Monetary Board member and incoming BSP chief Felipe M. Medalla announced that it may take two to three more years before the Bangko Sentral ng Pilipinas can accept new applications for digital banks as it still needs to boost its capacity to regulate these kinds of lenders.
“We have to be very, very careful,” he said. “We should have at least enough examiners, enough experts to regulate and protect the public. That’s the reason.” He further explained that the BSP should develop its capacity first to regulate digital banks before allowing rapid expansion.
“Our ability to regulate must also grow,” he added. “We don’t hate competition, but we better have the capacity to regulate so as not to be outstripped by the growth of what we regulate.”
Mr. Medalla also reported that the current cap on licenses is comparable to those of our neighboring countries like Singapore, which granted four licenses, and Malaysia, which approved five.
Last year, the Philippine central bank limited the number of digital banking licenses to just six after the remaining applicants failed to meet the requirements.
Differentiating digital from traditional banks
The Bangko Sentral ng Pilipinas had released guidelines for establishing digital banks in the country in December 2020 to distinguish them from traditional banks.
BSP Circular No. 1105 s. 2020 defines a digital bank as an institution that offers financial products and services through digital and electronic channels. Digital banks are allowed to grant loans, accept savings, time deposits, and foreign currency deposits, invest in securities, issue e-money products and credit cards, sell micro-insurance products, as well as buy and sell foreign exchange currencies, among others.
Unlike traditional banks, they have no physical branches. However, they are required to maintain a head office in the Philippines that can serve as the main point of contact for their stakeholders, which includes the BSP and other regulators. The registered head office shall also house the offices of management and other support operations, or serve as a central hub for receiving and resolving customer complaints.
Finally, a minimum capital of P1 billion is required to establish a digital bank in the Philippines.
The circular also states that digital banks are subject to prudential requirements set out by the BSP, which include corporate governance and risk management, particularly on IT and cyber security, outsourcing, consumer protection, anti-money laundering, as well as in combating the financing of terrorism (CFT) as provided for under existing regulations.
While BSP recognizes the role of digital platforms in driving greater efficiency in the delivery of products and services as well as in expanding reach into the unserved market segments, it also has to promote an enabling regulatory environment that would allow for responsible innovation to flourish, promote cyber resilience, and advance digitalization of the financial industry.