Firms participating in an ACH told to manage liquidity risks
A DRAFT circular from the central bank said financial institutions must manage the liquidity risks that could come from settlement activities.
FINANCIAL INSTITUTIONS participating in an automated clearing house (ACH) for electronic payments could soon be mandated to have liquidity risk management measures to avoid damages from rejected client transactions, a draft circular from the Bangko Sentral ng Pilipinas (BSP) said.
The central bank said financial firms must manage potential risks from the “prescribed settlement mechanism for electronic payments, including the possibility that a rejected payment transaction of a client due to pre-funding issues may give rise to serious reputational damages to the concerned clearing participant.”
Clearing participants for electronic payments must assure certainty of settlement of the multilateral clearing obligations of clearing participants.
To do so, either the clearing participant or its settlement sponsor must maintain a BSP demand deposit account to be used for clearing obligations from electronic payments.
Meanwhile, distinct deposit accounts must be used for instant retail payments and batch settlement of electronic payments.
The BSP draft circular said clearing participants must make sure their demand deposit accounts can sufficiently settle obligations at each cycle, pre-funding the settlement of their net clearing obligations.
The draft circular also listed rules for service contracts between clearing participants and the clearing switch operator, including creating a record of the demand deposit account balances.
“Should the clearing participants determine that the funds in their demand deposit accounts for instant retail electronic payments are excessive after taking into account their highest potential clearing obligations, the clearing participants shall be allowed to withdraw from their demand deposit accounts to enable them to make optimal use of their funds,” the draft circular said.
The demand deposit accounts will form the financial institution’s reserves against deposit and deposit substitute liabilities, the central bank said. — J.P. Ibañez
