Central bank relaxes regulations on foreign currency deposit system

EURO, Hong Kong dollar, US dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, Jan. 21, 2016. — REUTERS

THE Philippine central bank approved new amendments to the regulations on the foreign currency deposit system.

“The second phase of the reforms will afford banks the opportunity to perform efficient and flexible liquidity cash management of foreign currency denominated funds by easing the stringent conditions on lending to regular banking unit by the FCDU (foreign currency deposit unit),” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in a statement.

FCDUs are local units of banks that are allowed by the BSP to participate in activities involving foreign currency transactions. These units may be granted authority to engage in financial futures and options trading, provided they have sought approval from the central bank.

Signed by Mr. Diokno on Dec. 28, Circular 1134 Series of 2021 streamlined related licensing requirements for banks applying for FCDU authority.

“Covered banks will only have to notify the BSP of their intention to engage in expanded/FCDU operations. They are, however, expected to comply with the standards and requirements of the expanded FCDU license on a continuing basis,” the BSP said.

Banks were previously required to seek the BSP’s prior approval before they can engage in expanded FCDU transactions.

The circular also allowed Islamic banks and digital banks to engage in foreign currency deposit units, as the BSP announced earlier this month.

Banks are now expected to adopt a risk management framework that will be commensurate to the scope and risk profile of their foreign exchange activities.

“This framework should cover all material risks from foreign currency denominated transactions including market risk, liquidity risk and operational risk, among others,” the circular read.

Financial institutions are required to maintain a separate accounting for these FCDU transactions, the circular said. This will be used to prepare for the balance sheet and income statement, as well as risk management reports and tax purposes of FCDUs.

There are 76 banks that were granted FCDU authority by the central bank as of May 2021. — L.W.T.Noble