The Philippine Payment and Settlement System

1 The Philippine Payment and Settlement SystemPayments and Settlements Office+63 2 400 2019 HISTORYTHE EVOLUTION TO A MODERN Payment AND Settlement SYSTEMA ddressing challenges of the times and meeting global standards Under Republic Act No. 7653 (The New Central Bank Act) approved in 1993, the central bank established facilities for interbank clearing with deposit reserves maintained by banks in the BSP used as the basis for the clearing of checks & the Settlement of instructions were physically delivered by banks to the then Deposit Liabilities & Reconciliation Division (DLRD) of BSP s Accounting Department which settled transactions at designated time address risks & improve processing time that can be made from a manual System , procedures to transmit Payment instructions electronically were developed beginning 1997.

2 This included the BSP-Electronic Fund Transfer Instruction System (EFTIS) wherein Authorized Agent Banks send electronic fund transfer EFT) instructions to the BSP covering revenue collections for the Bureau of Internal Revenue & the Bureau of Customs, for credit to the account of the Bureau of Treasury (BTr). The Philippine Clearing House Corporation (PCHC) Multi-Transaction Interbank Payment System (MIPS) was established in year 2000 for interbank lending and borrowing, the Philippine Domestic Dollar Transfer System to move US dollars across banks, & several other payments were generally sent through a clearing unit ( , PCHC or the PDS Settlement Highway) & are thereafter electronically transmitted to the BSP for Settlement by batch at designated time periods. The handling of Payment instructions was transferred from the DLRD to the Demand Deposit Account Real-Time Gross Settlement unit (DDA-RTGS) of the BSP Accounting Department.

3 Banks electronically receive updates on the balances of their DDAs at certain time periods ( , on an hourly basis).As the financial System became more integrated, sophisticated & more complex, payments & settlements systems became more exposed to bodies have agreed that an RTGS is a powerful payments infrastructure that can limit risks particularly for large-value transactions as it provides timely & final Settlement of time-critical payments on a continuous basis, thus enhancing the integrity of financial transactions & ultimately furthering economic November 2002, the BSP launched the Phase 1 of the Philippine payments and Settlements System , otherwise known as PhilPaSS, initially covering only interbank lending and borrowing transactions. In December 2002, PhilPaSSwas fully implemented by the DDA-RTGS unit.

4 Such System clears & settles on a per transaction basis (rather than by batch), real-time (vs. deferred), & on a gross basis (rather than on a net basis), with finality & irrevocability. To economize on the use of central bank money, PhilPaSSalso integrated a deferred netting System or DNS which provides frequent netting of payments within the day for bulk transactions that are not time-sensitive. Further, participants are given a System to enable them to send EFT instructions directly to the BSP and to access their accounts/ records on-line & anytime during the business November 2004, the Accounting Department was expanded to become the Comptrollership Sub-Sector. To provide a better check-and-balance System , the Monetary Board converted the DDA-RTGS unit in June 2006 (then under the Comptrollership Sub-Sector) to become the payments & Settlements Office (PSO).

5 The PSO acts as the operator of PhilPaSS& reported directly to the Office of the Deputy Governor of the Corporate Services Sector (ODG-CSS).| P a g e 1 System FEATURESPAYMENT QUEUINGPRIORITIZATIONI nstructions that cannot be settled due to insufficient funds are held on queue until funds are made availableGRIDLOCK RESOLUTIONThe System initiates a gridlock resolution whenever 2 or more instructions remain unsettled TRANSACTIONVALIDATIONP ayment instructions are subject to validation System REPORTP articipants may generate reports such as their SOAs, billings, & CWT AUDIT TRAILThe System maintains audit records TRANSACTION STATUS VALIDATIONP articipants are able to verify the Settlement status of their transactions System INQUIRIESP articipants are able to send inquiries &/or requests through the System PhilPaSSis designed to achieve real-time & uninterruptible Settlement of financial transactions.

6 Upon receipt of EFTs, PhilPaSSsettles these on a per transaction basis, subject to the availability of funds in the participant s DDA, with finality & irrevocability. Any requirement to return funds shall be requested by the participant from its counterparty. Debit instructions that cannot be settled due to insufficient funds will be held on queue until adequate funds in the DDA become available. Pending debit instructions on queue will be settled based on business priorities as indicated by the participant or on First-in-First-Out basis. Whenever 2 or more Payment instructions remain unsettled, the System shall initiate a gridlock resolution every 30 minutes. Any remaining queued transactions shall automatically be rejected by the System after the PhilPaSSwindow closes at 5:45 pm. The PhilPaSShas validation features to avoid duplication of the processing of transactions.

7 These include transaction reference numbers, message types, value dates, & the participant s Bank Identifier the convenience of participants, they are able to: 1) generate reports such as their DDA -Statements of Accounts (SOAs), billings, Creditable Withholding Tax, 2) access their past SOAs up to two (2) months maintained by the System , 3) verify the status of their Payment instructions, & 4) send inquiries/ requests through the instructions may have any of the following status: Ready( Payment had been on Payment queue), Warehoused( Payment is received & the value date is greater than the current value date with warehousing allowed up to 4 calendar days), Rejected(invalid such as back-valued transactions, duplicate Payment instructions, incomplete identifier code, invalid Payment instruction format), or Settled(transactions that are fully accepted, processed, & settled by the System ).

8 Participants may issue requests such as the cancellation of unsettled/ queued Payment instructions, details such as balances &/ or movements of their accounts & of debit/ credit entries to their accounts, and/ or requests to relay messages to counterparties. | P a g e 2 THE ROLE OFTHE BSPU nder its Vision and Mission, the PSO is committed to provide and maintain a robust Payment System that will ensure the mitigation of payments -related risks capable of triggering systemic impact on the financial System , institutions, and individuals. The PSO resolves to (a) ensure strict compliance with rules and regulations covering the operations of PhilPaSS; (b) implement adequate and effective PhilPaSSbusiness continuity management measures; (c) observance of international standards on payments and Settlement ; and (d) continuous advancement of payments processes and procedures to benefit the stakeholders and the economy as a BSP, through the PSO, operates the country s real-time gross Settlement System , facilitating time-critical payments and thus promoting economic activity and financial stability1 The PSO continually ensures compliance of PhilPaSSwith international standards.

9 In 2005, the International Monetary Fund published a report of its assessment on the observance of PhilPaSSwith international standards and codes on payments systems. In 2007, a self-assessment was made on the compliance with the 10 core principles for systemically important Payment Systems established by the Committee on Payment and Settlement Systems. In 2014, a 3rd party assessment was also conducted under a technical assistance of the Asian Development Bank against the principles for Financial Market Infrastructures (PFMI) jointly issued by the Committee on payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) in 2012. The PFMI replaced the 10 core principles and was designed to ensure safer and more efficient financial market infrastructures that can withstand financial shocks.

10 Self-assessments are also performed annually. ISO 9001 is an internationally recognized quality management standard which specifies Quality Management System (QMS) requirements focused on an organization s ability to meet and improve upon consumer satisfaction and quality requirements. The TUV SUD PASB Philippines, the country s leading multinational certification inspection body, awarded the Certification of Audit on the PhilPaSS& its critical components in 2012 and has annually renewed its certification since then. Additionally, the Monetary Board approved the submission of the 2018 SWIFT Security Attestation Report. The report indicated BSP s compliance with the security controls required under the SWIFT Customer Security Controls Framework WITH INTERNATIONAL STANDARDS| P a g e 3| P a g e 42010OF Remittances (until 2018)2012 ATM (BancNet), Checkless payments (BSP HO & SPC), FX loan application fees2013 Bank (Regional) withdrawals2015 RRP Placements, Checkless payments (BSP Regional)2017 PESONet2018 InstaPay2002 Interbank andBIR and BOC Revenue Collections 2003 Checks, ATM (MegaLink), USD Trades2004 EFTIS (until 2014)GS -Secondary2006 Bank (HO)