Philippines - BSP Liberalizes Rules On Foreign Exchange.
Legal News & Analysis - Asia Pacific - Philippines - Regulatory & Compliance
10 September 2021
In my last article, I discussed the newly issued rules by the Bangko Sentral ng Pilipinas (BSP), which developed a stricter penalty system for financial institutions, and their directors, trustees, officers, and employees who violate the provisions of banking laws. Such regulation provided in Circular 1125 was issued in line with the BSP’s supervisory powers to further promote trust in the banking industry and instill accountability among lenders.
With this article, however, I will discuss the BSP’s mandate in supporting the promotion and maintenance of price stability, external sustainability, and the integrity and value of the Philippine peso through the effective management of exchange transactions.
Thus, in line with its thrust to promote a policy environment that is market-oriented and supportive of the Philippine economy’s sustained expansion, the BSP issued Circular 1124, dated 10 August 2021, which liberalized the regulations on foreign exchange to adapt to the needs of a dynamic and expanding economy, especially in the time of this pandemic.
Over the years, the BSP has undertaken various liberalization measures to ease foreign exchange regulations, and facilitate foreign exchange transactions by banks, corporations, overseas Filipinos, and the public in general. Such measures were all in line to boost the economy in the country.
In this particular Circular, however, which is set to take effect on 13 September 2021, the new foreign exchange regulation serves multiple purposes of not only easing the use of foreign exchange resources in the banking system, but also streamlining and simplifying the procedures for foreign exchange transactions, and even modernizing its framework by allowing the use of technology.
A significant reform under the Circular is the provision on permanently allowing electronic submission of documents and the use of electronic or digital signature to aid clients in complying with the documentary requirements for foreign exchange transactions.
Another significant amendment is the lifting of prior approval from the BSP for certain transactions. At present, the only instance where the BSP’s prior approval is not required is with respect to foreign exchange transactions for non-trade current account transactions, which do not exceed $500,000 for individuals and $1 million for corporations. Thus, to further liberalize the foreign exchange regulation and attract more foreign exchange transactions, Circular 1124 increases the number of transactions that does not require prior approval from the BSP.
For one, it allows banks to sell foreign currency to Filipinos without the BSP’s prior approval, provided that these will be used for activities such as online payments for e-commerce. Moreover, the Circular also provides the same leniency to banks selling foreign currency to Filipinos if these will be used for non-trade current account transactions, such as foreign travel funds, education expenses abroad, distance learning/online courses, and living allowance or medical expenses of dependents living abroad.
The same rule applies for the funding of peso deposit accounts of nonresidents with the use of peso receipts related to trading transactions, foreign loans, and investments.
Other foreign exchange transactions exempted from prior approval from the BSP include foreign exchange derivative transactions of non-bank government entities, offsetting of payables with receivables among residents as well as residents with non-residents for their trade and non-trade current account transactions, and importation of goods with services covered by engineering, procurement and construction contracts.
According to the BSP, these amendments are expected to increase the share of digital payments and electronic financial transactions in the country, which may consequently help in contributing to the country’s continued economic expansion.
Although the amendments are targeted to provide leniency for foreign exchange regulation, the BSP reminds banks to continue to implement safe and sound practices.