BSP tightens guidelines on deposits, securities investments

BSP tightens guidelines on deposits, securities investments

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has imposed stricter guidelines on the funds received from customers for securities investments and deposits to boost efforts in protecting the welfare of financial consumers.

The BSP has directed banks to segregate the funds of customers received under a securities brokering arrangement from deposit taking activities.

As such, a new account in the books of banks called “broker customer account” would have to be introduced by the banks.

The “broker customer account” makes clear that funds recorded under this item are not to be classified as “deposits.”

“They are transactional in nature because there is an instruction to use them to purchase securities,” the BSP said in a statement.

In this context, the “broker customer account” would not be subject to bank reserve requirements and would not be covered by the Philippine Deposit Insurance Corp. (PDIC).

Under the prior practice, banks would book as deposits the money they receive from clients who wish to purchase securities. The bank is acting as a securities broker for the client under this transaction.

Securities brokering is performed when a bank specifically licensed as a broker facilitates the buying and selling of financial securities between a buyer and a seller.

In this capacity, the bank is acting as an agent of the customer rather than a receiver of funds for the purpose of deposit taking.

Starting October, broker banks are required to submit a monthly report of their weekly balances of securities and cash that they received from their customers.

“The guidelines are consistent with the thrust of the BSP to align the reporting system with international standards and to protect the welfare of financial consumers,” the central bank said.

As a step toward the segregation of banking activities from other business activities, the current Financial Reporting Package of the BSP was also amended to make room for the reporting of the extent of securities brokering transactions of its supervised financial institutions.

The BSP raised the reserve requirement for universal and commercial banks to 20 percent in May last year to mop up excess liquidity in the system, tempering domestic demand and easing price pressures.

BSP has kept key policy rates unchanged since September last year. The overnight borrowing rate is pegged at four percent while the overnight lending rate is at six percent.