constitutedunder Office Order No. 2 Series of 1995 and was reconstituted several times thereafter.Under the aforesaid office order, the Committee is tasked to update the Manuals on acontinuing basis to (i) incorporate relevant issuances, (ii) propose revision/deletion of provisionswhich have become obsolete, redundant, irrelevant or inconsistent with laws/regulations,(iii) reformulate provisions as the need arises, and (iv) oversee printing of the Manuals/Updatesin coordination with the Corporate Affairs Office.

The present Committee, as reconstituted under Office Order No. 0152, Series of2011 dated 01 February 2011, is composed of: Mr. Alberto A. Reyes, Director, ExaminationDepartment II (ED) II, Chairman; Atty. Magdalena D. Imperio, Deputy Director, Office of theGeneral Counsel and Legal Services (OGCLS), Vice Chairman; Ms. Ma. Belinda G. Caraan,Deputy Director/Head, Financial Consumer Affairs Group (FCAG); Ms. Ma. Corazon T.Alva, Deputy Director, Examination Department (ED) I; Atty. Lord Eileen S. Tagle, LegalOfficer III, OGCLS; Atty. Florabelle S. Madrid, Manager, CPCD I; Ms. Celedina P. Garbosa,Manager, CPCD I; Atty. Asma A. Panda, Legal Officer IV, OGCLS; Ms. Concepcion A. Garcia,Bank Officer IV, ED III; Atty. Ma. Corazon B. Bilgera-Cordero, Bank Officer II, Anti-MoneyLaundering Specialists Group (AMLSG), members; and Mr. Nestor A. Espenilla, Jr., DeputyGovernor, Supervision and Examination Sector, Adviser.

The Committee Secretariat is headed by Ms. Ma. Cecilia U. Contreras, Supervisionand Examination Specialist I, ED II.

The Bangko Sentral ng Pilipinas

INSTRUCTIONS TO USERS(2011 Edition)

The Manual of Regulations for Non-Bank Financial Institutions (the “Manual”) containsthe rules and regulations which govern non-bank financial institutions (NBFIs) subject tothe supervision of the Bangko Sentral ng Pilipinas (BSP) under existing laws, i.e. : Quasi-banks (Q Regulations), NSSLAs (S Regulations), Pawnshops (P Regulations), and other NBFIs,trust entities, subsidiaries and affiliates of banks and quasi-banks (N Regulations).

The Manual is divided into four (4) books Q, S, P or N. Each book is divided intoparts. Each part is divided into sections containing four (4) digits and the letter Q, S, P or N,as applicable, i.e., 4143Q. The first digit “4” means that the regulation is applicable toNBFIs; the second digit “1” refers to the Part number, and the third and fourth digits “4”and “3” refer to the section number.

Sections may contain subsections represented by number/s after the decimal point,i.e., 4143Q.1.

To illustrate, Subsection 4143Q.1 indicates:

Main Section on “Disqualification of Directors/Trustees and Officers”

Subsection on “Persons disqualified to become officers”

4 1 4 3 Q . 1

Regulation addressed to quasi-banks

Part One on “Organization, Management and Administration"

Regulations addressed to NBFIs

The runners in the upper-right or left hand corners of each page show the sections/subsections of the regulations and the cut-off date of the regulatory issuances included inthe page of the Manual where the runner is shown.

ix

MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS

S REGULATIONS(Regulations Governing Non-Stock Savings and Loan Associations)

TABLE OF CONTENTS

PART ONE - ORGANIZATION, MANAGEMENT AND ADMINISTRATION

A. SCOPE OF AUTHORITY

SECTION 4101S Scope of Authority of Non-Stock Savings and Loan Associations4101S.1 Membership4101S.2 Organizational requirements

SECTIONS 4102S - 4105S (Reserved)

B. CAPITALIZATION

SECTION 4106S Capital4106S.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)

x

E. (RESERVED)


F. NET INCOME DISTRIBUTION

SECTION 4126S Limitations on Distribution of Net Income4126S.1 Reporting and verification4126S.2 Recording of net income for distribution


G. TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS

SECTION 4141S Definition; Qualifications; Responsibilities and Duties ofTrustees4141S.1 Definition of trustees4141S.2 Qualifications of trustees4141S.3 Powers and authority of the board of trustees4141S.4 General responsibility of the board of trustees4141S.5 Duties and responsibilities of the board of

trustees

SECTION 4142S Definition and Qualifications of Officers4142S.1 Definition of officers4142S.2 Qualifications of officers

SECTION 4143S Disqualifications of Trustees and Officers4143S.1 Persons disqualified to become trustees4143S.2 Persons disqualified to become officers4143S.3 Disqualification procedures4143S.4 Effect of non-possession of qualifications or

possession of disqualifications4143S.5 (Reserved)4143S.6 Watchlisting

SECTION 4144S Compensation of Trustees, Officers and Employees4144S.1 Compensation increases4144S.2 Liability for loans contrary to law

SECTION 4145S Bonding of Officers and Employees

SECTION 4146S Agents and Representatives

xi


SECTION 4148S Full-Time Manager for NSSLAs


H. BRANCHES AND OTHER OFFICES

SECTION 4151S Establishment of Branches/Extension Offices4151S.1 Application4151S.2 Conditions precluding acceptance/processing of

application4151S.3 Internal control system4151S.4 Permit to operate


I. BUSINESS DAYS AND HOURS

SECTION 4156S Business Days and Hours


J. REPORTS

SECTION 4161S Records4161S.1 Uniform system of accounts4161S.2 Philippine Financial Reporting Standards/

Philippine Accounting Standards

SECTION 4162S Reports4162S.1 Categories and signatories of reports4162S.2 Manner of filing4162S.3 Sanctions and procedures for filing and payment

of fines


SECTION 4164S Internal Audit Function4164S.1 Status4164S.2 Scope4164S.3 Qualification standards of the internal auditor4164S.4 Code of Ethics and Internal Auditing Standards

xii


K. INTERNAL CONTROL

SECTION 4171S External Auditor

SECTION 4172S Financial Audit4172S.1 Audited financial statements of NSSLAs4172S.2 Posting of audited financial statements


SECTION 4180S Selection, Appointment, Reporting Requirements and Delistingof External Auditors and/or Auditing Firm; Sanction

L. MISCELLANEOUS PROVISIONS

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 4199S General Provision on Sanctions

xiii

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

SECTION 4242S Interest on Time Deposits

xiv

4242S.1 Time of payment4242S.2 Treatment of matured time deposits


H. (RESERVED)


I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS

SECTION 4261S Opening and Operation of Deposit Accounts4261S.1 Who may open deposit accounts4261S.2 Identification of member-depositors4261S.3 Number of deposit accounts4261S.4 Signature card4261S.5 Passbook and certificate of time deposit4261S.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

xv

SECTION 4304S Loan Repayment

SECTION 4305S Interest and Other Charges4305S.1 - 4305S.2 (Reserved)4305S.3 Interest in the absence of contract4305S.4 Escalation clause; when allowable4305S.5 Interest accrual on past due loans

SECTION 4306S Past Due Accounts4306S.1 Accounts considered past due4306S.2 Extension/renewal of loans4306S.3 Write-off of loans as bad debts4306S.4 Updating of information provided to credit

information bureaus

SECTION 4307S "Truth in Lending Act" Disclosure Requirements4307S.1 Definition of terms4307S.2 Information to be disclosed4307S.3 Inspection of contracts covering credit

transactions4307S.4 Posters4307S.5 Penal provisions


SECTION 4310S MInimum Required Disclosure

SECTION 4311S Unfair Collection Practices

SECTION 4312S Confidentiality of Information

SECTION 4313S Sanctions


B. SECURED LOANS

SECTION 4321S Kinds of Security


C. - D. (RESERVED)

xvi


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 Investments4391S.1 - 4391S.2 (Reserved)4391S.3 Investment in debt and marketable equity securities4391S.4 - 4391S.10 (Reserved)


K. MISCELLANEOUS PROVISIONS



PART FOUR - (RESERVED)


PART FIVE - (RESERVED)


xvii

PART SIX - MISCELLANEOUS

A. OTHER OPERATIONS

SECTION 4601S Fines and Other Charges4601S.1 Guidelines on the imposition of monetary

penalties; payment of penalties or fines


SECTION 4631S Revocation/Suspension of Non-Stock Savings and Loans Association License


SECTION 4641S Electronic Services

SECTION 4642S Issuance and Operations of Electronic Money4642S.1 Declaration of policy4642S.2 Definitions4642S.3 Prior Bangko Sentral approval4642S.4 Common provisions4642S.5 Quasi-bank license requirement4642S.6 Sanctions4642S.7 Transitory provisions4642S.8 - 4642S.10 (Reserved)4642S.11 Outsourcing of services by Electronic Money

Issuers (EMIs) to Electronic Money NetworkService Providers (EMNSP)


B. SUNDRY PROVISIONS

SECTION 4651S Notice of Dissolution

SECTION 4652S Confidential Information

SECTION 4653S Examination by the Bangko Sentral

SECTION 4654S Applicability of Other Rules

SECTION 4655S Annual Fees

xviii

SECTION 4656S Basic Law Governing Non-Stock Savings and LoanAssociation

SECTION 4657S Non-Stock Savings and Loan Association Premises and Other Fixed Assets

4657S.1 Accounting for non-stock savings and loansassociation premises; other fixed assets

4657S.2 (Reserved)4657S.3 Reclassification of real and other properties

acquired as non-stock savings and loansassociation premises

4657S.4 - 4657S.8 (Reserved)4657S.9 Batas Pambansa Blg. 344 - An Act to Enhance

the Mobility of Disabled Persons by RequiringCertain Buildings, Institutions, Establishmentsand Public Utilities to Install Facilities and OtherDevices


SECTION 4660S Disclosure of Remittance Charges and Other RelevantInformation


SECTION 4691S Anti-Money Laundering Regulations 4691S.1 - 4691S.8 (Reserved)4691S.9 Sanctions and penalties


SECTION 4695S Valid Identification Cards for Financial Transactions



List of Appendices11.12.31

xix

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 AssociationsAnnex S-2-a - Reporting Guidelines on Crimes/Losses

S - 3 Guidelines on Prescribed Reports Signatories and Signatory AuthorizationAnnex S-3-a - Format of Resolution for Signatories of Category A-1

ReportsAnnex S-3-b - Format of Resolution for Signatories of Category A-2

ReportsAnnex 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 (Deleted pursuant to Circular No.706 dated 05 January 2011)Annex S-6-a - Certification of Compliance with Anti-Money

Laundering Regulations (Deleted pursuant to CircularNo. 706 dated 05 January 2011)

Annex S-6-b - Rules on Submission of Covered Transaction Reportsand Suspicious Transaction Reports by CoveredInstitutions (Deleted pursuant to Circular No. 706dated 05 January 2011)

S - 7 Revised Implementing Rules and Regulations R.A. No. 9160, asamended by R.A. No. 9194 (Deleted pursuant to Circular No. 706 dated05 January 2011)

S - 8 Guidelines to Govern the Selection, Appointment, ReportingRequirements and Delisting of External Auditors and/or Auditing Firmof Covered Entities

§§ 4101S - 4101S.208.12.31

Manual of Regulations for Non-Bank Financial Institutions S RegulationsPart I - Page 1


Section 4101S Scope of Authority ofNon-Stock Savings and Loan AssociationsAn NSSLA shall include any non-stock, non-profit corporation engaged in the business ofaccumulating the savings of its members andusing such accumulations for loans tomembers to service the needs of householdsby providing long-term financing for homebuilding and development and for personalfinance. An NSSLA may also engage in adeath benefit program meant exclusively forthe benefit of its members.

An NSSLA shall accept deposits fromand grant loans to its members only andshall not transact business with the generalpublic.

§ 4101S.1 Membershipa. NSSLAs shall issue a certificate of

membership to every qualified memberand shall maintain a registry of theirmembers.

b. An NSSLA shall confine itsmembership to a well-defined group ofpersons.

A well-defined group shall consist of anyof the following:

(1) Employees, officers, and trustees ofone company, including member-retirees;

(2) Government employees belongingto the same office, branch, or department,including member-retirees; and

(3) Immediate members of thefamilies up to the second degree ofconsanguinity or affinity of those fallingunder Items “(1)” and “(2)” above.

NSSLAs whose articles of incorporationand by-laws were approved and registeredprior to the effectivity of R. A. No. 8367 and

which limit and/or allow membershipcoverage broader or narrower than theforegoing definition, shall be allowed tocontinue as such.

The Monetary Board may, ascircumstances warrant, require NSSLAsmentioned in the immediately precedingparagraph to amend their by-laws to complywith the concept of a well-defined group.

c. In no case shall the total amount ofentrance fees exceed one percent (1%) ofthe amount to be contributed or otherwisepaid-in by the particular member: Provided,That for new members, the fee shall be basedon the amount of contributions computed inaccordance with the revaluation of the assetsof the NSSLA.

§ 4101S.2 Organizational requirements1

a. Articles of Incorporation; by-lawsThe articles of incorporation and by-laws of aproposed NSSLA, or any amendmentthereto, shall not be registered with the SECunless accompanied by a certificate ofapproval from the Monetary Board.

b. Application for approval. The articlesof incorporation and by-laws of a proposedNSSLA, both accomplished in the prescribedforms, shall be submitted to the MonetaryBoard through the appropriate department ofthe SES together with a covering applicationfor the approval thereof, signed by a majorityof the board of trustees and verified by oneof them. The application shall include:

(1) The proposed articles ofincorporation and by-laws together with thenames and addresses of the incorporators,trustees and officers, with a statement of theircharacter, experience,and general fitness toengage in the non-stock savings and loanbusiness;

1 See SEC Circular No. 3 dated 16 February 2006.

PART ONE

ORGANIZATION, MANAGEMENT AND ADMINISTRATION

§§ 4101S.2 - 4116S08.12.31

S Regulations Manual of Regulations for Non-Bank Financial InstitutionsPart I - Page 2

(2) An itemized statement of theestimated receipts and expenditures of theproposed NSSLA for the first year;

(3) Filing fee of P1,000; and(4) Such other information as the

Monetary Board may require.c. Grounds for disapproval of

application. The Monetary Board may denythe application to organize an NSSLA on thebasis of a finding that:

(1) The NSSLA is being organized forany purpose other than to engage in thebusiness of a legitimate NSSLA;

(2) The NSSLA’s financial program isunsound;

(3) The proposed members areadequately served by one (1) or moreexisting NSSLAs; and

(4) There exist other reasons which theMonetary Board may consider as sufficientground for such disapproval.

d. Certificate of authority to operate;revocation or suspension thereof. NSSLAs,prior to transacting business, shall procurea certificate of authority to transact businessfrom the Monetary Board. After due noticeand hearing, the Monetary Board may revokeor suspend, for such period as it determines,the certificate of authority of any NSSLA, thesolvency of which is imperiled by losses orirregularities, or of any NSSLA whichwillfully violates any provision of R. A. No.8367, these rules or any pertinent law orregulation.(As amended by CL-2008-078 dated 15 December 2008)

Secs. 4102S - 4105S (Reserved)

B. CAPITALIZATION

Sec. 4106S Capital. NSSLAs established after14 August 2001, shall have a minimumcapital contribution of at least P1.0 million.The minimum capital contributionrequirement shall also apply to all pendingapplications to establish NSSLAs receivedprior to 14 August 2001.

Members who have contributedP1,000 or more to the capital of an NSSLAmay increase their capital contribution.Partial withdrawal from the amount paidby a member as capital contribution,during his membership, may be allowedunless the by laws of the NSSLA provideotherwise, and subject to such rules andregulations as the Monetary Board mayprescribe in the matter of such withdrawalof capital contribution. However, in nocase, shall such partial withdrawaldiminish the member’s capitalcontribution to less than P1,000.

Members of NSSLAs may participatein the profits of the NSSLA on the basis oftheir respective capital contributions onthe date distribution of net income isapproved by its board of trustees.(As amended by Circular No. 573 dated 22 June 2007)

§ 4106S.1 Revaluation surplus. Incases of both retiring and new members,a revaluation surplus shall be added to theircontributions by imputing their respectiveproportionate shares in the withdrawableshare reserve and the reserve for furniture,fixtures, and furnishings.


C. (RESERVED)


D. NET WORTH-TO-RISK ASSETS RATIO

Sec. 4116S Capital-to-Risk Assets. Thecombined capital accounts of each NSSLAshall not be less than an amount equal toten percent (10%) of its risk assets which isdefined as its total assets minus thefollowing assets:

a. Cash on hand;b. Evidences of indebtedness of the

Republic of the Philippines and of the BSPand any other evidences of indebtedness/

§§ 4116S - 4118S09.12.31


obligations, the servicing and repaymentof which are fully guaranteed by theRepublic of the Philippines;

c. Loans to the extent covered byhold-out on, or assignment of, depositsmaintained in the lending NSSLA and heldin the Philippines;

d. Office premises, depreciated;e. Furniture, fixtures and equipment,

depreciated;f. Real estate mortgage loans insured

by the Home Guarantee Corporation tothe extent of the amount of the insurance;and

g. Other non-risk i tems as theMonetary Board may, from time to time,authorize to be deducted from total assets.

The Monetary Board shall prescribethe manner of determining the total assetsof such NSSLA for the purpose of thisSection, but contingent accounts shall notbe included among total assets.

Whenever the capital accounts of anNSSLA are deficient with respect to thepreceding paragraph, the Monetary Board,after considering the report of theappropriate department of the SES on thestate of solvency of the NSSLA concerned,shall limit or prohibit the distribution of netincome and shall require that part or all ofnet income be used to increase the capitalaccounts of the NSSLA until the minimumrequirement has been met. The MonetaryBoard may, after considering the aforesaidreport of the appropriate department of theSES, and if the amount of the deficiencyjustifies it, restrict or prohibit the making ofnew investments of any sort by the NSSLAwith the exception of the purchases ofevidence of indebtedness included underItem “b” of this Section until the minimumrequired capital ratio has been restored.(As amended by Circular No. 573 dated 22 June 2007)

Sec. 4117S Withdrawable Share ReserveNSSLAs shall create a withdrawable sharereserve which shall consist of two percent

(2%) of the total capital contributions of themembers.

An amount corresponding to thewithdrawable share reserve shall be set upby the NSSLA, such amount invested inbonds or evidences of indebtedness of theRepublic of the Philippines or of itssubdivisions, agencies or instrumentalities,the servicing and repayment of which arefully guaranteed by the Republic of thePhilippines, and evidences of indebtednessof the BSP.

For a uniform interpretation of theprovisions of this Section, the following shallserve as guidelines:

a. The withdrawable share reserveshall be set up from the undivided profitsof the NSSLA and shall be funded in theform of cash deposited as a separateaccount and/or an investment allowedunder this Section;

b. Should there be an increase in thecapital contribution, the reserve shall becorrespondingly adjusted at the end of eachmonth from undivided profits, if any; and

c. The reserve shall be adjusted firstbefore the NSSLA shall declare anddistribute to its members any portion of itsnet income at any time of the year.(As amended by Circular No. 573 dated 22 June 2007)

Sec. 4118S Surplus Reserve for LedgerDiscrepancies. Whenever an NSSLA has adiscrepancy between its general ledgeraccounts and their respective subsidiaryledgers, the board of trustees of the NSSLAshall set up from the undivided profits ofthe NSSLA, if any, a surplus reserve, in anamount equivalent to the amount of thediscrepancy, and this reserve shall not beavailable for distribution to members or forany other purpose unless and until thediscrepancy is accounted for. The board oftrustees shall also direct the employeeresponsible for the discrepancy to accountfor said discrepancy: Provided, That thefailure of the employee to do so shall

§§ 4118S - 4126S.109.12.31


constitute as ground for his dismissal if thediscrepancy is of serious or recurring nature.(As amended by Circular Nos. 661 dated 01 September 2009

and 573 dated 22 June 2007)

Sec. 4119S Reserve for Office Premises,Furniture, Fixtures and Equipment. NSSLAsshall set aside five percent (5%) of theiryearly net income until it amount to at leastfive percent (5%) of the total assets as areserve for a building fund to cover the costof construction or acquisition of officepremises, and of the purchase of officefurniture, fixtures and equipment.

An NSSLA which, as determined by itsboard of trustees, has adequate officepremises, furniture, fixtures and equipmentnecessary for the conduct of its businessneed not set up the reserve: Provided, Thatthis fact should be certified by its board oftrustees in a resolution to be submitted tothe appropriate department of the SES forverification and approval: Provided,however, That in case reserves had been setup, the NSSLA so exempted may revert thereserves to free surplus.(As amended by Circular No. 573 dated 22 June 2007)

Sec. 4120S (Reserved)

E. (RESERVED)


F. NET INCOME DISTRIBUTION

Sec. 4126S Limitations on Distribution ofNet Income

a. Basis for participation in profitsMember-depositors of an NSSLA mayparticipate in the profits of the NSSLA onthe basis of their capital contributions on thedate distribution of net income to membersis approved by its board of trustees/directors.

b. Level of withdrawable sharereserve. No NSSLA shall distribute any ofits net income to its members if the

withdrawable share reserve required underSec. 4117S is less than, or if by suchdistribution would be reduced below, theamount specified in said Section. Thereserve shall be adjusted first before theNSSLA shall distribute its net income at anytime of the year.

c. Capital-to-risk assets ratio. NSSLAsshall not distribute any of its net income totheir members if their capital-to-risk assets ratiois below the level required under Sec. 4116S.

d. Discrepancies between general ledgerand subsidiary ledger accounts. The surplusreserves set up as required under Sec. 4118Sshall not be reverted to free surplus fordistribution to members unless and until thediscrepancy between the general ledgeraccounts and their respective subsidiaryledgers for which the surplus reserve has beenset up ceases to exist.

e. Other unbooked capitaladjustments required by BSP, whether ornot allowed to be set up on a staggeredbasis. The unbooked valuation reserves andother unbooked capital adjustmentsrequired by the BSP, whether or not allowedto be set up on a staggered basis, shall bededucted from the amount of net incomeavailable for distribution to members.

f. Interest and other income earnedbut not yet collected/received, net ofreserve for uncollected interest on loansAccrued interest and other income not yetreceived but already recorded by anNSSLA, net of allowance for uncollectedinterest on loans, shall be deducted fromthe amount of net income available fordistribution to members.(As amended by Circular No. 573 dated 22 June 2007

§ 4126S.1 Reporting and verificationDeclaration of income for distribution tomembers shall be reported by an NSSLAconcerned to the appropriate department ofthe SES in the prescribed form (RevisedBSP Form No. 7-26-25H) within ten (10)business days after date of declaration.

§§ 4126S.1 - 4141S.309.12.31


Pending verification of above-mentionedreport by the appropriate department of theSES, the NSSLA concerned shall not make anyannouncement or communication on theintended distribution of net income nor shallany actual distribution be made thereon.

In any case, the declaration may beannounced and the income distributed, if aftertwenty (20) business days from the date of thereport required herein shall have been receivedby the BSP, no advice against such distributionhas been received by the NSSLA concerned.(As amended by Circular Nos. 661 dated 01 September 2009

and 573 dated 22 June 2007)

§ 4126S.2 Recording of net income fordistribution. The liability for members’ sharein the net income distribution shall be takenup in the books upon receipt of BSP approvalthereof, or if no such approval is received,after twenty (20) business days from the datethe required Report on Distributable NetIncome was received by the appropriatedepartment of the SES whichever comesearlier. A memorandum entry may be madeto trustees and for full disclosure purposes,the amount of income for distribution maybe disclosed in the financial statements bymeans of a footnote which should includea statement to the effect that the distributionis subject to review by the BSP.(As amended by Circular No. 573 dated 22 June 2007)


G. TRUSTEES, OFFICERS, EMPLOYEESAND AGENTS

Sec. 4141S Definition; Qualifications;Responsibilities and Duties of TrusteesFor purposes of this Section, the followingshall be the definition, qualifications,responsibilities and duties of trustees.

§ 4141S.1 Definition of trusteesTrustees shall include: (a) those who arenamed as such in the articles of incorporation;

(b) those duly elected in subsequent meetingsof the NSSLA’s members; and (c) those electedto fill vacancies in the board of trustees.

§ 4141S.2 Qualifications of trusteesNo person shall be eligible as trustee of anNSSLA unless he is a member of goodstanding of such NSSLA.

In addition, such person shall have thequalifications and none of thedisqualifications as provided in pertinentlaws and BSP rules.

A trustee shall have the followingminimum qualifications:

a. He shall be at least twenty-five (25)years of age at the time of his election/appointment;

b. He shall be at least a collegegraduate or have at least five (5) yearsexperience in business, or shall haveundergone any BSP training in NSSLA orbanking operations: Provided, however,That undergraduates eligible to be electedas trustees in the NSSLA’s by-laws may beallowed as may be approved by theMonetary Board;

c. He must have attended a specialseminar on corporate governance for boardof trustees conducted or accredited by theBSP; and

d. He must be fit and proper for theposition of a trustee of the NSSLA. Indetermining whether a person is fit andproper for the position of a trustee, thefollowing matters must be considered:integrity/probity, competence, education,diligence, and experience/training.

The foregoing qualifications for trusteesshall be in addition to those already requiredor prescribed by R.A. No. 8367, asamended, and other existing applicable lawsand regulations.

§ 4141S.3 Powers and authority of theboard of trustees. The corporate powers ofan NSSLA shall be exercised, its businessconducted, and all its property shall be

controlled and held by its board of trustees.The powers of the board of trustees asconferred by law are original and cannotbe revoked by the members. The trusteeshold their office charged with the duty toact for the NSSLA in accordance with theirbest judgment.

§ 4141S.4 General responsibility of theboard of trustees. The position of an NSSLAtrustee is a position of trust. A trusteeassumes certain responsibilities to differentconstituencies or stakeholders (e.g., theNSSLA itself, its member-depositors andother creditors, its management andemployees and the public at large). Theseconstituencies or stakeholders have the rightto expect that the institution is being run ina prudent and sound manner.

The board of trustees is primarilyresponsible for the corporate governance ofthe NSSLA. To ensure good governance ofthe NSSLA, the board of trustees shouldestablish strategic objectives, policies andprocedures that will guide and direct theactivities of the NSSLA and the means toattain the same as well as the mechanismfor monitoring management’s performance.While the management of the day-to-dayaffairs of the institution is the responsibilityof the management team, the board of trusteesis, however, responsible for monitoring andoverseeing management action.

§ 4141S.5 Duties and responsibilitiesof the board of trustees. To ensure prudentand efficient administration of NSSLAs, thefollowing guidelines shall govern theresponsibilities and duties of the board oftrustees of NSSLAs:

a. Specific duties and responsibilitiesof the board of trustees

(1) To select and appoint officers whoare qualified to administer the NSSLA affairseffectively and soundly and to establishadequate selection process for all personnel.

It is the primary responsibility of the boardof trustees to appoint competentmanagement team at all times. The boardof trustees should apply fit and properstandards on key personnel. Integrity,technical expertise and experience in theinstitution’s business, either current orplanned, should be the key considerationsin the selection process. And becausemutual trust and a close workingrelationship are important, the board oftrustees’ choice should share its generaloperating philosophy and vision for theinstitution. The board of trustees shallestablish an appropriate compensationpackage for all personnel which shall beconsistent with the interest of all stakeholders.

(2) To establish objectives and draw upa business strategy for achieving them.Consistent with the institution’s objectives,business plans should be established todirect its on-going activities. The board oftrustees should ensure that performanceagainst plan is regularly reviewed, withcorrective action taken as needed.

(3) To conduct the affairs of theinstitution with high degree of integrity.Since reputation is a very valuable asset,it is in the institution’s best interest thatin dealings with its members, it observesa high standard of integrity. The board oftrustees should prescribe corporate values,codes of conduct and other standards ofappropriate behavior for itself, the seniormanagement and other employees. Amongother matters, activities and transactions thatcould result or potentially result in conflictof interest, personal gain at the expense ofthe institution, or unethical conduct shallbe strictly prohibited. It shall providepolicies that will prevent the use of thefacilities of the NSSLA in furtherance ofcriminal and other illegal activities.

(4) To prescribe a clear assignment ofresponsibilities and decision-makingauthorities, incorporating a hierarchy of

§§ 4141S.3- 4141S.508.12.31


required approvals from individuals to theboard of trustees. The board of trustees shallestablish in writing the limits of thediscretionary powers of each officer,committee, sub-committee and such othergroup for the purpose of lending, investingor committing the NSSLA to any financialundertaking or exposure to risk at any time.The board of trustees shall have a scheduleof matters and authorities reserved to it fordecision, such as major capital expenditures,equity investments and divestments.

(5) To effectively supervise theNSSLA’s affairs. The board of trustees shallestablish a system of checks and balanceswhich applies in the first instance to theboard itself. Among the members of theboard, an effective system of checks andbalances must exist. The system shall alsoprovide a mechanism for effective checkand control by the board of trustees overthe chief executive officer and keymanagers and by the latter over the lineofficers of the NSSLA.

(6) To monitor, assess and control theperformance of management. The board oftrustees shall put in place an appropriatereporting system so that it is provided withrelevant and timely information to be ableto effectively assess the performance ofmanagement. For this purpose, it mayconstitute a governance committee.

(7) To adopt and maintain adequaterisk management policy. The board oftrustees shall be responsible for theformulation and maintenance of writtenpolicies and procedures relating to themanagement of risks throughout theinstitution. The risk management policyshall include:

(a) a comprehensive risk managementapproach;

(b) a detailed structure of limits,guidelines and other parameters used togovern risk-taking;

(c) a clear delineation of lines ofresponsibilities for managing risk;

(d) an adequate system for measuringrisk; and

(e) effective internal controls and acomprehensive risk-reporting process.

The board of trustees may constitute acommittee for this purpose.

(8) To constitute the Audit Committee.The Audit Committee shall be composedof trustees, preferably with accounting andfinance experience. Said audit committeeprovides oversight of the institution’sinternal and external auditors. It shall beresponsible for the setting up of the internalaudit department and for the appointmentof the internal auditor as well as theindependent external auditor. It shallmonitor and evaluate the adequacy andeffectiveness of the internal control system.

(9) To meet regularly. To properlydischarge its function, the board of trusteesshall meet regularly. Independent views inboard meetings shall be given fullconsideration and all such meetings shall beduly minuted.

(10) To keep the individual membersof the board and the members informed. Itis the duty of the board of trustees to presentto all its members and to the stakeholdersa balanced and understandable assessmentof the NSSLA’s performance and financialcondition. It should also provide appropriateinformation that flows internally and to thepublic. All members of the board shall havereasonable access to any information aboutthe institution.

(11) To ensure that the NSSLA hasbeneficial influence on the economy. Theboard of trustees has a continuingresponsibility to provide those services andfacilities which will be supportive of thenational economy.

(12) To assess at least annually its per-formance and effectiveness as a body, aswell as its various committees, the chiefexecutive officer and the NSSLA itself. Thecomposition of the board of trustees shallalso be reviewed regularly with the end in

§ 4141S.508.12.31


view of having a balanced membership.Towards this end, a system and procedurefor evaluation shall be adopted which mayinclude, but not limited to, the setting ofbenchmark and peer group analysis.

(13) To keep their authority within thepowers of the institution as prescribed inthe articles of incorporation, by-laws andin existing laws, rules and regulations. Toconduct and maintain the affairs of theinstitution within the scope of its authorityas prescribed in its charter and in existinglaws and regulations, the board of trusteesshall appoint a compliance officer who shallbe responsible for coordinating, monitoringand facilitating compliance with existinglaws and regulations. The compliance officershall be vested with appropriate authorityand provided with appropriate support andresources. It may also constitute acompliance committee.

b. Specific duties and responsibilitiesof a trustee

(1) To conduct fair business transactionswith the NSSLA and to ensure that personalinterest does not bias board decisions.Trustees should, whenever possible, avoidsituations that would give rise to a conflictof interest. If transactions with the institutioncannot be avoided, it should be done in theregular course of business and upon termsnot less favorable to the institution than thoseoffered to others. The basic principle to beobserved is that a trustee should not usehis position to make profit or to acquirebenefit or advantage for himself and/or hisrelated interests. He should avoid situationsthat would compromise his impartiality.

(2) To act honestly and in good faith,with loyalty and in the best interest of theNSSLA, its members, regardless of theamount of their capital contributions, andcreditors, if any. A trustee must always actin good faith, with the care which anordinarily prudent man would exerciseunder similar circumstances. While a trusteeshould always strive to promote the interest

of all members, he shall also give dueregard to the rights and interests of otherstakeholders.

(3) To devote time and attentionnecessary to properly discharge theirduties and responsibilities. Trustees shalldevote sufficient time to familiarizethemselves with the institution’s business.They must be constantly aware of theinstitution’s condition and beknowledgeable enough to contributemeaningfully to the board’s work. Theymust attend and actively participate inboard and committee meetings, requestand review meeting materials, askquestions and request explanations. If aperson cannot give sufficient time andattention to the affairs of the institution, heshall neither accept his nomination nor runfor election as member of the board oftrustees.

(4) To act judiciously. Before decidingon any matter brought before the board oftrustees, every trustee should thoroughlyevaluate the issues, ask questions and seekclarifications when necessary.

(5) To exercise independent judgment.A trustee should view each problem/situation objectively. When adisagreement with others occurs, heshould carefully evaluate the situation andstate his position. He should not be afraidto take a position even though it might beunpopular. Corollarily, he should supportplans and ideas that he thinks will bebeneficial to the institution.

(6) To have a working knowledge ofthe statutory and regulatory requirementsaffecting the NSSLA, including the contentof its articles of incorporation and by-laws,the requirements of the BSP, and whereapplicable, the requirements of otherregulatory agencies.A trustee also keepshimself informed of the industrydevelopments and business trends in orderto safeguard the institution’scompetitiveness.

§ 4141S.508.12.31


(7) To observe confidentiality. Trusteesmust observe the confidentiality of non-public information acquired by reason oftheir position as trustees. They may notdisclose said information to any otherperson without the authority of the board.

Sec. 4142S Definition and Qualificationsof Officers. Officers shall include thePresident, Vice-President, GeneralManager, Corporate Secretary, Treasurerand others mentioned as officers of theNSSLA, or whose duties as such aredefined in the by-laws.

The minimum qualifications for trusteesprescribed in Sec. 4141S are also applicableto officers.

§ 4142S.1 Definition of officersOfficers shall include the president,executive vice president, senior vicepresident, vice president, generalmanager, secretary, treasurer, and othersmentioned as officers of the NSSLA, orthose whose duties as such are defined inthe by-laws, or are generally known to bethe officers of the NSSLA (or any of itsbranches and offices other than the headoffice) either through announcement,representation, publication or any kindof communication made by the NSSLA.A person holding the posit ion ofchairman, vice-chairman or any otherposition of the board who also performsfunctions of management such as thoseordinarily performed by regular officersshall also be considered an officer.

§ 4142S.2 Qualifications of officersAn officer shall have the followingminimum qualifications:

a. He shall be at least twenty-one (21)years of age;

b. He shall be at least a collegegraduate or have at least five (5) yearsexperience in NSSLA or banking operationsor related activities or in a field related to

his position and responsibilities, or haveundergone training in NSSLA or bankingoperations acceptable to the appropriatedepartment of the SES;

c. He must be fit and proper for theposition of an officer of the NSSLA. Indetermining whether a person is fit andproper for the position of an officer, thefollowing matters must be considered:integrity/probity, competence, education,diligence, and experience/training. Theforegoing qualifications for officers shall bein addition to those already required orprescribed by R.A. No. 8367, as amended,and other existing applicable laws andregulations.

Sec. 4143S Disqualification of Trustees andOfficers. The following regulations shallgovern the disqualification of NSSLAs’trustees and officers.

§ 4143S.1 Persons disqualified tobecome trustees. Without prejudice tospecific provisions of law prescribingdisqualifications for trustees, the followingare disqualified from becoming trustees:

a. Permanently disqualified. Trustees/officers/employees permanently disqualifiedby the Monetary Board from holding adirector/trustee position:

(1) Persons who have been convicted byfinal judgment of a court for offenses involvingdishonesty or breach of trust such as but notlimited to, estafa, embezzlement, extortion,forgery, malversation, swindling, theft,robbery, falsification, bribery, violation ofB.P. Blg. 22, violation of Anti- Graft andCorrupt Practices Act and prohibited actsand transactions under Section 7 ofR.A. No. 6713 (Code of Conduct and EthicalStandards for Public Officials andEmployees);

(2) Persons who have been convictedby final judgment of a court sentencingthem to serve a maximum term ofimprisonment of more than six (6) years;

§§ 4141S.5 - 4143S.108.12.31


(3) Persons who have been convictedby final judgment of the court for violationof banking/quasi-banking/NSSLA laws,rules and regulations;

(4) Persons who have been judiciallydeclared insolvent, spendthrift orincapacitated to contract;

(5) Trustees, officers or employees ofclosed banks/QBs/trust entities who werefound to be culpable for such institution’sclosure as determined by the MonetaryBoard;

(6) Trustees and officers of banks, QBsand trust entities found by the MonetaryBoard as administratively liable for violationof banking laws, rules and regulationswhere a penalty of removal from office isimposed, and which finding of the MonetaryBoard has become final and executory; or

(7) Trustees and officers of banks, QBsand trust entities or any person found bythe Monetary Board to be unfit for theposition of trustees or officers because theywere found administratively liable byanother government agency for violationof banking laws, rules and regulations orany offense/violation involving dishonestyor breach of trust, and which finding of saidgovernment agency has become final andexecutory.

b. Temporarily disqualified. Trustees/officers/employees disqualified by theMonetary Board from holding a trusteeposition for a specific/indefinite period oftime. Included are:

(1) Persons who refuse to fully disclosethe extent of their business interest or anymaterial information to the appropriatedepartment of the SES when requiredpursuant to a provision of law or of a circular,memorandum, rule or regulation of the BSP.This disqualification shall be in effect as longas the refusal persists;

(2) Trustees who have been absent orwho have not participated for whateverreasons in more than fifty percent (50%) ofall meetings, both regular and special, of

the board of trustees during theirincumbency, and trustees who failed tophysically attend for whatever reasons inat least twenty-five percent (25%) of allboard meetings in any year, except thatwhen a notarized certification executed bythe corporate secretary has been submittedattesting that said trustees were given theagenda materials prior to the meeting andthat their comments/decisions thereonwere submitted for deliberation/discussionand were taken up in the actual boardmeeting, said trustees shall be consideredpresent in the board meeting. Thisdisqualification applies only for purposesof the immediately succeeding election;

(3) Persons who are delinquent in thepayment of their obligations as definedhereunder:

(a) Delinquency in the payment ofobligations means that an obligation of aperson with an NSSLA where he/she is atrustee or officer, or at least two (2)obligations with other banks/FIs, underdifferent credit lines or loan contracts, arepast due pursuant to existing regulations;

(b) Obligations shall include allborrowings from a bank/QB/trust entity/NSSLA/other FIs obtained by:

(i) A trustee or officer for his ownaccount or as the representative or agentof others or where he/she acts as aguarantor, endorser or surety for loans fromsuch FIs;

(ii) The spouse or child under theparental authority of the trustee or officer;

(iii) Any person whose borrowings orloan proceeds were credited to the accountof, or used for the benefit of a trustee orofficer;

(iv) A partnership of which a trustee orofficer, or his/her spouse is the managingpartner or a general partner owning acontrolling interest in the partnership; and

(v) A corporation, association or firmwholly-owned or majority of the capital ofwhich is owned by any or a group of persons

§ 4143S.108.12.31


mentioned in the foregoing Items “(i)”, “(ii)”and “(iv)”;

This disqualification shall be in effectas long as the delinquency persists.

(4) Persons who have been convictedby a court for offenses involving dishonestyor breach of trust such as, but not limitedto, estafa, embezzlement, extortion, forgery,malversation, swindling, theft, robbery,falsification, bribery, violation of B.P. Blg.22, violation of Anti-Graft and CorruptPractices Act and prohibited acts andtransactions under Section 7 of R.A. No.6713 (Code of Conduct and EthicalStandards for Public Officials andEmployees), violation of banking laws, rulesand regulations or those sentenced to servea maximum term of imprisonment of morethan six (6) years but whose conviction hasnot yet become final and executory;

(5) Trustees and officers of closedbanks QBs/trust entities/NSSLAs and otherFIs under BSP supervision/regulationpending their clearance by the MonetaryBoard;

(6) Trustees disqualified for failure toobserve/discharge their duties andresponsibilities prescribed under existingregulations. This disqualification appliesuntil the lapse of the specific period ofdisqualification or upon approval by theMonetary Board on recommendation by theappropriate department of the SES of suchtrustees’ election/re-election;

(7) Trustees who failed to attend thespecial seminar on corporate governancefor board of trustees required by BSP. Thisdisqualification applies until the trusteeconcerned had attended such seminar;

(8) Persons dismissed/terminated fromemployment for cause. This disqualificationshall be in effect until they have clearedthemselves of involvement in the allegedirregularity or upon clearance, on theirrequest, from the Monetary Board after

showing good and justifiable reasons, orafter the lapse of five (5) years from the timethey were officially advised by theappropriate department of the SES of theirdisqualification;

(9) Those under preventive suspension;(10) Persons with derogatory records as

certified by, or on the official files of, thejudiciary, NBI, PNP, quasi-judicial bodies,other government agencies, internationalpolice, monetary authorities and similaragencies or authorities of foreign countriesfor irregularities or violations of any law,rules and regulations that would adverselyaffect the integrity of the trustee/officer orthe ability to effectively discharge his duties.This disqualification applies until they havecleared themselves of the allegedirregularities/violations or after a lapse of five(5) years from the time the complaint, whichwas the basis of the derogatory record, wasinitiated;

(11) Trustees and officers of banks, QBsand trust entities found by the MonetaryBoard as administratively liable for violationof banking laws, rules and regulationswhere a penalty of removal from office isimposed, and which finding of the MonetaryBoard is pending appeal before the appellatecourt, unless execution or enforcementthereof is restrained by the court;

(12) Trustees and officers of banks, QBsand trust entities or any person found bythe Monetary Board to be unfit for theposition of trustees or officers because theywere found administratively liable byanother government agency for violation ofbanking laws, rules and regulations or anyoffense violation involving dishonesty orbreach of trust, and which finding of saidgovernment agency is pending appeal beforethe appellate court, unless execution orenforcement thereof is restrained by thecourt; and

(13) Trustees and officers of banks, QBs

§ 4143S.108.12.31


and trust entities found by the MonetaryBoard as administratively liable for violationof banking laws, rules and regulationswhere a penalty of suspension from officeor fine is imposed, regardless whether thefinding of the Monetary Board is final andexecutory or pending appeal before theappellate court, unless execution orenforcement thereof is restrained by thecourt. The disqualification shall be in effectduring the period of suspension or so longas the fine is not fully paid.(As amended by Circular Nos. 584 dated 28 September 2007

and 513 dated 10 February 2006)

§ 4143S.2 Persons disqualified tobecome officers

a. The disqualifications for trusteesmentioned in Subsec. 4143S.1 shall likewiseapply to officers, except those stated in Items“b(2)” and “b(7)”.

b. The spouses or relatives within thesecond degree of consanguinity or affinityare prohibited from holding officershippositions across the following functionalcategories within an NSSLA:

1. Decision making and seniormanagement function, e.g., chairman,president, chief executive officer (CEO),chief operating officer (COO), generalmanager, and chief financial officer (CFO)other than the treasurer or controller;

2. Treasury function, e.g., Treasurer andVice President – Treasury;

3. Recordkeeping and financialreporting functions, e.g., controller and chiefaccountant;

4. Safekeeping of assets, e.g., chiefcashier;

5. Risk management function, e.g., chiefrisk officer;

6. Compliance function, e.g.,compliance officer; and

7. Internal audit function, e.g., internalauditor.

The spouse or relative within the seconddegree of consanguinity or affinity of anyperson holding the position of manager,cashier, or accountant of a branch orextension office of an NSSLA or theirrespective equivalent positions isdisqualified from holding or beingappointed to any of said positions in thesame branch or extension office.

c. Except as may otherwise be allowedunder C.A. No. 108, otherwise known as“The Anti-Dummy Law,” as amended,foreigners cannot be officers or employeesof NSSLAs; and

d. Any appointive or elective publicofficial, whether full time or part time,except in cases where such service isincident to financial assistance provided bythe government or GOCCs or in casesallowed under existing law.(As amended by Circular No. 699 dated 17 November 2010)

§ 4143S.3 Disqualification proceduresa. The board of trustees and

management of every NSSLAs shall beresponsible for determining the existenceof the ground for disqualification of theNSSLA’s trustee/officer or employee and forreporting the same to the BSP. While theconcerned NSSLA may conduct its owninvestigation and impose appropriatesanction/s as are allowable, this shall bewithout prejudice to the authority of theMonetary Board to disqualify a trustee/officer/employee from being electedappointed as trustee/officer in any FI underthe supervision of the BSP. Grounds fordisqualification made known to the NSSLAshall be reported to the appropriatedepartment of the SES within seventy-two(72) hours from knowledge thereof.

b. On the basis of knowledge andevidence on the existence of any of thegrounds for disqualification mentioned inSubsecs. 4143S.1 and 4143S.2, the trustee

§§ 4143S.1 - 4143S.310.12.31


or officer concerned shall be notified inwriting either by personal service orthrough registered mail with registry returnreceipt card at his/her last known addressby the appropriate department of the SES ofthe existence of the ground for his/herdisqualification and shall be allowed tosubmit within fifteen (15) calendar days fromreceipt of such notice an explanation onwhy he/she should not be disqualified andincluded in the watchlisted file, togetherwith the evidence in support of his/her

position. The head of said department mayallow an extension on meritorious ground.

c. Upon receipt of the reply/explanation of the trustee/off icerconcerned, the appropriate department ofthe SES shall proceed to evaluate the case.The trustee/officer concerned shall beafforded the opportunity to defend/clearhimself/herself.

d. If no reply has been received fromthe trustee/officer concerned upon the

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expiration of the period prescribed underItem “b” above, said failure to reply shall bedeemed a waiver and the appropriatedepartment of the SES shall proceed toevaluate the case based on available records/evidence.

e. If the ground for disqualification isdelinquency in the payment of obligation,the concerned trustee or officer shall be givena period of thirty (30) calendar days withinwhich to settle said obligation or, restore itto its current status or, to explain whyhe/she should not be disqualified andincluded in the watchlisted file, before theevaluation on his disqualification andwatchlisting is elevated to the MonetaryBoard.

f. For trustees/officers of closed QBs,trust entities, NSSLAs or other FIs under BSPsupervision, the concerned department ofthe SES shall make appropriaterecommendation to the Monetary Boardclearing said trustees/officers when there isno pending case/complaint or evidenceagainst them. When there is evidence that atrustees/officer has committed irregularity,the appropriate department of the SES shallmake recommendation to the MonetaryBoard that his/her case be referred to the OSIfor further investigation and that he/she beincluded in the masterlist of temporarilydisqualified persons until the final resolutionof his/her case. Trustees/officers withpending cases/complaints shall also beincluded in said masterlist of temporarilydisqualified persons upon approval by theMonetary Board until the final resolution oftheir cases. If the trustee/officer is clearedfrom involvement in any irregularity, theappropriate department of the SES shallrecommend to the Monetary Board his/herdelisting. On the other hand, if the trusteeofficer concerned is found to be responsiblefor the closure of the institution, theconcerned department of the SES shallrecommend to the Monetary Board his/herdelisting from the masterlist of temporarily

disqualified persons and his/her inclusion inthe masterlist of permanently disqualifiedpersons.

g. If the disqualification is based ondismissal from employment for cause, theappropriate department of the SES shall, asmuch as practicable, endeavor to establishthe specific acts or omissions constituting theoffense or the ultimate facts which resultedin the dismissal to be able to determine if thedisqualification of the trustee/officerconcerned is warranted or not. Theevaluation of the case shall be made for thepurpose of determining if disqualificationwould be appropriate and not for the purposeof passing judgment on the findings anddecision of the entity concerned. Theappropriate department of the SES maydecide to recommend to the Monetary Boarda penalty lower than disqualification (e.g.,reprimand, suspension, etc.) if, in itsjudgment the act committed or omitted bythe trustee/officer concerned does notwarrant disqualification.

h. All other cases of disqualification,whether permanent or temporary shall beelevated to the Monetary Board for approvaland shall be subject to the proceduresprovided in paragraphs “a”, “b”, “c” and “d”above.

i. Upon approval by the MonetaryBoard, the concerned trustee/officer shallbe informed by the appropriate departmentof the SES in writing either by personalservice or through registered mail withregistry return receipt card, at his/her lastknown address of his/her disqualificationfrom being elected/ appointed as trustee/officer in any FI under the supervision ofBSP and/or of his/her inclusion in themasterlist of watchlisted persons sodisqualified.

j. The board of trustees of theconcerned institution shall be immediatelyinformed of cases of disqualificationapproved by the Monetary Board and shallbe directed to act thereon not later than the

§ 4143S.308.12.31

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following board meeting. Within seventy-two (72) hours thereafter, the corporatesecretary shall report to the Governor ofthe BSP through the appropriate departmentof the SES the action taken by the board onthe trustee/officer involved.

k. Persons who are elected orappointed as trustee or officer in any of theBSP supervised institutions for the first timebut are subject to any of the grounds fordisqualification provided for under Subsecs.4143S.1 and 4143S.2, shall be afforded theprocedural due process prescribed above.

l. Whenever a trustee/officer iscleared in the process mentioned underItem “c” above or, when the ground fordisqualification ceases to exist, he/she wouldbe eligible to become trustee or officer ofany bank, QB, trust entity or any institutionunder the supervision of the BSP only uponprior approval by the Monetary Board. Itshall be the responsibility of the appropriatedepartment of the SES to elevate to theMonetary Board the lifting of thedisqualification of the concerned trustee/officer and his/her delisting from themasterlist of watchlisted persons.(As amended by Circular No. 584 dated 28 September 2007)

§ 4143S.4 Effect of non-possession ofqualifications or possession ofdisqualifications. Trustees/officers electedor appointed without possessing thequalifications in Subsecs. 4141S.2/4142S.2or possessing any of the disqualifications asenumerated in Subsecs.4143S.1/4143S.2,shall vacate their respective positionsimmediately.

§ 4143S.5 (Reserved)

§ 4143S.6 Watchlisting. To provide theBSP with a central information file to be usedas reference in passing upon and reviewingthe qualifications of persons elected orappointed as trustee or officer of an NSSLA,the SES shall maintain a watchlist of

disqualified NSSLA trustees/ officers underthe following procedures:

a. Watchlist categories. Watchlistingshall be categorized as follows:

(1) Disqualification File “A” (Permanent)- T r u s t e e s / o f f i c e r s / e mp l o y e e spermanently disqualified by the MonetaryBoard from holding a trustee/officer positionin any institution under the supervision/regulation of BSP.

(2) Disqualification File “B” (Temporary)- T r u s t e e s / o f f i c e r s / e m p l o y e e stemporarily disqualified by the MonetaryBoard from holding a trustee/officer positionin any institution under the supervision/regulation of BSP.

b. Inclusion of trustees/officers/employees in the watchlist. Uponrecommendation by the appropriatedepartment of the SES, the inclusion oftrustees/officers/employees in watchlistdisqualification files “A” and “B” on the basisof decisions, actions or reports of the courts,banks, QBs, other NSSLAs and FIs under BSPsupervision, BSP, NBI or any otheradministrative agencies shall first be approvedby the Monetary Board.

c. Notification of trustees/officers/employees. Upon approval by the MonetaryBoard, the concerned trustee/officer/employee shall be informed throughregistered mail, with registry return receiptcard at his/her last known address of his/ herinclusion in the masterlist of watchlistedpersons disqualified to be a trustee/officer inany FI under the supervision of the BSP.

d. Confidentiality. Watchlisting shall befor internal use only and may not be accessedor queried upon by outside parties includingbanks, QBs, trust entities, NSSLAs or otherFIs under BSP supervision except with theauthority of the person concerned and withthe approval of the Deputy Governor, SES,or the Governor, or the Monetary Board.

The BSP will disclose information onits watchlist files only upon submission ofa duly accomplished and notarized

§§ 4143S.3 - 4143S.608.12.31


authorization from the concerned personand approval of such request by the DeputyGovernor, SES or the Governor or theMonetary Board. The prescribedauthorization form to be submitted to theconcerned department of the SES is inAppendix Q-45.

NSSLAs can gain access to informationin the said watchlist for the sole purpose ofscreening their applicants for hiring and/or confirming their elected trustees andappointed officers. NSSLAs must obtain thesaid authorization on an individual basis.

e. Delisting. All delistings shall beapproved by the Monetary Board uponrecommendation of the appropriatedepartment of the SES except in cases ofpersons known to be dead, where delistingshall be automatic upon proof of death andneed not be elevated to the MonetaryBoard. Delisting may be approved by theMonetary Board in the following cases:

(1) Watchlist – Disqualification File “B”(Temporary) –

(a) After the lapse of the specific periodof disqualification;

(b) When the conviction by the courtfor crimes involving dishonesty, breach oftrust and/or violation of banking lawsbecomes final and executory, in whichcase the trustee/officer/employee is relistedto Watchlist – Disqualification File “A”(Permanent);

(c) Upon favorable decision orclearance by the appropriate body, i.e.,court, NBI, bank, QB, trust entity or suchother agency/body where the concernedindividual had derogatory record. Trustees/officers/employees delisted from theWatchlist – Disqualification File “B” otherthan those upgraded to Watchlist –Disqualification File “A” shall be eligiblefor re-employment with any bank, QB,trust entity, NSSLA or other FI under BSPsupervision.(As amended by CL-2007-001 dated 04 January 2007 and

CL-2006-046 dated 21 December 2006)

Sec. 4144S Compensation of Trustees,Officers and Employees. No trustee, officeror employee of an NSSLA shall receive fromsuch NSSLA and no NSSLA shall pay to anytrustee, officer, or employee of such NSSLA,any commission, emolument, gratuity orreward based on the volume or number ofloans made, or based on the interest or feescollected thereon. Nothing in this Section,however, prohibits or limits any of thefollowing:

a. Receipt or payment of salaries oftrustees, officers and employees;

b. Receipt or payment of commissionsto agents whether or not based on thevolume or number of loans or on theinterest and fees collected thereon; or

c. Receipt or payment of bonuses oftrustees, officers or employees if suchbonuses are based on the profits and noton the volume or number of loans madeor on the interest or fees collected thereon.

To protect the funds of depositors andcreditors, the Monetary Board may regulate/restrict the payment by the NSSLA ofcompensation, allowances, fees, bonuses,and fringe benefits to its trustees and officersin exceptional cases and when thecircumstances warrant, such as, but notlimited to the following:

a. When the NSSLA is found by theMonetary Board to be conducting businessin an unsafe or unsound manner;

b. When the NSSLA is found by theMonetary Board to be in an unsatisfactoryfinancial condition such as, but not limitedto, the following cases:

(1) Its capital is impaired; and(2) It has suffered continuous losses from

operations for the past three (3) years.In the presence of any one (1) or more

of the circumstances mentioned above, theMonetary Board may impose the followingrestrictions in the compensation and otherbenefits of trustees and officers:

(a) Except for the financial assistance tomeet expenses for the medical, maternity,

§§ 4143S.6 - 4144S08.12.31


education and other emergency needs of thetrustees or officers or their immediate family,other forms of financial assistance may besuspended.

(b) When the total compensation packageincluding salaries, allowances, fees andbonuses of trustees and officers aresignificantly excessive as compared withindustry averages, the Monetary Board mayorder their reduction to reasonable levels.

§ 4144S.1 Compensation increases.Allincreases in compensation, in any form, ofall trustees and trustee-officers in excess often percent (10%) thereof per annum shallrequire the approval of the BSP.

§ 4144S.2 Liability for loans contraryto law. No NSSLA shall make or purchaseany loan or investment not authorized orpermitted under R.A. No. 8367, and anytrustee, officer or employee, who on behalfof any such NSSLA, knowingly makes orpurchases any such loan or investment orwho knowingly consents thereto shall bepersonally liable to the NSSLA for the fullamount of any such loan or investment.

Sec. 4145S Bonding of Officers andEmployees. All officers and employees of anNSSLA who, in the regular discharge of theirduties have access to money or negotiablesecurities shall, before entering upon suchduties, furnish to the employing NSSLA agood and sufficient bond and providing forindemnity to the NSSLA against the loss ofmoney or securities, by reason of theirdishonesty. The bond of the cashier,assistant cashier, treasurer, and otheremployees having money accountabilityshall not be less than their average dailyaccountability. The bond must be issued bya reputable bonding company duly licensedby the Insurance Commission and approvedby the BSP. Capital contribution or a cashbond deposited with the NSSLA or with abank, may also be allowed.

Sec. 4146S Agents and RepresentativesNo person shall act as an agent or salesrepresentative of an NSSLA or operate anagency without obtaining a license from theMonetary Board. No license is required fora collector of an NSSLA but no person shallhold himself out or act as collector unlesshe is authorized as a collector in writing bysuch NSSLA.


Sec. 4148S Full-Time Manager for NSSLAsNSSLAs with total assets of at leastP5.0 million shall maintain a full-timemanager to take charge of the operations ofthe NSSLA. The manager shall possess all thequalifications and shall not have anydisqualification under Subsecs. 4142S.2 and4143S.2, respectively.


H. BRANCHES AND OTHER OFFICES

Sec. 4151S Establishment of Branches/Extension Offices. Prior BSP authority shallbe obtained before operating a branch orother offices.

§ 4151S.1Application.The applicationshall be prescribed by the appropriatedepartment of the SES and accompanied bythe following minimum requirements:

a. Sketch of the location of the proposedoffice which shall be within the compoundof the mother firm’s branch office;

b. Itemized statement of estimatedreceipts and expenses of the NSSLA inconnection with such branch or extensionoffice;

c. Description or enumeration of servicefacilities that will cater to the deposit and creditneeds of members of the NSSLA;

d. Financial statements for the yearimmediately preceding the date ofapplication;

§§ 4145S - 4151S.108.12.31


e. Certification as to the actualnumber of members that will be servicedby the branch/extension office; and

f. Undertaking that the branch/extension office will service only membersof the NSSLA.

§ 4151S.2 Conditions precludingacceptance/processing of application. Theapplication shall not be accepted/processedin any of the following cases:

a. The NSSLA’s operation during theyear immediately preceding the date offiling of application was unprofitable;

b. Total capital accounts of theNSSLA are less than P100 million as ofthe date of filing of the application;

c. Total number of members to beserved in the proposed branch/extensionoffice is less than 500; or

d. Non-compliance by the NSSLAwith any of the pertinent provisions ofbanking laws, rules, regulations andpolicies of the BSP.

§ 4151S.3 Internal control system. TheNSSLA shall submit to the appropriatedepartment of the SES a system of internalsafeguards and control measures to beadopted for compliance by the staff of theproposed branch/extension office.

§ 4151S.4 Permit to operate. Actualoperation shall commence only after apermit to operate has been issued by theBSP.



Sec. 4156S Business Days and HoursNSSLAs may, with the prior approval of theappropriate department of the SES, adoptsuch business days and hours as may beconvenient for them. NSSLAs shall be openfor business during business hours and days

except when extraordinary instancescaused by unforeseen, unavoidable eventdirectly affect the NSSLA’s ability to openfor business. NSSLAs shall postconspicuously at all times in their place ofbusiness their schedule of regular businesshours and days.


J. REPORTS

Sec. 4161S Records. NSSLAs shall have atrue and accurate account, record orstatement of their daily transactions. Themaking of any false entry or the willfulomission of entries relevant to anytransaction is a ground for the MonetaryBoard for the imposition of administrativesanctions under Section 37 of R.A.No. 7653, without prejudice to the criminalliability of the director or officer responsibletherefore under Sections 35 and 36 of R.A.No. 7653 and/or the applicable provisionsof the Revised Penal Code. Records shallbe up to-date and shall contain sufficientdetail so that an audit trail is established.

§ 4161S.1 Uniform System ofAccounts. NSSLAs are required to patterntheir charts of accounts and recordingsystems after the Uniform System ofAccounts prescribed for NSSLAs includingreportorial and publication requirements.The voucher system of accounting or theticket system, or such other accountingsystem acceptable to the BSP as well asthe prescribed chart of accounts shall beadopted for use by NSSLAs.

§ 4161S.2 Philippine FinancialReporting Standards/Philippine AccountingStandards

Statement of policy. It is the policy ofthe Bangko Sentral to promote fairness,transparency and accuracy in financialreporting. It is in this light that the BSP aims

§§ 4151S.1 - 4161S.208.12.31


to adopt all PFRS and PAS issued by theASC to the greatest extent possible.

NSSLAs shall adopt the PFRS and PASwhich are in accordance with GAAP inrecording transactions and in thepreparation of financial statements andreports to BSP. However, in cases wherethere are differences between BSPregulations and PFRS/PAS as when morethan one (1) option are allowed or certainmaximum or minimum limits areprescribed by the PFRS/PAS, the option orlimit prescribed by BSP regulations shallbe adopted by all NSSLA/FIs.

For purposes hereof, the PFRS/PASshall refer to issuances of the ASC andapproved by the PRC.

Accounting treatment for prudentialreporting. For prudential reporting, FIs shalladopt in all respect the PFRS and PASexcept as follows:

a. In preparing consolidated financialstatements, only investments in financialallied subsidiaries except insurancesubsidiaries shall be consolidated on a line-by-line basis; while insurance and non-financial allied subsidiaries shall beaccounted for using the equity method.Financial/non-financial allied/non-alliedassociates shall be accounted for using theequity method in accordance with theprovisions of PAS 28 “Investments inAssociates”;

b. For purposes of preparing separatefinancial statements, financial/non-financialallied/non-allied subsidiaries/associates,including insurance subsidiaries/associates,shall also be accounted for using the equitymethod; and

c. FIs shall be required to meet theBSP recommended valuation reserves.

Government grants extended in the formof loans bearing nil or low interest rates shallbe measured upon initial recognition at itsfair value (i.e., the present value of thefuture cash flows of the financial instrumentdiscounted using the market interest rate).

The difference between the fair value andthe net proceeds of the loan shall berecorded under “Unearned Income-Others”, which shall be amortized over theterm of the loan using the effective interestmethod.

The provisions on government grantsshall be applied retroactively to alloutstanding government grants received.NSSLAs that adopted an accountingtreatment other than the foregoing shallconsider the adjustment as a change inaccounting policy, which shall beaccounted for in accordance with PAS 8.

Notwithstanding the exceptions inItems “a”, “b” and “c”, the audited annualfinancial statements required to besubmitted to the BSP in accordance withAppendix S-2 shall in all respect be PFRS/PAS compliant: Provided, That FIs shallsubmit to the BSP adjusting entriesreconciling the balances in the financialstatements for prudential reporting withthat in the audited annual financialstatements.(As amended by Circular No. 572 dated 22 June 2007)

Sec. 4162S Reports. NSSLAs shall submitto the appropriate department of the SESthe reports in prescribed form listed inAppendix S-2.

§ 4162S.1 Categories and signatoriesof reports. For purposes of designating thesignatories of reports, certain weekly,monthly, quarterly, semi-annual, and annualstatements/reports required to be submittedto the BSP are hereby grouped into CategoryA-1, A-2, A-3 and Category B, as enumeratedin Appendix S-3.

Category A-1 reports shall be signed bythe NSSLA’s chief executive officer (whomay be the president or chairman of theboard, or designated in the by-laws), or inhis absence, by the executive vice presidentor the officer duly authorized under aresolution approved by the board of

§§ 4161S.2 - 4162S.108.12.31


trustees and by the chief finance officer(i.e., controller or chief accountant, whoshall likewise be duly authorized by theNSSLA’s board of trustees in a formatprescribed in Appendix S-3a.

Category A-2 reports of the head officeof the NSSLA shall be signed by theNSSLA’s president or senior vice-president/equivalent position. Offices/units(such as branch) reports in this categoryshall be signed by their respectivemanagers/officers-in-charge. Likewise, thesigning authority in this category shall becontained in a resolution approved by theboard of trustees in the format prescribedin Appendix S-3b.

Category A-3 and B reports are thoserequired to be submitted to the BSP and arenot included in Categories A-1 and A-2. Theyshall be signed by officers or their alternates,who shall be duly designated by the board oftrustees. A copy of the board resolution withformat as prescribed in Appendix S-3c,covering the initial designation and subsequentchanges in signatories and alternates, shall besubmitted to the appropriate department ofthe SES within three (3) days from the date ofresolution.

If a report is submitted to the BSP underthe signature of an officer who is not listedor included in any of the resolutionsmentioned above, the appropriatedepartment of the SES shall refuse toacknowledge the report as valid or considerthe report as not having been submitted atall. If such a report is not resubmitted by theNSSLA under the signature of a dulyauthorized signing officer, administrativesanctions/penalties shall be imposed on theerring NSSLA for the late reporting or failureto submit the required report, as the casemay be.

§ 4162S.2 Manner of filing. Thesubmission of the reports shall be effectedby filing them personally with theappropriate department of the SES or with

the BSP Regional Offices or by sendingthem registered mail or special delivery,unless otherwise specified in the circularor memorandum of the Monetary Board orthe BSP.

§ 4162S.3 Sanctions and procedures forfiling and payment of fines. Failure to submitthe above reports on or before the specifieddates shall subject the person responsibleor entity concerned to the penalties providedby law.

For willful delay in the submission ofreports, the following rules shall apply:

a. Definition of Terms. The followingdefinitions shall apply:

(1) Report shall refer to all writtenreports/statements required of an NSSLAto be submitted to the BSP periodically orwithin a specified period.

(2) Willful delay in the submission ofreports shall refer to the failure of anyNSSLA to submit on time the report definedin Item “(1)” above. Failure to submit areport on time due to fortuitous events, suchas fire and other natural calamities andpublic disorders, shall not be considered aswillful delay.

(3) Examination shall include, but need notbe limited to, the verification, review, audit,investigation and inspection of the books andrecords, business affairs, administration andfinancial condition of any NSSLA including thereproduction of the records as well as thetaking possession of the books and records andkeeping them under BSP custody after givingproper receipts therefore. It shall also includethe interview of the directors and personnelof any NSSLA.

(4) Refusal to permit examination shallmean any act or omission which impedes,delays or obstructs the duly authorized BSPofficer/examiner/employee from conductingan examination, including the act of refusingto honor a letter of authority to examinepresented by any officer/examiner/employee of the BSP.

§§ 4162S.1 - 4162S.308.12.31


b. Fines for willful delay insubmission of reports. NSSLAs incurringwillful delay in the submission of requiredreports shall pay a fine in accordance withthe following schedule:

(1) For Categories A-1, A-2 and A-3 reportsPer day of defaultuntil the report is filed P180

(2) For Category B reportsPer day of defaultuntil the report is filed 60

Delay or default shall start to run on theday following the last day required for thesubmission of reports. However, should thelast day of filing fall on a non-working dayin the locality where the reporting NSSLAis situated, delay or default shall start to runon the day following the next working day.The due date/deadline for submission ofreports to BSP as prescribed under Sec.4162S governing the frequency anddeadlines indicated in Appendix S-2 shallbe automatically moved to the nextbusiness day whenever a half-daysuspension of business operations ingovernment offices is declared due to anemergency such as typhoon, floods, etc.

For the purpose of establishing delay ordefault, the date of acknowledgment by theappropriate department of the SES or the BSPRegional Offices/Units appearing on thecopies of such reports filed or submitted orthe date of mailing postmarked on theenvelope/the date of registry or specialdelivery receipt, as the case may be, shallbe considered as the date of filing.

Delayed schedules/attachments andamendments shall be considered latereporting subject to above penalties.

c. Sanctions for willful refusal to permitexamination/making of false statement

(1) Any NSSLA which shall willfullyrefuse to permit examination shall pay a fineof P3,000 daily from the day of refusal andfor as long as such refusal lasts.

The provisions of Section 34 of R. A.No. 7653 shall apply to any agent,manager, or other officer-in-charge of anyNSSLA who willfully refuses any lawfulexamination into the affairs of such NSSLA.

The willful making of a false statementor misleading statement on a material factto department of the BSP charged with theregulation of NSSLAs or to his examinershall be punished in accordance withSection 36 of R. A. No. 7653.

(2) Procedures in imposing the fine(a) The BSP officer/examiner/employee

shall report the refusal of the NSSLA topermit examination to the head of theappropriate department of BSP, who shallforthwith make a written demand upon theNSSLA concerned for such examination.If the NSSLA continues to refuse saidexamination without any satisfactoryexplanation therefor, the BSP officer/examiner/employee concerned shallsubmit a report to that effect to theappropriate department head.

(b) The fine shall be imposed startingon the day following the receipt by theappropriate department of the writtenreport submitted by the BSP officer/examiner/employee concerned regardingthe continued refusal of the NSSLA topermit the desired examination.

d. Manner of payment or collectionof fines. The regulations embodied in Sec.4601S shall be observed in the collection ofthe fines from NSSLAs.

e. Appeal to the Monetary Board.NSSLAs may appeal to the Monetary Boarda ruling of the appropriate departmentimposing a fine.

f. Other penalties. The foregoingpenalties shall not preclude the applicationof, or shall be without prejudice to, otheradministrative sanctions as well as to thefiling of criminal case as provided for inthe other provisions of the law, as may bewarranted by the nature of the offense.(As amended by Circular No. 585 dated 15 October 2007)

§ 4162S.308.12.31



Sec. 4164S Internal Audit FunctionInternal audit is an independent, objectiveassurance and consulting function establishedto examine, evaluate and improve theeffectiveness of risk management, internalcontrol, and governance processes of anorganization.

§ 4164S.1 Status. The internal auditfunction must be independent of theactivities audited and from day-to-dayinternal control process. It must be free toreport audit results, findings, opinions,appraisals and other information to theappropriate level of management. It shallhave authority to directly access andcommunicate with any officer or employee,to examine any activity or entity of theinstitution, as well as to access any records,files or data whenever relevant to theexercise of its assignment. The AuditCommittee or senior management shouldtake all necessary measures to provide theappropriate resources and staffing thatwould enable internal audit to achieve itsobjectives.

§ 4164S.2 Scope. The scope of internalaudit shall include:

a. Examination and evaluation of theadequacy and effectiveness of the internalcontrol systems;

b. Review of the application andeffectiveness of risk managementprocedures and risk assessmentmethodologies;

c Review of the management andfinancial information systems, including theelectronic information system and electronicbanking services;

d. Assessment of the accuracy andreliability of the accounting system and ofthe resulting financial reports;

e. Review of the systems andprocedures of safeguarding assets;

f. Review of the system of assessingcapital in relation to the estimate oforganizational risk;

g. Transaction testing and assessmentof specific internal control procedures; and

h. Review of the compliance systemand the implementation of establishedpolicies and procedures.

§ 4164S.3 Qualification standards ofthe internal auditor. The internal auditorof a UB or a KB must be a CPA and musthave at least five (5) years experience inthe regular audit (internal or external) of aUB or KB as auditor-in-charge, seniorauditor or audit manager. He must possessthe knowledge, skills, and othercompetencies to examine all areas inwhich the institution operates. Professionalcompetence as well as continuing trainingand education shall be required to face-upto the increasing complexity and diversityof the institution’s operations.

The internal auditor of a TB, QB, trustentity or national Coop Bank must be a CPAwith at least five (5) years experience inthe regular audit (internal or external) of aTB, QB, trust entity or national Coop Bankas auditor-in-charge, senior auditor or auditmanager or, in lieu thereof, at least three (3)years experience in the regular audit (internalor external) of a UB or KB as auditor-incharge, senior auditor or audit manager.

The internal auditor of an RB, NSSLA orlocal Coop Bank must be at least anAccounting graduate with two (2) yearsexperience in external audit or in the regularaudit of an RB, NSSLA or local Coop Bankor, in lieu thereof, at least one (1) yearexperience in the regular audit (internal orexternal) of a UB, KB, TB, QB, trust entityor national Coop Bank as auditor-in-charge,senior auditor or audit manager.

A qualified internal auditor of a UB or aKB shall be qualified to audit TBs, QBs, trustentities, national cooperative banks, RBs,NSSLAs, local cooperative banks,

§§ 4163S - 4164S.308.12.31


subsidiaries and affiliates engaged in alliedactivities, and other FIs under BSPsupervision.

A qualified internal auditor of a TB ornational cooperative bank shall likewise bequalified to audit QBs, trust entities, RBs,NSSLAs, local cooperative banks,subsidiaries and affiliates engaged in alliedactivities, and other financial institutionsunder BSP supervision.

§ 4164S.4 Code of Ethics and InternalAuditing Standards. The internal auditorshould conform with the Code ofProfessional Ethics for CPAs and ensurecompliance with sound internal auditingstandards, such as the Institute of InternalAuditors’ International Standards for theProfessional Practice of Internal Auditing(e-mail: [email protected]; Web: http://www.theiia.org.) and other supplementalstandards issued by regulatory authorities/government agencies. The Standards addressindependence and objectivity, professionalproficiency, scope of work, performance ofaudit work, management of internal audit,quality assurance reviews, communicationand monitoring of results.


K. INTERNAL CONTROL

Sec. 4171S External Auditor. NSSLAs exceptthose with total resources of P10.0 millionor less, shall engage the services of anindependent Certified Public Accountant toaudit their books of accounts at least once ayear, or as often as necessary.

Sec. 4172S Financial Audit. NSSLAs shallcause an annual financial audit by anexternal auditor acceptable to the BSP notlater than thirty (30) calendar days after theclose of the calendar year or the fiscal yearadopted by the NSSLA. Report of such auditshall be submitted to the board of directors

and the appropriate department of the SESnot later than 120 calendar days after theclose of the calendar year or the fiscal yearadopted by the NSSLA. The report to theBSP shall be accompanied by the:(1) certification by the external auditor onthe: (a) dates of start and termination ofaudit; (b) date of submission of the financialaudit report and certification under oathstating that no material weakness or breachin the internal control and riskmanagement systems was noted in thecourse of the audit of the NSSLA to theboard of directors; and (c) the absence ofany direct or indirect financial interest andother circumstances that may impair theindependence of the external auditor; (2)reconciliation statement between the AFSand the balance sheet and incomestatement for NSSLA submitted to the BSPincluding copies of adjusting entries on thereconciling items; and (3) other informationthat may be required by the BSP.

In addition, the external auditor shallbe required by the NSSLA to submit to theboard of directors, a LOC indicating anymaterial weakness or breach in theinstitution’s internal control and riskmanagement systems within thirty (30)calendar days after submission of thefinancial audit report. If no materialweakness or breach is noted to warrant theissuance of an LOC, a Certification underoath stating that no material weakness orbreach in the internal control and riskmanagement systems was noted in thecourse of the audit of the NSSLA shall besubmitted in its stead, together with thefinancial audit report.

Material weakness shall be defined as asignificant control deficiency, orcombination of deficiencies, that results inmore than a remote likelihood that a materialmisstatement of the financial statements willnot be detected or prevented by the entity’sinternal control. A material weakness doesnot mean that a material misstatement has

§§ 4164S.3 - 4172S08.12.31


occurred or will occur, but that it couldoccur. A control deficiency exists whenthe design or operation of a control doesnot allow management or employees, inthe normal course of performing theirassigned functions, to prevent or detectmisstatements on a timely basis. Asignif icant deficiency is a controldeficiency, or combination of controldeficiencies, that adversely affects theentity’s ability to initiate, authorize,record, process, or report financial datareliably in accordance with GAAP. Theterm more than remote likelihood shallmean that future events are likely to occuror are reasonably possible to occur.

The board of directors, in a regular orspecial meeting, shall consider and act onthe f inancial audit report and thecertification under oath submitted in lieuof the LOC and shall submit, within thirty(30) banking days after receipt of thereports, a copy of its resolution to theappropriate department of the SES. Theresolution shall show, among otherthings, the actions(s) taken on the reportsand the names of the directors present andabsent.

The board shall likewise consider andact on the LOC and shall submit, withinthirty (30) banking days after receiptthereof, a copy of its resolution togetherwith said LOC to the appropriatedepartment of the SES. The resolutionshall show the action(s) taken on thefindings and recommendations and, thenames of the directors present and absent,among other things.

The LOC shall be accompanied by thecertification of the external auditor of thedate of its submission to the board ofdirectors.

NSSLAs under BSP supervision whichare under the concurrent jurisdiction ofthe COA shall be exempt from theaforementioned annual financial audit byan acceptable external auditor: Provided,

That when warranted by supervisoryconcern such as material weakness/breach in internal control and/or riskmanagement systems, the Monetary Boardmay, upon recommendation of theappropriate department of the SES, requirethe financial audit to be conducted by anexternal auditor acceptable to the BSP, atthe expense of the institution concerned:Provided further, That when circumstancessuch as, but not limited to, loans frommultilateral financial institutions,privatization, or public listing warrant, thefinancial audit of the concerned institutionby an acceptable external auditor may alsobe allowed.

NSSLAs under the concurrentjurisdiction of the BSP and COA shall,however, submit a copy of the AAR of theCOA to the appropriate department of theSES within thirty (30) banking days afterreceipt of the report by the board ofdirectors. The AAR shall be accompaniedby the: (1) certification by the institutionconcerned on the date of receipt of the AARby the board of directors; (2) reconciliationstatement between the AFS in the AAR andthe balance sheet and income statement ofthe NSSLA submitted to the BSP, includingcopies of adjusting entries on the reconcilingitems; and (3) other information that maybe required by the BSP.

The board of directors of saidinstitutions, in a regular or specialmeeting, shall consider and act on theAAR, as well as on the comments andobservations and shall submit, withinthirty (30) banking days after receipt of thereport, a copy of its resolution to theappropriate department of the SES. Theresolution shall show the action(s) takenon the report, including the comments andobservations and the names of thedirectors present and absent, among otherthings.

NSSLAs as well as external auditorsshall strictly observe the requirements in

§ 4172S08.12.31


the submission of the financial audit reportand reports required to be submitted underAppendix Q-33.

The audited annual financial statementsrequired to be submitted shall in all respectbe PFRS/PAS compliant: Provided, ThatNSSLAs shall submit to the BSP adjustingentries reconciling the balances in thefinancial statements for prudential reportingwith that in the audited annual financialstatements.

The reports and certifications ofinstitutions concerned, schedules andattachments required under this Subsectionshall be considered Category B reports,delayed submission of which shall besubject to the penalties under Subsec.4162S.3(As amended by Circular Nos. 554 dated 22 December 2006

and 540 dated 09 August 2006)

§ 4172S.1 Audited Financial Statementsof NSSLAs. The following rules shall governthe utilization and submission of AFS ofNSSLAs.

For purposes of this Section, AFS shallinclude the balance sheets, incomestatements, statements of changes in equity,statements of cash flows and notes tofinancial statements which shall includeamong other information, disclosure of thevolume of past due loans as well as loan-loss provisions. On the other hand, financialaudit report shall refer to the AFS and theopinion of the auditor. The AFS of NSSLAswith subsidiaries shall be presented side byside on a solo basis (parent) and on aconsolidated basis (parent and subsidiaries).(Circular No. 540 dated 09 August 2006)

§ 4172S.2 Posting of audited financialstatements. NSSLAs shall post inconspicuous places in their head offices, alltheir branches and other offices, as well asin their respective websites, their latestfinancial audit report.(Circular No. 540 dated 09 August 2006)


Sec. 4180S Selection, Appointment,Reporting Requirements and Delisting ofExternal Auditors and/or Auditing Firm;Sanction. Pursuant to Section 58, R.A. No.8791, and the existing provisions of theexecuted MOA dated 12 August 2009,binding the BSP, SEC, PRC - BOA and theIC for a simplified and synchronizedaccreditation requirements for externalauditor and/or auditing firm, following arethe revised rules and regulations that shallgovern the selection and delisting bythe BSP of covered institutions whichunder special laws are subject to BSPsupervision.

Statement of policy. It is the policy ofthe BSP to ensure effective audit andsupervision of banks, QBs, trust entities and/or NSSLAs including their subsidiariesand affiliates engaged in allied activitiesand other FIs which under special lawsare subject to BSP supervision, and toensure the reliance by BSP and the publicon the opinion of external auditors andauditing firms by prescribing the rules andregulations that shall govern the selection,appointment, reporting requirements anddelisting for external auditors and auditingfirms of said institutions, subject to thebinding provisions of and implementingregulations pursuant to the aforesaidMOA.

a. Rules and regulations. The revisedrules and regulations that shall govern theselection and delisting by the BSP of coveredinstitutions which under special laws aresubject to BSP supervision are shown inAppendix S-8.

Sanctions. The applicable sanctions/penalties prescribed under Sections 36and 37 of R.A. 7653 to the extentapplicable shall be imposed on thecovered institutions, its audit committeeand the directors approving the hiring ofexternal auditor/auditing firm who/which

§§ 4172S - 4180S09.12.31


are not in the BSP list of selectedauditors for covered institutions or forhiring, and/or retaining the services ofthe external auditor/auditing firm inviolation of any of the provisions of thisSection and for non-compliance withthe Monetary Board directive under Item“K” in Appendix S-8. Erring externalauditors/ auditing firm may also bereported by the BSP to the PRC forappropriate disciplinary action.(As amended by Circular Nos. 660 dated 25 August 2009 and

529 dated 11 May 2006)


Sec. 4181S Publication RequirementsNSSLAs shall, within 120 calendar daysafter the close of the calendar year or theirfiscal year, as the case may be, furnishthe Monetary Board and post in any ofthe NSSLAs’ bulletin boards or in anyother conspicuous place a copy of theirfinancial statements showing, in suchform and detail as the Monetary Boardshall require, the amount and characterof the assets and liabilities of the NSSLAsat the end of the preceding fiscal year.The Monetary Board may, in addition tothe foregoing, require the disclosure ofsuch other information as it shall deemnecessary for the protection of themembers of the NSSLA.

The consolidated statements ofcondition of an NSSLA and its subsidiariesand associates shall conform with theguidelines of PAS 27 “Consolidated andSeparate Financial Statements”, except thatfor purposes of consolidated financialstatements, only investments in financialallied subsidiaries except insurancesubsidiaries shall be consolidated on aline-by-line basis; while insurance andnon-financial allied subsidiaries shall beaccounted for using the equity method.Financial/non-financial allied/non-alliedassociates shall be accounted for using the

equity method in accordance with theprovisions of PAS 28 “Investments inAssociates”. For purposes of separatefinancial statements, investments infinancial/non-financial allied/non-alliedsubsidiaries/associates, including insurancesubsidiaries/associates, shall be accountedfor using the equity method.(As amended by Circular No. 494 dated 20 September 2005)

Sec. 4182S Business Name1. NSSLAsorganized or operating under R.A. No.8367 and licensed by the BSP shall includein their names the words “Savings andLoan Association”. Such NSSLAs shalldisplay in a conspicuous place at theirbusiness offices a sign including, amongother things, the following words:“Authorized by the Bangko Sentral ngPilipinas”.(As amended by CL Nos. 2008-053 dated 21 August 2008 and

2008-007 dated 05 February 2008)

Sec. 4183S Prohibitionsa. No person, association, partnership

or corporation shall do business as anNSSLA, or shall use the terms “Savings andLoan Association” or any other title orname tending to give the publicimpression that it is engaged in theoperations and activities of an NSSLAunless so authorized under R.A. No. 8367and these regulations.

b. The use by an NSSLA of any othername or title or combination of names andtitles or any other deviation from therequirements of this Section shall not beauthorized except upon prior approval ofthe Monetary Board.

c. NSSLAs shall not issue, publish orcause or permit to be issued or published,any advertisement that it is doing orpermitted to do business which isprohibited by law to an NSSLA.

d. No NSSLA shall advertise orrepresent itself to its members or to thepublic as a bank, or as a trust company.

§§ 4180S - 4183S09.12.31


1 See SEC Circular Nos. 5 dated 17 July 2008 and 14 dated 24 October 2000


Sec. 4190S Duties and Responsibilities ofNSSLAs and their Directors/Officers inAll Cases of Outsourcing of NSSLAFunctions. The rules on outsourcing ofbanking functions as shown in AppendixQ-37 shall be adopted in so far as theyare applicable to NSSLAs.(As amended by Circular Nos. 642 dated 30 January

2009, 610 dated 26 May 2008, 596 dated 11 January

2008, 548 dated 25 September 2006 and 543 dated 08

September 2006)


Sec. 4192S Prompt Corrective ActionFramework. The framework for theenforcement of PCA on banks which isin Appendix Q-40 shall govern the PCAtaken on NSSLAs to the ex ten tapplicable, or by analogy.(Circular No. 523 dated 31 March 2006, as amended byCircular No. 664 dated 15 September 2009)

Sec. 4193S Supervision by Risks. Theguidelines on supervision by risk inAppendix Q-42 which provide guidanceon how QBs should identify, measure,monitor and control risks shall governthe supervision by risks of NSSLAs tothe extent applicable.

The gu ide l ines se t fo r th theexpectations of the BSP with respect tothe management o f r i sks and a reintended to provide more consistencyin how the risk-focused supervisionfunction is applied to these risks. TheBSP will review the risks to ensure that

an NSSLA’s internal risk managementprocesses a re in tegra ted andcomprehensive. All NSSLAs shouldfollow the guidance in risk managementefforts.(Circular No. 510 dated 03 February 2006)

Sec. 4194S Market Risk ManagementThe gu ide l ines on marke t r i skmanagement for QBs as shown inAppendix Q-43 shall govern the marketrisk management of NSSLAs to theextent applicable.

The gu ide l ines se t fo r th theexpectations of the BSP with respect tothe management of market risk and areintended to provide more consistencyin how the risk-focused supervision isappl ied to th i s r i sk . NSSLAs a reexpected to have an integrated approachto r i sk management to iden t i fy ,measure, monitor and control risks.Market risk should be reviewed togetherwith other risks to determine overallrisk profile.

The BSP is aware of the increasingdiversity of financial products and thatindustry techniques for measuring andmanaging market risk are continuouslyevolving. As such, the guidelines arein tended for genera l appl ica t ion;specific application will depend to someextent on the size, complexity and rangeof activities undertaken by NSSLAs.(Circular No. 544 dated 15 September 2006)

Sec. 4195S Liquidity Risk ManagementThe gu ide l ines on l iqu id i ty r i skmanagement for QBs as shown in

§§ 4184S - 4195S09.12.31


Appendix Q-44 shall govern the liquidityrisk management of NSSLAs to theextent applicable.

The guidelines set forth theexpectations of the BSP with respect tothe management of liquidity risk and areintended to provide more consistency inhow the risk-focused supervisionfunction is applied to this risk. NSSLAsare expected to have an integratedapproach to risk management to identify,measure, monitor and control risks.Liquidity risk should be reviewedtogether with other risks to determineoverall risk profile.

These guidelines are intended forgeneral application; specific applicationwill depend on the size and sophisticationof a particular NSSLA and the nature andcomplexity of its activities.(Circular No. 545 dated 15 September 2006)


Sec. 4199S General Provision onSanctions. Unless otherwise provided, anyviolation of the provisions of this Part shallbe subject to the sanctions provided inSections 34, 35, 36 and 37 of R.A. No. 7653,whenever applicable.

§§ 4195S - 4199S 08.12.31


Manual of Regulations for Non-Bank Financial Institutions S RegulationsPart II - Page 1

08.12.31

A. DEMAND DEPOSITS

Section 4201S Checking Accounts. NoNSSLA shall have or carry upon its booksfor any person any demand, commercialor checking account, or any credit to bewithdrawn upon the presentation of anynegotiable check or draft.


B. SAVINGS DEPOSITS

Sec. 4206S Definition. Savings depositsare deposits evidenced by a passbookconsisting of funds deposited to the creditof one (1) or more individuals with respectto which the depositor may withdrawanytime, unless prior notice in writing ofan intended withdrawal is required by theNSSLA.

Sec. 4207S Minimum Deposit. Savingsdeposits with NSSLAs may be openedwith a minimum deposit of P100.

Sec. 4208S Withdrawals. Withdrawalfrom a savings deposit shall be madethrough the presentation to the NSSLA ofa duly accomplished withdrawal sliptogether with the depositor’s passbook.

NSSLAs shall reserve the right torequire the depositor to give prior writtennotice of withdrawal of not more than thirty(30) days.

NSSLAs may limit the number ofwithdrawals that a depositor may make:Provided, That the number of thewithdrawals allowed shall not be less thanthree (3) times a month. A service chargeto be determined by the board of trusteesof the NSSLA and approved by the BSP,

§§ 4201S - 4240S

may be charged by the NSSLA for everywithdrawal made in excess of the maximumnumber allowed in any one (1) month.

Sec. 4209S Dormant Savings DepositsNSSLAs may charge a fee, the amount ofwhich shall be approved by the BSP forthe maintenance of dormant savingsdeposits. Savings deposit shall be classifiedas dormant if no deposit or withdrawal hasbeen made for the last two (2) years.

Secs. 4210S – 4215S (Reserved)

C. (RESERVED)


D. TIME DEPOSITS


Sec. 4222S Minimum Term and Size ofTime Deposits

a. Term - No time deposit shall beaccepted for a term of less than thirty (30)days.

b. Minimum Size - NSSLAs shall notrequire a minimum amount of timedeposit greater than P1,000.

Sec. 4223S Withdrawals of TimeDeposits. The withdrawal of a timedeposit can be made only by presentationof the certificate of time deposit on theday of or after its maturity.


E. - F. (RESERVED)


PART TWO

DEPOSIT AND BORROWING OPERATIONS

Manual of Regulations for Non-Bank Financial InstitutionsS RegulationsPart II - Page 2

§§ 4241S - 4261S.508.12.31

G. INTEREST ON DEPOSITS

Sec. 4241S Interest on Savings DepositsSavings deposits of NSSLAs shall not besubject to any interest rate ceiling.

Sec. 4242S Interest on Time DepositsInterest on time deposits shall not be subjectto any interest rate ceiling.

§ 4242S.1 Time of payment. Intereston time deposits may be paid at maturityor upon withdrawal or in advance:Provided, however, That interest paid inadvance shall not exceed the interest forone (1) year.

§ 4242S.2 Treatment of maturedtime deposits. A time deposit notwithdrawn or renewed on its due date shallbe treated as a savings deposit and shallearn an interest from maturity to the dateof actual withdrawal or renewal at a rateapplicable to savings deposits.

Secs.4243S - 4250S (Reserved)

H. (RESERVED)


I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS

Sec. 4261S Opening and Operation ofDeposit Accounts. The following are basicprovisions on the opening and operation ofdeposit accounts of NSSLAs.

§ 4261S.1 Who may open depositaccounts. Only members who havecontributed P1,000 or more to the capitalof the NSSLA may open deposit accountswith NSSLAs. A natural person, althoughlacking capacity to contract, maynevertheless open a savings or time

deposit account for himself, provided hehas sufficient discretion. However, hecannot withdraw therefrom, exceptthrough, or with the assistance of a guardianauthorized to act for him. Parents maydeposit for their minor children, andguardians for their wards.

Notwithstanding the provisions of thepreceding paragraph, the cashier,bookkeeper and their assistants, and otheremployees of an NSSLA whose duties entailthe handling of cash or checks are prohibitedfrom opening savings deposit accounts withthe head office or branch of the NSSLA inwhich they are assigned as such.

§ 4261S.2 Identification of member-depositors. NSSLAs shall be responsiblefor the proper identification of theirmember-depositors.

§ 4261S.3 Number of deposit accountsA member-depositor may open and havemore than one (1) savings deposit in his ownname in the same capacity, and he may openand have various deposits in differentcapacities such as guardian, agent, or trusteefor others.

§ 4261S.4 Signature card. A signaturecard bearing at least three (3) specimensignatures of each member-depositor shallbe required upon opening of a depositaccount.

§ 4261S.5 Passbook and certificateof time deposit. A savings depositpassbook, signed by the receiving teller andan authorized officer, shall be issued to amember-depositor showing, among otherthings, his name and address, accountnumber, date, amount of deposit, interestcredits and balance. NSSLAs shall pre-number their savings deposit passbooks. Inthe case of a time deposit, a certificate oftime deposit signed by two (2) authorizedofficers, shall be issued to the member-

Manual of Regulations for Non-Bank Financial Institutions S RegulationsPart II - Page 3

08.12.31§§ 4261S.5 - 4299S

depositor containing, among other things,his name, amount of deposit, date whenthe deposit was made, its due date andinterest rate.

§ 4261S.6 Deposits in checks andother cash items. Checks and other cashitems may be accepted for deposit byNSSLAs: Provided, That withdrawalsfrom such deposits shall not be made untilthe check or other cash item is collected.


J. (RESERVED)


K. OTHER BORROWINGS

Sec. 4286S Borrowings. An NSSLA mayborrow money or incur such obligation upto not more than twenty percent (20%) ofthe total assets of the NSSLA, from any

public lending institution, and from privatebanking institutions, and such privatelending institutions as may be approvedby the Monetary Board: Provided, Thatthe proceeds of such loan shall be usedexclusively to meet the normal creditrequirements of its members. TheMonetary Board may, in meritoriouscases, raise the ceiling on the borrowingcapacity of an NSSLA to not more thanthirty percent (30%) of its total assets.NSSLAs organized by employees of anentity or a corporation may borrow fundsfrom said entity or corporation, but notvice-versa.


Sec. 4299S General Provision onSanctions. Unless otherwise provided,any violation of the provisions of this Partshall be subject to the sanctions providedin Sections 34, 35, 36 and 37 of R.A. No.7653, whenever applicable.

Manual of Regulations for Non-Bank Financial Institutions S RegulationsPart III - Page 1

A. LOANS IN GENERAL

Section 4301S Authority; Loan Limits;Maturity of Loans. The board of trusteesof NSSLAs shall prescribe their own rulesand regulations governing creditoperations of the NSSLAs within theframework of the terms and conditionsembodied in this Section.

a. Loan limit to a single borrower. AnNSSLA may grant loans not exceeding theamount deposited and/or contributed by themember-borrower plus his twelve (12)months salary or retirement pension fromhis employment, or up to seventy percent(70%) of the fair market value of any propertyacceptable as collateral on first mortgage thathe may put up by way of security: Provided,That direct indebtedness to an NSSLA of anymember-borrower for money borrowedwith the exception of money borrowedagainst obligations of the BSP or of thePhilippine Government, or borrowed withthe full guarantee of the PhilippineGovernment in the payment of principaland interest, shall not exceed fifteenpercent (15%) of the unimpaired capitaland surplus of the NSSLA.

For purposes of this Section, regularincome of persons who are self-employedshall be their average monthly incomeduring the twelve (12)-month periodimmediately preceding the date of loanapplication.

b. Limitations on lending authority.NSSLAs shall not commit to make anyloan for amounts in excess of the total ofthe following amounts:

(1) Amount of cash available for loanpurposes;

(2) Amount of cash which can bereadily realized upon the sale or

§§ 4301S - 4302S08.12.31

PART THREE

LOANS AND INVESTMENTS

redemption of permissible investmentsmade by NSSLAs; and

(3) Amount of credit available for loanpurposes from government or private FIs.

c. Maximum loan maturity. No loangranted by NSSLAs shall have a maturitydate of more than five (5) years except loanson the security of unencumbered real estatefor the purpose of home building and homedevelopment which may be granted withmaturities not exceeding twenty-five (25)years and medium or long-term loans tofinance agricultural projects.

Sec. 4302S Basic Requirements inGranting Loans

a. Application. A member-borrowerapplying for a loan must submit an applicationstating the purpose of the loan and such otherinformation as may be required by theNSSLA. The loan application and otherrequired documents shall form part of creditinformation file of the member-borrower inthe NSSLA.

b. Credit investigation. No loan shallbe approved unless prior investigation hasbeen made to determine the credit standingof the applicant and/or the fair market valueof the property offered as security and thereport thereon shall be made part of the loanapplication: Provided, however, That thisrequirement may be waived by an NSSLAin the case of permanent employee or wageearner who is borrowing an amount notexceeding his deposit plus his twelve (12)months regular salary or retirement pension.

c. Credit information file/collateralfile. An NSSLA shall maintain as far aspracticable, a credit information file whichmust contain, among other things, themember-borrower’s application and financialrecord. Other information relative to the

Manual of Regulations for Non-Bank Financial InstitutionsS RegulationsPart III - Page 2

§§ 4302S - 4305S.508.12.31

member-borrower, where applicable, shallalso be maintained which must containamong other things, the collateral and otherdocuments pertinent to the loan.

d. Loan approvals. Loans shall beapproved by the NSSLA’s board of trusteesor if approved by a body or officer/s dulyauthorized by the board, such loan mustbe confirmed by the board of trustees.

e. Loan agreements. For each loangranted by an NSSLA, a promissory notemust be executed by the member-borrowerin favor of the NSSLA expressing suchparticulars as the amount of the loan, dategranted, due date, interest rate and othersimilar information.

f. Inscription of lien. In case ofmortgage loans, no release against anapproved loan shall be made before theinscription of the mortgage.

Sec. 4303S Loan Proceeds. NSSLAs shallin no case require member-borrowers todeposit a portion of the loan proceeds,whether in the form of savings or timedeposits. Where, subsequent to the releaseof the loan proceeds, member-borrowersopen deposit accounts or make additionaldeposits to their existing accounts, no partof such new deposits shall be covered by astipulation prohibiting or limiting withdrawalwhile new portion of their loans areoutstanding: Provided, however, That thisprohibition shall not apply in cases of loanssecured by a hold-out on deposits to theextent of the unencumbered amount of thedeposit existing at the time of the filing ofthe above-mentioned loan application.

Sec. 4304S Loan Repayment. The treasurer,cashier or paymaster of the firmemploying a member-borrower shall berequired, pursuant to R.A. No. 8367, tomake deductions from the salary, wage,income or retirement pension of themember-borrower in accordance with theterms of his loan, and all other deductionsauthorized by the member-borrower, to

remit such deductions to the NSSLAconcerned and to collect such reasonable feefor his services as may be authorized byrules promulgated by the Monetary Board.

Sec. 4305S Interest and Other Charges.The following rules shall govern the ratesof interest and other charges on loansgranted by NSSLAs.

§§ 4305S.1 - 4305S.2 (Reserved)

§ 4305S.3 Interest in the absence ofcontract. In the absence of expresscontract, the rate of interest for the loan orforbearance of any money, goods or creditand the rate allowed in judgment shall betwelve percent (12%) per annum.

§ 4305S.4 Escalation clause; whenallowable. Parties to an agreementpertaining to a loan or forbearance ofmoney, goods or credits may stipulatethat the rate of interest agreed upon maybe increased in the event that theapplicable maximum rate of interest isincreased by the Monetary Board:Provided, That such stipulations are validonly if there is also a stipulation in theagreement that the rate of interest agreedupon shall be reduced in the event thatthe applicable maximum rate of interestis reduced by law or by the MonetaryBoard: Provided, further, That theadjustment in the rate of interest agreedupon shall take effect on or after theeffectivity of the increase or decrease inthe maximum rate of interest.

§ 4305S.5 Interest accrual on pastdue loans. NSSLAs shall not accrueinterest income on loans which are alreadypast due or on loan installments which arein arrears, regardless of whether the loansare secured or unsecured. Interest on pastdue loans or loans installments in arrearsshall be taken up as income only whenactual payments thereon are received.


§§ 4305S.5 - 4306S.308.12.31

Interest income on past due loan arisingfrom discount amortization (and not fromthe contractual interest of the account) shallbe accrued as provided in PAS 39.(As amended by Circular No. 494 dated 20 September 2005)

Sec. 4306S Past Due Accounts. Past dueaccounts of an NSSLA shall, as a generalrule, refer to all accounts which are not paidat maturity.

§ 4306S.1 Accounts considered pastdue. The following shall be considered aspast due:

a. A loan or receivable payable ondemand not paid upon written demand asrequired herein or within one (1) year fromdate of grant or renewal, whichever comesearlier.

NSSLAs shall, in case of non-paymentof a demand loan, make a written demandwithin six (6) months following the grantof such loan. The demand shall indicate aperiod of payment which shall not be laterthan six (6) months from date of saiddemand.

b. The total outstanding balance of a loanor receivable payable in installments, inaccordance with the following schedules: Mode of Payment Installments in Arrears

Monthly 6 or more Quarterly 2 or more Semestral 1 or more Annual 1 or more

Provided, however, That when the totalamount of arrearages reaches twentypercent (20%) of the total outstandingbalance of the loan, the entire totaloutstanding balance of the loan shall beconsidered as past due, irrespective of thenumber of installments in arrears: Provided,further, That the modes of payment otherthan those listed above (e.g., daily, weeklyor semi-monthly), the entire outstandingbalance of the loan/receivable shall beconsidered as past due when the totalamount of arrearages reaches ten percent(10%) of the total loan/receivable balance;

c. Any due and unpaid loaninstallment or portion hereof, from the timethe obligor defaults for the purpose ofobligations as defined in Sec. 4143S(d); and

d. All items in litigation as defined inthe Manual of Accounts for NSSLAs.

§ 4306S.2 Extension/renewal of loansExtension of the period of payment of loansmay be allowed under the followingcircumstances:

a. For production loans, the extensionshall not exceed one-half (1/2) of the originalperiod: Provided, That thirty percent (30%)of the loan shall have been paid. A secondextension shall not exceed one-half (1/2) ofthe period of the first extension; and

b. For consumer loans, the extensionshall not exceed one-half (1/2) of theoriginal period: Provided, That thirty percent(30%) of the loan shall have been paid.

Loans payable in periodic installmentsmay be renewed for the full amount ofloans: Provided, That at least thirty percent(30%) of the loan shall have been paid.

§ 4306S.3 Write-off of loans as baddebts. To maximize the protection ofmembers of NSSLAs against misfeasanceand malfeasance of the trustees and officersthereof, the Monetary Board adopted thefollowing regulations on writing-off of loansby NSSLAs.

a. The term loan shall include all typesof credit accommodations granted to, andadvances made by the NSSLA for theaccount of the borrowers/debtors, includingthe interest thereon recorded in the books.

b. Writing-off of loans by an NSSLAshall be made not more than twice a yearby its board of trustees; and

c. Notice/application for write-off ofloans shall be submitted, in the prescribedform to the appropriate department of theSES at least thirty (30) days prior to theintended date of write-off: Provided, Thatno such loans with an aggregate outstandingamount of P15,000 or more, as certified in


said notice/application, shall be written-offwithout the prior approval of:

(1) The Monetary Board, in case ofloans to trustees and officers of the NSSLA,direct or indirect; or

(2) The head of the appropriatedepartment of the SES, subject toconfirmation by the Monetary Board, incase of loans other than those mentionedin Item “(1)” above.

§ 4306S.4 Updating of informationprovided to credit information bureausNSSLAs which have provided adverseinformation, such as the past due orlitigation status of loan accounts, to creditinformation bureaus, or any organizationperforming similar functions, shall submitmonthly reports to these bureaus ororganizations on the full payment orsettlement of the previously reportedaccounts within five (5) business days fromthe end of the month when such fullpayment was received. For this purpose,it shall be the responsibility of thereporting NSSLAs to ensure that theirdisclosure of any information about theirborrowers/clients is with the consent ofborrowers concerned.(Circular No. 589 dated 18 December 2007)

Sec. 4307S “Truth in Lending Act”Disclosure Requirements. NSSLAs arerequired to strictly adhere to the provisionsof R. A. No. 3765, otherwise known asthe “Truth in Lending Act,” and shall makethe true and effective cost of borrowing anintegral part of every loan contract.

a. Transactions covered(1) Any loan, mortgage, deed of trust,

advance and discount;(2) Any conditional sales contract, any

contract to sell, or sale or contract of saleof property or services, either for presentor future delivery, under which, part or allof the price is payable subsequent to themaking of such sale or contract;

(3) Any option, demand, lien, pledge,or other claim against, or for delivery of,property or money;

(4) Any purchase, or other acquisitionof, or any credit upon the security of anyobligation or claim arising out of any ofthe foregoing; and

(5) Any transaction or series oftransactions having a similar purpose oreffect.

b. Transactions not coveredConsidering that the specific purpose

of the law is the full disclosure of the truecost of credit, the following categories ofcredit transactions are outside the scopeof the above regulations:

(1) Credit transactions which do notinvolve the payment of any finance chargeby the debtor; and

(2) Credit transactions in which thedebtor is the one specifying a definite andfixed set of credit terms such as bank deposits,insurance contracts, sale of bonds, etc.

§ 4307S.1 Definition of termsa. Creditor (who shall furnish the

information) means any person engagedin a finance charge.

The term creditor shall include, but shallnot be limited to, banks and bankinginstitutions, insurance and bondingcompanies, savings and loan associations,credit unions, financing companies,installment houses, real estate dealers,lending investors, pawnshops, and anyother person or entity engaged in thebusiness of extending credit who requiresas an incident to the extension of credit,the payment of a finance charge.

b. Person means any individual,corporation, partnership, NSSLA, or otherorganized group of persons, or the legalsuccessor or representative of the foregoing,and includes the Philippine Government orany agency thereof, or any othergovernment, or any of its politicalsubdivisions, or any agency of the foregoing.

§§ 4306S.3 - 4307S.108.12.31


c. Cash price or deliveredprice (in case of trade transactions) is theamount of money which would constitutefull payment upon delivery of the property(except money) or service purchased at thecreditor’s place of business. In the case offinancial transactions, cash price representsthe amount of money received by thedebtor upon consummation of the credittransaction, net of finance chargescollected at the time the credit isextended(if any).

d. Down payment represents the amountpaid by the debtor at the time of thetransaction in partial payment for theproperty or service purchased.

e. Trade-in represents the value of anasset, agreed upon by the creditor anddebtor, given at the time of the transactionin partial payment for the property orservice purchased.

f. Non-finance charges correspond tothe amounts advanced by the creditor foritems normally associated with theownership of the property or of theavailment of the service purchased whichare not incident to the extension of credit.For example, in the case of the purchaseof an automobile on credit, the creditormay advance the insurance premium aswell as the registration fee for the accountof the debtor.

g. Amount to be financed consists ofthe cash price plus non-finance charges lessthe amount of the down payment and valueof the trade-in.

h. Finance charge represents theamount to be paid by the debtor incidentto the extension of credit such as interestor discounts, collection fees, creditinvestigation fees, attorney’s fees, andother service charges. The total financecharge represents the difference between(i) the aggregate consideration (downpayment plus installments) on the part of

the debtor, and (ii) the sum of the cash priceand non-finance charges.

i. Simple annual rate is the uniformpercentage which represents the ratio, onan annual basis, between the financecharges and the amount to be financed.

In the case of single payment uponmaturity, the simple annual rate (R) inpercent is determined by the followingmethod:

finance charge 12R = amount to x maturity period x 100

be financed in months

In the case of the normal installmenttype of credit of at least one (1) year induration, where installment payments ofequal amount are made in regular timeperiods spaced not more than one (1) yearapart, R in percent is computed by thefollowing method: No. of payments

finance charge in a yearR = 2 x amount to x total number x 100

be financed of payments plus one

In cases where the credit matures in lessthan one (1) year [e.g., installment paymentsare required every month for six (6) months],the same formula will apply except that thenumber of payments in a year would referto the number of installment periods, asdefined in the credit contract, as if the creditmatures in one (1) year. For example, thenumber of payments in a year would betwelve (12) for this purpose in cases wheresix (6) monthly installment payments arecalled for in the credit transaction1.

In cases where credit terms provide forpremium or penalty charges depending on,say, the timelines of the debtor’s payments,the annual rate to be disclosed in writing shallbe the rate for regular payments, i.e., thepremium and penalty need not be taken intoaccount in the determination of the annual

§ 4307S.108.12.31

1 This can be determined by dividing twelve (12), the number of months in a year, by the number or fraction of monthsbetween installment payments.


rate. Such premium or penalty charges shall,however, be indicated in the credit contract.

§ 4307S.2 Information to be disclosedNSSLAs shall furnish to each person towhom credit is extended, prior to theconsummation of the transaction, a clearstatement in writing setting forth thefollowing information to be disclosed.

a. The cash price or delivered priceof the property or service to be acquired;

b. The amounts, if any, to be creditedas down payment and/or trade-in;

c. The difference between theamounts set forth under Items “a” and “b”;

d. The charges, individually itemized,which are paid or to be paid by such personin connection with the transaction but whichare not incident to the extension of credit;

e. The total amount to be financed;f. The finance charges expressed in

terms of pesos and centavos; andg. The percentage that the finance charge

bears to the total amount to be financedexpressed as a simple annual rate on theoutstanding unpaid balance of the obligation.

The contract covering the credittransaction, or any other document to beacknowledged and signed by the debtor,shall indicate the above seven (7) items ofinformation. In addition, the contract ordocument shall specify additional charges,if any, which will be collected in casecertain stipulations in the contract are notmet by the debtor.

In case the seven (7) items ofinformation mentioned in this Subsectionare not disclosed in the contract coveringthe credit transaction, said items to theextent applicable, shall be disclosed inanother document in the form (AppendixS-4) prescribed by the Monetary Board, tobe signed by the debtor and appended tothe main contract. A copy of the disclosurestatement shall be furnished the borrower.

§ 4307S.3 Inspection of contractscovering credit transactions. NSSLAs shallkeep in their office or place of business copiesof contracts covering all credit transactionsentered into by them which involve theextension of credit to another and thepayment of finance charges therefor. Suchcopies shall be available for inspection orexamination by the appropriatedepartment of the SES.

§ 4307S.4 Posters. An abstract ofR.A. No. 3765 (Appendix S-5) shall bereproduced in a format which is sixty (60)cm. wide and seventy-five (75) cm. long,and posted on a conspicuous place in theNSSLAs’ place(s) of business.

§ 4307S.5 Penal provisionsa. NSSLAs which in connection with

any credit transaction fail to disclose to anyperson any information in violation of thisSection or any regulation issued hereaftershall be liable to such person in the amountof P100 or in an amount equal to twice thefinance charge required by such NSSLAsin connection with such transactions,whichever is the greater, except that suchliability shall not exceed P2,000 on anycredit transaction. Action to recover suchpenalty may be brought by such personwithin one (1) year from the date of theoccurrence of the violation, in any court ofcompetent jurisdiction. In any action underthis Subsection in which any person isentitled to a recovery, the NSSLAs shallbe liable for reasonable attorney’s fees andcourt costs as determined by the court.

b. Except as specified in Item “a”above, nothing contained in this rule shallaffect the validity or enforceability of anycontract or transaction.

c. Any person who willfully violatesany provision of this Section or regulationissued hereafter shall be fined by not less

§§ 4307S.1 - 4307S.508.12.31

Manual of Regulations for Non-Bank Financial Institutions S Regulations

than P1,000 nor more than P5,000 orimprisonment for not less than six (6)months, nor more than one (1) year or both.

d. No punishment or penalty providedby this Section shall apply to the PhilippineGovernment or any agency or any politicalsubdivision thereof.


Sec. 4310S Minimum Required DisclosureNSSLAs shall provide a table of theapplicable fees, penalties and interest rateson loan transactions, including the periodcovered by and the manner of and reasonfor the imposition of such penalties, fees andinterests; fees and applicable conversionreference rates for third currencytransactions, in plain sight and language, onmaterials for marketing loans, such asbrochures, flyers, primers and advertisingmaterials, on loan application forms, andon billing statements: Provided, That thesedisclosures are in addition to the fulldisclosure of the fees, charges and interestrates in the terms and conditions of the loanagreement found elsewhere on theapplication form and billing statement:Provided further, That such table of fees,penalties and interest rates shall be printedin plain language and in bold black lettersagainst a light or white background, andusing the minimum Arial 12 theme font andsize, or its equivalent in readability, and onthe first page, if the applicable documenthas more than one (1) page.

Transitory provision: NSSLAs coveredin 4312N.12 - shall be given a period of120 days from 6 January 2011 to fullyimplement the required disclosurerequirements.(Circular No. 702 dated 15 December 2010)

Sec. 4311S Unfair Collection PracticesNSSLAs, collection agencies, counsels andother agents may resort to all reasonable and

legally permissible means to collectamounts due them under the loanagreement: Provided, That in the exerciseof their rights and performance of duties,they must observe good faith andreasonable conduct and refrain fromengaging in unscrupulous or untoward acts.Without limiting the general application ofthe foregoing, the following conduct is aviolation of this Section:

a. the use or threat of violence or othercriminal means to harm the physical person,reputation, or property of any person;

b. the use of obscenities, insults, orprofane language which amount to acriminal act or offense under applicablelaws;

c. disclosure of the names of borrowerswho allegedly refuse to pay debts, exceptas allowed under Subsec. 4312S;

d. threat to take any action that cannotlegally be taken;

e. communicating or threat tocommunicate to any person creditinformation which is known to be false,including failure to communicate that a debtis being disputed;

f. any false representation or deceptivemeans to collect or attempt to collect anydebt or to obtain information concerning aborrower; and

g. making contact at unreasonable/inconvenient times or hours which shall bedefined as contact before 6:00 A.M. or after10:00 P.M., unless the account is past duefor more than sixty (60) days or the borrowerhas given express permission or said timesare the only reasonable or convenientopportunities for contact.

NSSLAs shall inform their borrower inwriting of the endorsement of the collectionof their account to a collection agency/agent, or the endorsement of their accountfrom one collection agency/agent to another,at least seven (7) days prior to the actualendorsement. The notification shall include

§§ 4307S.5 - 4311S10.12.31

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the full name of the collection agency andits contact details: Provided, That therequired notification in writing shall beincluded in the terms and conditions of theloan agreement. NSSLAs shall adoptpolicies and procedures to ensure thatpersonnel handling the collection ofaccounts, whether these are in-housecollectors, or third-party collection agents,shall disclose his/her full name/true identityto the borrower.(Circular No. 702 dated 15 December 2010)

Sec. 4312S Confidentiality of InformationNSSLAs shall keep strictly confidential thedata on the borrower or consumer, exceptunder the following circumstances:

a. disclosure of information is with theconsent of the borrower or consumer;

b. release, submission or exchange ofcustomer information with other financialinstitutions, credit information bureaus,lenders, their subsidiaries and affiliates;

c. upon orders of court of competentjurisdiction or any government office oragency authorized by law, or under suchconditions as may be prescribed by theMonetary Board;

d. disclosure to collection agencies,counsels and other agents of the NSSLA toenforce its rights against the borrower;

e. disclosure to third party serviceproviders solely for the purpose of assistingor rendering services to the NSSLA in theadministration of its lending business; and

f. disclosure to third parties such asinsurance companies, solely for the purposeof insuring the NSSLA from borrower defaultor other credit loss, and the borrower fromfraud or unauthorized charges.(Circular No. 702 dated 15 December 2010)

Sec. 4313S Sanctions. Violations of theprovisions of Secs. 4310S to 4312S shall besubject to any or all of the following

sanctions depending upon their severity:a. First offense. Reprimand for the

directors/officers responsible for theviolation;

b. Second offense. Disqualification ofthe NSSLA concerned from the creditfacilities of the BSP except as may beallowed under Section 84 of R. A. No. 7653;

c. Subsequent offense/s:i. Prohibition on the NSSLA

concerned from the extension of additionalcredit accommodation against personalsecurity; and

ii. Penalties and sanctions providedunder Sections 36 and 37 of R. A. No. 7653.(Circular No. 702 dated 15 December 2010)


B. SECURED LOANS

Sec. 4321S Kinds of Security. Loans by anNSSLA may be secured by any or all of thefollowing:

a. Mortgages on registered real estate;b. Chattel mortgages on harvested or

stored crops of non-perishable character;c. Chattel mortgages on livestock,

tools, equipment or machinery, supplies ormaterials, merchandise and other personalproperties;

d. Assignment of quedans which givesthe right of disposal of readily marketableproducts;

e. Time and/or savings deposits and/or capital contribution;

f. Pledge of bonds, stock and othersecurities of the GOCC and other bonds,stocks or securities which are non-speculative in nature;

g. Land transfer certificates issued bythe government to tenant farmers, under theagrarian reform program to the extent of sixtypercent (60%) of the value of the farmholdings: Provided, That a certification shall

§§ 4311S - 4321S10.12.31

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be first secured from the office of theRegistry of Deeds to the effect that the LandTransfer Certificate being presented is valid;and

h. Other securities as may be approvedby the Monetary Board.


C. - D. (RESERVED)


E. LOANS/CREDITACCOMMODATIONS TO TRUSTEES,

OFFICERS, STOCKHOLDERS ANDTHEIR RELATED INTERESTS

Sec. 4356S General Policy. The transactionsof all trustees or officers with the NSSLAshall not be under terms more favorable thanthose transacted with other members.

Sec. 4357S Direct/Indirect Borrowings;Ceilings. No NSSLA shall directly orindirectly make any loan to any trustee orofficer of such NSSLA, either for himself oras agent or as partner of another, exceptwith the written approval of the majority ofthe trustees of the NSSLA, excluding thetrustee concerned: Provided, That theaggregate loans to such trustees and officersshall not exceed twenty percent (20%) ofthe total capital contributions of the NSSLA.

Sec. 4358S Records; Reports. In all casesof accommodations granted to trustees andofficers under Sec. 4357S, the writtenapproval of the majority of the trustees ofthe NSSLA, excluding the trustee concerned,shall be entered upon the records of theNSSLA and a copy of such entry shall betransmitted forthwith to the appropriatedepartment of the SES within twenty (20)business days from the date of approval.


Sec. 4370S Sanctions. The office of anytrustee or officer of an NSSLA who violatesthe provisions of these rules onaccommodations granted to trustee andofficers shall immediately become vacantand said trustees or officer shall be punishedby imprisonment of not more than one (1)year nor more than ten (10) years and by afine of not less than P5,000 nor more thanP50,000 pursuant to Section 15 of R.A. No.8367.

F. - I. (RESERVED)


J. OTHER OPERATIONS

Sec. 4391S Fund Investments. An NSSLAmay invest its funds in any or all of thefollowing:

a. In bonds and securities in anaggregate amount not exceeding ten percent(10%) of its total assets; any investment inexcess of ten percent (10%) shall requirethe prior approval of the BSP: Provided, ThatNSSLAs may invest available funds in excessof ten percent (10%) of total assets in soundnon-speculative enterprise, particularly inreadily marketable and high gradecommercial papers, bonds and securitiesissued by the Government of the Philippinesor any of its political subsidiaries,instrumentalities or corporations includingGOCCs, subject to the followingconditions:

(1) The credit needs of the membersshall be served/satisfied first;

(2) The investment in any one (1)corporation (excluding the Government ofthe Philippines, any of its politicalsubdivisions, instrumentalities, orcorporations including GOCCs), shall not

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exceed twenty-five percent (25%) of theNSSLA’s combined capital accounts; and

(3) The additional investment may beup to another ten percent (10%) of theNSSLA’s total assets;

b. In real property, in an aggregateamount not exceeding at any one time fivepercent (5%) of the total assets of suchNSSLA; and

c. In furniture, fixtures, furnishings andequipment, and leasehold improvements forits offices, in amount not exceeding at anyone time ten percent (10%), of its totalcapital contribution.

§§ 4391S.1 - 4391S.2 (Reserved)

§ 4391S.3 Investments in debt andmarketable equity securities. Theclassification, accounting procedures,valuation, sales and transfers of investmentsin debt securities and marketable equitysecurities shall be in accordance with theguidelines in Appendices Q-20 and Q-20-a.

Penalties and sanctions. The followingpenalties and sanctions shall be imposed onFIs and concerned officers found to violatethe provisions of these regulations:

a. Fines of P2,000/banking day to be

imposed on NSSLAs for each violation,reckoned from the date the violation wascommitted up to the date it was corrected;and

b. Sanctions to be imposed onconcerned officers:

(1) First offense – reprimand the officersresponsible for the violation; and

(2) Subsequent offenses–suspension- ofninety (90) days without pay for officersresponsible for the violation.(Circular No. 476 dated 16 February 2005 as amended by Circular

Nos. 628 dated 31 October 2008 and 626 dated 23 October

2008)

§§ 4391S.4 - 4391S.10 (Reserved)


K. MISCELLANEOUS PROVISIONS


Sec. 4399S General Provision on Sanctions.Unless otherwise provided, any violation ofthe provisions of this Part shall be subjectto the sanctions provided in Sections 34, 35,36 and 37 of R.A. No. 7653, wheneverapplicable.

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§§ 4401S - 4499S

PART FOUR

Sections 4401S - 4499S (Reserved)


08.12.31

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PART FIVE

Sections 4501S - 4599S (Reserved)

§§ 4501S - 4599S

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§§ 4601S - 4601S.109.12.31

PART SIX

MISCELLANEOUS

A. OTHER OPERATIONS

Section 4601S Fines and Other Charges. Thefollowing regulations shall governimposition of monetary penalties onNSSLAs, their trustees and/or officers andpayment of such penalties or fines and othercharges by NSSLAs.(As amended by Circualr No. 585 dated 15 October 2007)

§ 4601S.1 Guidelines on the impositionof monetary penalties; payment of penaltiesor fines. The following are the guidelineson the imposition of monetary penalties onNSSLAs, their trustees and/or officers andthe payment of such penalties or fines andother charges:

a. Definition of terms. For purposes ofthe imposition of monetary penalties, thefollowing definitions are adopted:

(1) Continuing offenses/violations areacts, ommisions or transactions enteredinto, in violation of laws, BSP rules andregulations, Monetary Board directives,and orders of the Governor which persistfrom the time the particular acts werecommitted or omitted or the transactionswere entered into until the same werecorrected/rectified by subsequent acts ortransactions. They shall be penalized ona per calendar day basis from the time theacts were committed/omitted or thetransactions were effected up to the timethey were corrected/rectified.

(2) Transactional offenses/violations areacts, omissions or transactions entered intoin violation of laws, BSP rules andregulations, Monetary Board directives, andorders of the Governor which cannot becorrected/rectified by subsuquent acts ortransactions. They shall be meted with one

(1)-time monetary penalty on a pertransaction basis.

(3) Continuing penalty refers to themonetary penalty imposed on continuingoffenses/violations on a per calendar daybasis reckoned from the time the offense/violation occurred or was committed untilthe same was corrected/rectified.

(4) Transactional penalty refers to aone (1)-time penalty imposed on atransactional offense/violation.

b. Basis for the computation of theperiod or duration of penalty. Thecomputation of the period or duration of allpenalties shall be based on calendar days.

For this purpose the terms “per bankingday”, “per business day”, “per day”and/or “a day” as used in this Manual, andother BSP rules and regulations shall mean“per calendar day” and/or “calendar day”as the case may be.

c. Additional charge for late paymentof monetary penalty. Late payment ofmonetary penalty shall be subject to anadditional charge of six percent (6%) perannum to be reckoned from the businessday immediately following the day saidpenalty becomes due and payable up to theday of actual payment.

d. Appeal or request for reconsideration.A one (1)-time appeal or request forreconsideration on the monetary penaltyapproved by the Governor/Monetary Boardto be imposed on the NSSLA, its directorsand/or officers shall be allowed: Provided,That the same is filed with the appropriatedepartment of the SES within fifteen (15)calendar days from receipt of the Statementof Account/billing letter. The appropriatedepartment of the SES shall evaluate theappeal or request for reconsideration of

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§§ 4601S.1 - 4631S09.12.31

the NSSLA/individual and makerecommendations thereon within thirty (30)calendar days from receipt thereof. Theappeal or request for reconsideration on themonetary penalty approved by theGovernor/Monetary Board shall be elevatedto the Monetary Board for resolution/decision. The running of the penalty periodin case of continuing penalty and/or theperiod for computing additonal charge shallbe interrupted from the time the appeal orrequest for reconsideration was received bythe appropriate department of the SES up tothe time that the notice of the MonetaryBoard decision was received by the NSSLA/individual concerned.

e. Due date; payment of penalty orfines. The penalty approved by theGovernor/MB to be imposed on the NSSLA,its directors and/or officers shall become dueand payable fifteen (15) calendar days fromreceipt of the Statement of Account from theBSP. For NSSLAs which maintain DDA withthe BSP, penalties which remain unpaid afterthe lapse of the fifteen-day period shall beautomatically debited against theircorresponding DDA on the followingbusiness day without additional charge. Ifthe balance of the concerned NSSLA’s DDAis insufficient to cover the amount of thepenalty, said penalty shall already be subjectto an additional charge of six percent (6%)per annum to be reckoned from the businessday immediately following the end of saidfifteen (15)-day period up to the day of actualpayment.

Failure to settle the full amount of thefines within the period or on the dayprescribed herein shall, in addition to theadditonal penalty as provided in item “c”above, make an NSSLA, its trustees andofficers liable to the sanctions imposedunder Sec. 4199S.(As amended by Circular Nos. 662 dated 09 September 2009 and

585 dated 15 October 2007)


Sec. 4631S Revocation/Suspension ofNon-Stock Savings and Loan AssociationLicense. In reference to Section 22 ofR.A. No. 8367 or the “Revised Non-StockSavings and Loan Association Act of 1997”,the Monetary Board, upon due notice andhearing, has the authority to either revokeor suspend the license of any NSSLA forsuch period as it deems necessary, basedon any of the following grounds:

a. Suspension of license:(1) Repeated violations [uncorrected

similar examination findings for the last two(2) examinations, regular or special] of anyof the provisions of R.A. No. 8367, and/orany rules or regulations promulgated toimplement said law, or BSP directivesand/or instructions; and

(2) Paid-up capital is impaired bycontinuing losses for the last two (2) fiscalyears.

Lifting of the suspension of license shallbe approved by the Monetary Board uponrecommendation of the appropriate BSPsupervising department.

b. Revocation of license:(1) When the solvency of the NSSLA is

imperiled by losses and irregularities;(2) When the NSSLA willfully violates

any provision of R.A. No. 8367, any rule orregulation promulgated to implement saidlaw and BSP directives and/or instructions;

(3) When the NSSLA is conductingbusiness in an unsafe and unsound manner;

(4) When it is unable to pay itsliabilities as they become due in the ordinarycourse of business;

(5) When it has insufficient realizableassets, as determined by the BSP, to meetits liabilities;

(6) When it cannot continue inbusiness without involving probable lossesto its members or creditors; and

(7) When it has willfully violated a ceaseand desist order of the Monetary Boardinvolving acts or transactions which amount tofraud or a dissipation of assets of the institution.


As to the effects of the revocation/suspension of license of the NSSLA, theNSSLA is prohibited from engaging in thebusiness of accumulating the savings of itsmembers and using such accumulations forloans to its members, subject to applicablesanctions and penalties provided by law incase of violation thereof. After the cessationof its operations due to revocation of itslicense, the NSSLA should proceed with itsdissolution, in acccordance with theprovisions under the Corporation Code. Thedissolution of a corporation involves thetermination of its corporate existence, atleast, as far as the right to go on doingordinary business is concerned, and thewinding up of its affairs, the payments ofits debts and distribution of its assets amongthe members or stakeholders or otherpersons involved. The board of trustees ofthe corporation also has the option ofadopting a plan for the distribution of itsassets, as stated under Section 95 of theCorporation Code.

After the revocation/suspension of itslicense, the Monetary Board may direct theboard of trustees of the NSSLA to proceedwith the voluntary dissolution of thecorporation. In the event that the board oftrustees refuses to effectuate suchdissolution, the Monetary Board may referthe matter to the Solicitor General for thefiling of a quo warranto case against thecorporation in accordance with theprovisions of the Corporation Code.


Sec. 4641S Electronic Services. Theguidelines concerning electronic activities,as may be applicable, are found in Sec.4701Q and its Subsections.(Circular No. 649 dated 09 March 2009)

Sec. 4642S Issuance and Operations ofElectronic Money. The following guidelinesshall govern the issuance of electronic

money (e-money) and the operations ofelectronic money issuers (EMIs).(Circular No. 649 dated 09 March 2009)

§ 4642S.1 Declaration of policy. It isthe policy of the BSP to foster thedevelopment of efficient and convenientretail payment and fund transfer mechanismin the Philippines. The availability andacceptance of e-money as a retail paymentmedium will be promoted by providing thenecessary safeguards and controls tomitigate the risks associated in an e-moneybusiness.(Circular No. 649 dated 09 March 2009)

§ 4642S.2 DefinitionsE-money shall mean monetary value as

represented by a claim on its issuer, that is -a. electronically stored in an

instrument or device;b. issued against receipt of funds of an

amount not lesser in value than themonetary value issued;

c. accepted as a means of paymentby persons or entities other than theissuer;

d. withdrawable in cash or cashequivalent; and

e. issued in accordance with thisSection.

Electronic money issuer shall beclassified as follows:

a. Banks (hereinafter called EMI-Bank);

b. NBFI supervised by the BSP(hereinafter called EMI-NBFI); and

c. Non-bank institutions registeredwith the BSP as a money transfer agentunder Sec. 4511N of the MORNBFI(hereinafter called EMI-Others).

For purposes of this Section:a. Electronic instruments or devices

shall mean cash cards, e-wallets accessiblevia mobile phones or other access device,stored value cards, and other similarproducts.

§§ 4631S - 4642S.209.12.31


b. E-money issued by NSSLAs shallnot be considered as deposits.(Circular No. 649 dated 09 March 2009)

§ 4642S.3 Prior Bangko Sentral approvalNSSLAs planning to be an EMI-NBFI shallcomply with the requirements of Sec. 4641Sand with Sec. 4190Q, when applicable.(Circular No. 649 dated 09 March 2009)

§ 4642S.4 Common provisions. Thefollowing provisions are applicable to allEMIs:

a. E-money instrument issued shall besubject to aggregate monthly load limit ofP100,000 unless a higher amount has beenapproved by the BSP. In case an EMI issuesseveral e-money instruments to a person (e-money holder), the total amount loaded inall the e-money instruments shall beconsolidated in determining compliancewith the aggregate monthly load limit;

b. EMIs shall put in place a system tomaintain accurate and complete record ofe-money instruments issued, the identity ofe-money holders, and the individual andconsolidated balances thereof. The systemmust have the capability to monitor themovement of e-money transactions and linke-money instruments issued to commone-money holders. The susceptibility of asystem to intentional or unintentionalmisreporting of transaction and balancesshall be sufficient ground for imposition bythe BSP of sanctions, as may be applicable.

c. E-money may only be redeemed atface value. It shall not earn interest nor rewardsand other similar incentives convertible tocash, nor be purchased at a discount.E-money is not considered a deposit, hence,it is not insured with the PDIC.

d. EMIs shall not ensure that e-moneyinstruments clearly identify the issuer whois ultimately responsible to the e-moneyholders. This shall be communicated to theclient who shall acknowledge the same inwriting.

e. It is the responsibility of EMIs toensure that their distributors/e-money agentscomply with all applicable requirements ofthe Anti-Money Laundering laws, rules andregulations.

f. EMIs shall provide an acceptableredress mechanism to address thecomplaints of its customers.

g. EMIs shall disclose in writing and itscustomers shall signify agreement to theinformation embodied in Item “c” above upontheir participation in the e-money system. Inaddition, it shall provide clear guidance inEnglish and Filipino on consumers’ right ofredemption, including conditions and fees forredemption, if any. Information on availableredress procedures for complaints togetherwith the address and contact information ofthe issuer shall also be provided.

h. Prior to the issuance of e-money,EMIs should ensure that the followingminimum systems and controls are in place:

(1) Sound and prudent management,administrative and accounting proceduresand adequate internal control mechanisms;

(2) Properly-designed computersystems which are thoroughly tested priorto implementation;

(3) Appropriate security policies andmeasures intended to safeguard the integrity,authenticity and confidentiality of data andoperating processes;

(4) Adequate business continuity anddisaster recovery plan; and

(5) Effective audit function to provideperiodic review of the security controlenvironment and critical systems.

i. EMIs shall provide the SDCquarterly statements containing, amongothers, information on investments,volume of transactions, total outstandinge-money balances, and liquid assets insuch forms as may be prescribed later on.

j. EMIs shall notify the BSP in writingof any change or enhancement in thee-money facility thirty (30) days prior toimplementation. If said change or

§§ 4642S.2 - 4642S.409.12.31


enhancement requires prior BSP approval,the same shall be evaluated accordingly.Any change or enhancement that shallexpand the scope or change the nature ofthe e-money instrument shall be subject toprior approval of the Deputy Governor, SES.These changes or enhancements mayinclude the following:

(1) Additional capabilities of thee-money instrument/s, like access to newchannels (e.g. inclusion of internetchannel in addition to merchant Point ofSale terminals);

(2) Change in technology serviceproviders and other major partners in thee-money business (excluding partnermerchants), if any; and

(3) Other changes or enhancements.(Circular No. 649 dated 09 March 2009)

§ 4642S.5 Quasi-bank licenserequirement. EMI-NBFIs and EMI-Othersthat engage in lending activities must securea quasi-banking license from the BSP.(Circular No. 649 dated 09 March 2009)

§ 4642S.6 Sanctions. Monetarypenalties and other sanctions for thefollowing violations committed by EMI-NBFIs shall be imposed:

Nature of Violation/ Sanction/PenaltiesException1. Issuing e-money Applicable penaltieswithout prior BSP under Sections 36 &approval 37 of R.A. No. 7653;

Watchlisting ofowners/partners/principal officers

2. Violation of any Applicable penaltiesof the provisions of prescribed underR.A. No. 9160 (Anti- the ActMoney LaunderingLaw of 2001 asamended by R.A.No. 9194) and itsimplementing rulesand regulations

Nature of Violation/ Sanction/PenaltiesException3. Violation/s of Penalties and sanctionsthis Section under the

abovementioned lawsand other applicablelaws, rules andregulations

In addition, the susceptibility of asystem to intentional or unintentionalmisreporting of transactions and balancesshall be sufficient ground for appropriateBSP action or imposition of sanctions,whenever applicable.(Circular No. 649 dated 09 March 2009)

§ 4642S.7 Transitory provisionsEMI-NBFIs granted authority to issuee-money prior to 26 March 2009 maycontinue to exercise such authority:Provided, That it shall submit to the BSP,within one (1) month from 26 March 2009a certification signed by the President orOfficer with equivalent rank and functionthat it is in compliance with all theapplicable requirements of this Section.Otherwise, they are required to submitwithin the same period the measures theywill undertake, with the correspondingtimelines, to conform to the provisions thatthey have not complied with, subject to BSPapproval.(Circular No. 649 dated 09 March 2009)

§§ 4642S.8 - 4642S.10 (Reserved)

§ 4642S.11 Outsourcing of services byElectronic Money Issuers (EMIs) toElectronic Money Network ServiceProviders (EMNSP). The guidelines onoutsourcing of services by Electronic MoneyIssuers (EMIs) to Electronic Money NetworkService Providers (EMNSP) are shown inAppendix Q-55.

Sanctions. Violations committed byEMIs pertaining to outsourcing activities to

§§ 4642S.4 - 4642S.1110.12.31

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EMNSP shall be subject to monetarypenalties as graduated under AppendixQ-39 and/or other non-monetary sanctionsunder Section 37 of RA No. 7653.

Transitory provisions. EMIs that weregranted an authority to outsource theire-money activities to an EMNSP maycontinue to exercise such authority providedthat they have to conform to the provisionsof Appendix Q-55 within a six-month periodfrom 20 January 2011.(Circular 704 dated 22 December 2010)



Sec. 4651S Notice of DissolutionNSSLAs contemplating to dissolve shallgive written notice thereof to the MonetaryBoard through the appropriate departmentof the SES at least thirty (30) days beforetaking steps to effect dissolution.

Sec. 4652S Confidential InformationNo trustee, officer or employee of NSSLAsor of the BSP shall disclose anyinformation relating to member-borrowersand their applications or to the operationsof the NSSLAs unless permitted by theMonetary Board of the BSP: Provided,however, That in the case of NSSLAs underexamination, the head of the appropriatedepartment of the SES may furnish findingsof examination to the office or firm wheresuch NSSLAs do business.

All deposits of whatever nature withNSSLAs are considered absolutelyconfidential in nature, and may not beexamined, inquired or looked into by anyperson, government official, bureau oroffice, except upon written permission ofthe depositor, or in cases of impeachment,or upon order of competent court in casesof bribery or dereliction of duty of public

officials or in cases where the moneydeposited or invested is the subject matterof litigation.

No official or employee of NSSLAs shalldisclose to any person any informationconcerning said deposits, except in casesmentioned in the preceding paragraph. Anyofficial or employee of NSSLAs who violatesthis Section shall be punished underR.A. No. 1405, as amended.

Sec. 4653S Examination by the BangkoSentral. The head of the appropriatedepartment of the SES, personally or bydeputy, shall make at least once a year andat such other times as he or the MonetaryBoard may deem necessary and expedient,an examination, inspection or investigationof the books and records, business affairs,administration and financial condition ofNSSLAs.

Sec. 4654S Applicability of Other RulesOther rules and regulations applicable tothe examination of thrift banks, insofar asthey are applicable and not inconsistent withthese rules shall apply to NSSLAs.

Sec. 4655S Annual Fees. For purposes ofcomputing the annual fees chargeableagainst NSSLAs, the term Total AssessableAssets shall be the amount referred to asthe total assets under Section 28 of R.A. No.7653 (end-of-quarter total assets per balancesheet, after deducting cash on hand andamounts due from banks, including the BSPand banks abroad).

Average Assessable Assets (AAAs) shallbe the summation of end-of-quarter totalassessable assets divided by the number ofquarters in operation during the particularassessment period.

The prescribed rate of annual fees forNSSLAs, assessable only when actualexamination is conducted for the year, shall

§§ 4642S.11 - 4655S10.12.31

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be one-fortieth of one percent (1/40 of 1%)of AAAs for 2002 or P100,000 whicheveris lower, payable within thirty (30) daysfrom receipt of the bill. Failure to pay thebill within the prescribed period shallsubject the NSSLAs to administrativesanctions.

Sec. 4656S Basic Law Governing Non-Stock Savings and Loan Associations. R.A.No. 8367, as amended, known as the"Revised Non-Stock Savings and LoanAssociation Act of 1997", regulates theorganization and operation of NSSLAs.

Sec. 4657S Non-Stock Savings and LoanAssociations Premises and Other FixedAssets. The following rules shall govern thepremises and other fixed assets of NSSLAs.

§ 4657S.1 Accounting for non-stocksavings and loans associations premises;other fixed assets. NSSLAs premises,furniture, fixture and equipment shall beaccounted for using the cost model underPAS 16 "Property, Plant and Equipment".(Circular No. 494 dated 20 September 2005)

§ 4657S.2 (Reserved)

§ 4657S.3 Reclassification of real andother properties acquired as non-stocksavings and loans association premisesROPA reclassified either as Real Property-Land or Real Property-Building shall bebooked at their ROPA balance, net of anyvaluation reserves: Provided, That only suchacquired asset or a portion thereof that willbe immediately used or earmarked forfuture use may be reclassified and bookedas Real Property-Land/Building.

NSSLAs, prior to the reclassification oftheir ROPA accounts to Real Property-Land/Building, shall first secure prior BSPapproval before effecting the reclassificationand shall submit, in case of future use,justification and plans for expansion/use.

§§ 4657S.4 - 4657S.8 (Reserved)

§ 4657S.9 Batas Pambansa Blg. 344 -An Act to Enhance the Mobility of DisabledPersons by Requiring Certain Buildings,Institutions, Establishments and PublicUtilities to Install Facilities and OtherDevices. In order to promote the realizationof the rights of disabled persons to participatefully in the social life and the developmentof the societies in which they live and theenjoyment of the opportunities available toother citizens, no license or permit for theconstruction, repair or renovation of publicand private buildings for public use,educational institutions, airports, sports andrecreation centers and complexes, shoppingcenters or establishments, public parkingplaces, workplaces, public utilities, shall begranted or issued unless the owner oroperator thereof shall install and incorporatein such building, establishment or publicutility, such architectural facilities orstructural features as shall reasonablyenhance the mobility of disabled personssuch as sidewalks, ramps, railings, and thelike. If feasible, all such existing buildings,institutions, establishments, or public utilitiesmay be renovated or altered to enable thedisabled persons to have access to them.


Sec. 4660S Disclosure of RemittanceCharges and Other Relevant InformationIt is the policy of the BSP to promote theefficient delivery of competitively-pricedremittance services by banks and otherremittance service providers by promotingcompetition and the use of innovativepayment systems, strengthening the financialinfrastructure, enhancing access to formalremittance channels in the source anddestination countries, deepening thefinancial literacy of consumers, andimproving transparency in remittancetransactions, consistent with sound practices.

§§ 4655S - 4660S08.12.31


Towards this end, NBFIs under BSPsupervision, including FXDs/MCs and RAs,providing overseas remittance services shalldisclose to the remittance sender and to therecipient/beneficiary, the followingminimum items of information regardingremittance transactions, as defined herein:

a. Transfer/remittance fee - charge forprocessing/sending the remittance from thecountry of origin to the country ofdestination and/or charge for receiving theremittance at the country of destination;

b. Exchange rate - rate of conversionfrom foreign currency to local currency, e.g.,peso-dollar rate;

c. Exchange rate differential/spread -foreign exchange mark-up or the differencebetween the prevailing BSP reference/guidingrate and the exchange/conversion rate;

d. Other currency conversion charges- commisions or service fees, if any;

e. Other related charges - e.g.,surcharges, postage, text message ortelegram;

f. Amount/currency paid out in therecipient country - exact amount of moneythe recipient should receive in local currencyor foreign currency; and

g. Delivery time to recipients/beneficiaries - delivery period of remittanceto beneficiary stated in number of days,hours or minutes.

Non-bank remittance service providersshall likewise post said information in theirrespective websites and display themprominently in conspicuous places within theirpremises and/or remittance/service centers.(Circular No. 534 dated 26 June 2006)


Sec. 4691S Anti-Money LaunderingRegulations. Covered institutions, includingtheir subsidiaries and affiliates, shall complywith the provisions of Part 8 of Q Regulations,R.A. No. 9160 (Anti-Money Laundering Act

of 2001), as amended, and its IRR.(As amended by Circular Nos. 706 dated 05 January 2011, 661

dated 01 September 2009 and 612 dated 13 June 2008)

§§ 4691S.1 - 4691S.8 (Reserved)

§ 4691S.9 Sanctions and penaltiesa. Whenever a covered institution

violates the provisions of Section 9 ofR.A. No. 9160, as amended, or of thisSection, the officer(s) or other personsresponsible for such violation shall bepunished by a fine of not less than P50thousand nor more than P200 thousand orby imprisonment of not less than two (2)years nor more than ten (10) years, or both,at the discretion of the court pursuant toSection 36 of R.A. No. 7653, otherwiseknown as "The New Central Bank Act".

b. Without prejudice to the criminalsanctions prescribed above against theculpable persons, the Monetary Board may,at its discretion, impose upon any coveredinstitution, its directors and/or officers for anyviolation of Section 9 of R.A. No. 9160, asamended, the administrative sanctionsprovided under Section 37 of R.A. No. 7653.


Sec. 4695S Valid Identification Cards forFinancial Transactions. The provisions ofPart 8 of the Q Regulations on Valididentification documents shall apply.(Circular No. 564 dated 03 April 2007, as amended by Circular

Nos. 706 dated 05 January 2011, 657 dated 16 June 2009 and

608 dated 20 May 2008)


Sec. 4699S General Provision on SanctionsUnless otherwise provided, any violationof the provisions of this Part shall be subjectto the sanctions provided in Sections 34,35, 36 and 37 of R. A. No. 7653, wheneverapplicable.

§§ 4660S - 4695S11.12.31

Manual of Regulations for Non-Bank Financial Institutions S RegulationsAppendix S-I - Page 1

APP. S-108.12.31

SAFEGUARDS IN BONDING OF NSSLA ACCOUNTABLEOFFICERS AND EMPLOYEES

(Appendix to Sec. 4145S)

1. The Teller. He should not beallowed to accumulate more than a specificmaximum amount to be determined by theassociation but in no case to exceedP10,000 in cash at any given time while inthe performance of his duties. Theprocedures in this regard are as follows:

a. Cash. All cash in excess of themaximum amount determined by theassociation shall be turned over to thecashier. When deposits received by a tellerwill increase his cash in excess of themaximum limit, the teller shallimmediately make a cash turn-over of, atleast, the excess. Thus, although histransactions during the day may total morethan the maximum limit, the amount ofmoney directly in his custody at any giventime will never exceed the limit.

b. Checks and Other Cash Items(COCIs). All COCIs received by a tellershould be stamped as “non-negotiable.”The stamping should be made diagonallyon the face of the check. Thus, all checksthat are received by the tellers lose theirfurther negotiability. There should,however, be an agreement with theassociation’s depository banks wherebythey will accept for deposit only to theaccount of the association the COCIpreviously stamped by the tellers as “non-negotiable.” Therefore, only the associationand nobody else can further negotiate thesechecks, and only the association’s

depository bank will accept them andsolely for deposit to its account. Thus, evenin the remote possibility that someonepresents a COCI stolen from the associationto one of its depository banks, it will not beaccepted for encashment.

2. The COCIs Clerk. In view of thefact that all COCIs received by the tellersare stamped “non-negotiable” as detailedabove, the COCIs clerk who records andprocesses these checks carries noaccountabilities whatsoever. From themoment that a check is received up to themoment that it is deposited to the accountof the association with one of its depositorybanks, that check is just a piece of paper tobe processed and recorded. It will onlyreassume its negotiability upon its receiptby the association’s depository bank. Incases, however, where checks arereceived by mail, the COCIs clerk shall becharged with the duty of stamping thechecks as “non-negotiable.”

3. As an added precautionarymeasure, the manager/accountant/loanofficer should check from time to timewhether all COCIs received are stamped“non-negotiable.” In the event that a COCIis not so stamped and it results in financialloss on the part of the association, theemployee charged with the duty to stampand who failed to do so, shall be heldpersonally responsible, together with themanager/accountant/loan officer, for the loss.

Manual of R

egulations for Non-B

ank Financial Institutions

APP. S-2

11.12.31

LIST OF REPORTS REQUIRED FROM NON-STOCK SAVINGS AND LOAN ASSOCIATIONS(Appendix to Sec. 4162S)

A-2 BSP 7-26-02H 4162S(Asamendedby M-029dated09.24.07)

A-2 Unnumbered 4691S(Rev. May2002, asamendedby Cir.No. 612dated06.03.08)

A-2 Unnumbered 4691S

A-3 BSP 7-26-03H 4162S(Asamendedby M-029dated09.24.07)

A-3 BSP 7-26-18.1H 4358S

Consolidated Statement of Condition

Report on Suspicious Transactions

Report on Covered Transactions

Consolidated Statement of Income and Expenses

Copy of entry in NSSLA records of written approval ofmajority of directors on credit accommodation todirectors and officers with accompanying Certificationon Loans Granted to Directors/Officers

on or before the end ofthe immediate followingmonth

10th business day fromdate of transaction/knowledge

-do-

on or before the end ofthe immediate followingmonth

20th business day fromdate of approval

Quarterly

Astransaction

occurs

-do-

Quarterly

Asapproved

Original to SDC

Original and duplicate -Anti-Money LaunderingCouncil (AMLC)

-do-

Original to SDC

Original - ISD I

Submission Submission Category Form No. MOR Ref. Report Title Frequency Deadline Procedure

S Regulations

Appendix S-2 - Page 1

APP. S-2

11.12.31

S Regulations


Manual of R



A-3 Unnumbered 4162S(CL-050dated10.04.07andCL-059dated11.28.07)

B 4172S

4162SSES IIForm 15(NP08-TB) Asamendedby M-024dated07.31.08

B BSP 7-26-20H 4162S

B - 4306S.3

Report on Borrowings of BSP Personnel

Audited/Unaudited Financial Statements required inSec. 4181S accompanied by annual report1 (tomembers, if any)

Biographical Data of Directors/Officers- If submitted in diskette form - Notarized first page ofeach of the directors'/officers' bio-data saved in disketteand control prooflist- If sent by electronic mail - Notarized first page ofBiographical Data or Notarized list of names ofDirectors/Officers whose Biographical Data weresubmitted thru electronic mail to be faxed to SDC (CLdated 01.09.01)

Report on Crimes/Losses

Notice/Application for Write-Off of Loans

Quarterly

Annually

Annually2

and aschangesoccur

As crime/incidentoccurs

As write-offoccurs

15th banking days afterend of reference quarter

120th/60th day afterend of fiscal year asrequired in Sec. 4181S

January 31st and 15thbusiness day from thedate of the meeting ofthe board of directors inwhich the directors/officers are elected orappointed

See Annex S-2-a forguidelines on reportingcrimes and losses

30th day prior to theintended date of write-off

Original to SDC

Original - ISD I

Electronic mail or disketteform to SDC or if hard copyoriginal to appropriatedepartment of the SES,duplicate to SDC

-do-

-do-

Submission SubmissionCategory Form No. MOR Ref. Report Title Frequency Deadline Procedure

1 Required of NSSLAs with total resources of P 10 million or more2 Not required where no change occurs

Manual of R



APP. S-2

11.12.31

B - 4162S

B

B Form I M-031Schedule 1 dated

09.11.09and Cir.No. 649dated03.09.09

Board Resolution on NSSLA's signatories to reportssubmitted to Bangko Sentral

General Information Sheet

Report on Electronic Money TransactionsQuarterly Statement of E-Money Transactions -

Volume and Amount of E-Money TransactionsQuarterly Statement of LIquidity Cover

Schedules1 - E-Money Balances

Asauthorized

Annually

Quarterly

3rd day from date ofresolution

30th day from date ofannual stockholders'meeting

15 banking days afterend of refernce quarter

Electronic mail or disketteform to SDC or if hard copyoriginal to appropriatedepartment of the SES,duplicate to SDC

Drop Box - SEC CentralReceiving SectionOriginal - SECDuplicate - BSP

e-mail [email protected] SDC


S Regulations


S RegulationsAppendix S-2 - Page 4


APP. S-208.12.31

Annex S-2-a

REPORTING GUIDELINES ON CRIMES/LOSSES

1. NSSLAs shall report on thefollowing matters through theappropriate supervising and examiningdepartment:

a. Crimes whether consummated,frustrated or attempted against property/facil i t ies (such as robbery, theft ,swindling or estafa, forgery and otherdeceits) and other crimes involving loss/destruction of property of the NSSLAwhen the amount involved in each crimeis P20,000 or more.

Crimes involving NSSLA personnel,regardless of whether or not such crimesinvolve the loss/destruction of propertyof the NSSLA, even if the amountinvolved is less than those abovespecified, shall likewise be reported tothe BSP.

b. Incidents involving material loss,destruction or damage to the institution’sproperty/facilities, other than arising from

a crime, when the amount involved perincident is P20,000 or more.

2. The following guidelines shall beobserved in the preparation andsubmission of the report.

a. The report shall be prepared intwo (2) copies and shall be submittedwithin f ive (5) business days fromknowledge of the crime or incident, theoriginal to the appropriate supervisingdepartment and the duplicate to the BSPSecurity Coordinator, thru the Director,Security Investigation and TransportDepartment.

b. Where a thorough investigationand evaluation of facts is necessary tocomplete the report, an initial reportsubmitted within the five (5)-business daydeadline may be accepted: Provided,That a complete report is submitted notlater than fifteen (15) business days fromtermination of investigation.


APP. S-308.12.31

S Regulations Appendix S-3 - Page 1

GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION

(Appendix to Subsec. 4162S.1)

Category A-1 reports shall be signedby the chief executive officer, or in hisabsence, by the executive vice-president,and by the comptroller, or in his absence,by the chief accountant, or by officersholding equivalent positions. Thedesignated signatories in this category,including their specimen signatures, shallbe contained in a resolution approved bythe board of directors in the formatprescribed in Annex S-3-a.

Category A-2 reports of head officesshall be signed by the president, executivevice-presidents, vice-presidents or officersholding equivalent positions. Such reportsof other offices/units (such as branches)shall be signed by their respective

managers/officers in-charge. Likewise, thesigning authority in this category shall becontained in a resolution approved by theboard of directors in the format prescribedin Annex S-3-b.

Categories A-3 and B reports shall besigned by officers or their alternates, whoshall be duly designated by the board ofdirectors. A copy of the board resolution,with format as prescribed in Annex S-3-c.

Copies of the board resolutions on thereport signatory designations shall besubmitted to the appropriate supervisingand examining department of the BSPwithin three (3) business days from the dateof resolution.


APP. S-308.12.31


Annex S-3-a

FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS

Resolution No. _____

Whereas, it is required under Subsec. 4162S.1 that Category A-1 reports be signed by theChief Executive Officer, or in his absence, by the Executive Vice-President, and by theComptroller, 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 undera 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 behalfof 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 ExecutiveOfficer, 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 aforesaidofficers under their delegated authority;

Now, therefore, we, the members of the Board of Directors, resolve, as it is herebyresolved that:

1. Mr.____________ President _________________Specimen Signature

or Executive

2. Mr.____________ Vice-President _________________Specimen Signature

and3. 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. S-308.12.31


Whereas, it is required under Subsec. 4162S.1 that Category A-2 reports of head officesbe signed by the President, Executive Vice-Presidents, Vice-Presidents or officers holdingequivalent positions, and that such reports of other offices be signed by the respectivemanagers/officers-in-charge;


Whereas, we, the members of the Board of Directors of (Name of Institution) , areconscious that, in designating the officials who would sign said Category A-2 reports, we areactually empowering and authorizing said officers to represent and act for or in behalf of theBoard of Directors in particular and (Name of Institution) in general;

Whereas, this Board has full faith and confidence in the institution's President (and/orthe Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibilityfor all the acts which may be performed by aforesaid officers under their delegated authority;


Name of Officer Specimen Signature Position Title Report 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____.

_________________________CHAIRMAN OF THE BOARD

DIRECTOR DIRECTOR

DIRECTOR DIRECTOR

DIRECTOR DIRECTOR

ATTESTED BY:

CORPORATE SECRETARY

Annex S-3-b




APP. S-308.12.31


Annex S-3-c

FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIESA-3 AND B REPORTS


Whereas, it is required under Subsec. 4162S.1 that Categories A-3 and B reports besigned by officers or their alternates;


Whereas, we the members of the Board of Directors of (Name of Institution) , areconscious 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 inbehalf 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 signatoriesand, therefore, assumes responsibility for all the acts which may be performed by aforesaidofficers under their delegated authority;


Name of Authorized Signatory/Alternate Specimen Signature Position Title Report

1. Authorized(Alternate)


etc.

are hereby authorized to sign the Category A-2 reports of (Name of Institution) .


_________________________CHAIRMAN OF THE BOARD

DIRECTOR DIRECTOR

DIRECTOR DIRECTOR

DIRECTOR DIRECTOR

ATTESTED BY:

CORPORATE SECRETARY

APP S-408.12.31

Manual of Regulations for Non-Bank Financial Institutions S Regulations Appendix S-4 - Page 1

FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION(Appendix to Subsec. 4307S.2)

(Business Name of Creditor)

DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENTOR 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 (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 Pb. Taxesc. Registration Feesd. Documentary/Science Stampse. Notarial Feesf. Others:

Total Non-Finance Charges

5. Amount to be Financed (Items 3 + 4)

P

P

APP. S-408.12.31



P

P

6. Finance Charges1

a. Interest _______% p.a.from ________ to ________

[ ] Simple [ ] Monthly[ ] Compound [ ] Quarterly

[ ] Semi-Annual[ ] Annual

b. Discountsc. Service/Handling Chargesd. Collection Chargese. Credit Investigation Feesf. Appraisal Feesg. Attorney’s/Legal Feesh. Other charges incidental to the

extension of credit (specify): _______________ _______________ _______________

Total Non-Finance Charges

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. Paymenta. Single Payment due ____________________

(Date) b. Total Installment Payments

(Payable in __________ weeks/months @ P__________) P

P

1 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-408.12.31


10. Additional charges in case certain stipulations in the contract are not met by thedebtor:

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 THECONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND ANDFULLY 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-508.12.31

ABSTRACT OF “TRUTH IN LENDING ACT” (Republic Act No. 3765)(Appendix to Subsec. 4307S.4)

Section 1. This Act shall be known as the“Truth in Lending Act.”

Sec. 2. Declaration of Policy. It is herebydeclared to be the policy of the State to protectits citizens from a lack of awareness of thetrue cost of credit to the user by assuring afull disclosure of such cost with a view ofpreventing the uninformed use of credit tothe detriment of the national economy.

xxx xxx xxx

Sec. 3. As used in this Act, the term -

xxx xxx xxx

(3) “Finance charge” includes interest, fees,service charges, discounts, and such othercharges incident to the extension of creditas the Board may by regulation prescribe.

xxx xxx xxx

Sec. 4. Any creditor shall furnish to eachperson to whom credit is extended, priorto the consummation of the transaction aclear statement in writing setting forth, tothe extent applicable and in accordancewith rules and regulations prescribed bythe Board, the following information:

(1) the cash price or delivered priceof the property or service to be acquired;

(2) the amounts, if any, to be creditedas down payment and/or trade-in;

(3) the difference between theamounts set forth under clauses (1) and (2);

(4) the charges, individually itemized,which are paid or to be paid by such personin connection with the transaction but whichare not incident to the extension of credit;

(5) the total amount to be financed;(6) the finance charge expressed in

terms of pesos and centavos; and

(7) the percentage that the financecharge bears to the total amount to befinanced expressed as a simple annual rateon the outstanding unpaid balance of theobligation.

xxx xxx xxx

Sec. 6. (a) Any creditor who in connectionwith any credit transaction fails to disclose toany person any information in violation ofthis Act or any regulation issued thereundershall be liable to such person in the amountof P100 or in an amount equal to twice thefinance charge required by such creditor inconnection with such transaction, whicheveris the greater, except that such liability shallnot exceed P2,000 on any credit transaction.

xxx xxx xxx

(c) Any person who willfully violatesany provision of this Act or any regulationissued thereunder shall be fined by not lessthan P1,000 nor more than P5,000 orimprisonment for not less than 6 monthsnor more than one year or both.

xxx xxx xxx

(d) Any final judgment hereafterrendered in any criminal proceeding underthis Act to the effect that a defendant haswillfully violated this Act shall be primafacie evidence against such defendant inan action or proceeding brought by anyother party against such defendant underthis Act as to all matters respecting whichsaid judgment would be an estoppel asbetween the parties thereto.

Sec. 7. This Act shall become effectiveupon approval.

Approved, 22 June 1963.



APP. S-611.12.31

(Deleted pursuant to Circular No. 706 dated 05 January 2011)

ANTI-MONEY LAUNDERING REGULATIONS(Appendix to Section 4691S)

Manual of Regulations for Non-Bank Financial InstitutionsS RegulationsAppendix S-6 - Page 2

APP. S-611.12.31

Annex S-6-a

CERTIFICATION OF COMPLIANCEWITH ANTI-MONEY LAUNDERING REGULATIONS

(Deleted pursuant Circular No. 706 dated 05 January 2011)



APP. S-611.12.31

Annex S-6-b

AMLC Resolution No. 292

RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS ANDSUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS1

(Annex to Appendix S-6)


Manual of Regulations for Non-Bank Financial Institutions S RegulationsAppendix S-7 - Page 1

APP. S-711.12.31


REVISED IMPLEMENTING RULES AND REGULATIONSR.A. NO. 9160, AS AMENDED BY R.A. NO. 9194

(Appendix to Sec. 4691S)

APP. S-809.12.31



GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT, REPORTINGREQUIREMENTS AND DELISTING OF EXTERNAL AUDITORS AND/OR

AUDITING FIRM OF COVERED ENTITIES(Appendix to Secs. 4180S and 4190S)

Pursuant to Section 58 of the RepublicAct No. 8791, otherwise known as "TheGeneral Banking Law of 2000", and theexisting provisions of the executedMemorandum of Agreement (hereinafterreferred to as the MOA) dated 12 August2009, binding the Bangko Sentral ngPilipinas (BSP), Securities and ExchangeCommission (SEC), ProfessionalRegulation Commission (IC) - Board ofAccountancy (BOA) and the InsuranceCommission (IC) for a simplified andsynchronized accreditation requirementsfor external auditor and/or auditing firm,the Monetary Board, in its Resolution No.950 dated 02 July 2009, approved thefollowing revised rules and regulationsthat shall govern the selection anddelisting by the BSP of covered institutionwhich under special laws are subject toBSP supervision.

A. STATEMENT OF POLICYIt is the policy of the BSP to ensure

effective audit and supervision of banks,QBs, trust enti t ies and/or NSSLAsincluding their subsidiaries and affiliatesengaged in allied activities and other FIswhich under special laws are subject toBSP supervision, and to ensure relianceby BSP and the public on the opinion ofexternal auditors and auditing firms byprescribing the rules and regulations thatshall govern the selection, appointment,reporting requirements and delisting forexternal auditors and auditing firms of saidinstitutions, subject to the bindingprovisions and implementing regulationsof the aforesaid MOA.

B. COVERED ENTITIESThe proposed amendment shall apply

to the following supervised institution, ascategorized below, and their externalauditors:

1. Category Aa. UBs/KBs;b. Foreign banks and branches or

subsidiaries of foreign banks, regardless ofunimpaired capital; and

c. Banks, trust department of qualifiedbanks and other trust entities with additionalderivatives authority, pursuant to Sec. X611regardless of classification, category andcapital position.

2. Category Ba. TBs;b. QBs;c. Trust department of qualified banks

and other trust entities;d. National Coop Banks; ande. NBFIs with quasi-banking functions.3. Category Ca. RBs;b. NSSLAs;c. Local Coop Banks; andd. Pawnshops.The above categories include their

subsidiaries and affiliates engaged in alliedactivities and other FIs which are subject toBSP risk-based and consolidated supervision:Provided, That an external auditor who hasbeen selected by the BSP to audit coveredentities under Category A is automaticallyqualified to audit entities under Category Band C and if selected by the BSP to auditcovered entities under Category B isautomatically qualified to audit entities underCategory C.

APP. S-809.12.31



C. DEFINITION OF TERMSThe following terms shall be defined as

follows:1. Audit – an examination of the

financial statements of any issuer by anexternal auditor in compliance with the rulesof the BSP or the SEC in accordance withthen applicable generally accepted auditingand accounting principles and standards, forthe purpose of expressing an opinion onsuch statements.

2. Non-audit services – anyprofessional services provided to thecovered institution by an external auditor,other than those provided to a coveredinstitution in connection with an audit or areview of the financial statements of saidcovered institution.

3. Professional Standards - includes:(a) accounting principles that are(1) established by the standard setting body;and (2) relevant to audit reports for particularissuers, or dealt with in the quality controlsystem of a particular registered publicaccounting firm; and (b) auditing standards,standards for attestation engagements,quality control policies and procedures,ethical and competency standards, andindependence standards that the BSP or SECdetermines (1) relate to the preparation orissuance of audit reports for issuers; and(2) are established or adopted by the BSP orpromulgated as SEC rules.

4. Fraud – an intentional act by one (1)or more individuals among management,employees, or third parties that results in amisrepresentation of financial statements,which will reduce the consolidated totalassets of the company by five percent (5%).It may involve:

a. Manipulation, falsification oralteration of records or documents;

b. Misappropriation of assets;c. Suppression or omission of the

effects of transactions from records ordocuments;

d. Recording of transactions withoutsubstance;

e. Intentional misapplication ofaccounting policies; or

f. Omission of material information.5. Error - an intentional mistake in

financial statements, which will reduce theconsolidated total assets of the company byfive percent (5%). It may involve:

a. Mathematical or clerical mistakesin the underlying records and accountingdata;

b. Oversight or misinterpretation offacts; or

c. Unintentional misapplication ofaccounting policies.

6. Gross negligence - wanton orreckless disregard of the duty of due care incomplying with generally accepted auditingstandards.

7. Material fact/information - any fact/information that could result in a change inthe market price or value of any of theissuer’s securities, or would potentially affectthe investment decision of an investor.

8. Subsidiary - a corporation or firmmore than fifty percent (50%) of theoutstanding voting stock of which is directlyor indirectly owned, controlled or held withpower to vote by a bank, QB, trust entity orNSSLA.

9. Affiliate - a corporation, not morethan fifty percent (50%) but not less thanten percent (10%) of the outstandingvoting stock of which is directly orindirectly owned, controlled or held withpower to vote by a bank, QB, trust entityor NSSLA and a juridical person that isunder common control with the bank,QB, trust entity or NSSLA.

10. Control - exists when the parentowns directly or indirectly more than onehalf of the voting power of an enterpriseunless, in exceptional circumstance, it canbe clearly demonstrated that suchownership does not constitute control.

APP. S-809.12.31



Control may also exist even whenownership is one half or less of the votingpower of an enterprise when there is:

a. Power over more than one half ofthe voting rights by virtue of an agreementwith other stockholders;

b. Power to govern the financial andoperating policies of the enterprise under astatute or an agreement;

c. Power to appoint or remove themajority of the members of the board ofdirectors or equivalent governing body; or

d. Power to cast the majority votes atmeetings of the board of directors orequivalent governing body.

11. External auditor - means a singlepractitioner or a signing partner in anauditing firm.

12. Auditing firm – includes aproprietorship, partnership limited liabilitycompany, limited liability partnership,corporation (if any), or other legal entity,including any associated person of any ofthese entities, that is engaged in the practiceof public accounting or preparing or issuingaudit reports.

13. Associate – any director, officer,manager or any person occupying a similarstatus or performing similar functions in theaudit firm including employees performingsupervisory role in the auditing process.

14. Partner - all partners including thosenot performing audit engagements.

15. Lead partner – also referred to asengagement partner/partner-in-charge/managing partner who is responsible forsigning the audit report on the consolidatedfinancial statements of the audit client, andwhere relevant, the individual audit reportof any entity whose financial statementsform part of the consolidated financialstatements.

16. Concurring partner - the partnerwho is responsible for reviewing the auditreport.

17. Auditor-in-charge – refers to theteam leader of the audit engagement.

D. GENERAL CONSIDERATION ANDLIMITATIONS OF THE SELECTIONPROCEDURES

1. Subject to mutual recognitionprovision of the MOA and as implementedin this regulation, only external auditors andauditing firms included in the list of BSPselected external auditors and auditing firmsshall be engaged by all the coveredinstitutions detailed in Item "B". The externalauditor and/or auditing firm to be hired shallalso be in-charge of the audit of the entity’ssubsidiaries and affiliates engaged in alliedactivities: Provided, That the external auditorand/or auditing firm shall be changed or thelead and concurring partner shall be rotatedevery five (5) years or earlier: Providedfurther, That the rotation of the lead andconcurring partner shall have an interval ofat least two (2) years.

2. Category A covered entities whichhave engaged their respective externalauditors and/or auditing firm for aconsecutive period of five (5) years or moreas of 18 September 2009 shall have a one(1)-year period from said date within whichto either change their external auditorsand/or auditing firm or to rotate the leadand/or concurring partner.

3. The selection of the external auditorsand/or auditing firm does not exonerate thecovered institution or said auditors fromtheir responsibilities. Financial statementsfiled with the BSP are still primarily theresponsibility of the management of thereporting institution and accordingly, thefairness of the representations madetherein is an implicit and integral part ofthe institution’s responsibili ty. Theindependent certified public accountant’sresponsibility for the financial statementsrequired to be filed with the BSP isconfined to the expression of his opinion,or lack thereof, on such statements whichhe has audited/examined.

4. The BSP shall not be liable for anydamage or loss that may arise from its

APP. S-809.12.31



selection of the external auditors and/orauditing firm to be engaged by banks forregular audit or non-audit services.

5. Pursuant to paragraph (5) of theMOA, SEC, BSP and IC shall mutuallyrecognize the accreditation granted by anyof them for external auditors and firms ofGroup C or D companies under SEC,Category B and C under BSP, and insurancebrokers under IC. Once accredited/selectedby any one (1) of them, the above-mentionedspecial requirements shall no longer beprescribed by the other regulators.

For corporations which are required tosubmit financial statements to differentregulators and are not covered by the mutualrecognition policy of this MOA, thefollowing guidance shall be observed:

a. The external auditors of UBs whichare listed in the Exchange, should beselected/accredited by both the BSP andSEC, respectively; and

b. For insurance companies and banksthat are not listed in the Exchange, theirexternal auditors must each be selected/accredited by BSP or IC, respectively. Forpurposes of submission to the SEC, thefinancial statements shall be at least auditedby an external auditor registered/accreditedwith BOA.

This mutual recognition policy shallhowever be subject to the BSP restrictionthat for banks and its subsidiary and affiliatebank, QBs, trust entities, NSSLAs, theirsubsidiaries and affiliates engaged in alliedactivities and other FIs which under speciallaws are subject to BSP consolidatedsupervision, the individual and consolidatedfinancial statements thereof shall be auditedby only one (1) external auditor/auditingfirm.

6. The selection of external auditorsand/or auditing firm shall be valid for aperiod of three (3) years. The SES shall makean annual assessment of the performanceof external auditors and/or auditing firm and

will recommend deletion from the list evenprior to the three (3)-year renewal period, ifbased on assessment, the external auditors’report did not comply with BSPrequirements.

E. QUALIFICATION REQUIREMENTThe following qualification requirements

are required to be met by the individualexternal auditor and the auditing firm at thetime of application and on continuing basis,subject to BSP’s provisions on the delistingand suspension of accreditation:

1. Individual external auditora. General requirements(1) The individual applicant must be

primarily accredited by the BOA. Theindividual external auditor or partnerin-charge of the auditing firm must have atleast five (5) years of audit experience.

(2) Auditor’s independence.In addition to the basic screening

procedures of BOA on evaluating auditor’sindependence, the following are requiredfor BSP purposes to be submitted in the formof notarized certification that:

(a) No external auditor may be engagedby any of the covered institutions under Item"B" hereof if he or any member of hisimmediate family had or has committed toacquire any direct or indirect financialinterest in the concerned covered institution,or if his independence is consideredimpaired under the circumstances specifiedin the Code of Professional Ethics for CPAs.In case of a partnership, this limitation shallapply to the partners, associates and theauditor-in-charge of the engagement andmembers of their immediate family;

(b) The external auditor does not have/shall not have outstanding loans or anycredit accommodations or arranged for theextension of credit or to renew an extensionof credit (except credit card obligationswhich are normally available to other creditcard holders and fully secured auto loans

APP. S-809.12.31



and housing loans which are not past due)with the covered institutions under Item "B"at the time of signing the engagement andduring the engagement. In the case ofpartnership, this prohibition shall apply tothe partners and the auditor-in-charge of theengagement; and

(c) It shall be unlawful for an externalauditor to provide any audit service to acovered institution if the coveredinstitution’s CEO, CFO, Chief AccountingOfficer (CAO), or comptroller waspreviously employed by the external auditorand participated in any capacity in the auditof the covered institution during the one-year preceding the date of the initiation ofthe audit;

(3) Individual applications as externalauditor of entities under Category A abovemust have established adequate qualityassurance procedures, such consultationpolicies and stringent quality control, toensure full compliance with the accountingand regulatory requirements.

b. Specific requirements(1) At the time of application,

regardless of the covered institution, theexternal auditor shall have at least five (5)years experience in external audits;

(2) The audit experience above refersto experience required as an associate,partner, lead partner, concurring partner orauditor-in-charge; and

(3) At the time of application, theapplicant must have the following trackrecord:

(a) For Category A, he/she must haveat least five (5) corporate clients with totalassets of at least P50.0 million each.

(b) For Category B, he/she must havehad at least three (3) corporate clients withtotal assets of at least P25.0 million each.

(c) For Category C, he/she must havehad at least three (3) corporate clients withtotal assets of at least P5.0 million each;

2. Auditing firms

a. The auditing firm must be primarilyaccredited by the BOA and the name of thefirm’s applicant partner’s should appear inthe attachment to the certificate ofaccreditation issued by BOA. Additionalpartners of the firm shall be furnished byBOA to the concerned regulatory agencies(e.g. BSP, SEC and IC) as addendum to thefirm’s accreditation by BOA.

b. Applicant firms to act as the externalauditor of entities under Category A in Item"B" must have established adequate qualityassurance procedures, such consultationpolicies and stringent quality control, toensure full compliance with the accountingand regulatory requirements.

c. At the time of application, theapplicant firm must have at least one (1)signing practitioner or partner who is alreadyselected/accredited, or who is alreadyqualified and is applying for selection byBSP.

d. A registered accounting/auditingfirm may engage in any non-auditingservice for an audit client only if suchservice is approved in advance by theclient’s audit committee. Exemptions fromthe prohibitions may be granted by theMonetary Board on a case-by-case basisto the extent that such exemption isnecessary or appropriate in the publicinterest. Such exemptions are subject toreview by the BSP.

e. At the time of application, theapplicant firm must have the followingtrack record:

(1) For Category A, the applicant firmmust have had at least twenty (20)corporate clients with total assets of at leastP50.0 million each;

(2) For Category B, the applicant firmmust have had at least five (5) corporateclients with total assets of at least P20.0million each;

(3) For Category C, the applicant firmmust have had at least five (5) corporate

APP. S-809.12.31



clients with total assets of at least P5.0million each.

F. APPLICATION FOR AND/ORRENEWAL OF THE SELECTION OFINDIVIDUAL EXTERNAL AUDITOR

1. The initial application for BSPselection shall be signed by the externalauditor and shall be submitted to theappropriate department of the SES togetherwith the following documents/information:

a. Copy of effective and valid BOACertificate of Accreditation with theattached list of qualified partner/s of the firm;

b. A notarized undertaking of theexternal auditor that he is in compliancewith the qualification requirements underItem "E" and that the external auditor shallkeep an audit or review working papers forat least seven (7) years in sufficient detail tosupport the conclusion in the audit reportand making them available to the BSP’sauthorized representative/s when requiredto do so;

c. Copy of Audit Work Program whichshall include assessment of the auditedinstitution’s compliance with BSP rules andregulations, such as, but not limited to thefollowing:

(1) capital adequacy ratio, as currentlyprescribed by the BSP;

(2) AMLA framework;(3) risk management system,

particularly liquidity and market risks; and(4) loans and other risk assets review

and classification, as currently prescribedby the BSP rules and regulations.

d. If the applicant will have clientsfalling under Category A, copy of the QualityAssurance Manual which, aside from thebasic elements as required under the BOAbasic quality assurance policies andprocedures, specialized quality assuranceprocedures should be provided consistingof, among other, review asset quality,adequacy of risk-based capital, risk

management systems and corporategovernance framework of the coveredentities.

e. Copy of the latest AFS of theapplicant’s two (2) largest clients in termsof total assets.

2. Subject to BSP’s provision on earlydeletion from the list of selected externalauditor, the selection may be renewedwithin two (2) months before the expirationof the three (3)-year effectivity of theselection upon submission of the writtenapplication for renewal to the appropriatedepartment of the SES together with thefollowing documents/information:

(a) copy of updated BOA Certificate ofAccreditation with the attached list ofqualified partner/s of the firm;

(b) notarized certification of the externalauditor that he still possess all qualificationrequired under Item "F.1.b" of this Appendix;

(c) list of corporate clients auditedduring the three (3)-year period of beingselected as external auditor by BSP. Suchlist shall likewise indicate the findings notedby the BSP and other regulatory agencieson said AFS including the action thereonby the external auditor; and

(d) written proof that the auditor hasattended or participated in trainings for atleast thirty (30) hours in addition to theBOA’s prescribed training hours. Suchtraining shall be in subjects like internationalfinancial reporting standards, internationalstandards of auditing, corporategovernance, taxation, code of ethics,regulatory requirements of SEC, IC and BSPor other government agencies, and othertopics relevant to his practice, conductedby any professional organization orassociation duly recognized/accredited bythe BSP, SEC or by the BOA/PRC through aCPE Council which they may set up.

The application for initial or renewalaccreditation of an external auditor shall beaccomplished by a fee of P2,000.00.

APP. S-809.12.31



G. APPLICATION FOR AND/ORRENEWAL OF THE SELECTION OFAUDITING FIRMS

1. The initial application shall besigned by the managing partner of theauditing firm and shall be submitted tothe appropriate department of the SEStogether with the following documents/information:

a. copy of effective and valid BOACertificate of Accreditation with attachmentlisting the names of qualified partners;

b. notarized certification that the firmis in compliance with the generalqualification requirements under Item "E.2"and that the firm shall keep an audit orreview working papers for at least seven(7) years insufficient detail to support theconclusions in the audit report and makingthem available to the BSP’s authorizedrepresentative/s when required to do so;

c. copy of audit work program whichshall include assessment of the auditedinstitution’s compliance with BSP rules andregulations, such as, but not limited to thefollowing;





d. If the applicant firm will haveclients falling under Category A, copyQuality Assurance Manual where, asidefrom the basic elements as required underthe BOA basic quality assurance policiesand procedures, specialized qualityassurance procedures should be providedrelative to, among others review assetquality, adequacy of risk-based capital, riskmanagement systems and corporategovernance framework of covered entities;

e. Copy of the latest AFS of theapplicant’s two (2) largest clients in termsof total assets; and

f. Copy of firm’s AFS for theimmediately preceding two (2) years.

2. Subject to BSP’s provision on earlydeletion from the list of selected auditingfirm, the selection may be renewed withintwo (2) months before the expiration of thethree (3)-year effectivity of the selection uponsubmission of the written application forrenewal to the appropriate department of theSES together with the following documents/information:

a. a copy of updated BOA Certificateof Registration with the attached list ofqualified partner/s of the firm;

b. amendments on Quality AssuranceManual, inclusive of written explanation onsuch revision, if any; and

c. notarized certification that the firmis in compliance with the generalqualification requirements under Item"G.1.b" hereof;

The application for initial or renewalaccreditation of an auditing firm shall beaccompanied by a fee of P5,000.00.

H. REPORTORIAL REQUIREMENTS1. To enable the BSP to take timely and

appropriate remedial action, the externalauditor and/or auditing firm must report tothe BSP within thirty (30) calendar days afterdiscovery, the following cases:

a. Any material finding involving fraudor dishonesty (including cases that wereresolved during the period of audit);

b. Any potential losses the aggregate ofwhich amounts to at least one percent (1%)of the capital;

c. Any finding to the effect that theconsolidated assets of the company, on agoing concern basis, are no longeradequate to cover the total claims ofcreditors; and

APP. S-809.12.31



d. Material internal controlweaknesses which may lead to financialreporting problems.

2. The external auditor/auditing firmshall report directly to the BSP within fifteen(15) calendar days from the occurrence ofthe following:

a. Termination or resignation asexternal auditor and stating the reasontherefor;

b. Discovery of a material breach oflaws or BSP rules and regulations such as,but not limited to:

(1) CAR; and(2) Loans and other risk assets review

and classification.c. Findings on matters of corporate

governance that may require urgent actionby the BSP.

3. In case there are no matters to report(e.g. fraud, dishonesty, breach of laws, etc.)the external auditor/auditing firm shallsubmit directly to BSP within fifteen (15)calendar days after the closing of the auditengagement a notarized certification thatthere is none to report.

The management of the coveredinstitutions, including its subsidiaries andaffiliates, shall be informed of the adversefindings and the report of the externalauditor/auditing firm to the BSP shall includepertinent explanation and/or correctiveaction.

The management of the coveredinstitutions, including its subsidiaries andaffiliates, shall be given the opportunity tobe present in the discussions between theBSP and the external auditor/auditing firmregarding the audit findings, except incircumstances where the external auditorbelieves that the entity’s management isinvolved in fraudulent conduct.

It is, however, understood that theaccountability of an external auditor/auditing firm is based on matters within thenormal coverage of an audit conducted in

accordance with generally acceptedauditing standards and identified non-auditservices.

I. DELISTING AND SUSPENSION OFSELECTED EXTERNAL AUDITOR/AUDITING FIRM

1. An external auditor’s duly selectedpursuant to this regulation shall besuspended or delisted, in a mannerprovided under this regulation, under anyof the following grounds:

a. Failure to submit the report underItem "H" of this Appendix or the requiredreports under Subsec. X190.1;

b. Continuous conduct of audit despiteloss of independence as provided underItem "E.1" or contrary to the requirementsunder the Code of Professional Ethics;

c. Any willful misrepresentation in thefollowing information/documents;

(1) application and renewal foraccreditation;

(2) report required under Item "H"; and(3) Notarized certification of the

external auditor and/or auditing firm.d. The BOA found that, after due

notice and hearing, the external auditorcommitted an act discreditable to theprofession as specified in the Code ofProfessional Ethics for CPAs. In this case,the BOA shall inform the BSP of the resultsthereof;

e. Declaration of conviction by acompetent court of a crime involving moralturpitude, fraud (as defined in the RevisedPenal Code), or declaration of liability forviolation of the banking laws, rules andregulation, the Corporation Code of thePhilippines, the Securities Regulation Code(SRC); and the rules and regulations ofconcerned regulatory authorities;

f. Refusal for no valid reason, uponlawful order of the BSP, to submit therequested documents in connection with anongoing investigation. The external auditor

APP. S-809.12.31



should however been made aware of suchinvestigation;

g. Gross negligence in the conduct ofaudits which would result, among others,in non-compliance with generally acceptedauditing standards in the Philippines orissuance of an unqualified opinion whichis not supported with full compliance bythe auditee with generally acceptedaccounting principles in the Philippines(GAAP). Such negligence shall bedetermined by the BSP after properinvestigation during which the externalauditor shall be given due notice andhearing;

h. Conduct of any of the non-auditservices enumerated under Item "E.1" forhis statutory audit clients, if he has notundertaken the safeguards to reduce thethreat to his independence; and

i. Failure to comply with thePhilippine Auditing Standards andPhilippine Auditing Practice Statements.

2. An auditing firms; accreditationshall be suspended or delisted, after duenotice and hearing, for the followinggrounds:

a. Failure to submit the report underItem "H" or the required reports under Sec.X190.1.

b. Continuous conduct of auditdespite loss of independence of the firm asprovided under this regulation and underthe Code of Professional Ethics;

c. Any willful misrepresentation in thefollowing information/ documents;

(1) Application and renewal foraccreditation;

(2) Report required under Item "H";and

(3) Notarized certification of themanaging partner of the firm.

d. Dissolution of the auditing firm/partnership, as evidenced by an Affidavitof Dissolution submitted to the BOA, orupon findings by the BSP that the firm/

partnership is dissolved. The accreditationof such firm/partnership shall however bereinstated by the BSP upon showing that thesaid dissolution was solely for the purposeof admitting new partner/s have compliedwith the requirements of this regulation andthereafter shall be reorganized and re-registered;

e. There is a showing that theaccreditation of the following number orpercentage of external auditors, whicheveris lesser, have been suspended or delistedfor whatever reason, by the BSP:

(1) at least ten (10) signing partners andcurrently employed selected/accreditedexternal auditors, taken together; or

(2) such number of external auditorsconstituting fifty percent (50%) or more ofthe total number of the firm’s signing partnersand currently selected/accredited auditors,taken together.

f. The firm or any one (1) of itsauditors has been involved in a majoraccounting/auditing scam or scandal. Thesuspension or delisting of the said firmshall depend on the gravity of the offenseor the impact of said scam or scandal onthe investing public or the securitiesmarket, as may be determined by the BSP;

g. The firm has failed reasonably tosupervise an associated person andemployed auditor, relat ing to thefollowing:

(1) audit ing or quali ty controlstandards, or otherwise, with a view topreventing violations of this regulations;

(2) provisions under SRC relating topreparation and issuance of audit reportsand the obligations and liabilities ofaccountants with respect thereto;

(3) the rules of the BSP under thisAppendix; or

(4) professional standards.h. Refusal for no valid reason, upon

order of the BSP, to submit requesteddocuments in connection with an ongoing

APP. S-809.12.31



investigation. The firm should however bemade aware of such investigation.

3. Pursuant to paragraph 8 of theaforesaid MOA, the SEC, BSP and IC shallinform BOA of any violation by anaccredited/selected external auditor whichmay affect his/her accreditation status as apublic practitioner. The imposition ofsanction by BOA on an erring practitionershall be without prejudice to the appropriatepenalty that the SEC, IC or BSP may assessor impose on such external auditor pursuantto their respective rules and regulations. Incase of revocation of accreditation of apublic practitioner by BOA, theaccreditation by SEC, BSP and IC shalllikewise be automatically revoked/derecognized.

The SEC, BSP and IC shall inform eachother of any violation committed by anexternal auditor who is accredited/selectedby any one (1) or all of them. Each agencyshall undertake to respond on any referralor endorsement by another agency withinten (10) working days from receipt thereof.

4. Procedure and Effects of Delisting/Suspension.

a. An external auditor/auditing firmshall only be delisted upon prior noticeto him/it and after giving him/it theopportunity to be heard and defendhimself/itself by presenting witnesses/evidence in his favor. Delisted externalauditor and/or auditing firm may re-applyfor BSP selection after the periodprescribed by the Monetary Board.

b. BSP shall keep a record of itsproceeding/investigation. Saidproceedings/investigation shall not bepublic, unless otherwise ordered by theMonetary Board for good cause shown,with the consent of the parties to suchproceedings.

c. A determination of the MonetaryBoard to impose a suspension or delisting

under this section shall be supported by aclear statement setting forth the following:

(1) Each act or practice in which theselected/accredited external auditor orauditing firm, or associated entry, ifapplicable, has engaged or omitted toengage, or that forms a basis for all or partof such suspension/delisting;

(2) The specific provision/s of thisregulation, the related SEC rules orprofessional standards which the MonetaryBoard determined as has been violated; and

(3) The imposed suspension ordelisting, including a justification for eithersanction and the period and otherrequirements specially required withinwhich the delisted auditing firm or externalauditor may apply for re-accreditation.

d. The suspension/delisting, includingthe sanctions/penalties provided in Sec.X189 shall only apply to:

(1) Intentional or knowing conduct,including reckless conduct, that results inviolation or applicable statutory, regulatoryor professional standards; or

(2) Repeated instances of negligentconduct, each resulting in a violation of theapplicable statutory, regulatory orprofessional standards.

e. No associate person or employedauditor of a selected/accredited auditingfirm shall be deemed to have failedreasonably to supervise any other personfor purpose of Item "I.2.g" above, if:

(1) There have been established in andfor that firm procedures, and a system forapplying such procedures, that comply withapplicable rules of BSP and that wouldreasonably be expected to prevent anddetect any such violation by such associatedperson; and

(2) Such person or auditor hasreasonably discharged the duties andobligations incumbent upon that person byreason of such procedures and system, and

APP. S-809.12.31



had no reasonable cause to believe that suchprocedures and system were not beingcomplied with.

f. The BSP shall discipline anyselected external auditor that is suspendedor delisted from being associated with anyselected auditing firm, or for any selectedauditing firm that knew, or in the exerciseor reasonable care should have known,of the suspension or delisting of anyselected external auditor, to permit suchassociation, without the consent of theMonetary Board.

g. The BSP shall discipline anycovered institution that knew or in theexercise of reasonable care should haveknown, of the suspension or delisting of itsexternal auditor or auditing firm, withoutthe consent of the Monetary Board.

h. The BSP shall establish forappropriate cases an expedited procedurefor consideration and determination of thequestion of the duration of stay of anysuch disciplinary action pending reviewof any disciplinary action of the BSP underthis Section.

J. SPECIFIC REVIEWWhen warranted by supervisory

concern, the Monetary Board may, at theexpense of the covered institution requirethe external auditor and/or auditing firmto undertake a specific review of aparticular aspect of the operations of theseinstitutions. The report shall be submittedto the BSP and the audited institutionsimultaneously, within thir ty (30)calendar days after the conclusion of saidreview.

K. AUDIT BY THE BOARD OFDIRECTORS

Pursuant to Section 58 of RA. No. 8791,otherwise known as “The General BankingLaw of 2000” the Monetary Board may alsodirect the board of directors of a coveredinstitution or the individual members thereof,to conduct, either personally or by acommittee created by the board, an annualbalance sheet audit of the coveredinstitution to review the internal audit andthe internal control system of theconcerned entity and to submit a reportof such audit to the Monetary Boardwithin thirty (30) calendar days after theconclusion thereof.

L. AUDIT ENGAGEMENTCovered institutions shall submit the

audit engagement contract between them,their subsidiaries and affiliates and theexternal auditor/auditing firm to theappropriate department of the SES withinfifteen (15) calendar days from signingthereof. Said contract shall include thefollowing provisions:

1. That the covered institution shall beresponsible for keeping the auditor fullyinformed of existing and subsequent changesto prudential regulatory and statutoryrequirements of the BSP and that bothparties shall comply with said requirements;

2. That disclosure of information by theexternal auditor/auditing firm to the BSP asrequired under Items “H” and “J” hereof, shallbe allowed; and

3. That both parties shall comply withall the requirements under this Appendix.(As amended by Circular No. 660 dated 25 August 2009)

iii


P REGULATIONS(Regulations Governing Pawnshops)

TABLE OF CONTENTS

PART ONE - ORGANIZATION, MANAGEMENT AND ADMINISTRATION


SECTION 4101P Basic Law Governing Pawnshops4101P.1 Scope of authority of pawnshops4101P.2 Form of organization4101P.3 Organizational requirements

4101P.4 Requirement to register with the Bangko Sentral4101P.5 Pawnshop regulations briefing and Anti-Money

Laundering Act seminar4101P.6 Processing and annual fees4101P.7 Renewal of the Bangko Sentral registration of

pawnshop head office and branches (Deletedby Circular No. 711 dated 28 January 2011)

4101P.8 Documentary requirements to renew the BangkoSentral registration (Deleted by Circular No. 711dated 28 January 2011)

SECTION 4102P Definition of Terms

SECTIONS 4103P - 4105P (Reserved)

B. CAPITALIZATION

SECTION 4106P Capital of Pawnshops41016P.1 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4107P Prudential Capital Ratio4107P.1 Capital build-up program


iv

C. - F. (RESERVED)


G. PROPRIETOR, PARTNERS, DIRECTORS, OFFICERS AND EMPLOYEES

SECTION 4141P Safeguarding of Pawnshop Assets4141P.1 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4142P Definitions, Qualifications, Responsibilities and Duties of Proprietor/Partners/Directors/Officers

4142P.1 Definitions4142P.2 General qualifications of a proprietor, partner,

director, president, and manager orofficer-in-charge of head office or branch

4142P.3 Corporate governance

SECTION 4143P Disqualification of Directors and Officers4143P.1 Persons disqualified from becoming directors4143P.2 Persons disqualified from becoming officers4143P.3 Disqualification procedures4143P.4 Effect of possession of disqualifications4143P.5 (Reserved)4143P.6 Watchlisting4143P.7 Applicability of Section 4143P to the proprietor

and managing partner of a pawnshop (in the caseof a sole proprietorship/partnership


H. BRANCH OFFICES

SECTION 4151P Establishment of Branch Offices4151P.1 Definition of branch office4151P.2 Operations and functions4151P.3 Basis for establishment4151P.4 Documentary requirements4151P.5 Processing and annual fees4151P.6 Date of opening for business4151P.7 Pawnshop branches without business permit and

authority to operate considered operatingillegally

v



SECTION 4156P Business Days and Hours


J. RECORDS AND REPORTS

SECTION 4161P Records4161P.1 Uniform system of accounts

4161P.2 Philippine Financial Reporting Standards/Philippine Accounting Standards

4161P.3 Accounting for pawnshops premises; other fixed assets

4161P.4 Retention of records

SECTION 4162P Reports4162P.1 Categories of and signatories to reports4162P.2 Manner of filing4162P.3 Sanctions

SECTION 4163P Report on Crimes/Losses

SECTION 4164P Audited Financial Statements/Annual Report of Pawnshops4164P.1 Financial audit (Deleted by Circular No. 711

dated 28 January 2011)4164P.2 Disclosure of external auditor's adverse findings

to the Bangko Sentral (Deleted by Circular No.711 dated 28 January 2011)

4164P.3 Definition relevant to reports to BSP(Deleted byCircular No. 711 dated 28 January 2011)

4164P.4 Selection, appointment, reporting requirementsand delisting of external auditors and/or auditingfirm; sanction

SECTION 4165P General Information Sheet (Deleted by Circular No. 711 dated28 January 2011)


vi

K. INTERNAL CONTROL

SECTION 4171P Internal Control System4171P.1 Proper accounting records4171P.2 Number control4171P.3 Safekeeping of records and insurance of

premises4171P.4 Miscellaneous

SECTION 4172P Separation of Pawnshop Business from Other Businesses



SECTION 4181P Registered/Business Name4181P.1 Change of registered/business name4181P.2 Use of registered/business name in signage, pawn

tickets and other forms4181P.3 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4182P Transfer/Relocation of Business4182P.1 Documentary requirements for transfer within the

same city/municipality4182P.2 Documentary requirements for transfer outside

the city/municipality

SECTION 4183P Closure of Pawnshops4183P.1 Voluntary closure4183P.2 Delisting of pawnshops/involuntary closure

(Deleted by Circular No. 711 dated 28January 2011)

4183P.3 Other grounds for delisting (Deleted by CircularNo. 711 dated 28 January 2011)

SECTION 4184P Transfer of Ownership4184P.1 Requirements for transfer of ownership4184P.2 Processing and annual fees

SECTION 4185P Processing Fee for Replacement of Acknowledgement ofRegistration of Head Office/Authority to Operate

vii


SECTION 4190P Duties and Responsibilities of Pawnshops and their Directors/Officers in Cases of Outsourcing of Pawnshop Functions

SECTION 4191P (Reserved)

SECTION 4192P Prompt Corrective Action Framework


SECTION 4199P General Provision on Sanctions

PART TWO - BORROWING OPERATIONS

A. - J. (RESERVED)


K. OTHER BORROWINGS

SECTION 4285P Securities and Exchange Commission Registration ofBorrowing

SECTION 4286P Borrowings Constituting Quasi-Banking Functions


SECTION 4299P General Provision on Sanctions (Deleted by Circular No. 711dated 28 January 2011)

PART THREE - LOANS AND INVESTMENTS

A. LOANS IN GENERAL

SECTION 4301P Grant of Loans4301P.1 General guidelines4301P.2 Prohibitions4301P.3 Know your pawner4301P.4 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

viii

SECTION 4302P Loan Limit4302P.1 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4303P Interest and Surcharges4303P.1 Rate of interest in the absence of stipulation4303P.2 Other charges4303P.3 Posting of interest rate and other charges4303P.4 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4304P (Reserved)

SECTION 4305P Past Due Accounts; Renewal4305P.1 Right of pawner to redeem pawn within ninety

(90) days from maturity4305P.2 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4306P Interest Accrual on Past Due Loans


B. LOAN COLLATERAL/SECURITY

SECTION 4321P Acceptable Security and Safekeeping of Pawns

SECTION 4322P Redemption of Pawns4322P.1 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4323P Pawn Ticket4323P.1 Stipulations in pawn ticket4323P.2 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4324P Notices to the Pawner and to the Public4324P.1 Poster4324P.2 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)

SECTION 4325P Public Auction of Pawns4325P.1 Auction of pawned items covered by a single

pawn ticket

ix


C. - J. (RESERVED)


K. MISCELLANEOUS


SECTION 4399P General Provision on Sanctions

PART FOUR (RESERVED)


PART FIVE (RESERVED)


PART SIX - MISCELLANEOUSA. (RESERVED)


SECTION 4641P Electronic Services

SECTION 4642P Issuance and Operations of Electronic Money4642P.1 Declaration of policy4642P.2 Definitions4642P.3 Prior Bangko Sentral approval4642P.4 Common provisions4642P.5 Quasi-bank license requirement4642P.6 Sanctions4642P.7 Transitory provisions4642P.8 - 4642P.10 (Reserved)4642P.11 Outsourcing of services by Electronic Money


x



SECTION 4651P Supervisory Powers of the Bangko Sentral4651P.1 Refusal to permit examination4651P.2 Sanctions (Deleted by Circular No. 711 dated

28 January 2011)


SECTION 4657P Batas Pambansa Blg. 344 - An Act to Enhance the Mobility ofDisabled Persons by Requiring Certain Buildings, Institutions,Establishments and Public Utilities to Install Facilities and Other Devices


SECTION 4691P Anti-Money Laundering Regulations4691P.1 Required seminar/training4691P.2 Anti-money laundering program4691P.3 - 4691P.8 (Reserved)4691P.9 Sanctions and penalties (Deleted by Circular No.

711 dated 28 January 2011)


SECTION 4699P Administrative Sanctions (Deleted by Circular No. 711 dated28 January 2011)


xi

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 AuthorizationAnnex P-3-a - Format of Resolution for Signatories of Category A-1

ReportsAnnex P-3-b - Format of Resolution for Signatories of Category A-2

ReportsAnnex P-3-c - Format of Resolution for Signatories of Categies A-3

and B Reports

P - 4 Standard Pawn Ticket

P - 4 - a Format of Statement of Understanding on Pawnshop Transaction

P - 4 - b Standard Additional Stipulations in Pawn Tickets

P - 4 - c Stipulations not Allowed in Standard Pawn Tickets

P - 5 Anti-Money Laundering Regulations (Deleted pursuant to Circular No.706 dated 05 January 2011)Annex P-5-a - Certification of Compliance with Anti-Money

Laundering Regulations (Deleted by Circular No. 706dated 05 January 2011)

Annex P-5-b - Rules on Submission of Covered Transaction Reportsand Suspicious Transaction Reports by CoveredInstitutions (Deleted pursuant to Circular No. 706dated 05 January 2011)

P - 6 Revised Implementing Rules and Regulations of R.A. No. 9160, asamended by R.A. No. 9194 (Deleted pursuant to Circular No. 706 dated05 January 2011)

P - 7 "Know-Your-Pawner” Policy

xii


No. SUBJECT MATTER

P - 8 Abstract of “Section 13 and 14 of P.D. No. 114”(Pawnshop Regulation Act)

P - 9 Guidelines to Govern the Selection, Appointment, ReportingRequirements and Delisting of External Auditors and/or Auditing Firmof Covered Entities

P Regulations Part I - Page 1


PART ONE

ORGANIZATION, MANAGEMENT AND ADMINISTRATION


Section 4101P Basic Law GoverningPawnshops. P.D. No. 114, known as thePawnshop Regulation Act, regulates theestablishment and operation of pawnshops.(Circular No. 656 dated 02 June 2009)

§ 4101P.1 Scope of authority ofpawnshops. A duly organized and licensedpawnshop has, in general, the power toengage in the business of lending moneyon the security of personal property withinthe framework and limitations of P.D. No.114 and the following regulations, subjectto the regulatory and supervisory powersof the BSP.(Circular No. 656 dated 02 June 2009)

§ 4101P.2 Form of organization. Apawnshop may be established as a singleproprietorship, a partnership or corporation.

Only Filipino citizens may establishand own a pawnshop organized as a singleproprietorship. A pawnshop establishedas a single proprietorship by a non-Filipinoowner prior to 29 January 1973 maycontinue as such during the lifetime of theregistered owner.

If a pawnshop is organized as apartnership, at least seventy percent(70%) of its capital shall be owned byFilipino citizens. Pawnshops establishedas partnerships prior to 29 January 1973,with non-Fil ipino partners whoseaggregate holdings amount to more thanthirty percent (30%) of the capital mayretain the percentage of their aggregateholdings as of 29 January 1973, and saidpercentage shall not be increased, but maybe reduced, and once reduced shall notbe increased thereafter beyond thirty

§§ 4101P - 4101P.309.12.31

percent (30%) of the capital stock of suchpawnshop.

In the case of a pawnshop organizedas a corporation, at least seventy percent(70%) of the voting stock therein shallbe owned by citizens of the Philippines,or if there be no capital stock, at leastseventy percent (70%) of the membersentitled to vote shall be citizens of thePhilippines.

Pawnshops registered as a corporationwith foreign equity participation in excessof thirty percent (30%) of the voting stock,or members entitled to vote, of thepawnshop may retain the percentage offoreign equity as of 29 January 1973, andsaid percentage shall not be increased, butmay be reduced and once reduced, shall notbe increased thereafter beyond thirtypercent (30%) of the voting stock, or numberof members entitled to vote, of suchpawnshop.

The percentage of foreign-owned votingstock in a pawnshop corporation shall bedetermined by the citizenship of itsindividual stockholders. If the voting stockin a pawnshop corporation is held byanother corporation, the percentage offoreign ownership in that pawnshop, shallbe computed on the basis of the foreigncitizenship of the individuals owning votingstocks in, or members entitled to vote of,the stockholder corporation.(Circular No. 656 dated 02 June 2009)

§ 4101P.3 Organizational requirementsAny person or entity desiring to establish apawnshop shall register with the Departmentof Trade and Industry (DTI), in the case of asingle proprietorship; or with the Securitiesand Exchange Commission (SEC), in the caseof a partnership/corporation.

P RegulationsPart I - Page 2


§§ 4101P.3 - 4101P.511.12.31

Pawnshops with foreign equityparticipation shall also register with theBoard of Investments.

After registering with the DTI or withthe SEC, the single proprietorship or thepartnership/corporation, as the case may be,shall secure a business license from the cityor municipality where the pawnshop is tobe established and operated, in accordancewith the requirements of the pertinentordinance in that city or municipality.(Circular No. 656 dated 02 June 2009)

§ 4101P.4 Requirement to register withthe Bangko Sentral. Pursuant to Section 6 ofP.D. No. 114, which requires pawnbrokersto register with the BSP before commencingactual business operations, every pawnshopshall submit to the BSP an Information Sheeton the entity (using BSP-prescribed form)duly accomplished by the proprietor/managing partner/president under oath thatshall be the basis for the issuance by theBSP of an Acknowledgement of Registration(AOR). The Information Sheet shall beaccompanied by the following documents:

a. A Certificate of Registration (COR)of business name from the DTI, in case of asole proprietorship;

b. Articles of Partnership/Incorporationand by-laws duly registered with the SEC,in the case of a partnership or a corporationwhich Articles shall indicate that the primarypurpose of the partnership/corporation is toengage in the business of a pawnshop or apawnbroker;

c. City/municipal license/businesslicense/mayor’s permit for the current period;

d. Personal data sheet (using BSP-prescribed form for pawnshops) withpassport size picture duly accomplished bythe proprietor or partners or directors,president and manager or officer-in-chargeof the head office; and

e. Such other documents that may berequired by the BSP that are enumerated ina list attached to the Information Sheet.

No application for registration shall beaccepted from a person or entity other thanthe proprietor, partner, or incorporator of apawnshop unless the person or entityapplying on behalf of the proprietor, partneror incorporator submits a duly executed andnotarized special power of attorneyauthorizing the person or entity to act onbehalf of the proprietor, partner, orincorporator. In the case of a corporateapplicant, a certified true copy of the boardresolution authorizing the person or entityshall likewise be submitted.

A pawnshop shall commence actualoperations within six (6) months from thedate of issuance of the AOR. Failure tocommence actual operations within theaforementioned six (6) months period shallrender the BSP AOR as automaticallycancelled.

The pawnshop shall notify the BSP inwriting of the start of operations within five(5) business days from the actual start ofoperations.

Any pawnshop that is found operatingthat does not have a current business permitissued by the city or municipality where itis located and an AOR issued by the BSP isconsidered operating illegally. Suchpawnshop shall be reported to the Officeof the Mayor of the concerned city ormunicipality, for appropriate action,without prejudice to whatever legal actionthe BSP may pursue under Section 18 ofP.D. No. 114 and other applicable lawsagainst the pawnshop, its proprietor,partners, incorporators, stockholders,directors, president and officers.(Circular No. 656 dated 02 June 2009, as amended by Circular

No. 711 dated 28 January 2011)

§ 4101P.5 Pawnshop regulationsbriefing and Anti-Money Laundering Actseminar. As a prerequisite for the issuanceby the BSP of the AOR, the proprietor,partner, director, president as well asmanager or officer-in-charge of the head



§§ 4101P.5 - 4105P11.12.31

office and branch shall have attended the:(a) briefing on pawnshop regulationsconducted by the BSP or any accreditedservice provider; and (b) seminar on theAnti-Money Laundering Act as prescribedin Subsec.4691P.1.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4101P.6 Processing and annual feesEvery pawnshop head office shall pay aone-time processing fee of P1,000.00 forthe initial registration, and P500.00annual fee upon approval of applicationfor registration. Thereafter, the annual feeshall be paid not later than 31 March ofevery year.

Transitory provision. The annual feeshall commence for the year 2010. It shallbe collected from all pawnshop’s headoffices and branches registered as of31 December 2009. The deadline forpayment of the annual fee for 2010 is 31March 2011.

Pawnshop head offices and branchesthat have paid the registration fee/renewalof registration fee of P3,000.00, pursuantto BSP Circular No. 656, shall beconsidered to have paid the annual feefor six (6) years starting 2010.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4101P.7 Renewal of the BangkoSentral registration of pawnshop headoffice and branches.(Deleted by Circular No. 711 dated 01 January 2011)

§ 4101P.8 Documentary requirementsto renew the Bangko Sentral registration(Deleted by Circular No. 711 dated 28 January 2011)

Sec. 4102P Definition of Termsa. Pawnshop shall refer to a person

or entity engaged in the business of lendingmoney on personal property that is

physically delivered to the pawnshoppremises as loan collateral. The term shallbe synonymous, and may be usedinterchangeably, with pawnbroker orpawnbrokerage.

b. Pawner shall refer to the borrowerfrom a pawnshop.

c. Pawnee shall refer to the pawnshopor pawnbroker.

d. Pawn is the personal propertydelivered by the pawner to the pawnee assecurity for a loan.

e. Pawn ticket is the pawnbroker’sreceipt for a pawn and shall not beconsidered as an official receipt for amountscollected.

f. Property shall include only suchpersonal property which can be physicallydelivered to the control and possession ofthe pawnee.

g. Voting stock is that portion of theauthorized capital which is subscribed andentitled to vote.

h. Vital records shall consist of theLoans Extended/Paid Registers, GeneralLedger/Journal, that may in electronic form,covering the current and at least thepreceding five (5) years of operation, unusedaccountable forms and permanentrecords, e.g., articles of incorporation/co-partnership, by-laws, stock certificates, etc.

i. Bulky pawns shall refer tohousehold appliances, office machines andthe like, which occupy considerable amountof space, i.e., measuring at least 1.5 x 1.5 x0.5 feet.

j. Premises shall refer to the areawhere the pawnshop conducts its businessand maintains office. It includes office orstorage spaces maintained and/or used bythe pawnshop which are adjacent to thepawnshop’s location.(Circular No. 656 dated 02 June 2009)

Secs. 4103P - 4105P (Reserved)



§§ 4106P - 4141P11.12.31

B. CAPITALIZATION

Sec. 4106P Capital of Pawnshops. Everypawnshops shall have a minimum paid-incapital of P100,000.

A pawnshop’s paid-in capital may bein the form of:

a. Cash;b. Tangible properties, including real

estate and improvements thereon; andc. A combination of cash and tangible

properties.Tangible properties shall be limited to

those that are necessary for the conduct ofthe pawnshop business. They may be valuedat fair value which is the amount for whichan asset could be exchanged betweenknowledgeable, willing parties in an arm’slength transaction. The fair value of land andbuildings is usually determined frommarket-based evidence by appraisal that isnormally undertaken by professionallyqualified appraisers.

The value of the tangible propertiescontributed as capital shall not exceedtwenty-five percent (25%) of said paid-incapital and surplus/acumulated surplus: Forpawnshops existing as at 29 January 1973whose value of properties exceeds theprescribed ratio, such percentage may beretained or reduced but shall not beincreased thereafter. Should the ratio, on theother hand, fall below the prescribed level,it may be increased but not beyond twenty-five percent (25%).(Circular No. 656 dated 02 June 2009)

§ 4106P.1 Sanctions(Deleted by Circular No. 711 dated 28 January 2011)

Sec. 4107P Prudential Capital Ratio. Theminimum capital ratio of a pawnshop,expressed as a percentage of total capital topledge loans, shall not be less than fiftypercent (50%): Provided, That total pledgeloans shall not exceed P3.0 million. If andwhen the pledge loans exceed P3.0 million,

additional capital of 30% of pledge loansin excess of P3.0 million shall be required.

For this purpose, the term total capitalshall be defined as total assets minus:

(a) total liabilities;(b) deferred tax assets;(c) unbooked valuation reserves; and(d) other capital adjustments as may be

required by the BSP.Any appraisal surplus or appreciation

credit as a result of appreciation or anincrease in book value of the assets of thepawnshop shall be excluded.(Circular No. 656 dated 02 June 2009)

§ 4107P.1 Capital build-up program. Anypawnshop that fails to comply with theprudential capital requirement shall submitwithin thirty (30) days from date of notice fromthe BSP, a Letter of Undertaking to implementa capital build-up program for a period not toexceed one (1) year from date of undertaking.(Circular No. 656 dated 02 June 2009, as amended by Circular



C. - F. (RESERVED)


G. PROPRIETOR/PARTNERS/DIRECTORS,OFFICERS AND EMPLOYEES

Sec. 4141P Safeguarding of PawnshopAssets. In order to safeguard pawnshop’sassets (pawned items) and mitigate the risk ofloss arising from malfeasance or fraudulentpractices of their employees, pawnshops shalladopt any of the following measures:

a. Bonding of accountable officers/employees with reputable insurance/suretycompanies accredited by the InsuranceCommissioner; or

b. Equivalent self-insurance mechanismacceptable to BSP.(Circular No. 656 dated 02 June 2009, as amended by Circular No.711 dated 28 January 2011)



§§ 4141P.1 - 4143P.111.12.31


Sec. 4142P Definitions, Qualifications, andDuties and Responsibilities of Proprietor/Partners/Directors/Officers. For purposes ofthis Section the following shall be thedefinitions and qualifications, duties andresponsibilities of proprietor/partners/directors/officers.(Circular No. 656 dated 02 June 2009, as amended by Circular No.


§ 4142P.1 Definitionsa. Proprietor is the person named in the

Certificate of Registration issued by the DTIand in the city/municipal license and mayor’spermit as the owner of the business.

b. Partners are the persons named inthe articles of partnership.

c. Incorporators are those mentioned assuch in the articles of incorporation asoriginally forming and composing thecorporation and who are signatories thereof.

d. Directors – Directors shall include:(1) directors who are named as such in

the articles of incorporation;(2) directors duly elected in subsequent

meetings of the pawnshop’s stockholders; and(3) those elected to fill vacancies in the

board of directors.The number of members of the board of

directors, pursuant to Section 10 of BatasPambansa No. 68, shall be at least five (5),and a maximum of fifteen (15) directors.

e. Officers - are those persons whoseduties as such are defined in the by-laws(for corporations) or those who are generallyknown to be the officers of the pawnshopeither thru announcement, representation,publication or any kind of communicationmade by the pawnshop. The term officershall include, but not limited to thefollowing: the proprietor, managing partner,president, and manager or officer-in-chargeof head office or branch.(Circular No. 656 dated 02 June 2009, as amended by Circular No.711 dated 28 January 2011)

§ 4142P.2 General qualifications of aproprietor, partner, director, president, andmanager or officer-in-charge of head officeor branch. Any person can be a proprietor,partner, director, president, manager or officer-in-charge of a pawnshop’s head office orbranch, provided he/she:

a. Must have undergone a briefing onpawnshop regulations conducted by the BSPor any accredited service provider;

b. Must have undergone a briefing on theAnti-Money Laundering Law (AMLA) asprescribed by Subsec. 4691P.1;

c. Must not be included in the BSPWatchlist; and

d. Must not possess any derogatoryinformation from the National Bureau ofInvestigation (NBI). The NBI clearance shallbe submitted pursuant to Subsecs. 4101P.4and 4151P.4.

The NBI clearance shall also be requiredfor any newly elected/appointed director,president, manager or officer-in-charge andnewly accepted partner or director of anexisting pawnshop.(Circular No. 656 dated 02 June 2009, as amended by Circular


§ 4142P.3 Corporate governance. Acorporate pawnshop with total resources ofat least P50.0 million shall comply with theSEC requirements on corporate governance,and as proof of compliance, the said corporatepawnshop shall submit to the BSP a notarizedcertification to that effect.(Circular No. 656 dated 02 June 2009, as amended by Circular No.


Sec. 4143P Disqualification of Directors andOfficers. The following regulations shallgovern the disqualification of pawnshopdirectors and officers.(Circular No. 656 dated 02 June 2009)

§ 4143P.1 Persons disqualified frombecoming directors. Without prejudice tospecific provisions of law prescribing



§ 4143P.111.12.31

disqualifications for directors/trusteees, thefollowing are disqualified from becomingdirectors of pawnshops:

a. Permanently disqualifiedDirectors/trustees/officers/employees

permanently disqualified by the MonetaryBoard from holding a director position:

(1) Persons who have been convictedby final judgment of a court for offensesinvolving dishonesty or breach of trust suchas, but not limited to, estafa, embezzlement,extortion, forgery, malversation, swindling ,theft, robbery, falsification, bribery, violationof B.P. Blg. 22, violation of Anti-Graft andCorrupt Practices Act and Prohibited Actsand Transactions under Section 7 of R.A. No.6713 (Code of Conduct and Ethical Standardsfor Public Officials and Employees);

(2) Persons who have been convictedby final judgment of the court sentencingthem to serve a maximum term ofimprisonment of more than six (6) years;

(3) Persons who have been convictedby final judgment of the court for violationof banking laws, rules and regulations;

(4) Persons who have been judiciallydeclared insolvent, spendthrift orincapacitated to contract;

(5) Directors, officers or employees ofclosed banks/QBs/trust entities who werefound to be culpable for such institution’sclosure as determined by the Monetary Board;

(6) Directors and officers of banks, QBs,trust entities found by the Monetary Boardas administratively liable for violation ofbanking or other relevant laws, rules andregulations where a penalty of removal fromoffice is imposed, and which finding of theMonetary Board has become final andexecutory; or

(7) Directors and officers of banks, QBs,trust entities or any person found by theMonetary Board to be unfit for the positionof director or officer because they werefound administratively liable by anothergovernment agency for violation of bankingor other relevant laws, rules and regulations

or any offense/violation involvingdishonesty or breach of trust, and whichfinding of said government agency hasbecome final and executory.

b. Temporarily disqualifiedD i r e c t o r s / o f f i c e r s / e m p l o y e e s

disqualified by the Monetary Board fromholding a director/trustee position for aspecific/indefinite period of time. Included are:

(1) Persons who refuse to fully disclosethe extent of their business interest or anymaterial information to the appropriatesupervising and examining departmentwhen required pursuant to a provision oflaw or of a circular, memorandum or ruleor regulation of the BSP. Thisdisqualification shall be in effect as long asthe refusal persists;

(2) Directors who have been absent orwho have not participated for whateverreasons in more than fifty percent (50%) ofall meetings, both regular and special, ofthe board of directors during theirincumbency, or any twelve (12)-monthperiod during said incumbency. Thisdisqualification applies only for purposesof the immediately succeeding election;


(a) Delinquency in the payment ofobligations means that an obligation of aperson with the institution where he/she isa director or officer, or at least two (2)obligations with other FIs, under differentcredit lines or loan contracts, are past duepursuant to Secs. X306, 4308Q, 4306S and4305P;

(b) Obligations shall include allborrowings from any FI obtained by:

(i) A director/trustee or officer for hisown account or as representative or agent ofothers or where he/she acts as guarantor,endorser or surety for loans from such FIs;

(ii) The spouse or child under the parentalauthority of the director/trustee or officer;

(iii) Any person whose borrowings or



§ 4143P.111.12.31

loan proceeds were credited to the accountof, or used for the benefit of a director/trusteeor officer;

(iv) A partnership of which a director/trustee or officer, or his/her spouse is themanaging partner or a general partner owninga controlling interest in the partnership; and

(v) A corporation, association or firmwholly-owned or majority of the capital ofwhich is owned by any or a group of personsmentioned in the foregoing Items “(i)”, “(ii)”and “(iv)”.

This disqualification shall be in effect aslong as the delinquency persists.

(4) Persons who have been convicted bya court for offenses involving dishonesty orbreach of trust such as, but not limited to,estafa, embezzlement, extortion, forgery,malversation, swindling, theft, robbery,falsification, bribery, violation of B.P. Blg. 22,violation of Anti-Graft and Corrupt PracticesAct and Prohibited Acts and Transactionsunder Section 7 of R.A. No. 6713 (Code ofConduct and Ethical Standards for PublicOfficials and Employees), violation of bankinglaws, rules and regulations or those sentencedto serve a maximum term of imprisonment ofmore than six (6) years but whose convictionhas not yet become final and executory;

(5) Directors/trustees and officers ofclosed institutions under the supervisory andregulatory powers of the BSP pending theirclearance by the Monetary Board;

(6) Directors/ trustees disqualified forfailure to observe/discharge their duties andresponsibilities prescribed under existingregulations. This disqualification applies untilthe lapse of the specific period ofdisqualification or upon approval by theMonetary Board or the appropriate departmentof the SES of such directors’/trustees' election/reelection;

(7) Persons dismissed/terminated fromemployment in the institutions under thesupervision of the BSP. This disqualificationshall be in effect until they have been clearedthemselves of involvement in the alleged

irregularity or upon clearance, on their request,from the Monetary Board after showing goodand justifiable reasons;

(8) Those under preventive suspension; and(9) Persons with derogatory records as

certified by, or on the official files of, thejudiciary, NBI, PNP, quasi-judicial bodies,other government agencies, internationalpolice, monetary authorities and similaragencies or authorities of foreign countries forirregularities or violations of any law, rulesand regulations that would adversely affect theintegrity of the director/officer or the ability toeffectively discharge his duties. Thisdisqualification applies until they have clearedthemselves of the alleged irregularities/violations or after a lapse of five (5) years fromthe time the complaint, which was the basisof the derogatory record, was initiated;

(10) Directors and officers of banks, QBsand trust entities found by the Monetary Boardas administratively liable for violation ofbanking or other relevant laws, rules andregulations where a penalty of removal fromoffice is imposed, and which finding of theMonetary Board is pending appeal before theappellate court, unless execution orenforcement thereof is restrained by the court;

(11) Directors and officers of banks, QBs,and trust entities or any person found by theMonetary Board to be unfit for the position ofdirector or officer because they were foundadministratively liable by another governmentagency for violation of banking or otherrelevant laws, rules and regulations, or anyoffense/violation involving dishonesty orbreach of trust, and which finding of saidgovernment agency is pending appeal beforethe appellate court, unless execution orenforcement thereof is restrained by the court;or

(12) Directors and officers of banks, QBs,trust entities found by the Monetary Board asadministratively liable for violation of bankingor other relevant laws, rules and regulationswhere a penalty of suspension from office orfine is imposed, regardless whether the finding



§§ 4143P.1 - 4143P.311.12.31

of the Monetary Board is final and executoryor pending appeal before the appellate court,unless execution or enforcement thereof isrestrained by the court. The disqualificationshall be in effect during the period ofsuspension or so long as the fine is not fullypaid.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4143P.2 Persons disqualified frombecoming officers

a. The disqualifications for directorsmentioned in Subsec. 4143P.1 shall likewiseapply to officers, except those stated in Items“b(2)”.

b. Except as may be authorized by theMonetary Board or the Governor, the spouseor a relative within the second degree ofconsanguinity or affinity of any person holdingthe position of chairman, president, executivevice president or any position of equivalentrank, general manager, treasurer, chief cashieror chief accountant is disqualified from holdingor being elected or appointed to any of saidpositions in the same pawnshop and thespouse or relative within the second degreeof consanguinity or affinity of any personholding the position of manager, cashier, oraccountant of a branch or office of apawnshop is disqualified from holding orbeing appointed to any of said positions inthe same branch or office.(Circular No. 656 dated 02 June 2009)

§ 4143P.3 Disqualification proceduresa. The board of directors/trustees and

management of every pawnshop shall beresponsible for determining the existence ofthe ground for disqualification of thepawnshop’s directors/trustees/officer oremployee and for reporting the same to theBSP. While the concerned pawnshop mayconduct its own investigation and imposeappropriate sanction/s as are allowable, thisshall be without prejudice to the authority ofthe Monetary Board to disqualify a pawnshop

director/trustee/officer/employee from beingelected/appointed as director/ trustee/officerin any FI under the supervision of the BSP.Grounds for disqualification made known tothe institution shall be reported to theappropriate department of the SES of the BSPwithin 72 hours from knowledge thereof.

b. On the basis of knowledge andevidence on the existence of any of thegrounds for disqualification mentioned inSubsecs. 4143P.1 and 4143P.2, the directoror officer concerned shall be notified in writingeither by personal service or through registeredmail with registry return receipt card at his/her last known address by the appropriatedepartment of the SES of the existence of theground for his/her disqualification and shallbe allowed to submit within fifteen (15)calendar days from receipt of such notice anexplanation on why he/she should not bedisqualified and included in the watchlistedfile, together with the evidence in support ofhis/her position. The head of said departmentmay allow an extension on meritoriousground.

c. Upon receipt of the reply/explanationof the director/trustee/officer concerned, theappropriate department of the SES shallproceed to evaluate the case. The director/trustee/officer concerned shall be afforded todefend/clear himself/herself.

d. If no reply has been received from thedirector/trustee/officer concerned upon theexpiration of the period prescribed under Item“b” above, said failure to reply shall be deemeda waiver and the appropriate department ofthe SES shall proceed to evaluate the casebased on available records/evidence.

e. If the grounds for disqualification isdelinquency in the payment of obligation, theconcerned director/trustee or officer shall begiven a period of thirty (30) calendar dayswithin which to settle said obligation or,restore it to current status or, to explain whyhe/she should not be disqualified andincluded in the watchlisted file, before theevaluation on his disqualification and



§ 4143P.309.12.31

watchlisting is elevated to the MonetaryBoard.

f. For directors/trustees/officers ofclosed banks, the concerned department ofthe SES shall make appropriaterecommendation to the Monetary Boardclearing said directors/trustees/officers whenthere is no pending case/complaint orevidence against them. When there isevidence that a director/trustee/officer hascommitted irregularity, the appropriatedepartment of the SES shall makerecommendation to the Monetary Boardthat his/her case be referred to the Office ofSpecial Investigation (OSI) for furtherinvestigation and that he/she be includedin the master list of temporarily disqualifiedpersons until the final resolution of his/hercase. Directors/trustee/officer with pendingcases/complaints shall also be included insaid master list of temporarily disqualifiedpersons upon approval by the MonetaryBoard until the final resolution of their cases,If the director/trustee/officer is cleared frominvolvement in any irregularity, theappropriate department of the SES shallrecommend to the Monetary Board his/herdelisting. On the other hand, if the director/trustee/officer concerned is found to beresponsible for the closure of the institution,the concerned department of the SES shallrecommend to the Monetary Board his/herdelisting from the disqualified persons andhis/her inclusion in the master list ofpermanently disqualified persons.

g. If the disqualification is based ondismissal from employment for cause, theappropriate department of the SES shall, asmuch as practicable, endeavor to establishthe specific acts or omissions constitutingthe offense of the ultimate facts whichresulted in the dismissal to be able todetermine if the disqualification of thedirector/trustee/officer concerned iswarranted or not. The evaluation of the caseshall be made for the purpose of determiningif disqualification would be appropriate and

not for the purpose of passing judgment onthe findings and decision of the entityconcerned. The appropriate department ofthe SES may decide to recommend to theMonetary Board a penalty lower thandisqualification (e.g., reprimand, suspension,etc.) if, in its judgment the act committed oromitted by the director/trustee/officerconcerned does not warrant disqualification.

h. All other cases of disqualification,whether permanent or temporary shall beelevated to the Monetary Board for approvaland shall be subject to the proceduresprovided in Items “a”, “b”, “c” and “d” above.

i. Upon approval by the MonetaryBoard, the concerned directors/trustees/officers shall be informed by the appropriatedepartment of the SES in writing either bypersonal service or through registered mailwith registry return receipt card, at his/herlast known address of his/her disqualificationfrom being elected/appointed as director/trustee/officer in any FI under the supervisionof BSP and/or of his/her inclusion in themaster list of watchlisted persons sodisqualified.

j. The board of directors/trustees of theconcerned institution shall be immediatelyinformed of cases of disqualificationapproved by the Monetary Board and shallbe directed to act thereon not later than thefollowing board meeting. Within seventy-two (72) hours thereafter, the corporatesecretary shall report to the Governor of theBSP through the appropriate department ofthe SES the action taken by the board on thedirector/trustee/officer involved.

k. Persons who are elected orappointed as director/trustee or officer in anyof the BSP-supervised institutions for the firsttime but are subject to any of the groundsfor disqualification provided for underSubsecs. 4143P.1 and 4143P.2 shall beafforded the procedural due processprescribed above.

l. Whenever a director/trustee/officeris cleared in the process mentioned under



§§ 4143P.3 - 4143P.609.12.31

Item “c” above or, when the ground fordisqualification ceases to exist, he/she wouldbe eligible to become director/trustees orofficer of any bank, QB, trust entity or anyinstitution under the supervision of the BSPonly upon prior approval by the MonetaryBoard. It shall be the responsibility of theappropriate department of the SES to elevateto the Monetary Board the lifting of thedisqualification of the concerned director/trustee/officer and his/her delisting from themasterlist or watchlisted persons.(Circular No. 656 dated 02 June 2009)

§ 4143P.4 Effect of possession ofdisqualifications. Directors/trustees/officerselected or appointed possessing any of thedisqualifications as enumerated herein, shallvacate their respective positions immediately.(Circular No. 656 dated 02 June 2009)

§ 4143P.5 (Reserved)

§ 4143P.6 Watchlisting. To provide theBSP with a central information file to be usedas reference in passing upon and reviewingthe qualifications of persons elected orappointed as directors/trustees or officer ofan institution under the supervisory andregulatory powers of the BSP, the SES shallmaintain a watchlist of disqualifieddirectors/trustees/officers under thefollowing procedures:


(1) Disqualification File “A”(Permanent) - Directors/trustees/officers/employees permanently disqualified by theMonetary Board from holding a director/trustee/officer position.

(2) Disqualification File “B”(Temporary) - Directors/trustees/officers/employees temporarily disqualified by theMonetary Board from holding a director/trustee/officer position.

b. Inclusion of directors/trustees/officers/employees in the watchlist. Upon

recommendation by the appropriatedepartment of the SES, the inclusion ofdirectors/trustees/officers/employees inwatchlist disqualification files “A” and “B”on the basis of decisions, actions or reportsof the courts, institutions under thesupervisory and regulatory powers of theBSP, NBI or other administrative agenciesshall first be approved by the MonetaryBoard.

c. Notification of directors/trustees/officers/employees. Upon approval by theMonetary Board, the concerned director/trustee/officer/employee shall be informedthrough registered mail, with registry returnreceipt card, at his last known address ofhis inclusion in the masterlist of watchlistedpersons disqualified to be a director/trustee/officer in any institution under the supervisoryand regulatory powers of the BSP.

d. Confidentiality. Watchlisting shallbe for internal use only and may not beaccessed or queried upon by outside partiesincluding such institutions under thesupervisory and regulatory powers of theBSP, except with the authority of the personconcerned and with the approval of theDeputy Governor, SES, the Governor, or theMonetary Board.

The BSP will disclose information onits watchlist files only upon submission ofa duly accomplished and notarizedauthorization from the concerned personand approval of such request by the DeputyGovernor, SES or the Governor or theMonetary Board. The prescribed authorizationform to be submitted to the concerneddepartment of the SES is in Appendix Q-45.

Pawnshops can gain access toinformation in the said watchlist for the solepurpose of screening their applicants forhiring and/or confirming their electeddirectors/trustees and appointed officers.Pawnshops must obtain the saidauthorization on an individual basis.

e. Delisting. All delistings shall beapproved by the Monetary Board upon



§§ 4143P.7 - 4151P.211.12.31

recommendation of the appropriatedepartment of the SES except in cases of personsknown to be dead where delisting shall beautomatic upon proof of death and need notbe elevated to the Monetary Board. Delistingmay be approved by the Monetary Board inthe following cases:

(1) Watchlist - Disqualification File “B”(Temporary) -


(b) When the conviction by the court forcrimes involving dishonesty, breach of trustand/or violation of banking laws becomes finaland executory, in which case the director/trustee/officer/employee is relisted to Watchlist- Disqualification File “A” (Permanent); or

(c) Upon favorable decision or clearanceby the appropriate body, i.e., court, NBI,institutions under the supervisory andregulatory powers of the BSP, or such otheragency/body where the concerned individualhad derogatory record.

Directors/trustees/officers/employeesdelisted from the Watchlist - DisqualificationFile “B” other than those upgraded to Watchlist- Disqualification File “A” shall be eligible forre-employment with any institution under thesupervisory and regulatory powers of the BSP.(Circular No. 656 dated 02 June 2009)

§ 4143P.7 Applicability of Section4143P to the proprietor and managingpartner of a pawnshop (in the case of a soleproprietorship/partnership). The foregoingdisqualification and watchlisting provisionsof this Section shall apply, wherepracticable, to the managing proprietor ormanaging partner of a pawnshop that is asole proprietorship or partnership, in whichcase, the BSP shall initiate thedisqualification proceedings against themanaging proprietor/managing partner. Forpurposes of this subsection, a managingproprietor or managing partner shall referto a person directly involved in theoperation of a pawnshop business.

In case the disqualification shall cause thedissolution of the proprietorship or partnership,the AOR and AO, if any, shall be cancelledand the pawnshop shall be removed fromthe BSP List of Registered Pawnshops asprescribed in Subsec. 4183P.2.(Circular No. 656 dated 02 June 2009)


H. BRANCH OFFICES

Sec. 4151P Establishment of Branch OfficesIn line with Section 6 of P.D. No. 114 whichrequires pawnshops to register with the BSPbefore commencing actual businessoperations, no pawnshop shall open, maintainor operate a branch office without firstapplying for and obtaining from the BSP,through the appropriate department of the SES,an Authority to Operate (AO) such branchwhich shall be processed in accordance withthe following guidelines. A new pawnshopapplying for an AOR that has complied withthe minimum paid-in capital of P100,000.00may open one (1) branch if it so desires,subject to compliance with the applicablebranching requirements.(Circular No. 656 dated 02 June 2009, as amended by Circular No.711 dated 28 January 2011)

§ 4151P.1 Definition of branch officeAs used in these rules, the term “branchoffice” refers to any place of businessoutside the head or main office of apawnshop where pawnshop operations andtransactions are conducted under the controland supervision of the head or main office.(Circular No. 656 dated 02 June 2009)

§ 4151P.2 Operations and functionsThe operations and transactions of a branchoffice shall likewise be subject to theprovisions of P.D. No. 114 governingoperations and transactions of a head ormain office, as well as by other pertinentlaws, BSP rules and regulations.



§§ 4151P.2 - 4151P.711.12.31

The primary purpose of branching is toprovide additional source of credit to smallborrowers not served by the banks and otherFIs.(Circular No. 656 dated 02 June 2009)

§ 4151P.3 Basis for establishmentBranch offices shall be allowed on the basisof the head office’s ability to conductoperations in accordance with P.D. No. 114and BSP rules and regulations. The BSPdepartment concerned shall not process anapplication for branching of a pawnshop ifany of the following conditions:

a. has an approved but unopenedbranch;

b. has unpaid annual fee or penaltyassessed by the BSP;

c. has not complied with the requiredprudential capital ratio as prescribed in Sec.4107P; or

d. has not submitted any of theperiodic reports listed in Appendix P-2.(Circular No. 656 dated 02 June 2009, as amended by Circular


§ 4151P.4 Documentaryrequirements. A pawnshop that intendsto open a branch office shall submit tothe BSP an application (using aBSP-prescribed form) duly accomplishedand signed by the proprietor/managingpartner/president under oath that shall bethe basis for the issuance by the BSP anAuthority to Operate (AO). The followingdocuments shall be submitted togetherwith every application for a branchoffice:

a. Duly notarized certification from thehead office as to its compliance with theminimum amount of capital under Secs.4106P and 4107P;

b. Certified true copy of the boardresolution authorizing the establishment ofthe branch (in case of corporation);

c. City/municipal license/businesslicense/mayor’s permit from the city or

municipality where the pawnshop branchis to be established;

d. Personal data sheet (usingBSP-prescribed form for pawnshops) withpassport size picture duly accomplishedby the proposed branch manager orofficer-in-charge; and

e. Such other documents that may berequired by the BSP for the evaluation ofthe branch application as enumerated in alist attached to the application form.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4151P.5 Processing and annualfees. Every branch of a pawnshop shallpay a one-t ime processing fee ofP1,000.00 and P500.00 annual fee uponapproval of application for registration.Thereafter, the annual fee shall be paid notlater the 31 March of every year.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4151P.6 Date of opening forbusiness. The pawnshop branch shallcommence actual operations within six (6)months from the date of issuance of the AO.Failure to commence actual operationswithin the aforementioned six (6) monthsperiod shall render the BSP AO asautomatically cancelled.

The pawnshop head office shall notifythe BSP in writing of the start of operationsof the branch within five (5) business daysfrom the actual start of the operations ofthe branch.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4151P.7 Pawnshop brancheswithout business permit and authority tooperate considered operating illegallyAny pawnshop branch that is foundoperating that does not have acurrent business permit issued by thecity or municipality where itis located and an AO issued by the BSP is



considered operating illegally. Suchpawnshop shall be reported to the Office ofthe Mayor of the concerned city ormunicipality, for appropriate action, withoutprejudice to whatever legal action the BSPmay pursue under Section 18 of P.D. No.114 and other applicable laws against thepawnshop, its proprietor, partners,stockholders, directors and president orofficer of equivalent rank.(Circular No. 656 dated 02 June 2009, as amended by Circular No.




Sec. 4156P Business Days and HoursPawnshops, including their branches, shalltransact business at a minimum of five (5) daysa week, for a minimum of six (6) hours a day,both to be selected by them. They may, at theirdiscretion, remain open beyond the aforesaidrequirement as they deem it necessary.

The business hours and business daysshall be printed on the face of the pawn ticketand shall be posted together with the originalBSP AOR/AO conspicuously at all timeswithin the premises of the pawnshop,preferably at the window or door that is clearlyvisible to the pawning public.

Pawnshops shall only transact businessin the pawnshops’ registered place of businessor premises of the head office and branches,if any. Transacting business outside thepawnshops’ registered place of business orpremises shall be a ground for cancellationof pawnshop’s AOR or AO, as the casemay be.

During business days and hours, thepawnshop head office and every branch shallhave at least one (1) personnel, (manager orofficer-in-charge, if any) that has attended thebriefing on pawnshop regulations and AMLAseminar mentioned in Subsec. 4101P.5.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)


J. RECORDS AND REPORTS

Sec. 4161P Records. The accounting periodof pawnshops shall be on the calendar yearbasis.

The accounting records of pawnshopsshall consist of records of original entry andbooks of final entry.

The records of original entry shall consistof pawn tickets, official receipts, vouchers andother supporting documents. The books offinal entry shall consist of the general ledger,subsidiary ledgers and registers of loansextended and loans paid.

Pawnshops may use any form of loansextended and loans paid registers as longas they contain spaces and columns forinformation enumerated in Section 11 ofP.D. No. 144.

A pawnshop that uses a computerizedsystem may record its loan transactions inindividual loan extended vouchers whichshall contain the same informationnecessary to comply with Section 11 ofP.D. No. 114 in lieu of the loan extendedand loans paid registers. Such pawnshopsshall periodically compile or bind theloan extended vouchers and shall bemade available for BSP examinationupon request.

The Description of Loan Registers ofPawnshops provided in Appendix P-1 shallbe followed.(Circular No. 656 dated 02 June 2009, as amended by Circular


§ 4161P.1 Uniform system ofaccounts. Pawnshops shall strictly adopt/implement the Uniform System of Accountsprescribed for pawnshops in the recordingof daily transactions including reportorialrequirements.

The Uniform Chart of Accounts forPawnshops is provided in Appendix P-1.(Circular No. 656 dated 02 June 2009)

§§ 4151P.7 - 4161P.111.12.31



§ 4161P.2 Philippine FinancialReporting Standards/Philippine AccountingStandards. Statement of policy. It is thepolicy of the BSP to promote fairness,transparency and accuracy in financialreporting. It is in this light that the BSP aimsto adopt all Philippine Financial ReportingStandards (PFRS) and Philippine AccountingStandards (PAS) issued by the AccountingStandards Council (ASC) to the greatestextent possible.

Pawnshops shall adopt the PFRS andPAS which are in accordance with generallyacceptable accounting principles inrecording transactions and in thepreparation of financial statements andreports to BSP. However, in cases wherethere are differences between BSPregulations and PFRS/PAS as when morethan one (1) option are allowed or certainminimum limits are prescribed by the PFRS/PAS, the option or limit prescribed by BSPregulations shall be adopted by all banks/FIs.

For purposes hereof, the PFRS/PAS shallrefer to issuances of the ASC and approvedby the PRC.

Accounting treatment for prudentialreporting. For prudential reporting, FIs shalladopt in all respect the PFRS and PAS exceptas follows:

a. In preparing consolidated financialstatements, only investments in financial alliedsubsidiaries except insurance subsidiariesshall be consolidated on a line-by-line basis;while insurance and non-financial alliedsubsidiaries shall be accounted for using theequity method. Financial/non-financial allied/non-allied associates shall be accounted forusing equity method in accordance with theprovisions of PAS 28 “Investments inAssociates”.

b. For purposes of preparing separate financial statements, financial/non-financialallied/non-allied subsidiaries/associates,including insurance subsidiaries/associates,shall also be accounted for using the equitymethod; and

c. FIs shall be required to meet the BSPrecommended valuation reserves.

Notwithstanding the exceptions in Items“a”, “b” and “c”, the audited annual financialstatements required to be submitted to theBSP in accordance with Appendix P-2 shallin all respect be PFRS/PAS compliant: Provided, That FIs shall submit to the BSPadjusting entries reconciling the balances inthe financial statements for prudentialreporting with that in the audited annualfinancial statements.(Circular No. 656 dated 02 June 2009)

§ 4161P.3 Accounting for pawnshopspremises; other fixed assets. Pawnshoppremises, furniture, fixture and equipmentshall be accounted for using the cost modelunder PAS 16 “Property, Plant andEquipment”.(Circular No. 656 dated 02 June 2009)

§ 4161P.4 Retention of recordsPawnshop records, ledgers, books anddocuments (including those in electronic media):

(a) shall not be destroyed or disposedof for at least five (5) years;

(b) shall have backup hard and/or softcopy to allow reconstruction of records incase of loss or destruction due to fire andother fortuitous events; and

(c) shall be made available for BSPexamination upon request.

A pawnshop that does not have records,ledgers, registers, books or documents orthat refuses to permit access to its records,ledgers, registers, books or documents to anauthorized BSP officer/examiner may beconsidered as refusal to permit anexamination.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

Sec. 4162P Reports. Pawnshops shallsubmit to the appropriate department of theSES the reports listed in Appendix P-2 in theforms as may be prescribed by the DG, SES.

§§ 4161P.2 - 4162P11.12.31



Any change in, or amendment to, thearticles of incorporation/co-partnership, by-lawsor material documents required to be submittedto the BSP shall be reported by submittingcopies of the amended articles of incorporation,by-laws or material document to the appropriatedepartment of the SES within fifteen (15) daysfollowing such change.(Circular No. 656 dated 02 June 2009)

§ 4162P.1 Categories of and signatoriesto reports. Reports required to be submittedto the BSP are classified into Categories A-1,A-2, A-3 and B reports as indicated in the listof reports required to be submitted to the BSPin Appendix P-2.

Appendix P-3 prescribes the signatoriesfor each report category and the requirementson signatory authorization. Reports submittedin computer media shall be subject to thesame requirements.

A report submitted to the BSP under thesignature of an officer who is not authorizedin accordance with the requirements in thisSubsection shall be considered as not havingsubmitted.(Circular No. 656 dated 02 June 2009)

§ 4162P.2 Manner of filing. Thesubmission of the reports shall be effectedby filing them personally with theappropriate department of the SES or withthe BSP Regional Offices/Units, or bysending them by registered mail or specialdelivery through private couriers, unlessotherwise specified in the circular ormemorandum of the BSP.(Circular No. 656 dated 02 June 2009)

§ 4162P.3 Definition relevant toreports to BSP

Definition of terms. For purposes of theserules, the following definitions shall apply:

a. Report shall refer to any report orstatement required of a pawnshop to besubmitted to the BSP periodically or withina specified period.

b. Faulty report shall refer to aninaccurate/improperly accomplished report.

c. Willful delay or default in thesubmission of reports shall refer to the failureof a pawnshop to submit a report on time.Failure to submit a report on time due tofortuitous events, such as fire and other naturalcalamities and public disorders, includingstrike or lockout affecting a pawnshop asdefined in the Labor Code or a nationalemergency affecting operations of pawnshops,shall not be considered as willful delay.

d. False statement shall refer to anyuntruthful data or information or falsehoodsmade in a report to the BSP or its authorizedagents, with intent to deceive or mislead.Any false statement which tends to favorthe pawnshop submitting the report shallbe prima facie evidence of intent to deceiveor mislead.

e. Repeated violation shall mean thecommission of the same offense for at leasttwo (2) times.

f. Persistent violation shall mean thecommission of the same offense for at leastthree (3) times.

g. Offense shall refer to submissionof faulty report, willful delay in submissionof reports, or making of false statements inreports.

h. Continuing offenses/violations areacts, omissions or transactions entered into,in violations of laws, BSP rules andregulations, MB directives, and orders of theGovernor which persist from the time theparticular acts were committed or omittedor the transactions were entered into untilthe same were corrected/rectified bysubsequent acts or transactions. They shallbe penalized on a per calendar day basisfrom the time the acts were committed/omitted or the transactions were effectedup to the time they were corrected/rectified.

i. Transactional offenses/violations areacts, omissions or transactions entered intoin violation of laws, BSP rules andregulations, Monetary Board directives, and

§§ 4162P - 4162P.311.12.31



orders of the Governor which cannot becorrected/rectified by subsequent acts ortransactions. They shall be meted withone-time monetary penalty on a pertransaction basis.

j. Continuing penalty refers to themonetary penalty imposed on continuingoffenses/violations on a per calendar daybasis reckoned from the time the offense/violation occurred or was committed untilthe same was corrected/rectified.

k. Transactional penalty refers to a one-time penalty imposed on transactionaloffense/violation.(As amended by Circular Nos. 711 dated 28 January 2011, 662dated 09 September 2009 and 656 dated 02 June 2009)

Sec. 4163P Report on Crimes/LossesPawnshops shall submit a report on crimesand losses in accordance with Appendix P-2together with the following:

a. Notarized list of lost pawnedarticles, indicating the pawn ticket number,name of the pawner, date loan granted, briefdescription of pawn, and amount of loan;

b. Police report on the investigation ofthe fire/robbery incident;

c. Proof of notification in writing to allconcerned pawners about the incident; and

d. Plan of settlement of pawners’ claimfor lost pawned items, if any.

Should a crime or loss result in adeficiency in the minimum capital and/orprudential capital required under Secs.4106P and 4107P, the pawnshop shallsubmit a capital build up program inaccordance with Subsec. 4107P.1.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

Sec. 4164P Audited Financial Statements/Annual Report of Pawnshops. Pawnshopsshall submit a copy of the AFS, as dulyreceived by the BIR, to the BSP not laterthan 30 June following the referencecalendar year. This requirement will applyonly to pawnshops whose total asset is at

least P50.0 million as of reference year.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4164P.1 Financial audit(Deleted by Circular No. 711 dated 28 January 2011)

§ 4164P.2 Disclosure of externalauditor’s adverse findings to the BangkoSentral(Deleted by Circular No. 711 dated 28 January 2011)

§ 4164P.3 Sanction(Deleted by Circular No. 711 dated 28 January 2011)

§ 4164P.4 Selection, appointment,reporting requirements and delisting ofexternal auditors and/or auditing firm;sanction. Pursuant to Section 58, R.A. No.8791, and the existing provisions of theexecuted MOA dated 12 August 2009,binding the BSP, SEC, PRC – BoA and theIC for a simplified and synchronizedaccreditation requirements for externalauditor and/or auditing firm, following arethe revised rules and regulations that shallgovern the selection and delisting by the BSPof covered institutions which under speciallaws are subject to BSP supervision.

Statement of policy. It is the policy ofthe BSP to ensure effective audit andsupervision of banks, QBs, trust entitiesand/or NSSLAs including their subsidiariesand affiliates engaged in allied activities andother FIs which under special laws aresubject to BSP supervision, and to ensurethe reliance by BSP and the public on theopinion of external auditors and auditingfirms by prescribing the rules and regulationsthat shall govern the selection, appointment,reporting requirements and delisting forexternal auditors and auditing firms of saidinstitutions, subject to the binding provisionsof and implementing regulations pursuantto the aforesaid MOA.

a. Rules and regulations. The revisedrules and regulations that shall govern theselection and delisting by the BSP of covered

§§ 4162P.3 - 4164P.411.12.31



institutions which under special laws aresubject to BSP supervision are shown inAppendix S-8.

Sanctions. The applicable sanctions/penalties prescribed under Sections 36 and37 of R.A. 7653 to the extent applicableshall be imposed on the covered institutions,its audit committee and the directorsapproving the hiring of external auditors/auditing firm who/which are not in the BSPlist of selected auditors for coveredinstitutions or for hiring, and/or retaining theservices of the external auditor/auditing firmin violation of any of the provisions of thisSection and for non-compliance with theMonetary Board directive under Item “K” inAppendix P-9. Erring external auditors/auditing firm may also be reported by theBSP to the PRC for appropriate disciplinaryaction.(Circular No. 656 dated 02 June 2009, as amended by Circular

No. 660 dated 25 September 2009)

Sec. 4165P General Information Sheet(Deleted by Circular No. 711 dated 28 January 2011)


K. INTERNAL CONTROL

Sec. 4171P Internal Control System. Thefollowing provisions are the minimuminternal control standards for pawnshops tohelp promote effective control system.orsafe but within the pawnshop premises.(Circular No. 656 dated 02 June 2009)

§ 4171P.1 Proper accounting recordsa. All pawnshops shall maintain proper

and adequate accounting records whichinclude reconciliation of due to/from headoffice/branches, if the pawnshop has severaloffices.

b. Records should be kept up-to-dateand shall contain sufficient detail so that anaudit trail is established.(Circular No. 656 dated 02 June 2009)

§ 4171P.2 Number controlThe following are the forms, instruments

and accounts that shall be number-controlled:

(1) Pawn tickets;(2) Official receipts; and(3) Expense vouchers.

(Circular No. 656 dated 02 June 2009)

§ 4171P.3 Safekeeping of records andinsurance of premises.

Vital records for the current year must bekept inside the safe or vault when not in use.Vital records are pawn ticket duplicates, loanpaid and loan extended registers or loan paidand extended vouchers. Other pawnshoprecords/documents may be placed in filingcabinets/shelves outside the vault or safe butwithin the pawnshop premises.

For this purpose, a pawnshop’s vault,i.e., its walls, ceiling and floor shall be madeof steel-reinforced concrete or such otherequally safe materials/specifications. Vaultdoors shall be made of steel or other drilland torch-resistant materials.

Safes should be sufficiently heavy or besecurely anchored to the floor of the premises.

Vital records kept in electronic mediaincluding back-up copies thereof shall bekept in safes or vaults designed to protectthem from damage due to fire or otherfortuitous events.

The pawnshop premises and furniture,fixtures and equipment of pawnshops mustbe insured against fire(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4171P.4 Miscellaneous. Everypawnshop shall adopt minimum internalcontrol measures to safeguard the assets ofthe pawnshop. Such measures may includebut is not limited to, dual control, checkand balance and internal audit. Noemployee shall be permitted to process atransaction affecting his own account.(Circular No. 656 dated 02 June 2009)

§§ 4164P.4 - 4171P.411.12.31



Sec. 4172P Separation of PawnshopBusiness from Other Businesses. Apawnshop that is at the same time engagedin another business not directly related tothe business of a pawnshop, shall keep suchbusiness distinct and separate from thepawnshop operation.

Allowable corollary business activitiesof pawnshops shall include acting as foreignexchange dealer/money changer and/or asremittance agent, acting as bills paymentagent for utility companies and otherentities and such other activities as may beallowed by the BSP.

A pawnshop must secure the necessarybusiness permit from the city or municipalityfor the corollary business. A pawnshop thatwill engage in the business of a foreignexchange dealer/money changer or act as aremittance agent shall register with the BSPbefore engaging in such business pursuantto Sec. 4511N.

The pawnshop should be able to showin its financial statements the appropriateaccounts as well as the income or losspertaining to the corollary business.(Circular No. 656 dated 02 June 2009)



Sec. 4181P Registered/Business NameThe registered name of a pawnshop shall referto the name appearing in the Certificate ofRegistration (COR) of business name fromthe DTI, in the case of a sole proprietorship,or in the Articles of Partnership/Incorporationand By-Laws duly registered with the SEC,in the case of a partnership or corporation.In case, the registered name shall include theword “pawnshop” to reflect the nature ofbusiness it is engaged in.

Conversely, no person or entity shalladvertise, use signage or hold itself out asbeing engaged in the business of a pawnshopor use in its business name the words

“pawnshop”, “pawnbrokerage”, or words ofsimilar import, or transact in any manner thebusiness of a pawnshop without having firstcomplied with the provisions of P.D. No. 114and these regulations.

A pawnshop that shall use/uses a namethat is different from its registered namewith DTI or SEC shall cause to have suchname to also appear parenthetically underits registered name in the certificate ofregistration with DTI or articles ofpartnership/incorporation and by-laws withSEC, as well as in the business permit issuedby the city or municipality.(Circular No. 656 dated 02 June 2009)

§ 4181P.1 Change of registered/business name. A pawnshop shall notchange its registered/business name withoutsubmitting the following documents to theappropriate department of the SES:

a. Certificate of Registration from DTIor SEC, as the case may be, indicating thenew business/registered name;

b. Mayor’s/municipal license/permit;and

c. Original BSP Acknowledgement ofRegistration of Head Office (AOR) and/orAuthority to Operate (AO) issued under theold name.

A new BSP AOR and/or AO shall beissued indicating the new registered/business name of the pawnshop.(Circular No. 656 dated 02 June 2009)

§ 4181P.2 Use of registered businessname in signage, pawn tickets and otherforms. The following regulations shall beobserved with respect to the use of thebusiness/registered name in the signage,pawn ticket and other forms of a pawnshop:

a. As a general rule, the registeredname appearing in the Certificate ofRegistration from the DTI or SEC, as thecase may be, shall be used consistently inthe pawnshop’s signage and in alldocuments including pawn tickets, official

§§ 4172P - 4181P.211.12.31



receipts, stationery and other similardocuments of the pawnshop.

b. A pawnshop that uses or will use aname that is different from its registeredname as mentioned in Sec. 4181P above orthat uses or will use a name alreadyregistered and being used by anotherpawnshop shall indicate parentheticallyunder such name, the registered name ofthe pawnshop with the DTI or SEC, as thecase may be, with the words “owned andoperated by” before the registered name inthe pawnshop’s pawn tickets, officialreceipts, stationery and other similardocuments.

c. A pawnshop that is a subsidiary oraffiliate of another pawnshop shall likewiseindicate such relationship in the pawntickets, official receipts, stationery and othersimilar documents.

A subsidiary is a corporation more thanfifty percent (50%) of the voting stock ofwhich is owned by another corporation;while an affiliate is a corporation less thanfifty (50%) of the voting stock of which isowned by another corporation.

d. The exact address of the pawnshopshall be indicated consistently in allpawnshop documents (e.g., pawn tickets,official receipts, stationery and other similardocuments) and in the business permitissued by the city or municipality.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)


Sec. 4182P Transfer/Relocation of BusinessThe following shall govern the transfer/relocation of pawnshops.

No pawnshop shall transfer or relocateits place of business within three (3) monthsfollowing the maturity of any loan or pledge,or before any pawn shall have been sold ordisposed of as provided under existingregulations. A notice of transfer shall be

submitted to the appropriate department ofthe SES within ten (10) days before theeffectivity of such transfer.

A pawnshop may transfer its place ofbusiness from one location to another withinthe territorial limits of the city ormunicipality upon compliance with thefollowing requirements:

a. Notice of transfer shall be publishedin English and in Filipino or in the localdialect in two (2) daily newspapers ofgeneral circulation in the city ormunicipality where the pawnshop is closingbusiness, and posted in English and Filipinoor in the local dialect for one (1) month afterdate of publication in a conspicuous placein the premises to be vacated and to betransferred to;

b. The notice shall be published for atleast three (3) consecutive days, the last dayof which shall be five (5) days before theactual transfer; and

c. Notice shall contain the followinginformation:

(1) Date of transfer;(2) Address of the premises to be

vacated; and(3) Address of the premises to which

pawnshop intends to transfer.In remote areas where newspapers

are not available, the publicationrequirement shall be complied with byposting notices at the city hall ormunicipal building of the city ormunicipality where the pawnshop has itsplace of business.(Circular No. 656 dated 02 June 2009)

§ 4182P.1 Documentary requirementsfor transfer within the same city/municipality. The following documents shallbe filed with the appropriate department ofthe SES in connection with transfer oflocation within the same city ormunicipality:

a. A certification signed by theproprietor/managing partner/president

§§ 4181P.2 - 4182P.111.12.31



informing the appropriate department of theSES of the intended transfer and that therequirements prescribed under Sec. 4182Phave been complied with;

b. Copy of notice of transfer dulyacknowledged by the DTI and by thelicensing authority of the locality where thepawnshop is operating;

c. Sample copy of the pawn ticketbearing the new address;

d. Sketch of pawnshop’s new location;e. Original BSP AOR and/or AO issued

to the pawnshop, or an affidavit in case ofloss;

f. Board resolution authorizing thetransfer of the pawnshop (in case ofcorporations)(Circular No. 656 dated 02 June 2009)

§ 4182P.2 Documentary requirementsfor transfer outside the city/municipalityA pawnshop that intends to transfer/relocateits business outside the city or municipalitywhere it is located shall comply with thefollowing:

(1) requirements on closure of businessunder Sec. 4183P; and

(2) requirements for the establishmentand registration of a new pawnshop orbranch under Subsecs. 4101P.4 and4151P.4, respectively, where applicable.(Circular No. 656 dated 02 June 2009)

Sec. 4183P Closure of Pawnshops. Thefollowing rules shall govern the closure ofpawnshops:(Circular No. 656 dated 02 June 2009)

§ 4183P.1 Voluntary closureVoluntary closure of a pawnshop may beeffected only after three (3) months followingthe maturity of any loan or pledge, or beforeany pawn shall have been sold or disposedof and after it has complied with thefollowing requirements:

(1) Submission of the followingdocumentary requirement within thirtycalendar (30) days after the provision ofSubsec. 4183P.1:

a. Notarized statement stating that:(i) The pawnshop’s books of accounts,

reports, records and documents shall bepreserved for at least five (5) years from dateof last entry;

(ii) All unused accountable forms havebeen destroyed to prevent theirunauthorized use;

(iii) Proprietor/partners/president of thepawnshop shall be held liable for presentor future claims arising from itspawnbroking transactions; and

(iv) All outstanding pawns have beenredeemed/sold at public auction, orotherwise disposed of, in accordance withlaw.

b. Copy of the pawnshop’s applicationfor retirement of business approved by thelicensing authority of the city or municipalitywhere the pawnshop operated.

c. Original BSP AOR and/or AO issuedto the pawnshop.

(2) Remittance of penalties or BSPassessments on the pawnshop, if any, suchas for non-submission/delayed submissionof required reports.(Circular No. 656 dated 02 June 2009)

§ 4183P.2 Delisting of pawnshops/involuntary closure(Deleted by Circular No. 711 dated 28 January 2011)

§ 4183P.3 Other grounds for delisting(Deleted by Circular No. 711 dated 28 January 2011)

Sec. 4184P Transfer of Ownership. Nopawnshop proprietor/partners/stockholdersshall transfer ownership over the pawnshopbusiness without securing prior BSPapproval.(Circular No. 656 dated 02 June 2009)

§§ 4182P.1 - 4184P11.12.31



§ 4184P.1 Requirements for transferof ownership. The owner(s) shall file thefollowing documents ten (10) days beforetransferring the ownership of the pawnshop:

(1) Notarized statement by owner/managing partner/president or its equivalentrank stating that:

a. The pawnshop’s books of accounts,records and documents shall be preservedfor five (5) years from date of last entriesbefore the transfer of ownership;

b. All unused accountable forms suchas official receipts and pawn tickets havebeen destroyed to prevent theirunauthorized use.

c. The owner/managing partner/president shall be held accountable forpresent and future claims arising fromtransactions of the pawnshop under theformer owner (new owner may assume thisliability, in which case, he/she shall submita notarized statement to that effect).

d. All outstanding pawns have beenredeemed or sold at public auction, orotherwise disposed of in accordance withlaw; or the owners of outstanding pawnshave been notified by registered mail on thetransfer of ownership of the pawnshop.

(2) Copy of pawnshop’s notice ofretirement of business acknowledged by thelicensing authority where the pawnshopoperated.

(3) Original BSP AOR and/or AO issuedto the pawnshop, or an affidavit in case of loss.

(4) Payment of Bangko Sentralassessment on the pawnshop, if any, suchas for non-submission or delayedsubmission of required reports.

If the vendee shall continue theoperation of the pawnshop, he shall complywith the provisions of Subsecs. 4101P.3 and4142P.2. The vendee shall also submit acopy of the duly executed contract affectingthe transfer of ownership.(Circular No. 656 dated 02 June 2009)

§§ 4184P.1 - 4198P11.12.31

§ 4184P.2 Processing and annual feesA pawnshop that is the subject of changeof ownership shall be subject to the BSPprocessing and annual fees underSubsec. 4101P.6.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

Sec. 4185P Processing Fee for Replacementof Acknowledgement of Registration ofHead Office/Authority to Operate. Anon-refundable processing fee of P300.00shall be collected from each pawnshop thatwill request for a replacement AOR or AOdue to:

(a) loss of AOR/AO;(b) change of business/registered name

under Subsec. 4181P.1; and(c) transfer of location or address under

Subsec. 4182P.(Circular No. 656 dated 02 June 2009)


Sec. 4190P Duties and Responsibilities ofPawnshops and their Directors/Officers inCases of Outsourcing of PawnshopFunctions. The rules on outsourcingof banking functions as shown inAppendix Q-37 shall be adopted in so faras they are applicable to pawnshops.(Circular No. 656 dated 02 June 2009)

Sec. 4191P (Reserved)

Sec. 4192P Prompt Corrective ActionFramework. The framework for theenforcement of prompt corrective action(PCA) on banks which is inAppendix Q-40, shall govern the PCA takenon pawnshops to the extent applicable, orby analogy.(Circular No. 664 dated 15 September 2009)




§ 4199P11.12.31

Sec. 4199P General Provision on SanctionsUnless otherwise provided, violations ofany provision hereof may subject apawnshop, its proprietor, directors,trustees, partners, president, managers orofficer-in-charge, where applicable, tosanctions which may include the following:

a. Warning/reprimand;b. Suspension of AOR/AO;c. Suspension of branching privilege;d. Disqualification of proprietor,

partner, director, president, manager orofficer-in-charge;

e. Monetary penalty not to exceedP1,000.00 per violation, per office, per day;and

f. Revocation of AOR/AO.The imposition of the above sanctions

is without prejudice to whatever legal actionthe BSP may pursue under Sec. 18 of P.D.114 (Pawnshop Regulation Act), and other

applicable laws against the pawnshop, itsproprietor, partners, incorporators,stockholders, directors, president andofficers.

A pawnshop whose AOR/AO issuspended or revoked shall be reported tothe office of the mayor of the concerned cityor municipality, for appropriate action. It isunderstood that in case the AOR of a headoffice is revoked, the AO of all branches ofsaid pawnshop are likewise revoked.

Any pawnshop that is found operatingas a foreign exchange dealer/moneychanger and or remittance agent that doesnot have a COR issued by the BSP for suchactivity is considered operating suchactivities illegally and shall be reported tothe office of the mayor in accordance withthe rules above.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

Manual of Regulations for Non-Bank Financial Institutions P RegulationsPart II - Page 1

§§ 4201P - 4299P11.12.31

PART TWO

BORROWING OPERATIONS

A. - J. (RESERVED)

Sections 4201P - 4284P (Reserved)

K. OTHER BORROWINGS

Sec. 4285P Securities and ExchangeCommission Registration of BorrowingBorrowing by any pawnshop through theissuance of any instrument shall be subjectto the registration provisions of Section 8of the Securities Regulation Code (SRC)and the applicable implementing rulesand regulations of the Securities andExchange Commission (SEC). Whileborrowing from nineteen (19) individualsor less is exempt from the registrationrequirement under Section 10 of the SRC,Rule 10-1 of the SEC implementing rulesand regulations still requires SEC to be

notified of the issuance of the debtinstrument.(Circular No. 656 dated 02 June 2009)

Sec. 4286P Borrowings ConstitutingQuasi-Banking Functions. Borrowing fromtwenty (20) or more lenders for the purposeof relending or purchase of receivables orother obligations constitutes quasi-banking.A pawnshop cannot engage in quasi-banking unless it meets the pre-qualificationrequirements under the MORNBFI-QBs andobtains authority or a separate license toengage in quasi-banking from the BSP.(Circular No. 656 dated 02 June 2009)


Sec. 4299P General Provision on Sanctions(Deleted by Circular No. 711 dated 28 January 2011)

Manual of Regulations for Non-Bank Financial Institutions P RegulationsPart III - Page 1

PART THREE

LOANS AND INVESTMENTS

A. LOANS IN GENERAL

Section 4301P Grant of Loans. Thefollowing regulations shall be observed inthe grant of loans by pawnshops.(Circular No. 656 dated 02 June 2009)

§ 4301P.1 General guidelines. Apawnshop shall extend a loan only if suchis secured by personal property that couldbe physically delivered to the control andpossession of the pawnshop.

Before accepting articles as pawn, thepawnshop must ascertain whether thepawner is the true owner of the articleoffered as pawn. In the conduct of business,a pawnshop shall be guided by the standardof diligence that is expected of “a goodfather of a family”, ensuring always that thereis no ground to suspect that the article/s offeredas pawn was an object of robbery or theft.(Circular No. 656 dated 02 June 2009)

§ 4301P.2 Prohibitions. Pawnshopowners/managers/of f icers/directorsemployees shall not:

a. Use pawned articles for themselvesor allowing employees to use said articlesfor any purpose without the express consentor authority of the pawner unless continueduse is necessary to preserve the pawn;

b. Grant loans to minors orincompetent persons; or

c. Re-pledge/re-pawn the pawnedarticle.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4301P.3 Know your pawnerPawnshops who transact with any pawnerfor the first time shall require the pawner to

present the original and submit a clear copyof at least one (1) valid photo bearingidentification document (ID) issued by anofficial authority. The provisions of Part 8 ofthe Q Regulations on Valid identification ofdocuments shall apply.

Pawnshops shall post excerpts of theabove requirements conspicuously in itsprincipal place of business and branches.The poster (shown as Appendix 7) shall notbe smaller than 8.5 x 11 inches.

Every pawnshop shall maintain recordscontaining all the information requiredunder this Subsection and Section 11 of P.D.No. 114 for each of their clients.(Circular No. 656 dated 02 June 2009, as amended by Circular

Nos. 711 dated 28 January 2011, 706 dated 05 January 2011 and

657 dated 16 June 2009)


Sec. 4302P Loan Limit. Pawnshops maygrant such amount of loans as may be agreedupon between the parties. The amount ofloan shall in no case be less than thirtypercent (30%) of the appraised value of thesecurity offered, unless the pawner manifestsin writing that he is applying for a lesseramount. Pawnshops shall not under-appraise the security offered for the loan tocircumvent the restriction prescribed by thisSection.(Circular No. 656 dated 02 June 2009)


Sec. 4303P Interest and Surcharges. Therate of interest including surcharges on anyloan or forbearance of money extended by

§§ 4301P - 4303P11.12.31

P RegulationsPart III - Page 2


a pawnshop shall not be subject to anyceiling. However, pursuant to a decision ofthe Supreme Court (case of Medel, et al vsCourt of Appeals, GR No. 131622 dated27 November 1998) the interest rate shallnot be iniquitous, unconscionable, orcontrary to morals, if not against the law asmay be determined by the Court.

No pawnshop shall collect interest onloans in advance for a period longer thanthe original term agreed upon as indicatedin the pawn ticket.(Circular No. 656 dated 02 June 2009, as amended by Circular


§ 4303P.1 Rate of interest in theabsence of stipulation. The rate of interestfor a loan or forbearance of money in theabsence of an expressed contract as to suchrate of interest, shall be twelve percent(12%) per annum.(Circular No. 656 dated 02 June 2009)

§ 4303P.2 Other charges. In additionto interest, pawnshops may impose amaximum service charge of five pesos(P5.00), but in no case to exceed one percent(1%) of the principal loan. No othercharges, such as but not limited to insurancepremium for the safekeeping andconservation of the pawned item, shall becollected.(Circular No. 656 dated 02 June 2009)

§ 4303P.3 Posting of interest rate andother charges. Pawnshops shall postconspicuously in its principal place ofbusiness and branches the interest rate inpercent, specifying therein if such interestrate is yearly, monthly or daily, as well asthe other charges, if any, to be charged bythe pawnshop. The poster shall not besmaller than 8.5 x 11 inches.(Circular No. 656 dated 02 June 2009)


Sec. 4304P (Reserved)

Sec. 4305P Past Due Accounts; RenewalA loan may be renewed for such amountand period as may be agreed upon betweenthe pawnshop and the pawner, subject tothe same conditions provided in this Partfor new loans.

No loan shall be renewed or its maturitydate extended unless a new pawn ticket asdefined in Sec. 4102P shall be issuedindicating the new term of the loan agreedupon by the pawnshop and the pawner.(Circular No. 656 dated 02 June 2009)

§ 4305P.1 Right of pawner to redeempawn within ninety (90) days frommaturity. A pawner who fails to pay orrenew his loan with a pawnshop on thedate it falls due shall have ninety (90) daysfrom the date of maturity of the loan withinwhich to redeem the pawn by paying theprincipal amount of the loan plus theamount of interest that shall have accruedthereon. The amount of interest due andpayable after the maturity date of the loanshall be computed upon redemptionbased on the sum of the principal loanand interest earned as of the date ofmaturity. The procedures to be followedin case the pawner fails to redeem hispawn are prescribed in Sec. 4324P.

If the maturity date of the loan orexpiry date of redemption period falls onthe pawnshop’s non-business day, aregular holiday or a special non-workingholiday in the locality, then the maturitydate of the loan or expiry date ofredemption period shall be on the nextbusiness day.

If the pawnshop is closed on thematurity date of the loan or expiry of the

§§ 4303P - 4305P.111.12.31


redemption period, with or without priornotice to the pawner, then the maturitydate of the loan or expiry of redemptionperiod shall be on the next business dayand the pawnshop shall not chargeadditional interest or surcharge to thepawner.

If the pawnshop is closed due to arobbery, then the maturity date of thepledge or expiry of redemption periodshall be on the next business day whenthe pawnshop opens for business and thepawnshop shall not charge additionalinterest or surcharge to the pawners.(Circular No. 656 dated 02 June 2009)


Sec. 4306P Interest Accrual on Past DueLoans. Interest income on past due loansarising from discount amortization (and notfrom the contractual interest of the account)shall be accrued as provided in PAS 39.(Circular No. 656 dated 02 June 2009)


B. LOAN COLLATERAL/SECURITY

Sec. 4321P Acceptable Security andSafekeeping of Pawns. Only personalproperty that is capable of being physicallydelivered to the control and possession ofthe pawnshop shall be accepted as securityfor loans. Certain specified chattels, suchas guns, knives, or similar weapons, whosereception in pawn is expressly prohibitedby other laws, decrees, or regulations, shallnot be accepted by pawnshops as securityfor loans.

Except for bulky pawns, pawns shallbe placed in a tamper-proof sealed plasticenvelop or bag which must be kept insidethe safe or concrete vault. Bulky pawns

may be placed outside the safe or vaultbut within the pawnshop premises. Allpawns, except those which are kept insidethe vault or safe, must be insured againstfire.

Pawnshop owners shall be liable forany pawned item lost or destroyed arisingout of their negligence, fault, delay indelivery or willful violation of the loanagreement.(Circular No. 656 dated 02 June 2009, as amended byCircular No. 711 dated 28 January 2011)

Sec. 4322P Redemption of Pawns. Apawnshop shall not release any pawnwithout first requiring the pawner topresent and surrender the correspondingpawn ticket. If the pawn ticket was lost andcould not be presented or surrendered, thepawnshop shall require the owner-pawnerto execute and submit an affidavit of lossand shall ascertain the identity of thepawner, to ensure that the pawned item isreleased only to the owner-pawner.

The pawnshop shall return the pawn inthe same condition when they were firstpawned by pawner, upon full settlement ofthe loan.(Circular No. 656 dated 02 June 2009)


Sec. 4323P Pawn Ticket1. Pawnshops shallat the time of the loan, deliver to eachpawner a pawn ticket which shall containthe following:

a. The business/registered name,address, telephone number, tax identificationnumber, business days and hours, of thepawnshop. The business name indicated inthe pawn ticket shall be in accordance withthe provision of Subsec. 4181P.2;

b. Name of pawner;c. Pawner’s residential address;

§§ 4305P.1 - 4323P11.12.31

1 A pawnshop may use pawn tickets bearing a rubber-stamp of its registered and trade name on the pawnticket until 30 June 2011. Starting 01 July 2011, all pawnshops shall only use pre-printed pawn tickets inaccordance with these rules.

___________



d. Pawner’s contact number;e. Date the loan was granted;f. Amount of the principal loan and net

proceeds;g. Interest rate in percent, indicating if

daily, monthly or annually;h. Interest in absolute amount;i. Service charge in amount;j. Penalty interest in percent, if any;k. Appraised value of pawn;l. Period of maturity;m. Description of the pawn;n. Expiry date of the redemption

period;o. Signature of the pawnshop’s

authorized representative;p. Signature or thumbmark of the

pawner; andq. ID presented.No other document or instrument shall

be used/issued by a pawnshop for any loangranted by it to a pawner/borrower.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4323P.1 Stipulations in pawn ticketThe contents of the standard pawn ticket,prescribed for pawnshops pursuant to therequirements of P.D. No. 114, and the“Standard Terms and Conditions" thereof,are in Appendices P-4 (front) and P-4a(back).

Additional stipulations/informationenumerated under Appendix P-4b, whichpawnshops may wish to incorporate in theirpawn tickets, may be included without priorapproval from the BSP.

The font size for the stipulations at the backof the pawn ticket shall not be smaller than“Arial Narrow 8”. Additional stipulationswhich may be included at the back of thepawn ticket shall also be printed in theprescribed font size.

Pawn ticket shall not be smaller than8 inches x 5 inches. The size of the pawn

ticket may have to be larger to accommodateadditional stipulations that should also beprinted not smaller than “Arial Narrow 8”.

Pawn tickets shall at least be induplicate. The first copy shall contain theword “Original” which shall be given to thepawner when the loan is granted andsurrendered upon redemption of pawn,while the second copy shall be marked“Duplicate” which shall remain on file withthe pawnshop.

Pawn tickets shall be serially numbered.Pawnshops may choose the color or

quality of the paper used as pawn ticket.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)


Sec. 4324P Notices to the Pawner and tothe Public

a. On or before the expiration of theninety (90)-day grace period a pawnshopshall notify a pawner in writing that thepawn shall be sold or otherwise disposedof in the event the pawner fails to redeemthe pawn within the ninety (90)-day graceperiod, specifying in the same notificationthe date, hour and place where the sale shalltake place.

The notice shall be sent through themode of notification agreed upon by thepawner and the pawnshop as indicated atthe back of the pawn ticket at the time theloan was granted which may be throughtext/SMS message, electronic mail, fax orby mail to the residential address. If sentthrough text/SMS, the pawnshop shallobtain a report from the appropriateTelecommunications Company (TELCO)indicating that a text/SMS message was sentto the mobile phone number given by thepawner. The report of the TELCO shall bemade available to BSP upon request.

§§ 4323P - 4324P11.12.31


In case no specific mode of notificationis agreed upon and indicated at the back ofthe pawn ticket, the mode of notificationshall be by ordinary mail. Pawnshops shallexert reasonable effort to notify the pawnerand put on record if it is unable to do so.Pawnshops shall maintain proof of thenotice to pawner.

b. If upon the expiration of the ninety(90)-day grace period, the pawner fails toredeem his pawn, the pawnshop may sellor dispose of the pawn only after it haspublished a notice of public auction ofunredeemed articles held as security forloans in at least two (2) newspaperscirculated in the city or municipality wherethe pawnshop has its place of business, six(6) days prior to the date set for the publicauction.

The notice shall be in English, and ineither Filipino or the local dialect and shallcontain the following:

a. Name and address of the owner ofthe pawnshop; and

b. Date, hour and place of the auctionsale.

In remote areas where newspapers areneither published nor circulated, thepublication requirement shall be compliedwith by posting notices at the city hall ormunicipal building of the city ormunicipality and in two (2) otherconspicuous public places where thepawnshop has its place of business.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4324P.1 Poster. Pawnshops shall postconspicuously at the principal place ofbusiness and branches an abstract (AppendixP-8) which shall be not be smaller than 8.5x 11 inches.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)


Sec. 4325P Public Auction of Pawns. Nopawnshop shall sell or otherwise disposeof any article or thing received as securityfor a loan except by public auction at any ofthe following places:

a. Pawnshop’s place of business; orb. Any public place within the

territorial limits of the municipality or citywhere the pawnshop conducts its business.

The auction shall be conducted underthe control and direction of a duly licensedauctioneer. In cities and municipalitieswhere there is no duly licensed auctioneer,the public auction may be conducted by anotary public of the city or province wherethe pawnshop has its place of business.

The Auction Sheet/Book containingentries of auctioned pawned articles dulysigned by the auctioneer or notary publicunder oath shall be maintained by thepawnshop.(Circular No. 656 dated 02 June 2009)

§ 4325P.1 Auction of pawned itemscovered by a single pawn ticket. If one (1)pawn ticket covers two (2) or more pledgedarticles, and only one of the articles was soldduring the auction, the pawnshop shallallocate the loan value for each article basedon their appraised value.(Circular No. 656 dated 02 June 2009)


C. - J. (RESERVED)


K. MISCELLANEOUS


§§ 4324P - 4398P11.12.31



Sec. 4399P General Provisions onSanctions. Unless otherwise provided,violations of any provision hereof maysubject a pawnshop, its proprietor,directors, trustees, partners, president,managers or officers-in-charge, whereapplicable, to sanctions which may includethe following:

a. warning/reprimand;b. suspension of AOR/AO;c. suspension of branching privilege;d. disqualification of proprietor,

partner, director, president, manager orofficer-in-charge;

e. monetary penalty not to exceedP1,000.00 per violation, per office, per day; and

f. revocation of AOR/AO.The imposition of the above sanctions

is without prejudice to whatever legalaction the BSP may pursue under Section18 of P.D. No. 114 (PawnshopRegulations Act), and other applicable

laws against the pawnshop, its proprietor,partners, incorporators, stockholders,directors, president and officers.

A pawnshop whose AOR/AO issuspended or revoked shall be reportedto the Off ice of the Mayor of theconcerned city or municipality, forappropriate action. It is understood thatin case the AOR of a head office isrevoked, the AO of all branches of saidpawnshop are likewise revoked.

Any pawnshop tha t i s foundoperating as a foreign exchange dealer/money changer and/or remittanceagent that does not have a COR issuedby the BSP fo r such ac t iv i ty i sconsidered operating such activitiesillegally and shall be reported to theOffice of the Mayor in accordance withthe rules above.(Circular No. 656 dated 02 June 2009, as amended by CircularNo. 711 dated 28 January 2011)

§ 4399P11.12.31

Manual of Regulations for Non-Bank Financial Institutions P RegulationsPart IV - Page 1

§§ 4401P - 4499P09.12.31

PART FOUR


Manual of Regulations for Non-Bank Financial Institutions P RegulationsPart V - Page 1

§§ 4501P - 4599P09.12.31

PART FIVE


Manual of Regulations for Non-Bank Financial Institutions P RegulationsPart VI - Page 1

A. (RESERVED)


Sec. 4641P Electronic Services. Theguidelines concerning electronic activitiesas may be applicable, are found in Sec.4701Q and its Subsections.(Circular No. 649 dated 09 March 2009)

Sec. 4642P Issuance and Operations ofElectronic Money. The following guidelinesshall govern the issuance of electronicmoney (e-money) and the operations ofelectronic money issuers (EMIs).(Circular No. 649 dated 09 March 2009)

§ 4642P.1 Declaration of policy. It isthe policy of the BSP to foster thedevelopment of efficient and convenientretail payment and fund transfermechanisms in the Philippines. Theavailability and acceptance of e-money as aretail payment medium will be promotedby providing the necessary safeguards andcontrols to mitigate the risks associated inan e-money business.(Circular No. 649 dated 09 March 2009)

§ 4642P.2 DefinitionsE-money shall mean monetary value as

represented by a claim on its issuer, that is:a. electronically stored in an



c. accepted as a means of payment bypersons or entities other than the issuer;


§§ 4601P - 4642P.4 09.12.31



a. Banks (hereinafter called EMI-Bank);b. NBFI supervised by the BSP

(hereinafter called EMI-NBFI); andc. Non-bank institutions registered

with the BSP as a monetary transfer agentunder Sec. 4511N of the MORNBFI(hereinafter called EMI-Others).

For purposes of this Section:a. Electronic instruments or devices shall

mean cash cards e-wallets accessible viamobile phones or other access device, storedvalue cards, and other similar products.

b. E-money issued by QBs shall not beconsidered as deposits.(Circular No. 649 dated 09 March 2009)

§ 4642P.3 Prior Bangko Sentralapproval. Pawnshops planning to be an EMI-NBFI shall comply with the requirementsof Sec. 4632P and Sec. 4190Q, whenapplicable.(Circular No. 649 dated 09 March 2009)

§ 4642P.4 Common provisions. Thefollowing provisions are applicable to all EMIs:

a. E-money instrument issued shall besubject to aggregate monthly load limit ofP100,000 unless a higher amount has beenapproved by BSP. In case an EMI issuesseveral e-money instruments to a person(e-money holder), the total amount loadedin all the e-money instruments shall beconsolidated in determining compliancewith the aggregate monthly load limit;

b. EMIs shall put in place a systemto maintain accurate and complete recordof e-money instruments issued, the identity

PART SIX

MISCELLANEOUS

P RegulationsPart VI - Page 2


§§ 4642P.4 - 4642P.509.12.31

of e-money holders, and the individual andconsolidated balances thereof. The systemmust have the capability to monitor themovement of e-money transactions and linke-money instruments issued to commone-money holders. The susceptibility of asystem to intentional or unintentionalmisreporting of transactions and balancesshall be sufficient ground for imposition bythe BSP of sanctions, as may be applicable.

c. E-money may only be redeemed atface value. It shall not earn interest nor rewardsand other similar incentives convertible to cash,nor be purchased at a discount. E-money isnot considered a deposit hence it is not insuredwith the PDIC.

d. EMIs shall not ensure that e-moneyinstruments clearly identify the issuer who isultimately responsible to the e-money holders.This shall be communicated to the client whoshall acknowledge the same in writing.



g. EMIs shall disclose in writing andits customers shall signify agreement to theinformation embodied in Item “c” aboveupon their participation in the e-moneysystem. In addition, it shall provide clearguidance in English and Filipino onconsumers’ right of redemption, includingconditions and fees for redemption, if any.Information on available redress proceduresfor complaints together with the address andcontact information of the issuer shall alsobe provided.

h. Prior to the issuance of e-money.EMIs should ensure that the followingminimum systems and controls are in place:



(3) Appropriate security policies andmeasures intended to safeguard theintegrity, authenticity and confidentiality ofdata and operating processes;



i. EMIs shall provide the SDCquarterly statements containing, amongothers, information on investments, volumeof transactions, total outstanding e-moneybalances, and liquid assets in such formsas may be prescribed later on.

j. EMIs shall notify BSP in writing ofany change or enhancement in the e-money facility thirty (30) days prior toimplementation. I f said change orenhancement requires prior BSP approval,the same shall be evaluated accordingly.Any change or enhancement that shallexpand the scope or change the nature ofthe e-money instrument shall be subjectto prior approval of the Deputy Governor,SES. These changes or enhancements mayinclude the following:

(1) Additional capabilities of thee-money instrument/s, like access to newchannels (e.g. inclusion of internet channelin addition to merchant Point of Saleterminals);



§ 4642P.5 Quasi-bank licenserequirement. EMI-NBFIs and EMI-Othersthat engage in lending activities must securea quasi-banking license from the BSP.(Circular No. 649 dated 09 March 2009)

Manual of Regulations for Non-Bank Financial Institutions P Regulations

§ 4642P.6 Sanctions. Monetarypenalties and other sanctions for thefollowing violations committed by EMI-NBFIs shall be imposed:

Nature of Violation/ Sanction/Penalties Exception

1. Issuing e-money Applicable penaltieswithout prior BSP under Sections 36 &approval 37 of R.A. No. 7653;


2. Violation of any Applicable penaltiesof the provisions of prescribed underR.A. No. 9160 (Anti- the ActMoney LaunderingLaw of 2001 asamended by R.A.No.9194) and itsimplementing rulesand regulations

3. Violation/s of Penalties and sanctionsthis Section under the



§ 4642P.7 Transitory provisions. AnEMI-NBFI granted an authority to issuee-money prior to 26 March 2009 maycontinue to exercise such authority:Provided, That it shall submit to the BSP,within one (1) month from the 26 March2009 a certification signed by the Presidentor Officer with equivalent rank and functionthat it is in compliance with all theapplicable requirements of this Section.

Otherwise, they are required to submitwithin the same period the measures theywill undertake, with the correspondingtimelines, to conform to the provisions thatthey have not complied with subject to BSPapproval.(Circular No. 649 dated 09 March 2009)

§§ 4642P.8 - 4642P.10 (Reserved)

§ 4642P.11 Outsourcing of services byElectronic Money Issuers (EMIs) toElectronic Money Network ServiceProviders (EMNSP). The guidelines onoutsourcing of services by EMIs to EMNSPare shown in Appendix Q-55.

Sanctions. Violations committed byEMIs pertaining to outsourcing activities toEMNSP shall be subject to monetarypenalties as graduated under AppendixQ-39 and/or other non-monetary sanctionsunder Section 37 of RA No. 7653.




Sec. 4651P Supervisory Powers of theBangko Sentral. The head of the appropriatedepartment of the SES and his dulydesignated representatives are authorized toconduct an examination, inspection, orinvestigation of books, records, businessaffairs, administration, and financialcondition of any pawnshop, whenever saidofficial deems it necessary for the effectiveimplementation of P.D. No. 114, and other

§§ 4642P.6 - 4651P 10.12.31

Part VI - Page 3

P Regulations Manual of Regulations for Non-Bank Financial Institutions

pertinent rules and regulations. Said officialand his duly designated representatives mayadminister oaths to any director, officer, oremployee of the pawnshop.

If, upon such examination, inspection,or investigation, the official or his deputiesshall establish that the pawnshop is violatingor is not complying with the requirementsof P.D. No. 114 and of the provisions ofother pertinent rules and regulations, saidofficial shall immediately inform theMonetary Board of his findings andrecommendations, and the Monetary Boardshall take appropriate action to stop suchviolation or non-compliance, and punish thepawnshop and/or the persons responsible.

Any business establishment whichrepresents itself as a pawnshop and/orregularly grants loans against pawns/collaterals physically delivered to theestablishment or is suspected to be apawnshop may be subject to the visitatorialauthority of the BSP to determine whetherthe establishment is engaged in the businessof a pawnshop or in pawnbrokering.

Any establishment that is found to beoperating as a pawnshop illegally shall bereported to the office of the city or municipalmayor where the establishment is located,for appropriate action, without prejudice towhatever legal action that the BSP may takeagainst the owners and operators of theestablishment.(Circular No. 656 dated 02 June 2009)

§ 4651P.1 Refusal to permitexamination. Refusal to permit examinationshall mean any act or omission whichimpedes, delays or obstructs the dulyauthorized BSP officer/examiner/employeefrom conducting an examination, includingthe act of refusing to accept or honor a letterof authority to examine presented by anyofficer/examiner/employee of the BSP and

the act of refusing to present pawnshop’svital records referred to in Sec. 4102P uponrequest by any officer/examiner/employeeof the BSP.(Circular No. 656 dated 02 June 2009)



Sec. 4657P Batas Pambansa Blg. 344 - AnAct to Enhance the Mobility of DisabledPersons by Requiring Certain Buildings,Institutions, Establishments and PublicUtilities to Install Facilities and OtherDevices. In order to promote the realizationof the rights of disabled persons toparticipate fully in the social life and thedevelopment of the societies in which theylive and the enjoyment of the opportunitiesavailable to other citizens, no license orpermit for the construction, repair orrenovation of public and private buildingsfor public use, educational institutions,airports, sports and recreation centers andcomplexes, shopping centers orestablishments, public parking places,workplaces, public utilities, shall be grantedor issued unless the owner or operatorthereof shall install and incorporate in suchbuilding, establishment or public utility,such architectural facilities or structuralfeatures as shall reasonably enhance themobility of disabled persons such assidewalks, ramps, railings and the like. Iffeasible, all such existing buildings,institutions, establishments, or publicutilities may be renovated or altered toenable the disabled persons to have accessto them.(Circular No. 656 dated 02 June 2009)


§§ 4651P - 4690P11.12.31

Part VI - Page 4

Manual of Regulations for Non-Bank Financial Institutions P Regulations

§§ 4691P - 4699P11.12.31

Sec. 4691P Anti-Money LaunderingRegulations. Banks, OBUs, QBs, trustentities, NSSLAs, pawnshops, FX dealers,money changers, remittance agents,electronic money issuers and other FIswhich under special laws are subject to BSPsupervision and/or regulation, includingtheir subsidiaries and affiliates shall complywith the provisions of Part 8 of QRegulations, R.A. No. 9160 (Anti-MoneyLaundering Act of 2001), as amended, andits IRR.(Circular No. 656 dated 02 June 2009, as amended by CircularNos. 706 dated 05 January 2011 and 661 dated 01 September2009)

§ 4691P.1 Required seminar/trainingPawnshop personnel directly involved inpawnshop operations shall attend a seminaron the requirements of the anti-moneylaundering law, particularly on customeridentification, record keeping and reportingof covered and suspicious transactions, tobe conducted by the Anti-MoneyLaundering Council (AMLC) or by any ofits recognized accredited service providers.The provisions of this subsection shall alsoapply to officer(s) of the branch(es).

The officer(s) in-charge and thepersonnel who have attended the requiredseminar may echo the said training to allemployees within thirty (30) calendar daysfrom such attendance or as newemployees are hired.

In case of pawnshops belonging to thesame group of related companies, thetraining/seminars may be cascaded to otherpawnshops within the group, subject to thefollowing conditions:

(1) training officers shall have attendedthe AMLA lectures conducted by theAMLC;

(2) lecture materials to be used bytraining officers should be approved by theAML Examination Group of the BSP; and

(3) training officers shall submit to theBSP, the list, under oath, of pawnshoppersonnel who have attended thelectures.(Circular No. 656 dated 02 June 2009)

§ 4691P.2 Anti-money launderingprogram. Every pawnshop is required toformulate a Money Laundering and TerroristFinancing Prevention Program as providedin Part 8 of Q Regulations.(Circular No. 656 dated 02 June 2009, as amended by Circular

Nos. 711 dated 28 January 2011 and 706 dated 05 January 2011)

§§ 4691P.3 - 4691P.8 (Reserved)

§ 4691P.9 Sanctions and penalties(Deleted by Circular No. 711 dated 28 January 2011)


Sec. 4699P Administrative Sanctions(Deleted by Circular No. 711 dated 28 January 2011)

Part VI - Page 5


APP. P-109.12.31

P RegulationsAppendix P-1 - Page 1

A. General Ledger. The General Ledger isthe controlling record of all subsidiaryledger accounts. The general ledgeraccounts shall be grouped as follows:

(1) Assets - Asset accounts shall consist ofthe following:

(a) Cash on hand and in banks;(b) Pledge loans;(c) Land;(d) Building;(e) Furniture and fixtures;(f) Office equipment;(g) Leasehold improvements;(h) Investment in securities; and(i) Other assets.Other assets shall include all assets not

included in any of the above classification,such as prepaid expenses, advances,accounts receivables.

(2) Liabilities - Liabilities representobligations of the pawnshop, such as:

(a) Loans payable;(b) Accounts payable; and(c) Other liabilities.Other liabilities are liabilities not

included in the above classification, suchas SSS premiums and medicare, taxwithheld, accruals.

(3) Capital - Capital at the end of the yearis the excess of assets over liabilities, or thesum of paid-in capital, surplus or retainedearnings accounts and net income for theyear. The accounts under this group shallconsist of the following:

(a) Capital/capital stock;(b) Drawings;(c) Retained earnings; and(d) Net income for the year.

CHART OF ACCOUNTS AND DESCRIPTIONOF LOAN REGISTER OF PAWNSHOPS

(Appendix to Sec. 4161P)

(4) Income - This account represents the"general ledger control" account for allincome of the pawnshop. An "IncomeSubsidiary Ledger" shall be maintained andthe total of this ledger shall equal thebalance of "Income Control" account of thegeneral ledger at all times.

The "Income Subsidiary Ledger" shallcontain the following accounts:

(a) Interests - pledge loans;(b) Service charges;(c) Gain or loss at auction sale;(d) Interests on securities; and(e) Other income

(5) Expenses - The expenses account shallinclude the following:

(a) Salaries and allowances;(b) Interest on borrowed money;(c) Rental;(d) Depreciation;(e) Light and water;(f) Taxes and licenses;(g) SSS contribution;(h) Costs of telephone, postage and/or

telegram;(i) Stationery and/or supplies; and(j) Miscellaneous expenses.

B. Registers. The following registers shallbe maintained to trace loan transactions.

(1) Loans Extended Register - Everypawnbroker shall keep a "Loans ExtendedRegister" in which shall be entered in ink, atthe time of each loan or pledge transaction,an accurate account and description in English,with corresponding translation in the localdialect, the following minimum data:

(a) Date of transaction;(b) Number of pawn ticket;

APP. P-109.12.31

Manual of Regulations for Non-Bank Financial InstitutionsP RegulationsAppendix P-1 - Page 2

payments of loans. It shall contain thefollowing minimum data:

(a) Date of payment;(b) Number of pawn ticket;(c) Name of pawner;(d) Principal amount;(e) Amount of interest paid; and(f) Signature or thumbmark of the

pawner and the name of the pawner writtenby and signature of the witness to thethumbmarking.

A pawnshop that uses a computerizedsystem may record its loan transactions inindividual loan extended vouchers which shallcontain the same information enumeratedabove in lieu of the loan extended and loanspaid registers. Such pawnshops shallperiodically compile or bind the loan extendedvouchers and shall be made available for BSPexamination upon request.(As amended by Circular No. 656 dated 02 June 2009)

(c) Amount of money loaned orprincipal;

(d) Rate of interest to be paid, in percent;(e) Service charge collected;(f) Description of pawn;(g) Appraised value of pawn;(h) Name of pawner;(i) Address of pawner;(j) Description of the pawner,

including:(i) Nationality;(ii) Sex; and(iii) General appearance; and

(k) Signature or thumbmark of thepawner and the name of the pawner writtenby and signature of the witness to thethumbmarking.

(2) Loans Paid Register - A "Loans PaidRegister" shall be maintained in which shallbe entered in ink, the principal and interest

P Regulations

Appendix P-2 - Page 1

Manual of R



APP. P-2

11.12.31

LIST OF REPORTS REQUIRED FROM PAWNSHOPS(Appendix to Sec. 4162P)

B BSP 7-26-01.1C 4165P

A-2 BSP 7-26-02C 4161P(As amendedby CL-079dated12.17.09)

A-3 BSP 7-26-03C 4161P(As amendedby CL-079dated12.17.09)

B Unnumbered 4164P(no prescribed form)

General Information Sheet (for corporation)

Statement of Condition (SOC)

Statement of Income and Expenses

Audited Financial Statement (AFS) for the previous yearended prepared by an external auditor together withactions taken on the financial audit report

5 days from submissionto SEC

January 31

-do-

June 30 of the followingreference calendar year

Annually

-do-

-do-

-do-

To be submitted to SECwithin 30 calendar days fromthe date of annualstockholders' meeting.

To be submitted toSupervisory Data Center(SDC). For pawnshops withbranches, the SOC shall besubmitted on a consolidatedbasis (i.e., head office plusbranches) together with a listof all its branches in the report.Branches are not required tosubmit individual reports.

do-

To be submitted to appropriatesupervising and examiningdepartment. For pawnshopswith assets of P50 million andabove, the AFS shall beprepared by independentexternal auditors that are in thelist of accredited externalauditors of the SEC, Office of theInsurance Commissioner or inthe list of BSP-selected externalauditors.

Deadline of Other Category Form No. MOR Ref. Report Title Frequency Submission Instructions/Requirements

APP. P-2

11.12.31

P Regulations

Appendix P-2 - Page 2

Manual of R



Report on Crimes/Losses




Report on Electronic Money Transactions Quarterly Statement of E-Money Balances andActivity - Volume and Amount of E-Money Transactions Quarterly Statement of Liquidity CoverSchedules

1 - E- Money Balances

As crime orincidentoccurs

As transactionoccurs

-do-

Quarterly

-do-

See Appendix P-2a forguidelines on reportingcrimes and losses


-do-

15 banking days afterend of reference quarter

-do-

To be submitted to the Anti-Money Laundering Council

-do-

Original-SDC

e-mail [email protected] copy - SDC

B Unnumbered 4163P

A-2 Unnumbered 4691P

A-2 Unnumbered 4691P

A-3 Unnumbered 4162P(CL-059dated11.28.07andCL-050dated10.04.07)

B Forms I and II M-031Schedule 1 dated

09.11.09and Cir.No. 649dated03.09.09

Deadline of Other Category Form No. MOR Ref. Report Title Frequency Submission Instructions/Requirements

APP. P-209.12.31

Manual of Regulations for Non-Bank Financial Institutions P RegulationsAppendix P-2 - Page 3

1. Pawnshops shall report on thefollowing matters through the appropriatedepartment of the SES:

a. Crimes whether consummated,frustrated or attempted against pawnedarticles/property/facilities (such as robbery,theft, swindling or estafa, forgery and otherdeceits) and other crimes involving loss/destruction of pawn/property of thepawnshop: Provided, That if no pawnedarticle is involved, the amount involved ineach crime is P20,000 or more.

Crimes involving the pawnshoppersonnel, regardless of whether or notsuch crimes involve the loss/destruction ofpawned articles/property of the pawnshop,even if the amount involved is less thanthose above specified, shall likewise bereported to the BSP.

b. Incidents involving material loss,destruction or damage to the institution'spawned articles/property/facilities, other

than arising from a crime: Provided, That ifno pawned article is involved, the amountinvolved per incident is P20,000 or more.

2. The following guidelines shall beobserved in the preparation and submissionof the report.

a. The report shall be prepared in two(2) copies and shall be submitted within ten(10) business days from knowledge of thecrime or incident, the original to theappropriate department of the SES and theduplicate to the BSP Security Coordinator,thru the Director, Security Investigation andTransport Department.

b. Where a thorough investigation andevaluation of facts is necessary to completethe report, an initial report submitted withinthe ten (10) business day deadline may beaccepted: Provided, That a complete report issubmitted not later than fifteen (15) businessdays from termination of investigation.(As amended by Circular No. 656 dated 02 June 2009)

Annex P-2-a

REPORTING GUIDELINES ON CRIMES/LOSSES(Annex to App. P-2)



APP. P-309.12.31

GUIDELINES ON PRESCRIBED REPORTS SIGNATORIESAND SIGNATORY AUTHORIZATION

(Appendix to Subsec. 4162P.1 )

Category A-1 reports shall be signed bythe chief executive officer, or in his absence,by the executive vice-president, and by thecomptroller, or in his absence, by the chiefaccountant, or by officers holding equivalentpositions. The designated signatories in thiscategory, including their specimensignatures, shall be contained in a resolutionapproved by the board of directors in theformat prescribed in Annex P-3-a.

Category A-2 reports of head officesshall be signed by the president, executivevice-presidents, vice-presidents or officersholding equivalent positions. Such reportsof other offices/units (such as branches) shallbe signed by their respective managers/officersin-charge. Likewise, the signing authority inthis category shall be contained in a resolutionapproved by the board of directors in theformat prescribed in Annex P-3-b.

Categories A-3 and B reports shall besigned by officers or their alternates, who

shall be duly designated in a resolutionapproved by the board of directors in theformat as prescribed in Annex P-3-c.

Copies of the board resolutions on thereport signatory designations shall besubmitted to the appropriate department ofthe SES within three (3) days from the dateof resolution.

In the case of pawnshops organizedas single proprietorship or partnership,the reports shall be signed by theproprietor or managing partner, as the casemay be, in place of chief executive officeror president. Other signatories shall beauthorized by the proprietor/managingpartner in a letter of authority to besubmitted to the appropriate departmentof the SES indicating the names, positionsand specimen signatures of the designatedsignatories as well as the reports they areto sign.(As amended by Circular No. 656 dated 02 June 2009)


APP. P-309.12.31


Annex P-3-a



Whereas, it is required under Subsec. 4162P.1 of the revised Manual of Regulations forNon-Bank Financial Institutions - Pawnshops, that Category A-1 reports be signed by thechief 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, we, the members of the Board of Directors of (Name of Pawnshop) ,are conscious that, in designating the officials who would sign said Category A-1 reports, weare actually empowering and authorizing said officers to represent and act for or in behalf of theBoard of Directors in particular and (Name of Pawnshop) in general;

Whereas, this Board has full faith and confidence in the institution's Chief ExecutiveOfficer, 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 aforesaidofficers 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

and3. Mr.____________, Comptroller _________________

Specimen Signature or Chief

4. Mr.____________, Accountant _________________Specimen Signature

are hereby authorized to sign Category A-1 reports of (Name of Pawnshop) ;

Done in the City of Philippines, this ____day of ____, 20____.

CHAIRMAN OF THE BOARD ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR ___________________ ___________________ DIRECTOR DIRECTOR

ATTESTED BY:

CORPORATE SECRETARY(As amended by Circular No. 656 dated 02 June 2009)


APP. P-309.12.31


Whereas, it is required under Subsec. 4162P.1 of the revised Manual of Regulations forNon-Bank Financial Institutions - Pawnshops, that Category A-2 reports be signed by thepresident, executive vice-presidents, vice-presidents or officer holding equivalent position,and that such reports of other offices be signed by the respective manager/officers-in-charge;

Whereas, it is also required that aforesaid officers of the institution be authorized under aresolution duly approved by the institution's Board of Directors;

Whereas, we, the members of the Board of Directors of (Name of Pawnshop) , areconscious that, in designating the officials who would sign said Category A-2 reports, we areactually empowering and authorizing said officers to represent and act for or in behalf of theBoard of Directors in particular and (Name of Pawnshop) in general;

Whereas, this Board has full faith and confidence in the Institution's President (and/or theExecutive Vice-President, etc., as the case may be) and, therefore, assumes responsibility forall the acts which may be performed by aforesaid officers under their delegated authority;


Name of Officer Specimen Signature Position Title Report No.

are hereby authorized to sign the Category A-2 reports of (Name of Pawnshop) .



DIRECTOR DIRECTOR

DIRECTOR DIRECTOR

DIRECTOR DIRECTOR

ATTESTED BY:

________________________CORPORATE SECRETARY

(As amended by Circular No. 656 dated 02 June 2009)

Annex P-3-b



Manual of Regulations for Non-Bank Financial InstitutionsP RegulationsAppendix P-3 - Page 4

APP. P-309.12.31

Annex P-3-c

FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIESA-3 AND B REPORTS


Whereas, it is required under Subsec. 4162P.1 of the revised BSP Manual of Regulationsfor Non-Bank Financial Institutions (Pawnshops), that Categories A-3 and B reports be signedby officers or their alternates;


Whereas, we the members of the Board of Directors of (Name of Pawnshop) , areconscious 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 inbehalf of the Board of Directors in particular and (Name of Pawnshop) in general;

Whereas, this Board has full faith and confidence in the Institution's Chief ExecutiveOfficer, Executive Vice-President, Comptroller, and Chief Accountant , as the case maybe, and , therefore, assumes responsibility for all the acts which may be performed byaforesaid officers under their delegated authority;


Name of Authorized Signatory/Alternate Specimen Signature Position Title Report No.



are hereby authorized to sign the Category A-3 and B reports of (Name of Pawnshop) .

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. P-409.12.31

STANDARD PAWN TICKET(Appendix to Subsec. 4323P.1)

BUSINESS/REGISTERED NAMEAddress

Taxpayer Identification NumberBusiness Days and Hours

Serial No.:001 Original Principal Amount of Loan Interes in absolute amount 1 Date Loan Granted Service Charge in amount Maturity Date Net Proceeds Expiry Date of Redemption 1 Formula (Principal x Rate x Time) Interest Rate in percent: _______ Please check: Per annum Per Month Per Day

Penalty interest in percent, if any

Description of the Pawn Appraised Value

Information on the Pawner Name Sex Complete Residential Address Date of Birth Telephone/mobile phone No. Nationality E-mail address, if any: Height Preferred Mode of notification: Please check Weight Mail to above address Text/SMS E-Mail ID Presented

TERMS AND CONDITIONS OF STANDARD PAWN TICKET1. The pawner hereby accepts the pawnshop’s appraisal as proper.2. The pawnshop hereby agrees not to collect advance interest for a period of more than

one (1) year.3. The service charge is equivalent to one percent (1%) of the principal loan, but shall

not exceed five pesos (P5.00). No other charges shall be collected.4. This loan is renewable for such amount and period as may be agreed upon between

the pawnshop and the pawner subject to the same requirements for a new loan.5. Upon maturity of this loan, as indicated above, the pawner still has ninety (90) days

from maturity date within which to redeem the pawn by paying the principal loanplus the interest that shall have accrued thereon.

6. The amount of interest due and payable after the maturity date of the loan up to theredemption period shall be computed upon redemption at the rate of interest provided


APP. 409.12.31


above based on the sum of the principal loan and interest earned as of the date ofmaturity. Any additional penalty and/or interest shall also be computed in the samemanner.

7. The pawnshop shall notify the pawner of any change in its business address/location.8. The pawner shall advise the pawnshop of any change of address/contact number/

e-mail address.9. The pawnshop shall send a reminder to the pawner in the preferred mode of notification

given above, or at the new address/mobile phone number or e-mail address, if suchwas provided by the pawner before the expiration of the ninety (90) day grace period.The pawnshop shall have the right to sell or dispose of the pawn if the pawner fails toredeem it within the ninety (90) day grace period.

10. This ticket shall be surrendered at maturity date upon payment of the loan. In case ofloss or destruction of this ticket, the pawner hereby undertakes to personally presentan affidavit to the pawnshop before the redemption period expires. The pawnshophas two (2) days to decide whether to accept (1) the affidavit in place of the originalpawn ticket; or (2) to issue a substitute pawn ticket, thereby cancelling the original.

11. The pawner shall not assign, sell or in any other way alienate the pawn securing thisloan without prior written consent of the pawnshop. If the pawnshop agrees, theterms and conditions of this contract remain enforceable.

12. In case of pre-payment of this loan by pawner, the interest collected in advance shallaccrue in full to the pawnshop.

13. The pawner shall not be entitled to the excess of the public auction sale price overthe amount of principal, interest and service fee; neither shall the pawnshop beentitled to recover the deficiency from the pawner.

(Signature or Thumbmark) (Signature) Pawner Pawnshop's Authorized Representative

(As amended by Circular 656 dated 02 June 2009)

APP. P-4-a09.12.31

Manual of Regulations for Non-Bank Financial Institutions P RegulationsAppendix P-4-a - Page 1

FORMAT OF STATEMENT OF UNDERSTANDING ONPAWNSHOP TRANSACTION(Appendix to Subsec. 4323P.1)

_________________________________(Business Name of Pawnshop)

STATEMENT OF UNDERSTANDING

I ACKNOWLEDGE THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS ANDCONDITIONS OF THIS CONTRACT OF PLEDGE/PAWNSHOP TRANSACTION, ANDTO THE FOLLOWING:

1. Agreement as to Interest Rates. The parties are generally free to agree in writingon the interest rates to be imposed in loans secured by pledge/pawned properties. Incase of dispute, the regular courts of law have the vested power to determine thereasonableness and legality of interest rates.

2. Degree of Diligence Required of a Pawnshop. In accordance with Republic Act No.386, as amended, the Civil Code of the Philippines, pawnshops shall take care of thething pawned by exercising reasonable care and caution that an ordinary prudentperson would as to his own property.a. Accountability in case of Fire. The office building/premises and all pawns in thepawnshop, except those which are kept inside a fireproof vault, are insured againstfire in accordance with the pertinent regulations of the Bangko Sentral ng Pilipinas(BSP). The amount of indemnity shall be dependent on the insurance policy agreementbetween the pawnshop and the insurance company.b. Accountability in case of robbery and other fortuitous events. Any claim forrestitution by pawners in case of loss, destruction or defect of the pawn due to robberyand other fortuitous event, with or without the fault or negligence of the pawnshop,its officers and directors, are cognizable by the regular courts.

I DECLARE UNDER THE PENALTY OF THE ANTI-FENCING LAW THAT I AM THEOWNER OF THE PROPERTY SUBJECT OF THIS AGREEMENT.

(Signature of Pawner over Printed Name) Date:


APP. P-4-b09.12.31

Manual of Regulations for Non-Bank Financial Institutions P RegulationsAppendix P-4-b - Page 1

STANDARD ADDITIONAL STIPULATIONS IN PAWN TICKETS(Appendix to Subsec. 4323P.1)

On Face of Pawn Ticket

1. Member: Chamber of Pawnbrokers of the Philippines

On Reverse Side of Pawn Ticket1. I hereby authorize M , whose signature appears below, to

redeem (or renew1) my pawn covered by this pawn ticket.

Signature of Representative Signature of Pawner(Signed in the presence of pawner)

Received by:Pawner/Authorized Representative

(Signed in the presence of pawnshop owner/employee)

2. Pinahihintulutan ko si G______________, na may lagda sa ibaba, para tubusin(o mapanibago*) ang aking sangla na binanggit sa papel na ito.

Lagda ng Kinatawan Lagda ng Nagsangla(Nilagdaan sa harap ng nagsangla)

Tinatanggap ko ang bagay/mga bagay na binanggit sa papel na ito:

Lagda ng Tumanggap

3. Received the article(s) in the same condition when pawned and redeemed.

Pawner

4. Acknowledgment: I hereby declare that the above-mentioned article(s) are mypersonal property and are free from liens and encumbrances.

Pawner

1 As pawnshop may opt to allow/include in the pawn ticket.


APP. P-4-b09.12.31

P RegulationsAppendix P-4-b - Page 2

5. Venue of all judicial and administrative cases or proceedings and other legalincidents arising out of or in connection with this contract shall solely andexclusively be brought before appropriate courts, departments, offices or agenciesof the government situated in (locality of pawnshop head office).

6. The authorized representative must present valid identification papers.7. Upon expiration of the redemption period, the pawnshop has the right to open

the sealed pawn for purposes of public auction.8. For purposes of computing the amount of interest for pledge loans paid after

maturity date, a fraction of (less than) a month shall be considered as one wholemonth.

9. Any one of the following:a. In case this loan is not paid on maturity date, the pawner hereby agrees to

pay in addition to accrued interest, two percent (2%) per month of the principal,as liquidated damages. For purposes of computing the amount of liquidateddamages, a fraction of a month shall be considered as one (1) full month.

b. The pawnshop may at its sole option, allow redemption of pawn afterexpiration of the 90-day grace period. Provided the pawner shall pay theprincipal plus interest due at the rate prescribed herein and liquidateddamages of two percent (2%) per month on the principal, counted after graceperiod. For purposes of computing the amount of liquidated damages, afraction of a month shall be considered as one (1) full month.

c. In case this loan is not paid on maturity date, the pawner hereby agrees topay in addition to accrued interest, two percent (2%) per month of the principal,as liquidated damages. For purposes of computing the amount of liquidateddamages, a fraction of a month shall be considered as one (1) full month. Thepawnshop may, at its sole option, allow redemption of pawn after expirationof the 90-day grace period upon payment by the pawner of the loan principalplus interest due and liquidated damages at the rates and manner ofcomputation herein prescribed.

10. The pawner shall hereby notify the pawnshop of his/her intention to redeem thepawn twenty-four (24) hours prior to actual redemption.


APP. P-4-c09.12.31

Manual of Regulations for Non-Bank Financial Institutions P RegulationsAppendix P-4-c - Page 1

STIPULATIONS NOT ALLOWED IN STANDARD PAWN TICKETS(Appendix to Subsec. 4323P.1)

1. Advertisements such as “highest appraisal in town, dependable, honest”, or othersimilar terms.

2. Facsimile signature of authorized pawnshop representative.

3. “Terms and conditions accepted and payment received.”

4. “By ordinary or registered mail” in standard Term and Condition No. 9.

5. “Letter of authorization”, as title of third-party redemption/authorization feature.

6. Additional features such as “demand for receipt”, “authorized by the Bangko Sentralng Pilipinas” and heading of ticket as “pawnshop receipt”.




APP. P-511.12.31


ANTI-MONEY LAUNDERING REGULATIONS(Appendix to Section 4691P)

P RegulationsAnnex P-5-a Page 2

Manual of Regulations for Non-Banks Financial Institutions

APP. P-511.12.31

Annex P-5-a

CERTIFICATION OF COMPLIANCEWITH ANTI-MONEY LAUNDERING REGULATIONS


P RegulationsAnnex P-5-b - Page 3


APP. P-511.12.31


Annex P-5-b


RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS ANDSUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS


APP. P-611.12.31



(Appendix to Sec. 4691P)


APP. P-711.12.31

“Know-Your-Pawner” Policy(Appendix to Subsection 4301P.3)

A pawner who transacts with apawnshop for the first time shall be requiredto present the original and submit a clearcopy of at least one (1) valid photo-bearingidentification document (ID) issued by anofficial authority.

The valid ID should indicate thepawner’s residential address, otherwise, heshe is also required to present the originaland submit a clear copy of a certificationfrom the barangay where the pawner residesor a billing statement that indicates his/herresidential address.

Valid IDs include the following:• Passport, including those issued by

foreign governments;• Driver’s License;• Professional Regulation Commission

(PRC) ID;• National Bureau of Investigation

(NBI) Clearance;• Police Clearance;• Postal ID;• Voter’s ID;• Tax Identification Number,• Barangay Certification;• Government Service Insurance

System (GSIS) e-Card;• Social Security System (SSS) Card;• Senior Citizen Card;• Overseas Workers Welfare

Administration (OWWA) ID;• OFW ID;

• Seaman’s Book;• Alien Certification of Registration/

Immigrant Certificate of Registration;• Government Office and GOCC ID,

[e.g. Armed Forces of the Philippines (AFP ID),Home Development Mutual Fund (HDMFID)];

• Certification from the NationalCouncil for the Welfare of Disabled Persons(NCWDP);

• Department of Social Welfare andDevelopment (DSWD) Certification;

• Integrated Bar of the Philippines(IBP) ID;

• Company IDs issued by privateentities or institutions registered with orsupervised or regulated either by theBangko Sentral ng Pilipinas, Securities andExchange Commission or InsuranceCommission.

Where the customer or authorizedsignatory is a non-Philippine resident,similar IDs duly issued by the foreigngovernment where the customer is aresident or a citizen may be presented.

The copy of the ID, barangay certificateor billing statement shall be kept by thepawnshop for convenience of the pawnerwho continues to transact with thepawnshop but said documents should beupdated at least every three (3) years.(As amended by Circular Nos.706 dated 05 January 2011, 656

dated 02 June 2009)


APP. P-809.12.31

ABSTRACT OF “SECTION 13 AND 14 OF P.D. NO. 114”(PAWNSHOP REGULATION ACT)

(Appendix to Subsection 4324P.1)

Redemption of Pawn ItemsA pawner who fails to pay his obligation

has ninety (90) days from maturity date toredeem the pawn by paying the principaland interest.

Disposition of Unredeemed Pawn Items• Unredeemed pawn items shall be

sold/disposed of only through public auction;• Pawner shall be notified of the public

auction at least thirty (30) days before theexpiration of the ninety (90)-day grace periodthrough his/her preferred mode of notification;

• The notice to pawner shall containthe date, hour and place where the publicauction shall be conducted;

• A pawnshop shall publish a noticeof public auction in at least twonewspapers circulated in the city ormunicipality where the pawnshop has itsplace of business six (6) days prior to thedate of public auction. In remote areaswhere newspapers are neither publishednor circulated, notice by newspaperpublication shall be complied with byposting notices at the city or municipalhall and in two (2) other conspicuouspublic places where the pawnshop has itsplace of business;

• Pawner may participate in the saidpublic auction.(Circular No. 656 dated 02 June 2009)

APP. P-909.12.31




AUDITING FIRM OF COVERED ENTITIES(Appendix to Sec. 4190P and Subsec. 4164P.4)

Pursuant to Section 58 of the RepublicAct No. 8791, otherwise known as "TheGeneral Banking Law of 2000", and theexisting provisions of the executedMemorandum of Agreement (hereinafterreferred to as the MOA) dated 12 August2009, binding the Bangko Sentral ngPilipinas (BSP), Securities and ExchangeCommission (SEC), ProfessionalRegulation Commission (IC) - Board ofAccountancy (BOA) and the InsuranceCommission (IC) for a simplified andsynchronized accreditation requirementsfor external auditor and/or auditing firm,the Monetary Board, in its Resolution No.950 dated 02 July 2009, approved thefollowing revised rules and regulationsthat shall govern the selection anddelisting by the BSP of covered institutionwhich under special laws are subject toBSP supervision.











APP. P-909.12.31
















a. Mathematical or clerical mistakes inthe underlying records and accounting data;





8. Subsidiary - a corporation or firmmore than fifty percent (50%) of theoutstanding voting stock of which is directlyor indirectly owned, controlled or held withpower to vote by a bank, QB, trust entity,NSSLA or pawnshop.

9. Affiliate - a corporation, not morethan fifty percent (50%) but not less thanten percent (10%) of the outstandingvoting stock of which is directly orindirectly owned, controlled or held withpower to vote by a bank, QB, trust entity,NSSLA or pawnshop and a juridicalperson that is under common control withthe bank, QB, trust entity, NSSLA orpawnshop.

10. Control - exists when the parentowns directly or indirectly more than onehalf of the voting power of an enterpriseunless, in exceptional circumstance, it canbe clearly demonstrated that such ownershipdoes not constitute control.

APP. P-909.12.31










13. Associate – any director, officer,manager or any person occupying a similarstatus or performing similar functions in theaudit firm including employees performingsupervisory role in the auditing process.

14. Partner - all partners including thosenot performing audit engagements.

15. Lead partner – also referred to asengagement partner/partner-in-charge/managing partner who is responsible forsigning the audit report on the consolidatedfinancial statements of the audit client, andwhere relevant, the individual audit reportof any entity whose financial statementsform part of the consolidated financialstatements.


17. Auditor-in-charge – refers to theteam leader of the audit engagement.D. GENERAL CONSIDERATION ANDLIMITATIONS OF THE SELECTIONPROCEDURES



3. The selection of the external auditorsand/or auditing firm does not exonerate thecovered institution or said auditors fromtheir responsibilities. Financial statementsfiled with the BSP are still primarily theresponsibility of the management of thereporting institution and accordingly, thefairness of the representations madetherein is an implicit and integral part ofthe institution’s responsibili ty. Theindependent certified public accountant’sresponsibility for the financial statementsrequired to be filed with the BSP isconfined to the expression of his opinion,

APP. P-909.12.31



or lack thereof, on such statements whichhe has audited/examined.

4. The BSP shall not be liable for anydamage or loss that may arise from itsselection of the external auditors and/orauditing firm to be engaged by banks forregular audit or non-audit services.

5. Pursuant to paragraph (5) of theMOA, SEC, BSP and IC shall mutuallyrecognize the accreditation granted by anyof them for external auditors and firms ofGroup C or D companies under SEC,Category B and C under BSP, andinsurance brokers under IC. Onceaccredited/selected by any one (1) ofthem, the above-mentioned specialrequirements shall no longer be prescribedby the other regulators.

For corporations which are requiredto submit financial statements to differentregulators and are not covered by themutual recognition policy of this MOA,the following guidance shall be observed:

a. The external auditors of UBswhich are listed in the Exchange, shouldbe selected/accredited by both the BSPand SEC, respectively; and

b. For insurance companies andbanks that are not listed in the Exchange,their external auditors must each beselected/accredited by BSP or IC,respectively. For purposes of submissionto the SEC, the financial statements shallbe at least audited by an external auditorregistered/accredited with BOA.

This mutual recognition policy shallhowever be subject to the BSP restrictionthat for banks and its subsidiary andaffiliate bank, QBs, trust entities, NSSLAs,their subsidiaries and affiliates engaged inallied activities and other FIs which underspecial laws are subject to BSPconsolidated supervision, the individualand consolidated financial statementsthereof shall be audited by only one (1)external auditor/auditing firm.

6. The selection of external auditorsand/or auditing firm shall be valid for aperiod of three (3) years. The SES shall makean annual assessment of the performanceof external auditors and/or auditing firm andwill recommend deletion from the list evenprior to the three (3)-year renewal period, ifbased on assessment, the external auditors’report did not comply with BSPrequirements.








(b) The external auditor does not have/shall not have outstanding loans or any

APP. P-909.12.31



credit accommodations or arranged for theextension of credit or to renew an extensionof credit (except credit card obligationswhich are normally available to other creditcard holders and fully secured auto loansand housing loans which are not past due)with the covered institutions under Item "B"at the time of signing the engagement andduring the engagement. In the case ofpartnership, this prohibition shall apply tothe partners and the auditor-in-charge of theengagement; and

(c) It shall be unlawful for an externalauditor to provide any audit service to acovered institution if the coveredinstitution’s CEO, CFO, Chief AccountingOfficer (CAO), or comptroller waspreviously employed by the external auditorand participated in any capacity in the auditof the covered institution during the one-year preceding the date of the initiation ofthe audit;









2. Auditing firmsa. The auditing firm must be primarily

accredited by the BOA and the name of thefirm’s applicant partner’s should appear inthe attachment to the certificate ofaccreditation issued by BOA. Additionalpartners of the firm shall be furnished byBOA to the concerned regulatory agencies(e.g. BSP, SEC and IC) as addendum to thefirm’s accreditation by BOA.


c. At the time of application, theapplicant firm must have at least one (1)signing practitioner or partner who is alreadyselected/accredited, or who is alreadyqualified and is applying for selection byBSP.

d. A registered accounting/auditingfirm may engage in any non-auditing servicefor an audit client only if such service isapproved in advance by the client’s auditcommittee. Exemptions from the prohibitionsmay be granted by the Monetary Board on acase-by-case basis to the extent that suchexemption is necessary or appropriate in thepublic interest. Such exemptions are subjectto review by the BSP.

e. At the time of application, theapplicant firm must have the following trackrecord:

(1) For Category A, the applicant firmmust have had at least twenty (20) corporateclients with total assets of at least P50.0million each;

(2) For Category B, the applicant firmmust have had at least five (5) corporateclients with total assets of at least P20.0million each;

APP. P-909.12.31



(3) For Category C, the applicant firmmust have had at least five (5) corporateclients with total assets of at least P5.0million each.










d. If the applicant will have clientsfalling under Category A, copy of the QualityAssurance Manual which, aside from thebasic elements as required under the BOAbasic quality assurance policies andprocedures, specialized quality assuranceprocedures should be provided consistingof, among other, review asset quality,

adequacy of risk-based capital, riskmanagement systems and corporategovernance framework of the coveredentities.






(d) written proof that the auditor hasattended or participated in trainings for atleast thirty (30) hours in addition to theBOA’s prescribed training hours. Suchtraining shall be in subjects like internationalfinancial reporting standards, internationalstandards of auditing, corporategovernance, taxation, code of ethics,regulatory requirements of SEC, IC and BSPor other government agencies, and othertopics relevant to his practice, conductedby any professional organization orassociation duly recognized/accredited bythe BSP, SEC or by the BOA/PRC through aCPE Council which they may set up.


APP. P-909.12.31












d. If the applicant firm will haveclients falling under Category A, copyQuality Assurance Manual where, asidefrom the basic elements as required underthe BOA basic quality assurance policiesand procedures, specialized qualityassurance procedures should be providedrelative to, among others review assetquality, adequacy of risk-based capital, riskmanagement systems and corporategovernance framework of covered entities;













APP. P-909.12.31










3. In case there are no matters to report(e.g. fraud, dishonesty, breach of laws, etc.)the external auditor/auditing firm shallsubmit directly to BSP within fifteen (15)calendar days after the closing of the auditengagement a notarized certification thatthere is none to report.

The management of the coveredinstitutions, including its subsidiaries andaffiliates, shall be informed of the adversefindings and the report of the externalauditor/auditing firm to the BSP shall includepertinent explanation and/or correctiveaction.

The management of the coveredinstitutions, including its subsidiaries andaffiliates, shall be given the opportunityto be present in the discussions betweenthe BSP and the external auditor/auditingfirm regarding the audit findings, exceptin circumstances where the externalauditor believes that the enti ty’smanagement is involved in fraudulentconduct.

It is, however, understood that theaccountability of an external auditor/auditing firm is based on matters within

the normal coverage of an auditconducted in accordance with generallyaccepted auditing standards and identifiednon-audit services.




b. Continuous conduct of auditdespite loss of independence as providedunder Item "E.1" or contrary to therequirements under the Code ofProfessional Ethics;

c. Any willful misrepresentation inthe following information/documents;


(2) report required under Item "H";and

(3) Notarized certification of theexternal auditor and/or auditing firm.

d. The BOA found that, after duenotice and hearing, the external auditorcommitted an act discreditable to theprofession as specified in the Code ofProfessional Ethics for CPAs. In this case,the BOA shall inform the BSP of the resultsthereof;

e. Declaration of conviction by acompetent court of a crime involvingmoral turpitude, fraud (as defined in theRevised Penal Code), or declaration ofliability for violation of the banking laws,rules and regulation, the CorporationCode of the Philippines, the SecuritiesRegulation Code (SRC); and the rules andregulations of concerned regulatoryauthorities;

APP. P-909.12.31



f. Refusal for no valid reason, uponlawful order of the BSP, to submit therequested documents in connection withan ongoing investigation. The externalauditor should however been made awareof such investigation;











d. Dissolution of the auditing firm/partnership, as evidenced by an Affidavit ofDissolution submitted to the BOA, or uponfindings by the BSP that the firm/partnershipis dissolved. The accreditation of such firm/partnership shall however be reinstated bythe BSP upon showing that the saiddissolution was solely for the purpose ofadmitting new partner/s have complied withthe requirements of this regulation andthereafter shall be reorganized and re-registered;




f. The firm or any one (1) of its auditorshas been involved in a major accounting/auditing scam or scandal. The suspensionor delisting of the said firm shall depend onthe gravity of the offense or the impact ofsaid scam or scandal on the investing publicor the securities market, as may bedetermined by the BSP;





APP. P-909.12.31




order of the BSP, to submit requesteddocuments in connection with an ongoinginvestigation. The firm should however bemade aware of such investigation.

3. Pursuant to paragraph 8 of theaforesaid MOA, the SEC, BSP and IC shallinform BOA of any violation by anaccredited/selected external auditor whichmay affect his/her accreditation status asa public practitioner. The imposition ofsanction by BOA on an erring practitionershall be without prejudice to theappropriate penalty that the SEC, IC or BSPmay assess or impose on such externalauditor pursuant to their respective rulesand regulations. In case of revocation ofaccreditation of a public practitioner byBOA, the accreditation by SEC, BSP andIC shall l ikewise be automaticallyrevoked/derecognized.



a. An external auditor/auditing firmshall only be delisted upon prior noticeto him/it and after giving him/it theopportunity to be heard and defendhimself/itself by presenting witnesses/evidence in his favor. Delisted externalauditor and/or auditing firm may re-applyfor BSP selection after the periodprescribed by the Monetary Board.

b. BSP shall keep a record of itsproceeding/investigation. Saidproceedings/investigation shall not bepublic, unless otherwise ordered by theMonetary Board for good cause shown,

with the consent of the parties to suchproceedings.

c. A determination of the MonetaryBoard to impose a suspension or delistingunder this section shall be supported bya clear statement sett ing forth thefollowing:


(2) The specific provision/s of thisregulation, the related SEC rules orprofessional standards which theMonetary Board determined as has beenviolated; and

(3) The imposed suspension ordelisting, including a justification foreither sanction and the period and otherrequirements specially required withinwhich the delisted auditing firm orexternal auditor may apply for re-accreditation.

d. The suspension/delist ing,including the sanctions/penalties providedin Sec. X189 shall only apply to:

(1) Intentional or knowing conduct,including reckless conduct, that results inviolation or applicable statutory,regulatory or professional standards; or

(2) Repeated instances of negligentconduct, each resulting in a violation ofthe applicable statutory, regulatory orprofessional standards.


(1) There have been established inand for that firm procedures, and a systemfor applying such procedures, that complywith applicable rules of BSP and that

APP. P-909.12.31



would reasonably be expected to preventand detect any such violation by suchassociated person; and

(2) Such person or auditor hasreasonably discharged the duties andobligations incumbent upon that personby reason of such procedures and system,and had no reasonable cause to believethat such procedures and system were notbeing complied with.



h. The BSP shall establish forappropriate cases an expedited procedurefor consideration and determination of thequestion of the duration of stay of any suchdisciplinary action pending review of anydisciplinary action of the BSP under thisSection.


concern, the Monetary Board may, at theexpense of the covered institution requirethe external auditor and/or auditing firm toundertake a specific review of a particularaspect of the operations of these institutions.The report shall be submitted to the BSPand the audited institution simultaneously,

within thirty (30) calendar days after theconclusion of said review.


Pursuant to Section 58 of RA. No. 8791,otherwise known as “The General BankingLaw of 2000” the Monetary Board may alsodirect the board of directors of a coveredinstitution or the individual members thereof,to conduct, either personally or by acommittee created by the board, an annualbalance sheet audit of the coveredinstitution to review the internal audit andthe internal control system of theconcerned entity and to submit a reportof such audit to the Monetary Boardwithin thirty (30) calendar days after theconclusion thereof.



1. That the covered institution shall beresponsible for keeping the auditor fullyinformed of existing and subsequent changesto prudential regulatory and statutoryrequirements of the BSP and that bothparties shall comply with said requirements;

2. That disclosure of information by theexternal auditor/auditing firm to the BSP asrequired under Items “H” and “J” hereof, shallbe allowed; and

3. That both parties shall comply withall the requirements under this Appendix.(As amended by Circular No. 660 dated 25 August 2009)

iii


N REGULATIONS(Regulations Governing Other Non-Bank Financial Institutions)

TABLE OF CONTENTS

SECTION 4101N Applicable Regulations on Trust and Other FiduciaryActivities4101N.1 Sanctions

SECTION 4102N Minimum Capital for Investment Houses

SECTION 4103N Prior Bangko Sentral Authority on Quasi-Banking Functions4103N.1 Quasi-banking functions4103N.2 Transactions not considered quasi-banking4103N.3 Delivery of securities4103N.4 Securities custodianship operations

SECTION 4104N Anti-Money Laundering Regulations4104N.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 anymortgage or bond issuance by anymunicipality, GOCC, or any body politic

SECTIONS 4110N - 4139N (Reserved)

SECTION 4140N Interlocking Directorships and/or Officerships4140N.1 Representatives of government


SECTION 4143N Disqualification of Directors and Officers4143N.1 Persons disqualified to become directors4143N.2 Persons disqualified to become officers4143N.3 Disqualification procedures4143N.4 Effect of possession of disqualifications4143N.5 (Reserved)4143N.6 Watchlisting

iv

SECTION 4144N Securities Custodianship and Securities Registry Operations4144N.1 Statement of policy4144N.2 Applicability of this regulation4144N.3 Prior Bangko Sentral approval4144N.4 Application for authority4144N.5 Pre-qualification requirements for a securities

custodian/registry4144N.6 Functions and responsibilities of a securities

custodian4144N.7 Functions and responsibilities of a securities

registry4144N.8 Protection of securities of the customer4144N.9 Independence of the registry and custodian4144N.10 Registry of Scripless Securities of the Bureau of

the Treasury4144N.11 Confidentiality4144N.12 Compliance with anti-money laundering laws/

regulations4144N.13 Basic security deposit4144N.14 Reportorial requirements4144N.15 - 4144N.28 (Reserved)4144N.29 Sanctions


SECTION 4150N Rules of Procedure on Administrative Cases InvolvingDirectors and Officers of Trust Entities


SECTION 4157N Batas Pambansa Blg. 344 - An Act to Enhance the Mobilityof Disabled Persons by Requiring Certain Buildings,Institutions, Establishments and Public Utilities to InstallFacilities and other Devices


SECTION 4161N Philippine Financial Reporting Standards/PhilippineAccounting Standards

SECTION 4162N Reports4162N.1 Categories and signatories of reports4162N.2 Manner of filing4162N.3 Sanctions in case of willful delay in the

submission of reports

SECTION 4163N (Reserved)

v

SECTION 4164N Internal Audit Function4164N.1 Status4164N.2 Scope4164N.3 Qualification standards of the internal auditor4164N.4 Code of Ethics and Internal Auditing Standards


SECTION 4172NFinancial Audit4172N.1 Audited financial statements of non-bank

financial institutions4172N.2 Posting of audited financial statements


SECTION 4180N Selection, Appointment, Reporting Requirements andDelisting of External Auditors and/or Auditing Firm;Sanction

SECTION 4181N Publication Requirements


SECTION 4190N Duties and Responsibilities of Non-Bank FinancialInstitutions and their Directors/Officers in All Cases ofOutsourcing of Non-Bank Financial Institutions 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 Policy4301N.1 Definition of terms4301N.2 Risk management system4301N.3 Minimum requirements4301N.4 Information to be disclosed

vi

4301N.5 Interest accrual on past due loans4301N.6 Finance charges4301N.7 Deferral charges4301N.8 Late payment/penalty fees4301N.9 Confidentiality of information4301N.10 Suspension, termination of effectivity and

reactivation4301N.11 Inspection of records covering credit card

transactions4301N.12 Offsets4301N.13 Handling of complaints4301N.14 Unfair collection practices4301N.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 Accommodations4312N.1 General guidelines4312N.2 Purpose of loans and other credit

accommodations4313N.3 Prohibited use of loan proceeds4312N.4 Signatories4312N.5 Sanctions4312N.6 - 4312N.9 (Reserved)4312N.10 Minimum required disclosure4312N.11 Unfair collection practices4312N.12 Confidentiality of information4312N.13 - 4312N.14 (Reserved)4312N.15 Sanctions

SECTION 4313N Bank DOSRI Rules and Regulations Applicable toGovernment Borrowings in Government-Owned orControlled Financial Institutions

SECTION 4314N Loans Against Personal Security


SECTION 4391N Investment in Debt and Marketable Equity Securities


vii



SECTION 4511N Foreign Exchange Dealers/Money Changers and/orRemittance Agents Operations4511N.1 Registration4511N.2 Application for registration4511N.3 Applicability of other laws/regulations4511N.4 Required seminar/training4511N.5 Sale and purchase of foreign currencies by FXDs/

MCs4511N.6 Application to sell/purchase foreign currencies by

FXDs/MCs4511N.7 Additional requirement4511N.8 Requirements for remittance agents4511N.9 Anti-money laundering council reportorial

requirements4511N.10 - 4511N.14 (Reserved)4511N.15 Sanctions4511N.16 Industry association


SECTION 4601N Fines and Other Charges4601N.1 Guidelines on the imposition of monetary

penalties; payment of penalties or fines


SECTION 4603N Non-Bank BSP Supervised Entities

SECTIONS 4604N- 4640N (Reserved)

SECTION 4641N Electronic Services

SECTION 4642N Issuance and Operations of Electronic Money4642N.1 Declaration of policy4642N.2 Definitions4642N.3 Prior Bangko Sentral approval4642N.4 Common provisions4642N.5 Quasi-bank license requirement

viii

4642N.6 Sanctions4642N.7 Transitory provisions4642N.8 - 4642N.10 (Reserved)4642N.11 Outsourcing of services by Electronic Money



SECTION 4653N Accounting for Financial Institution Premises; Other FixedAssets


SECTION 4660N Disclosure of Remittance Charges and Other RelevantInformation


SECTION 4695N Valid Identification Documents


SECTION 4699N General Provision on Sanctions



TRUST CORPORATION (Stand-Alone Trust)

SECTION 4901N Trust Corporation; Statement of Policies4901N.1 Statement of principles

SECTION 4902N Scope of Trust, Other Fiduciary Business and InvestmentManagement Activities4902N.1 Scope of regulations4902N.2 Borrowings

SECTION 4903N Definitions

ix

A. TRUST AND OTHER FIDUCIARY BUSINESS

SECTION 4904N Organizational Requirements4904N.1 Application for authority to establish4904N.2 Required capital4904N.3 Requirements for the issuance of the certificates of

authority to register and to operate4904N.4 Pre-operating requirements4904N.5 Commencement of trust, other fiduciary business and

investment management activities

SECTION 4905N Security for the Faithful Performance of Trust and OtherFiduciary Business and Allowable Proprietary Assets4905N.1 Basic security deposit4905N.2 Allowable proprietary assets4905N.3 Valuation of securities and basis of computation of

the basic security deposit requirement4905N.4 Compliance period; sanctions4905N.5 Reserves against peso denominated Trust and Other

Fiduciary Accounts (TOFA) – Others4905N.6 Composition of reserves4905N.7 Computation of reserve position4905N.8 Reserve deficiencies; sanctions4905N.9 Report of compliance

SECTION 4906N Incorporators, Directors, Officers and Management4906N.1 Incorporators4906N.2 Limits on the number of the members of the board of

directors4906N.3 Qualifications of directors, officers and staff4906N.4 Responsibilities of administration4906N.5 – 4906N.8 (Reserved)4906N.9 Outsourcing services4906N.10Approval/Confirmation of the election/appointment

of directors, president/trust officer and officers4906N.11 Appointment of a compliance officer and a risk officer4906N.12 Prohibitions to become officer4906N.13 Disqualification of directors and officers4906N.14 Watchlisting of directors and officers4906N.15 Interlocking directorship/officership

SECTION 4907N Non-Trust, Non-Fiduciary and/or Non-Investment ManagementActivities

x

SECTION 4908N Unsafe and Unsound Practices4908N.1 – 4908N.8 (Reserved)4908N.9 Sanctions

SECTION 4909N Trust and Other Fiduciary Business4909N.1 Minimum documentary requirements4909N.2 Lending and investment disposition4909N.3 Transactions requiring prior authority.4909N.4 Ceilings on loans4409N.5 Funds awaiting investment or distribution4409N.6 Other applicable regulations on loans and

investments – trust and other fiduciary accounts4909N.7 Operating and accounting methodology4909N.8 Tax-exempt individual trust accounts4909N.9 Living trust accounts4909N.10 – 4909N.15 (Reserved)4909N.16Qualification and accreditation of trust corporations

acting as trustee on any mortgage or bond issuanceby any municipality, government-owned orcontrolled corporation, or any body politic

4909N.17Trust fund of pre-need companies

SECTION 4910N Unit Investment Trust Funds/Common Trust Funds4910N.1 Definition4910N.2 Establishment of a unit investment trust fund4910N.3 Administration of a unit investment trust fund4910N.4 Relationship of trustee with unit investment trust

fund4910N.5 Operating and accounting methodology4910N.6 Plan rules4910N.7 Minimum disclosure requirements4910N.8 Exposure limit to single person/entity4910N.9 Allowable investments and valuation4910N.10Other related guidelines on valuation of allowable

investments4910N.11Unit investment trust fund administration support4910N.12Counterparties4910N.13Foreign currency denominated unit investment trust

funds4910N.14Exemptions from statutory and liquidity reserves,

single borrowers limit, directors, officers,stockholders and their related interest

xi

SECTION 4911N Investment Management Activities4911N.1 Minimum documentary requirements4911N.2 Minimum size of each investment management

account4911N.3 Commingling of funds4911N.4 Lending and investment disposition4911N.5 Transactions requiring prior authority4911N.6 Title to securities and other properties4911N.7 Ceilings on loans4911N.8 Other applicable regulations on loans and

investments – investment management account4911N.9 Operating and accounting methodology4911N.10 Tax-exempt individual investment management

accounts


SECTION 4913N Required Retained Earnings Appropriation

B. INVESTMENT MANAGEMENT ACTIVITIES

SECTION 4914N Authority to Perform Investment Management4914N.1 Application for authority to establish4914N.2 Required capital4914N.3 Requirements for the issuance of the certificates of

authority to register and to operate4914N.4 Pre-operating requirements4914N.5 Commencement of trust, other fiduciary business

and investment management activities4914N.6 Borrowings4914N.7 Grounds for disapproval of application

SECTION 4915N Security for the Faithful Performance of InvestmentManagement Activities and Allowable Proprietary Assets

SECTION 4916N Organization and Management

SECTION 4917N Non-Investment Management Activities

SECTION 4918N Unsound Practices

SECTION 4919N Conduct of Investment Management Activities

xii

SECTION 4920N Required Retained Earnings Appropriation

C. GENERAL PROVISIONS

SECTION 4921N Books and Records

SECTION 4922N Assets Under Management

SECTION 4923N Fees and Commissions

SECTION 4924N Taxes

SECTION 4925N Reports Required4925N.1 To trustor, beneficiary, principal4925N.2 To the Bangko Sentral4925N.3 Audited financial statements

SECTION 4926N Audits4926N.1 Internal audit4926N.2 External audit4926N.3 Board action

SECTION 4927N Authority Resulting from Merger or Consolidation

SECTION 4928N Receivership

SECTION 4929N Revocation of Trust License


SECTION 4939N Payment of Fines and Other Charges4939N. 1 Guidelines on the imposition of monetary penalties4939N. 2 Payment of fines4939N. 3 (Reserved)4939N. 4 Check/demand draft payments to the Bangko

Sentral


SECTION 4941N Securities Custodianship and Securities Registry Operations4941N.1 Statement of policy

xiii

4941N.2 Applicability of this regulation4941N.3 Prior Bangko Sentral approval4941N.4 Application for authority4941N.5 Pre-qualification requirements for a securities

custodian/registry4941N.6 Functions and responsibilities of a securities

custodian4941N. 7 Functions and responsibilities of a securities registry4941N.8 Protection of securities of the customer4941N.9 Independence of the registry and custodian4941N.10Registry of scripless securities of the Bureau of the

Treasury4941N.11Confidentiality4941N.12Anti-money laundering regulations4941N.13Basic security deposit4941N.14Reportorial requirements4941N.15 – 4941N.28 (Reserved)4941N.29Sanctions

SECTIONS 4942N – 4997N (Reserved)

SECTION 4998N Annual Supervision Fee

SECTION 4999N Sanctions

xiv


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 AuthorizationAnnex N-2-a - Format of Resolution for Signatories of Category A-2

ReportsAnnex N-2-b - Format of Resolution for Signatories of Category B

Reports

N - 3 Anti-Money Laundering Regulations (Deleted pursuant to CircularNo. 706 dated 05 January 2011)Annex N-3-a - Certification of Compliance with Anti-Money

Laundering Regulations (Deleted pursuant to CircularNo. 706 dated 05 January 2011)

Annex N-3-b - Rules on Submission of Covered Transaction Reportsand Suspicious Transaction Reports by CoveredInstitutions (Deleted pursuant to Circular No. 706dated 05 January 2011)

N - 4 Revised Implementing Rules and Regulations R.A. No. 9160, asamended by R.A. No. 9194 (Deleted pursuant to Circular No. 706dated 05 January 2011)

N - 5 Guidelines to Govern the Selection, Appointment, ReportingRequirements and Delisting of External Auditors and/or Auditing Firmof Covered Entities

N - 6 Qualification Requirements for a Bank/Non-Bank Financial InstitutionApplying for Accreditation to Act as Trustee on any Mortgage or BondIssued by any Municipality, Government-Owned or ControlledCorporation, or any Body Politic

N - 7 Format Certification

N - 8 Registration and Operations of Foreign Exchange Dealers/MoneyChangers and Remittance AgentsAttachment 2 - Computation Sheet

N - 9 The Guidelines for the Imposition of Monetary Penalty for Violations/Offenses with Sanctions Falling under Section 37 of R.A. No. 7653 onTrust Corporations, Directors and/or Officers


BSP Manual of Regulations for Non-Bank Financial Institutions

N Regulations(Regulations Governing Other Non-Bank Financial Institutions)

shall govern the imposition of monetarypenalty for violations/offenses withadministrative sanctions falling underSection 37 of R.A. No. 7653 on NBFIs notperforming quasi-banking functions, theirdirectors and/or officers.(Circular No. 673 dated 10 December 2009)

Sec. 4102N Minimum Capital forInvestment Houses. Investment houses notperforming quasi-banking functions shallalso be subject to the minimum capitalrequirement in Sec. 4112Q of this Manual.

Sec. 4103N Prior Bangko Sentral Authorityon Quasi-Banking Functions. Borrowing byNBFIs from twenty (20) or more lenders forthe purpose of relending or purchase ofreceivables or other obligations, whichconstitutes quasi-banking functions, shall besubject to prior BSP authority onperformance of quasi-banking functionsunder BSP regulations.

§ 4103N.1 Quasi-banking functionsQuasi-banking functions shall consist of thefollowing:

a. Borrowing funds for the borrower’sown account;

b. Twenty (20) or more lenders at anyone (1) time;

c. Methods of borrowing: issuance,endorsement, or acceptance of debtinstruments of any kind, other than deposits,such as:

(1) acceptances;(2) promissory notes;(3) participations;(4) certificates of assignment or similar

instruments with recourse;

Section 4101N Applicable Regulations onTrust and Other Fiduciary Activities. Trustoperations and investment managementactivities of NBFIs not performingquasi-banking functions shall be subject tothe applicable regulations on such activitiesof NBFIs performing quasi-bankingfunctions in Part IV of the Q Regulations ofthis Manual, to the regulations in the otherparts of the Q Regulations addressed alsoto trust entities and to the regulationsimplementing the Truth in Lending Act inSec. 4307Q.

§ 4101N.1 Sanctions. Pursuant toSection 91 of R.A. No. 8791, the MonetaryBoard may impose sanctions and monetarypenalty for any violation of the provisionsof Part IV of the Q Regulations, of theregulations in the other parts of the QRegulations addressed also to trust entities,and of the regulations implementing theTruth in Lending Act in Sec. 4309Q. This iswithout prejudice to the imposition of othersanctions as the Monetary Board mayconsider warranted that may include thesuspension or revocation of an institution’sauthority to engage in trust and otherfiduciary business or in investmentmanagement activities, and such othersanctions as may be provided by law. Ifthe offender is a director or officer of thetrust entity, the Monetary Board may alsosuspend or remove such director or officer.If the violation is committed by acorporation, such corporation may bedissolved by quo warranto proceedingsinstituted by the Solicitor General.

The guidelines for the imposition ofmonetary penalty shown in Appendix Q-39

§§ 4101N - 4103N.109.12.31

N RegulationsPage 1


(5) trust certificates;(6) repurchase agreements; and(7) such other instruments as the

Monetary Board may determine; andd. Purpose:(1) relending, or(2) purchasing receivables or other

obligations.As used in the definition of quasi-

banking functions, the following terms andphrases shall be understood as follows:

Borrowing shall refer to all forms ofobtaining or raising funds through any ofthe methods and for any of the purposesprovided in Item "c" and "d", above whetherthe borrower’s liability thereby is treated asreal or contingent.

For the borrower’s own account shallrefer to the assumption of liability in one’sown capacity and not in representation, oras an agent or trustee, of another.

Purchasing of receivables or otherobligations shall refer to the acquisition ofclaims collectible in money, includinginterbank borrowings or borrowingsbetween FIs, or of securities, of any amountand maturity, from domestic or foreign sources.

Relending shall refer to the extensionof loans by an institution with antecedentborrowing transactions. Relending shall bepresumed in the absence of expressstipulation, when the institution is regularlyengaged in lending.

Regularly engaged in lending shallrefer to the practice of extending loans,advances, discounts or rediscounts as amatter of business, i.e., continuous orconsistent lending as distinguished fromisolated lending transactions.

The following guidelines shall governlender count on borrowings or fundsmobilized by NBFIs not performing quasi-banking functions:

1. For purposes of ascertaining thenumber of lenders/placers to determinewhether or not an NBFI is engaged inquasi-banking functions, the names of

payees on the face of each debt instrumentshall serve as the primary basis for countingthe lenders/placers except when proof to thecontrary is adduced such as the officialreceipts or documents other than the debtinstrument itself. In such case the actual/real lenders/placers as appearing in suchproof, shall be the basis for counting thenumber of lenders/placers.

In a debt instrument issued to two (2)or more named payees under an and/or andor arrangement, the number of payeesappearing on the instrument shall be thebasis for counting the number of lenders/placers: Provided, however, That a debtinstrument issued in the name of a husbandand wife followed by the word spouses,whether under an and, and/or or orarrangement or in the name of a designatedpayee under an in trust for (ITF) arrangementshall be counted as one borrowing/placement.

2. Each debt instrument payable tobearer shall be counted as one (1) lender/placer, except when the NBFI can provethat there is only one (1) owner for severaldebt instruments so payable.

3. Two (2) or more debt instrumentsissued to the same payee, irrespective ofthe date and amount shall be counted asone (1) borrowing or placement.

4. Debt instruments underwritten byinvestment houses or traded by securitiesdealers/brokers whether on a firm, standbyor best efforts basis shall be counted on thebasis of the number or purchasers thereofand shall not be treated as having beenissued solely to the underwriter or trader:Provided, however, That in case of unsolddebt instruments in a firm commitmentunderwriting, the underwriter shall becounted as a lender.

5. Each buyer, assignee, and/orindorsee shall be counted in determining thenumber of lenders/placers of fundsmobilized through sale, assignment,and/or indorsement of securities or

N RegulationsPage 2

§ 4103N.108.12.31

Manual of Regulations for Non-Bank Financial Institutions N RegulationsPage 3

§§ 4103N.1 - 4103N.311.12.31

receivables on a without recourse basiswhenever the terms and/or attendantdocumentation, practice, or circumstancesindicate that the sale, assignment, and/orindorsement thereof legally obligates the NBFInot performing quasi-banking functions torepurchase or reacquire the securities/receivables sold, assigned, indorsed or to paythe buyer, assignee, or indorsee at somesubsequent time.

6. Funds obtained by way of advances fromstockholders, directors, or officers, regardless ofnature, shall be considered borrowed funds orfunds mobilized and such stockholders, directorsor officers shall be counted in determining thenumber of lenders/placers.

§ 4103N.2 Transactions not consideredquasi-banking. The following shall not constitutequasi-banking:

a. Borrowing by commercial, industrialand other non-financial companies, through themeans listed in Subsec. 4103N.1 for the limitedpurpose of financing their own needs or theneeds of their agents or dealers; and

b. The mere buying and selling withoutrecourse of instruments mentioned in Subsec.4103N.1: Provided, That:

(1) The institution selling without recourseshall indicate or stamp in conspicuous print onthe instrument/s, as well as on the confirmationof sale, the phrase without recourse or sansrecourse and the following statement:

(Name of non-bank) assumesno liability for the payment,

directly or indirectly, ofthis instrument.

(2) In the absence of the phrase withoutrecourse or sans recourse and the above-requiredaccompanying statement, the instrument soissued, endorsed or accepted shall automaticallybe considered as falling within the purview ofthe rules on quasi-banking:

Provided, further, That any of the followingpractices or practices similar and/or tantamountthereto in connection with a without recoursetransaction renders such transaction as withrecourse and within the purview of the rules onquasi-banking.

(a) Issuance of postdated checks by afinancial intermediary, whether for its ownaccount or as an agent of the debt instrumentissuer, in payment of the debt instrument sold,assigned or transferred without recourse;

(b) Issuance by a financial intermediary ofany form of guaranty on sale transactions or onnegotiations or assignment of debt instrumentswithout recourse; or

(c) Payment with the funds of the financialintermediary which assigned, sold or transferredthe debt instrument without recourse, unless thefinancial intermediary can show that the issuerhas with the said financial intermediary fundscorresponding to the amount of the obligation.

Any investment house violating theprovisions of this Subsection shall be subject tothe sanctions provided in Sections 12 and 16 ofP.D. No. 129, as amended.

§ 4103N.3 Delivery of securitiesa. Securities sold on a without recourse

basis allowed under Subsec. 4101Q.3 (b) shallbe delivered physically to the purchaser, or tohis designated custodian duly accredited by theBSP, if certificated, or by means of book-entrytransfer to the appropriate securities account ofthe purchaser or his designated BSP accreditedcustodian in a registry for said securities, ifimmobilized or dematerialized, while theconfirmation of sale or document of conveyanceby the seller shall be physically delivered to thepurchaser. The custodian shall hold the securitiesin the name of the buyer: Provided, That an NBFIauthorized by the BSP to perform custodianshipfunction may not be allowed to be custodian ofsecurities issued or sold on a without recoursebasis by said NBFI, its subsidiaries or affiliates,or of securities in bearer form.

§§ 4103N.3 - 4103N.411.12.31

N RegulationsPage 4


The delivery shall be effected upon paymentand shall be evidenced by a securities deliveryreceipt duly signed by the authorized officer ofthe custodian and delivered to the purchaser.

Sanctions. Violation of any provision of Item“a” shall be subject to the following sanctions/penalties:

(1) Monetary penaltiesFirst offense – Fine of P10,000 a day for each

violation reckoned from the date the violationwas committed up to the date it was corrected.

Subsequent offenses – Fine of P20,000 a dayfor each violation reckoned from the date theviolation was committed up to the date it wascorrected.

(2) Other sanctionsFirst offense – Reprimand for the directors/

officers responsible for the violation.Subsequent offense –(a) Suspension for ninety (90) days without

pay of directors/officers responsible for theviolation;

(b) Suspension or revocation of theaccreditation to perform custodianship function;

(c) Suspension or revocation of the authorityto engage in quasi-banking function; and/or

(d) Suspension or revocation of the authorityto engage in trust and other fiduciary business.

b. The guidelines to implement the deliveryby the seller of securities to the buyer or to hisdesignated third party custodian are shown inAppendix Q-38.

Sanctions. Violation of any of the provisionsof Appendix Q-38 shall be subject to thesanctions/penalties under Subsec. 4144N.29.(As amended by Circular No. 714 dated 10 March 2011, M-2007-

002 dated 23 January 2007, M-2006-009 dated 18 July 2006,

M-2006-002 dated 05 June 2006 and Circular No. 524 dated 31

March 2006)

§ 4103N.4 Securities custodianshipoperations

a. Securities sold on a without recoursebasis shall be delivered to the purchaser, or tohis designated custodian duly accredited by theBSP: Provided, That the other entity authorized

by the BSP to perform custodianship functionmay not be allowed to be custodian of securitiesissued or sold on a without recourse basis bysaid entity, its subsidiaries or affiliates, or ofsecurities in bearer form. Existing securities beingheld under custodianship by other entities underBSP supervision, which are not in accordancewith said regulation, must therefore, be deliveredto a BSP accredited third party custodian.However, other FIs under BSP supervision maymaintain custody of existing securities of theirclients who are unable or unwilling to takedelivery pursuant to the provisions of thisSubsection but who declined to deliver theirexisting securities to a BSP accredited third partycustodian subject to the followingconditions:

(1) the custody arrangements withclients have been in existence prior to05 November 2004 (effectivity date of Circular457 dated 14 October 2004);

(2) the dealing NBFI under BSP supervisionhad been informed in writing by the client thathe is not willing to have his existing securitiesdelivered to a third party custodian;

(3) any BSP-regulated institution shall notenter into securities transactions with a clientwho has outstanding securities not delivered toa BSP accredited third party custodian; and

(4) it shall be the responsibility of anyBSP-regulated institution to satisfy itself that theperson purchasing securities from it has nooutstanding securities holdings which were notdelivered to a BSP accredited third partycustodian.

Sanctions. Without prejudice to the penaland administrative sanctions provided for underSections 36 and 37, respectively, of the R.A. No.7653, violation of any provision of thisSubsection shall be subject to the followingsanctions/penalties:

(1) First offense –(a) Fine of up to P10,000 a day for the

institution for each violation reckoned from thedate the violation was committed up to the dateit was corrected; and

(b) Reprimand for the directors/officersresponsible for the violation.

(2) Second offense -(a) Fine of up to P20,000 a day for the


(b) Suspension for ninety (90) days withoutpay of directors/officers responsible for theviolation.

(3) Subsequent offenses –(a) Fine of up to P30,000 a day for the

institution for each violation from the date theviolation was committed up to the date it wascorrected;

(b) Suspension or revocation of the authorityto act as securities custodian and/or registry; and

(c) Suspension for 120 days without pay ofthe directors/officers responsible for theviolation.

b. Sec. 4144N and its subsections shall alsogovern the securities custodianship andsecurities registry operations relative to the saleof securities on a without recourse basis.(As amended by M-2006-009 dated 18 July 2006, M-2006-002 dated05 June 2006 and Circular No. 524 dated 31 March 2006)

Sec. 4104N Anti-Money LaunderingRegulations. Covered institutions, including theirsubsidiaries and affiliates, shall comply with theprovisions of Part 8 of Q Regulations, R.A. No.9160 [Anti-Money Laundering Act (AMLA) of2001], as amended, and its Implementing Rulesand Regulations (IRR).(As amended by Circular Nos. 706 dated 05 January 2011 and 612dated 13 June 2008)

§§ 4104N.1 - 4104N.8 (Reserved)

§ 4104N.9 Sanctions and penalties. Theprovisions of Part 8 of the Q Regulations onsanctions and penalties are applicable forviolation of the provisions of the AMLA.(As amended by Circular No. 706 dated 05 January 2011)

Secs. 4105N - 4109N (Reserved)

§§ 4109N.1 - 4109N.15 (Reserved)

§ 4109N.16 Qualification and accreditationof non-bank financial institutions acting astrustee on any mortgage or bond issuance byany municipality, GOCC, or any body politic

a. Applicability. NBFIs duly accredited bythe BSP may act as trustee on any mortgage orbond issued by any municipality, GOCC, or anybody politic.

b. Application for accreditation. An NBFIdesiring to act as trustee on any mortgage orbond issued by any municipality, GOCC, or anybody politic shall file an application foraccreditation with the appropriate departmentof the SES. The application shall be signed bythe president or officer of equivalent rank of theNBFI and shall be accompanied by the followingdocuments:

(1) certified true copy of the resolution ofthe institution’s board of directors authorizingthe application; and

(2) a certification signed by the president orofficer of equivalent rank that the institution hascomplied with all the qualification requirementsfor accreditation.

c. Qualification requirements. An NBFIapplying for accreditation to act as trustee onany mortgage or bond issued by anymunicipality, GOCC, or any body politicmust comply with the requirements inAppendix N-6.

d. Independence of the trustee. An NBFI isprohibited from acting as trustee of a mortgageor bond issuance if any elective or appointiveofficial of the LGU, GOCC, or body politicwhich issued said mortgage or bond and/or hisrelated interests own such number of shares ofthe NBFI that will allow him or his relatedinterests to elect at least one (1) member of theboard of directors of such NBFI or is directly orindirectly the registered or beneficial owner ofmore than ten percent (10%) of any class of itsequity security.

e. Investment and management of the fundsA domestic NBFI designated as trustee of a

N RegulationsPage 5


§§ 4103N.4 - 4109N.1611.12.31

mortgage or bond issuance may hold andmanage, in accordance with the provisions ofthe trust indenture or agreement, the proceedsof the mortgage or bond issuance and such assetsand funds of the issuing municipality, GOCC,or body politic as may be required to bedelivered to the trustee under the trust indenture/agreement, subject to the following conditions/restrictions:

(1) Pending the utilization of suchfunds pursuant to the provisions of the trustindenture/agreement, the same shall onlybe (i) deposited in any bank authorized to acceptdeposits from the Government or governmententities: Provided, That the depository bank isnot a subsidiary or affiliate of the trustee NBFI,or (ii) invested in peso-denominated treasury billsacquired/ purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate.

(2) Investments of funds constituting orforming part of the sinking fund created as theprimary source for the payment of the principaland interests due the mortgage or bonds shallalso be limited to deposits in any bankauthorized to accept deposits from theGovernment or government entities andinvestments in government securities that areconsistent with such purpose which must beacquired/purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate.

f. Waiver of confidentiality. An NBFIdesignated as trustee of any mortgage or bondissued by any municipality, GOCC, or any bodypolitic shall submit to the appropriatedepartment of the SES a waiver of theconfidentiality of information under Sections 2

and 3 of R.A. No. 1405, as amended, dulyexecuted by the issuer of the mortgage or bondin favor of the BSP.

g. Reportorial requirements. An NBFIauthorized by the BSP to act as trustee of theproceeds of mortgage or bond issuance of amunicipality, GOCC, or body politic shallcomply with reportorial requirements that maybe prescribed by the BSP.

h. Applicability of the rules and regulationson trust, other fiduciary business and investmentmanagement activities. The provisions of theRules and Regulations on Trust, Other FiduciaryBusiness and Investment Management Activitiesnot inconsistent with the provisions of thisSubsection shall form part of these rules.

i. Sanctions. Without prejudice to the penaland administrative sanctions provided for underSections 36 and 37, respectively, of R.A. No.7653, violation of any provision of thisSubsection shall be subject to the followingsanctions/penalties depending on the gravity ofthe offense:




(2) Second offense –(a) Fine of up to P20,000 a day for the

institution for each violation reckoned from thedate the violation was committed up to the dateit was corrected;

(b) Suspension for ninety (90) days withoutpay for directors/officers responsible for theviolation; and

N RegulationsPage 6


§ 4109N.1608.12.31


(c) Revocation of the authority to act astrustee on any mortgage or bond issuanceby any municipality, GOCC, or body politic.

(3) Subsequent offense –(a) Fine of up to P30,000 a day for the

institution for each violation reckoned fromthe date the violation was committed upto the date it was corrected;

(b) Suspension or revocation of thetrust license;

(c) Suspension for 120 days withoutpay of the directors/officers responsible forthe violation.


Sec. 4140N Interlocking Directorshipsand/or Officerships. In order to safeguardagainst the excessive concentration ofeconomic power, unfair competitiveadvantage or conflict of interest situationsto the detriment of others through theexercise by the same person or group ofpersons of undue influence over the policy-making and/or management functions ofsimilar FIs while at the same time allowingbanks, QBs and NBFIs without quasi-banking functions to benefit fromorganizational synergy or economies ofscale and effective sharing of managerialand technical expertise, the followingregulations shall govern interlockingdirectorships and/or officerships within thefinancial system consisting of banks, QBsand NBFIs.

For purposes of this Section, QBsshall refer to investment houses, financecompanies, trust entities and all otherQBs while NBFIs shall refer toinvestment houses, finance companies,trust entities, insurance companies,securities dealers/brokers, credit cardcompanies, NSSLAs, holding companies,investment companies, governmentNBFIs, asset management companies,insurance agencies/brokers, venturecapital corporations, FX dealers, money

changers, lending investors, pawnshops,fund managers, mutual building and loanassociations, remittance agents and all otherNBFIs without quasi-banking functions.

a. Interlocking directorships.While concurrent directorship may

be the least prejudicial of the variousrelationships cited in this Section to theinterests of the FIs involved, certainmeasures are still necessary to safeguardagainst the disadvantages that couldresult from indiscriminate concurrentdirectorship.

(1) Except as may be authorized by theMonetary Board or as otherwise providedhereunder, there shall be no concurrentdirectorships between QBs or between aQB and a bank; and

(2) Without the need for prior approvalof the Monetary Board, concurrentdirectorships between entities notinvolving an investment house shall beallowed in the following cases:

(a) A bank and one (1) or more of itssubsidiary bank/s, QB/s, and NBFI/s; and

(b) A QB and an NBFI.For purposes of the foregoing, a

husband and his wife shall be consideredas one (1) person.

b. Interlocking directorships andofficerships.

In order to prevent any conflict ofinterest resulting from the exercise ofdirectorship coupled with the reinforcinginfluence of an officer’s decision-makingand implementing powers, the followingrules shall be observed.

(1) Except as may be authorized by theMonetary Board or as otherwise providedhereunder, there shall be no concurrentdirectorship and officership between QBs,or between a QB and a bank, and betweena QB and an NBFI.

(2) Without the need for prior approvalof the Monetary Board, concurrentdirectorship and officership between abank and one (1) or more of its subsidiary

§§ 4109N.16 - 4140N08.12.31

N RegulationsPage 8


bank/s, QB/s, and NBFI/s, other thaninvestment house/s, shall be allowed.

c. Interlocking officerships.A concurrent officership in different FIs

may present more serious problems ofself-dealing and conflict of interest. Multiplepositions may result in poor governanceor unfair competitive advantage.Considering the full-time nature of officerpositions, the difficulties of serving two (2)offices at the same time, and the need foreffective and efficient management, thefollowing rules shall be observed:

As a general rule, there shall be noconcurrent officerships, includingsecondments, between QBs or between aQB and a bank or between a QB and anNBFI. For this purpose, secondment shallrefer to the transfer/detachment of a personfrom his regular organization for temporaryassignment elsewhere where theseconded employee remains the employeeof the home employer although his salariesand other remuneration may be borne bythe host organization.

However, subject to prior approval ofthe Monetary Board, concurrentofficerships, including secondments, maybe allowed in the following cases:

(1) Between a QB, other than aninvestment house, and not more than two(2) of its subsidiary bank/s, QB/s, andNBFI/s, other than investment house/s;

(2) Between two (2) QBs, or betweena QB, other than an investment house,and a bank, or between a QB and an NBFI:Provided, That at least twenty percent (20%)of the equity of each of the banks, QBs orNBFIs is owned by a holding company or aQB/bank and the interlocking arrangementis necessary for the holding company or theQB/bank to provide technical expertise ormanagerial assistance to its subsidiaries/affiliates;

(3) Between a QB and not more thantwo (2) of its subsidiary QB/s, andNBFI/s;

(4) Between a bank and not more thantwo (2) of its subsidiary bank/s, QB/s, andNBFIs, other than investment house/s;

(5) Between a bank and not more thantwo (2) of its subsidiary QB/s, and NBFI/s.

Aforementioned concurrent officershipsmay be allowed, subject to the followingconditions:

(a) that the positions do not involve anyfunctional conflict of interests;

(b) that any officer holding the positionsof president, chief executive officer, chiefoperating officer or chief financial officermay not be concurrently appointed to anyof said positions or their equivalent;

(c) that the officer involved, or hisspouse or any of his relatives within thefirst degree of consanguinity or affinity orby legal adoption, or a corporation,association or firm wholly- or majority-owned or controlled by such officer or hisrelatives enumerated above, does not ownin his/its own capacity more than twentypercent (20%) of the subscribed capitalstock of the entities in which the QB hasequity investments; and

(d) that where any of the positionsinvolved is held on full-time basis, adequatejustification shall be submitted to theMonetary Board; or

(6) Concurrent officership positionsin the same capacity which do notinvolve management functions, i.e.,internal auditors, corporate secretary,assistant corporate secretary and securityofficer, between a QB and one (1) ormore of its subsidiary QB/s and NBFI/s,or between a bank and one (1) or moreof its subsidiary QBs and NBFIs, orbetween bank/s, QB/s and NBFI/s, otherthan investment house/s: Provided, That atleast twenty percent (20%) of the equityof each of the banks, QBs and NBFIs isowned by a holding company or by any ofthe banks/QBs within the group.

For purposes of this Section, membersof a group or committee, including

§ 4140N08.12.31

Manual of Regulations for Non-Bank Financial Institutions N Regulations

sub-groups or sub-committees, whoseduties include functions of managementsuch as those ordinarily performed byregular officers, shall likewise be consideredas officers.

It shall be the responsibility of theCorporate Governance Committee toconduct an annual performance evaluationof the board of directors and seniormanagement. When a director or officerhas multiple positions, the Committeeshould determine whether or not saiddirector or officer is able to and has beenadequately carrying out his/her duties and,if necessary, recommend changes to theboard based upon said performance/review.(Circular No. 592 dated 28 December 2007)

§ 4140N.1 Representatives ofgovernment. The provisions of this Sectionshall apply to persons appointed to suchpositions as representatives of thegovernment or government-owned orcontrolled entities unless otherwiseprovided under existing laws.(Circular No. 592 dated 28 December 2007)


Sec. 4143N Disqualification of Directorsand Officers. The following regulationsshall govern the disqualification of directorsand officers of institutions under thesupervisory and regulatory powers of theBSP other than banks, QBs, NSSLAs andpawnshops.

§ 4143N.1 Persons disqualified tobecome directors. Without prejudice tospecific provisions of law prescribingdisqualifications for directors, the followingare disqualified from becoming directors:

a. Permanently disqualifiedDirectors/trustees/officers/employees

permanently disqualified by the Monetary

Board from holding a director/trusteeposition:

(1) Persons who have been convictedby final judgment of the court for offensesinvolving dishonesty or breach of trust suchas estafa, embezzlement, extortion, forgery,malversation, swindling and theft;

(2) Persons who have been convictedby final judgment of the court for violationof banking laws;

(3) Persons who have been judiciallydeclared insolvent, spendthrift orincapacitated to contract; or

(4) Directors, trustees, officers oremployees of closed institutions under thesupervisory and regulatory powers of theBSP who were responsible for suchinstitutions’ closure as determined by theMonetary Board.

b. Temporarily disqualifiedDirectors/trustees/officers/employees

disqualified by the Monetary Board fromholding a director/trustee position for aspecific/indefinite period of time. Includedare:

(1) Persons who refuse to fully disclosethe extent of their business interest to theappropriate department of the SES whenrequired pursuant to a provision of law orof a circular, memorandum or rule orregulation of the BSP. This disqualificationshall be in effect as long as the refusalpersists;

(2) Directors who have been absent orwho have not participated for whateverreasons in more than fifty percent (50%) ofall meetings, both regular and special, ofthe board of directors during theirincumbency, or any twelve (12)-monthperiod during said incumbency. Thisdisqualification applies for purposes of thesucceeding election;


§§ 4140N - 4143N.108.12.31

Page 9

N Regulations Manual of Regulations for Non-Bank Financial Institutions

(a) Delinquency in the payment ofobligations means that an obligation of aperson with the institution where he/she isa director or officer, or at least two (2)obligations with other FIs, under differentcredit lines or loan contracts, are past duepursuant to Secs. X306, 4306Q, 4306Sand 4303P;

(b) Obligations shall include allborrowings from any FI obtained by:

(i) A director, trustee or officer for hisown account or as the representative oragent of others or where he/she acts as aguarantor, endorser or surety for loans fromsuch FIs;

(ii) The spouse or child under theparental authority of the director, trusteeor officer;

(iii) Any person whose borrowings orloan proceeds were credited to the accountof, or used for the benefit of a director,trustee or officer;

(iv) A partnership of which a director,trustee or officer, or his/her spouse is themanaging partner or a general partnerowning a controlling interest in thepartnership; and

(v) A corporation, association or firmwholly-owned or majority of the capital ofwhich is owned by any or a group ofpersons mentioned in the foregoing Items“(i)”, “(ii)” and “(iv)”;

This disqualification shall be in effectas long as the delinquency persists.

(4) Persons convicted for offensesinvolving dishonesty, breach of trust orviolation of banking laws but whoseconviction has not yet become final andexecutory;

(5) Directors, trustees and officers ofclosed institutions under the supervisoryand regulatory powers of the BSP pendingtheir clearance by the Monetary Board;

(6) Directors and trustees disqualifiedfor failure to observe/discharge their duties

and responsibilities prescribed underexisting regulations. This disqualificationapplies until the lapse of the specific periodof disqualification or upon approval by theMonetary Board on recommendation by theappropriate department of the SES of suchdirectors’ election/re-election;

(7) Persons dismissed fromemployment for cause. This disqualificationshall be in effect until they have clearedthemselves of involvement in the allegedirregularity or upon clearance, on theirrequest, from the Monetary Board aftershowing good and justifiable reasons, orafter the lapse of five (5) years from thetime they were officially advised by theappropriate department of the SES of theirdisqualification;

(8) Those under preventivesuspension; and

(9) Persons with derogatory recordswith the NBI, court, police, Interpol andmonetary authority (central bank) of othercountries (for foreign directors and officers)involving violation of any law, rule orregulation of the Government or any of itsinstrumentalities adversely affecting theintegrity and/or ability to discharge theduties of a director/trustee/officer. Thisdisqualification applies until they havecleared themselves of involvement in thealleged irregularity.(As amended by Circular No. 584 dated 28 September 2007)

§ 4143N.2 Persons disqualified tobecome officers

a. The disqualifications for directorsmentioned in Subsec. 4143N.1 shalllikewise apply to officers, except thosestated in Item “b(2)”.

b. The spouses or relatives within thesecond degree of consanguinity or affinityare prohibited from holding officershippositions across the following functionalcategories within an NBFI:

§§ 4143N.1 - 4143N.210.12.31

Page 10


1. Decision making and seniormanagement function, e.g., chairman,president, chief executive officer (CEO),chief operating officer (COO), generalmanager, and chief financial officer (CFO)other than the treasurer or controller;

2. Treasury function, e.g., Treasurer andVice President – Treasury;

3. Recordkeeping and financialreporting functions, e.g., controller andchief accountant;

4. Safekeeping of assets, e.g., chiefcashier;

5. Risk management function, e.g., chiefrisk officer;

6. Compliance function, e.g.,compliance officer; and

7. Internal audit function, e.g., internalauditor.

The spouse or relative within the seconddegree of consanguinity or affinity of anyperson holding the position of manager,cashier, or accountant of a branch orextension office of an NBFI or theirrespective equivalent positions isdisqualified from holding or beingappointed to any of said positions in thesame branch or extension office.(As amended by Circular No. 699 dated 17 November 2010)

§ 4143N.3 Disqualification proceduresa. The board of directors and

management of every institution shall beresponsible for determining the existence ofthe ground for disqualification of theinstitution’s director/officer or employee andfor reporting the same to the BSP. While theconcerned institution may conduct its owninvestigation and impose appropriatesanction/s as are allowable, this shall bewithout prejudice to the authority of theMonetary Board to disqualify a director/officer/employee from being elected/appointed as director/officer in any FI underthe supervision of the BSP. Grounds for

disqualification made known to theinstitution shall be reported to theappropriate department of the SES withinseventy-two (72) hours from knowledgethereof.

b. On the basis of knowledge andevidence on the existence of any of thegrounds for disqualification mentioned inSubsecs. 4143N.1 and 4143N.2, the directoror officer concerned shall be notified inwriting either by personal service or throughregistered mail with registry return receiptcard at his/her last known address by theappropriate department of the SES of theexistence of the ground for his/herdisqualification and shall be allowed tosubmit within fifteen (15) calendar days fromreceipt of such notice an explanation on whyhe/she should not be disqualified andincluded in the watchlisted file, togetherwith the evidence in support of his/herposition. The head of said department mayallow an extension on meritorious ground.

c. Upon receipt of the reply/explanation of the director/officerconcerned, the appropriate department ofthe SES shall proceed to evaluate the case.The director/officer concerned shall beafforded the opportunity to defend/clearhimself/herself.

d. If no reply has been received fromthe director/officer concerned upon theexpiration of the period prescribed underItem “b” above, said failure to reply shallbe deemed a waiver and the appropriatedepartment of the SES shall proceed toevaluate the case based on availablerecords/evidence.

e. If the ground for disqualification isdelinquency in the payment of obligation,the concerned director or officer shall begiven a period of thirty (30) calendar dayswithin which to settle said obligation or,restore it to its current status or, to explainwhy he/she should not be disqualified and

§§ 4143N.2 - 4143N.310.12.31

Page 11


included in the watchlisted file, before theevaluation on his disqualification andwatchlisting is elevated to the MonetaryBoard.

f. For directors/officers of closedbanks, the concerned department of the SESshall make appropriate recommendation tothe Monetary Board clearing said directors/officers when there is no pending case/complaint or evidence against them. Whenthere is evidence that a director/officer hascommitted irregularity, the appropriatedepartment of the SES shall makerecommendation to the Monetary Board thathis/her case be referred to the OSI for furtherinvestigation and that he/she be included inthe masterlist of temporarily disqualifiedpersons until the final resolution of his/hercase. Directors/ officers with pending cases/complaints shall also be included in saidmasterlist of temporarily disqualified personsupon approval by the Monetary Board untilthe final resolution of their cases. If thedirector/officer is cleared from involvementin any irregularity, the appropriatedepartment of the SES shall recommend tothe Monetary Board his/her delisting. On theother hand, if the director/officer concernedis found to be responsible for the closure ofthe institution, the concerned departmentof the SES shall recommend to the MonetaryBoard his/her delisting from the masterlistof temporarily disqualified persons and his/her inclusion in the masterlist ofpermanently disqualified persons.

g. If the disqualification is based ondismissal from employment for cause, theappropriate department of the SES shall, asmuch as practicable, endeavor to establishthe specific acts or omissions constitutingthe offense or the ultimate facts whichresulted in the dismissal to be able todetermine if the disqualification of thedirector/officer concerned is warranted ornot. The evaluation of the case shall be

made for the purpose of determining ifdisqualification would be appropriate andnot for the purpose of passing judgment onthe findings and decision of the entityconcerned. The appropriate department ofthe SES may decide to recommend to theMonetary Board a penalty lower thandisqualification (e.g., reprimand,suspension, etc.) if, in its judgment the actcommitted or omitted by the directorofficer concerned does not warrantdisqualification.

h. All other cases of disqualification,whether permanent or temporary shall beelevated to the Monetary Board for approvaland shall be subject to the proceduresprovided in paragraphs “a”, “b”, “c” and “d”above.

i. Upon approval by the MonetaryBoard, the concerned director/officer shallbe informed by the appropriate departmentof the SES in writing either by personalservice or through registered mail withregistry return receipt card, at his/her lastknown address of his/her disqualificationfrom being elected/appointed as directorofficer in any FI under the supervision ofBSP and/or of his/her inclusion in themasterlist of watchlisted persons sodisqualified.

j. The board of directors of theconcerned institution shall be immediatelyinformed of cases of disqualificationapproved by the Monetary Board and shallbe directed to act thereon not later thanthe following board meeting. Withinseventy-two (72) hours thereafter, thecorporate secretary shall report to theGovernor of the BSP through theappropriate department of the SES theaction taken by the board on the director/officer involved.

k. Persons who are elected orappointed as director or officer in any ofthe BSP-supervised institutions for the first

§4143N.308.12.31

Page 12


time but are subject to any of the groundsfor disqualification provided for underSubsecs. 4143N.1 and 4143N.2, shall beafforded the procedural due processprescribed above.

l. Whenever a director/officer iscleared in the process mentioned under Item“c” above or, when the ground fordisqualification ceases to exist, he/she wouldbe eligible to become director or officer ofany bank, QB, trust entity or any institutionunder the supervision of the BSP only uponprior approval by the Monetary Board. Itshall be the responsibility of the appropriatedepartment of the SES to elevate to theMonetary Board the lifting of thedisqualification of the concerned director/

officer and his/her delisting from themasterlist of watchlisted persons.(As amended by Circular No. 584 dated 28 September 2007)

§ 4143N.4 Effect of possession ofdisqualifications. Directors/officers electedor appointed possessing any of thedisqualifications as enumerated herein, shallvacate their respective positionsimmediately.

§ 4143N.5 (Reserved)

§ 4143N.6 Watchlisting. To provide theBSP with a central information file to be usedas reference in passing upon and

§§4143N.3 - 4143N.608.12.31

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(Next page is Page 13)

reviewing the qualifications of personselected or appointed as trustee or officer ofan institution under the supervisory andregulatory powers of the BSP, the SES shallmaintain a watchlist of disqualifieddirectors/trustees/officers under thefollowing procedures:


(1) Disqualification File “A” (Permanent)–Directors/trustees/officers/employeespermanently disqualified by the MonetaryBoard from holding a director/trustee/officerposition.

(2) Disqualification File “B” (Temporary)– Directors/trustees/officers/employeestemporarily disqualified by the MonetaryBoard from holding a director/trustee/officerposition.

b. Inclusion of directors/trustees/officers/employees in the watchlist. Uponrecommendation by the appropriatedepartment of the SES, the inclusion ofdirectors/trustees/officers/employees inwatchlist disqualification files “A” and “B”on the basis of decisions, actions or reportsof the courts, institutions under thesupervisory and regulatory powers of theBSP, NBI or any other administrativeagencies shall first be approved by theMonetary Board.

c. Notification of directors/trustees/officers/employees. Upon approval by theMonetary Board, the concerned director/trustee/officer/employee shall be informedthrough registered mail, with registry returnreceipt card, at his last known address ofhis inclusion in the masterlist of watchlistedpersons disqualified to be a director/trustee/officer in any institution under thesupervisory and regulatory powers of theBSP.

d. Confidentiality. Watchlisting shall befor internal use only and may not beaccessed or queried upon by outsideparties including such institutions under thesupervisory and regulatory powers of the

BSP, except with the authority of the personconcerned and with the approval of theDeputy Governor, SES, the Governor, or theMonetary Board.

The BSP will disclose information onits watchlist files only upon submission ofa duly accomplished and notarizedauthorization from the concerned personand approval of such request by the DeputyGovernor, SES or the Governor or theMonetary Board. The prescribedauthorization form to be submitted to theappropriate department of the SES is inAppendix Q-45.

FIs can gain access to information in thesaid watchlist for the sole purpose ofscreening their applicants for hiring and/orconfirming their elected directors andappointed officers. FIs must obtain the saidauthorization on an individual basis.

e. Delisting. All delistings shall beapproved by the Monetary Board uponrecommendation of the appropriatedepartment of the SES except in cases ofpersons known to be dead where delistingshall be automatic upon proof of death andneed not be elevated to the MonetaryBoard. Delisting may be approved by theMonetary Board in the following cases:

(1) Watchlist - Disqualification File “B”(Temporary) -


(b) When the conviction by the courtfor crimes involving dishonesty, breach oftrust and/or violation of banking lawsbecomes final and executory, in which casethe director/trustee/officer/employee isrelisted to Watchlist – Disqualification File“A” (Permanent); or

(c) Upon favorable decision orclearance by the appropriate body, i.e.,court, NBI, institutions under thesupervisory and regulatory powers of theBSP, or such other agency/body where theconcerned individual had derogatoryrecord.

§ 4143N.608.12.31


§§ 4143N.6 - 4144N.511.12.31

N RegulationsPage 14


Directors/trustees/officers/employeesdelisted from the Watchlist –Disqualification File “B” other than thoseupgraded to Watchlist – DisqualificationFile “A” shall be eligible for re-employmentwith any institution under the supervisoryand regulatory powers of the BSP.(As amended by CL-2007-001 dated 04 January 2007; andCL-2006-046 dated 21 December 2006)

Sec. 4144N Securities Custodianship andSecurities Registry Operations. Thefollowing rules and regulations shallgovern securities custodianship andsecurities registry operations of NBFIsunder BSP supervision. The guidelines to implement thedelivery by the seller of securities to thebuyer or to his designated third partycustodian are shown in Appendix Q-38.

Violation of any provision of theguidelines in Appendix Q-38 shall besubject to the sanctions/penalties underSubsec. 4144N.29.(As amended by Circular No. 714 dated 10 March 2011,M-2007-002 dated 23 January 2007; M-2006-009 dated 06July 2006, M-2006-002 dated 05 June 2006 and Circular No.524 dated 31 March 2006)

§ 4144N.1 Statement of policy. It isthe policy of the BSP to promote theprotection of investors in order to gain theirconfidence and encourage theirparticipation in the development of thedomestic capital market. Therefore, thefollowing rules and regulations arepromulgated to enhance transparency ofsecurities transactions with the end in viewof protecting investors.

§ 4144N.2 Applicability of thisregulation. This regulation shall governsecurities custodianship and securitiesregistry operations of banks and NBFIsunder BSP supervision. It shall cover alltheir transactions in securities as defined inSection 3 of the SRC, whether exempt orrequired to be registered with the SEC, that

are sold, borrowed, purchased, traded, heldunder custody or otherwise transacted inthe Philippines where at least one (1) of theparties is a bank or an NBFI under BSPsupervision. However, this regulation shallnot cover the operations of stock andtransfer agents duly registered with the SECpursuant to the provisions of SRC Rule36-4.1 and whose only function is tomaintain the stock and transfer book forshares of stock.

§ 4144N.3 Prior Bangko Sentralapproval. NBFIs under BSP supervision mayact as securities custodian and/or registryonly upon prior Monetary Board approval.

§ 4144N.4 Application for authorityA BSP-supervised entity desiring to act assecurities custodian and/or registry shall filean application with the appropriatedepartment of the SES.The application shallbe signed by the highest ranking officer ofthe NBFI and shall be accompanied by acertified true copy of the resolution of theNBFI’s board of directors authorizing theNBFI to engage in securities custodianshipand/or registry.

§ 4144N.5 Pre-qualificationrequirements for a securities custodian/registry

a. The securities custodian must be aNBFI under BSP supervision that isauthorized to engage in investmentmanagement (for IHs with QB authorityonly) or trust business. The securitiesregistry must be a NBFI under BSPsupervision whether or not authorized toengage in investment management (for IHswith QB authority) or trust business;

b. It must have complied with theminimum capital accounts required underexisting regulations not lower than anadjusted capital of P 300.0 million or suchamounts as may be required by theMonetary Board in the future;

§§ 4144N.5 - 4144N.611.12.31



c. It must have a CAMELS compositerating of at least “4” (as rounded off) in thelast regular examination;

d. It must have in place acomprehensive risk management systemapproved by its board of directorsappropriate to its operations characterizedby a clear delineation of responsibility forrisk management, adequate risk measurementsystems, appropriately structured risk limits,effective internal control and complete,timely and efficient risk reporting systems.In this connection, a manual of operations(which includes custody and/or registryoperations) and other related documentsembodying the risk management systemmust be submitted to the appropriatedepartment of the SES at the time ofapplication for authority and within thirty(30) days fromupdates; e. It must have adequate technologicalcapabilities and the necessary technicalexpertise to ensure the protection, safetyand integrity of client assets, such as:

(1) It can maintain an electronic registrydedicated to recording of accountabilitiesto its clients; and

(2) It has an updated and comprehensivecomputer security system covering system,network and telecommunication facilitiesthat will:

(a) limit access only to authorized users;(b) preserve data integrity; and(c) provide for audit trail of transactions.f. It has complied, during the period

immediately preceding the date ofapplication, with the following:

(1) ceilings on credit accommodationto DOSRI; and

(2) single borrower’s limit.g. It has no reserve deficiencies during

the eight (8) weeks immediately precedingthe date of application;

h. It has set up the prescribedallowances for probable losses, bothgeneral and specific, as of date ofapplication;

i. It has not been found engaging inunsafe and unsound practices during the lastsix (6) months preceding the date ofapplication; j. It has generally complied with laws,rules and regulations, orders or instructionsof the Monetary Board and/or BSPManagement; k. It has submitted additionaldocuments/ information which may berequested by the appropriate department ofthe SES, such as, but not limited to:

(1) Standard custody/registry agreementand other standard documents;

(2) Organizational structure of thecustody/registry business;

(3) Transaction flow; and(4) For those already in the custody or

registry business, a historical backgroundfor the past three (3) years;

l. It shall be conducted in a separateunit headed by a qualified person with atleast two (2) years experience in custody/registry operations; and

m. It can interface with the clearing andsettlement system of any recognizedexchange in the country capable ofachieving a real time gross settlement oftrades.

n. A securities custodian whichprovides the value-added service ofsecurities lending involving securities thatare sold, offered for sale or distributedwithin the Philippines must be aduly-licensed lending agent registered withthe SEC.(As amended by Circular No. 714 dated 10 March 2011)

§ 4144N.6 Functions and responsibilitiesof a securities custodian. A securitiescustodian shall have the following basicfunctions and responsibilities:

a. Safekeeps the securities of the client;b. Holds title to the securities in a

nominee capacity;c. Executes purchase, sale and other

instructions;

h. Does earmarking of encumbrancesor liens such as, but not limited to, Deedsof Assignment and court orders; and

i. Acts as a collecting and paying agentin respect of dividends, interest earnings orproceeds from the sale/redemption/maturity of securities held unde custodianship:Provided, That the custodian shall immediatelymake known to the securities owner allcollections received and payments madewith respect to the securities under custody.

j. In addition to the above basicfunctions, it may perform the value-addedservice of securities lending as agent:Provided, That it complies with thepre-qualification requirements under Item“n” of Subsec. 4144N.5: Provided, further,That the securities lending service shall becovered by a Securities LendingAuthorization Agreement (SLAA) whichshall be attached to the custody contract.

A securities custodian which renders thevalue-added service of securities lendinginvolving securities that are sold, offeredand distributed within the Philippines shallcomply with the pertinent rules andregulations of the SEC on securities lendingand borrowing operations.(As amended by Circular No. 714 dated 10 March 2011)

§ 4144N.7 Functions and responsibilitiesof a securities registry

a. Maintains an electronic registrybook;

b.Delivers confirmation oftransactions and other documents withinagreed trading periods;

c. Issues registry confirmations fortransfers of ownership as it occurs;

d. Prepares regular statement ofsecurities balances at such frequency as maybe required by the owner on record but notless frequent than every quarter; and

e. Follows appropriate legal documentationto govern its relationship with the Issuer.

§ 4144N.8 Protection of securities ofthe customer. A custodian must incorporatethe following procedures in the dischargeof its functions in order to protect thesecurities of the customer:

a. Administration of securitiescustodianship accounts. Securitiescustodianship accounts must beadministered in the entity’s Trust Unit.

b. Accounting and recording forsecurities. Custodians must employaccounting and safekeeping procedures thatfully protect customer securities. It isessential that custodians segregate customersecurities from one another and from itsproprietary holdings to protect the samefrom the claims of its general creditors.

Securities held under custodianship shallbe recorded in the books of the custodian atthe face value of said securities in the otherfiduciary sub-account “Custodianship”.

c. Documentation. The appropriatedocumentation for custodianship shall bemade and it shall clearly define, amongothers, the authority, role, responsibilities,fees and provision for succession in theevent the custodian can no longer dischargeits functions. It shall be accepted in writingby the counterparties.

The governing custodianship agreementshall be pre-numbered and this numbershall be referred to in all amendments andsupplements thereto.

d. Confirmation of custody. The custodianshall issue a custody confirmation to thepurchaser or borrower of securities toevidence receipt or transfer of securities asthey occur. It shall contain, as a minimum,the following information on the securitiesunder custody:

(1) Owner of securities;

§§ 4144N.6 - 4144N.811.12.31



d. Performs at least a monthlyreconciliation to ensure that all positionsare properly recorded and accounted for;

e. Confirms tax withheld;f. Represents clients in corporate

actions in accordance with the directionprovided by the securities owner;

g. Conducts mark-to-market valuationand statement rendition;

§§ 4144N.8 - 4144N.1211.12.31


(2) Issuer;(3) Securities type;(4) Identification or serial numbers;(5) Quantity;(6) Face value; and(7) Other information, which may be

requested by the parties.e. Periodic reporting. The custodian shall

prepare at least quarterly (or as frequent asthe owner of securities will require) securitiesstatements delivered to the registeredowner’s address on record. Said statementshall present detailed information such as,but not limited to, inventory of securities,outstanding balances, and market values.(As amended by Circular No. 714 dated 10 March 2011)

§ 4144N.9 Independence of theregistry and custodian. A BSP-accreditedsecurities registry must be a third party withno subsidiary/affiliate relationship with theissuer of securities while a BSP-accreditedcustodian must be a third party with nosubsidiary/affiliate relationship with theissuer or seller of securities. An NBFIaccredited by BSP as securities custodianmay, however, continue holding securitiesit sold under the following cases:

a. where the purchaser is a relatedentity acting in its own behalf and not asagent or representative of another;

b. where the purchaser is anon-resident with existing global custodyagreement governed by foreign laws andconventions wherein the NBFI is designatedas custodian or sub-custodian;and

c. upon approval by the BSP, where thepurchaser is an insurance company whosecustody arrangement is either governed bya global custody agreement where the NBFIis designated as custodian or sub-custodianor by a direct custody agreement withfeatures at par with the standards set underthis Subsection drawn or prepared by theparent company owning more than fiftypercent (50%) of the capital stock of thepurchaser and executed by the purchaseritself and its custodian.

Purchases by non-residents andinsurance companies that are exemptedfrom the independence requirement of thisSubsection shall, however, be subject to allother provisions of this Subsection.

§ 4144N.10 Registry of ScriplessSecurities of the Bureau of the TreasuryThe Registry of Scripless Securities (RoSS),operated by the Bureau of the Treasury,which is acting as a registry for governmentsecurities is deemed to be automaticallyaccredited for purposes of this Section andis likewise exempted from theindependence requirement under Subsec.4144N.9. However, securities registeredunder the RoSS shall only be considereddelivered if said securities were transferredby means of book entry to the appropriatesecurities account of the purchaser or hisdesignated custodian. Book entry transferto a sub-account for clients under theprimary account of the seller shall notconstitute delivery for purposes of this Section.

§ 4144N.11 Confidentiality. ABSP-accredited securities custodian/registry shall not disclose to anyunauthorized person any information relativeto the securities under its custodianship/registry. The management shall likewiseensure the confidentiality of client accountsof the custody or registry unit from otherunits within the same organization.

§ 4144N.12 Compliance with anti-moneylaundering laws/regulations. For purposes ofcompliance with the requirements of R.A. No.9160, otherwise known as the “Anti-MoneyLaundering Act of 2001,” as amended,particularly the provisions regarding customeridentification, record keeping andreporting of suspicious transactions, a BSP-accredited custodian may rely on referral bythe seller/issuer of securities: Provided, Thatit maintains a record of such referral togetherwith the minimum identification, information/documents required under the law and its

Manual of Regulations for Non-Bank Financial InstitutionsN RegulationsPage 18

§§ 4144N.12 - 4156N11.12.31

implementing rules and regulations. A BSP accredited custodian mustmaintain accounts only in the true and fullname of the owners of the security.However, said securities owners may beidentified by number or code in reports andcorrespondences to keep his identityconfidential.

Securities subject of pledge and/ordeed of assignment as of 14 October 2004(date of Circular 457), may be held by alending NBFI up to the original maturity ofthe loan or full payment thereof, whichevercomes earlier.

§ 4144N.13 Basic security depositSecurities held under custodianshipwhether booked in the Trust Departmentor carried in the regular books of the NBFIshall be subject to a security deposit forfaithful performance of duties at the rate of1/25 of one percent (1%) of the total facevalue or P500,000 whichever is higher. However, securities held undercustodianship where the custodian alsoperforms securities lending as agent shall besubject to a higher basic security deposit ofone percent (1%) of the total face value. Compliance shall be in the form ofgovernment securities deposited with the BSPeligible pursuant to existing regulationsgoverning security for the faithful performanceof trust and other fiduciary business.(As amended by Circular No. 714 dated 10 March 2011)

§ 4144N.14 Reportorial requirementsAn accredited securities custodian shallcomply with reportorial requirements thatmay be prescribed by the BSP, which shallinclude as a minimum, the face andmarket value of securities held undercustodianship.

§§ 4144N.15 - 4144N.28 (Reserved)

§ 4144N.29 Sanctions. Withoutprejudice to the penal and administrativesanctions provided for under Sections 36and 37, respectively, of the R.A. No. 7653,violation of any provision of this Sectionshall be subject to the following sanctionspenalties:

a. First offense –(1) Fine of up to P10,000 a day for the

institution for each violation reckoned fromthe date the violation was committed up tothe date it was corrected; and

(2) Reprimand for the directors/officers responsible for the violation.

b. Second offense -(1) Fine of up to P20,000 a day for the


(2) Suspension for ninety (90) dayswithout pay of directors/officers responsiblefor the violation.

c. Subsequent offenses–(1) Fine of up to P30,000 a day for the

institution for each violation from the datethe violation was committed up to the dateit was corrected;

(2) Suspension or revocation of theauthority to act as securities custodian and/or registry; and

(3) Suspension for 120 days withoutpay of the directors/officers responsible forthe violation.

Secs. 4145N – 4149N (Reserved)

Sec. 4150N Rules of Procedure onAdministrative Cases Involving Directorsand Officers of Trust Entities. The rules ofprocedure on administrative cases involvingdirectors and officers of quasi-banks inSec. 4150Q shall apply to directors andofficers of trust entities.



Sec. 4157N Batas Pambansa Blg. 344 –AnAct To Enhance The Mobility Of DisabledPersons By Requiring Certain Buildings,Institutions, Establishments And PublicUtilities To Install Facilities And OtherDevices. In order to promote the realizationof the rights of disabled persons to participatefully in the social life and the developmentof the societies in which they live and theenjoyment of the opportunities available toother citizens, no license or permit for theconstruction, repair or renovation of publicand private buildings for public use,educational institutions, airports, sports andrecreation centers and complexes, shoppingcenters or establishments, public parkingplaces, workplaces, public utilities, shall begranted or issued unless the owner oroperator thereof shall install and incorporatein such building, establishment or publicutility, such architectural facilities orstructural features as shall reasonablyenhance the mobility of disabled persons suchas sidewalks, ramps, railings and the like.If feasible, all such existing buildings,institutions, establishments, or public utilitiesmay be renovated or altered to enable thedisabled persons to have access to them.

Secs. 4158N-4160N (Reserved)

Sec. 4161N Philippine Financial ReportingStandards/Philippine Accounting Standards

Statement of policy. It is the policy ofthe BSP to promote fairness, transparencyand accuracy in financial reporting. It is inthis light that the BSP aims to adopt all PFRSand PAS issued by the ASC to the greatestextent possible.

Other NBFIs not performing quasi-banking functions shall adopt the PFRS andPAS which are in accordance withgenerally accepted accounting principlesin recording transactions and in thepreparation of financial statements andreports to BSP. However, in cases wherethere are differences between BSP

regulations and PFRS/PAS as when morethan one (1) option are allowed or certainmaximum or minimum limits are prescribedby the PFRS/PAS, the option or limitprescribed by BSP regulations shall beadopted by banks.

For purposes hereof, the PFRS/PASshall refer to issuances of the ASC andapproved by the PRC.

Accounting treatment for prudentialreporting. For prudential reporting, FIs shalladopt in all respect the PFRS and PASexcept as follows:

a. In preparing consolidated financialstatements, only investments in financialallied subsidiaries except insurancesubsidiaries shall be consolidated on aline-by-line basis; while insurance andnon-financial allied subsidiaries shall beaccounted for using the equity method.Financial/non-financial allied/non-alliedassociates shall be accounted for using theequity method in accordance with theprovisions of PAS 28 “Investments inAssociates”.

b. For purposes of preparing separatefinancial statements, financial/non-financialallied/non-allied subsidiaries/associates,including insurance subsidiaries/associates,shall also be accounted for using the equitymethod; and

c. FIs shall be required to meet theBSP recommended valuation reserves.

Government grants extended in theform of loans bearing nil or low interestrates shall be measured upon initialrecognition at its fair value (i.e., the presentvalue of the future cash flows of thefinancial instrument discounted using themarket interest rate). The differencebetween the fair value and the netproceeds of the loan shall be recordedunder “Unearned Income-Others”, whichshall be amortized over the term of the loanusing the effective interest method.

The provisions on government grantsshall be applied retroactively to all

§§ 4157N - 4161N08.12.31



outstanding government grants received. FIthat adopted an accounting treatment otherthan the foregoing shall consider theadjustment as a change in accountingpolicy, which shall be accounted for inaccordance with PAS 8.

Notwithstanding the exceptions inItems “a”, “b” and “c”, the audited annualfinancial statements required to besubmitted to the BSP in accordance withthe provision of Sec. 4172N shall in allrespect be PFRS/PAS compliant: Provided,That FIs shall submit to the BSP adjustingentries reconciling the balances in thefinancial statements for prudential reportingwith that in the audited annual financialstatements.(As amended by Circular Nos. 572 dated 22 June 2007 and

494 dated 20 September 2004)

Sec. 4162N Reports. NBFIs withoutquasi-banking functions but aresubsidiaries/affiliates of banks and QBs andinvestment houses without quasi-bankingfunctions but with trust operations shallsubmit to the appropriate department of theSES the reports listed in Appendix N-1 inthe forms as may be prescribed by theDeputy Governor, SES, BSP.

Any change in, or amendment to, thearticles of incorporation, by-laws ormaterial documents required to besubmitted to the BSP shall be reported bysubmitting copies of the amended articlesof incorporation, by-laws, or materialdocuments to the appropriate departmentof the SES within fifteen (15) daysfollowing such change.

§ 4162N.1 Categories and signatoriesof reports. Reports required to besubmitted to the BSP are classified intoCategories A-2 and B reports as indicatedin the list of reports required to besubmitted to the BSP in Appendix N-1.

Appendix N-2 prescribes the signatoriesfor each report category and the

requirements on signatory authorization.Reports submitted by NBFIs in computermedia shall be subject to the samerequirements.

A report submitted to the BSP underthe signature of an officer who is notauthorized in accordance with therequirements in this Subsection shall beconsidered as not having beensubmitted.

§ 4162N.2 Manner of filing. Thesubmission of the reports shall be effectedby filing them personally with theappropriate department of the SES or withthe BSP Regional Offices/Units, or bysending them by registered mail or specialdelivery through private couriers unlessotherwise specified in the circular ormemorandum of the BSP.

§ 4162N.3 Sanctions in case of willfuldelay in the submission of reports

a. Definition of terms. For purposesof this Subsection, the following definitionsshall apply:

(1) Report shall refer to any report orstatement required of an NBFI to besubmitted to the BSP periodically orwithin a specified period.

(2) Willful delay in the submission ofreports shall refer to the failure of an NBFIto submit a report on time. Failure tosubmit a report on time due to fortuitousevents, such as fire and other naturalcalamities and public disorders, includingstrike or lockout affecting an NBFI asdefined in the Labor Code or nationalemergency af fect ing operat ions ofNBFIs, shal l not be considered aswillful delay.

b. F ines fo r wi l l fu l de lay insubmission of reports. NBFIs incurringwill ful delay in the submission ofrequired reports shall pay a fine inaccordance wi th the fo l lowingschedule:

§§ 4161N - 4162N.308.12.31


I. For Categories A-2 reportsPer day of defaultuntil the report is filed P300

II. For Category B reportsPer day of defaultuntil the report is filed P 60

Delay or default shall start to run onthe day following the last day required forthe submission of reports. However,should the last day of filing fall on anon-working day in the locality where thereporting FI is situated, delay or defaultshall start to run on the day following thenext working day. The due date/deadlinefor submission of reports to BSP asprescribed under Sec. 4162N governingthe frequency and deadlines indicated inAppendix N-1 shall be automatically movedto the next business day whenever ahalf-day suspension of business operationsin government offices is declared due toan emergency such as typhoon, floods, etc.

For purposes of establishing delay ordefault, the date of acknowledgment by theappropriate department of the SES or the BSPRegional Offices/Units appearing on thecopies of such reports filed or submitted, orthe date of mailing postmarked on theenvelope/the date of registry/special deliveryreceipt, as the case may be, shall beconsidered as the date of filing by the NBFI.

c. Manner of payment or collection offines – NBFIs shall, within fifteen (15)calendar days from receipt of the statementof account from the appropriate departmentof the BSP, pay the fines imposed thereon forwillful delay on the submission of reports.(As amended by Circular No. 585 dated 15 October 2007)

Sec. 4163N (Reserved)

Sec. 4164N Internal Audit FunctionInternal audit is an independent, objectiveassurance and consulting functionestablished to examine, evaluate andimprove the effectiveness of risk

management, internal control, andgovernance processes of an organization.

§ 4164N.1 Status. The internal auditfunction must be independent of theactivities audited and from day-to-dayinternal control process. It must be free toreport audit results, findings, opinions,appraisals and other information to theappropriate level of management. It shallhave authority to directly access andcommunicate with any officer oremployee, to examine any activity orentity of the institution, as well as to accessany records, files or data whenever relevantto the exercise of its assignment. The AuditCommittee or senior management shouldtake all necessary measures to provide theappropriate resources and staffing thatwould enable internal audit to achieve itsobjectives.

§ 4164N.2 Scope. The scope of internalaudit shall include:

a. Examination and evaluation of theadequacy and effectiveness of the internalcontrol systems;

b. Review of the application andeffectiveness of risk management proceduresand risk assessment methodologies;

c. Review of the management andfinancial information systems, including theelectronic information system andelectronic banking services;

d. Assessment of the accuracy andreliability of the accounting system and ofthe resulting financial reports;

e. Review of the systems andprocedures of safeguarding assets;

f. Review of the system of assessingcapital in relation to the estimate oforganizational risk;

g. Transaction testing and assessmentof specific internal control procedures; and

h. Review of the compliance systemand the implementation of establishedpolicies and procedures.

§§ 4162N.3 - 4164N.208.12.31



§ 4164N.3 Qualification standards ofthe internal auditor. The internal auditorof subsidiaries and/or affiliates of a UB or aKB must be a CPA and must have at leastfive (5) years experience in the regularaudit (internal or external) of a UB or KB asauditor-in-charge, senior auditor or auditmanager. He must possess the knowledge,skills, and other competencies to examineall areas in which the institution operates.Professional competence as well ascontinuing training and education shall berequired to face up to the increasingcomplexity and diversity of the institution’soperations.

The internal auditor of subsidiariesand/or affiliates of a TB, QB, trust entityor national cooperative bank must be a CPAwith at least five (5) years experience inthe regular audit (internal or external) of aTB, QB, trust entity or national cooperativebank as auditor-in-charge, senior auditor oraudit manager or, in lieu thereof, at leastthree (3) years experience in the regularaudit (internal or external) of a UB or KB asauditor-in-charge, senior auditor or auditmanager.

The internal auditor of subsidiariesand/or affiliates of an RB, NSSLA or localcooperative bank must be at least anaccounting graduate with two (2) yearsexperience in external audit or in theregular audit of an RB, NSSLA or local coopbank or, in lieu thereof, at least one (1) yearexperience in the regular audit (internal orexternal) of a UB, KB, TB, QB, trust entityor national coop bank as auditor-in-charge,senior auditor or audit manager.

A qualified internal auditor of a UB ora KB shall be qualified to audit TBs, QBs,trust entities, national cooperative banks,RBs, NSSLAs, local coop banks,subsidiaries and affiliates engaged in alliedactivities, and other FIs under BSPsupervision.

A qualified internal auditor of a TB ornational coop bank shall likewise be

qualified to audit QBs, trust entities, RBs,NSSLAs, local coop banks, subsidiaries andaffiliates engaged in allied activities, andother FIs under BSP supervision.

§ 4164N.4 Code of Ethics and InternalAuditing Standards. The internal auditorshould conform with the Code ofProfessional Ethics for CPAs and ensurecompliance with sound internal auditingstandards, such as the Institute of InternalAuditors’ International Standards for theProfessional Practice of Internal Auditing(e-mail: [email protected]; Web: http://www.theiia.org.) and other supplementalstandards issued by regulatory authorities/government agencies. The standardsaddress independence and objectivity,professional proficiency, scope of work,performance of audit work, managementof internal audit, quality assurance reviews,communication and monitoring of results.


Sec. 4172N Financial Audit. NBFIs shallcause an annual financial audit by anexternal auditor acceptable to the BSP notlater than thirty (30) calendar days afterthe close of the calendar year or the fiscalyear adopted by the FI. Report of suchaudit shall be submitted to the board ofdirectors and the appropriate departmentof the SES not later than 120 calendardays after the close of the calendar yearor the fiscal year adopted by the FI. Thereport to the BSP shall be accompaniedby the: (1) certification by the externalauditor on the: (a) dates of start andtermination of audit; (b) date of submissionof the financial audit report and certificationunder oath stating that no materialweakness or breach in the internal controland risk management systems was noted inthe course of the audit of the FI to the boardof directors; and (c) the absence of any director indirect financial interest and other

§§ 4164N.3 - 4172N08.12.31


circumstances that may impair theindependence of the external auditor;(2) reconciliation statement between theAFS and the balance sheet and incomestatement for FI and trust departmentsubmitted to the BSP including copies ofadjusting entries on the reconciling items;and (3) other information that may berequired by the BSP.

In addition, the external auditor shall berequired by the FI to submit to the board ofdirectors, a LOC indicating any materialweakness or breach in the institution’sinternal control and risk managementsystems within thirty (30) calendar daysafter submission of the financial auditreport. If no material weakness or breachis noted to warrant the issuance of anLOC, a Certification under oath statingthat no material weakness or breach inthe internal control and risk managementsystems was noted in the course of theaudit of the FI shall be submitted in itsstead, together with the financial auditreport.

Material weakness shall be defined asa significant control deficiency, orcombination of deficiencies, that results inmore than a remote likelihood that a materialmisstatement of the financial statements willnot be detected or prevented by the entity’sinternal control. A material weakness doesnot mean that a material misstatement hasoccurred or will occur, but that it couldoccur. A control deficiency exists when thedesign or operation of a control does notallow management or employees, in thenormal course of performing their assignedfunctions, to prevent or detect misstatementson a timely basis. A significant deficiencyis a control deficiency, or combination ofcontrol deficiencies, that adversely affectsthe entity’s ability to initiate, authorize,record, process, or report financial datareliably in accordance with generallyaccepted accounting principles. The termmore than remote likelihood shall mean that

future events are likely to occur or arereasonably possible to occur.

The board of directors, in a regular orspecial meeting, shall consider and act onthe financial audit report and the certificationunder oath submitted in lieu of the LOC andshall submit, within thirty (30) banking daysafter receipt of the reports, a copy of itsresolution to the appropriate department ofthe SES. The resolution shall show, amongother things, the actions(s) taken on thereports and the names of the directorspresent and absent.

The board shall likewise consider andact on the LOC and shall submit, withinthirty (30) banking days after receipt thereof,a copy of its resolution together with saidLOC to the appropriate department of SES.The resolution shall show the action(s) takenon the findings and recommendations and,the names of the directors present andabsent, among other things.

The LOC shall be accompanied by thecertification of the external auditor of the dateof its submission to the board of directors.

Government-owned or -controlledbanks, including their subsidiaries andaffiliates, as well as other FIs under BSPsupervision which are under the concurrentjurisdiction of the COA shall be exemptfrom the aforementioned annual financialaudit by an acceptable external auditor:Provided, That when warranted bysupervisory concern such as materialweakness/breach in internal control and/orrisk management systems, the MonetaryBoard may, upon recommendation of theappropriate department of the SES, requirethe financial audit to be conducted by anexternal auditor acceptable to the BSP, atthe expense of the institution concerned:Provided, further, That when circumstancessuch as, but not limited to, loans frommultilateral FIs, privatization, or publiclisting warrant, the financial audit of theconcerned institution by an acceptableexternal auditor may also be allowed.

§ 4172N08.12.31



Banks and other FIs under theconcurrent jurisdiction of the BSP and COAshall, however, submit a copy of the AARof the COA to the appropriate departmentof the SES within thirty (30) banking daysafter receipt of the report by the board ofdirectors. The AAR shall be accompaniedby the: (1) certification by the institutionconcerned on the date of receipt of the AARby the board of directors; (2) reconciliationstatement between the AFS in the AAR andthe balance sheet and income statement ofthe FI and trust department submitted tothe BSP, including copies of adjustingentries on the reconciling items; and(3) other information that may be requiredby the BSP.

The board of directors of saidinstitutions, in a regular or special meeting,shall consider and act on the AAR, as wellas on the comments and observations andshall submit, within thirty (30) banking daysafter receipt of the report, a copy of itsresolution to the appropriate department ofthe SES. The resolution shall show theaction(s) taken on the report, including thecomments and observations and the namesof the directors present and absent, amongother things.”

FIs as well as external auditors shallstrictly observe the requirements in thesubmission of the financial audit report andreports required to be submitted underAppendix Q-33.

The audited annual f inancialstatements required to be submitted shallin all respect be PFRS/PAS compliant:Provided, That FIs shall submit to the BSPadjusting entries reconciling the balancesin the financial statements for prudentialreporting with that in the audited annualfinancial statements.

The reports and certifications ofinstitutions concerned, schedules andattachments required under this Subsectionshall be considered Category B reports,delayed submission of which shall be

subject to the penalties under Subsec.4162N.3(As amended by Circular Nos. 554 dated 22 December 2006

and 540 dated 09 August 2006)

§ 4172N.1 Audited financial statementsof non-bank financial institutions. Thefollowing rules shall govern the utilizationand submission of AFS of NBFIs.

For purposes of this Section, AFS shallinclude the balance sheets, incomestatements, statements of changes in equity,statements of cash flows and notes tofinancial statements which shall includeamong other information, disclosure of thevolume of past due loans as well as loan-loss provisions. On the other hand,financial audit report shall refer to the AFSand the opinion of the auditor. The AFSof NBFIs with subsidiaries shall bepresented side by side on a solo basis(parent) and on a consolidated basis(parent and subsidiaries).(Circular No. 540 dated 09 August 2006)

§ 4172N.2 Posting of audited financialstatements. FIs shall post in conspicuousplaces in their head offices, all their branchesand other offices, as well as in theirrespective websites, their latest financialaudit report.(Circular No. 540 dated 09 August 2006)


Sec. 4180N Selection, Appointment,Reporting Requirements and Delisting ofExternal Auditors and/or Auditing Firm;Sanction

a. Rules and regulations. The revisedrules and regulations that shall governthe selection, appointment, reportingrequirements and delisting of externalauditors and auditing firms by the BSP ofcovered institutions which under speciallaws are subject to BSP supervision areshown in Appendix N-5.

§§ 4172N - 4180N09.12.31


b. Sanctions. The applicable sanctions/penalties prescribed under Sections 36 and37 of R.A. No. 7653 to the extent applicableshall be imposed on the covered institution,its audit committee and the directorsapproving the hiring of external auditors/auditing firm who/which are not in the BSPlist of selected auditors for coveredinstitutions or for hiring, and/or retaining theservices of the external auditor/auditing firmin violation of any of the provisions of thisSection and for non-compliance with theMonetary Board directive under Item “K” inAppendix N-5. Erring external auditors/auditing firm may also be reported by the BSPto the PRC for appropriate disciplinary action.(As amended by Circular Nos. 660 dated 25 August 2009 and

529 dated 11 May 2006)

Sec. 4181N Publication Requirements. Thequarterly CSOC of a trust entity and itssubsidiaries and affiliates shall be publishedside by side with the statement of conditionof its head office and its branches/otheroffices as of such dates as the BSP mayrequire within twenty (20) working daysfrom receipt of call letter, in any newspaperof general circulation in the country in theprescribed format.

The CSOC of a QB/trust entity and itssubsidiaries and associates shall conformwith the guidelines of PAS 27 “Consolidatedand Separate Financial Statements”, exceptthat for purposes of consolidated financialstatements, only investments in financialallied subsidiaries except insurancesubsidiaries shall be consolidated on a line-by-line basis; while insurance and non-financial allied subsidiaries shall beaccounted for using the equity method.Financial/non-financial allied/non-alliedassociates shall be accounted for using theequity method in accordance with theprovisions of PAS 28 “Investments inAssociates”. For purposes of separatefinancial statements, investments infinancial/non-financial allied/non-allied

subsidiaries/associates, including insurancesubsidiaries/associates, shall be accountedfor using the equity method.(As amended by Circular No. 494 dated 20 September 2004)


Sec. 4190N Duties and Responsibilities ofNon-Bank Financial Institutions and theirDirectors/Officers in All Cases ofOutsourcing of Non-Bank FinancialInstitution Functions. The rules onoutsourcing of banking functions as shownin Appendix Q-37 shall be adopted in sofar as they are applicable to FIs.(As amended by Circular Nos. 642 dated 30 January 2009,

610 dated 26 May 2008, 596 dated 11 January 2008, 548 dated

25 September 2006 and 543 dated 08 September 2006)


Sec. 4192N Prompt Corrective ActionFramework. The framework for theenforcement of PCA on banks which is inAppendix Q-40, shall govern the PCA takenon FIs to the extent applicable, or by analogy.(Circular No. 523 dated 31 March 2006, as amended by Circular

No. 664 dated 15 September 2009)

Sec. 4193N Supervision by Risks. Theguidelines on supervision by risk inAppendix Q-42 which provide guidance onhow QBs should identify, measure, monitorand control risks shall govern thesupervision by risks of FIs to the extentapplicable.

The guidelines set forth the expectationsof the BSP with respect to the managementof risks and are intended to provide moreconsistency in how the risk-focusedsupervision function is applied to these risks.The BSP will review the risks to ensure thatan FI’s internal risk management processesare integrated and comprehensive. All FIsshould follow the guidance in riskmanagement efforts.(Circular No. 510 dated 03 February 2006)

§§ 4180N - 4193N09.12.31



Sec. 4194N Market Risk ManagementThe guidelines on market risk managementfor QBs as shown in Appendix Q-43 shallgovern the market risk management of FIsto the extent applicable.

The guidelines set forth the expectationsof the BSP with respect to the managementof market risk and are intended to providemore consistency in how the risk-focusedsupervision is applied to this risk. FIs areexpected to have an integrated approach torisk management to identify, measure,monitor and control risks. Market riskshould be reviewed together with other risksto determine overall risk profile.

§§ 4194N - 4195N08.12.31

The BSP is aware of the increasingdiversity of financial products and thatindustry techniques for measuring andmanaging market risk are continuouslyevolving. As such, the guidelines arein tended for genera l appl ica t ion ;specific application will depend to someextent on the size, complexity andrange o f ac t iv i t ies under taken byindividual FIs.(Circular No. 544 dated 15 September 2006)

Sec. 4195N Liquidity Risk Management. Theguidelines on liquidity risk management forQBs as shown in Appendix Q-44 shall govern


the liquidity risk management of FIs to theextent applicable.

The guidelines set forth the expectationsof the BSP with respect to the managementof liquidity risk and are intended to providemore consistency in how the risk-focusedsupervision function is applied to this risk.FIs are expected to have an integratedapproach to risk management to identify,measure, monitor and control risks. Liquidityrisk should be reviewed together with otherrisks to determine overall risk profile.

These guidelines are intended for generalapplication; specific application will dependon the size and sophistication of a particularFI and the nature and complexity of itsactivities.(Circular No. 545 dated 15 September 2006)



Sec. 4301N Credit Card Operations;General Policy. The BSP shall foster thedevelopment of consumer credit throughinnovative products such as credit cardsunder conditions of fair and sound consumercredit practices. The BSP likewiseencourages competition and transparency toensure more efficient delivery of servicesand fair dealings with customers.

Towards this end, the following rulesand regulations shall govern the credit cardoperations of subsidiary/affiliate credit cardcompanies of banks/QBs, aligned withglobal best practices.

§ 4301N.1 Definition of termsa. Credit card. Means any card, plate,

coupon book or other credit device existingfor the purpose of obtaining money,property, labor or services on credit.

b. Credit card receivables. Representsthe total outstanding balance of creditcardholders arising from purchases of goods

and services, cash advances, annualmembership/renewal fees as well as interest,penalties, insurance fees, processing/servicefees and other charges.

c. Minimum amount due orminimum payment required. Means theminimum amount that the creditcardholder needs to pay on or before thepayment due date for a particular billingperiod/cycle as defined under the termsand conditions or reminders stated in thestatement of account/billing statementwhich may include: (1) total outstandingbalance multiplied by the requiredpayment percentage or a fixed amountwhichever is higher; (2) any amount whichis part of any fixed monthly installment thatis charged to the card; (3) any amount inexcess of the credit line; and (4) all pastdue amounts, if any.

d. Default or delinquency. Shallmean non-payment of, or payment of anyamount less than, the “Minimum AmountDue” or “Minimum Payment Required”within two (2) cycle dates, in which case,the “Total Amount Due” for the particularbilling period as reflected in the monthlystatement of account may be consideredin default or delinquent.

e. Acceleration clause. Shall meanany provision in the contract between thebank and the cardholder that gives thebank the right to demand the obligationin full in case of default or non-paymentof any amount due or for whatever validreason.

f. Subsidiary refers to a corporationor firm more than fifty percent (50%) ofthe outstanding voting stock of which isdirectly or indirectly owned, controlled orheld with the power to vote by a bank orother FI.

g. Affiliate refers to an entity linkeddirectly or indirectly to a bank or other FIthrough any one (1) or a combination of anyof the following:

§§ 4195N - 4301N.108.12.31

Page 27


(1) Ownership, control or power tovote, whether by permanent or temporaryproxy or voting trust, or other similarcontracts, by a bank or other FI of at leastten percent (10%) or more of theoutstanding voting stock of the entity, orvice-versa;

(2) Interlocking directorship orofficership, except in cases involvingindependent directors as defined underexisting regulations;

(3) Common stockholders owning atleast ten percent (10%) of the outstandingvoting stock of each FI and the entity; or

(4) Management contract or anyarrangement granting power to the bank orother FI to direct or cause the direction ofmanagement and policies of the entity, orvice-versa.

§ 4301N.2 Risk management systemTo safeguard their interests, subsidiary/affiliate credit card companies of banks/QBs are required to establish an appropriatesystem for managing risk exposures fromcredit card operations which shall bedocumented in a complete and concisemanner. The risk management system shallcover the organizational set-up, records andreports, accounting, policies and proceduresand internal control.

Written policies, procedures andinternal control guidelines shall beestablished on the following aspects of creditcard operations:

a. Requirements for application;b. Solicitation and application

processing;c. Determination and approval of

credit limits;d. Issuance, distribution and activation

of cards;e. Supplementary or extension cards;f. Cash advances;g. Billing and payments;

h. Deferred payment program orspecial installment plans;

i. Collection of past due accounts;j. Handling of accounts for write-off;k. Suspension, cancellation and

withdrawal or termination of card;l. Renewal of cards, upgrade or

downgrade of credit limit;m. Lost or stolen cards and their

replacement;n. Accounts of DOSRI and employees;o. Disposition of errors and/or

questions about the billing statementstatement of account and other customers’complaints; and

p. Dealings with marketing agents/collection agents.(As amended by Circular No. 702 dated 15 December 2010)

§ 4301N.3 Minimum requirementsNBFIs and their subsidiary or affiliate creditcard companies shall not issue pre-approved credit cards.

Before issuing credit cards, NBFIs and/or their subsidiary/affiliate credit cardcompanies of banks/QBs must exercise, inaccordance with the provisions of Subsec.4312N.1, proper diligence by ascertainingthat applicants possess good credit standingand are financially capable of fulfilling theircredit commitments.

The net take home pay of applicantswho are employed, the net monthly receiptsof those engaged in trade or business, orthe net worth or cash flow inferred fromdeposits of those who are neither employednor engaged in trade or business or behaviorexhibited by the applicant from his otherexisting credit cards, or other lifestyleindicators such as but not limited to clubmemberships, ownership and location ofresidence and motor vehicle ownershipshall be determined and used as basis forsetting credit limits. The gross monthlyincome may also be used provided

§§ 4301N.1 - 4301N.310.12.31

Page 28


reasonable deductions are estimated forincome taxes, premium contributions, loanamortizations and other deductions.

All credit card applications, specificallythose solicited by third party representatives/agents, shall undergo a strict credit riskassessment process and the informationstated thereon validated and verified byauthorized personnel of the NBFIs and theirsubsidiary/affiliate credit card companiesother than those handling marketing.(As amended by Circular No. 702 dated 15 December 2010)

§ 4301N.4 Information to be disclosedSubsidiary/affiliate credit card companies ofbanks/QBs shall disclose to each person towhom the credit card privilege is extendedin the agreement, contract or any equivalentdocument governing the issuance or use ofthe credit card or any amendment theretoor in such other statement furnished thecardholder from time to time, prior to theimposition of the charges and to the extentapplicable, the following information:

a. non-finance charges, individuallyitemized, which are paid or to be paid bythe cardholder in connection with thetransaction but which are not incident tothe extension of credit;

b. the percentage that the interest bearsto the total amount to be financed expressedas a simple monthly or annual rate, as thecase may be, on the outstanding balance ofthe obligation;

c. the effective interest rate per annum;d. for installment loans, the number of

installments, amount and due dates orperiods of payment schedules to repay theindebtedness;

e. the default, late payment/penaltyfees or similar delinquency-related chargespayable in the event of late payments;

f. the conditions under which interestmay be imposed, including the time period,within which any credit extended may be

repaid without interest;g. the method of determining the

balance upon which interest and/ordelinquency charges may be imposed;

h. the method of determining theamount of interest and/or delinquencycharges, including any minimum or fixedamount imposed as interest and/ordelinquency charge;

i. where one (1) or more periodic ratesmay be used to compute interest, each suchrate, the range of balances to which it isapplicable, and the corresponding simpleannual rate; and

j. other fees, such as membership/renewal fees, processing fees, collectionfees, credit investigation fees and attorney’sfees.

k. for transactions made in foreigncurrencies and/or outside the Philippines,for dual currency accounts (peso and dollarbillings), as well as payments made by creditcardholders in any currency other than thebilling currency: the application ofpayments; the manner of conversion fromthe transaction currency and paymentcurrency to Philippine pesos or billingcurrency; definition or general descriptionof verifiable blended exchange/conversionrates (e.g., MASTERCARD and/or VISAInternational rates on the day the item wasprocessed/posted to the billing statement,plus mark-up, if any) including conversioncommission; and/or other currencyconversion charges and costs arising fromthe purchase by the card company of foreigncurrency to settle the customer’s transactionsshall also be disclosed.

NBFIs and their subsidiary or affiliatecredit card companies shall also provide thefollowing information to their cardholders:

1. A table of the applicable fees,penalties and interest rates on credit cardtransactions, including the period coveredby and the manner of and reason for the

§§ 4301N.3 - 4301N.410.12.31

Page 29


imposition of such penalties, fees andinterests; fees and applicable conversionreference rates for third currencytransactions, in plain sight and language, onmaterials for marketing credit cards, suchas brochures, flyers, primers and advertisingmaterials, on credit card application forms,and on credit card billing statements:Provided, That these disclosures are inaddition to the full disclosure of the fees,charges and interest rates in the terms andconditions of the credit card agreementfound elsewhere on the application formand billing statement; and

2. A reminder to the cardholder in themonthly billing statement, or its equivalentdocument, that payment of only theminimum amount due or any amount lessthan the total amount due for the billingcycle/period, would mean the impositionof interest and/or other charges:Provided, That such table of fees, penaltiesand interest rates and reminder shall beprinted in plain language and in bold blackletters against a light or white background,and using the minimum Arial 12 theme fontand size, or its equivalent in readability, andon the first page, if applicable document hasmore than one page.

Transitory provisions. NBFIs and theirsubsidiary or affiliate credit card companiesshall be given a period of 120 days fromthe 06 January 2011 to fully implement therequired disclosure requirements.(As amended by Circular No. 702 dated 15 December 2010)

§ 4301N.5 Interest accrual on past dueloans. Interest income on past due loansarising from discount amortization (and notfrom the contractual interest of the accounts)shall be accrued as provided in PAS 39.

§ 4301N.6 Finance charges. Theamount of finance charges in connectionwith any credit card transaction shall referto interest charged to the cardholder.

§ 4301N.7 Deferral charges. The bankand the cardholder may, prior to theconsummation of the transaction, agree inwriting to a deferral of all or part of one ormore unpaid installments and the bank maycollect a deferral charge which shall notexceed the rate previously disclosedpursuant to the provisions on disclosure.

§ 4301N.8 Late payment/penalty feesNo late payment or penalty fee shall becollected from cardholders unless thecollection thereof is fully disclosed in thecontract between the issuer and thecardholder: Provided, That late payment orpenalty fees shall be based on the unpaidminimum amount due or a prescribedminimum fixed amount: Provided, further,That said late payment or penalty fees maybe based on the total outstanding balanceof the credit card obligation, includingamounts payable under installment termsor deferred payment schemes, if the contractbetween the issuer and the cardholdercontains an “acceleration clause” and thetotal outstanding balance of the credit cardis classified and reported as past due.

§ 4301N.9 Confidentiality ofinformation. Subsidiary/affiliate credit cardcompanies of banks/QBs shall keep strictlyconfidential the data on the cardholder orconsumer, except under the followingcircumstances:

a. disclosure of information is with theconsent of the cardholder or consumer;

b. release, submission or exchange ofcustomer information with other FIs, creditinformation bureaus, credit card issuers,their subsidiaries and affiliates;


d. disclosure to collection agencies,

§§ 4301N.4 - 4301N.910.12.31

Page 30


counsels and other agents of the bank orcard company to enforce its rights againstthe cardholder;

e. disclosure to third party serviceproviders solely for the purpose of assistingor rendering services to the bank or cardcompany in the administration of its creditcard business; and

f. disclosure to third parties such asinsurance companies, solely for the purposeof insuring the bank from cardholder defaultor other credit loss, and the cardholder fromfraud or unauthorized charges.

§ 4301N.10 Suspension, termination ofeffectivity and reactivation. Subsidiary/affiliate credit card companies of banks/QBsshall formulate criteria or parameters forsuspension, revocation and reactivation ofthe right to use the card and shall includein their contract with cardholders aprovision authorizing the issuer to suspendor terminate its effectivity, if circumstanceswarrant.

§ 4301N.11 Inspection of recordscovering credit card transactionsSubsidiary/affiliate credit card companies ofbanks/QBs shall make available forinspection or examination by theappropriate department of the SES completeand accurate files on card applicant/cardholder to support the consideration forapproval of the application anddetermination of the credit limit which shallbe in accordance with the verified debtrepayment ability and/or net worth of thecard applicant/cardholder.

§ 4301N.12 Offsets. For purposes oftransparency and adequate disclosure, thecredit card issuer shall inform/notify thecredit cardholder in the agreement, contractor any equivalent document governing theissuance or use of the credit card that,

pursuant to the provisions of Articles 1278to 1290 of the New Civil Code of thePhilippines, as amended the use of his creditcard will subject his deposit/s with the bankto offset against any amount/s due andpayable on his credit card which have notbeen paid in accordance with the terms ofthe agreement/contract.

§ 4301N.13 Handling of complaintsSubsidiary/affiliate credit card companies ofbanks/QBs shall give cardholders at leasttwenty (20) calendar days from statementdate to examine charges posted in his/herstatement of account and inform the creditcard company in writing of any billing erroror discrepancy. Within ten (10) calendardays from receipt of such written notice, thecredit card company shall send a writtenacknowledgement to the cardholder unlessthe action required is taken within such ten(10)-day period.

Not later than two (2) billing cycles ortwo (2) months which in no case shallexceed ninety (90) days after receipt of thenotice and prior to taking any action tocollect the contested amount, or any partthereof, banks/subsidiary credit cardcompanies shall make appropriatecorrections in their records and/or send awritten explanation or clarification to thecardholder after conducting aninvestigation. Nothing in this Subsectionshall be construed to prohibit any action bythe bank/subsidiary credit card company tocollect any amount which has not beenindicated by the cardholder to contain abilling error or apply against the credit limitof the cardholder the amount indicated tobe in error.

§ 4301N.14 Unfair collection practicesSubsidiary/affiliate credit card companies ofbanks/QBs, collection agencies, counselsand other agents may resort to all reasonable

§§ 4301N.9 - 4301N.1410.12.31

Page 31


and legally permissible means to collectamounts due them under the credit cardagreement: Provided, That in the exerciseof their rights and performance of duties,they must observe good faith and reasonableconduct and refrain from engaging inunscrupulous or untoward acts. Withoutlimiting the general application of theforegoing, the following conduct is aviolation of this Subsection:



c. disclosure of the names of creditcardholders who allegedly refuse to paydebts, except as allowed under Subsec.4301N.9;



f. any false representation ordeceptive means to collect or attempt tocollect any debt or to obtain informationconcerning a cardholder; and

g. making contact at unreasonable/inconvenient times or hours which shall bedefined as contact before 6:00 A.M. or after10:00 P.M., unless the account is past duefor more than sixty (60) days or thecardholder has given express permission orsaid times are the only reasonable orconvenient opportunities for contact.

NBFIs and their subsidiary/affiliatecredit card companies shall inform theircardholder in writing of the endorsementof the collection of their account to acollection agency/agent, or the endorsementof their account from one collection agency/

agent to another, at least seven (7) days priorto the actual endorsement. The notificationshall include the full name of the collectionagency and its contact details: Provided,That the required notification in writing shallbe included in the terms and conditions ofthe credit card agreement. NBFIs and theirsubsidiary/affiliate credit card companiesshall adopt policies and procedures toensure that personnel handling thecollection of accounts, whether these arein-house collectors, or third-party collectionagents, shall disclose his/her full name/trueidentity to the cardholder.(As amended by Circular No. 702 dated 15 December 2010)

§ 4301N.15 Sanctions. Violations of theprovisions of 4301N.1, 4301N.5 to4301N.13 shall be subject to any or all ofthe following sanctions depending upon theirseverity:

a. Disqualification of the bankconcerned from the credit facilities of theBSP except as may be allowed under Section84 of R.A. No. 7653;

b. Prohibition of the bank concernedfrom the extension of additional creditaccommodation against personal security;and

c. Penalties and sanctions providedunder Sections 36 and 37 of R.A. No. 7653.

Violations of the provisions of of Secs.4301N.2 to 4301N.4 and 4301N.14 shallbe subject to any or all of the followingsanctions depending upon their severity:

a. First offense. Reprimand for thedirectors/officers responsible for theviolation;

b. Second offense. Disqualification ofthe bank concerned from the credit facilitiesof the BSP except as may be allowed underSection 84 of R. A. No. 7653;

c. Subsequent offense/s:i. Prohibition on the NBFI concerned

from the extension of additional creditaccommodation against personal security; and

§§ 4301N.14 - 4301N.1510.12.31

Page 32


ii. Penalties and sanctions providedunder Sections 36 and 37 of R. A. No. 7653.(As amended by Circular No. 702 dated 15 December 2010)

Sec. 4302N Classification of Credit CardReceivables. Credit card receivables shallbe classified in accordance with age asfollows:

No. of days past due Classification91 - 120 Substandard

121 - 180 Doubtful 181 or more Loss

The foregoing is the minimumclassification requirement. Managementmay therefore formulate additional specificguidelines.

Sec. 4303N Updating of InformationProvided to Credit Information BureausFIs which have provided adverseinformation, such as the past due orlitigation status of loan accounts, to creditinformation bureaus, or any organizationperforming similar functions, shall submitmonthly reports to these bureaus ororganizations on the full payment orsettlement of the previously reportedaccounts within five (5) business days fromthe end of the month when such fullpayment was received. For this purpose, itshall be the responsibility of the reportingFIs to ensure that their disclosure of anyinformation about their borrowers/clients iswith the consent of borrowers/clientsconcerned.(Circular No. 589 dated 18 December 2007)


Sec. 4312N Grant of Loans and OtherCredit Accommodations. The followingregulations shall be observed in the grantof loans and other credit accommodations.

§ 4312N.1 General guidelinesConsistent with safe and sound businesspractices, an NBFI shall grant loans or othercredit accommodations only in amountsand for the periods of time essential for theeffective completion of the operation to befinanced.

Before granting loans or other creditaccommodations, an NBFI must ascertainthat the borrower, co-maker, endorser, suretyand/or guarantor, if applicable, is/arefinancially capable of fulfillinghis/their commitments to the NBFI. For thispurpose, an NBFI shall obtain adequateinformation on his/their credit standing andfinancial capacities.

In addition to the usual informationsheet about the borrower, an NBFI shallrequire from the credit applicant thefollowing:

a. A copy of the latest ITR of theborrower and his co-maker, if applicable,duly stamped as received by the BIR;

b. Except as otherwise provided by lawand in other regulations, if the borrower isengaged in business, a copy of theborrower’s latest financial statements assubmitted for taxation purposes to the BIR;and

c. A waiver of confidentiality of clientinformation and/or an authority of the NBFIto conduct random verification with the BIRin order to establish authenticity of the ITRand accompanying financial statementssubmitted by the client.

The documents under Items “a” and ”b”above shall be required to be submittedannually for as long as the loan and/or creditaccommodation is outstanding. Theconsistency of the data/figures in said ITRsand financial statements shall also bechecked and considered in the evaluationof the financial capacity andcreditworthiness of credit applicants. Thewaiver of confidentiality of client

Page 33

§§ 4301N.15 - 4312N.110.12.31


information and/or an authority of the NBFIto conduct random verification with the BIRneed not be submitted annually since oncesubmitted these documents remain validunless revoked.

Should the document(s) submittedprove to be spurious or incorrect in materialdetail, the NBFI may terminate any loan orother credit accommodation granted on thebasis of said document(s) and shall have theright to demand immediate repayment orliquidation of the obligation. Moreover, theNBFI may seek redress from the court forany harm done by the borrower’ssubmission of spurious documents.

The required submission of additionaldocuments shall cover loans, other creditaccommodations, and credit lines granted,restructured, renewed or extended after02 November 2006, including anyavailment and/or re-availment againstexisting credit lines, except:

(1) Microfinance loans. This representssmall loans granted to the basic sectors suchas farmer-peasant, artisanal fisher folk,workers in the formal and informal sector,migrant workers, indigenous peoples andcultural communities, women, differently-abled persons, senior citizens, victims ofcalamities and disasters, youth and students,children, and urban poor, as defined in theSocial Reform and Poverty Alleviation Actof 1997 (R.A. No. 8425), and other loansgranted to poor and low-incomehouseholds for their microenterprises andsmall businesses.The maximum principalamount of microfinance loans shall notexceed P150,000 and may be amortized ona daily, weekly, semi-monthly or monthlybasis, depending on the cash flow conditionsof the borrowers. Said loans are usuallyunsecured, for relatively short periods oftime (180 days) and often featuring joint andseveral guarantees of one (1) or morepersons;

(2) Loans to registered BMBEs;

(3) Interbank loans;(4) Loans secured by hold-outs on or

assignment of deposits or other assetsconsidered non-risk by the Monetary Board;

(5) Loans to individuals who are notrequired to file ITRs under BIR regulations,as follows:

(a)Individuals whose grosscompensation income does not exceed theirtotal personal and additional exemptions,or whose compensation income derivedfrom one (1) employer does not exceedP60,000 and the income tax on which hasbeen correctly withheld;

(b) Those whose income has beensubjected to final withholding tax;

(c) Senior citizens not required to file areturn pursuant to R.A. No. 7432, asamended by R.A. No. 9257, in relation tothe provisions of the NIRC or the TaxReform Act of 1997; and

(d) An individual who is exempt fromincome tax pursuant to the provisions of theNIRC and other laws, general or special; and

(6) Loans to borrowers, whose onlysource of income is compensation and thecorresponding taxes on which has beenwithheld at source: Provided, That theborrowers submitted, in lieu of the ITR, acopy of their Employer’s Certificate ofCompensation Payment/Tax Withheld (BIRForm 2316) or their payslips for at leastthree (3) months immediately preceding thedate of loan application.

Loans to micro and small enterpriseswhich are not specifically exempted fromthe additional documentary requirementsspecified under the third paragraph of thisSubsection shall be exempted from saidadditional documentary requirement up to31 December 2011.

Consumer loans, with original amountsnot exceeding P2.0 million, are exemptedfrom updating requirements or the requiredannual submission of the samerequirements forwarded during the initial

§§ 4312N.108.12.31

Page 34


submission under this Subsection but notin their restructuring, renewal, or extensionsor availment/re-availment against existingcredit lines: Provided, That these loans aresupported by ITRs or by BIR Form 2316 orpayslips for at least three (3) monthsimmediately preceding the date of loanapplication, and financial statementssubmitted for taxation purposes to the BIR,as may be applicable at the time the loanswere granted, restructured, renewed, orextended.

For purposes of this Section, thefollowing definitions shall apply:

1. Micro and small enterprises shall bedefined as any business activity or enterpriseengaged in industry, agribusiness and/orservices whether single proprietorship,cooperative, partnership or corporationwhose total assets, inclusive of those arisingfrom loans but exclusive of the land onwhich the particular business entity’s office,plant and equipment are situated, must havea value of up to P3.0 million and P15.0million, respectively, or as may be definedby the MSME Development Council or othercompetent government agency.

2. Consumer loans is defined to includehousing loans, loans for purchase of car,household appliance(s), furniture andfixtures, loans for payment of educationaland hospital bills, salary loans and loansfor personal consumption, including creditcard loans.(As amended by Circular Nos. 622 dated 16 September 2008,and 549 dated 09 October 2006)

§ 4312N.2 Purpose of loans and othercredit accommodations. Before granting aloan or other credit accommodation, anNBFI shall ascertain the purpose of the loanor other credit accommodation which shallbe clearly stated in the application and inthe contract between the NBFI andborrower. The proceeds of a loan or othercredit accommodation shall be utilized only

for the purpose(s) stated in the applicationand contract; otherwise, the NBFI mayterminate the loan or other creditaccommodation and demand immediaterepayment of the obligation.Notwithstanding the preceding sentence,the proceeds of a loan or other creditaccommodation may be utilized by theborrower for a purpose(s) other than thatoriginally stated in the application andcontract: Provided, That such otherpurpose(s) is/are among those for which thelending NBFI may grant loans and othercredit accommodations under existing lawsand regulations: Provided, further, That suchutilization shall be with prior writtenapproval of duly authorized officer(s)committee/board of directors of the lendingNBFI and such written approval shall formpart of the contract between the NBFI andthe borrower.(Circular No. 622 dated 16 September 2008)

§ 4312N.3 Prohibited use of loanproceeds. NBFIs are prohibited fromrequiring their borrowers to acquire sharesof stock of the lending NBFI out of the loanor other credit accommodation proceedsfrom the same NBFI.(Circular No. 622 dated 16 September 2008)

§ 4312N.4 Signatories. NBFIs shallrequire that loans and other creditaccommodations be made under thesignature of the principal borrower and, inthe case of unsecured loans and other creditaccommodations to an individual borrower,at least one (1) co-maker, except that a co-maker is not required when the principalborrower has the financial capacity and agood track record of paying his obligations.(As amended by Circular No. 622 dated 16 September 2008)

§ 4312N.5 Sanctions(Renumbered as 4312N.15 by Circular No. 702 dated 15December 2010)

§§ 4312N.1 - 4312N.510.12.31

Page 34a


§§ 4312N.6 - 4312N.9 (Reserved)

§ 4312N.10 Minimum requireddisclosure. NBFIs shall provide a table ofthe applicable fees, penalties and interestrates on loan transactions, including theperiod covered by and the manner of andreason for the imposition of such penalties,fees and interests; fees and applicableconversion reference rates for third currencytransactions, in plain sight and language, onmaterials for marketing loans such asbrochures, flyers, primers and advertisingmaterials, on loan application forms, andon billing statements: Provided, That thesedisclosures are in addition to the fulldisclosure of the fees, charges and interestrates in the terms and conditions of the loanagreement found elsewhere on theapplication form and billing statement:Provided further, That such table of fees,penalties and interest rates shall be printedin plain language and in bold black lettersagainst a light or white background, andusing the minimum Arial 12 theme font andsize, or its equivalent in readability, and onthe first page, if the applicable documenthas more than one (1) page. Transitory provision: NBFIs shall be givena period of 120 days from 06 January 2011to fully implement the required disclosurerequirements.(Circular No. 702 dated 15 December 2010)

§ 4312N.11 Unfair collectionpractices. NBFIs, collection agencies,counsels and other agents may resort to allreasonable and legally permissible meansto collect amounts due them under the loanagreement: Provided, That in the exerciseof their rights and performance of duties,they must observe good faith andreasonable conduct and refrain fromengaging in unscrupulous or untoward acts.Without limiting the general application of

the foregoing, the following conduct is aviolation of this Subsection:



c. disclosure of the names of borrowerswho allegedly refuse to pay debts, exceptas allowed under Subsec. 4312N.12;



f. any false representation or deceptivemeans to collect or attempt to collect anydebt or to obtain information concerning aborrower; and

g. making contact at unreasonable/inconvenient times or hours which shall bedefined as contact before 6:00 A.M. or after10:00 P.M., unless the account is past duefor more than sixty (60) days or the borrowerhas given express permission or said timesare the only reasonable or convenientopportunities for contact.

NBFIs shall inform their borrowers inwriting of the endorsement of the collectionof their account to a collection agency/agent, or the endorsement of their accountfrom one (1) collection agency/agent toanother, at least seven (7) days prior to theactual endorsement. The notification shallinclude the full name of the collectionagency and its contact details: Provided,That the required notification in writing shallbe included in the terms and conditions ofthe loan agreement. NBFIs shall adoptpolicies and procedures to ensure thatpersonnel handling the collection of

§§ 4312N.6 - 4312N.1110.12.31

Page 34b


accounts, whether these are in-housecollectors, or third-party collection agents,shall disclose his/her full name/true identityto the borrower.(As amended by Circular No.702 dated 15 December 2010)

§ 4312N.12 Confidentiality ofInformation. NBFIs shall keep strictlyconfidential the data on the borrower orconsumer, except under the followingcircumstances:

a. disclosure of information is with theconsent of the borrower or consumer;

b. release, submission or exchange ofcustomer information with other financialinstitutions, credit information bureaus,lenders, their subsidiaries and affiliates;


d. disclosure to collection agencies,counsels and other agents of the NBFIs toenforce its rights against the borrower;

e. disclosure to third party serviceproviders solely for the purpose of assistingor rendering services to the NBFI in theadministration of its lending business; and

f. disclosure to third parties such asinsurance companies, solely for the purposeof insuring the NBFI from borrower defaultor other credit loss, and the borrower fromfraud or unauthorized charges.

§§ 4312N.13 - 4312N.14 (Reserved)

§ 4312N.15 Sanctions. Any violationof the provisions of Subsecs. 4312N.1 to4312N.4 shall be subject to the sanctionsprovided under Sections 36 and 37 of R.A.No. 7653.

Violation of the provisions ofSubsections 4312N.10 to 4312N.12 shallbe subject to any or all of the followingsanctions depending upon their severity:

a. First offense. Reprimand for thedirectors/officers responsible for theviolation;

b. Second offense. Disqualification ofthe NBFI concerned from the credit facilitiesof the BSP except as may be allowed underSection 84 of R. A. No. 7653;

c. Subsequent offense/s:i. Prohibition on the NBFI concerned

from the extension of additional creditaccommodation against personal security;and

ii. Penalties and sanctions providedunder Sections 36 and 37 of R. A. No. 7653.(Circular No. 702 dated 15 December 2010)

Sec. 4313N Bank DOSRI Rules andRegulations Applicable to GovernmentBorrowings in Government-Owned Or -Controlled Financial Institutions. Theprovisions of Secs. X326 to X337 of theManual of Regulations for Banks (MORB),to the extent applicable, shall also apply toloans, other credit accommodations, andguarantees granted to the National

§§ 4312N.11 - 4313N10.12.31

Page 34c

(Next page is Page 35)


Government or Republic of thePhilippines, its political subdivisions andinstrumentalities as well as GOCCs,subject to the following clarifications:

a. Loans, other credit accommodations,and guarantees to the Republic of thePhilippines and/or its agencies/departments/bureaus shall be considered: (1) non-risk; and(2) not subject to any ceiling;

b. Loans, other credit accommodations,and/or guarantees to: (1) GOCCs; and(2) corporations where the Republic of thePhilippines, its agencies/departments/bureaus, and/or GOCCs own at leasttwenty percent (20%) of the subscribedcapital stock shall be considered indirectborrowings of the Republic of thePhilippines and shall form part of theindividual ceiling as well as the aggregateceiling: Provided, That the following loans,other credit accommodations, and/orguarantees to GOCCs and corporationswhere the Republic of the Philippines, itsagencies/departments/bureaus, and/orGOCCs own at least twenty percent (20%)of the subscribed capital stock, shall beexcluded from the thirty percent (30%)ceiling on unsecured loans under Secs.X330 and X331 of the MORB:

(1) Loans, other credit accommodations,and/or guarantees for the purpose ofundertaking priority infrastructure projectsconsistent with the Medium-TermDevelopment Plan/Medium-Term PublicInvestment Program of the NationalGovernment, duly certified as such by theSecretary of Socio-Economic Planning;

(2) Loans, other credit accommodations,and/or guarantees granted to participatingfinancial institutions (PFIs) in the lendingprograms of the government wherein thefunds borrowed are intended for relendingto other PFIs or end-user borrowers; and

(3) Loans, other credit accommodations,and/or guarantees granted for the purposeof providing (i) wholesale and retail loans

to the agricultural sector and MSMEs;and/or (ii) rediscounting and guaranteefacilities for loans granted to the said sectoror enterprises;

c. Loans, other credit accommodations,and/or guarantees granted to stateuniversities and colleges (SUCs) shall beexcluded from the thirty percent (30%)ceiling on unsecured loans under Secs.X330 and X331 of the MORB;

d. In view of the fiscal autonomygranted under R.A. No. 7653 and theindependence prescribed under theConstitution, the BSP shall be consideredan independent entity, hence, not a relatedinterest of the Republic of the Philippinesand/or its agencies/departments/bureaus.Loans, other credit accommodations andguarantees of the BSP shall be considered:(1) non-risk; and (2) not subject to anyceiling;

e. LGUs shall be considered separatefrom the Republic of the Philippines, othergovernment entities, and from one anotherdue to the full autonomy in the exercise oftheir proprietary functions and in themanagement of their economic enterprisesgranted to them under the LocalGovernment Code of the Philippines,subject to certain limitations provided bylaw, hence, not a related interest of theRepublic of the Philippines and/or itsagencies/departments/bureaus;

f. Local Water Districts (LWDs),although GOCCs shall be consideredseparate from the Republic of thePhilippines, other government entities, andfrom one another due to their fiscalindependence from the NationalGovernment, hence, not related interestsof the Republic of the Philippines and/orits agencies/department/bureaus, forpurposes of these regulations;

g. A director who acts as agovernment representative in the lendinginstitution shall not be excluded in the

§ 4313N08.12.31



deliberation as well as in thedetermination of majority of the directorsin cases of loans, other creditaccommodations, and guarantees to theRepublic of the Philippines and/or itsagencies/departments/bureaus; and

h. A director of the lending institutionshall be excluded in the deliberation as wellas in the determination of majority of thedirectors in cases of loans, other creditaccommodations, and guarantees to theborrowing government entity other than theRepublic of the Philippines, its agencies,departments or bureaus where said directoris also a director, officer or stockholder underexisting DOSRI regulations.(Circular No. 514 dated 06 March 2006 as amended by Circular

Nos. 635 dated 10 November 2008, 616 dated 30 July 2008,

and 580 dated 09 September 2007)

Sec. 4314N Loans Against PersonalSecurity. The grant, renewal, restructuringor extension of unsecured loans shall, inaddition to the requirements of Section4312N, be made under the signature of theprincipal borrower and at least one (1)co-maker, except that a co-maker is notrequired when the principal borrower hasthe financial capacity and a good trackrecord of paying his obligations.(Circular No. 622 dated 16 September 2008)

Secs. 4315N-4390N (Reserved)

Sec. 4391N Investments in Debt andMarketable Equity Securities. Theclassification, accounting procedures,valuation, sales and transfers ofinvestments in debt securit ies andmarketable equity securities shall be inaccordance with the guidelines inAppendices Q-20 and Q-20- a.

Pena l t ies and sanc t ions . Thefollowing penalties and sanctions shallbe imposed on FIs and concernedofficers found to violate the provisionsof these regulations:

a. Fines of P2,000/day to be imposedon NBFIs for each violation, reckoned fromthe date the violation was committed up tothe date it was corrected; and

b. Sanctions to be imposed onconcerned officers:

(1) First offense – reprimand theofficers responsible for the violation; and

(2) Subsequent offenses – suspensionof ninety (90) days without pay for officersresponsible for the violation.(Circular No. 476 dated 16 February 2005 as amended by Circular

Nos. 628 dated 31 October 2008, 626 dated 23 October 2008

and 585 dated 15 October 2007)




Sec. 4511N Foreign Exchange Dealers/Money Changers and/or RemittanceAgents Operations. The following rules andregulations shall govern the registration andoperations of foreign exchange dealers(FXDs)/money changers (MCs) and/orremittance agents:

§ 4511N.1 Registration. Qualifiedpersons or non-bank institutions wishing toact as FXDs/MCs and/or remittance agentsare required to register with the BSP beforethey can operate as such.

For this purpose, the term moneychangers, interchangeably referred to asforeign exchange dealers, shall refer tothose regularly engaged in the business ofbuying and/or selling foreign currencies.

Remittance agents, on the otherhand, shall refer to persons or entitiesthat offer to remit, transfer or transmitmoney on behalf of any person toanother person and/or entity. Theseinclude money or cash couriers, moneyt ransmiss ion agent s , remi t tancecompanies and the like.

§§ 4313N - 4511N.108.12.31

§§ 4511N.2 - 4511N.511.12.31

§ 4511N.2 Application for registrationThe appl ica t ion fo r a cer t i f i ca te o fregis t ra t ion to ac t as FXD/MC and/orremittance agent, in the prescribed form(Item “A”, Appendix N-8), must be dulysupported by the following documents:

a . Incorpora t ion papers du lyauthenticated by the SEC (for corporation/partnership); or copy of the certificate ofregistrat ion duly authenticated by theDepartment of Trade and Industry (DTI)(for single proprietorship);

b. Copy of business l icense/permitf rom the c i ty or munic ipa l i ty hav ingterritorial jurisdiction over the place ofestablishment and operation;

c . L i s t o f s tockholders /par tners /proprietor/directors/principal officers as thecase maybe;

d. Notar ized Deed of Under taking(Item “B”, Appendix N-8) to strictly complywith the requirements of all relevant laws,rules and regulations, signed either by theowner, partner, president or officer ofequivalent rank; and

e. Any additional document which theBSP may requi re f rom t ime to t ime.FXDs/MCs and remi t tance agent sexisting prior to 12 May 2005 (effectivitydate of Circular 471 dated 24 January 2005)may continue to operate as such: Provided,That an appl ica t ion fo r reg i s t ra t ionsupported by documents mentioned abovehas been filed within ninety (90) calendardays from 12 May 2005.

A certificate of registration to act as FXD/MC or remittance agent shall be issued bythe BSP and shall become the basis for anelectronic registry of all BSP registeredFXDs/MCs and remittance agents in thecountry.

§ 4511N.3 Applicability of other laws/regulations. FX dealers, money changers,and remittance agents are subject to theprovisions of R.A. No. 7653, R.A. No. 9160

(Anti-Money Laundering Act of 2001), asamended, i t s IRR, and Par t 8 o f QRegulations.(As amended by Circular No. 706 dated 05 January 2011)

§ 4511N.4 Required seminar/trainingPrior to the issuance of the certificate ofregistration, the officer(s) as well as thepersonnel directly involved in foreignexchange operations shall attend a seminaron the requirements of the Anti-MoneyLaundering Act (AMLA) particularly oncustomer identification, record keeping andrepor t ing o f covered and susp ic ioustransactions, to be conducted by the AMLCor by any of its recognized or accreditedservice providers. The provisions of thisSec t ion sha l l a l so apply to o f f i ce r sappoin ted a f te r the i s suance o f thecertificate of registration.

The o f f i ce r ( s ) - in -charge and thepersonnel who at tended the requiredseminar shall echo the said training to allemployees within thirty (30) calendar daysfrom such attendance or as new employeesare hired.

§ 4511N.5 Sale and purchase of foreigncurrencies by FXDs/MCs. The followingminimum procedures shall be observed onsale and purchase of foreign currencies byFXDs/MCs:

a. Official receipts, in case of sales, andaccountable forms in case of purchases,shal l be issued in numerical order toevidence sale/purchase of foreign currencies;

b. The amount of foreign currenciessold shal l be indicated in the of f icialreceipts both in words and in figures. Thestaff serving the particular transaction aswell as the person buying/selling foreigncurrency shall sign in their usual signatureson the receipt;

c. A daily record of foreign exchangetransactions shall be maintained where allfo re ign exchange sa le and purchase


transactions shall be posted chronologically.The daily record shall be kept on file at theFXD/MC premises and shall be availablefor AMLC inspection/examination anytime;

d. All copies of cancelled receipts shallbe marked and stamped “CANCELLED” forinternal control purposes; and

e. Foreign exchange transactions shallbe conducted only at the entity’s principalplace of business and other authorizedbranches.

§ 4511N.6 Application to sell/purchaseforeign currencies by FXDs/MCs. FXDs/MCs shall require the seller or buyer offoreign currency to fill up and sign anapplication form, which shall contain thefollowing minimum data and information:

a. For individual customers -(1) Date;(2) Printed name and signature of

customer;(3) Present address;(4) Permanent address;(5) Date and place of birth;(6) Telephone number;(7) Nationality;(8) Amount and currency sold/

purchased in words and figures; and(9) Source of foreign currency/ies or

purpose of purchaseb. For corporate/juridical customers -

In addit ion to a signed applicationcontaining the applicable information inItem “a” above, photocopies of the followingdocuments shall be required:

(1) Articles of incorporation/partnership;

(2) By-Laws;(3) Official address or principal

business address;(4) List of directors/partners/principal

stockholders; and

(5) Authority and identification of theperson purporting to act in behalf of the client.

For subsequent transactions with thesame corporate client, FXDs/MCs need notrequire submission of additional documentsenumerated in Item “b” above unless thereare changes thereto.

As a means of further identification,FXDs/MCs shall require the presentation ofa government-issued identi f icationdocument such as SSS/GSIS/voter’s ID,driver’s license or passport.

A sample of application to sell/purchaseforeign currencies is shown in Item “C”,Appendix N-8.

§ 4511N.7 Additional requirementFXDs/MCs shall require an accomplishedapplication form and submission/presentation of supporting documents listedin Item “D” of Appendix N-8 for the sale offoreign exchange in the amount exceedingUS$10,000 or its equivalent for non-tradecurrent account purposes. For the sale offoreign exchange for all other purposes,FXDs/MCs shall require submission of anaccomplished application form andsupporting documents listed in Items “B”,“C” and “D” of Appendix N-8, regardlessof the amount involved.(As amended by Circular No. 652 dated 05 May 2009)

§ 4511N.8 Requirements for remittanceagents. RAs shall maintain accurate andmeaningful originator information on fundstransferred/remitted by requiring the sender/remitter to fill up and sign an applicationform, which shall contain the followingminimum data and information:

a. For individual customers -(1) Date;(2) Printed name and signature of

remitter;(3) Present address;

§§ 4511N.5 - 4511N.809.12.31



(4) Permanent address;(5) Date and place of birth;(6) Telephone number;(7) Nationality;(8 ) Amount and cur rency to be

remitted;(9) Source of foreign currency; and(10) Name of and relationship with

beneficiary/ies.b. For corporate/juridical customers

In addi t ion to a s igned appl ica t ioncontaining the applicable informationin Item "a", a photocopy of the authorityand ident i f i ca t ion o f the personpurporting to act in behalf of the clientshall be required.

As a means of further identification, RAssha l l requi re the presen ta t ion o f agovernment-issued identification documentsuch as SSS/GSIS/voter’s ID, driver’s licenseor passport.

For purposes of compliance with therequirements , an RA may rely on thereferral of its office/correspondent bankabroad: Provided, That the RA maintains arecord of such referral together with themin imum ident i f i ca t ion , in fo rmat iondocuments required under the law and itsimplementing rules and regulations.

§ 4511N.9 Anti-Money LaunderingCouncil Reportorial Requirements. FXDs/MCs and RAs are required to submit to theAMLC a report on covered transactions andsuspicious transactions in accordance withthe applicable provisions of Part 8 of QRegulations.(As amended by Circular No. 706 dated 05 January 2011)

§ 4511N.10 - 4511N.14 (Reserved)

§ 4511N.15 Sanctions. Monetarypenalt ies and other sanctions for thefollowing violations committed by erringFXDs/MCs and RAs may be imposed:

Nature of Violation/ Sanctions/Penalties Exceptiona. Operating without Applicable penalties prior BSP under Section 36 of registration R.A. No. 7653;

Watchlisting of partners/principal officersb. Violation of any of Applicable penalty the provisions of prescribed under R.A. No. 9160, as the Act amended and its IRRc. Other violations of Penalties and sanctions the provisions/ which may be requirements in imposed by the this Section AMLC

§ 4511N.16 Industry associationMembership in an existing association ofBSP-registered FXDs/MCs as well as RAs isencouraged.


Sec. 4601N Fines and Other Charges. Thefollowing regulations shall governimposition of monetary penalties on NBFIs,their directors and/or off icers and thepayment of such penalties or fines and othercharges by these entities.(Circular No. 585 dated 15 October 2007)

§ 4601N.1 Guidelines on the impositionof monetary penalties; payment ofpenalties or fines. The following are theguidelines on the imposition of monetary

§§ 4511N.8 - 4601N.111.12.31

tutions Manual of Regulations for Non-Bank Financial Institutions N RegulationsPage 39

§ 4601N.109.12.31



penalties on NBFIs, their directors and/orofficers and the payment of such penaltiesor f ines and o ther charges by theseentities:


(1) Continuing offenses/violations areacts, omissions or transactions entered into,in v io la t ion o f l aws , BSP ru les andregulations, Monetary Board directives, andorders of the Governor which persist fromthe time the particular acts were committedor omitted or the transactions were enteredinto until the same were corrected/rectifiedby subsequent acts or transactions. Theyshall be penalized on a per calendar daybasis from the time the acts were committed/omitted or the transactions were effectedup to the t ime they were cor rec ted /rectified.

(2) Transactional offenses/violations areacts, omissions or transactions entered intoin v io la t ion o f l aws , BSP ru les andregulations, Monetary Board directives, andorders of the Governor which cannot becorrected/rectified by subsequent acts ortransactions. They shall be meted with one(1 ) - t ime moneta ry pena l ty on a pertransaction basis.

(3)Continuing penalty refers to themonetary penalty imposed on continuing

offenses/violations on a per calendar daybasis reckoned from the time the offense/violation occurred or was committed untilthe same was corrected/rectified.

(4) Transactional penalty refers to a one(1)-time penalty imposed on a transactionaloffense/violation.

b. Basis for the computation of theper iod or dura t ion o f pena l ty . Thecomputation of the period or duration of allpenalties shall be based on calendar days.For this purpose the terms “per bankingday”, “per business day”, “per day” and/or“a day” as used in this Manual, and otherBSP rules and regulations shall mean “percalendar day” and/or “calendar day” as thecase may be.

c. Additional charge for late paymentof monetary penalty. Late payment ofmonetary penalty shall be subject to anadditional charge of six percent (6%) perannum to be reckoned from the businessday immediately following the day saidpenalty becomes due and payable up to theday of actual payment. The penalty approvedby the Governor/MB to be imposed on theNBFI, its directors and/or officers shallbecome due and payable f i f teen (15)calendar days from receipt of the Statementof Account from the BSP. For banks whichmaintain DDA with the BSP, penaltieswhich remain unpaid after the lapse of the


fifteen (15) day period shall be automaticallydebited against their corresponding DDA onthe following business day withoutadditional charge. If the balance of theconcerned NBFI’s DDA is insufficient tocover the amount of the penalty, said penaltyshall already be subject to an additionalcharge of six percent (6%) per annum to bereckoned from the business day immediatelyfollowing the end of said fifteen (15)-dayperiod up to the day of actual payment.

d. Appeal or request for reconsiderationA one (1)-time appeal or request forreconsideration on the monetary penaltyapproved by the Governor/Monetary Boardto be imposed on the NBFI, its directors and/or officers shall be allowed: Provided, Thatthe same is filed with the appropriatedepartment of the SES within fifteen (15)calendar days from receipt of the Statement ofAccount billing letter. The appropriatedepartment of the SES shall evaluate the appealor request for reconsideration of the NBFIindividual and make recommendationsthereon within thirty (30) calendar days fromreceipt thereof. The appeal or request forreconsideration on the monetary penaltyapproved by the Governor/Monetary Boardshall be elevated to the Monetary Board forresolution/decision. The running of the penaltyperiod in case of continuing penalty and/orthe period for computing additional chargeshall be interrupted from the time the appealor request for reconsideration was receivedby the appropriate department of the SES upto the time that the notice of the MonetaryBoard decision was received by the NBFI/individual concerned.(Circular No. 585 dated 15 October 2007, as amended by

Circular No .662 dated 09 September 2009)


Sec. 4603N Non-Bank BSP SupervisedEntities. NBBSEs that may subsequently beauthorized to engage in FX forwards andswaps as dealers shall be covered by the

provisions under Subsecs. 4625Q to4625Q.9, and 4625Q.14.(Circular No. 591 dated 27 December 2007)


Sec. 4641N Electronic Services. Theguidelines concerning electronic activitiesas may be applicable, are found in Sec.4701Q and its Subsections.(Circular No. 649 dated 09 March 2009)

Sec. 4642N Issuance and Operations ofElectronic Money. The following guidelinesshall govern the issuance of electronicmoney (e-money) and the operations ofelectronic money issuers (EMIs).(Circular No. 649 dated 09 March 2009)

§ 4642N.1 Declaration of policy. It isthe policy of the BSP to foster thedevelopment of efficient and convenientretail payment and fund transfermechanisms in the Philippines. Theavailability and acceptance of e-money asa retail payment medium will be promotedby providing the necessary safeguards andcontrols to mitigate the risks associated inan e-money business.(Circular No. 649 dated 09 March 2009)

§ 4642N.2 DefinitionsE-money shall mean monetary value as

represented by a claim on its issuer, that is -a. electronically stored in an



c. accepted as a means of payment bypersons or entities other than the issuer;




§§ 4601N.1 - 4642N.209.12.31



a. Banks (hereinafter called EMI-Bank);

b. NBFI supervised by the BSP(hereinafter called EMI-NBFI); and

c. Non-bank institutions registeredwith the BSP as a money transfer agentunder Section 4511N of the MORNBFI(hereinafter called EMI-Others).

For purposes of this Section:a. Electronic instruments or devices

shall mean cash cards e-wallets accessiblevia mobile phones or other access device,stored value cards, and other similarproducts.

b. E-money issued by NBFIs shall notbe considered as deposits.(Circular No. 649 dated 09 March 2009)

§ 4642N.3 Prior Bangko Sentralapproval. NBFIs planning to be an EMI-NBFI shall comply with the requirementsof Sec. 4641N and Sec. 4190N, whenapplicable.

NBFIs planning to be an EMI-Othersshall register with the BSP as a moneytransfer agent in accordance with theprovisions of Sec. 4511N. To qualify forregistration, they have to comply with thefollowing requirements:

a. They must be a stock corporationwith a minimum paid-up capital of P100million;

b. They shall engage only in thebusiness of e-money and other activitiesrelated or incidental to the business ofe-money, such as money transfer/remittance.An existing entity engaged in activities notrelated to the business of e-money butwishing to act as EMI-Others must do sothrough a separate entity duly incorporatedexclusively for such purpose;

c. They shall not engage in theextension of credit, unless they comply withthe provisions of Subsec. 4633N.5;

d. To further protect the e-moneyholders and ensure that e-moneyredemptions are adequately met at all times,

the entity should have sufficient liquid assetsequal to the amount of outstanding e-moneyissued. The liquid assets should remainunencumbered and may take any of thefollowing forms:

(1) bank deposits separately maintainedfor liquidity purposes;

(2) government securities set aside forthe purpose; and

(3) such other liquid assets as the BSPmay allow.

Records pertaining to the above liquidassets shall be made available for inspectionby BSP at any time and the confidentialityof bank deposits and government securitiesshall be waived.

e. The BSP shall be allowed access toreview the e-money systems and databasesof the entity. Whenever the circumstanceswarrant, such access shall extend to theagents, partners, service providers oroutsourced entities of the EMI-Others inview of their participation in the e-moneybusiness; and

f. EMI-Others shall submit to theSDC, its AFS within thirty (30) days fromdate of report of its external auditors.

In case the NBFI is already registeredwith the BSP as a money transfer agent, it isrequired to meet the additional requirementsmentioned above to qualify as EMI-Others.(Circular No. 649 dated 09 March 2009)

§ 4642N.4 Common provisions. Thefollowing provisions are applicable to all EMIs:

a. E-money instrument issued shall besubject to aggregate monthly load limit ofP100,000 unless a higher amount has beenapproved by BSP. In case an EMI issuesseveral e-money instruments to a person(e-money holder), the total amount loadedin all the e-money instruments shall beconsolidated in determining compliancewith the aggregate monthly load limit;

b. EMIs shall put in place a system tomaintain accurate and complete record ofe-money instruments issued, the identity of

§§ 4642N.2 - 4642N.409.12.31


e-money holders, and the individual andconsolidated balances thereof. The systemmust have the capability to monitor themovement of e-money transactions and linke-money instruments issued to commone-money holders. The susceptibility of asystem to intentional or unintentionalmisreporting of transaction and balancesshall be sufficient ground for imposition bythe BSP of sanctions, as may be applicable.

c. E-money may only be redeemed atface value. It shall not earn interest nor rewardsand other similar incentives convertible tocash, nor be purchased at a discount. E-moneyis not considered a deposit hence it is notinsured with the PDIC.

d. EMIs shall not ensure that e-moneyinstruments clearly identify the issuer whois ultimately responsible to the e-moneyholders. This shall be communicated to theclient who shall acknowledge the same inwriting.



g. EMIs shall disclose in writing and itscustomers shall signify agreement to theinformation embodied in Item “c” above upontheir participation in the e-money system. Inaddition, it shall provide clear guidance inEnglish and Filipino on consumers’ right ofredemption, including conditions and fees forredemption, if any. Information on availableredress procedures for complaints togetherwith the address and contact information ofthe issuer shall also be provided.

h. Prior to the issuance of e-money,EMIs should ensure that the followingminimum systems and controls are in place:



(3) Appropriate security policies andmeasures intended to safeguard the integrity,authenticity and confidentiality of data andoperating processes;



i. EMIs shall provide the SDCquarterly statements containing, amongothers, information on investments, volumeof transactions, total outstanding e-moneybalances, and liquid assets in such formsas may be prescribed later on.

j. EMIs shall notify BSP in writing ofany change or enhancement in thee-money facility thirty (30) days prior toimplementation. If said change orenhancement requires prior BSP approval,the same shall be evaluated accordingly.Any change or enhancement that shallexpand the scope or change the nature ofthe e-money instrument shall be subject toprior approval of the Deputy Governor,SES. These changes or enhancements mayinclude the following:

(1) Additional capabilities of thee-money instrument/s, like access to newchannels (e.g. inclusion of internet channelin addition to merchant Point of Saleterminals);



§ 4642N.409.12.31

Page 43


§ 4642N.5 Quasi-bank licenserequirement. EMI-NBFIs and EMI-Othersthat engage in lending activities must securea quasi-banking license from the BSP.(Circular No. 649 dated 09 March 2009)

§ 4642N.6 Sanctions. Monetarypenalties and other sanctions for thefollowing violations committed by EMI-NBFIs, and EMI-Others shall be imposed:

Nature of Violation Sanction/Penalties Exception

1. Issuing e-money Applicable penaltieswithout prior BSP under Sections 36 &approval 37 of R.A. No. 7653;


2. Violation of any Applicable penaltiesof the provisions of prescribed under theR.A. No. 9160 (Anti- ActMoney LaunderingLaw of 2001 asamended by R.A.No.9191 and itsimplementing rulesand regulations

3. Violation/s of Penalties and sanctionsthis Section under the



§ 4642N.7 Transitory provisions. AnEMI-NBFI and EMI-Other granted anauthority to issue e-money prior to 26 March2009 may continue to exercise suchauthority: Provided, That it shall submit to

the BSP, within one (1) month from the 26March 2009 a certification signed by thePresident or Officer with equivalent rankand function that it is in compliance withall the applicable requirements of thisSection. Otherwise, they are required tosubmit within the same period the measuresthey will undertake, with the correspondingtimelines, to conform to the provisions thatthey have not complied with subject to BSPapproval.(Circular No. 649 dated 09 March 2009)

§§ 4642N.8 - 4642N.10 (Reserved)

§ 4642N.11 Outsourcing of services byElectronic Money Issuers (EMIs) toElectronic Money Network ServiceProviders (EMNSP). The guidelines onoutsourcing of services by EMIs to EMNSPare shown in Appendix Q-55.

Sanctions. Violations committed byEMIs pertaining to outsourcing activities toEMNSP shall be subject to monetarypenalties as graduated under AppendixQ-39 and/or other non-monetary sanctionsunder Section 37 of RA No. 7653.



Sec. 4653N Accounting for FinancialInstitution Premises; Other Fixed AssetsFI premises, furniture, fixture and equipmentshall be accounted for using the cost modelunder PAS 16 “Property, Plant andEquipment.”(Circular No. 494 dated 20 September 2004)

§§ 4642N.5 - 4653N10.12.31

Page 44


§§ 4654N - 4899N11.12.31


Sec. 4660N Disclosure of RemittanceCharges and Other Relevant InformationIt is the policy of the BSP to promote theefficient delivery of competitively-pricedremittance services by banks and otherremittance service providers by promotingcompetition and the use of innovativepayment systems, strengthening thefinancial infrastructure, enhancing access toformal remittance channels in the sourceand destination countries, deepening thefinancial literacy of consumers, andimproving transparency in remittancetransactions, consistent with sound practices.

Towards this end, NBFIs under BSPsupervision, including FXDs/MCs and RAs,providing overseas remittance services shalldisclose to the remittance sender and to therecipient/beneficiary, the followingminimum items of information regardingremittance transactions, as defined herein:

a. Transfer/remittance fee - charge forprocessing/sending the remittance from thecountry of origin to the country ofdestination and/or charge for receiving theremittance at the country of destination;

b. Exchange rate - rate of conversionfrom foreign currency to local currency, e.g.,peso-dollar rate;

c. Exchange rate differential/spread -foreign exchange mark-up or the differencebetween the prevailing BSP reference/guiding rate and the exchange conversionrate;

d. Other currency conversion charges -commissions or service fees, if any;

e. Other related charges - e.g.,surcharges, postage, text message or telegram;

f. Amount/currency paid out in therecipient country - exact amount of moneythe recipient should receive in local currencyor foreign currency; and

g. Delivery time to recipients/beneficiaries - delivery period of remittanceto beneficiary stated in number of days,hours or minutes.

Non-bank remittance service providersshall likewise post said information in theirrespective websites and display themprominently in conspicuous places withintheir premises and/or remittance/servicecenters.(Circular No. 534 dated 26 June 2006)


Sec. 4695N Valid Identification DocumentsThe provisions of Part 8 of Q Regulations onValid Identifications documents shall apply toall types of financial transactions by NBFIs,including financial transactions involving OFWs.(Circular No. 564 dated 03 April 2007, as amended by Circular Nos.706 dated 05 January 2011, 657 dated 16 June 2009 and 608 dated20 May 2008)


Sec. 4699N General Provision onSanctions. Any violation of the precedingprovisions shall be subject to Section 36of R.A. No. 7653.



Manual of Regulations for Non-Bank Financial InstitutionsN - RegulationsPage 46

§§ 4901N - 4902N11.12.31

Section 4901N Trust Corporation; Statementof Policy. It is the policy of the Bangko Sentralto promulgate rules and regulations necessaryfor the proper conduct and development oftrust, other fiduciary business and investmentmanagement activities. Toward this end,authority to engage in trust, other fiduciarybusiness and investment managementactivities shall be granted to all qualifiedtrust corporations which meet therequirements provided herewith.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4401Q)

§ 4901N.1 Statement of principles. Thecardinal principle common to all trust and otherfiduciary relationships is fidelity. Policiespredicated upon this principle are directedtowards confidentiality, scrupulous care,safety and prudent management of propertyincluding reasonable probability of incomewith proper accounting and appropriatereporting thereon. Practices are designed inaccordance with the basic standards for trust,other fiduciary and investment managementaccounts (IMAs) in Appendix Q-48 to promoteefficiency in administration and operation; toadhere and conform to the terms of theinstrument or contract; and to maintainabsolute separation of property free from anyintrusion of conflict of interest.

Trust corporation is under no obligation,either legal or moral, to accept any suchbusiness being offered nor has it the right toaccept if the same is contrary to law, rules,regulations, public order and public policy. Itshall advertise its services in a dignifiedmanner and enter such business only whendemand for such service is evident, whenspecially equipped to render such service andupon full appreciation of the responsibilitiesinvolved. It shall be ready and willing to givefull disclosure of the services being offered andshall conduct its dealing with transparency.Harmonious relationship shall likewise be

pursued with other professions to achieve thecommon goal of mutual service to the publicand protection of its interest.(Circular No. 710 dated 19 January 2011)

(Equivalent of Section 4401Q)

Sec 4902N Scope of Trust, Other FiduciaryBusiness and Investment ManagementActivities. A trust corporation shall be a stockcorporation primarily created, and dulyauthorized by the Monetary Board, to engageonly in trust, other fiduciary business andinvestment management activities, which shallact as trustee or administer any trust or holdproperty in trust or on deposit for the use andbenefit of others, and/or act as financialconsultant, investment adviser or portfoliomanager. It shall administer the funds orproperty under its custody with the diligencethat a prudent man would exercise in theconduct of an enterprise of a like characterwith similar aims: Provided, That the trustcorporation shall not accept and administerfunds or property of any bank and/or QB, andact as trustee, fiduciary, financial consultant,investment adviser, or portfolio manager ofsuch funds or property. It shall also be knownor referred to as a stand-alone trustcorporation.

A trust corporation may accept peso andforeign currency denominated accounts: Provided, That in the case of foreign currencydenominated accounts, all relevant laws, rulesand regulations issued by local regulatoryagencies are complied with.

A trust corporation may be a subsidiaryor an affiliate of a bank and/or a NBFI: Provided, That the investing bank and/orNBFI cannot engage in trust, other fiduciarybusiness and investment managementactivities both directly through its separate anddistinct department or other similar unit inthe bank or NBFI, and indirectly through asubsidiary or affiliate trust corporation:Provided, further, That a bank and/or NBFI

TRUST CORPORATION(Stand-Alone Trust)


§§ 4902N - 4903N11.12.31

may acquire or invest in the equity of notmore than two (2) trust corporations:Provided, finally, That in the case of aninvesting bank, the acquisition or investmentin the equity of a trust corporation shall besubject to all relevant laws, rules andregulations on equity investment of banksin a financial allied enterprise and thefollowing limitations and restrictions:

1. In a single enterprise. The equityinvestment of a bank in a single trustcorporation shall be within the followingratios in relation to the total subscribedcapital stock and to the total voting stock ofthe trust corporation:

INVESTOR/INVESTING BANK UB KB TB RB Coop Bank Limit in single trust corporation 100% 49% 40% 40% 40%

Provided: That the equity investment of aUB and a KB in any single trust corporationshall not exceed, at any time, twenty-fivepercent (25%) of the net worth of theinvestor/investing bank as defined in Sec.X106 and Subsec. X121.5.

2. Aggregate limits. The total amount ofinvestments in equities in all enterprisesshall not exceed the following ratios inrelation to the net worth of the investor/investing bank

INVESTOR/INVESTING BANK UB KB TB RB Coop Bank Aggregate Limit 50% 35% 25% 25% 25%

(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4402Q)

§ 4902N.1 Scope of regulations. Theregulations are divided into three (3) Sub-Parts where:

A. Trust and Other Fiduciary Businessshall apply to trust corporations authorizedto engage in trust and other fiduciarybusiness including investment managementactivities;

B. Investment Management Activitiesshall apply to trust corporations withouttrust authority but engaged in investmentmanagement activities; and

C. General Provisions shall apply toboth.(Circular No. 710 dated 19 January 2011)

§ 4902N.2 Borrowings. A trustcorporation cannot engage in quasi-bankingfunctions, particularly the borrowing offunds from the public for the purpose ofrelending the said funds. The trustcorporation however retains the right toborrow as is inherent to any duly registeredcorporate entity.(Circular No. 710 dated 19 January 2011)

Sec 4903N Definitions. For purposes ofregulating the operations of trust and otherf iduciary business and investmentmanagement activities, unless the contextclearly connotes otherwise, the followingshall have the meaning indicated.

a. Trust business shall refer to anyactivity resulting from a trustor-trusteerelationship (trusteeship) involving theappointment of a trustee by a trustor for theadministration, holding, management offunds and/or properties of the trustor by thetrustee for the use, benefit or advantage ofthe trustor or of others called beneficiaries.

b. Other fiduciary business shall referto any activity of trust-licensed institutionsresulting from a contract or agreementwhereby the institution binds itself to renderservices or to act in a representative capacitysuch as in an agency, guardianship,administratorship of wills, properties andestates, executorship, receivership and othersimilar services which do not create orresult in a trusteeship. It shall excludecollecting or paying agency arrangementsand similar fiduciary services which areinherent in the use of the facilities of theother operating departments of such

N - RegulationsPage 47


§§ 4903N - 4904N.111.12.31

institution. Investment management activities,which are considered as among other fiduciarybusiness, shall be separately defined in thesucceeding item to highlight its being a majorsource of fiduciary business.

c. Investment management activity shallrefer to any activity resulting from a contractor agreement primarily for financial returnwhereby the institution (the investmentmanager) binds itself to handle or manageinvestible funds or any investment portfolioin a representative capacity as financial ormanaging agent, adviser, consultant oradministrator of financial or investmentmanagement, advisory, consultancy or anysimilar arrangement which does not createor result in a trusteeship.

d. Trust is a relationship or anarrangement whereby a person called atrustee is appointed by a person called atrustor to administer, hold and managefunds and/or property of the trustor for thebenefit of a beneficiary.

e. Trust agreement is an instrument inwriting covering the terms and conditionsof the trust.

f. Trustee is any person who holds legaltitle to the funds and/or property of a trust.

g. Trustor is any person who creates atrust.

h. Beneficiary is any person for whosebenefit a trust is created.

i. Fiduciary shall refer to any person orentity engaged in any of the other fiduciarybusiness as herein defined where notrustor-trustee relation exists.

j. Agency shall refer to a contractwhereby a person binds himself to rendersome service or to do something inrepresentation or on behalf of another, withthe consent or authority of the latter.

k. Principal shall refer to the person whogrants authority to another person called anagent, under a contract to enter intotransactions in his behalf.

l. Agent shall refer to a person who actsin representation or on behalf of anotherperson with the latter’s authority.

m. Trust Officer shall refer to thedesignated head or officer-in-charge of thetrust corporation.

n. Trust account shall refer to an accountwhere transactions arising from a trusteeshipare kept and recorded.

o. Fiduciary account shall refer to anaccount where transactions arising from anyof the other fiduciary businesses are keptand recorded.

p. Investment Manager shall refer to anyperson or entity engaged in investmentmanagement activities as herein defined.

q. Investment Management Departmentshall refer to the department, unit, group,division or any aggrupation which carriesout the investment management activitiesof a trust corporation that does not have anauthority to engage in trust and otherfiduciary business.

r. Investment Management Officershall refer to the designated head oroff icer-in-charge of the investmentmanagement department of an institutionwhich does not have the authority toengage in trust and other fiduciarybusiness.

s. Investment management account shallrefer to an account where transactionsarising from investment managementactivities are kept and recorded.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4403Q)

A. TRUST AND OTHER FIDUCIARYBUSINESS

Sec. 4904N Organizational Requirements(Circular No. 710 dated 19 January 2011)

§ 4904N.1 Application for authority toestablish. The incorporators/directors of theproposed trust corporation shall file and



§§ 4904N.111.12.31

submit to the Monetary Board through theappropriate department of the SES anapplication for authority to establish a trustcorporation to primarily engage in trust,other fiduciary business and investmentmanagement activities, which shall be dulysigned by all incorporators/directors,together with the following documents:

a. Accomplished biographical data ofeach incorporator, subscriber, proposeddirector and officer, if applicable;

b. Certified Statement of Assets andLiabilities as of a date not earlier than ninety(90) days prior to the filing of the applicationof each of the incorporator, subscriber,proposed director and officer together withthe evidences of asset ownership such asbank certification/statement, savingspassbook, certificate of time deposit, bondor stock certificate, transfer certificate of titleand tax declaration. A waiver of rights underR.A. No. 1405, as amended, shall also besubmitted for purposes of verification of thedeclared assets, pursuant to the provisionsof the Anti-Money Laundering Law, asamended;

c. Certified photocopies of Income TaxReturns (ITRs) for the last three calendaryears of each incorporator, subscriber,proposed director and officer or similardocument from the home country in thecase of Non-Filipino citizens;

d. Clearance from the National Bureauof Investigation (NBI) and Bureau of InternalRevenue (BIR) of each of the incorporator,subscriber, proposed director and officer orsimilar document from the home countryin the case of Non-Filipino citizens;

e. Certification from home country’ssupervisory authority that the Non-Filipinocitizen has no derogatory record;

f. For corporate subscribers, thefollowing additional documents shall besubmitted:

(1) Copy of the board resolutionauthorizing the corporation to invest in such

trust corporation and designating the personwho will represent the corporation inconnection therewith;

(2) Copy of the latest articles ofincorporation and by-laws;

(3)Updated list of directors andprincipal officers;

(4)Current list of major stockholders,indicating the citizenship and the number,amount and percentage of the voting andnon-voting share held by them;

(5) A copy each of the corporation’saudited financial statements for the last two(2) years prior to the filing of the application;

(6) A copy of the corporation’s annualreport to the stockholders for the yearimmediately preceding the date of filing ofthe application;

(7) Certified photocopies of ITRs and BIRclearance for the last two (2) calendar years; and

(8) For foreign corporation, it shall alsosubmit a certification from its homecountry’s supervisory authority that it hasno objection to the investment of suchcompany in a trust corporation in thePhilippines and that adequate informationon such foreign corporation shall beprovided to the Bangko Sentral to the extentallowed under existing laws.

g. Detailed plan of operation andeconomic justification for establishing atrust corporation. The plan should describeand analyze the industry and the market areafrom which the trust corporation expects todraw majority of its trust business andestablish a strategy for its ongoing operation.It should also describe how the trustcorporation will be organized andcontrolled internally;

h. Projected financial statements for thefirst five (5) years together with assumptions.These should be consistent with its proposedplan of operation and would show sufficientcapital to support its strategy and operation;

i. Detailed plan on how the subscriberswould put up the required capitalization for



§§ 4904N.1 - 4904N.211.12.31

the proposed trust corporation; andj. Such other information that the

Bangko Sentral may require.The application shall be considered filed

and submitted on a first-come, first-servedbasis: Provided, That all required documentsare complete and properly accomplished:Provided, further, That in case of banks andNBFIs that decide to spin-off their trustdepartment to a trust corporation, thedocumentary requirements under Items "f"and "g" may not be submitted.

Grounds for disapproval of application.The Monetary Board may deny theapplication to organize a trust corporationon the basis of any of the findings that:

a. The trust corporation is beingorganized for any purpose other than toengage in the business of a legitimate trustcorporation;

b. The trust corporation’s financialprogram is against the law, Bangko Sentralrules and regulations, public policy, andpublic standard; and

c. There exist other reasons, which theMonetary Board may consider as sufficientground for such disapproval.(Circular No. 710 dated 19 January 2011)


§ 4904N.2 Required capital. Uponincorporation/establishment, a trustcorporation shall have a minimum paid-incapital of P300 million. Thereafter, the trustcorporation is required to maintain aminimum unimpaired combined capitalaccount of P300 million, or such amountsas may be prescribed by the MonetaryBoard in the future, for assets undermanagement up to P20 billion.

For assets under managementamounting to more than P20 billion, anincremental capital shall be provided andcomputed as a percentage of the book valueof the total volume of assets undermanagement based on the following:

Assets Under Incremental Capital Management Requirement Based (AUM) (In Billions) on Total Volume of AUM Above P20.0 - P100.0 6 basis points

Above P100.0 - P250.0 8 basis points

Above P250.0 - P500.0 10 basis points

Above P500.0 12 basis points

The assets under management, for thispurpose, shall be computed based on theaverage of the quarter-end balances of assetsunder management of the preceding four (4)quarters.

The provision on incrementalunimpaired combined capital shall besubject to periodic review.

For purposes of this Subsection,combined capital accounts shall mean thetotal capital stock, retained earnings andprofit and loss summary, net of (a) valuationreserves on the allowable proprietary assets,and such other capital adjustments as maybe required by the Bangko Sentral, and (b)appraisal surplus or appreciation credit asa result of appreciation or an increase in bookvalue of the assets of the trust corporation.

Whenever the combined capitalaccounts of the trust corporation aredeficient with respect to the precedingparagraphs, the Monetary Board, afterconsidering the report of the appropriatedepartment of the SES on the state ofsolvency of the trust corporation concerned,shall require the trust corporation to institutenecessary corrective action(s) to address itscapital deficiency which may include thesubmission of an acceptable capitalizationprogram. Otherwise, the Monetary Boardshall require the trust corporation, amongothers, to maintain net income and limit orprohibit the distribution of dividends toincrease its capital accounts, or restrict theacceptance of new trust, other fiduciary andIMAs or introduction of new trust productsor unit investment trust fund, until such



§ 4904N.2 - 4904N.411.12.31

corporation complies with the minimumcapital requirement.

Failure of the trust corporation to meetthe minimum capital requirement shall bea ground for the imposition of sanctions andsuspension/revocation of the authority toengage in trust, other fiduciary business andinvestment management activities.(Circular No. 710 dated 19 January 2011)

§4904N.3 Requirements for theissuance of the certificates of authority toregister and to operate

a. Within sixty (60) days from receipt ofadvice of approval by the Monetary Board/Governor of their application for authorityto establish a trust corporation, theincorporators shall:

(1) Submit seven (7) copies of thearticles of incorporation, treasurer’s swornstatement and by-laws which shall includeprovisions on the appointment of apresident/trust officer or its equivalentposition, if any, and other subordinateofficers, and a clear definition of their dutiesand responsibilities; and

(2) Deposit with any universal/commercial bank the initial paid-up capitalof the proposed trust corporation.

b. Within thirty (30) days from receiptof advice of approval by the MonetaryBoard/Governor of their application forauthority to establish a trust corporation, itshall pay a non-refundable license fee ofP500 thousand pesos to the Bangko Sentral.

c. Within thirty (30) days after thearticles of incorporation and by-laws hadbeen passed upon by the Office of theGeneral Counsel and Legal Services, andthe corresponding certificate of authority toregister had been issued, the incorporatorsshall effect the filing and registration of saiddocuments with the SEC.

Articles of incorporation; by-laws. Thearticles of incorporation and by-laws of anytrust corporation, or any amendment

thereto, shall not be registered with the SECunless accompanied by a certificate ofauthority issued by the Monetary Board.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4404Q.3)

§4904N.4 Pre-operating requirementsWithin six (6) months from receipt of adviceof approval by the Monetary Board/Governor of their application for authorityto establish a trust corporation to primarilyengage in trust, other fiduciary business andinvestment management activities, theincorporators shall secure the certificate ofauthority to operate the trust, other fiduciarybusiness and investment managementactivities and submit to the appropriatedepartment of the SES the following:

a. Copy of the articles of incorporationand by-laws including proof of registrationwith the SEC;

b. Certification of compliance with theconditions of approval duly signed by theincorporators, including the set-up of thebasic security deposit mentioned in Subsec.4905N.1;

c. Names and positions of individualsdesignated as chairman and members of theboard of directors, president/trust officer andother subordinate officers of the trustcorporation with their respective bio-dataand statement of duties and responsibilities;

d. Organizational chart which showsthe names of departments/units withrespective functions and responsibilities anddesignations of officers/employeesincluding responsibilities of personnelwithin the said departments/units. Theorganizational chart should show clearaccountability of the management structureand should provide for independent checkand balance by the board of directors;

e. Risk Management Manual andOperations Manual embodying the policies,systems, and operating procedures of eachdepartment/unit in the organization covering



§§ 4904N.4 - 4905N.111.12.31

the areas on (a) signing/delegatedauthorities, (b) procedures/flow ofpaperwork, and (c) other matters, togetherwith the certification of the President /TrustOfficer of the trust corporation that thesemanuals were prepared and aligned withexisting Bangko Sentral rules and regulationson risk management and trust, otherfiduciary and investment managementactivities and shall be implemented. A trustcorporation is expected to have in place, arisk management system that is appropriateto the nature and complexity of the trustcorporation’s fiduciary activities;

f. Excerpts of the minutes of theorganizational/director’s meetingsconfirming all organizational andpre-opening transactions relative to activitiesundertaken by the trust corporation tooperate the trust, other fiduciary businessand investment management activities (e.g.,appointment of officers, and approval ofauthorized signatories);

g. Alphabetical list of all stockholderswith the number and percentage of votingstocks owned/held;

h. List of natural persons/stockholderscertified by the Corporate Secretary, owningvoting stocks in the trust corporation andare related to other identified stockholderswithin the third (3rd) degree ofconsanguinity or affinity, indicating thecombined percentage of voting stocks heldby these persons in the particular trustcorporation, as well as juridical persons,including corporations that arewholly-owned or a majority of the stock ofwhich is owned by any of such persons,including their wholly- or majority-ownedsubsidiaries;

i. Certification by the President/TrustOfficer of the trust corporation that noperson who is the spouse or relative withinthe second (2nd) degree of consanguinityor affinity of any person holding the position

of Chairman, President/Trust Officer,Chief Executive Officer, Chief OperatingOfficer, Executive Vice-President, SeniorVice President or any posit ion ofequivalent rank, General Manager,Treasurer, Chief Cashier, or ChiefAccountant will be appointed to any ofsaid positions in the trust corporation; and

j. Other documents/papers which maybe required.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4404Q.4)

§ 4904N.5 Commencement of trust,other fiduciary business and investmentmanagement activities. The trustcorporation shall commence operationwithin one (1) year from date of approvalby the Monetary Board of their applicationfor authority to establish a trust corporationto primarily engage in trust, other fiduciarybusiness and investment managementactivities: Provided, That the trustcorporation may be granted by the DeputyGovernor, SES, a final extension of six (6)months subject to the formal presentationof valid justification and documentary proofthat the trust corporation can commenceoperation within the six (6)-month period.Otherwise, upon recommendation of theDeputy Governor, SES, the Monetary Boardshall revoke the authority to establish a trustcorporation to primarily engage in trust,other fiduciary business and investmentmanagement activities.(Circular No. 710 dated 19 January 2011)

Sec. 4905N Security for the FaithfulPerformance of Trust and Other FiduciaryBusiness and Allowable Proprietary Assets(Circular No. 710 dated 19 January 2011)


§ 4905N.1 Basic security deposit. Trustcorporations, duly authorized by the



§§ 4905N.1 - 4905N.211.12.31

Monetary Board, shall establish a basicsecurity deposit for the faithful performanceof trust and other fiduciary duties andinvestment management activitiesequivalent to the required capital underSubsec 4904N.2: Provided, That at no timeshall the basic security deposit be less thanP300 million. The basic security depositshall be in the form of securities acceptableto the Bangko Sentral, earmarked in favorof the Bangko Sentral: Provided, further, Thatthe trust corporation shall issue anauthorization in favor of the Bangko Sentralto withdraw, dispose and disburse theproceeds thereof to settle any claims arisingfrom the breach of its duties as evidencedby a final and executory court order:Provided, finally, That the trust corporationshall not withdraw, transfer or replace suchearmarked securities without prior writteninstruction from the Bangko Sentral.

Scripless securities under Registry ofScripless Securities (RoSS) system of theBureau of Treasury (BTr) may be used asbasic security deposit for trust duties usingthe guidelines in Appendix Q-21.(Circular No. 710 dated 19 January 2011) (Equivalent of Section 4405Q.1)

§4905N.2 Allowable proprietary assets1. Assets owned by the trust corporation

shall be for the purpose of engaging in thebusiness of trust, other fiduciary andinvestment management activities andmaintaining the minimum capitalrequirement.

Eligible Securities. The allowableproprietary assets shall include eligiblegovernment securities deposited with theBangko Sentral in compliance with the basicsecurity deposit requirement provided underSubsec 4905N.1, which consist of:

a. Evidences of indebtedness of theRepublic of the Philippines and of theBangko Sentral and any other evidences ofindebtedness or obligations the servicing

and repayment of which are fully guaranteedby the Republic of the Philippines; and suchother kinds of securities which may bedeclared eligible by the Monetary Board:Provided, That such securities shall be free,unencumbered, and not utilized for anyother purpose: Provided, further, That suchsecurities shall have remaining maturitiesof not more than three (3) years from thedate of deposit with the Bangko Sentral;

b. NDC Agri-Agra ERAP Bonds,regardless of remaining maturities;

c. Five (5) - and Ten (10) - year SpecialPurpose Treasury Bonds (SPTBs) providedsuch bonds shall not be hypothecated in anyway or earmarked for any other purpose andthey meet the three (3)-year remainingmaturity requirement to ensure that suchbonds are liquid;

d. Securities backed by the unreleasedInternal Revenue Allotments (IRA) of LGUs(issued by a Special Purpose Trustadministered by the DBP under the IRAMonetization Program of the Union of LocalAuthorities of the Philippines) the releaseof which IRA on scheduled date of paymenthas been certified by the DBM as not beingsubject to any conditionalities: Provided,That such securities shall be eligible onlyto the extent of the present value of thebond computed using the original yieldto maturity (as of auction/issue date):Provided, further, That for reserve for trustand other fiduciary duties, the remainingmaturities of the securities shall not exceedthree (3) years;

e. Zero Coupon Bond Issue by the HGCof up to P7.0 billion five (5) year regularseries and up to P3.0 billion seven (7)-yearspecial series to finance its guarantyservicing of socialized and low-cost housingprojects: Provided, That they meet the three(3)-year remaining maturity requirement toensure that such bonds are liquid: Provided,further, That such bonds shall qualify aseligible reserve for trust and other fiduciary



§§ 4905N.2 - 4905N.311.12.31

duties only to the extent of the present valueof the bond computed using the originalyield to maturity (as of auction/issue date);

f. Tobacco Excise Tax ReceivableMonetization Program InvestmentCertificates (TEXTR Certificates) backed byreceivables representing the unreleasedportion of the obligation of the NationalGovernment to its LGUs for their share ofthe Tobacco Excise Taxes under R.A. No.7171 amounting to P1.85 billion andcovering the years 2001 and 2002: Provided,That such securities shall be eligible onlyto the extent of the present value of thesecurities computed using the original yieldto maturity as of auction/issue date; and

g. Securities received, pursuant to theDomestic Debt Exchange Offer of theRepublic of the Philippines, in exchange forsecurities that are eligible reserves for trustduties.

2. In the determination of the financialcondition of any trust corporation doingbusiness in the Philippines, the allowableproprietary assets shall consist of:

a. Investments in eligible governmentsecurities defined in Item "1" hereof;

b. Investments in securities issued byor guaranteed by the Philippine government,or the BSP;

c. Investments in bank deposits, andhighly liquid and investment gradesecurities, including:

(1) money market instruments;(2) those issued by central governments

and central banks of foreign countries withthe highest credit quality given by any two(2) internationally accepted rating agencies;and

(3) securities issued by anysupranational entity;

d. Loans and other creditaccommodations

(1) secured by obligations of thePhilippine Government or of the BSP;

(2) fully guaranteed by the PhilippineGovernment as to the payment of principaland interest;

(3) secured by highly liquid andinvestment grade securities;

(4) to the extent covered by the hold-out on or assignment of, bank deposits heldin the Philippines; and

(5) which the Monetary Board may fromtime to time specify as non-risk items;

e. Real and other properties, includingbuilding, furniture and fixtures, safes,equipments, and other fixed assets, utilized/to be utilized by the trust corporation in theconduct of its trust, other fiduciary businessand investment management activities:Provided, That the total investment in suchreal estate and improvements thereof,including all other fixed assets, shall notexceed thirty percent (30%) of the combinedcapital accounts; and

f. Other assets, not inconsistent with theprovisions of paragraphs "a" to "d" hereof,which are deemed to be readily realizableand available for the payment of liabilities,losses or claims at values to be determinedin accordance with the Financial ReportingPackage for Trust Institutions.

For purposes of investing the allowableassets, the trust corporation shall not

(a) commingle their proprietary funds/assets with the assets under management; and

(b) invest the same in their own unitinvestment trust fund or other trust products.(Circular No. 710 dated 19 January 2011)

(Equivalent of Section 4405Q.2)

§4905N.3 Valuation of securities andbasis of computation of the basic securitydeposit requirement. For purposes ofdetermining compliance with the basicsecurity deposit under this Section, theamount of securities so deposited shall bebased on their book value, that is, cost asincreased or decreased by the



§§ 4905N.3 - 4905N.511.12.31

corresponding discount or premiumamortization.

The base amount for the basic securitydeposit shall be the average of the month-endbalances of total trust, investmentmanagement and other fiduciary assets ofthe immediately preceding calendar quarter.(Circular No. 710 dated 19 January 2011)


§ 4905N.4 Compliance period;sanctions. The trust corporation shall havethirty (30) calendar days after the end ofevery calendar quarter within which todeposit with the BSP the securities requiredunder this Section.

The following sanctions shall beimposed for any deficiency in the basicsecurity deposit for the faithful performanceof trust and other fiduciary duties:

a. On the trust corporation:i. Monetary penalty/ies:

Offense First Second Third and Trust subsequent Asset Size offense(s) Up to P500 P600 P700 P800 million Above P500 Million P1,000 P1,250 P1,500 but not exceeding P1 billion Above P1 billion but not P2,000 P3,000 P4,000 exceeding P10 billion Above P10 billion but not P5,000 P6,000 P7,000 exceeding P50 billion Above P8,000 P9,000 P10,000

P50 billion

ii. Non-monetary penalty beginningwith the third offense (all trust corporations)– Prohibition against the acceptance of newtrust and other fiduciary accounts, and fromrenewing expiring trust and other fiduciary

contracts up to the time the violation iscorrected.

b. On the trust officer and/or otherofficer(s) responsible for the deficiency/non-compliance:

(1) First offense - warning thatsubsequent violations shall be dealt withmore severely;

(2) Second offense - written reprimandwith a stern warning that subsequentviolations shall be subject to suspension;

(3) Third offense - thirty (30) calendarday-suspension without pay; and

(4) Subsequent offense(s) - sixty (60)calendar day-suspension without pay.

For purposes of determining thefrequency of the violation, the trustcorporation’s compliance profile for theimmediately preceding three (3) years ortwelve (12) quarters will be reviewed:Provided, That for purposes of determiningappropriate penalty on the trust officer and/or other responsible officer(s), any offensecommitted outside the preceding three (3)year or twelve (12) quarter-period shall beconsidered as the first offense: Provided,further, That in the case of trust officer, alloffenses committed by him in the past astrust officer of other institution(s) shall alsobe considered: Provided, finally, That if theoffense cannot be attributed to any otherofficer of the trust corporation, the trustofficer shall be automatically heldresponsible since the ultimate responsibilityfor ensuring compliance with the regulationrests upon him, as evidence may warrant.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4405Q.4)

§4905N.5 Reserves aga ins t pesodenominated Trust and Other FiduciaryAccounts (TOFA) – Others

I n addition to the basic securitydeposit, an institution authorized toengage in trust and other fiduciarybusiness shall maintain reserves on TOFA-Others, except accounts held under:


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§§ 4905N.5 - 4905N.611.12.31

(1) Administratorship;(2) Bond Issues/Other Obligations

Under Deed of Trust or Mortgage;(3) Custodianship and Safekeeping;(4) Depository and Reorganization;(5) Employee Benefit Plans Under Trust;(6) Escrow;(7) Personal Trust (testamentary and

living trust);(8) Executorship;(9) Guardianship;(10) Life Insurance Trust; and(11) Pre-need Plans (institutional/

individual).The reserves to be maintained shall be

as follows:(i) Regular reserves 6%(ii) Liquidity reserves 11%The liquidity reserves shall be

maintained in the RDA with the BSP, or maybe in the form of the following: Provided,That it complies with the guidelines shownin Appendix Q-41.

(i) Short-term market-yieldinggovernment securities purchased directlyfrom the BSP-TD.

(ii) NDC Agri-Agra ERAP Bonds,regardless of maturity; and

(iii) PEACe bonds only to the extentof the original gross issue proceedsdetermined at the time of the auction, pluscapitalized interest on the underlying zero-coupon Treasury Notes as and when thecorresponding interest is earned over thelife of the bonds.

Any deficiency in the l iquidityreserves shall continue to be in the formsor modes prescribed under existingregulations for the composition of requiredreserves.

The reserves on TOFA-Others shall beprovided by the institution out of saidfunds.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4405Q.5)

§ 4905N.6 Composition of reservesa. The provisions of Section 4254Q

shall govern the composition of reservesagainst TOFA-Others of trust corporations.

For purposes of this Subsection, aspecial deposit account shall be maintainedby the institutions with the BSP exclusivelyfor trust reserves which deposits up to fortypercent (40%) of the required reservesagainst TOFA-Others (less the percentageallowed to be maintained in the form ofshort-term market-yielding governmentsecurities), shall be paid interest at fourpercent (4%) per annum, based on theaverage daily balance of said deposits to becredited quarterly.

Likewise, trust corporations may alsomaintain a special demand deposit accountwith local banks exclusively for trust duties.

Published interest rates that will beapplied on BSP’s Special Deposit Accountsof trust corporations shall be inclusive ofthe twelve percent (12%) VAT.

b. The portion of reserves that may bemaintained in the form of short-termmarket-yielding government securitiesrefers to government securities shall bepurchased directly from the BSP TreasuryDepartment at one-half percent (1/2%)below the prevailing market rate for anequivalent term and volume and subjectto BSP’s firm commitment to buy back atany time at prevailing market rates. Suchreserves in the form of short-term marketyielding government securities shall be inaddition to other forms of eligible reservessuch as cash in vault or on deposit withthe BSP.

All purchases of said governmentsecurities shall be under the RoSS systemof the BTr. Transactions covering saidsecurities shall be recorded in accordancewith the guidelines in Appendix Q-21.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4405Q.6)


.


§§ 4907N.7 - 4907N.811.12.31

§ 4905N.7 Computation of reserveposition. Trust corporation authorized toengage in trust and other fiduciary businessshall calculate daily the required andavailable reserves on the value per booksof its TOFA-Others, based on the seven-dayweek, starting Friday and ending Thursdayincluding Saturdays, Sundays, holidays,non-business days and days when there isno clearing: Provided, That with referenceto holidays, non-business days and dayswhere there is no clearing, the reserveposition at the close of business dayimmediately preceding such holidays,non-business days and days where there isno clearing, shall apply thereon. For thepurpose of computing reserve position, theprincipal office in the Philippines and allbranches and agencies located therein shallbe treated as a single unit.

The required reserves in the currentperiod (reference reserve week) shall becomputed based on the correspondinglevels of TOFA-Others of the prior week.

For purposes of computing the requiredand available statutory and liquidity reservesfor TOFA-Others, the term value per booksshall refer to the total volume of TOFAOthers less booked “Allowance for ProbableLosses”.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4405Q.7)

§ 4905N.8 Reserve deficiencies;sanctions. The computation of reservedeficiencies for TOFA-Others, of trustcorporations authorized to engage in trustand other fiduciary business, including thesanctions are as follows:

a. Whenever the reserve position of anytrust corporation computed in the mannerspecified in Subsec. 4905N.7 is below therequired minimum, the trust corporationconcerned shall pay the BSP one-tenth ofone percent (1/10 of 1%) per day on theamount of the deficiency or the prevailing

ninety-one (91)- day T-Bill rate plus three (3)percentage points, whichever is higher:Provided, however, That the trust corporationshall be permitted to offset any reservedeficiency occurring one (1) or more days ofthe week covered by the report against excessreserves which it may hold on other days ofthe same week, and shall be required to paythe penalty only on the average daily netdeficiency during the week.

In case of abuse, the trust corporationshall automatically lose the privilege ofoffsetting reserve deficiency in the aforesaidmanner until such time that it maintains itsdaily reserve position at the required minimumfor at least two (2) consecutive weeks.

As used in this Section, abuse in theprivilege of offsetting reserve deficienciesagainst excess reserves shall mean havingreserve deficiencies occurring four (4) ormore times during any given week for two(2) consecutive weeks, whether or notresulting in net weekly deficiencies.

b. In cases where the trust corporation haschronic reserve deficiency on depositsubstitute liabilities, the Monetary Board may:

(1) limit or prohibit the making of newloans or investments by the trust corporationconcerned;

(2) prohibit the declaration of cashdividends; and/or

(3) impose such other sanctions, as itmay deem necessary. The board of directorsof such trust corporation shall be notifiedof such chronic reserve deficiency and thepenalties therefor, and shall be required toimmediately correct the reserve position ofthe trust corporation.

As used in this Section, the followingterms shall have the following meanings:

Chronic reserve deficiency shall meanhaving net reserve deficiency for two (2)consecutive weeks.

New loan and new investment shallrefer to any loan and any investmentinvolving disbursement of funds.



§§ 4905N.8 - 4906N.211.12.31

c. Fines on legal reserve deficiencies ondeposit substitute liabilities shall be paid bythe trust corporation in accordance withSubsec. 4939N: Provided, That where thecredit balance of the trust corporation’sdemand deposit account (DDA) with theBSP is insufficient and it fails to settle theassessment within fifteen (15) days fromreceipt, the Monetary Board may limit orprohibit the making of new loans orinvestments by the trust corporation.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4405Q.8)

§ 4905N.9 Report of compliance. Everytrust corporation shall make a weekly reportto the BSP of its daily required and availablereserves TOFA-Others, to be submitted notlater than the close of the third business dayfollowing the reference week.(As amended by Circular No. 710 dated 19 January 2011)(Equivalent of Section 4405Q.9)

Sec. 4906N Incorporators, Directors,Officers and Management(Circular No. 710 dated 19 January 2011)


§ 4906N.1 Incorporators. Theincorporators/subscribers and proposeddirectors and officers must be persons ofintegrity and of good credit reputation in thebusiness community. The subscribers musthave adequate and legitimate financialcapacity to pay for their proposedsubscriptions in the trust corporation.

The incorporators/subscribers andproposed directors and officers must nothave been convicted of any crime involvingmoral turpitude, and unless otherwiseallowed under the provisions of existinglaws, are not officers or employees of agovernment agency, instrumentality,department or office charged with thesupervision of, or the granting of credit totrust entities.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4406Q.1)

§ 4906N.2 Limits on the number of themembers of the board of directors. Thenumber of members of the board of directorsof the trust corporation shall not be lessthan five (5) nor more than fifteen (15), atleast two of whom are independentdirectors, as defined under Subsec 4141Q.1as follows:

a. Is not or has not been an officer oremployee of the trust corporation, itssubsidiaries or affiliates or related interestsduring the past three (3) years counted fromthe date of his election;

b. Is not a director or officer of the relatedcompanies of the trust corporation’smajority stockholder;

c. Is not a majority stockholder orsubstantial shareholder of the trustcorporation, any of its related companies,or of its majority shareholder;

d. Is not a relative within the fourthdegree of consanguinity or affinity, legitimateor common-law of any director, officer ormajority shareholder of the trust corporation,or any of its related companies;

e. Is not acting as a nominee orrepresentative of any director or majoritystockholder or substantial shareholder of thetrust corporation, or any of its relatedcompanies or majority stockholder orsubstantial shareholder; and

f. Is free from any business or otherrelationship with the trust corporation orany of its major stockholders which couldmaterially interfere with the exercise of hisjudgment, i.e., has not engaged and doesnot engage in any transaction with theinstitution, any of its related companies orany of its substantial shareholders,whether by himself or with other personsor through a firm of which he is a partneror a company of which he is a director orsubstantial shareholder, other thantransactions which are conducted at armslength and could not materially interfereor influence with the exercise of hisjudgment.



§§ 4906N.2 - 4906N.311.12.31

An independent director of a trustcorporation can be elected as anindependent director of its:

(a) parent or holding company;(b) subsidiary or affiliate;(c) substantial shareholder; or(d) other related companies, or vice-

versa: Provided, That he is not a substantialshareholder of any of the said concernedentities.

The biographical data of the independentdirector shall be accompanied by acertification under oath that the above criteriahave been complied with.

Non-Filipino citizens may becomemembers of the board of directors of a trustcorporation to the extent of the foreignparticipation in the equity of said trustcorporation: Provided, That pursuant toSection 23 of the Corporation Code of thePhilippines (Batas Pambansa Blg. 68), amajority of the directors must be residentsof the Philippines.(Circular No. 710 dated 19 January 2011)


§ 4906N.3 Qualifications of directors,officers and staff

A director shall have the followingminimum qualifications:

a. He shall be at least twenty-five (25)years of age at the time of his election orappointment;

b. He shall be at least a college graduateor have at least five (5) years experience inbusiness;

c. He must have attended a specialseminar on corporate governance for boardof directors conducted by an entity dulyaccredited by the BSP;

d. He must be fit and proper for theposition of a director of the trust corporation.In determining whether a person is fit andproper for the position of a director, thefollowing matters must be considered:

i. integrity/probity;

ii. competence;iii. education;iv. diligence; andv. experience/training; ande. He shall have at least one (1) year of

actual experience on trust, other fiduciarybusiness and investment managementactivities or shall have passed the trainingprogram on said business/activitiesconducted or accredited by the BSP;

The foregoing qualifications fordirectors shall be in addition to thoserequired or prescribed under R. A. No.8791, the Corporation Code of thePhilippines (Batas Pambansa Blg. 68) andother exist ing applicable laws andregulations.

Officers shall include the president/trust officer, chief executive officer, chiefoperating officer, senior vice president,vice-president, general manager, treasurer,secretary, and others mentioned as officersof the trust corporation, or those whoseduties as such are defined in the by-laws,or are generally known to be the officers ofthe trust corporation (or any of its branchesand offices other than the head office) eitherthrough announcement, representation,publication or any kind of communicationmade by the trust corporation: Provided,That a person holding the position ofchairman or vice chairman of the Board oranother position in the board shall not beconsidered as an officer unless the dutiesof his position in the board include functionsof management such as those ordinarilyperformed by regular officers.

An officer shall have the followingminimum qualifications:

a. He shall be at least twenty-one (21)years of age;

b. He shall be at least a collegegraduate; and

c. He must be fit and proper for theposition he is being proposed/appointed to.In determining whether a person is fit and



§§ 4906N.3 - 4906N.411.12.31

proper for a particular position, thefollowing matters must be considered:

i. integrity/probity;ii. competence;iii. education;iv. diligence; andv. experience/trainingProvided, That the president/trust officer

who shall be appointed shall also have thefollowing:

i. At least five (5) years of actualexperience in trust, other fiduciary andinvestment management operations; or

ii. At least five (5) years of actualexperience as officer of a bank, NBFI orrelated field; and passed the trainingprogram in trust, other fiduciary andinvestment management operationsacceptable to the BSP.

Provided, further, That officers of thetrust corporation with position of SeniorVice President and up, except for thepresident/trust officer, shall at least possessthe requirement in (ii) as provided above.

The foregoing qualifications for officersshall be in addition to those required orprescribed under R. A. No. 8791, theCorporation Code of the Philippines (BatasPambansa Blg. 68) and other existingapplicable laws and regulations.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4406Q.3)

§ 4906N.4 Responsibilities ofadministration

a. Board of Directors. As a generalpolicy, the board of directors shall bedirectly responsible for the properadministration and management of theinstitution’s trust, other fiduciary businessand investment management activities. It hasthe ultimate responsibility for understandingthe nature and level of risks taken by thetrust corporation. It shall recognize itsresponsibility to provide proper oversight

of the risk management process for fiduciaryactivities, and the official records of theboard of directors shall clearly reflect theproper discharge of that responsibility.Funds and properties held in trust or in anyfiduciary capacity shall be administeredwith the skill, care, prudence and diligencenecessary under the circumstances thenprevailing that a prudent man, acting in likecapacity and familiar with such matters,would exercise in the conduct of anenterprise of like character and with similaraims.

Aside from the powers/responsibilitiesand duties prescribed under Subsecs.4141Q.3, and 4906N.4.a. and 4906N.4.b,the responsibilities of the board of directorsshall include, but need not be limited, tothe following:

(1) It shall establish strategic direction,ethical culture and risk tolerance standardsfor its fiduciary activities. In carrying outthese responsibilities, the board of directorsshall approve policies and procedures thatset operational standards, and risk principlesand limits. These policies shall be consistentwith the trust corporation’s broader businessstrategies, capital strength, managementexpertise and overall willingness to take risk.There should be well-designed monitoringsystems that will allow the board ofdirectors to hold related committees andofficers accountable for operating withinestablished tolerances;

(2) It shall take steps to clearlyunderstand the various types of risksassociated with trust, other fiduciary andinvestment management services andproducts offered and administered and toensure that a reporting system that identifiesand quantifies the risks in terms that aremeaningful to the board of directors isdeveloped and implemented;

(3) It shall ensure that resources aredevoted to implement a sound risk



management system;(4) It shall ensure that independent risk

management function, and complianceprogram are in place;

(5) It shall establish appropriateorganizational structure with delineationsof authority, responsibility andaccountability through all levels of theorganization;

(6) It shall establish an appropriatestaffing pattern and adopt operating budgetsthat shall enable the trust corporation toeffectively carry out its functions. It shalllikewise ensure that relevant training iscontinuously provided to the board ofdirectors, president/trust officer, subordinateofficers and staff, in the administration andoperation, and risk management of allphases of trust, other fiduciary business andinvestment management activities, as wellas assign competent staff for the internalaudit, risk management, and compliancefunctions;

(7) It shall develop and implementadequate policies, procedures and practicesrelevant to trust, other fiduciary business andinvestment management activities thattranslate its objectives and risk tolerancesinto operating standards and are wellunderstood by concerned personnel andconsistent with its intent;

(8) It shall ensure that policies andprocedures consistently address the materialareas of risks and are periodically reviewed,and modified when necessary, to remainappropriate, sound and responsive tosignificant changes in the trust corporation’sactivities;

(9) It shall establish and maintain aneffective system of controls, includingenforcement of official lines of authority, andappropriate separation of duties;

(10) It shall ensure that all appropriateapprovals are obtained and adequateoperation procedures and risk controlsystems are in place;

(11) It shall keep each member of theboard informed of the developments ontrust, other fiduciary business andinvestment management activities, includingpertinent products and services, laws, rulesand regulations. Members shall attendrelevant training and seminar for thispurpose; and

(12) It shall oversee the implementationand maintenance of managementinformation and other systems to identify,measure, monitor and control risks attachedto the fiduciary activities of the trustcorporation.

For this purpose, the board of directorsshall meet periodically on a monthly basisor at least a minimum of nine (9) meetingsin a calendar year, keep minutes of itsactions, and make periodic reports thereon.Up to twenty-five percent (25%) of theactual meetings of the board of directors fora year may be conducted through moderntechnologies such as, but not limited to,teleconferencing and videoconferencing, aslong as majority of the directors arephysically present and the director(s) whois (are) taking part in the said meetingsthrough said modern technologies canactively participate in the deliberations onmatters taken up therein.

The board of directors shall designatethe president as trust officer of the trustcorporation.

Constitution of prescribed committees.In addition to the audit, corporategovernance and risk managementcommittees prescribed to be constitutedunder Subsection 4141Q.3.c.(9), the boardof directors shall constitute a committeewhich shall be primarily responsible for theproper administration of the trustcorporation’s allowable proprietary assetsand liabilities.

b. Specific duties and responsibilities ofa director.

(1) To conduct fair business transactions

§§ 4906N.411.12.31



with the trust corporation and to ensure thatpersonal interest does not bias boarddecisions. A director should, wheneverpossible, avoid situations that would giverise to a conflict of interest. If transactionswith the institution cannot be avoided, itshould be done in the regular course ofbusiness and upon terms not less favorableto the institution than those offered to others.The basic principle to be observed is that adirector should not use his position to makeprofit or to acquire benefit or advantage forhimself and/or his related interests. Heshould avoid situations that wouldcompromise his impartiality.

(2) To act honestly and in good faith, withundivided loyalty, utmost care and in thebest interest of the trustors, principals andbeneficiaries. A director must always act ingood faith, with the care which an ordinarilyprudent man would exercise under similarcircumstances. A director must administertrust, other fiduciary and investmentmanagement affairs by placing interests oftrustors, principals and beneficiaries abovethose of the trust corporation.

(3) To devote time and attentionnecessary to properly discharge his dutiesand responsibilities. A director shoulddevote sufficient time to familiarize himselfwith the institution’s business. He must beconstantly aware of the institution’scondition and be knowledgeable enough tocontribute meaningfully to the board’s work.He must attend and actively participate inboard and committee meetings, request andreview meeting materials, ask questions,and request explanations and be familiarwith audits and supervisorycommunications. If a person cannot givesufficient time and attention to the affairs ofthe institution, he should neither accept hisnomination nor run for election as memberof the board.

(4) To act judiciously. Before decidingon any matter brought before the board of

directors, every director should thoroughlyevaluate the issues, ask questions and seekclarifications when necessary.

(5) To exercise independent judgment.A director should view each problem/situation objectively. When a disagreementwith others occurs, he should carefullyevaluate the situation and state his position.He should not be afraid to take a positioneven though it might be unpopular.Corollarily, he should support plans andideas that he thinks will be beneficial to thetrustors, principals, beneficiaries, and theinstitution.

(6) To be generally informed of both thetrust corporation’s business environmentand legal and regulatory frameworkcontrolling its activities. A director shouldhave a working knowledge of the statutoryand regulatory requirements affecting theinstitution, including the content of itsarticles of incorporation and by-laws, therequirements of the Bangko Sentral andwhere applicable, the requirements of otherregulatory agencies and must exercise careto see that these are not violated. He shouldalso keep himself informed of the industrydevelopments and business trends in orderto safeguard the institution’scompetitiveness.

(7) To observe confidentiality. A directormust observe the confidentiality ofnon-public information acquired by reasonof his position as director. He may notdisclose said information to any other personwithout the authority of the board.

Every member of the board shallparticipate in at least seventy-five percent(75%) of all board meetings every year:Provided, That in the case of a director whois unable to physically attend or participatein board meetings via teleconferencing orvideoconferencing, the Corporate Secretaryshall execute a notarized certificationattesting that said director was given theagenda materials prior to the meeting and

§§ 4906N.411.12.31



that his/her comments/decisions thereonwere submitted for deliberation/discussionand were taken up in the actual boardmeeting and that the submission of saidcertification shall be considered compliancewith the required seventy-five percent (75%)minimum attendance in board meetings.

c) Appointment and responsibilities ofa president/trust officer. As maybe providedin the by-laws or delegated and decided bythe board of directors, the president/trustofficer shall have general supervision anddirection of the business affairs of the trustcorporation, particularly those relevant to trust,other fiduciary and investment managementmatters under the following areas:

(a) The administration of trust, otherfiduciary and IMA;

(b) The implementation of policies andinstructions of the board of directors;

(c) The submission of reports on matterswhich require the attention of the board ofdirectors;

(d) The maintenance of adequate books,records and files for each trust, otherfiduciary and investment managementaccount; and

(e) The maintenance of necessary controlsand measures to protect assets under hiscustody and held in trust, other fiduciary andinvestment management capacity.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4406Q.4)

§§ 4906N.5 – 4906N.8 (Reserved)

§ 4906N.9 Outsourcing services. Trustcorporations are covered by the requirementof prior Bangko Sentral approval foroutsourcing services under Appendix Q-37.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4406Q.4)

§ 4906N.10 Approval/Confirmation ofthe election/appointment of directors,president/trust officer and officers. Theappointment/election of the Board of

directors, chief executive officer, chiefoperating officer, senior vice presidents orequivalent rank shall be subject to theconfirmation of the Monetary Board.

If the Monetary Board finds grounds fordisqualification, the director/officer soelected/appointed may be removed fromoffice even if he/she has assumed theposition to which he/she was elected.

The appointment/designation of thepresident/trust officer shall require priorapproval of the Monetary Board. The bio-data of the proposed president/trust officershall be submitted to the appropriatedepartment of the SES.

The documentary requirements on theapproval of the appointment of trust officersare listed in App. Q-57a.(Circular No. 710 dated 19 January 2011 as amended by CL-

2011-045 dated 01 July 2011)


§4906N.11 Appointment of acompliance officer and a risk officer. Thetrust corporation shall appoint a complianceofficer, and a risk officer who are bothindependent from the backroom and frontoffice trust operations and shallindependently report to the board ofdirectors or to their respective designatedboard level committees. The provisionsrelevant to the performance andappointment/designation of the complianceofficer as provided under Subsec. 4180Q.2shall apply.(Circular No. 710 dated 19 January 2011)

§ 4906N.12 Prohibitions to becomeofficer. No appointive or elective publicofficial, whether full-time or part-time, shallat the same time serve as officer of the trustcorporation.(Circular No. 710 dated 19 January 2011)

§4906N.13 Disqualification ofdirectors and officers. Grounds fordisqualification of directors and officers as

§§ 4906N.4 - 4906N.1311.12.31



enumerated under Subsecs. 4143Q.1 and4143Q.2 shall also include the following:

a. Non-possession of experience andtraining qualifications;

b. Negligence in the performance of theduties and responsibilities stipulated in thecontract creating the trust, other fiduciaryand IMA and which directly or indirectlycaused material loss/impairment of themanaged trust, other fiduciary andinvestment management assets;

c. Entering into an arrangement or schemewhich will compromise or prejudice theinterest, rights and privileges of the trustor,principal and/or beneficiaries; and

d. Other grounds as may be approvedby the Monetary Board.

The foregoing grounds fordisqualification for directors shall be inaddition to those prescribed under theCorporation Code of the Philippines (BatasPambansa Blg. 68) and other existingapplicable laws and regulations.(Circular No. 710 dated 19 January 2011)

§ 4906N.14 Watchlisting of directorsand officers. The watchlisting of directorsand officers, as defined under Subsec.4143Q.5 shall apply.(Circular No. 710 dated 19 January 2011)

§ 4906N.15 Interlocking directorship/officership.

a. Interlocking directorship between atrust corporation and another FI shall beallowed except with investment houses.

b. No interlocking directorship andofficership, and interlocking officership andsecondments, shall be allowed betweentrust corporations and between a trustcorporation and any FI except, with priorapproval of the Monetary Board, onconcurrent officership position in the samecapacity which do not involve managementfunctions such as internal auditor, corporatesecretary, assistant corporate secretary, and

security officer, within a group. For thispurpose, secondment shall refer to thetransfer/detachment of a person from hisregular organization for temporaryassignment elsewhere where the secondedemployee remains the employee of thehome employer although his salaries andother remuneration may be borne by thehost organization.(Circular No. 710 dated 19 January 2011)

Sec. 4907N Non-Trust, Non-Fiduciary and/or Non-Investment Management ActivitiesThe basic characteristic of trust, otherfiduciary and investment managementrelationship is the absolute non-existenceof a debtor-creditor relationship, thus, thereis no obligation on the part of the trustee,fiduciary or investment manager toguarantee returns on the funds orproperties regardless of the results of theinvestment. The trustee, fiduciary orinvestment manager is entitled to fees/commissions which shall be stipulatedand fixed in the contract or indenture andthe trustor or principal is entitled to allthe funds or properties and earnings lessfees/commissions, losses and othercharges. Any agreement/arrangement thatdoes not conform to these shall not beconsidered as trust, other fiduciary orinvestment management relationship.

The following shall not constitute a trust,other fiduciary and/or investmentmanagement relationship:

a. When there is a preponderance ofpurpose or of intent that the arrangementcreates or establishes a relationship otherthan a trust, fiduciary and/or investmentmanagement;

b. When the agreement or contract isitself used as a certificate of indebtednessin exchange for money placement fromclients and/or as the medium for confirmingplacements and investment thereof;

c. When the agreement or contract of

§§ 4906N.13 - 4907N11.12.31



an account is accepted under thesignature(s) of those other than the trustofficer or subordinate officer of the trustcorporation or those authorized by the boardof directors to represent the trust officer;

d. Where there is a fixed rate or guarantyof interest, income or return in favor of itsclient or beneficiary: Provided, however,That where funds are placed in fixedincome-generating investments, a quotationof income expectation or like terms, shallneither be considered as arrangements witha fixed rate nor a guaranty of interest, incomeor return when the agreement or indenturecategorically states in bold letters that thequoted income expectation or like terms isneither assured nor guaranteed by thetrustee or fiduciary and it does not,therefore, entitle the client to a fixed interestor return on his investments: Provided,further, That any of the following practicesor practices similar and/or tantamountthereto shall be construed as fixing orguaranteeing the rate of interest, income orreturn:

(1) Issuance of certificates, sideagreements, letters of undertaking, or othersimilar documents providing for fixed ratesor guaranteeing interest, income or return;

(2) Paying trust earnings based onindicated or expected yield regardless of theactual investment results;

(3) Increasing or reducing fees in orderto meet a quoted or expected yield; and

(4) Entering into any arrangement,scheme or practice which results in thepayment of fixed rates or yield on trustinvestments or in the payment of theindicated or expected yield regardless of theactual investment results; and

e. Where the risk or responsibility isexclusively with the trustee, fiduciary orinvestment manager in case of loss in theinvestment of trust, fiduciary or investmentmanagement funds, when such loss is notdue to the failure of the trustee or fiduciary

to exercise the skill, care, prudence anddiligence required by law.(Circular No. 710 dated 19 January 2011)


Sec. 4908N Unsafe and Unsound PracticesWhether a particular activity may beconsidered as conducting business in anunsafe or unsound manner, all relevant factsmust be considered. An analysis of theimpact thereof on the trust corporation’s/operations and financial conditions must beundertaken, including evaluation of capitalposition, asset condition, management,earnings posture and liquidity position.

In determining whether a particular actor omission, which is not otherwiseprohibited by any law, rule or regulationaffecting trust corporations, may be deemedas conducting business in an unsafe orunsound manner, the Monetary Board,upon report of the head of the SES based onfindings in an examination or a complaint,shall consider any of the followingcircumstances:

a. The act or omission has resulted ormay result in material loss or damage, orabnormal risk or danger to the safety,stability, liquidity or solvency of the trustcorporation;

b. The act or omission has resulted ormay result in material loss or damage orabnormal risk to the trust corporation’sdepositors, creditors, investors,stockholders, or to the BSP, or to the publicin general;

c. The act or omission has caused anyundue injury, or has given unwarrantedbenefits, advantage or preference to the trustcorporation or any party in the dischargeby the director or officer of his duties andresponsibilities through manifest partiality,evident bad faith or gross inexcusablenegligence; or

d. The act or omission involves enteringinto any contract or transaction manifestly

§§ 4907N - 4908N11.12.31



and grossly disadvantageous to the trustcorporation, whether or not the director orofficer profited or will profit thereby.

The list of activities which may beconsidered unsafe and unsound is shownin Appendix Q - 24.

In line with the statement of principlesgoverning trust and other fiduciary businessunder Subsec. 4901N.1, the trustee,fiduciary or investment manager shall desistfrom the following unsound practices:

a. Entering in an arrangement wherebythe client is at the same time the borrowerof his own fund placement, or whereby thetrustor or principal is a borrower of othertrust, fiduciary or investment managementfunds belonging to the same family orbusiness group of such trustor or principal;

b. Granting loans or accommodationsto any trust committee member, officer andemployee of the trust corporation exceptwhere such loans are obtained by saidpersons as members of an employee benefitfund of the trustee’s own institution;

c. Borrowing from, or selling trust,other fiduciary and/or investmentmanagement assets to, the trust corporationor IH proper to cover portfolio losses and/or to guarantee the return of principal orincome;

d. Granting new loans to any borrowerwho has a past due and/or classified loanaccount with the trust corporation; and

e. Requiring clients to sign documentsin blank.(Circular No. 710 dated 19 January 2011)


§§ 4908N.1 – 4908N.8 (Reserved)

§ 4908N.9 Sanctions. The MonetaryBoard may, at its discretion and based onthe seriousness and materiality of the actsor omissions, impose any or all of thefollowing sanctions provided under Section37 of R.A. No. 7653 and Section 56 of R.A.

No. 8791, whenever a trust corporationconducts business in an unsafe and unsoundmanner:

a. Issue an order requiring the trustcorporation to cease and desist fromconducting business in an unsafe andunsound manner and may further order thatimmediate action be taken to correct theconditions resulting from such unsafe orunsound practice;

b. Fines in amounts as may bedetermined by the Monetary Board to beappropriate, but in no case to exceedP30,000 a day on a per transaction basistaking into consideration the attendantcircumstances, such as the gravity of the actor omission and the size of the trustcorporation, to be imposed on the trustcorporation, their directors and/orresponsible officers;

c. Suspension of lending operations orauthority to accept new trust accounts or tomake new investments;

d. Suspension of responsible directorsand/or officers;

e. Revocation of trust authority; and/orf. Receivership and liquidation under

Section 30 of R.A. No. 7653.All other provisions of Sections 30 and

37 of R.A. No. 7653, whenever appropriate,shall also be applicable on the conduct ofbusiness in an unsafe or unsound manner.

The imposition of the above sanctionsis without prejudice to the filing ofappropriate criminal charges againstculpable persons as provided in Sections 34,35 and 36 of R.A. No. 7653.(Circular No. 710 dated 19 January 2011)


Sec. 4909N Trust and Other FiduciaryBusiness. The conduct of trust and otherfiduciary business shall be subject to thefollowing regulations.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4409Q)

§§ 4908N - 4909N11.12.31



§ 4909N.1 Minimum documentaryrequirements. Each trust or fiduciary accountshall be covered by a written documentestablishing such account, as follows:

a. In the case of accounts created by anorder of the court or other competentauthority, the written order of said court orauthority.

b. In the case of accounts created bycorporations, business firms, organizationsor institutions, the voluntary writtenagreement or indenture entered into by theparties, accompanied by a copy of the boardresolution or other evidence authorizing theestablishment of, and designating thesignatories to, the trust or other fiduciaryaccount.

c. In the case of accounts created byindividuals, the voluntary written agreementor indenture entered into by the parties.

The voluntary written agreement orindenture shall include the followingminimum provisions:

(1) Title or nature of contractualagreement in noticeable print;

(2) Legal capacities, in noticeable print,of parties sought to be covered;

(3) Purposes and objectives;(4) Funds and/or properties subject of

the arrangement;(5) Distribution of the funds and/or

properties;(6) Duties and powers of trustee or

fiduciary;(7) Liabilities of the trustee or fiduciary;(8) Reports to the client;(9) Termination of contractual

arrangement and, in appropriate cases,provision for successor-trustee or fiduciary;

(10) The amount or rate of thecompensation of trustee or fiduciary;

(11) A statement in noticeable print tothe effect that trust and other fiduciarybusiness are not covered by the PDIC andthat losses, if any, shall be for the accountof the client; and

(12) Disclosure requirements fortransactions requiring prior authority and/or specific written investment directive fromthe client, court of competent jurisdictionor other competent authority.(Circular No. 710 dated 19 January 2011)


§ 4909N.2 Lending and investmentdisposition. Assets received in trust or inother fiduciary capacity shall beadministered in accordance with the termsof the instrument creating the trust or otherfiduciary relationship.

When a trustee or fiduciary is granteddiscretionary powers in the investmentdisposition of trust or other fiduciary fundsand unless otherwise specificallyenumerated in the agreement or indentureand directed in writing by the client, courtof competent jurisdiction or othercompetent authority, loans and investmentsof the fund shall be limited to:

a. Evidences of indebtedness of theRepublic of the Philippines and of the BSP,and any other evidences of indebtedness orobligations the servicing and repayment ofwhich are fully guaranteed by the Republicof the Philippines or loans against suchgovernment securities;

b. Loans fully guaranteed by theRepublic of the Philippines as to thepayment of principal and interest;

c. Loans fully secured by a hold-out on,assignment or pledge of deposit substitutesof the institution or deposits with otherbanks, or mortgage and chattel mortgagebonds issued by the trustee or fiduciary;

d. Loans fully secured by real estate orchattels in accordance with Section 78 ofR.A. No. 337, as amended, and subject tothe requirements of Sections 75, 76 and 77of R.A. No. 337, as amended; and

e. Investment in the BSP special depositaccount (SDA) facility made in accordancewith the guidelines in Appendix Q-46.

§§ 4909N.1 - 4909N.211.12.31



The specific directives required underthis Subsection shall consist of the followinginformation:

(1) The transaction to be entered into;(2) The borrower’s name;(3) Amount involved; and(4) Collateral security(ies), if any.

(Circular No. 710 dated 19 January 2011)


§ 4909N.3 Transactions requiringprior authority. A trustee or fiduciary shallnot undertake any of the followingtransactions for the account of a client,unless prior to its execution, suchtransaction has been fully disclosed andspecifically authorized in writing by theclient, beneficiary, other party-in-interest,court of competent jurisdiction or othercompetent authority:

a. Lend, sell, transfer or assign moneyor property to any of the departments,directors, officers, stockholders oremployees of the trustee or fiduciary, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterests of such directors, officers andstockholders; or to any corporation wherethe trustee or fiduciary owns at least fiftypercent (50%) of the subscribed capital orvoting stock in its own right and not astrustee nor in a representative capacity;

b. Purchase or acquire property or debtinstruments from any of the departments,directors, officers, stockholders, oremployees of the trustee or fiduciary, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterest of such directors, officers andstockholders; or from any corporationwhere the trustee or fiduciary owns at leastfifty percent (50%) of the subscribed capitalor voting stock in its own right and not astrustee nor in a representative capacity;

c. Invest in equities of, or in securitiesunderwritten by, the trustee or fiduciary or

a corporation in which the trustee orfiduciary owns at least fifty percent (50%)of the subscribed capital or voting stock inits own right and not as trustee nor in arepresentative capacity; and

d. Sell, transfer, assign, or lend moneyor property from one trust or fiduciaryaccount to another trust or fiduciary accountexcept where the investment is in any ofthose enumerated in Items “a” to “d” ofSubsec. 4909N.2.

Directors, officers, stockholders, andtheir related interest covered by thisSubsection shall be those considered assuch under existing regulations on loans toDOSRI in Part III-E of the Q regulations ofthis Manual. The procedural and reportorialrequirements in said regulations shall alsoapply.

The disclosure required under thisSubsection shall consist of the followingminimum information:

(1) The transactions to be entered into;(2) Identities of the parties involved in

the transactions and their relationships (shallnot apply to Item “d” of this Subsection);

(3) Amount involved; and(4) Collateral security(ies), if any.The above information shall be made

known to clients in a separate instrumentor in the very instrument creating the trustor fiduciary relationship.(Circular No. 710 dated 19 January 2011)


§ 4909N.4 Ceilings on loans. In casea trust corporation is a subsidiary oraffiliate of a bank and/or QB, the assetsunder management of the trustcorporation shall not form part of therelevant exposures of the parent bank and/or QB for purposes of calculating theSingle Borrower’s Limit (SBL) and theceilings for accommodations to DOSRI ofthe said parent bank and/or QB.

The purchases by the trust corporation,

§§ 4909N.2 - 4909N.411.12.31



in behalf of its clients, of securities orinstruments issued by its parent bank and/or QB shall not form part of the relevantexposures of the trust corporation forpurposes of calculating the SBL andDOSRI ceil ings of the said trustcorporation.(Circular No. 710 dated 19 January 2011)


§ 4909N.5 Funds awaiting investmentor distribution. Funds held by the trusteeor fiduciary awaiting investment ordistribution shall not be held uninvested orundistributed any longer than is reasonablefor the proper management of the account.(Circular No. 710 dated 19 January 2011)


§ 4909N.6 Other applicableregulations on loans and investments –trust and other fiduciary accounts. Theloans and investments of trust and otherfiduciary accounts shall be subject topertinent laws, rules and regulations for trustcorporations that shall include, but need notbe limited to, the following:

a. Requirements of Sections 39 and 40of R.A. No. 8791 (The General BankingLaw of 2000);

b. Provisions of Section 4(e) of the NewRules on Registration of Short-TermCommercial Papers and Section 7(f) of theNew Rules on the Registration of Long-TermCommercial Papers issued by the SEC(Appendices Q-7 and Q-8).

c. Criteria for past due accounts; andd. Qualitative appraisal of loans,

investments and other assets that mayrequire provisions for probable losses whichshall be booked in accordance with theFinancial Reporting Package for TrustInstitutions (FRPTI);

e. Requirements of Sections 3 and 8 ofthe Securities and Regulation Code (SRC); and

f. Provisions of Section 44 – Investmentsby Philippine residents – of the BSP Manualof Regulations on Foreign ExchangeTransactions (FX Manual), such that thecross-currency investments of peso trust andother fiduciary accounts, including peso unitinvestment trust (UIT) funds, shall be subjectto the following conditions:

(1) All cash flows of the trustee orfiduciary shall only be in pesos. In case theforeign exchange acquired or received bythe trustee or fiduciary as dividends/earningsor divestment proceeds on such investmentare intended for reinvestment abroad, thesame proceeds are not required to beinwardly remitted and sold for pesosthrough authorized agent banks: Provided,That such proceeds are reinvested abroadwithin two (2) banking days from receipt ofthe funds abroad;

(2) The trustee or fiduciary shallpurchase, invest, reinvest, sell, transfer ordispose foreign currency-denominatedfinancial instruments, including securitiesas defined in Section 3 of the SRC, througha distr ibutor or underwriter dulyauthorized or licensed by the governmentof the issuer of such instruments, or acounterparty FI (sel ler or buyer)accredited by the trustee or fiduciary:Provided, That, the conduct,documentation, and settlement of any ofthese transactions shall be outsidePhilippine jurisdiction;

(3) The trustee of fiduciary shall recordcross-currency investment transactions inthe peso regular books at their foreigncurrency amounts and their local currencyequivalent using the Philippine DealingSystem peso/US dollar closing rate and theNew York US dollar/third currencies closingrate; and

(4) The trustee or fiduciary shall complywith the reportorial requirements that maybe prescribed by the BSP, which shallinclude as a minimum, the foreign currency

§§ 4909N.4 - 4909N.611.12.31



amount and the local currency equivalentof the total cross currency investments withdetails on: (a) type of investments; and (b)amount of cash flow converted.

For purposes of this Subsection,“resident”, as defined under Section 1 of theFX Manual, shall refer to the (a) trustee orfiduciary that administers the assets receivedin trust or in other fiduciary capacity; or (b)principal that engages the services of theinvestment manager under an investmentmanagement agreement.(Circular No. 710 dated 19 January 2011)


§ 4909N.7 Operating and accountingmethodology. Trust and other fiduciaryaccounts shall be operated and accountedfor in accordance with the following:

a. The trustee or fiduciary shalladminister, hold or manage the fund orproperty in accordance with the instrumentcreating the trust or other fiduciaryrelationship; and

b. Funds or property of each client shallbe accounted separately and distinctly fromthose of other clients herein referred to asindividual account accounting.(Circular No. 710 dated 19 January 2011)


§ 4909N.8 Tax-exempt individual trustaccounts. The following shall be thefeatures/requirements of individual trustaccounts which may be exempted from thetwenty percent (20%) final tax under Section24(B)(1) of R.A. No. 8424 (The Tax ReformAct of 1997):

a. The trust indenture/agreement shallonly be between individuals who areFilipino citizens or resident aliens and trustcorporations acting as trustee. The trustindenture/agreement shall be non-negotiableand non-transferable;

b. The trust indenture/agreement shallindicate that pursuant to Section 24(B)(1) ofR.A. No. 8424, interest income of the trust

fund derived from investments in interestbearing instruments (e.g., time deposits,government securities, loans and other debtinstruments) which are otherwise subjectto the twenty percent (20%) final tax shallbe exempt from said final tax provided thefund was held by the trustee-trustcorporation for at least five (5) years. If saidfund was held for a period less than five (5)years interest income shall be subject to afinal tax based on the following schedule –Holding Period Rate of Tax four (4) years toless than five (5) years five percent (5%)three (3) years to less than four (4) yearstwelve percent (12%) less than three (3)years twenty percent (20%).

Necessarily, the trust indenture/agreement shall clearly indicate the datewhen the trustee-bank actually receivedthe trust funds which shall serve as basisfor determining the holding period of thefunds.

c. A trustee may accept additionalfunds for inclusion in trust accountswhich have been established as tax-exempt under R.A. No. 8424. However,the receipt of additional funds shall beproperly documented by indicating thatthey are part of existing tax-exempt trustaccounts and that the interest income ofthe addit ional funds derived frominvestments in interest bearing instrumentsshall be exempt from the twenty percent(20%) final tax under the same conditionsmentioned in the preceding item. Thedocument shall also indicate the datewhen the funds were received by thetrustee-bank to serve as basis fordetermining the minimum five (5) - yearholding period for tax exemptionpurposes of the additional funds; and

d. Tax-exempt individual trust accountsestablished under this Subsec. shall besubject to the provisions of Subsecs.4909N.1(c) and 4909N.2 up to 4909N.7.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4409Q.3)

§§ 4909N.6 - 4909N.811.12.31



§ 4909N.9 Living trust accounts. Theguidelines on living trust accounts are asfollows:

a. Definition. Living Trust is definedunder the Financial Reporting Package forTrust Institutions (FRPTI), as a personal trustcreated by agreement. It becomesoperational during the lifetime of the trustoras soon as the agreement is accomplished.Under a living trust, the trustor (also knownas settlor) conveys property or a sum ofmoney to be managed by the trustee, as theagreement dictates, for the benefit of thetrustor and third person(s) or third person(s)only. However, the trustor/s cannot createa trust with himself/ themselves as the solebeneficiary/(ies). The functions andauthorities of the trustee as defined in theagreement shall include:

(1) the purpose or intention of the trust;(2) the nature and value of the property

or sum of money that comprise the trust;(3) the trustee’s investment powers;(4) the name(s) of the beneficiaries; and(5) the terms and conditions under

which the income and/or principal of thetrust is to be paid or to be disposed of duringthe lifetime and ultimately, upon the deathof the trustor or upon the occurrence of aspecified event(s). A living trust may eitherbe revocable or irrevocable.

b. Minimum criteria. In line with suchdefinition, transactions considered as livingtrust accounts should meet the followingminimum criteria:

(1) Minimum entry amount andmaintaining balance shall at least beP100,000: Provided, That living trustaccounts with balances of up to P500,000shall only be invested in deposits andgovernment securities;

(2) Living trust accounts shall bemaintained for a minimum period of six (6)months. The termination of the living trustagreement, for any cause, within theminimum holding period shall render the

trustor ineligible from opening a new livingtrust account within a period of one (1) yearfrom termination date;

(3) Reversion of any part of the principalto the trustor, except in cases providedunder the dispositive portion, shall beallowed only upon termination of the livingtrust agreement: Provided, That in no casecan there be a complete or substantialreversion of the principal pursuant to thedispositive portion within the minimumholding period nor can the principal fallbelow P100,000;

(4) Any living trust account that doesnot meet the requirement on the minimumentry and minimum maintaining balance oris not invested in qualified outlets shall beconsidered as other fiduciary accountssubject to applicable reserve and otherrequirements;

(5) Pre-printed living trust agreementsmay be allowed for expediency: ProvidedThat the sections for the trust purpose andthe dispositive provision are left blank andshall only be filled-up upon the client’ssigning thereof. The purpose shallcategorically state the real intention of thetrustor, which may include, but need notbe limited to:

(a) providing his/her and beneficiary/(ies)present and/or future financial support;

(b) protecting his/her beneficiary/(ies)against his/her inexperience in businessmatters;

(c) preventing him/her from makingimprudent expenditures;

(d) prevent the beneficiary/(ies) fromliving beyond their means in case of outrightdisposition of assets in their favor;

(e) protecting the beneficiary/(ies) againstunforeseen contingencies such asincompetency, incapacity, physicaldisability or similar misfortune; and

(f) setting aside and segregatingparticular assets, proceeds or payments foradministration and distribution pursuant to

§§ 4909N.911.12.31



a court decree or by agreement. Thedispositive provision should clearly andspecifically define the terms and conditionsunder which the principal and/or incomeshall be distributed in order to accomplishsuch purpose/(s), by taking intoconsideration the frequency of redemption;the respective interests of each beneficiary;and to whom the proceeds shall be payable.Redemption of funds shall strictly be inaccordance with the said terms andconditions; and

(6) A living trust account may be openedjointly under one (1) living trust agreementby related individuals up to the seconddegree of consanguinity or affinity: Provided,That the requirements under Item “5” aboveare fully complied with. Unrelatedindividuals or those beyond the seconddegree of consanguinity or affinity maylikewise open a joint living trust accountunder one (1) living trust agreement:Provided, That the minimum contributionof each individual is at least P100,000:Provided, further, That the trust is for acommon purpose and: Provided, finally,That the requirements under Item “5” arefully complied with.

c. Marketing. Officers and personnel ofthe institution proper, including branchmanagers, shall not be allowed to marketliving trust products and sign pre-printedliving trust agreements. However, branchmanagers/officers may be allowed to referclients to the Trust Department and giveshort introduction on the living trustproducts to prospective clients.

d. Transitory Provision. Outstandingliving trust accounts that do not meet theforegoing additional requirements shall begiven twelve (12) months from 11 April2006 to comply with the aforestatedrequirements; otherwise, such accountsshall be considered as Other FiduciaryAccounts subject to applicable reserverequirements.

e. Sanctions. Any violation of theprovisions of this Subsection shall be subjectto the sanctions provided under Section 37of R.A. No. 7653 (The New Central Bank Act).(Circular No. 710 dated 19 January 2011)


§§ 4909N.10 – 4909N.15 (Reserved)

§ 4909N.16 Qualification andaccreditation of trust corporations actingas trustee on any mortgage or bondissuance by any municipality, government-owned or controlled corporation, or anybody politic

a. Applicability. Trust corporations dulyaccredited by the BSP may act as trustee onany mortgage or bond issued by anymunicipality, GOCC, or any body politic.

b. Application for accreditation. A trustcorporation desiring to act as trustee on anymortgage or bond issued by anymunicipality, GOCC, or any body politicshall file an application for accreditationwith the appropriate department of the SES.The application shall be signed by thepresident or officer of equivalent rank of thetrust corporation and shall be accompaniedby the following documents:

(1) certified true copy of the resolutionof the institution’s board of directorsauthorizing the application;

(2) a certification signed by the presidentor officer of equivalent rank that theinstitution has complied with all thequalification requirements for accreditation.

c. Qualification requirements. A trustcorporation applying for accreditation to actas trustee on any mortgage or bond issuedby any municipality, GOCC, or any bodypolitic must comply with the requirementsin Appendix Q-31.

d. Independence of the trustee. A trustcorporation is prohibited from acting astrustee of a mortgage or bond issuance ifany elective or appointive official of the

§§ 4909N.9 - 4909N.1611.12.31



LGU, GOCC, or body politic which issuedsaid mortgage or bond and/or his relatedinterests own such number of shares of thetrust corporation that will allow him or hisrelated interests to elect at least one (1)member of the board of directors of suchtrust corporation or is directly or indirectlythe registered or beneficial owner of morethan ten percent (10%) of any class of itsequity security.

e. Investment and management of thefunds. A domestic trust corporationdesignated as trustee of a mortgage orbond issuance may hold and manage, inaccordance with the provisions of the trustindenture or agreement, the proceeds ofthe mortgage or bond issuance and suchassets and funds of the issuingmunicipality, corporation, or body politicas may be required to be delivered to thetrustee under the Trust indenture/agreement, subject to the followingconditions/restrictions:

(1) Pending the utilization of suchfunds pursuant to the provisions of thetrust indenture/agreement, the same shallonly be (i) deposited in a bank authorizedto accept deposits from the Governmentor government entities: Provided, That thedepository bank is not a subsidiary oraffiliate of the trustee trust corporation, or(ii) invested in peso-denominated treasurybil ls acquired/purchased from anysecurities dealer/entity, other than thetrustee or any of its unit/department, itssubsidiary or affiliate.

(2) Investments of funds constituting orforming part of the sinking fund created asthe primary source for the payment of theprincipal and interests due the mortgage orbonds shall also be limited to deposits inany bank authorized to accept deposits fromthe Government or government entities andinvestments in government securities thatare consistent with such purpose whichmust be acquired/purchased from any

securities dealer/entity, other than the trusteeor any of its unit/department, its subsidiaryor affiliate.

f. Waiver of confidentiality. A trustcorporation designated as trustee of anymortgage or bond issued by anymunicipality, GOCC, or any body politicshall submit to the appropriate departmentof the SES a waiver of the confidentiality ofinformation under Sections 2 and 3 of R.A.No. 1405, as amended, duly executed bythe issuer of the mortgage or bond in favorof the BSP.

g. Reportorial requirements. A trustcorporation authorized by the BSP to act astrustee of the proceeds of mortgage or bondissuance of a municipality, GOCC, or bodypolitic shall comply with reportorialrequirements that may be prescribed by theBSP.

h. Applicability of the rules andregulations on Trust, Other FiduciaryBusiness and Investment ManagementActivities. The provisions of the Rules andRegulations on Trust, Other FiduciaryBusiness and Investment ManagementActivities not inconsistent with theprovisions of this Subsection shall form partof these rules.

i. Sanctions. Without prejudice to thepenal and administrative sanctions providedfor under Sections 36 and 37, respectively,of the R.A. No. 7653, violation of anyprovision of this Subsection shall be subjectto the following sanctions/penaltiesdepending on the gravity of the offense:




(2) Second offense –(a) Fine of up to P20,000 a day for the

institution for each violation reckoned from

§§ 4909N.1611.12.31



the date the violation was committed up tothe date it was corrected;

(b) Suspension for ninety (90) dayswithout pay for directors/officersresponsible for the violation; and

(c) Revocation of the authority to act astrustees on any mortgage or bond issuanceby any municipality, GOCCs, or bodypolitic.

(3) Subsequent offense –(a) Fine of up to P30,000 a day for the

institution for each violation reckoned fromthe date the violation was committed up tothe date it was corrected;

(b) Suspension or revocation of the trustlicense;

(c) Suspension for 120 days without payof the directors/officers responsible for theviolation.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4409Q.16)

§ 4909N.17 Trust fund of pre-needcompanies. The following rules andregulations shall govern the acceptance,management and administration of the trustfunds of pre-need companies by entitiesauthorized to perform trust and otherfiduciary functions.

a. Administration of trust fund. In line withthe policy of providing greater protection topre-need planholders, prudential measuresare hereby laid out in the administration oftrust funds of pre-need companies. The trustfund, inclusive of earnings, shall beadministered and managed by the trusteewith the skill, care, prudence and diligencenecessary under the circumstances thenprevailing that a prudent man, acting in thesame capacity and familiar with suchmatters, would exercise in the conduct ofan enterprise of a like character and similaraims. The trustee shall have exclusivemanagement and control over the trust fundand the right at any time to sell, convert,invest, change, transfer or otherwisedispose of the assets comprising the funds.

b. Trustee. No trust entity shall act as atrustee or administer or hold a trust fundestablished by a pre-need company, whichis a subsidiary or affiliate, as defined underexisting BSP regulations, of such trust entity.Trust entities currently holding oradministering trust funds of an affiliate pre-need company may continue to act astrustee of such funds after the transitionperiod provided under Item “g” only uponprior approval of the Monetary Board onthe basis of a clear showing that no potentialconflict of interest will arise. An absence ofany exception or finding on conflicts ofinterest during an examination of the trustentity shall be deemed as prima facieevidence that no potential conflict of interestwill arise.

c. Investment of the trust fund. Unlessotherwise allowed under existing laws orregulations issued by the agency havingjurisdiction and supervision over pre-needcompanies, or with prior written approvalby said agency, loans and investments ofthe trust funds shall be limited to:

(1) Evidences of indebtedness of theRepublic of the Philippines and of the BSP,and any other evidences of indebtedness orobligations wherein the servicing andrepayment of which are fully guaranteed bythe Republic of the Philippines or loansagainst such government securities;

(2) Commercial papers duly registeredwith the SEC with a credit rating of one (1)for short term and “AAA” for long-term ortheir equivalent;

(3) Loans fully guaranteed by theRepublic of the Philippines, as to thepayment of principal and interest;

(4) Loans fully secured by a hold-out on,assignment or pledge of deposits maintainedwith banks, and/or of deposit substitutes orof mortgage and chattel mortgage bondsissued by the trustee/fiduciary or by banks;

(5) Loans fully secured by real estate inaccordance with Section 37 and subject tothe requirements of Sections 39 and 40 of

§§ 4909N.16 - 4909N.1711.12.31



R.A. No. 8791 and their implementingregulations;and

(6) Loans fully secured by unconditionalpayment guarantees (such as standby lettersof credit and letter of indemnity) issued bybanks/multilateral FIs.

d. Transactions with DOSRI. The trusteeshall not, for the account of the trustor orthe beneficiary of the trust, purchase oracquire property from, or sell, transfer,assign or lend money or property to, orpurchase debt instruments of, any of thedepartments, directors, officers,stockholders, employees, subsidiaries andaffiliates of the trustee and/or the trustor, andrelatives within the first degree ofconsanguinity or affinity, or the relatedinterests, of such directors, officers andstockholders, without prejudice to any rulethat may be issued by the agency havingjurisdiction and supervision over such pre-need company allowing such transactionwith the prior written approval of suchagency. Such written approval shall clearlyspecify the amount of the loan and/orinvestment including the name of theconcerned director, officer, stockholder andtheir related interests.

e. Applicability of the Rules andRegulations on Trust, Other FiduciaryBusiness and Investment ManagementActivities (Trust Rules). The provisions ofthe Trust Rules consistent with theprovisions of this Subsection shallsupplementarily apply to trust funds of pre-need companies.

f. Penalties and sanctions. Any violationof the provisions of this Subsection shall bea ground for prohibiting the concerned entityfrom accepting, managing and administeringtrust funds of pre-need companies withoutprejudice to the imposition of the applicablesanctions prescribed or allowed under theTrust Rules.

g. Transitory provisions. Institutionsperforming trust and other fiduciary

business which are presently administeringand managing trust funds of pre-needcompanies are hereby given a period of one(1) year from 25 April 2006 to comply withthe requirements hereof.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4409Q.17)

Sec. 4910N Unit Investment Trust FundsThe following rules and regulations shallgovern the creation, administration andinvestment/s of Unit Investment Trust (UIT)Funds.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4410Q)

§ 4910N.1 Definitiona. Unit Investment Trust Funds. Unit

Investment Trust Funds are open-endedpooled trust funds denominated in pesos orany acceptable currency, which areoperated and administered by a trustcorporation and made available byparticipation. As an open-ended fund,participation or redemption is allowed asoften as stated in its plan rules. UIT Fundsshall not include long term funds designedfor the primary purpose of availing the taxincentives/exemption under Section 24(B)(1)of R.A. No. 8424 (The Tax Reform Act of1997).

b. Trust entity. Any bank, IH or a stockcorporation duly authorized by theMonetary Board to engage in trust,investment management and fiduciarybusiness.

c. Board of directors. For this purpose,the term shall include a trust corporation’sduly constituted board of directors or itsfunctional oversight equivalent which shallinclude the country head in the case offoreign institutions.(Circular No. 710 dated 19 January 2011)


§ 4910N.2 Establishment of a unitinvestment trust fund. Any trust corporation

§§ 4909N.17 - 4910N.211.12.31



authorized to perform trust functions mayestablish, administer and maintain one (1)or more UIT Funds subject to applicableprovisions under this Section.(Circular No. 710 dated 19 January 2011)


§ 4910N.3 Administration of a unitinvestment trust fund. The trustee shallhave exclusive management and control ofeach UIT Fund under its administration, andthe sole right at any time to sell, convert,reinvest, exchange, transfer or otherwisechange or dispose of the assets comprisingthe fund: Provided, That no participant in aUIT Fund shall have or be deemed to haveany ownership or interest in any particularaccount or investment in the UIT Fund butshall have only its proportionate beneficialinterest in the fund as a whole.(Circular No. 710 dated 19 January 2011)


§ 4910N.4 Relationship of trustee withunit investment trust fund. A trusteeadministering a UIT Fund shall not have anyother relationship with such fund other thanits capacity as trustee of the UIT Fund:Provided, however, That a trustee whichsimultaneously administers other trust,fiduciary or investment management fundsmay invest such funds in the trustee’s UITFund, if allowed under a policy approvedby the board of directors.(Circular No. 710 dated 19 January 2011)


§ 4910N.5 Operating and accountingmethodology. A UIT Fund shall be operatedand accounted for in accordance with thefollowing:

a. The total assets and accountabilitiesof each fund shall be accounted for as asingle account referred to as pooled-fundaccounting method.

b. Contributions to each fund by clientsshall always be through participation in

units of the fund and each unit shall haveuniform rights or privileges, as any otherunit.

c. All such participations shall bepooled and invested as one (1) account(referred to as collective investments).

d. The beneficial interest of eachparticipation unit shall be determined undera unitized net asset value per unit (NAVPu)valuation methodology defined in thewritten plan of the UIT Fund, and noparticipation shall be admitted to, orredeemed from, the fund except on the basisof such valuation. To arrive at a fund’sNAVPu, the fund’s total Net Assets isdivided by the total outstanding units. TotalNet Assets is a summation of the marketvalue of each investment less fees, taxes,and other qualified expenses, as definedunder the plan rules.(Circular No. 710 dated 19 January 2011)


§ 4910N.6 Plan rules. Each UIT Fundshall be established, administered andmaintained in accordance with a writtentrust agreement drawn by the trustee,referred to as the “Plan” which shall beapproved by the board of directors of thetrustee and a copy of which shall besubmitted to the BSP for processing andapproval prior to its implementation. Eachnew UIT Fund Plan filed for approval shallbe charged a processing fee of P10,000.00.

The Plan shall contain the followingminimum elements:

a. Title of the Plan. This shallcorrespond to the product/brand name bywhich the UIT Fund is proposed to beknown and made available to its clients. ThePlan rules shall state the classification of theUIT Fund (e. g., money market fund, bondfund, balanced fund and equity fund).

b. Manner by which the fund is to beoperated. A statement of the fund’sinvestment objectives and policies includinglimitations, if any.

§§ 4910N.2 - 4910N.611.12.31



c. Risk disclosure. The Plan rules shallstate both the general risks and risks specificto the type of fund.

d. Investment powers of the trustee withrespect to the fund, including the characterand kind of investments, which may bepurchased, by the fund. There must be anunequivocal statement of the full discretionarypowers of the trustee as far as the fund’sinvestments are concerned. These powersshall be limited only by the duly statedinvestment objective and policies of the fund.

e. The unitized NAVPu valuationmethodology as prescribed under Subsec.4910N.5.d shall be employed.

f. Terms and conditions governing theadmission or redemption of units ofparticipation in the fund. The Plan rules shallstate that the trustee, prior to admission ofa client’s initial participation in the UITFund, shall conduct a client suitabilityassessment to profile the risk-returnorientation and suitability of the client tothe specific type of fund. If the frequency ofadmission or redemption is other than daily;that is, any business day, the same shouldbe explicitly stated in the Plan rules:Provided, That the admission andredemption shall be based on the end ofday NAVPu of the fund computed after thecut-off time for fund participation andredemption for that reference day, inaccordance with existing BSP regulations onmark to market valuation of investmentsecurities.

g. Aside from the regular auditrequirement applicable to all trust accounts,an external audit of each UIT Fund shall beconducted annually by an independentauditor acceptable to the BSP and the resultsthereof made available to participants. Theexternal audit shall be conducted by thesame external auditor engaged for the auditof the trust entity.

h. Basis upon which the fund may beterminated. The Plan rules shall state therights of participants in case of termination

of the fund. Termination of the fund shallbe duly approved by the trustee’s board ofdirectors and a copy of the resolutionsubmitted to the appropriate department ofthe BSP.

i. Liability clause of the trustee. Theremust be a clear and prominent statementadjacent to where a client is required to signthe participating trust agreement that:

(1) the UIT Fund is a trust product andnot a deposit account or an obligation of,or guaranteed, or insured by the trust entityor its affiliates or subsidiaries;

(2) the UIT Fund is not insured orgoverned by the PDIC;

(3) due to the nature of the investment,yields and potential yields cannot beguaranteed;

(4) any loss/income arising from marketfluctuations and price volatility of thesecurities held by the UIT Fund, even ifinvested in government securities, is for theaccount of the client/participant;

(5) as such, the units of participation ofthe investor in the UIT Fund, whenredeemed, may be worth more or be worthless than his/her initial investmentcontributions;

(6) historical performance, whenpresented, is purely for reference purposesand is not a guarantee of similar future result;and

(7) the trustee is not liable for lossesunless upon willful default, bad faith or grossnegligence.

j. Amount of fees/commission and othercharges to be deducted from the fund. Theamount of fees that shall be charged to afund shall cover the fund’s fair and equitableshare of the routine administrative expensesof the trustee such as salaries and wages,stationery and supplies, credit investigation,collateral appraisal, security, messengerialand janitorial services, EDP expenses, BSPsupervision fees and internal audit fees.However, the trustee may charge a UITFund for special expenses in case such

§§ 4910N.611.12.31



expenses are:(1) necessary to preserve or enhance the

value of the fund;(2) payable to a third party covered by a

separate contract; and(3) disclosed to participants.The trustee shall secure prior BSP

approval for outsourcing services providedunder existing regulations. No other feesshall be charged to the fund. Marketing orother promotional related expenses shall befor the account of the trustee and shall bepresumed covered by the trust fee.

k. Such other matters as may benecessary or proper to define clearly therights of participants in the UIT Fund. Theprovisions of the Plan shall governparticipation in the fund including the rightsand benefits of persons having interest insuch participation, as beneficiaries orotherwise. The Plan may be amended by aresolution of the board of directors of thetrustee: Provided, however, That participantsin the fund shall be immediately notified ofsuch amendments and shall be allowed towithdraw their participations within areasonable time but in no case less thanthirty (30) calendar days after theamendments are approved, if they are notin conformity with the amendments madethereto: Provided, further, That amendmentsto the Plan shall be submitted to the BSPwithin ten (10) business days from approvalof the amendments by the board ofdirectors. For purposes of imposingmonetary penalties provided under Subsec.4192Q.2 for delayed submission of reports,the amendments to the Plan shall beconsidered as “Category A-3” report. Theamendments shall be deemed approvedafter thirty (30) business days from date ofcompletion of requirements. A copy of thePlan shall be available at the principal officeof the trustee during regular office hours,for inspection by any person having an

interest in the fund or by his authorizedrepresentative. Upon request, a copy of thePlan shall be furnished such interested person.(Circular No. 710 dated 19 January 2011)


§ 4910N.7 Minimum disclosurerequirements

a. Disclosure of UIT Fund investments.A list of prospective and outstandinginvestment outlets shall be made availableby the trustee for the review of all UIT Fundclients. Such disclosure shall be substantiallyin the form as shown in Appendix Q-34.The list of investment outlets shall beupdated quarterly.

b. Distribution of investment units. Thetrustee may issue such conditions or rules,as may affect the distribution of investmentunits subject to the minimum conditionsenumerated hereunder.

(1) Marketing materials. All printedmarketing materials related to the sale of aUIT Fund shall clearly state:

(a) The designated name andclassification of the fund and the fund’strustee.

(b) Minimum information regarding:(i) The general investment policy and

applicable risk profile. There shall be a cleardescription/explanation of the general risksattendant with investing in a UIT Fund,including risk specific to a type of fund.Technical terms should likewise be definedin laymen’s terms1.

(ii) Particulars or administrative andmarketing details like pricing and cut-offtime.

(iii) All charges made/to be made againstthe fund, including trust fees, other relatedcharges.

(iv) The availability of the Plan rulesgoverning the fund, upon the client’srequest.

(v) Client and Product Suitability

§§ 4910N.6 - 4910N.711.12.31


1Example: "Fixed Income Securities" does not really mean a guarantee of fixed earnings of the investorsparticipation; "risk-free" government securities which may be sovereign risk free but not interest rate risk-free.


Standards. Prior to admission, the trusteeshall perform a client profiling process forall UIT Fund participants under the generalprinciples on client suitability assessmentto guide the client in choosing investmentoutlets that are best suited to his objectives,risk tolerance, preferences and experience.The profi l ing process shall , at theminimum, require the trustee to obtainclient information through the ClientSuitability Assessment (CSA) form, classifythe client according to his financialsophistication and communicate the CSAresults to the subject client. The generalprinciples on CSA shall also require thetrustee to adopt a notice mechanismwhereby clients are advised and/orreminded of the explicit requirement tonotify the trustee or its UIT Fund marketingpersonnel of any change in theircharacteristics, preferences orcircumstances to enable the trustee to updateclient’s profile at least every three (3) years.

(c) The participation is not a “depositaccount” but a trust product; and that anyloss/income is for the account of theparticipant; that the trustee is not liable forlosses unless upon willful default, bad faithor gross negligence.

(d) A balanced assessment of thepossible gains and losses of the UIT Fundand that the participation does not carry anyguaranteed rate of return, and is not insuredby the PDIC.

(e) An advisory that the investor mustread the complete details of the fund in thePlan Rules, make his/her own riskassessment, and when necessary, he/shemust seek independent/professionalopinion, before making an investment.

(2) Evidence of participation. Every UITFund participant shall be given -

(a) A participating trust agreement. Suchagreement shall clearly indicate that:

(1) the UIT Fund is a trust product andnot a deposit account or an obligation of,or guaranteed, or insured by the trust entity

or its affiliates or subsidiaries;(2) the UIT Fund is not insured or

governed by the PDIC;(3) due to the nature of the investment,

yields and potential yields cannot beguaranteed;

(4) any loss/income arising from marketfluctuations and price volatility of thesecurities held by the UIT Fund, even ifinvested in government securities, is for theaccount of the client/participant;

(5) as such, the units of participation ofthe investor in the UIT Fund, whenredeemed, may be worth more or be worthless than his/her initial investment/contributions;

(6) historical performance, whenpresented, is purely for reference purposesand is not a guarantee of similar future result;and

(7) the trustee is not liable for lossesunless upon willful default, bad faith orgross negligence.In addition to the agreement, every UIT Fundparticipant shall be provided with –

(1) CSA form to be accomplished duringthe profiling process required under thegeneral principles on CSA. This is designedto ensure that based on relevant informationabout the client, his investment profile ismatched against the investment parametersof the UIT Fund. At the minimum, clientinformation shall include personal orinstitutional data, investment objective,investment horizon, investment experience,and risk tolerance; and

(2) Risk disclosure statement, which inreference to Subsec. 4910N.6c, shalldescribe the attendant general and specificrisks that may arise from investing in theUIT Fund. Such statement shall besubstantially similar to the form in Annex Aof Appendix Q - 34a. Both documents shallbe signed by the client/participant and theUIT marketing personnel who assessed andexplained to the concerned client his/herability to bear the risks and potential losses.

§§ 4910N.711.12.31



(b) A confirmation of participation andredemption made to/from the fund that shallcontain the following information:

(i) NAVPu of the fund on day ofpurchase /redemption;

(ii) Number of units purchased/redeemed; and

(iii) Absolute peso or foreign currencyvalue.

No indicative rates of return shall beprovided in the trust participatingagreement. Marketing materials may presentrelevant historical performance purely forreference and with clear indication that pastresults do not guarantee similar futureresults.

(3) A participating trust agreement orconfirmation of contribution/redemptionneed not be manually signed by the trusteeor his authorized representative if the sameis in the form of an electronic document thatconforms with the implementing rules andregulations of R.A. No. 8792, otherwiseknown as the E-Commerce Act.

c. Regular publication/computation/availability of the fund’s NAVPu. Trustentities managing a UIT Fund shall cause atleast the weekly publication of the NAVPuof such fund in one (1) or more newspaperof national circulation: Provided, That apooled weekly publication of such NAVPushall be considered as substantialcompliance with this requirement. The saidpublication, at the minimum, shall clearlystate the name of the fund, its generalclassification, the fund’s NAVPu and themoving return on investment (ROI) of thefund on a year-to-date (YTD) and year-on-year (YOY) basis. NAVPu shall becomputed daily and shall be made availableto participants and prospective participantsupon request.

d. Marketing personnel. To ensure thecompetence and integrity of all dulydesignated UIT marketing personnel, allpersonnel involved in the sales of these

funds shall be required to undergostandardized training program inaccordance with the guidelines of thisSubsection. This training program may beconducted by their respective trustcorporations in accordance with theminimum training program guidelinesprovided by the Trust Officers Associationof the Philippines (TOAP). Such trainingprogram shall however be regularlyvalidated by TOAP.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4410Q.7)

§ 4910N.8 Exposure limit to singleperson/entity. The combined exposure ofthe UIT Fund to any entity and its relatedparties shall not exceed fifteen percent(15%) of the market value of the UIT Fund:Provided, That a UIT Fund invested, partiallyor substantially, in exchange traded equitysecurities shall be subject to the fifteenpercent (15%) exposure limit to a singleentity/issuer: Provided, further, That in thecase of an exchange traded equity securitywhich is included in an index and trackedby the UIT Fund, the exposure of the UITFund to a single entity shall be the actualbenchmark weighting of the issuer or fifteenpercent (15%), whichever is higher. Thislimitation shall not apply to non-risk assetsas defined by the BSP. In case the limit isbreached due to the marking-to-market ofcertain investment/s or any extraordinarycircumstances, e.g., abnormal redemptionswhich are beyond the control of the trustee,the trustee shall be given thirty (30) daysfrom the time the limit is breached to correctthe same.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4410Q.8)

§ 4910N.9 Allowable investments andvaluation. UITF investments shall be limitedto bank deposits and the following financialinstruments:

§§ 4910N.7 - 4910N.911.12.31



(a) Securities issued by or guaranteedby the Philippine government, or the BSP;

(b) Tradable securities issued by thegovernment of a foreign country, anypolitical subdivision of a foreign country orany supranational entity;

(c) Exchange-listed securities;(d) Marketable instruments that are

traded in an organized exchange;(e) Loans traded in an organized market;(f) Loans arising from repo agreements

which are transacted through an exchangerecognized by the SEC, subject to thecondition that the repo contracts may be pre-terminated lawfully by the trust entityadministering the UITF and acting as lender,with due notice to its counterparty and themarket operator; and

(g) Such other tradable investmentsoutlets/categories as the BSP may allow.

Provided, That the investment of the pesoUITF in tradable foreign currencydenominated financial instruments shall besubject to Items “e” and “f” of Subsec.4909N.6.

Provided, further, That a financialinstrument is regarded as tradable if quotedtwo-way prices are readily and regularlyavailable from an exchange, dealer, broker,industry group, pricing service or regulatoryagency, and those prices represent actualand regularly occurring market transactionson an arm’s length basis.

The UITF may avail itself of financialderivatives instruments solely for thepurpose of hedging risk exposures of theexisting investments of the Fund, providedthese are accounted for in accordance withexisting BSP hedging guidelines as well asthe trust entity’s risk management andhedging policies duly approved by the TrustCommittee and disclosed to participants.

The use of hedging instruments shall alsobe disclosed in the “Plan” as provided in Item“c” of Subsec. 4910N.6 and specified in thequarterly “list of investment outlets” as

provided in Item “a” of Subsec. 4910N.7.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4410Q.9)

§ 4910N.10 Other related guidelineson valuation of allowable investments

a. In pricing debt securities, interpolatedyields shall be used for securities with oddor off-the-run tenors using the straight-linebasis and generally accepted marketconvention.

b. In case outstanding UIT Fundinvestments may deteriorate in quality, i.e.,no longer tradable as defined under Subsec.4910N.9, the trustee shall immediatelyprovision to reflect fair value in accordancewith generally accepted accountingprinciples or as may be prescribed by theBSP. If no fair value is available, theinstrument shall be assumed to be of nomarket value.(Circular No. 710 dated 19 January 2011)


§ 4910N.11 Unit investment trust fundadministration support

a. Backroom operations. Administrativerules on backroom under Sec. 4921Q shallbe applicable to UIT Fund. Adequatesystems to support the daily marking-to-market of the fund’s financial instrumentsshall be in place at all times. In this respect,a daily reconcilement of the fund’s resultantmarked-to-market value with the unrealizedmarket losses and gains (respective contraasset balance) versus the book value of thefund for investments in financial instrumentsshall be done and all differences resolvedwithin the day.

b. Custody of securities. Investments insecurities of a UIT Fund shall be held forsafekeeping by BSP accredited third partycustodians which shall performindependent marking-to-market of suchsecurities.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4410Q.11)

§§ 4910N.9 - 4910N.1111.12.31



§ 4910N.12 Counterpartiesa. Dealings with related interests/parent

bank/holding company/subsidiaries/affiliates and related companies. A trusteeof a UIT Fund shall be transparent at alltimes and maintain an audit trail for alltransactions with related parties or entities.The trustee shall observe the principle ofbest execution and no purchase/sale shallbe made with related counterpartieswithout considering at least two (2)competitive quotes from other sources.

b. Accreditation of counterparties. TheFund shall only invest with approvedcounterparties qualified in accordance withthe policy duly approved by the TrustCommittee. Counterparties shall be subjectto appropriate limits in accordance withsound risk management principles.(Circular No. 710 dated 19 January 2011)


§ 4910N.13 Foreign currencydenominated unit investment trust fundsUIT Fund denominated in any acceptableforeign currency provided under existingBSP rules and regulations may beestablished. Such fund may only be investedin allowable investments denominated inpesos or any acceptable foreign currencyas expressly allowed under the fund’s Planrules and properly disclosed to fundparticipants.(Circular No. 710 dated 19 January 2011)


§ 4910N.14 Exemptions from statutoryand liquidity reserves, single borrowers limit,directors, officers, stockholders and theirrelated interest. The provisions on reserves,single borrower’s limit and DOSRI ceilingsunder Secs. 4330Q and 4331Q, respectively,applicable to trust funds in general shall notbe made applicable to UIT Funds.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4410Q.13)

Sec. 4911N Investment ManagementActivities. The conduct of investmentmanagement activities shall be subject tothe following regulations.(Circular No. 710 dated 19 January 2011)


§ 4911N.1 Minimum documentaryrequirements. An IMA shall be covered bya written document establishing suchaccount, as follows:

a. In the case of accounts created bycorporations, business firms, organizationsor institutions, the voluntary writtenagreement or indenture entered into by theparties, accompanied by a copy of the boardresolution or other evidence authorizing theestablishment of, and designating thesignatories, to the investment managementaccount.

b. In the case of accounts created byindividuals, the voluntary written agreementor indenture entered into by the parties.

The voluntary written agreement orcontract shall include the followingminimum provisions:

(1) Prenumbered contractual agreementform;

(2) Title or nature of contractualagreement in noticeable print;

(3) Legal capacities, in noticeable print,of parties sought to be covered;

(4) Purposes and objectives;(5) The initial amount of funds and/or

value of securities subject of thearrangement delivered to the investmentmanager;

(6) Statement in underlined noticeableprint that:

(a) The agreement is an agency and nota trust agreement. As such, the client shallat all times retain legal title to funds andproperties subject of the arrangement;

(b) The arrangement does not guarantya yield, return or income by the investmentmanager. As such, past performance of the

§§ 4910N.12 - 4911N.111.12.31



account is not a guaranty of futureperformance and the income of investmentscan fall as well as rise depending onprevailing market conditions; and

(c) The investment managementagreement is not covered by the PDIC andthat losses, if any, shall be for the accountof the client;

(7) Duties and powers of the investmentmanager;

(8) Liabilities of the investment manager;(9) Reports to the client;(10) The amount or rate of the

compensation of the investment manager;(11) Terms and conditions governing

withdrawals from the account;(12) Termination of contractual

arrangement; and(13) Disclosure requirements for

transactions requiring prior authority and/or specific written investment directivesfrom the client. A sample investmentmanagement agreement which conforms tothe foregoing requirements is shown asAppendix Q-14.(Circular No. 710 dated 19 January 2011)


§ 4911N.2 Minimum size of eachinvestment management account. No IMAshall be accepted or maintained for anamount less than P1.0 million. An IMAreduced to less than P1.0 million due toinvestment losses shall be exempt from thisrequirement.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4411Q.2)

§ 4911N.3 Commingling of funds. Two(2) or more individual IMAs shall not becommingled except for the purpose ofinvesting in government securities or in dulyregistered commercial papers: Provided,That the participation of each of theaforementioned accounts in thecommingled account shall not be less than

P1 million: Provided, further, That suchcommingling has been fully disclosed andspecifically agreed in writing by the clients.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4411Q.3)

§ 4911N.4 Lending and investmentdisposition. Assets received in investmentmanagement capacity shall be administeredin accordance with the terms of theinstrument creating the investmentmanagement relationship. When aninvestment manager is granted discretionarypowers in the investment disposition ofinvestment management funds and unlessotherwise specifically enumerated in theagreement or indenture and directed inwriting by the client, loans and investmentsof the fund shall be limited to:

a. Evidences of indebtedness of theRepublic of the Philippines and of the BSP,and any other evidences of indebtedness orobligations the servicing and repayment ofwhich are fully guaranteed by the Republicof the Philippines or loans against suchgovernment securities;

b. Loans fully guaranteed by theRepublic of the Philippines as to thepayment of principal and interest;

c. Loans fully secured by a hold-out on,assignment or pledge of deposit substitutesmaintained with the institution or depositswith banks, or mortgage and chattelmortgage bonds issued by the investmentmanager; and

d. Loans fully secured by real estate orchattels in accordance with Sections 37 and38 of R.A. No. 8791, and subject to therequirements of Sections 39 and 40 of R.A.No. 8791.

The specific directives required underthis Subsection shall consist of the followinginformation:

(1) The transaction to be entered into;(2) Borrower’s name;(3) Amount involved; and

§§ 4911N.1 - 4911N.411.12.31



(4) Collateral security(ies), if any. (Circular No. 710 dated 19 January 2011)(Equivalent of Section 4411Q.4)

§ 4911N.5 Transactions requiringprior authority. An investment managershall not undertake any of the followingtransactions for the account of a client,unless prior to its execution, suchtransaction has been fully disclosed andspecifically authorized in writing by theclient:

a. Lend, sell, transfer or assign moneyor property to any of the departments,directors, officers, stockholders, oremployees of the investment manager, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterests of such directors, officers andstockholders; or to any corporation wherethe investment manager owns at least fiftypercent (50%) of the subscribed capital orvoting stock in its own right and not astrustee nor in a representative capacity;

b. Purchase or acquire property or debtinstruments from any of the departments,directors, officers, stockholders, oremployees of the investment manager, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterests of such directors, officers andstockholders; or from any corporationwhere the investment manager owns at leastfifty percent (50%) of the subscribed capitalor voting stock in its own right and not astrustee nor in a representative capacity;

c. Invest in equities of or in securitiesunderwritten by the investment manager ora corporation in which the investmentmanager owns at least fifty percent (50%)of the subscribed capital or voting stock inits own right and not as trustee, nor in arepresentative capacity; and

d. Sell, transfer, assign or lend moneyor property from one trust fiduciary or IMAto another trust, fiduciary or IMA exceptwhere the investment is in any of those

enumerated in Items “a” to “d” of Subsec.4911N.4.

Directors, officers, stockholders andtheir related interests (DOSRI) covered bythis Subsection shall be those consideredas such under existing regulations on loansto DOSRI under Part III – E of the Qregulations. The procedural and reportorialrequirements in said regulations shall alsoapply.

The disclosure required under thisSubsection shall consist of the followingminimum information:

(1) The transactions to be entered into;(2) Identities of the parties involved in

the transaction and their relationships (shallnot apply to Item “d” of this Subsec.);

(3) Amount involved; and(4) Collateral security(ies), if any.The above information shall be made

known to clients in a separate instrumentor in the very instrument creating theinvestment management relationship.(Circular No. 710 dated 19 January 2011)


§ 4911N.6 Title to securities and otherproperties. Securities such as promissorynotes, shares of stocks, bonds and otherproperties of the portfolio shall be issuedor registered in the name of the principal orof the investment manager: Provided, Thatin case of the latter, the instrument shallindicate that the investment manager isacting in a representative capacity and thatthe principal’s name is disclosed thereat.(Circular No. 710 dated 19 January 2011)


§ 4911N.7 Ceilings on loans. In case atrust corporation is a subsidiary or affiliateof a bank and/or QB, the assets undermanagement of the trust corporation shallnot form part of the relevant exposures ofthe parent bank and/or QB for purposes ofcalculating the Single Borrower’s Limit (SBL)and the ceilings for accommodations to

§§ 4911N.4 - 4911N.711.12.31



DOSRI) of the said parent bank and/or QB.The purchases by the trust corporation,

in behalf of its clients, of securities orinstruments issued by its parent bank and/or QB shall not form part of the relevantexposures of the trust corporation forpurposes of calculating the SBL and DOSRIceilings of the said trust corporation.(Circular No. 710 dated 19 January 2011)


§ 4911N.8 Other applicableregulations on loans and investments –investment management account. The loansand investments of IMAs shall be subject topertinent laws, rules and regulations fortrust corporations that shall include, butneed not be limited to, the following:

a. Requirements of Sections 39 and 40of R.A. No. 8791 (The General BankingLaw of 2000);

b. Provisions of Section 4(e) of the NewRules on Registration of Short-TermCommercial Papers and Section 7(f) of theNew Rules on Registration of Long-TermCommercial Papers issued by the SEC(Appendices Q - 7 and Q - 8 );

c. Criteria for past due accounts;d. Qualitative appraisal of loans,

investments and other assets that mayrequire provision for probable losses whichshall be booked in accordance with theFRPTIs;

e. Requirements of Sections 3 and 8 ofthe SRC; and

f. Provisions of Section 44 – Investmentsby Philippine Residents – of the FX Manual,such that the cross-currency investments ofpeso IMAs, shall be subject to the followingconditions:

(1) All cash flows of the investmentmanager shall only be in pesos. In case theforeign exchange acquired or received bythe principal as dividends/earnings ordivestment proceeds on such investment areintended for reinvestment abroad, the sameproceeds are not required to be inwardly

remitted and sold for pesos throughauthorized agent banks: Provided, That suchproceeds are reinvested abroad within two(2) banking days from receipt of the fundsabroad;

(2) The investment manager shallpurchase, invest, reinvest, sell, transfer ordispose foreign currency-denominatedfinancial instruments, including securitiesas defined in Section 3 of the SRC, througha distributor or underwriter duly authorizedor licensed by the government of the issuerof such instruments, or a counterparty FI(seller or buyer) authorized in writing by theprincipal and/or accredited by theinvestment manager: Provided, That, theconduct, documentation, and settlement ofany of these transactions shall be outsidePhilippine jurisdiction;

(3) The investment manager shall recordcross-currency investment transactions inthe peso regular books at their foreigncurrency amounts and their local currencyequivalent using the Philippine DealingSystem peso/US dollar closing rate and theNew York US dollar/third currencies closingrate; and

(4) The investment manager shallcomply with the reportorial requirementsthat may be prescribed by the BSP, whichshall include as a minimum, the foreigncurrency amount and the local currencyequivalent of the total cross currencyinvestments with details on: (a) type ofinvestments; and (b) amount of cash flowconverted.

For purposes of this Subsection,“resident”, as defined under Section 1 of theFX Manual, shall refer to the principal thatengages the services of the investmentmanager under an investment managementagreement.(Circular No. 710 dated 19 January 2011)


§ 4911N.9 Operating and accountingmethodology. IMAs shall be operated and

§§ 4911N.7 - 4911N.911.12.31


accounted for in accordance with thefollowing:

a. The investment manager shalladminister, hold or manage the fund orproperty in accordance with the instrumentcreating the investment managementrelationship; and

b. Funds or property of each client shallbe accounted separately and distinctly fromthose of other clients herein referred to asindividual account accounting.(Circular No. 710 dated 19 January 2011)


§ 4911N.10 Tax-exempt individualinvestment management accounts. Thefollowing shall be the features/requirementsof IMAs of individuals which may beexempted from the twenty percent (20%)final tax under Section 24(B)(1) of R.A. No.8424 (The Tax Reform Act of 1997):

a. The investment managementagreement shall only be between individualswho are Filipino citizens or resident aliensand investment manager banks. Theagreement shall be non-negotiable and non-transferable;

b. The minimum amount of investmentfor an IMA shall be P1.0 million;

c. The investment managementagreement shall indicate that pursuant toSection 24(B)(1) of R.A. No. 8424, interestincome of the investment managementfunds derived from investments in interest-bearing instruments (e.g., time deposits,government securities, loans and other debtinstruments) which are otherwise subjectto the twenty percent (20%) final tax, shallbe exempt from said final tax provided thefunds are held under investmentmanagement by the investment manager forat least five (5) years. If said funds are heldby the investment manager for a period lessthan five (5) years, interest income shall besubject to a final tax which shall bededucted and withheld from the proceedsof the IMA based on the following

schedule–

Holding Period Rate of Tax Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12% Less than three (3) years 20%

Necessarily, the investmentmanagement agreement shall clearlyindicate the date when the investmentmanager actually received the funds whichshall serve as basis for determining theholding period of the funds;

d. The investment manager may acceptadditional funds for inclusion in IMAs whichhave been established as tax-exempt underR.A. No. 8424. However, the receipt ofadditional funds shall be properlydocumented by indicating that they are partof existing tax-exempt IMAs and that theinterest income of the additional fundsderived from investments in interest bearinginstruments shall be exempt from thetwenty percent (20%) final tax under thesame conditions mentioned in the precedingitem. The document shall also indicate thedate when the additional funds werereceived by the investment manager bankto serve as basis for determining theminimum five (5)- year holding period fortax exemption purposes of the additionalfunds; and

d. Tax-exempt individual IMAsestablished under this Subsection shall besubject to the provisions of Subsecs.4911N.1(b) and 4911N.2 up to 4911N.8.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4411Q.10)


Sec. 4913N Required Retained EarningsAppropriation. A trust corporationauthorized to engage in trust and otherfiduciary business shall, before thedeclaration of dividends, carry to retainedearnings appropriated for trust business atleast ten percent (10%) of its net profits

§§ 4911N.9 - 4913N11.12.31



NBFI cannot engage in trust, other fiduciarybusiness and investment managementactivities both directly through its separateand distinct department or other similar unitin the bank or NBFI, and indirectly througha subsidiary or affiliate trust corporation:Provided further, That a bank and/or NBFImay acquire or invest in the equity of notmore than two (2) trust corporations:Provided finally, That in the case of aninvesting bank, the acquisition or investmentin the equity of a trust corporation shall besubject to all relevant laws, rules andregulations on equity investment of banksin a financial allied enterprise and thefollowing limitations and restrictions:

1. In a single enterprise. The equityinvestment of a bank in a single trustcorporation shall be within the followingratios in relation to the total subscribedcapital stock and to the total voting stock ofthe trust corporation:

INVESTOR/INVESTING BANK UB KB TB RB Coop Bank Limit in single 100% 49% 40% 40% 40% trust corporation

Provided, That the equity investment of aUB and a KB in any single trust corporationshall not exceed, at any time, twenty-fivepercent (25%) of the net worth of theinvestor/investing bank as defined in Sec.X106 and Subsec. X121.5.

2. Aggregate limits. The total amount ofinvestments in equities in all enterprisesshall not exceed the following ratios inrelation to the net worth of the investor/investing bank:

INVESTOR/INVESTING BANK UB KB TB RB Coop Bank Aggregate Limit 50% 35% 25% 25% 25%

(Circular No. 710 dated 19 January 2011)

§ 4914N.1 Application for authority toestablish. The incorporators/directors of theproposed trust corporation shall file and

realized out of its trust, investmentmanagement and other fiduciary businesssince the last preceding dividend declarationuntil the retained earnings shall amount totwenty percent (20%) of its authorizedcapital stock and no part of such retainedearnings shall at any time be paid out individends but losses accruing in the courseof its business may be charged againstsurplus.(Circular No. 710 dated 19 January 2011)


B. INVESTMENT MANAGEMENTACTIVITIES

Sec. 4914N Authority to PerformInvestment Management

Scope of Investment ManagementActivities. A trust corporation shall be astock corporation primarily created, andduly authorized by the Monetary Board, toengage in investment management activitiesi.e., act as financial consultant, investmentadviser or portfolio manager. It shalladminister the funds or property under itscustody with the diligence that a prudentman would exercise in the conduct of anenterprise of a like character with similaraims: Provided, That the trust corporationshall not accept and administer funds orproperty of any bank and/or QB, and act astrustee, fiduciary, financial consultant,investment adviser, or portfolio manager ofsuch funds or property. It shall also beknown or referred to as a stand-alone trustcorporation.

A trust corporation may accept peso andforeign currency denominated accounts:Provided, That in the case of foreigncurrency denominated accounts, all relevantlaws, rules and regulations issued by localregulatory agencies are complied with.

A trust corporation may be a subsidiaryor an affiliate of a bank and/or a NBFI:Provided, That the investing bank and/or

§§ 4913N - 4914N.111.12.31



submit to the Monetary Board through theappropriate department of the SES anapplication for authority to establish a trustcorporation to primarily engage in trust,other fiduciary business and investmentmanagement activities, which shall beduly signed by all incorporators/directors,together with the following documents:

a. Accomplished biographical data ofeach incorporator, subscriber, proposeddirector and officer, if applicable;

b. Certified Statement of Assets andLiabilities as of a date not earlier thanninety (90) days prior to the filing of theapplication of each of the incorporator,subscriber, proposed director and officertogether with the evidences of assetownership such as bank certification/statement, savings passbook, certificate oftime deposit, bond or stock certificate,transfer cert i f icate of t i t le and taxdeclaration. A waiver of rights underR.A.No. 1405, as amended, shall also besubmitted for purposes of verification ofthe declared assets, pursuant to theprovisions of the Anti-Money LaunderingLaw, as amended;

c. Certified photocopies of Income TaxReturns (ITRs) for the last three calendaryears of each incorporator, subscriber,proposed director and officer or similardocument from the home country in thecase of Non-Filipino citizens;

d. Clearance from the National Bureauof Investigation (NBI) and Bureau of InternalRevenue (BIR) of each of the incorporator,subscriber, proposed director and officer orsimilar document from the home countryin the case of Non-Filipino citizens;

e. Certification from home country’ssupervisory authority that the Non-Filipinocitizen has no derogatory record;

f. For corporate subscribers, thefollowing additional documents shall besubmitted:

(1) Copy of the board resolutionauthorizing the corporation to invest in suchtrust corporation and designating the personwho will represent the corporation inconnection therewith;

(2) Copy of the latest articles ofincorporation and by-laws;

(3) Updated list of directors andprincipal officers;

(4) Current list of major stockholders,indicating the citizenship and the number,amount and percentage of the voting andnon-voting share held by them;

(5) A copy each of the corporation’saudited financial statements for the last two(2) years prior to the filing of the application;

(6) A copy of the corporation’s annualreport to the stockholders for the yearimmediately preceding the date of filing ofthe application;

(7) Certified photocopies of ITRs and BIRclearance for last two calendar years;

(8) For foreign corporation, it shall alsosubmit a certification from its homecountry’s supervisory authority that it hasno objection to the investment of suchcompany in a trust corporation in thePhilippines and that adequate informationon such foreign corporation shall beprovided to the Bangko Sentral to the extentallowed under existing laws.

g. Detailed plan of operation andeconomic justification for establishing atrust corporation. The plan should describeand analyze the industry and the market areafrom which the trust corporation expects todraw majority of its trust business andestablish a strategy for its ongoing operation.It should also describe how the trustcorporation will be organized andcontrolled internally;

h. Projected financial statements for thefirst five years together with assumptions.These should be consistent with itsproposed plan of operation and would show

§§ 4914N.111.12.31



sufficient capital to support its strategy andoperation;

i. Detailed plan on how thesubscribers would put up the requiredcapitalization for the proposed trustcorporation; and

j. Such other information that theBangko Sentral may require.

The application shall be consideredfiled and submitted on a first-come, first-served basis; Provided, That all requireddocuments are complete and properlyaccomplished; Provided further, That incase of banks and non-bank financialinstitutions that decide to spin-off theirtrust department to a trust corporation, thedocumentary requirements under Items"f" and "g" may not be submitted.(Circular No. 710 dated 19 January 2011)

§4914N.2 Required capital. Uponincorporation/establishment, a trustcorporation shall have a minimum paid-in capital of P300 million. Thereafter, thetrust corporation is required to maintaina minimum unimpaired combined capitalaccount of P300 million, or such amountsas may be prescribed by the MonetaryBoard in the future, for assets undermanagement up to P20 billion.

For assets under managementamounting to more than P20 billion, anincremental capital shall be provided andcomputed as a percentage of the book valueof the total volume of assets under managementbased on the following:

Assets Under Incremental Capital Management Requirement Based (AUM) on Total Volume of AUM Above P20.0 billion 6 basis points - P100.0 billion Above P100.0 billion 8 basis points - P250.0 billion Above P250.0 billion 10 basis points - P500.0 billion Above P500.0 billion 12 basis points

The assets under management, for thispurpose, shall be computed based on theaverage of the quarter-end balances of assetsunder management of the preceding fourquarters.

The provision on incrementalunimpaired combined capital shall besubject to periodic review.

For purposes of this Section,combined capital accounts shall mean thetotal capital stock, retained earnings andprofit and loss summary, net of (a)valuation reserves on the allowableproprietary assets, and such other capitaladjustments as may be required by theBSP; and (b) appraisal surplus orappreciation credit as a result ofappreciation or an increase in book valueof the assets of the trust corporation.

Whenever the combined capitalaccounts of the trust corporation aredeficient with respect to the precedingparagraphs, the Monetary Board, afterconsidering the report of the appropriatesupervisory and examining department ofthe Bangko Sentral on the state of solvencyof the trust corporation concerned, shallrequire the trust corporation to institutenecessary corrective action(s) to addressits capital deficiency which may includethe submission of an acceptablecapitalization program. Otherwise, theMonetary Board shall require the trustcorporation, among others, to maintain netincome and limit or prohibit the distributionof dividends to increase its capital accounts,or restrict the acceptance of new trust, otherfiduciary and investment managementaccounts or introduction of new trustproducts or unit investment trust fund,until such corporation complies withthe minimum capital requirement.

Failure of the trust corporation tomeet the minimum capital requirementshall be a ground for the imposition of

§§ 4914N.1 - 4914N. 211.12.31




sanctions and suspension/revocation ofthe authority to engage in trust, otherf iduciary business and investmentmanagement activities.(Circular No. 710 dated 19 January 2011)

§4914N.3 Requirements for theissuance of the certificates of authority toregister and to operate

a. Within sixty (60) days from receipt ofadvice of approval by the Monetary Board/Governor of their application for authorityto establish a trust corporation, theincorporators shall:

(1) Submit seven (7) copies of the articlesof incorporation, treasurer’s swornstatement and by-laws which shall includeprovisions on the appointment of apresident/trust officer or its equivalentposition, if any, and other subordinateofficers, and a clear definition of their dutiesand responsibilities; and

(2) Deposit with any universal/commercial bank the initial paid-upcapital of the proposed trust corporation.

b. Within thirty (30) days from receiptof advice of approval by the MonetaryBoard/Governor of their application forauthority to establish a trust corporation,it shall pay a non-refundable license feeof f ive hundred thousand pesos(P500,000.00) to the Bangko Sentral.

c. Within thirty (30) days after thearticles of incorporation and by-laws hadbeen passed upon by the Office of theGeneral Counsel and Legal Services, andthe corresponding certificate of authorityto register had been issued, theincorporators shall effect the filing andregistration of said documents with theSEC.

Articles of incorporation; by-laws. Thearticles of incorporation and by-laws ofany trust corporation, or any amendmentthereto, shall not be registered with theSEC unless accompanied by a certificate

of authority issued by the MonetaryBoard.(Circular No. 710 dated 19 January 2011)

§ 4914N.4 Pre-operating requirementsWithin six (6) months from receipt of adviceof approval by the Monetary Board/Governor of their application for authorityto establish a trust corporation to primarilyengage in trust, other fiduciary business andinvestment management activities, theincorporators shall secure the certificate ofauthority to operate the trust, other fiduciarybusiness and investment managementactivities and submit to the appropriatesupervising and examining department ofthe BSP the following:

a. Copy of the articles of incorporationand by-laws including proof of registrationwith the SEC;

b. Certification of compliance with theconditions of approval duly signed by theincorporators, including the set-up of thebasic security deposit mentioned in Subsec.4915N.1;

c. Names and positions of individualsdesignated as chairman and members of theboard of directors, president / trust officerand other subordinate officers of the trustcorporation with their respective bio-dataand statement of duties and responsibilities;

d. Organizational chart which showsthe names of departments/units withrespective functions and responsibilities anddesignations of officers/employeesincluding responsibilities of personnelwithin the said departments/units. Theorganizational chart should show clearaccountability of the management structureand should provide for independent checkand balance by the board of directors;

e. Risk Management Manual andOperations Manual embodying the policies,systems, and operating procedures of eachdepartment/unit in the organization coveringthe areas on (a) signing/delegated

§§ 4914N.2 - 4914N.411.12.31



authorities, (b) procedures/flow ofpaperwork, and (c) other matters, togetherwith the certification of the President / TrustOfficer of the trust corporation that thesemanuals were prepared and aligned withexisting Bangko Sentral rules and regulationson risk management and trust, otherfiduciary and investment managementactivities and shall be implemented. A trustcorporation is expected to have in place, arisk management system that is appropriateto the nature and complexity of the trustcorporation’s fiduciary activities;

f. Excerpts of the minutes of theorganizational/director’s meetingsconfirming all organizational and pre-opening transactions relative to activitiesundertaken by the trust corporation tooperate the trust, other fiduciary businessand investment management activities(e.g., appointment of off icers, andapproval of authorized signatories);

g. Alphabetical list of all stockholderswith the number and percentage of votingstocks owned/held;

h. List of natural persons/stockholderscertified by the Corporate Secretary,owning voting stocks in the trustcorporation and are related to otheridentified stockholders within the third(3rd) degree of consanguinity or affinity,indicating the combined percentage ofvoting stocks held by these persons in theparticular trust corporation, as well asjuridical persons, including corporationsthat are wholly-owned or a majority of thestock of which is owned by any of suchpersons, including their wholly- ormajority-owned subsidiaries;

i. Certification by the President/TrustOfficer of the trust corporation that noperson who is the spouse or relativewithin the second (2nd) degree ofconsanguinity or affinity of any personholding the posit ion of Chairman,

President/Trust Officer, Chief ExecutiveOfficer, Chief Operating Officer, ExecutiveVice-President, Senior Vice President orany position of equivalent rank, GeneralManager, Treasurer, Chief Cashier, orChief Accountant will be appointed to anyof said positions in the trust corporation;and

j. Other documents/papers which maybe required.(Circular No. 710 dated 19 January 2011)

§ 4914N.5 Commencement of trust,other fiduciary business and investmentmanagement activit ies. The trustcorporation shall commence operationwithin one (1) year from date of approvalby the Monetary Board of their applicationfor authority to establish a trustcorporation to primarily engage in trust,other fiduciary business and investmentmanagement activities; Provided, That thetrust corporation may be granted by theDeputy Governor, Supervision andExamination Sector, a final extension ofsix (6) months subject to the formalpresentation of valid justification anddocumentary proof that the trustcorporation can commence operationwithin the six (6)-month period.Otherwise, upon recommendation of theDeputy Governor, Supervision andExamination Sector, the Monetary Boardshall revoke the authority to establish atrust corporation to primarily engage intrust, other f iduciary business andinvestment management activities.

The trust corporation shall submit awrit ten notice to the appropriatedepartment of the SES of the actual dateof commencement of trust, other fiduciaryand investment management operationsnot later than ten (10) days from suchopening.(Circular No. 710 dated 19 January 2011)

§§ 4914N.4 - 4914N.511.12.31



§ 4914N.6 Borrowings. A trustcorporation cannot engage in quasi-bankingfunctions, particularly the borrowing offunds from the public for the purpose ofrelending the said funds. The trustcorporation however retains the right toborrow as it is inherent to any dulyregistered corporate entity.(Circular No. 710 dated 19 January 2011)

§ 4914N.7 Grounds for disapproval ofapplication. The Monetary Board may denythe application to organize a trustcorporation on the basis of any of thefindings that:

a. The trust corporation is beingorganized for any purpose other than toengage in the business of a legitimate trustcorporation;

b. The trust corporation’s financialprogram is against the law, BSP rules andregulations, public policy, and publicstandard; and

c. There exist other reasons, which theMonetary Board may consider as sufficientground for such disapproval.(Circular No. 710 dated 19 January 2011)

Sec. 4915N Security for the FaithfulPerformance of Investment ManagementActivities and Allowable Proprietary AssetsThe provisions of Subsecs. 4905N.1 up to4905N.4 shall apply in complying with therequired security for the faithfulperformance of IMA and the allowableproprietary assets for trust corporationsengaged in investment managementactivities only.(Circular No. 710 dated 19 January 2011)

Sec. 4916N Organization andManagement. The provisions underSubsecs. 4906N.1 up to 4906N.4 andSubsecs. 4906N.10 up to 4906N.15 shallgovern the organization and managementof trust corporations which are engaged

in investment management activities only.The following terms shall, however, beused:

a. Investment management activities inlieu of trust and other fiduciary business;

b. IMAs in lieu of trust and otherfiduciary accounts;

c. Investment management committeein lieu of trust committee; and

d. Investment management officer inlieu of trust officer.(Circular No. 710 dated 19 January 2011)


Sec. 4917N Non-Investment ManagementActivities. The provisions of Sec. 4907Nshall apply in determining non-investmentmanagement activities except that the termstrust, other fiduciary, trustee and fiduciaryshall be disregarded.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4417Q)

Sec. 4918N Unsound Practices. Theprovisions of Sec. 4908N shall govern theunsound practices for IMAs.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4418Q)

Sec. 4919N Conduct of InvestmentManagement Activities. The provisions ofSec. 4911N shall govern the conduct ofinvestment management activities of trustcorporation without trust license that isengaged in investment managementactivities.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4419Q)

Sec. 4920N Required Retained EarningsAppropriation. The provisions of Sec.4913N shall apply in complying with therequired retained earnings appropriationof trust corporation authorized to engagein investment management activities.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4420Q)

§§ 4914N.6 - 4920N11.12.31



C. GENERAL PROVISIONS

Sec. 4921N Books and Records. The trustcorporation shall keep books and recordson trust, other fiduciary and IMAs separateand distinct from the books and records ofits other businesses and shall follow theFRPTI prescribed by the BSP. Each trust,other fiduciary or IMA shall have a recordseparate from all other accounts except onlyin the case of UITFs where the trustee canmaintain common records utilizing pooledfund accounting method for each fund:Provided, That the trustee shall clearlyindicate in the records the trustors owningparticipation in the UITF and the extent ofthe interest of such trustors. Books andrecords shall contain full informationrelative to each trust, other fiduciary orIMA and shall be supported by duplicatesigned copies of related documents. Saidrecords and duplicate signed copies orrelated documents shall be compiled andkept as to allow inspection by BSPexaminers and submission of informationor reports as may be required bycompetent authorit ies. The trustcorporation shall maintain separategeneral ledger accounts and other relevantsub-accounts for tax-exempt individualtrust accounts, UITFs and individualmanagement accounts established underSection 24(B)(1) of R.A. No. 8424 andSubsecs. 4909N.8, 4911N.10, and Item“8” of Appendix Q-32. It shall also adoptappropriate systems, internal controlprocedures and audit trail mechanisms toensure that the correct amount of final taxis withheld or exempted from suchaccounts.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4421Q)

Sec. 4922N Assets Under ManagementAssets under management shall representall funds, properties and securities,

denominated in peso and other foreigncurrency, which the trust corporation,acting as trustee, fiduciary and agent, shallmanage, administer, hold, and/or takecustody, for the use and benefit of others.In the performance of its trust, otherf iduciary business and investmentmanagement activities, the assets undermanagement of the trust corporation shallbe kept separate and distinct from thegeneral or other business owned andoperated by i ts parent company,subsidiaries and related interest includingall other funds, properties, and assetsowned by such trust corporation.(Circular No. 710 dated 19 January 2011)

Sec. 4923N Fees and Commissions. A trustcorporation acting as trustee, fiduciary orinvestment manager shall be entitled toreasonable fees and commissions whichshall be determined on the basis of the costof services rendered and the responsibilitiesassumed: Provided, That where the trustee,fiduciary or investment manager is actingas such under appointment by a court, thecompensation shall be that allowed orapproved by the court: Provided, further,That in the case of UITFs, the fee which atrustee may charge each participant shall befully disclosed by the trustee in the UITFplan, prospectus, flyers, posters and allforms of advertising materials to market thefund and in the documents given to clientsas proof of participation in the fund. In nocase shall such fees and commissions bebased on the excess of the income of thetrust, other fiduciary or investmentmanagement funds over a certain amountor percentage.

No trustee, fiduciary or investmentmanager shall solicit or receive rebates oncommissions, fees and other payments forthe services rendered to the trust, otherfiduciary or IMA or beneficiaries of the trust,other fiduciary or IMA by stockbrokers, real

§§ 4921N - 4923N11.12.31



estate brokers, insurance agents and similarpersons or entities unless the rebates, feesand other payments shall accrue to thebenefit of the trust, other fiduciary or IMAor the beneficiaries thereof.

Officers and employees of the trustdepartment or investment managementdepartment of institutions, while serving assuch, shall be prohibited from retaining anycompensation for acting as co-trustee orfiduciary in the administration of a trust,other fiduciary or IMA.

No institution shall collect, for its ownaccount, referral and/or arrangement fees,or any other fees that take the nature ofpayment to the institution from whateversource, in connection with loans sourcedfrom trust funds managed by its trustdepartment: Provided, That if such fees arecollected, the same shall be properlydisclosed to the trustor, and shall accrue tothe benefit of the trust, in accordance withthe provisions of Secs. 4901N and 4907N.(Circular No. 710 dated 19 January 2011)


Sec. 4924NTaxes. The terms and conditionsof trust, other fiduciary or investmentmanagement agreements, including UITFplans, shall contain provisions regarding theapplicability of regulations governingtaxation on the income of trust, otherfiduciary or investment managementaccounts. For this purpose, the trustee,fiduciary or investment manager shallmaintain adequate records and shall includeinformation such as the amount of finalincome tax withheld at source and theamount withheld by the trustee, fiduciaryor investment manager in the periodicreports submitted to trustors, beneficiaries,principals and other parties in interest.

With respect to tax-exempt UITFs,individual trust and investment managementaccounts established under Section 24(B)(1)of R.A. No. 8424, the trust corporation shall

be responsible for obtaining the tax-exemption certifications which may berequired by the BIR for the interest-bearinginstruments where the UITFs, individualtrust funds and investment managementfunds will be invested. Likewise, it shallensure that the correct amount of final taxon the interest income on the interest-bearing instruments is withheld/deductedfrom the proceeds from the UITFparticipation, trust or investmentmanagement account and remitted to theBIR in the event said tax becomes due suchas when funds are withdrawn before therequired five (5)-year holding period orwhen corporations happen to invest in thetax-exempt trust instruments created withinthe purview of R.A. No. 8424.(Circular No. 710 dated 19 January 2011)


Sec. 4925N Reports Required

§4925N.1 To trustor, beneficiary,principal. Trust corporations shall renderreports on the trust, other fiduciary or IMAsto the trustor, beneficiary, principal or otherparty in interest or the court concerned orany party duly designated by the court order,as the case may be, under the followingguidelines:

a. The reports shall be in such forms asto apprise the party concerned of thesignificant developments in theadministration of the account and shallconsist of:

(1) A balance sheet;(2) An income statement;(3) A schedule of earning assets of the

account; and(4) An investment activity report;b. Items (3) and (4) above shall include

at least the following:(1) Name of issuer or borrower;(2) Type of instrument;(3) Collateral, if any;

§§ 4923N - 4925N.111.12.31



(4) Amount invested;(5) Earning rate or yield;(6) Amount of earnings;(7) Transaction date; and(8) Maturity date;c. The reports shall be prepared in such

frequency as required under the agreementbut shall not in any case be longer than onceevery quarter; and

d. The reports shall be made availableto clients not later than twenty (20) calendardays from the end of the reference date/period in Item “c” above.(Circular No. 710 dated 19 January 2011)


§4925N.2 To the Bangko Sentral. Atrust corporation shall submit periodicreports prescribed by the appropriatedepartment of the SES on its trust and otherfiduciary business and investmentmanagement activities within the deadlineindicated in Appendix Q-3.(Circular No. 710 dated 19 January 2011)


§ 4925N.3 Audited financialstatements. The trust corporation shalladopt the provisions of the PhilippineFinancial Reporting Standards (PFRS)/Philippine Accounting Standards (PAS) inall respect, for purposes of preparing the AFSof its trust and other fiduciary andinvestment management activities. Thefollowing guidelines shall likewise beobserved in the preparation of the AFS:

(a) A complete set of financial statementsshall comprise of the following:

(1) Balance sheet as of the end of theperiod;

(2) Income statement for the period;(3) Statement of changes in

accountabilities, which shall show areconciliation of the net carrying amount atthe beginning and end of the period of thefollowing accounts:

(i) principal;(ii) accumulated income; and(iii) net unrealized gains/(losses) on

available for sale financial assets, separatelydisclosing the changes in each of theforegoing accounts;

(4) Notes, which shall comprise of asummary of significant accounting policiesand other disclosure requirements providedunder PFRS/PAS: Provided, That forpurposes of complying with the disclosureof the nature and extent of risks arisingfrom financial instruments as requiredunder PFRS 7, disclosure statements maybe made based on the general categoriesof contractual relationships (i.e., UITF-trust, institutional-trust, and individual-trust; other fiduciary; institutional-agency,and individual-agency; and specialpurpose trust) of the trust corporationwith its clients; and

(5) Balance sheet as at the beginningof the earliest comparative period whena trust corporation applies an accountingpolicy retrospectively or when it makes aretrospective restatement of items in thefinancial statements, or when i treclassi f ies i tems in the f inancialstatements.

(b) The balance sheet, incomestatement and statement of changes inaccountabilities shall be presented foreach of the general categories ofcontractual relationships (i.e., UITF-trust,institutional trust, and individual-trust;other fiduciary; institutional-agency, andindividual-agency; and special purposetrust) of the trust corporation with itsclients.(Circular No. 710 dated 19 January 2011)


Sec. 4926N Audits

§ 4926N.1 Internal audit. The trustcorporation’s internal auditor shall include

§§ 4925N.1 - 4926N.111.12.31



among his functions, the conduct ofperiodic audits at least once every twelve(12) months. The board of directors, in aresolution entered in its minutes, may alsorequire the internal auditor to adopt asuitable continuous audit system tosupplement and/or to replace the periodicaudit. In any case, the audit shall ascertainwhether the trust and other fiduciarybusiness and investment managementactivities have been administered inaccordance with laws, BSP rules andregulations, and sound trust or fiduciaryprinciples.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4426Q.1)

§4926N.2 External audit. The trust andother fiduciary business and investmentmanagement activities shall be subject tothe annual financial audit by independentexternal auditors required under Sec.4190Q.

The audit of the assets andaccountabilities of the trust corporation,which shall cover at the minimum areview of the trust / investmentmanagement operations, practices andpolicies, including audit and internalcontrol system, shall be subject toauditing standards to the extent necessaryto express an opinion on the financialstatements. The audit shall be covered byan audit report to be submitted to the trustcorporation’s board of directors and to theBSP within the prescribed periodcontaining, among other things, thecomplete set of financial statements of thetrust/investment management prepared inaccordance with the provisions of Sec.4926N together with the otherinformation required by the BSP to besubmitted under Sec. 4190Q: Provided,That a reconciliation statement of thebalance sheet in the AFS and the FRPTIshall be prepared for each of the general

categories of contractual relationships(i.e., UITF trust, institutional-trust, andindividual trust ; other f iduciary;institutional-agency, and individual-agency; and special purpose trust) of thetrust corporation with its clients followingthe format in Appendix Q-50.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4426Q.2)

§ 4926N.3 Board action. A report ofthe foregoing audits, together with theactions thereon, shall be noted in theminutes of the board of directors of the trustcorporation.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4426Q.3)

Sec. 4927N Authority Resulting fromMerger or Consolidation. In merger of FIs,the authority to engage in trust and otherfiduciary business and in investmentmanagement activities shall continue to bein effect if the surviving institution has suchauthority and the same has not beenwithdrawn by the BSP. In case the survivinginstitution does not have previous authoritybut desires to engage in trust and otherfiduciary business and in investmentmanagement activities, it shall secure theprior approval of the Monetary Board toengage in such business as part of itsapplication for merger to enable it toincorporate such among its powers orpurpose clause in its articles ofincorporation, articles of merger, by-lawsand such other pertinent documents.

In the consolidation of FIs where theresulting entity is an entirely new one, itshall secure from the Monetary Board anauthority to engage in trust and otherfiduciary business or in investmentmanagement activities before it may engagein such business.(Circular No. 710 dated 19 January 2011)


§§ 4926N.1 - 4927N11.12.31



Sec. 4928N Receivership. Whenever areceiver is appointed by the Monetary Boardfor a trust corporation, the receiver shall,pursuant to the instructions of the MonetaryBoard, proceed to close the trust, otherfiduciary and IMAs promptly and/or transferall other accounts to substitute trustees,fiduciaries or investment managersacceptable to the trustors, beneficiaries,principals or other parties in interest:Provided, That where the trustee, fiduciaryor investment manager is acting as suchunder appointment by a court, the receivershall proceed pursuant to the instructionsof said court.(Circular No. 710 dated 19 January 2011)


Sec. 4929N Revocation of Trust LicenseThe Monetary Board, after considering thereport of the appropriate supervisory andexamining department of the BSP, mayrevoke the trust corporation’s authority toengage in trust, other fiduciary businessand investment management activities inaccordance with Section 37 of R. A. No.7653 (The New Central Bank Act). Uponrevocation of the trust, other fiduciary andinvestment management license, the trustcorporation shall be required to wind downand liquidate its trust, other fiduciarybusiness and investment managementactivities, and distribute the proceedsthereof to its clients. It shall be unlawful forany such trust corporation to thereafterperform or engage in trust, other fiduciarybusiness and investment managementactivities.

The BSP shall take the necessary actionto protect the rights and interest of all clientswhose assets, properties and funds are heldin trust or under the management,administration, or custody of the trustcorporation. In the event that the BSP findsit detrimental for the clients of the trustcorporation, i.e., trustor/principal/

beneficiary, to proceed with the liquidationof the assets under management, it mayappoint a temporary successor-trustee(s) totake over the management andadministration of the trust corporation’strust, other fiduciary and investmentmanagement accounts, until the trustor/principal/beneficiary has appointed his/herown successor-trustee. The revocation ofthe trust, other fiduciary and investmentmanagement license does not absolve thetrust corporation, the members of the boardof directors, and officers, from anyadministrative and monetary sanctions aswell as applicable civil and criminal chargesthat may be imposed under the New CentralBank Act or other applicable laws, rules andregulations.

In case of a trust corporation whichlicense has been revoked by the MonetaryBoard, any director or officer thereof whorefuses to turn over the corporation’srecords and assets under management to theappointed successor-trustee(s), or whotampers with the corporation’s records, orwho appropriates for himself for anotherparty or destroys or causes themisappropriation and destruction of thetrust corporation’s assets undermanagement, or who receives or permitsor causes to be received in said corporationany part or all of the assets undermanagement, or who pays out or permitsor causes to be transferred any part thereof,shall be subject to the penal provisions ofthe New Central Bank Act.(Circular No. 710 dated 19 January 2011)


Sec. 4939N Payment of Fines and OtherCharges. The following regulations shallgovern the payment of fines and othercharges by trust corporation.(Circular No. 710 dated 19 Jannuaryu 2011)(Equivalent of Section 4902Q)

§§ 4928N - 4939N11.12.31



§ 4939N.1 Guidelines on theimposition of monetary penalties. Thefollowing are the guidelines on theimposition of monetary penalties on trustcorporation, their directors and/or officers:


(1) Continuing offenses violations areacts, omissions or transactions entered into,in violation of laws, BSP rules andregulations, Monetary Board directives, andorders of the Governor which persist fromthe time the particular acts were committedor omitted or the transactions were enteredinto until the same were corrected rectifiedby subsequent acts or transactions. Theyshall be penalized on a per calendar daybasis from the time the acts were committed/omitted or the transactions were effected upto the time they were corrected/rectified.

(2) Transactional offenses violations areacts, omissions or transactions entered intoin violation of laws, BSP rules andregulations, Monetary Board directives, andorders of the Governor which cannot becorrected/rectified by subsequent acts ortransactions. They shall be meted with one-(1)time monetary penalty on a pertransaction basis.

(3) Continuing penalty refers to themonetary penalty imposed on continuingoffenses violations on a per calendar daybasis reckoned from the time the offense/violation occurred or was committed untilthe same was corrected rectified.

(4) Transactional penalty refers to a one(1)-time penalty imposed on a transactionaloffense/violation.

b. Basis for the computation of theperiod or duration of penalty.Thecomputation of the period or duration ofall penalties shall be based on calendardays. For this purpose the terms “perbanking day”, “per business day”, “per

day” and/or “a day” as used in the Manual,and other BSP rules and regulations shallmean “per calendar day” and/or “calendarday” as the case may be.

c. Additional charge for late payment ofmonetary penalty. Late payment of monetarypenalty shall be subject to an additionalcharge of six percent (6%) per annum to bereckoned from the business day immediatelyfollowing the day said penalty becomes dueand payable up to the day of actual payment.The penalty shall become due and payablefifteen (15) calendar days from receipt of theStatement of Account from the BSP. For trustcorporation which maintain DDA with theBSP, penalties which remain unpaid afterthe lapse of the fifteen (15)-day period shallbe automatically debited against theircorresponding DDA on the followingbusiness day without additional charge. Ifthe balance of the concerned trustcorporation’s DDA is insufficient to coverthe amount of the penalty, said penalty shallalready be subject to an additional chargeof six percent (6%) per annum to bereckoned from the business day immediatelyfollowing the end of said fifteen (15)-dayperiod up to the day of actual payment.

d. Appeal or request forreconsideration. A one (1)-time appeal orrequest for reconsideration on the monetarypenalty approved by the Governor/Monetary Board to be imposed on the trustcorporation, its directors and/or officersshall be allowed: Provided, That the sameis filed with the appropriate department ofthe SES within fifteen (15) calendar daysfrom receipt of the Statement of Account/billing letter. The appropriate department ofthe SES shall evaluate the appeal or requestfor reconsideration of the trust corporationindividual and make recommendationsthereon within thirty (30) calendar daysfrom receipt thereof. The appeal or requestfor reconsideration on the monetary

§§ 4939N.111.12.31



penalty approved by the Governor/Monetary Board shall be elevated to theMonetary Board for resolution/decision.The running of the penalty period in caseof continuing penalty and/or the periodfor computing additional charge shall beinterrupted from the time the appeal orrequest for reconsideration was receivedby the appropriate department of the SESup to the time that the notice of theMonetary Board decision was received bythe trust corporation/individual concerned.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4902Q.1)

§ 4939N.2 Payment of fines. Trustcorporations shall, within fifteen (15)calendar days from receipt of the statementof account from the BSP, pay the fines forreserve deficiency, reportorial delay/deficiency, refusal to permit examination,or failure to comply with, or violation of,any law or any order, instruction orregulation issued by the Monetary Board,or any order, instruction or ruling by theGovernor.

For trust corporations which maintainDDAs with the BSP, fines which areunpaid after the lapse of the fifteen (15)-day period shall be automatically debitedagainst the corresponding DDA of thetrust corporation concerned: Provided,That if the balance of the entity’s accountis insufficient to cover the fines due, suchfines shall be paid not later than thefollowing business day. For the purposeof this Section, business day means a dayon which the BSP head office and the headoffice of the trust corporation are open forbusiness. For uniform implementation ofthe above regulations, the proceduralguidelines embodied in Appendix Q-22shall be observed.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4902Q.2)

§ 4902Q.3 (Reserved)

§ 4939N.4 Check/demand draftpayments to the Bangko Sentral. Trustcorporations shall make all check anddemand draft payments for transactionsother than those required to be paid throughthe trust corporations’ DDA either to theBSP Cash Department or to the BSP RegionalOffices and Branches. Such payments shallbe accompanied by the appropriate form asshown in Appendix Q-22a. Payments notaccompanied by the required paymentforms shall be presumed to be additions toreserves and shall be credited to the DDAof the paying trust corporation. Checkpayments shall be value-dated when thecheck is cleared.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4902Q.4)

Sec. 4940Q (Reserved)

Sec. 4941N Securities Custodianship andSecurities Registry Operations. Thefollowing rules and regulations shallgovern securities custodianship andsecurities registry operations of trustcorporations. The guidelines to implementthe delivery by the seller of securities tothe buyer or to his designated third partycustodian are shown in Appendix Q-38.Violation of any provision of theguidelines in Appendix Q-38 shall besubject to the sanctions/penalties underSubsec. 4941N.29.(Circular No. 710 dated 19 January 2011)


§4941N.1 Statement of policy. It isthe policy of the BSP to promote theprotection of investors in order to gaintheir confidence and encourage theirparticipation in the development of thedomestic capital market. Therefore, thefollowing rules and regulations arepromulgated to enhance transparency ofsecurities transactions with the end in

§§ 4939N.1 - 4941N.111.12.31



view of protecting investors.(Circular No. 710 dated 19 January 2011)


§4941N.2 Applicability of thisregulation. This regulation shall governsecurities custodianship and securitiesregistry operations of trust corporationsunder BSP supervision. It shall cover alltheir transactions in securities as defined inSection 3 of the SRC, whether exempt orrequired to be registered with the SEC, thatare sold, borrowed, purchased, traded, heldunder custody or otherwise transacted inthe Philippines where at least one (1) of theparties is a trust corporation under BSPsupervision. However, this regulation shallnot cover the operations of stock and transferagents duly registered with the SEC pursuantto the provisions of SRC Rule 36-4.1 andwhose only function is maintain the stockand transfer book for shares of stock.(Circular No. 710 dated 19 January 2011)


§4941N.3 Prior Bangko Sentralapproval. Trust corporations may act assecurities custodian and/or registry onlyupon prior Monetary Board approval.(Circular No. 710 dated 19 January 2011)


§4941N.4 Application for authorityA trust corporation desiring to act assecurities custodian and/or registry shallfile an application with the appropriatedepartment of the SES. The applicationshall be signed by the highest rankingofficer of the institution and shall beaccompanied by a certified true copy ofthe resolution of its board of directorsauthorizing the institution to engage insecurities custodianship and/or registry.(Circular No. 710 dated 19 January 2011)


§4941N.5 Pre-qualificationrequirements for a securities custodian/registry

a. It must be a trust corporation;b. It must have complied with the

minimum capital accounts required underexisting regulations not lower than anadjusted capital of P300 million or suchamounts as may be required by theMonetary Board in the future;

c. It must have a CAMELS compositerating of at least “4” (as rounded off) in thelast regular examination;

d. I t must have in place acomprehensive risk management systemapproved by its board of directorsappropriate to its operations characterizedby a clear delineation of responsibility forrisk management, adequate riskmeasurement systems, appropriatelystructured risk limits, effective internalcontrol and complete, timely and efficientrisk reporting systems. In this connection,a manual of operations (which includescustody and/or registry operations) andother related documents embodying therisk management system must besubmitted to the appropriate departmentof the SES at the time of application forauthority and within thirty (30) days fromupdates;

e. It must have adequate technologicalcapabilities and the necessary technicalexpertise to ensure the protection, safety andintegrity of client assets, such as:

(1) It can maintain an electronic registrydedicated to recording of accountabilitiesto its clients; and

(2) It has an updated and comprehensivecomputer security systemcovering system,network and telecommunication facilitiesthat will:

(a) limit access only to authorized users;(b) preserve data integrity; and(c) provide for audit trail of transactions.

§§ 4941N.1 -4941N.511.12.31



f. It has complied, during the periodimmediately preceding the date ofapplication, with the following:

(1) ceilings on credit accommodationto DOSRI; and

(2) single borrower’s limit.g. It has no reserve deficiencies during

the eight (8) weeks immediately precedingthe date of application;

h. I t has set up the prescribedallowances for probable losses, bothgeneral and specific, as of date ofapplication;

i. It has not been found engaging inunsafe and unsound practices during thelast six (6) months preceding the date ofapplication;

j. It has generally complied with laws,rules and regulations, orders orinstructions of the Monetary Board and/or BSP Management;

k. I t has submitted addit ionaldocuments/information which may berequested by the appropriate departmentof the SES, such as, but not limited to:

(1) Standard custody/registryagreement and other standard documents;

(2) Organizational structure of thecustody/registry business;

(3) Transaction flow; and(4) For those already in the custody or

registry business, a historical backgroundfor the past three (3) years;

l. It shall be conducted in a separate unitheaded by a qualified person with at leasttwo (2) years experience in custody/registryoperations; and

m. It can interface with the clearing andsettlement system of any recognizedexchange in the country capable of achievinga real time gross settlement of trades.

n. A securities custodian whichprovides the value-added service ofsecurities lending involving securities thatare sold, offered for sale or distributed

within the Philippines must be a duly-licensed lending agent registered with theSEC.(Circular No. 710 dated 19 January 2011, as amended by CircularNo. 714 dated 14 March 2011)(Equivalent of Section 4441Q.5)

§4941N.6 Functions andresponsibilities of a securities custodianA securities custodian shall have thefollowing basic functions andresponsibilities:

a. Safekeeps the securities of the client;b. Holds title to the securities in a

nominee capacity;c. Executes purchase, sale and other

instructions;d. Performs at least a monthly

reconciliation to ensure that all positions areproperly recorded and accounted for;

e. Confirms tax withheld;f. Represents clients in corporate actions

in accordance with the direction providedby the securities owner;

g. Conducts mark-to-market valuationand statement rendition;

h. Does earmarking of encumbrancesor liens such as, but not limited to, Deedsof Assignment and court orders;

i. Acts as a collecting and paying agent:in respect of dividends, interest earnings orproceeds from the sale/redemption/maturityof securities held under custodianship:Provided, further, That the custodian shallimmediately make known to the securitiesowner all collections received and paymentsmade with respect to the securities undercustody; and

j. In addition to the above basicfunctions, it may perform the value-addedservice of securities lending as agent:Provided, That it complies with the pre-qualification requirements under Item “n”of Subsec. 4941N.5: Provided, further, Thatthe securities lending service shall becovered by a Securities Lending

§§ 4941N.5 - 4941N.611.12.31



Authorization Agreement (SLAA) whichshall be attached to the custody contract;Asecurities custodian which renders thevalue-added service of securities lendinginvolving securities that are sold, offeredand distributed within the Philippinesshall comply with the pertinent rules andregulations of the SEC on securitieslending and borrowing operations.(Circular No. 710 dated 19 January 2011, as amended by CircularNo. 714 dated 14 March 2011)(Equivalent of Section 4441Q.6)

§4941N.7 Functions andresponsibilities of a securities registry

a. Maintains an electronic registry book;b. Delivers confirmation of transactions

and other documents within agreed tradingperiods;

c. Issues registry confirmations fortransfers of ownership as it occurs;

d. Prepares regular statement ofsecurities balances at such frequency asmay be required by the owner on recordbut not less frequent than every quarter; and

e. Follows appropriate legaldocumentation to govern its relationshipwith the Issuer.(Circular No. 710 dated 19 January 2011)


§ 4941N.8 Protection of securities ofthe customer. A custodian mustincorporate the following procedures inthe discharge of its functions in order toprotect the securities of the customer:

a. Accounting and recording forsecurities. Custodians must employaccounting and safekeeping proceduresthat fully protect customer securities. It isessential that custodians segregatecustomer securities from one another andfrom its proprietary holdings to protect thesame from the claims of its generalcreditors. Securit ies held under

custodianship shall be recorded in thebooks of the custodian at the face valueof said securities in the other fiduciarysub-account Custodianship”

b. Documentation. The appropriatedocumentation for custodianship shall bemade and it shall clearly define, amongothers, the authority, role,responsibilities, fees and provision forsuccession in the event the custodian canno longer discharge its functions. It shallbe accepted in writ ing by thecounterpart ies. The governingcustodianship agreement shall be pre-numbered and this number shall bereferred to in all amendments andsupplements thereto.

c. Confirmation of custody . Thecustodian shall issue a custodyconfirmation to the purchaser orborrower of securities to evidence receiptor transfer of securities as they occur. Itshall contain, as a minimum, thefollowing information on the securitiesunder custody:(1) Owner of securities;(2)Issuer;(3) Securities type;(4) Identificationor serial numbers;(5) Quantity;(6) Facevalue; and (7) Other information, whichmay be requested by the parties.

d. Periodic reporting. The custodianshall prepare at least quarterly (or asfrequent as the owner of securities willrequire) securities statements delivered tothe registered owner’s address on record.Said statement shall present detailedinformation such as, but not limited to,inventory of securities, outstandingbalances, and market values.(Circular No. 710 dated 19 January 2011, amended by Circular

No. 714 dated 14 March 2011)


§ 4941N.9 Independence of theregistry and custodian. A BSP-accreditedsecurities registry must be a third party with

§§ 4941N.6 - 4941N.911.12.31



no subsidiary/affiliate relationship withthe issuer of securities while a BSP-accredited custodian must be a third partywith no subsidiary/affiliate relationshipwith the issuer or seller of securities. Atrust corporation accredited by BSP assecurities custodian may, however,continue holding securities it sold underthe following cases:

a. where the purchaser is a relatedentity acting in its own behalf and not asagent or representative of another;

b. where the purchaser is a non-resident with existing global custodyagreement governed by foreign laws andconventions wherein the institution isdesignated as custodian or sub-custodian;and

c. upon approval by the BSP, wherethe purchaser is an insurance companywhose custody arrangement is eithergoverned by a global custody agreementwhere the trust corporation is designatedas custodian or sub-custodian or by adirect custody agreement with features atpar with the standards set under thisSubsection drawn or prepared by theparent company owning more than fiftypercent (50%) of the capital stock of thepurchaser and executed by the purchaseritself and its custodian. Purchases by non-residents and insurance companies thatare exempted from the independencerequirement of this Section shall ,however, be subject to all other provisionsof this Subsection.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4441Q.9)

§4941N.10 Registry of scriplesssecurities of the Bureau of the TreasuryThe Registry of Scripless Securities (RoSS),operated by the Bureau of the Treasury,which is acting as a registry for governmentsecurities is deemed to be automatically

accredited for purposes of this Section andis l ikewise exempted from theindependence requirement under Subsec.4941N.9. However, securities registeredunder the RoSS shall only be considereddelivered i f said securit ies weretransferred by means of book entry to theappropriate securities account of thepurchaser or his designated custodian.Book entry transfer to a sub-account forclients under the primary account of theseller shall not constitute delivery forpurposes of this Section and of Subsec.4235Q.5.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4441Q.10)

§4941N.11 Confidentiality. A BSP-accredited securities custodian/registryshall not disclose to any unauthorizedperson any information relative to thesecurit ies under i ts custodianship/registry. The management shall likewiseensure the confidentiality of clientaccounts of the custody or registry unitfrom other units within the sameorganization.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4441Q.11)

§4941N.12 Anti-money launderingregulations. Covered insti tutions,including their subsidiaries and affiliates,shall comply with the provisions of Part8 of Q Regulations, R.A. No. 9160 (Anti-Money Laundering Act of 2001), asamended, and its Implementing Rules andRegulations (IRR).(Circular No. 706 dated 05 January 2011, as amended byCircular No. 710 dated 19 January 2011)

§4941N.13 Basic security depositSecurities held under custodianship shallbe subject to a security deposit for faithfulperformance of duties at the rate of 1/25of one percent (1%) of the total face value

§§ 4941N.9 - 4941N.1211.12.31



or P500,000 whichever is higher.However, securit ies held undercustodianship where the custodian alsoperforms securities lending as agent shallbe subject to a higher basic securitydeposit of one percent (1%) of the totalface value. For this purpose, the followingsubsidiary ledger account shall becreated: “Safekeeping and Custodianship- Securities Held Under Custodianshipwith Securit ies Lending As Agent”Compliance shall be in the form ofgovernment securities deposited with theBSP eligible pursuant to exist ingregulations governing security for thefaithful performance of trust and otherfiduciary business.(Circular No. 710 dated 19 January 2011, amended by CircularNo. 714 dated 14 March 2011)(Equivalent of Section 4441Q.13)

§4941N.14 Reportorial requirementsAn accredited securities custodian shallcomply with reportorial requirements thatmay be prescribed by the BSP, which shallinclude as a minimum, the face and marketvalue of securities held under custodianship.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4441Q.14)

§§ 4941N.15 – 4941N.28 (Reserved)

§ 4941N.29 Sanctions. Withoutprejudice to the penal and administrativesanctions provided for under Sections 36and 37, respectively, of the R.A. No. 7653,violation of any provision of this Sectionshall be subject to the following sanctions/penalties:

a. First offense –(1) Fine of up to P10,000 a day for the


(2) Reprimand for the directors/officersresponsible for the violation.

b. Second offense -(1) Fine of up to P20,000 a day for the


(2) Suspension for ninety (90) dayswithout pay of directors/officers responsiblefor the violation.

c. Subsequent offenses –(1) Fine of up to P30,000 a day for the

institution for each violation from the datethe violation was committed up to the dateit was corrected;

(2) Suspension or revocation of theauthority to act as securities custodian and/or registry; and

(3) Suspension for 120 days without payof the directors/officers responsible for theviolation.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4441Q.29)


Sec. 4998N Annual Supervision Fee. Trustcorporations shall pay to the BSP anannual supervision fee of 1/32 of 1% ofthe average monthly balance of assetsunder management. The average monthlybalance shall refer to the sum of thetwelve month-end balances of thepreceding calendar year divided by a factorof twelve. Said annual supervision feeshall be paid by the trust corporations onor before end-February of every year;Provided, That the annual supervision feeon the first year of operations shall beequal to the 1/32 of 1% of the initial paid-up capital . Non-payment of thesupervisory fee within the prescribedperiod shall subject the concerned trustcorporation to the sanctions prescribedunder Sections 34, 35, 36 and 37 of R.A.No. 7653(Circular No. 710 dated 19 January 2011)

§§ 4941N.13 - 4998N11.12.31



Sec. 4999N Sanctions. Pursuant to Section91 of R. A. No. 8791, the Monetary Boardmay impose sanctions and monetarypenalty for any violation of the provisionsof the foregoing regulations, and of theregulations implementing the Truth inLending Act in Sec. 4309Q of theMORNBFI. This is without prejudice tothe imposition of other sanctions as theMonetary Board may consider warrantedthat may include the suspension orrevocation of a trust corporation’sauthority to engage in trust , otherf iduciary business and investmentmanagement activities and such othersanctions as may be provided by law. If


§§ 4999N11.12.31

the offender is a director or officer of thetrust corporation, the Monetary Board mayalso suspend or remove such director orofficer. If the violation is committed by acorporation, such corporation may bedissolved by quo warranto proceedingsinstituted by the solicitor general.Theguidelines for the imposition of monetarypenalty shown in Appendix N-9 shallgovern the imposition of monetary penaltyfor violations/offenses with administrativesanctions falling under Section 37 of R.A. No. 7653 on trust corporations, theirdirectors and/or officers.(Circular No. 710 dated 19 January 2011)(Equivalent of Section 4499Q)

N Regulations

Appendix N

-1 - Page 1M

anual of Regulations for Non-Bank Financial Institutions

APP. N

-111.12.31

LIST OF REPORTS REQUIRED FROM NON-BANK FINANCIAL INSTITUTIONS(Appendix to Sec. 4162N)

A-1 4162N (Cir. No. 708 dated 01.10.11)

A-1 4162N (Cir. No. 708 dated 01.10.11)

A-2 BSP-7-26-02-A 4162N(M-008dated02.14.08)

BSP-7-26-03B

A-2 BSP-7-26-02 4162NSchedule 1(IHs only)

Report on Financial Assets Designated/MandatorilyMeasured at Fair Value Through Profit or Loss

Report on Initial Application of PFRS 9

Consolidated Statement of Condition (CSOC)

Consolidated Statement of Income and Expenses (CSIE)

Control Prooflist

Schedule of Loans/Receivables, Trading AccountSecurities (TAS) - Loans and Underwritten DebtSecurities

15 banking days afterend of reference month

15 banking days afterend of reference monthof initial application ofPFRS 9

15 banking days afterend of reference month

-do-

-do-

- do -

Monthly

-do-

-do-

-do-

-do-

- do -

SDC

-do-

Email to SDC @[email protected]

-do-

messengerial or postalservices

Original - Appropriatedepartment of the SESDuplicate - SDC orc c : m a i l / e l e c t r o n i ctransmission

Separate report for HeadOffice and each Branch;and a ConsolidatedReport for Head Officeand Branches


APP. N

-111.12.31

N Regulations

Appendix N

-1 - Page 2M


A-2 BSP-7-26-02 4162NSchedule 1

A-2 BSP-7-26-02 4162NSchedule 2(FCs only)




A-2 BSP-7-26-02 4162NSchedule 6(FCs only)

A-2 BSP-7-26-03 4162N

Schedule of Loans/Receivables and Trading AccountSecurities - Loans

Schedule of Trading Account Securities - Investments,Available for Sale Securities and Investment in Bondsand Other Debt Instruments (IBODI)

Interest Rate and Maturities Matching

Remaining Maturities of Selected Accounts

Schedule of Bills Payables and Bonds

Data on Firm's Businesses

Statement of Income and Expenses

Monthly

- do -

- do -

- do -

- do -

- do -

- do -

15th business day fromend of reference month

- do -

- do -

- do -

- do -

- do -

- do -


Separate report for HeadOffice and each Branch;and a ConsolidatedReport for Head Officeand Branches

-do-

-do-


- do -

- do -

- do -


N Regulations

Appendix N

-1 - Page 3M


APP. N

-111.12.31

A-2 BSP-7-26-24 4162N(Rev. Aug.2003 perCL dated08.06.03)

A-2 Unnumbered 4101N(no prescribed form)(Entities with Trust/Fund ManagementOnly)

A-2 Unnumbered 4144N.12(Rev. May2002 asamendedby Cir. No.612 dated06.03.08)

A-2 Unnumbered 4144N.12

A-2 Unnumbered (Cir. 609dated05.26.08as amendedby M-2008-022 dated06.26.08)


Credit and Equity Exposures to Individuals/Companies/Groups Aggregating P 1.0 Million andabove

Report on required and available reserves on Peso-denominated Common Trust Funds (CTFs), such othermanaged peso funds and TOFA-Others



Financial Reporting Package for Trust Institutions

Schedules:

Balance Sheet

A1 to A2 Main Report

B to B2 Details of Investments in Debt andEquity Securities

C to C2 Details of Loans and Receivables

Quarterly

Weekly

Astransaction

occurs

Astransaction

occurs

Quarterly

15th business day fromend of reference quarter

3rd business dayfollowing referenceweek



20th banking day afterend of referencequarter

Electronic submission/diskette - SDC

Fax to SDC


Original and duplicate -Anti-Money LaunderingCouncil (AMLC)

To be submitted to theAnti-Money LaunderingCouncil

[email protected]

APP. N

-111.12.31

N Regulations

Appendix N

-1 - Page 4M


4101N.16

A-3 Unnumbered 4162N(CL-2007-050 dated10.04.07and CL-2007-059dated11.28.07)

SES II Form 15 4162N(NP08-TB) (As

amendedby M-2008-024 dated07.31.08)

D to D2 Wealth/Assets/Fund Management -UITF

E Fiduciary Accounts

E1 to E1b Other Fiduciary Services - UITF

Income Statement

Control Prooflist

Waiver of the Confidentiality of Information underSections 2 and 3 of R.A. No. 1405, as amended


Biographical Data of Directors/Officers- If submitted in diskette form - Notarized first page ofeach of the directors'/officers' bio-data saved in disketteand control prooflist- If sent by electronic mail - Notarized first page ofBiographical Data or Notarized list of names ofDirectors/Officers whose Biographical Data weresubmitted thru electronic mail to be faxed to SDC(CL dated 01.09.01)

-do-

Astransaction

occurs

Quarterly

Afterelection orappoint-

ment and aschanges

occur

-do-

Original to SDC

Electronic mail or CD formto SDC or if hard copyOriginal to appropriatedepartment of the SES,Duplicate to SDC

-do-


7th banking day fromthe date of the meetingof the board of directorsin which the directors/officersare elected orappointed


N Regulations

Appendix N

-1 - Page 5M


APP. N

-111.12.31


B Unnumbered 4162N

B

B Forms I and II M-031 Schedule 1 to 3 dated 09.11.09 and Cir. No

649 dated 03.09.09

Board Resolution on NBFIs signatories of reportssubmitted to Bangko Sentral

General Information Sheet

Report on Electronic Money TransactionsQuarterly Statement of E-Money Balances and

Activity - Volume and Amount of E-MOneyTransactions

Quarterly Statement of Liquidity CoverSchedules

1 - E-Money Balances2 - Bank Deposits3 - Govenmenr Securities and Others

Drop Box - SEC Central ReceivingSectionOriginal - SECDuplicate - BSP

e-mail [email protected] copy -SDC

3rd day from date ofresolution

30th business day fromannual stockholders'meeting


Asauthorized

Annually

Quartely

N RegulationsAppendix N-2 - Page 1


APP. N-208.12.31

GUIDELINES ON PRESCRIBED REPORTS SIGNATORIESAND SIGNATORY AUTHORIZATION

(Appendix to Subsec. 4162N.1)

Category A-2 reports of head officesshall be signed by the president, executivevice-presidents, vice-presidents or officersholding equivalent positions. Such reportsof other offices/units (such as branches)shall be signed by their respectivemanagers/officers in-charge. Likewise, thesigning authority in this category shall becontained in a resolution approved by theboard of directors in the format prescribedin Annex N-2-a.

Category B reports shall be signed byofficers or their alternates, who shall beduly designated in a resolution approvedby the board of directors in the format asprescribed in Annex N-2-b.

Copies of the board resolutions on thereport signatory designations shall besubmitted to the appropriate supervisingand examining department of the BSPwithin three (3) days from the date ofresolution.

Manual of Regulations for Non-Bank Financial InstitutionsN RegulationsAppendix N-2 - Page 2

APP. N-208.12.31

Whereas, it is required under Subsec. 4162N.1 that Category A-2 reports of head officesbe signed by the president, executive vice-presidents, vice-presidents or officers holdingequivalent positions, and that such reports of other offices be signed by the respectivemanagers/officers-in-charge;

Whereas, it is also required that aforesaid officers of the institution be authorized undera resolution duly approved by the institution’s Board of Directors;

Whereas, we, the members of the Board of Directors of (Name of Institution) , areconscious that, in designating the officials who would sign said Category A-2 reports, we areactually empowering and authorizing said officers to represent and act for or in behalf of theBoard of Directors in particular and (Name of Institution) in general;

Whereas, this Board has full faith and confidence in the institution’s President (and/orthe Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibilityfor all the acts which may be performed by aforesaid officers under their delegated authority;


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

Annex N-2-a





APP. N-208.12.31

Whereas, it is required under Subsec. 4162N.1 that Category B reports be signed byofficers or their alternates;

Whereas, it is also required that aforesaid officers of the institution be authorized undera resolution duly approved by the institution’s Board of Directors;

Whereas, we the members of the Board of Directors of (Name of Institution)_ areconscious that, in designating the officials who would sign said Category B reports, we areactually empowering and authorizing said officers to represent and act for or in behalf of theBoard of Directors in particular and (Name of Institution) in general;

Whereas, this Board has full faith and confidence in the institution’s authorized signatoriesand, therefore, assumes responsibility for all the acts which may be performed by aforesaidofficers under their delegated authority;


Name of Authorized Specimen Position Report Signatory/Alternate Signature Title No.


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 DIRECTORATTESTED BY:

CORPORATE SECRETARY

Annex N-2-b

FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY B REPORTS




APP. N-311.12.31

(Deleted pursuant to Circular No. 706 date 05 January 2011)

ANTI-MONEY LAUNDERING REGULATIONS(Appendix to Section 4104N)

N RegulationsAnnex N-3-a Page 2


APP. N-311.12..31

Annex N-3-a

CERTIFICATION OF COMPLIANCE WITHANTI-MONEY LAUNDERING REGULATIONS



APP. N-3 11.12.31



Annex N-3-b


RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS ANDSUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS

Manual of Regulations for Non-Bank Financial Institutions N RegulationsAppendix N-4 - Page 1

APP. N-411.12.31


(Appendix to Sec. 4104N)

(Deleted by Circular No. 706 dated 05 January 2011)

APP. N-509.12.31




AUDITING FIRM OF COVERED ENTITIES(Appendix to Secs. 4180N and 4190N)

Pursuant to Section 58 of the RepublicAct No. 8791, otherwise known as "TheGeneral Banking Law of 2000", and theexisting provisions of the executedMemorandum of Agreement (hereinafterreferred to as the MOA) dated 12 August2009, binding the Bangko Sentral ngPilipinas (BSP), Securities and ExchangeCommission (SEC), ProfessionalRegulation Commission (IC) - Board ofAccountancy (BOA) and the InsuranceCommission (IC) for a simplified andsynchronized accreditation requirementsfor external auditor and/or auditing firm,the Monetary Board, in its Resolution No.950 dated 02 July 2009,approved the following revised rules andregulations that shall govern the selectionand delisting by the BSP of coveredinstitution which under special laws aresubject to BSP supervision.











APP. N-509.12.31
















a. Mathematical or clerical mistakesin the underlying records and accountingdata;





8. Subsidiary - a corporation or firmmore than fifty percent (50%) of theoutstanding voting stock of which is directlyor indirectly owned, controlled or held withpower to vote by a bank, QB, trust entity orNSSLA.

9. Affiliate - a corporation, not morethan fifty percent (50%) but not less thanten percent (10%) of the outstandingvoting stock of which is directly orindirectly owned, controlled or held withpower to vote by a bank, QB, trust entityor NSSLA and a juridical person that isunder common control with the bank,QB, trust entity or NSSLA.

10. Control - exists when the parentowns directly or indirectly more than onehalf of the voting power of an enterpriseunless, in exceptional circumstance, it canbe clearly demonstrated that suchownership does not constitute control.

APP. N-509.12.31










13. Associate – any director, officer,manager or any person occupying asimilar status or performing similarfunctions in the audit firm includingemployees performing supervisory role inthe auditing process.

14. Partner - all partners includingthose not performing audit engagements.

15. Lead partner – also referred to asengagement partner/partner-in-charge/managing partner who is responsible forsigning the audit report on theconsolidated financial statements of theaudit client, and where relevant, theindividual audit report of any entity whosefinancial statements form part of theconsolidated financial statements.


17. Auditor-in-charge – refers to theteam leader of the audit engagement.

D. GENERAL CONSIDERATION ANDLIMITATIONS OF THE SELECTIONPROCEDURES



3. The selection of the external auditorsand/or auditing firm does not exonerate thecovered institution or said auditors fromtheir responsibilities. Financial statementsfiled with the BSP are still primarily theresponsibility of the management of thereporting institution and accordingly, thefairness of the representations madetherein is an implicit and integral part ofthe institution’s responsibili ty. Theindependent certified public accountant’sresponsibility for the financial statementsrequired to be filed with the BSP isconfined to the expression of his opinion,

APP. N-509.12.31



or lack thereof, on such statements whichhe has audited/examined.

4. The BSP shall not be liable for anydamage or loss that may arise from itsselection of the external auditors and/orauditing firm to be engaged by banks forregular audit or non-audit services.

5. Pursuant to paragraph (5) of theMOA, SEC, BSP and IC shall mutuallyrecognize the accreditation granted by anyof them for external auditors and firms ofGroup C or D companies under SEC,Category B and C under BSP, andinsurance brokers under IC. Onceaccredited/selected by any one (1) ofthem, the above-mentioned specialrequirements shall no longer be prescribedby the other regulators.

For corporations which are required tosubmit financial statements to differentregulators and are not covered by the mutualrecognition policy of this MOA, thefollowing guidance shall be observed:

a. The external auditors of UBswhich are listed in the Exchange, shouldbe selected/accredited by both the BSPand SEC, respectively; and

b. For insurance companies andbanks that are not listed in the Exchange,their external auditors must each beselected/accredited by BSP or IC,respectively. For purposes of submissionto the SEC, the financial statements shallbe at least audited by an external auditorregistered/accredited with BOA.

This mutual recognition policy shallhowever be subject to the BSP restrictionthat for banks and its subsidiary andaffiliate bank, QBs, trust entities, NSSLAs,their subsidiaries and affiliates engaged inallied activities and other FIs which underspecial laws are subject to BSPconsolidated supervision, the individualand consolidated financial statementsthereof shall be audited by only one (1)external auditor/auditing firm.

6. The selection of external auditorsand/or auditing firm shall be valid for aperiod of three (3) years. The SES shall makean annual assessment of the performanceof external auditors and/or auditing firm andwill recommend deletion from the list evenprior to the three (3)-year renewal period, ifbased on assessment, the external auditors’report did not comply with BSPrequirements.








(b) The external auditor does not have/shall not have outstanding loans or any

APP. N-509.12.31



credit accommodations or arranged for theextension of credit or to renew an extensionof credit (except credit card obligationswhich are normally available to other creditcard holders and fully secured auto loansand housing loans which are not past due)with the covered institutions under Item "B"at the time of signing the engagement andduring the engagement. In the case ofpartnership, this prohibition shall apply tothe partners and the auditor-in-charge of theengagement; and

(c) It shall be unlawful for an externalauditor to provide any audit service to acovered institution if the coveredinstitution’s CEO, CFO, Chief AccountingOfficer (CAO), or comptroller was previouslyemployed by the external auditor andparticipated in any capacity in the audit of thecovered institution during the one-yearpreceding the date of the initiation of the audit;









2. Auditing firmsa. The auditing firm must be primarily

accredited by the BOA and the name of thefirm’s applicant partner’s should appear inthe attachment to the certificate ofaccreditation issued by BOA. Additionalpartners of the firm shall be furnished byBOA to the concerned regulatory agencies(e.g. BSP, SEC and IC) as addendum to thefirm’s accreditation by BOA.


c. At the time of application, theapplicant firm must have at least one (1)signing practitioner or partner who isalready selected/accredited, or who isalready qualified and is applying forselection by BSP.

d. A registered accounting/auditingfirm may engage in any non-auditingservice for an audit client only if suchservice is approved in advance by theclient’s audit committee. Exemptions fromthe prohibitions may be granted by theMonetary Board on a case-by-case basisto the extent that such exemption isnecessary or appropriate in the publicinterest. Such exemptions are subject toreview by the BSP.

e. At the time of application, theapplicant firm must have the followingtrack record:

(1) For Category A, the applicant firmmust have had at least twenty (20)corporate clients with total assets of atleast P50.0 million each;

(2) For Category B, the applicant firmmust have had at least five (5) corporate

APP. N-509.12.31



clients with total assets of at least P20.0million each;

(3) For Category C, the applicant firmmust have had at least five (5) corporateclients with total assets of at least P5.0million each.










d. If the applicant will have clientsfalling under Category A, copy of the QualityAssurance Manual which, aside from thebasic elements as required under the BOA

basic quality assurance policies andprocedures, specialized quality assuranceprocedures should be provided consistingof, among other, review asset quality,adequacy of risk-based capital, riskmanagement systems and corporategovernance framework of the coveredentities.






(d) written proof that the auditor hasattended or participated in trainings for atleast thirty (30) hours in addition to theBOA’s prescribed training hours. Suchtraining shall be in subjects like internationalfinancial reporting standards, internationalstandards of auditing, corporategovernance, taxation, code of ethics,regulatory requirements of SEC, IC and BSPor other government agencies, and othertopics relevant to his practice, conductedby any professional organization or

APP. N-509.12.31



association duly recognized/accredited bythe BSP, SEC or by the BOA/PRC through aCPE Council which they may set up.











d. If the applicant firm will haveclients falling under Category A, copyQuality Assurance Manual where, asidefrom the basic elements as required underthe BOA basic quality assurance policies

and procedures, specialized qualityassurance procedures should be providedrelative to, among others review assetquality, adequacy of risk-based capital, riskmanagement systems and corporategovernance framework of covered entities;












APP. N-509.12.31











3. In case there are no matters toreport (e.g. fraud, dishonesty, breach oflaws, etc.) the external auditor/auditingfirm shall submit directly to BSP withinfifteen (15) calendar days after the closingof the audit engagement a notarizedcertification that there is none to report.

The management of the coveredinstitutions, including its subsidiaries andaffiliates, shall be informed of the adversefindings and the report of the externalauditor/auditing firm to the BSP shallinclude pertinent explanation and/orcorrective action.

The management of the coveredinstitutions, including its subsidiaries andaffiliates, shall be given the opportunityto be present in the discussions betweenthe BSP and the external auditor/auditingfirm regarding the audit findings, exceptin circumstances where the externalauditor believes that the enti ty’s

management is involved in fraudulentconduct.

It is, however, understood that theaccountability of an external auditor/auditing firm is based on matters within thenormal coverage of an audit conducted inaccordance with generally acceptedauditing standards and identified non-auditservices.




b. Continuous conduct of audit despiteloss of independence as provided underItem "E.1" or contrary to the requirementsunder the Code of Professional Ethics;

c. Any willful misrepresentation in thefollowing information/documents;


(2) report required under Item "H"; and(3) Notarized certification of the

external auditor and/or auditing firm.d. The BOA found that, after due

notice and hearing, the external auditorcommitted an act discreditable to theprofession as specified in the Code ofProfessional Ethics for CPAs. In this case,the BOA shall inform the BSP of the resultsthereof;

e. Declaration of conviction by acompetent court of a crime involving moralturpitude, fraud (as defined in the RevisedPenal Code), or declaration of liability forviolation of the banking laws, rules andregulation, the Corporation Code of thePhilippines, the Securities Regulation Code

APP. N-509.12.31



(SRC); and the rules and regulations ofconcerned regulatory authorities;

f. Refusal for no valid reason, uponlawful order of the BSP, to submit therequested documents in connection withan ongoing investigation. The externalauditor should however been made awareof such investigation;











d. Dissolution of the auditing firm/partnership, as evidenced by an Affidavit ofDissolution submitted to the BOA, or uponfindings by the BSP that the firm/partnershipis dissolved. The accreditation of such firm/partnership shall however be reinstated bythe BSP upon showing that the saiddissolution was solely for the purpose ofadmitting new partner/s have complied withthe requirements of this regulation andthereafter shall be reorganized and re-registered;




f. The firm or any one (1) of itsauditors has been involved in a majoraccounting/auditing scam or scandal. Thesuspension or delisting of the said firmshall depend on the gravity of the offenseor the impact of said scam or scandal onthe investing public or the securitiesmarket, as may be determined by the BSP;




APP. N-509.12.31





order of the BSP, to submit requesteddocuments in connection with an ongoinginvestigation. The firm should however bemade aware of such investigation.

3. Pursuant to paragraph 8 of theaforesaid MOA, the SEC, BSP and IC shallinform BOA of any violation by anaccredited/selected external auditor whichmay affect his/her accreditation status as apublic practitioner. The imposition ofsanction by BOA on an erring practitionershall be without prejudice to the appropriatepenalty that the SEC, IC or BSP may assessor impose on such external auditor pursuantto their respective rules and regulations. Incase of revocation of accreditation of apublic practitioner by BOA, theaccreditation by SEC, BSP and IC shalllikewise be automatically revoked/derecognized.



a. An external auditor/auditing firmshall only be delisted upon prior notice tohim/it and after giving him/it the opportunityto be heard and defend himself/itself bypresenting witnesses/ evidence in his favor.Delisted external auditor and/or auditingfirm may re-apply for BSP selection after theperiod prescribed by the Monetary Board.

b. BSP shall keep a record of itsproceeding/investigation. Said proceedings/investigation shall not be public, unlessotherwise ordered by the Monetary Board

for good cause shown, with the consent ofthe parties to such proceedings.

c. A determination of the MonetaryBoard to impose a suspension or delistingunder this section shall be supported by aclear statement setting forth the following:


(2) The specific provision/s of thisregulation, the related SEC rules orprofessional standards which the MonetaryBoard determined as has been violated; and

(3) The imposed suspension ordelisting, including a justification for eithersanction and the period and otherrequirements specially required withinwhich the delisted auditing firm or externalauditor may apply for re-accreditation.

d. The suspension/delisting, includingthe sanctions/penalties provided in Sec.X189 shall only apply to:

(1) Intentional or knowing conduct,including reckless conduct, that results inviolation or applicable statutory, regulatoryor professional standards; or

(2) Repeated instances of negligentconduct, each resulting in a violation of theapplicable statutory, regulatory orprofessional standards.


(1) There have been established in andfor that firm procedures, and a system forapplying such procedures, that comply withapplicable rules of BSP and that wouldreasonably be expected to prevent anddetect any such violation by such associatedperson; and

APP. N-509.12.31



(2) Such person or auditor hasreasonably discharged the duties andobligations incumbent upon that person byreason of such procedures and system, andhad no reasonable cause to believe that suchprocedures and system were not beingcomplied with.



h. The BSP shall establish forappropriate cases an expedited procedurefor consideration and determination of thequestion of the duration of stay of any suchdisciplinary action pending review of anydisciplinary action of the BSP under thisSection.


concern, the Monetary Board may, at theexpense of the covered institution requirethe external auditor and/or auditing firm toundertake a specific review of a particularaspect of the operations of these institutions.The report shall be submitted to the BSPand the audited institution simultaneously,within thirty (30) calendar days after theconclusion of said review.


Pursuant to Section 58 of RA. No.8791, otherwise known as “The GeneralBanking Law of 2000” the Monetary Boardmay also direct the board of directors of acovered institution or the individualmembers thereof, to conduct, eitherpersonally or by a committee created bythe board, an annual balance sheet auditof the covered institution to review theinternal audit and the internal controlsystem of the concerned entity and tosubmit a report of such audit to theMonetary Board within thirty (30) calendardays after the conclusion thereof.



1. That the covered institution shallbe responsible for keeping the auditor fullyinformed of existing and subsequentchanges to prudential regulatory andstatutory requirements of the BSP and thatboth parties shall comply with saidrequirements;

2. That disclosure of information bythe external auditor/auditing firm to theBSP as required under Items “H” and “J”hereof, shall be allowed; and

3. That both parties shall complywith all the requirements under thisAppendix.(As amended by Circular No. 660 dated 25 August 2009)


APP. N-608.12.31

QUALIFICATION REQUIREMENTSFOR A BANK/NON-BANK FINANCIAL INSTITUTION APPLYING FOR

ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR BONDISSUED BY ANY MUNICIPALITY, GOVERNMENT-OWNED OR

CONTROLLED CORPORATION, OR ANY BODY POLITIC(Appendix to Subsec. 4109N.16)

A bank/NBFI applying for accreditationto act as trustee on any mortgage or bondissued by any municipality, government-owned or controlled corporation, or anybody politic must comply with thefollowing requirements:

a. It must be a bank or NBFI underBSP supervision;

b. It must have a license to engage intrust and other fiduciary business;

c. It must have complied with theminimum capital accounts requiredunder existing regulations, as follows:

UBs and KBs The amount requiredunder existing regulationsor such amount as may berequired by the MonetaryBoard in the future

Branches of The amount required underForeign Banks existing regulations

Thrift Banks P650.0 million or suchamounts as may berequired by the MonetaryBoard in the future

NBFIs Adjusted capital of at leastP300.0 million or suchamount as may be requiredby the Monetary Board inthe future.

d. Its risk-based capital adequacy ratiois not lower than twelve percent (12%) atthe time of filing the application;

e. The articles of incorporation orgoverning charter of the institution shall

include among its powers or purposes,acting as trustee or administering any trustor holding property in trust or on depositfor the use, or in behalf of others;

f. The by-laws of the institution shallinclude among others, provisions on thefollowing:

(1) The organization plan or structureof the department, office or unit which shallconduct the trust and other fiduciarybusiness of the institution;

(2) The creation of a trust committee,the appointment of a trust officer andsubordinate officers of the trust department;and

(3) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization.

g. The bank’s operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

h. It has not incurred net weeklyreserve deficiencies during the eight (8)weeks period immediately preceding thedate of application;

i. It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Board and/or BSP Management in the last twopreceding examinations prior to the dateof application, particularly on the following:

(1) election of at least two (2)independent directors;

(2) attendance by every member of theboard of directors in a special seminar forboard of directors conducted or accreditedby the BSP;


APP. N-608.12.31

(3) the ceilings on creditaccommodations to DOSRI;

(4) liquidity floor requirements forgovernment deposits;

(5) single borrower’s loan limit; and(6) investment in bank premises and

other fixed assets.j. It maintains adequate provisions

for probable losses commensurate to thequality of its assets portfolio but not lowerthan the required valuation reserves asdetermined by the BSP;

k. It does not have float itemsoutstanding for more than sixty (60)calendar days in the “Due From/To HeadOffice/Branches/Other Offices” accountsand the “Due from Bangko Sentral”account exceeding one percent (1%) of thetotal resources as of date of application;

l. It has established a risk managementsystem appropriate to its operationscharacterized by clear delineation ofresponsibility for risk management, adequaterisk measurement systems, appropriatelystructured risk limits, effective internalcontrols and complete, timely and efficientrisk reporting system;

m. It has a CAMELS Composite Rating ofat least "3" in the last regular examination withmanagement rating of not lower than "3"; and

n. It is a member of the PDIC in goodstanding (for banks only).

Compliance with the foregoing as well aswith other requirements under existing regulationsshall be maintained up to the time the trust licenseis granted. A bank that fails in this respect shallbe required to show compliance for another testperiod of the same duration.


APP. N-708.12.31

FORMAT CERTIFICATION(Appendix to Subsec. 4211N.12)

______________________________Name of Bank

CERTIFICATION

Pursuant to the requirements of Subsec 4211N.12, I hereby certify that on all bankingdays of the semester ended _____ that the ____________________ (NBFI) did not enter intoany repurchase agreement covering government securities, commercial papers and othernegotiable and non-negotiable securities or instruments that are not documented inaccordance with existing BSP regulations and that it has strictly complied with the pertinentrules of the SEC and the BSP on the proper sale of securities to the public and performed thenecessary 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 ona 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 orexchange);

f.2. Authorized selling agents; andf.3. Minimum selling lots.

g. Disposition of the security

g.1. Registry (address and contact numbers)g.2. Functions of the registryg.3. Pertinent registry rules and procedures

h. Collecting and Paying Agent of the principal and interesti. 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, ifcertificated, to a BSP-accredited custodian that is mutually acceptable to the client and theNBFI, 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-708.12.31

• Securities sold on a without recourse basis are required to be delivered physicallyto 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 purchaseror 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 recoursebasis” and in the event of default by the issuer, the sole credit risk shall be borne by theclient; and

b. The NBFI is not performing any advisory or fiduciary function.

_______________ Name of Officer

Position

Date _____________

SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiant exhibitinghis Community Tax Certificate No.(s) as indicated below:

Name Community Tax Date/Place Cert. No. Issued

Notary Public


APP. N-708.12.31


______________________________Name of NBFI

CERTIFICATION

Pursuant to the requirements of Subsec. 4211N.12, I hereby certify that as of 31January 2005, the ____________________ (name of NBFI) does not have any outstandingrepurchase agreements covering government securities, commercial papers and othernegotiable and non-negotiable securities or instruments that are not documented inaccordance with existing BSP regulations.

____________________

Name of Officer

Position

SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiantexhibiting his Community Tax Certificate as indicated below:

Name Community Tax Date/Place

Cert. No. Issued

Notary Public

Annex N-7-a

FORMAT CERTIFICATION


APP. N-809.12.31

A. Application for Registration

Name of Applicant

Address

Telephone No./Fax No.

Date

Bangko Sentral ng PilipinasA. Mabini St., Malate, Manila

Gentlemen:

We hereby apply for authority to act as (foreign exchange dealer/money changer orremittance agent). We are currently engaged in this business since _____ (if applicable).

In support of this application, we submit the following documents:

• Incorporation papers duly authenticated by the Securities and Exchange Commission (forcorporation or partnership);• Copy of the Certificate of Registration with the Department of Trade and Industry (forsingle proprietorship);• Copy of business license/permit from the city or municipality having territorial jurisdictionover the place of establishment and operation;• List of stockholders/partners/proprietor/directors/principal officers as the case maybe;• Notarized Deed of Undertaking to strictly comply with the requirements of all relevantlaws, rules and regulations, signed by the owner, partner, president or officer of equivalentrank.

Very truly yours,

(Signature of authorized officer over printed name)

Designation

REGISTRATION AND OPERATIONS OF FOREIGN EXCHANGE DEALERS/MONEY CHANGERS AND REMITTANCE AGENTS



APP. N-809.12.31

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 operationsof foreign exchange dealers/money changers/remittance agents as well as the provisions ofthe Anti-Money Laundering Act of 2001 (R.A. No. 9160, as amended by R.A. No. 9194) andits implementing rules and regulations.

2. That I certify that (name of institution) undertakes to strictly comply with all therequirements, rules and regulations of the Bangko Sentral ng Pilipinas regarding the licensingand operations of foreign exchange dealers/money changers/remittance agents as well aswith all the provisions of the Anti-Money Laundering Act of 2001 (R.A. No. 9160) and itsimplementing rules and regulations.

3. That I certify that (name of institution), through and with full knowledge and agreementof its Board of Directors/Partners/Owners, understands and accepts that in case of violationsof any of the aforementioned laws, rules and regulations, (name of institution) and its Boardof Directors/Partners/Owners/Stockholders/Officers/employees responsible for suchviolation/s shall be subject to the administrative sanctions prescribed under Section 36 ofR.A. No. 7653, otherwise known as the “New Central Bank Act” and other applicablelaws, rules and regulations.

(Signature over printed name)

_________________________ Designation

Subscribed and sworn to before me this _____ of __________, 20____, affiant exhibitingto me his/her Community Tax Certificate No. ___________________ issued at_______________ on _______.

NOTARY PUBLIC


APP. N-809.12.31

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-809.12.31

D. Minimum Documentary Requirements for the Sale of Foreign Currencies

A. Sale of foreign exchange for non-trade current account purposes exceeding USD10,000

Purposes Documents Required(All originals except as indicated)

1. Foreign travel funds Applicant's passport and passenger ticket

2. Educational expenses/student Photocopy of proof of enrolment with,maintenace abroad or billing statement from, school abroad

3. Correspondence studies Photocopy of proof of enrolment with,or billing statement from, school abroad

4. Medical Expenses Photocopy of billing statement (for servicesrendered/expenses incurred abroad) orcertification issued by doctor/hospitalabroad indicating cost estimate (on thetreatment to be administered)

5. Emigrants' assets (including inheritance, a. Photocopies of:legacies, and income from properties) i. Emigrant's visa or proof of residence

of emigrant abroadii. Notarized Deed of Sale covering

assets (e.g., real estate, vehicles,machineries/equipment, etc.) and;

iii. Proof of income received fromproperties in the Philippines.

b. In the absence of the emigrant, anotarized Special Power of Attorney(SPA) for emigrant's representative/agent. If SPA was executed abroad,original of SPA authenticated byPhilippine consulate abroad.

6. Salary/bonus/dividend/other benefits of a. Employment contract/Certification offoreign expatriates (including peso employer on the amount of compensationsavings) paid to the foreign national during the

validity of the contract stating whether thesame had been paid in foreign exchangeor in pesos, and if in foreign exchange,proof that the foreign exchange waspreviously sold for pesos to AABs;

b. ACR I-Card and DOLE Alien EmploymentPermit of the foreign national;


APP. N-809.12.31


c. Applicant's notarized certification thatthe FX remitted is net of local expensesincurred or net of previous transfersabroad; and

d. If amount to be remitted comes fromsources other than salaries, informationregarding the sources supported byappropriate documents should besubmitted.

7. Foreign nationals' income taxes due to a. ACR-I Card and DOLE Alien Employmentforeign governments Permit; and

b. Photocopy of income tax return coveringthe income tax payment sought to beremitted.

8. Sales proceeds of domestic assets by a. ACR I-Card; andforeign expatriates b. Photocopy of proof of sale of asset/s.

9. Producers' share in movie revenue/TV 1. Statement of remittable share rental orfilm rentals rental; and

2. Copy of contract/agreement.

10. Commissions on exports due foreign a. Billing statement from non-residentagents agent; and

b. Photocopy of contract/agreement.

11. Freight charges on exports/imports a. Billing statement; andb. Photocopy of contract/agreement.

12. Charters and leases of vessels/aircrafts a. Billing statement from non-residentlessor/owner of vessel/aircraft; and


13. Port disbursements abroad for aircraft a. Billing statement; andand vessels of Philippine registry or b. Photocopy of contract/agreement.chartered by domestic operators andsalvage fees

14. Satellite and other telecommunication a. Billing Statement; andservices b. Photocopy of contract/agreement.

15. Other services such as advertising, a. Billing statement; andconsultancy, IT, fees for other b. Photocopy of contract/agreement.professional services


APP. N-809.12.31


16. Share in head office expenses a. Audited schedules of allocation of(including reimbursements) expenses for the periods covered;

b. Certification from the head officethat the share in head officeexpenses remain unpaid andoutstanding; and

c. Audited financial statements of thePhilippine branch.

17. Insurance/Reinsurance premium due to Billings/Invoices of insurance companies/foreign insurance companies brokers abroad.

18. Claims against domestic insurance Billings/Invoices from foreign insurer/companies by brokers abroad reinsurer.

19. Net Peso revenues of foreign airlines/ a. Statement of Net Peso Revenues (Pesoshipping companies revenues less expenses) certified by

authorized officer of airline/shippingcompany; and


20. Royalty/Copyright/Franchise/Patent/ a. Statement/Computation of the royalty/Licensing fees copyright/franchise/patent/licensing

fee; andb. Photocopy of contract/agreement.

21. Net peso revenues of embassies/ Statement of net peso revenues (Pesoconsulates of foreign countries revenues less expenses) certified by the

Embassy's/Consulate's authorized officer.

22. FX obligations of Philippine credit card Summary billingscompanies to international credit cardcompanies/non-resident merchants

23. Support of dependents abroad a. Consular certificate or its equivalentdocuments to prove that the dependentis permanently residing abroad notearlier than one (1) year from FXapplication date; and

b. Certified true copy of birth certificate,marriage contract, adoption papers,whichever is applicable.


APP. N-809.12.31


24. Subscriptions to foreign magazines or a. Billing statementperiodicals

25. Membership dues and registration fees a. Proof of membership; andto associations abroad b. Billing statement

26. Mail fees a. Copy of contract or agreement; andb. Billing statement

B. Sale of foreign exchange for payment of foreign/foreign currency loans, regardless ofamount


Foreign/foreign currency loan payments Billing statement from creditor.

Amounts that may be purchased shallbe limited to maturing amounts onscheduled due dates. Remittance of FXpurchased shall coincide with the duedates of the obligations to be serviced.FX-selling entity shall stamp "FX SOLD",date of sale and the amount/s sold onthe original billing statement.

Payments related to guarantees and similararrangements including risk take overarrangements

Resulting FX liabilities arising from Copies of:guarantees and similar arrangements a. Arrangements/contracts covered by theincluding Risk Take Over Arrangements guarantee/similar arrangement;(RTO) not involving foreign/FCDU loans b. Standby Letter of Credit (SLC) or

guarantee contract/agreement;c. Proof/notice of original obligor's default

and creditor's call on the guarantee; andd. Billing statement from the non-resident

or local bank guarantor

Payments related to Build-Operate-Transferand similar financing schemes with transferarrangements


APP. N-809.12.31


Regular Fees Copies of:a. Covering arrangements/contracts;

andb. Billing statement from private

sector project company/proponent

C. Sale of foreign exchange for capital repatriation/remittance of dividends/profits/earnings,outward investments and residents' investments in foreign currency-denominated bonds/notes issued by the Republic of the Philippines and other Philippine entities, regardlessof amount


1. Capital repatriation of:

a. Portfolio investments in:i. PSE-listed securities Broker's sales invoiceii. Peso government securities Confirmation of purchase for peso

government securitiesiii. Money market instruments (MMI) Matured contract for MMIiv. Peso bank deposits Proof of withdrawal of deposit or matured

certificate of deposit, as applicable

b. Foreign direct equity investments a. Photocopy of proof of sale or relevantdocuments showing the amount to berepatriated; in case of dissolution/capital reduction, proof of distributionof funds/assets such as statement of netassets in liquidation;

b. Detailed computation of the amountapplied for in the attached format(Attachment 2) prepared by the sellingstockholder's representative; and

c. Photocopy of pertinent auditedfinancial statements

2. Remittance of dividends/profits/earnings/ a. Photocopy of PSE-cash dividends noticeinterests and Phil. Central Depository (PCD)

printout of cash dividend payment orcomputation of interest earned issuedby MMI issuer or bank;


APP. N-809.12.31


b. Photocopy of secretary's swornstatement on the board resolutioncovering the dividend declaration;

c. Photocopy of latest audited financialstatements or interim financial statementscovering the dividend declaration period(for direct foreign equity investments)

3. Residents' outward investmenta. Direct equity investments a. Photocopy of investment proposal/

agreement, or subscription agreement;and

b. Photocopy of deed of sale or assignmentof the investments

b. Portfolio investments a. Photocopy of subscription agreement,or bond/stock offering;

b. Swift payment order instruction fromthe counterparty/broker/traderindicating the name of payee and typekind of investment authenticated by thebroker/trader; and

c. Photocopy of investor's order to broker/trader to buy the securities

4. Residents' investments in FX-denominated a. Photocopy of subscription agreement orbonds/notes issued by the Republic of the bond offering;Philippines and other Philippine entities b. Swift payment order instruction from the

counterparty/broker/trader indicatingthe name of payee and type/kind ofinvestment authenticated by the broker/trader; and

c. Photocopy of investor's order to broker/trader to buy the securties

D. Sale of foreign exchange for payment of importations, regardless of amount


Payment of merchandise imports a. Bill of lading or airway bill coveringthe merchadise imports; and

b. Commercial invoice

(As amended by Circular No. 652 dated 05 May 2009)



APP. N-809.12.31

Attachment 2

COMPUTATION SHEET

Name of FX FXD/MC: Date of FX Sale:

TYPE OF INWARD 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 (Php) Dividends/Profits per Share Total Amount (Php)

A. Gross Peso Amount RemittableB. Less: Taxes/ChargesC. Net Peso Amount RemittableD. Foreign Exchange Applied for Remittance (C/FX rate1/)

REPATRIATION OF CAPITAL

Total Amount/ Outstanding Balance Amount/No. of SharesNo. of Shares Before This Repatriation Applied for Repatriation

A. Total No. of Shares/Amount AppliedFor Repatriation

B. Selling Price/Share (if applicable)C. Gross Peso Amount Repatriable (A x B)D. Taxes/ChargesE. Net Peso Amount Repatriable (C - D)F. Foreign Exchange Applied for

Repatriation (E/FX rate1/)

Prepared by:

Signature over Printed Name Company Affiliation of of Authorized Representative Investor’s Representative of Applicant

Date

1/ To be supplied by FX Selling Bank


APP. N-911.12.31

THE GUIDELINES FOR THE IMPOSITION OF MONETARY PENALTY FORVIOLATIONS/OFFENSES WITH SANCTIONS FALLING UNDER SECTION 37 OFR. A. NO. 7653 ON TRUST CORPORATIONS, DIRECTORS AND/OR OFFICERS


The schedule of penalty, categorized based on: (1) the nature of offenses such as minor,less serious, and/or serious, and (2) the size of the assets under management of the trustcorporation, shall be as followsA. For Serious Offense

B. For Less Serious Offense

C. For Minor Offense

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 unsafeor unsound practice is one (1) in which there has been some conduct, whether act oromission, which is contrary to accepted standards of prudent quasi-banking operationand may result to the exposure of the quasi-bank and its shareholders to abnormal riskor loss.

Asset Size PenaltyRange

MinimumMediumMaximum

Up to P200million

P 500 750 1, 000

Above P200million but

notexceeding

P500 millionP 1, 000 1, 500 2, 000


notexceeding P1

billionP 3, 000 5, 000 7, 000

Above P1billion but

notexceedingP10 billionP 10, 000 12, 500 15, 000

Above P10billion but


Above P50billion

P 25, 000 27, 500 30, 000



Up to P200million

P 300 350 400


notexceeding

P500 millionP 600 700 800


notexceeding P1

billionP 1, 000 1, 250 1, 500

Above P1billion but




Above P50billion

P 15, 000 17, 500 20, 000



Up to P200million

P 150 200 250


notexceeding

P500 millionP 300 400 500


notexceeding P1

billionP 600 700 800

Above P1billion but




Above P50billion

P 6, 000 8, 000 10, 000


APP. N-911.12.31

In determining the acts or omissions included under the unsafe or unsound bankingpractice, an analysis of the impact thereof on the banks/quasi-banks/trust entities’operations and financial condition must be undertaken, including evaluation ofcapital position, asset condition, management, earnings posture and liquidityposition. The following circumstances shall be considered:

(a) The act or omission has resulted or may result in material loss or damage, orabnormal risk or danger to the safety, stability, liquidity or solvency of theinstitution;

(b) The act or omission has resulted or may result in material loss or damage orabnormal risk to the institution’s depositors, creditors, investors, stockholders orto the Bangko Sentral or to the public in general;

(c) The act or omission has caused any undue injury, or has given unwarrantedbenefits, advantage or preference to the quasi-bank or any party in the dischargeby the director or officer of his duties and responsibilities through manifestpartiality, evident bad faith or gross inexcusable negligence; or

(d) The act or omission involves entering into any contract or transaction manifestlyand grossly disadvantageous to the bank, quasi-bank or trust entity, whether ornot the director or officer profited or will profit thereby.

Certain acts or omissions as falling under this classification maybe determinedbased 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 andregulations, provisions of Manual of Regulations(MOR)/Circulars/Memorandum as wellas Monetary Board directives/instructions having material1/ impact on quasi-bank’ssolvency, liquidity or profitability and/or those violations classified as major offensesunder the Report of Examination, except those classified under unsafe or unsoundbanking practice.

3. Minor Offense - These include acts or omissions which are procedural in nature, canbe corrected immediately and do not have material impact on the solvency, liquidityand profitability of the quasi-bank. All other acts or omissions that cannot be classifiedunder 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 andaggravating 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 ofusers taken on the basis of the financial statements. Per Financial Accounting Standard Board (FASB), it is defined as themagnitude of an omission or misstatement of accounting information.


APP. N-911.12.31

6. Maximum refers to the penalty to be imposed if the aggravating circumstances outweighthe mitigating factor(s).

In determining the amount of penalty, a two-stage assessment shall be conducted asfollows:

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 listedand defined in Annex A).

Both the aggravating and mitigating factors shall be considered for initial penaltyimposition and subsequent requests for reconsideration thereto.

The foregoing monetary penalties shall be without prejudice to the imposition ofnon-monetary sanctions, if and when deemed applicable by the Monetary Board.Violations of banking laws and Bangko Sentral regulations with specific penal clauseare not covered by this Regulation.(As amended by Circular Nos. 673 dated 10 December 2009 and 645 dated 13 February 2009)


APP. N-911.12.31

Aggravating and Mitigating Factors to be Considered in theImposition of Penalty

Annex A

1. Aggravating Factors:(a) Frequency of the commission of

specific violation- This pertains to commissionor omission of a specific offense involvingeither the same or different transaction. Thiswill also refer to a violation which may havebeen corrected in the past but found repeatedin another transaction/account in thesubsequent examination.

In determining frequency, the number oftimes of commission or omission of aspecific offense during the preceding three(3)- year period shall also be considered.

The word “offense” pertains to aviolation that connotes infraction of existingBSP rules and regulations as well as non-compliance with BSP/MB directives.

(b) Duration of Violations Prior toNotification – This pertains to the length oftime prior to the latest notification on theviolation. Violations that have been existingfor a long time before it was revealed/discovered in the regular examination or areunder evaluation for a long time due topending requests or correspondences fromtrust corporations on whether a violation hasactually occurred shall be dealt with throughthis criterion. Violations outstanding for morethan one (1) year prior to notification, at theminimum, will qualify as violationsoutstanding for a long time.

Continuation of offense or omission afternotification – This pertains to the persistenceof an act of offense after the latest notificationon the existence of the violation, either fromthe appropriate department of the SES or fromthe Monetary Board and/or Deputy Governor,in cases where the violation has been elevatedaccordingly. This covers the period after thefinal notification of the existence of theviolation until such time that the violation hasbeen corrected and/or remedied. The corrective

action shall be reckoned with from the dateof notification.

(d) Concealment – This factors pertainsto the cover up of a violation. In evaluatingthis factor, one shall consider the intentionof the party(ies) involved and whetherpecuniary benefit may accrue accordingly.Intention precedes concealment. The act ofconcealing an offense or omission carries withit the intention to defraud regulators.Moreover, the amount of pecuniary benefit,which may or may not accrue from theoffense or omission, shall also be consideredunder this factor.

Concealment may be apparent in caseswhen trust corporation officers purposelycomplicates the transaction to make itdifficult to uncover or refuse to provideinformation/documents that would supportthe violation/offense committed.

In as much as concealment and intentionare speculative matter and may be difficult toestablish, appropriate support of facts orcircumstantial evidence in this factor shall beconsidered.

(e) Loss or risk of loss to trust corporation– In assessing this factor, “potential loss”refers to any time at which the trust corporationwas in danger of sustaining a loss.

· Substantial actual loss – The trustcorporation has been exposed to a significantloss of earnings and capital. The volume ofaccounts involved in the loss is substantial/significant in relation the institution’s assetsand capital. The trust corporation/individualmay have substantial/serious violations thatcould impact the reputation and earnings ofthe trust corporation.

· Minimal actual loss or substantial riskof loss – The trust corporation has incurredminimal loss or will be exposed to substantialrisk of loss of earnings or capital although


APP. N-911.12.31

both do not materially impact financialcondition. The volume of accounts involvedfor minimal loss or substantial risk of loss isreasonable and manageable. While a losswas incurred, the trust corporation couldabsorb the loss in the normal course ofbusiness. Substantial risk of loss includes anypotential losses the aggregate of whichamounts to at least one percent (1%) of thecapital of the trust corporation1.

· Minimal risk of loss – The risk exposureon earnings or capital is minimal. Trustcorporation is not vulnerable to significantloss. The volume of accounts involved forpotential loss/risk is minimal/negligible. Therisk of loss would have little impact on thetrust corporation or its financial condition.The risk of loss aggregating to less than onepercent (1%) of the capital of the trustcorporation will fall under this classification.

(f) Impact to trust/asset or investmentmanagement industry – In assessing thisfactor, it is appropriate to consider anypossible negative impact or harm to the trustcorporation. (e.g., A violation of law involvinginsider abuse may result in adverse publicityfor the institution, possibly causing a suddenmass redemption/withdrawal of trustinvestments or termination of trust, otherfiduciary or investment management accountsand affecting the trust corporation’s trustbusiness). Resulting effect on the trust/assetor investment management industry on theviolation/offenses committed by the trustcorporation, if any, will also be considered.Sources of data may come from news reports.

· Substantial impact on trust corporation.– No impact on trust/asset or investment management industry. This may involvereputational risk of the trust corporation as aresult of negative publicity generated forexample, by involvement of trust corporation’sdirector/officer in activities not acceptable tothe regulatory bodies. This may also involveinsider abuse of authority/power. However,

the trust/asset or investment managementindustry is not affected for this isolated case.

· Moderate impact on trust/asset orinvestment management industry or onpublic perception of trust/asset or investmentmanagement industry. This may involve poorcorporate governance and mismanagement oftrust corporation that may result to erosionof public confidence.

· Substantial impact on trust/asset orinvestment management industry or onpublic perception of trust/asset or investmentmanagement industry. This is a worst-casescenario. The violations/irregular activities ofthe trust corporation may totally erode the trustand confidence of the investing publicresulting to a nationwide mass redemption/withdrawal of trust investments or terminationof trust, other fiduciary or investmentmanagement accounts. Pessimistic perceptionof the investing public on the trust/asset orinvestment management is highly observed.

2. Mitigating Factors(a) Good Faith – Good Faith is the

absence of intention of the erring individual/entity in the commission of a violation.

· Full Cooperation – This is determinedby the actions of the individual and/or trustcorporation towards the regulators after oreven before notification of the offense and/oromission. Assistance rendered by the trustcorporation during the investigation and/orexamination conducted relative to the citedoffense and/or omission may be viewedfavorably when computing the amount ofpenalty to be imposed on the trustcorporation/individual.

· With positive measures/actionundertaken although not correctedimmediately. The trust corporation iswilling to remedy/correct the violation butis being restrained of its capacity to takeimmediate action thus, will undertake aMemorandum of Undertaking/Commitment

1 Cir. 410 dated 29 October 2003 provides that external auditors of trust entities must report to BSP, amongothers, any potential losses the aggregate of which amounts to at least one percent (1%) of the capital toenable the BSP to take timely and appropriate remedial action.


APP. N-911.12.31

for a specified period as a sign of good faith.The trust corporation has started to rectifythe infraction by instituting reforms in theiroperations or systems.· Voluntary disclosure of offense – Voluntary

disclosure of the trust corporation of theoffense committed before it is discovered byBSP examiners in the regular/specialexamination or in the supervisory work (e.g.submission of reports to the BSP disclosing

the violation committed by the trust corporationbased on the internal auditor’s findings) maybe considered as the highest level ofmitigation under this factor.

The burden of proof, however, falls on thetrust corporation/individual to support its/his/her claim of good faith and may be used asbasis to mitigate the amount of penalty thatmay be imposed.(Circular No. 710 dated 19 January 2011)