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MORNBFI Volume 1 - Bangko Sentral ng Pilipinas

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MORNBFI Volume 1 - Bangko Sentral ng Pilipinas Powered By Docstoc
					                                       FOREWORD

        The 2009 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is
an updated compilation of regulations and policies issued by the Bangko Sentral ng Pilipinas
(BSP) for financial institutions under its supervision. Available in hard and soft copies, it is a
convenient reference and guide for said financial institutions in the conduct of their operations.

        The updated MORNBFI incorporates regulatory policies issued to align banking
practices on risk management, good corporate governance, and capital adequacy, accounting
and reporting with international standards. It also includes rules implementing legislative
reform measures, the more significant of which are the General Banking Law of 2000, the
Anti-Money Laundering Act of 2001 and the Special Purpose Vehicle Act of 2002.

        In providing easy access to this information, the updated MORNBFI seeks to facilitate
compliance with the supervisory and regulatory requirements of BSP that will contribute to
the enhancement of its partnership with financial institutions under its supervision, and
ultimately to the strengthening of the Philippine Banking System and the economy.




                                                               AMANDO M. TETANGCO, JR.
                                                                     Governor
                                           PREFACE
                                         (2009 Edition)


         The 2009 Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) is
the latest updated edition from the initial issuance in 1996 . The updates consist of the significant
policy developments and changes in statutory laws. It shall serve as the principal source of
banking regulations issued by the Monetary Board and the Governor of the BSP and shall be
cited as the authority for enjoining compliance with the rules and regulations embodied
therein.

          To accomplish the work of proposing revision to the Old Manual, the Monetary Board
of the BSP, in its Resolution No. 1203 dated December 7, 1994, directed the creation of a
multi-departmental Ad Hoc Review Committee. The Committee was officially constituted
under Office Order No. 2 Series of 1995 and was reconstituted several times thereafter.
Under the aforesaid office order, the Committee is tasked to update the Manuals on a
continuing basis (i) to incorporate relevant issuances (ii) propose revision/deletion of provisions
which have become obsolete, redundant, irrelevant or inconsistent with laws/regulations
(iii) reformulate provisions as the need arises and (iv) oversee printing of the Manuals/
Updates in coordination with the Corporate Affairs Office.

       The present Committee, as reconstituted under Office Order No. 430, Series
of 2007 dated 08 June 2007, is composed of: Mr. Alberto A. Reyes, Director, Central
Point of Contact Department (CPCD) II, Chairman; Atty. Magdalena D. Imperio, Deputy
Director, Office of the General Counsel and Legal Services (OGCLS), Vice Chairman;
Ms. Ma. Corazon T. Alva, Acting Deputy Director, Examination Department (ED) I;
Ms. Ma. Belinda G. Caraan, Acting Deputy Director/Head, Financial Consumer Affairs
Group (FCAG); Atty. Lord Eileen S. Tagle, Legal Officer III, OGCLS; Ms. Maria Cynthia
M. Sison, Bank Officer IV, Office of the Supervisory Policy Development (OSPD);
Ms. Concepcion A. Garcia, Bank Officer IV, OSPD; Atty. Florabelle S. Madrid, Manager,
CPCD I, members; and Mr. Nestor A. Espenilla, Jr., Deputy Governor, Supervision
and Examination Sector, Adviser.

        The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Acting Manager,
CPCD II, Head; Ms. Ma. Corazon B. Bilgera, Bank Officer II, OSPD; Ms. Ma. Cecilia U. Contreras,
Supervision and Examination Specialist I, CPCD II, members.


                                                                The Bangko Sentral ng Pilipinas
                              INSTRUCTIONS TO USERS
                                           (2009 Edition)


        The Manual of Regulations for Non-Bank Financial Institutions (the “Manual”) contains
the rules and regulations which govern non-bank financial institutions (NBFIs) subject to
the supervision of the Bangko Sentral ng Pilipinas (BSP) under existing laws, i.e. : Quasi-
banks (Q Regulations), NSSLAs (S Regulations), Pawnshops (P Regulations), and other NBFIs,
trust entities, subsidiaries and affiliates of banks and quasi-banks (N Regulations).

        The Manual is divided into four (4) books Q, S, P or N. Each book is divided into
parts. Each part is divided into sections containing four (4) digits and the letter Q, S, P or N,
as applicable, i.e., 4143Q. The first digit “4” means that the regulation is applicable to
NBFIs; the second digit “1” refers to the Part number, and the third and fourth digits “4”
and “3” refer to the section number.

        Sections may contain subsections represented by number/s after the decimal point,
i.e., 4143Q.1.

          To illustrate, Subsection 4143Q.1 indicates:

                    Main Section on “Disqualification of Directors/Trustees and Officers”

                                 Subsection on “Persons disqualified to become officers”



      4       1     4     3     Q      .       1


                                           Regulation addressed to quasi-banks


              Part One on “Organization, Management and Administration"

      Regulations addressed to NBFIs


       The runners in the upper-right or left hand corners of each page show the sections/
subsections of the regulations and the cut-off date of the regulatory issuances included in
the page of the Manual where the runner is shown.
  MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS

                         Q REGULATIONS
          (Regulations Governing Non-Bank Financial Institutions
                   Performing Quasi-Banking Functions)


                   TABLE OF CONTENTS

POWER OF THE BANGKO SENTRAL TO EXAMINE QUASI-BANKS

          Examination by the Bangko Sentral
          Definition


PART ONE - ORGANIZATION, MANAGEMENT AND ADMINISTRATION

                       A. SCOPE OF AUTHORITY

SECTION   4101Q Quasi-Banking Functions
                4101Q.1    Financial intermediaries
                4101Q.2 Guidelines on lender count
                4101Q.3     Transactions not considered quasi-banking
                4101Q.4     Delivery of securities
                4101Q.5     Securities custodianship operations
                4101Q.6     Sale, discounting, assignment or negotiation by
                            quasi-banks of their credit rights arising from
                            claims against the Bangko Sentral to clients
                4101Q.7    Applicability of rules governing universal banks
                            to quasi-banks

               B. ESTABLISHMENT AND ORGANIZATION

SECTION   4102Q Statement of Policy
                4102Q.1      Preconditions for the exercise of quasi-banking
                             functions

SECTION   4103Q Application for a Certificate of Authority from the Bangko
                Sentral

SECTION   4104Q Issuance of Bangko Sentral Certificate of Authority

SECTION   4105Q Licensing of an Investment House



                                    ix
SECTION    4106Q Basic Laws Governing Investment Houses and Financing
                 Companies

SECTION    4107Q (Reserved)

                     C. MERGER/CONSOLIDATION

SECTION    4108Q Merger/Consolidation Involving Quasi-Banks
                 4108Q.1     Requirement of Bangko Sentral approval
                 4108Q.2    (Reserved)
                 4108Q.3    Merger/consolidation incentives

SECTION    4109Q - 4110Q        (Reserved)

                          D. CAPITALIZATION

SECTION    4111Q Minimum Required Capital

SECTION    4112Q Minimum Capital of Investment House

SECTIONS   4113Q Sanctions

SECTION    4114Q (Reserved)

                        E. RISK-BASED CAPITAL

SECTION    4115Q Basel II Risk-Based Capital
                 4115Q.1       Scope
                 4115Q.2       (Reserved)

SECTION    4116Q Basel I Risk-Based Capital
                 4116Q.1       Scope
                 4116Q.2       Qualifying capital
                 4116Q.3       Risk-weighted assets
                 4116Q.4       Definitions
                 4116Q.5       Required reports
                 4116Q.6       Sanctions
                 4116Q.7       Temporary relief

SECTION    4117Q Treatment of Equity Investment with Reciprocal Stockholdings

SECTION    4118Q Sanctions on Net Worth Deficiency

SECTION    4119Q Internal Capital Adequacy Assessment Process and
                 Supervisory Review Process

                                    x
SECTION    4120Q (Reserved)

                               F. (RESERVED)

SECTIONS   4121Q - 4135Q (Reserved)

               G. STOCK, STOCKHOLDERS AND DIVIDENDS

SECTION    4136Q Dividends
                 4136Q.1         Definition of terms
                 4136Q.2         Requirements on the declaration of dividends/
                                 net amount available for dividends
                    4136Q.3      (Reserved)
                    4136Q.4      Reporting and verification
                    4136Q.5      Recording of dividends
                    4136Q.6      (Reserved)
                    4136Q.7      Rules on declaration of stock dividends

SECTIONS   4137Q - 4140Q (Reserved)

              H. DIRECTORS, OFFICERS AND EMPLOYEES

SECTION    4141Q    Definition; Qualifications; Powers; Responsibilities and Duties
                    of Board of Directors and Directors
                    4141Q.1      Limits on the number of the members of the board
                                 of directors
                    4141Q.2      Qualifications of a director
                    4141Q.3      Powers/responsibilities and duties of board of
                                 directors and directors
                    4141Q.4      Confirmation of the election/appointment of
                                 directors and officers
                    4141Q.5 - 4141Q.8 (Reserved)
                    4141Q.9      Reports required
                    4141Q.10 Sanctions

SECTION    4142Q Definition and Qualifications of Officers

SECTION    4143Q Disqualification of Directors/Trustees and Officers
                 4143Q.1       Persons disqualified to become directors/trustees
                 4143Q.2       Persons disqualified to become officers
                 4143Q.3       Effect of non-possession of qualifications or
                               possession of disqualifications
                 4143Q.4       Disqualification procedures

                                      xi
                    4143Q.5     Watchlisting
                    4143Q.6     Prohibition against foreign officers/employees of
                                financing companies

SECTION    4144Q Monetary Board Confirmation of Directors/Trustees and Senior
                 Officers

SECTION    4145Q Interlocking Directorships and/or Officerships
                 4145Q.1      Representatives of government

SECTION    4146Q Profit Sharing of Directors/Trustees, Officers and Employees

SECTION    4147Q Compensation and Other Benefits of Directors/Trustees and
                 Officers

SECTION    4148Q (Reserved)

SECTION    4149Q Conducting Business in an Unsafe/Unsound Manner
                 4149Q.1 - 4149Q.8 (Reserved)
                 4149Q.9     Sanctions

SECTION    4150Q Rules of Procedure on Administrative Cases Involving Directors
                 and Officers of Quasi-Banks

                   I. BRANCHES AND OTHER OFFICES

SECTION    4151Q Establishment
                 4151Q.1     Evaluation guideposts
                 4151Q.2     Additional capital, if required
                 4151Q.3     Other requirements/factors to be considered
                 4151Q.4     Conditions precluding processing of applications
                 4151Q.5     Documentary requirements
                 4151Q.6     Filing of applications
                 4151Q.7     Period within which to submit complete
                             requirements
                 4151Q.8     Prohibition against operating without Securities
                             and Exchange Commission license

SECTIONS   4152Q - 4155Q (Reserved)

                              J. (RESERVED)

SECTIONS   4156Q - 4159Q (Reserved)

                                     xii
                          K. BANKING PREMISES

SECTION    4160Q Quasi-Bank Premises and Other Fixed Assets
                 4160Q.1     Appreciation or increase in book value
                 4160Q.2     (Reserved)
                 4160Q.3     Reclassification of real and other properties
                             owned or acquired as quasi-bank premises
                 4160Q.4 - 4160Q.9         (Reserved)
                 4160Q.10 Batas Pambansa Blg. 344 - An Act to Enhance
                             the Mobility of Disabled Persons by Requiring
                             Certain Buildings, Institutions, Establishments
                             and Public Utilities to Install Facilities and Other
                             Devices

           L. MANAGEMENT CONTRACTS AND OUTSOURCING
                     OF BANKING FUNCTIONS

SECTION    4161Q Management Contracts

SECTION    4162Q Duties and Responsibilities of Quasi-Banks and their Directors/
                 Officers in All Cases of Outsourcing of Quasi-Banking
                 Functions

SECTIONS   4163Q - 4167Q (Reserved)

                              M. (RESERVED)

SECTIONS   4168Q - 4172Q (Reserved)

                         N. RISK MANAGEMENT

SECTION    4173Q Supervision by Risks

SECTION    4174Q Market Risk Management

SECTION    4175Q Liquidity Risk Management

SECTIONS   4176Q - 4179Q (Reserved)

SECTION    4180Q Compliance System; Compliance Officer
                 4180Q.1    Compliance system
                 4180Q.2    Compliance officer
                 4180Q.3    Compliance risk

                                     xiii
                   4180Q.4      Responsibilities of the board of directors and
                                senior management on compliance
                   4180Q.5      Status of compliance function
                   4180Q.6      Independence of compliance function
                   4180Q.7      Role and responsibilties of the compliance
                                function
                    4180Q.8     Cross-border issues
                    4180Q.9     Outsourcing of compliance function

SECTIONS   4181Q - 4184Q (Reserved)

SECTION    4185Q Internal Control System
                 4185Q.1 - 4185Q.8 (Reserved)
                 4185Q.9      Independence of internal audit function

SECTION    4186Q Internal Audit Function
                 4186Q.1      (Reserved)
                 4186Q.2      Scope
                 4186Q.3      Qualification standards of the internal auditor
                 4186Q.4      Code of ethics and internal auditing standards

SECTIONS   4187Q - 4188Q (Reserved)

SECTION    4189Q    Selection, Appointment, Reporting Requirements and
                    Delisting of External Auditors and/or Auditing Firm; Sanction

SECTION    4190Q Audited Financial Statements of Quasi-Banks; Financial Audit
                 4190Q.1     (Reserved)
                 4190Q.2     Posting of audited financial statements
                 4190Q.3     Disclosure of external auditor's adverse findings
                             to the Bangko Sentral; sanction
                 4190Q.4     Disclosure requirements in the notes to the
                             audited financial statements
                 4190Q.5     Disclosure requirements in the annual report
                 4190Q.6     Posting and submission of annual report

SECTION    4191Q Records
                 4191Q.1        Uniform system of accounts
                 4191Q.2        (Reserved)
                 4191Q.3        Philippine Financial Reporting Standards/
                                Philippine Accounting Standards




                                     xiv
SECTION    4192Q Reports/Manner of filing
                 4192Q.1    Categories and signatories of reports
                 4192Q.2    Sanctions in case of willful delay in the
                            submission of reports/refusal to permit
                            examination
                 4192Q.3    Publication requirements

                   O. PROMPT CORRECTIVE ACTION

SECTION    4193Q Prompt Corrective Action Framework

SECTION    4194Q (Reserved)

                              P. (RESERVED)

SECTIONS   4195Q - 4198Q (Reserved)

               Q. GENERAL PROVISION ON SANCTIONS

SECTION    4199Q General Provision on Sanctions



PART TWO - DEPOSIT SUBSTITUTES AND BORROWING OPERATIONS

                           A. - D. (RESERVED)

SECTIONS   4201Q - 4234Q (Reserved)

                 E. DEPOSIT SUBSTITUTE OPERATIONS

SECTION    4235Q Deposit Substitute Instruments
                 4235Q.1     Prohibition against use of certain instruments as
                             deposit substitutes
                 4235Q.2     Negotiations of promissory notes
                 4235Q.3     Minimum features
                 4235Q.4     (Reserved)
                 4235Q.5     Delivery of securities
                 4235Q.6     Regulation on additional stipulation
                 4235Q.7     Substitution of underlying securities
                 4235Q.8     Call slips/tickets for 24-hour loans
                 4235Q.9     Requirement to state nature of underlying
                             securities


                                    xv
                   4235Q.10    Compliance with Securities and Exchange
                               Commission rules
                   4211Q.11    (Reserved)
                   4235Q.12    Repurchase agreements covering government
                               securities, commercial papers and other
                               negotiable and non-negotiable securities or
                               instruments
                   4235Q.13    Recording; payment; maturity; renewal
                   4235Q.14    Interbank borrowings
                   4235Q.15     Borrowings from trust departments or managed
                               funds of banks or investment houses

SECTION    4236Q Minimum Trading Lot

SECTION    4237Q Money Market Placements of Rural Banks
                 4237Q.1   Definition of terms
                 4237Q.2   Conditions required on accepted placements
                 4237Q.3   Sanctions

SECTION    4238Q Without Recourse Transactions

SECTION    4239Q Bond Issues of Quasi-banks
                 4239Q.1     Definition of terms
                 4239Q.2     Compliance with Securities and Exchange
                             Commission rules
                 4239Q.3     Notice to Bangko Sentral
                 4239Q.4     Minimum features
                 4239Q.5     Underwriting of bonds
                 4239Q.6     Reserve requirement
                 4239Q.7     Inapplicability of certain regulations

                              F. (RESERVED)

SECTION    4240Q (Reserved)

                              G. INTEREST

SECTION    4241Q Yield/Interest Rates

SECTIONS   4242Q - 4252Q (Reserved)




                                   xvi
                              H. RESERVES

SECTION    4253Q Reserves Against Deposit Substitutes

SECTION    4254Q Composition of Reserves
                 4254Q.1    Matured and unclaimed deposit substitutes
                 4254Q.2    (Reserved)
                 4254Q.3    Interest on reserve deposit with Bangko Sentral
                 4254Q.4 Book entry method for reserve securities

SECTION    4255Q Exemptions

SECTION    4256Q Computation of Reserve Position
                 4256Q.1 - 4256Q.4 (Reserved)
                 4256Q.5 Guidelines in calculating and reporting to the
                            Bangko Sentral the required reserves on deposit
                            substitutes evidenced by repurchase agreements
                            covering government securities

SECTIONS   4257Q Reserve Deficiencies; Sanctions

                             I. (RESERVED)

SECTIONS   4258Q - 4269Q (Reserved)

            J. BORROWINGS FROM THE BANGKO SENTRAL

SECTION    4270Q Repurchase Agreements with the Bangko Sentral

SECTIONS   4271Q - 4277Q (Reserved)

SECTION    4278Q Enhanced Intraday Liquidity Facility

SECTIONS   4279Q - 4280Q (Reserved)

                       K. OTHER BORROWINGS

SECTION    4281Q Borrowings from the Government
                 4281Q.1 Definition of terms

SECTIONS   4282Q - 4298Q (Reserved)




                                   xvii
               L. GENERAL PROVISION ON SANCTIONS

SECTION   4299Q General Provision on Sanctions


PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS

SECTION   4301Q Management of Risk Assets/Minimum Guidelines
                on Lending Operations
                4301Q.1 - 4301Q.5       (Reserved)
                4301Q.6     Large exposures and credit risk concentrations

SECTION   4302Q Loan Portfolio and Other Risk Assets Review System
                4302Q.1      Provisions for losses; booking
                4302Q.2      Sanctions

                        A. LOANS IN GENERAL

SECTION   4303Q Loan Limit to a Single Borrower
                4303Q.1      Exclusions from loan limit
                4303Q.2      Contingent liabilities included in loan limit
                4303Q.3 - 4303Q.4          (Reserved)
                4303Q.5      Sanctions

SECTION   4304Q Grant of Loans and Other Credit Accommodations
                4304Q.1     General guidelines
                4304Q.2     Purpose of loans and other credit
                            accommodations
                4304Q.3      Prohibited use of loan proceeds
                4304Q.4     Signatories

SECTION   4305Q Interest and Other Charges
                4305Q.1      Rate of interest in the absence of stipulation
                4305Q.2      Escalation clause; when allowable
                4305Q.3      Floating rates of interest
                4305Q.4      Accrual of interest earned on loans
                4305Q.5       Rate ceilings
                4305Q.6       Effect of prepayment
                4305Q.7       Loan prepayment

SECTION   4306Q Past Due Accounts
                4306Q.1     Accounts considered past due
                4306Q.2     Demand loans

                                   xviii
                   4306Q.3      Renewal/extension
                   4306Q.4      Restructured loans
                   4306Q.5      Write-off of loans as bad debts
                   4306Q.6      (Reserved)
                   4306Q.7      Updating of information provided to credit
                                information bureaus

SECTION    4307Q "Truth in Lending Act" Disclosure Requirement
                 4307Q.1      Definition of terms
                 4307Q.2      Information to be disclosed
                 4307Q.3      Inspection of contracts covering credit
                              transactions
                 4307Q.4      Posters

SECTION    4308Q (Reserved)

SECTION    4309Q Non-Performing Loans
                 4309Q.1    Accounts considered non-performing; definitions
                 4309Q.2    Interest accrual on past due loans
                 4309Q.3    Allowance for uncollected interest on loans
                 4309Q.4    Reporting requirement

SECTIONS   4310Q - 4313Q (Reserved)

                              B. (RESERVED)

SECTIONS   4314Q - 4318Q (Reserved)

                        C. UNSECURED LOANS

SECTION    4319Q Loans Against Personal Security
                 4319Q.1     General guidelines (Deleted by Circular No. 622
                             dated 16 September 2008)
                 4319Q.2     Proof of financial capacity of borrower (Deleted
                             by Circular No. 622 dated 16 September 2008)
                 4319Q.3     Signatories (Deleted by Circular No. 622 dated
                             16 September 2008)
                 4319Q.4     (Reserved)

SECTION    4320Q Credit Card Operations; General Policy
                 4320Q.1      Definition of terms
                 4320Q.2      Risk management system



                                   xix
                   4320Q.3     Minimum requirements
                   4320Q.4     Information to be disclosed
                   4320Q.5     Accrual of interest earned
                   4320Q.6     Finance charges
                   4320Q.7     Deferral charges
                   4320Q.8     Late payment/penalty fees
                   4320Q.9     Confidentiality of information
                   4320Q.10    Suspension, termination of effectivity and
                               reactivation
                   4320Q.11    Inspection of records covering credit card
                               transactions
                   4320Q.12    Offsets
                   4320Q.13    Handling of complaints
                   4320Q.14    Unfair collection practices
                   4320Q.15    Sanctions

SECTION    4321Q (Reserved)

                      D. RESTRUCTURED LOANS

SECTION    4322Q Restructured Loans; General Policy
                 4322Q.1      Definition; when to consider performing/non-
                              performing
                 4322Q.2      Procedural requirements
                 4322Q.3      (Reserved)
                 4322Q.4      Classification

SECTIONS   4323Q - 4325Q (Reserved)

    E. LOANS/CREDIT ACCOMMODATIONS TO DIRECTORS, OFFICERS,
           STOCKHOLDERS AND THEIR RELATED INTERESTS

SECTION    4326Q General Policy
                 4326Q.1     Definitions

SECTION    4327Q Transactions Covered

SECTION    4328Q Transactions Not Covered
                 4328Q.1      Applicability to credit card operations
                 4328Q.2 - 4328Q.4         (Reserved)
                 4328Q.5      Loans, other credit accommodations and
                              guarantees granted to subsidiaries and/or
                              affiliates

                                   xx
SECTION    4329Q Direct or Indirect Borrowings

SECTION    4330Q Individual Ceiling; Single-Borrower Limit

SECTION    4331Q Aggregate Ceiling; Ceiling on Unsecured Loans

SECTION    4332Q Exclusions from Aggregate Ceiling

SECTION    4333Q Credit Accommodations Under Officers' Fringe Benefit Plans

SECTION    4334Q Procedural Requirements

SECTION    4335Q (Reserved)

SECTION    4336Q Sanctions

SECTIONS   4337Q - 4339Q        (Reserved)

SECTIONS   4340Q Bank Directors, Officers, Stockholders and their Related
                 Interests Rules and Regulations Applicable to Government
                 Borrowings in Government-Owned or -Controlled Quasi-Bank

                              F. (RESERVED)

SECTIONS   4341Q - 4342Q        (Reserved)

                      G. SPECIAL TYPES OF LOANS

SECTION    4343Q Interbank Loans
                 4343Q.1     Systems and procedures for interbank call loan
                             transactions
                 4343Q.2     Accounting procedures
                 4343Q.3     Settlement procedures
                 4343Q.4     Transfer of excess funds

SECTIONS   4344Q - 4380Q (Reserved)

                        H. EQUITY INVESTMENTS

SECTION    4381Q Investment in Non-Allied Undertakings

SECTION    4382Q Investments Abroad

SECTION    4383Q Underwriting Exempted

                                    xxi
                               I. (RESERVED)

SECTIONS   4384Q - 4387Q (Reserved)

                        J. OTHER OPERATIONS

SECTION    4388Q Purchase of Receivables and Other Obligations
                 4388Q.1      Yield on purchase of receivables
                 4388Q.2      (Reserved)
                 4388Q.3      Purchase of commercial paper
                 4388Q.4      Reverse repurchase agreements with the
                              Bangko Sentral
                 4388Q.5      Investments in debt and marketable equity
                              securities

SECTIONS   4389Q - 4393Q (Reserved)

SECTION    4394Q Acquired Assets in Settlement of Loans
                 4394Q.1     (Reserved)
                 4394Q.2     Booking
                 4394Q.3     Sales contract receivable
                 4394Q.4 - 4394Q.9         (Reserved)
                 4394Q.10 Transfer/sale of non-performing assets to a
                             special purpose vehicle or to an individual
                 4394Q.11 - 4394Q.14 (Reserved)
                 4394Q.15 Joint venture of quasi-banks with real estate
                             development companies

                   K. MISCELLANEOUS PROVISIONS

SECTIONS   4395Q - 4398Q (Reserved)

                L. GENERAL PROVISION ON SANCTIONS

SECTION    4399Q General Provision on Sanctions


PART FOUR -        TRUST, OTHER FIDUCIARY BUSINESS AND
                    INVESTMENT MANAGEMENT ACTIVITIES

SECTION    4401Q Statement of Principles

SECTION    4402Q Scope of Regulations

SECTION    4403Q Definitions

                                    xxii
          A. TRUST AND OTHER FIDUCIARY BUSINESS

SECTION   4404Q Authority to Perform Trust and Other Fiduciary Business
                4404Q.1 - 4404Q.2         (Reserved)
                4404Q.3      Prerequisites for engaging in trust and other
                             fiduciary business
                4404Q.4      Pre-operating requirements

SECTION   4405Q Security for the Faithful Performance of Trust and Other
                Fiduciary Business
                4405Q.1        Basic security deposit
                4405Q.2        Eligible securities
                4405Q.3        Valuation of securities and basis of computation
                               of the basic security deposit requirement
                4405Q.4        Compliance period; sanctions
                4405Q.5        Reserves against peso-denominated common
                               trust funds and trust and other fiduciary
                               accounts - others
                4405Q.6        Composition of reserves
                4405Q.7        Computation of reserve position
                4405Q.8        Reserve deficiencies; sanctions
                4405Q.9        Report of compliance

SECTION   4406Q Organization and Management
                4406Q.1     Organization
                4406Q.2     Composition of trust committee
                4406Q.3     Qualifications of committee members, officers
                            and staff
                4406Q.4     Responsibilities of administration
                4406Q.5 - 4406Q.8 (Reserved)
                4406Q.9     Outsourcing services in trust departments
                4406Q.10 Approval of the appointment/designation of trust
                            officers

SECTION   4407Q Non-Trust, Non-Fiduciary and/or Non-Investment
                Management Activities

SECTION   4408Q Unsafe and Unsound Practices
                4408Q.1 - 4408Q.8 (Reserved)
                4408Q.9     Sanctions

SECTION   4409Q Trust and Other Fiduciary Business
                4409Q.1     Minimum documentary requirements
                4409Q.2     Lending and investment disposition
                                   xxiii
                   4409Q.3    Transactions requiring prior authority
                   4409Q.4    Ceilings on loans
                   4409Q.5    Funds awaiting investment or distribution
                   4409Q.6    Other applicable regulations on loans and
                              investments - trust and other fiduciary accounts
                   4409Q.7    Operating and accounting methodology
                   4409Q.8    Tax-exempt individual trust accounts
                   4409Q.9    Living trust accounts
                   4409Q.10 - 4409Q.15 (Reserved)
                   4409Q.16 Qualification and accreditation of quasi-banks
                              acting as trustee on any mortgage or bond
                              issuance by any municipality, government
                              owned or controlled corporation, or any body
                              politic
                   4409Q.17 Trust fund of pre-need companies

SECTION   4410Q Unit Investment Trust Funds/Common Trust Funds
                4410Q.1      Definition
                4410Q.2      Establishment of a unit investment trust fund
                4410Q.3      Administration of a unit investment trust fund
                4410Q.4      Relationship of trustee with unit investment trust
                             fund
                4410Q.5      Operating and accounting methodology
                4410Q.6      Plan rules
                4410Q.7      Minimum disclosure requirements
                4410Q.8      Exposure limit to single person/entity
                4410Q.9      Allowable investments and valuation
                4410Q.10 Other related guidelines on valuation of
                             allowable investments
                4410Q.11 Unit investment trust fund administration support
                4410Q.12 Counterparties
                4410Q.13 Foreign currency-denominated unit investment
                             trust funds
                4410Q.14 Exemptions from statutory and liquidity reserves,
                             single borrowers limit, directors, officers,
                             stockholders and their related interests

SECTION   4411Q Investment Management Activities
                4411Q.1     Minimum documentary requirements
                4411Q.2     Minimum size of each investment management
                            account
                4411Q.3     Commingling of funds
                4411Q.4     Lending and investment disposition


                                   xxiv
                  4411Q.5  Transactions requiring prior authority
                  4411Q.6  Title to securities and other properties
                  4411Q.7  Ceilings on loans
                  4411Q.8  Other applicable regulations on loans and
                           investments - investment management accounts
                  4411Q.9  Operating and accounting methodology
                  4411Q.10 Tax-exempt individual investment management
                           accounts

SECTION   4412Q (Reserved)

SECTION   4413Q Required Retained Earnings Appropriation

             B. INVESTMENT MANAGEMENT ACTIVITIES

SECTION   4414Q Authority to Perform Investment Management
                4414Q.1       Prerequisites for engaging in investment
                              management activities
                4414Q.2       Pre-operating requirements

SECTION   4415Q Security for the Faithful Performance of Investment
                Management Activities
                4415Q.1     Basic security deposit
                4415Q.2     Eligible securities
                4415Q.3     Valuation of securities and basis of computation
                            of the basic security deposit requirement
                4415Q.4     Compliance period; sanctions

SECTION   4416Q Organization and Management

SECTION   4417Q Non-Investment Management Activities

SECTION   4418Q Unsound Practices

SECTION   4419Q Conduct of Investment Management Activities

SECTION   4420Q Required Retained Earnings Appropriation

                      C. GENERAL PROVISIONS

SECTION   4421Q Books and Records

SECTION   4422Q Custody of Assets

                                  xxv
SECTION    4423Q Fees and Commissions

SECTION    4424Q Taxes

SECTION    4425Q Reports Required
                 4425Q.1     To trustor, beneficiary, principal
                 4425Q.2     To the Bangko Sentral
                 4425Q.3 Audited financial statements

SECTION    4426Q Audits
                 4426Q.1        Internal audit
                 4426Q.2        External audit
                 4426Q.3        Board action

SECTION    4427Q Authority Resulting from Merger or Consolidation

SECTION    4428Q Receivership

SECTION    4429Q Surrender of Trust or Investment Management License

SECTIONS   4430Q - 4440Q (Reserved)

SECTION    4441Q Securities Custodianship and Securities Registry Operations
                 4441Q.1      Statement of policy
                 4441Q.2      Applicability of this regulation
                 4441Q.3      Prior Bangko Sentral approval
                 4441Q.4      Application for authority
                 4441Q.5      Pre-qualification requirements for a securities
                              custodian/registry
                 4441Q.6      Functions and responsibilities of a securities
                              custodian
                 4441Q.7      Functions and responsibilities of a securities
                              registry
                 4441Q.8      Protection of securities of the customer
                 4441Q.9      Independence of the registry and custodian
                 4441Q.10 Registry of scripless securities of the Bureau of
                              the Treasury
                 4441Q.11 Confidentiality
                 4441Q.12 Compliance with anti-money laundering laws/
                              regulations
                 4441Q.13 Basic security deposit
                 4441Q.14 Reportorial requirements
                 4441Q.15 - 4441Q.28 (Reserved)
                 4441Q.29 Sanctions
                                   xxvi
SECTIONS   4442Q - 4498Q (Reserved)

               D. GENERAL PROVISION ON SANCTIONS

SECTION    4499Q Sanctions


PART FIVE -      FOREIGN EXCHANGE OPERATIONS

SECTION    4501Q    Authority; Coverage

SECTION    4502Q    Specific Foreign Exchange Activities

SECTION    4503Q    Separate Department

SECTION    4504Q    Applicability of Pertinent Bangko Sentral Rules

SECTION    4505Q    Aggregate Ceiling on Issuance of Guarantees

SECTIONS   4506Q - 4598Q (Reserved)

SECTION    4599Q    General Provision on Sanctions



PART SIX - TREASURY AND MONEY MARKET OPERATIONS

                    A. OPEN MARKET OPERATIONS

SECTION    4601Q Open Market Operations
                 4601Q.1    Repurchase agreements with the Bangko Sentral
                 4601Q.2    Reverse repurchase agreements with Bangko
                            Sentral
                 4601Q.3    Settlement procedures
                 4601Q.4 - 4601Q.5       (Reserved)
                 4601Q.6    Bangko Sentral trading windows and services
                            during public sector holidays

SECTIONS   4602Q - 4610Q (Reserved)

                      B. FINANCIAL INSTRUMENTS

SECTION    4611Q Derivatives
                 4611Q.1     Generally authorized derivatives activities
                                   xxvii
                   4611Q.2     Activities requiring additional derivatives
                               authority
                   4611Q.3     Intra-group transactions
                   4611Q.4     Accounting guidelines
                   4611Q.5     Reporting requirements
                   4611Q.6     Sanctions

SECTIONS   4612Q - 4624Q (Reserved)

SECTION    4625Q Forward and Swap Transactions
                 4625Q.1     (Reserved)
                 4625Q.2     Definition of terms
                 4625Q.3     Documentation
                 4625Q.4    Tenor/maturity and settlement
                 4625Q.5     (Reserved)
                 4625Q.6     Cancellations, roll-overs or non-delivery of
                             foreign exchange forward and swap contracts
                 4625Q.7     Non-deliverable forward contracts with non-
                             residents
                 4625Q.8     Compliance with anti-money laundering rules
                 4625Q.9     Reporting requirements
                 4625Q.10 - 4625Q.13 (Reserved)
                 4625Q.14 Sanctions

SECTIONS   4626Q - 4650Q (Reserved)

SECTION    4651Q Asset-Backed Securities
                 4651Q.1     Definition of terms
                 4651Q.2     Authority
                 4651Q.3     Management oversight
                 4651Q.4     Minimum documents required
                 4651Q.5     Minimum features of asset-backed securities
                 4651Q.6     Disclosures
                 4651Q.7     Conveyance of assets
                 4651Q.8     Representations and warranties
                 4651Q.9     Third party review
                 4651Q.10 Originator and seller
                 4651Q.11 Trustee and issuer
                 4651Q.12 Servicer
                 4651Q.13 Underwriter
                 4651Q.14 Guarantor
                 4651Q.15 Credit enhancement
                 4651Q.16 Clean-up call
                 4651Q.17 Prohibited activities
                                  xxviii
                   4651Q.18    Amendment
                   4651Q.19    Miscellaneous provision
                   4651Q.20    Report to Bangko Sentral

SECTIONS   4652Q - 4698Q (Reserved)

               C. GENERAL PROVISION ON SANCTIONS

SECTION    4699Q General Provision on Sanctions


PART SEVEN - ELECTRONIC OPERATIONS AND OTHER SERVICES

SECTIONS   4701Q Electronic Services
                 4701Q.1 Application
                 4701Q.2 Pre-screening of applicants
                 4701Q.3 Approval in principle
                 4701Q.4 Documentary requirements
                 4701Q.5 Conditions for Monetary Board approval
                 4701Q.6 Requirements for quasi-banks with pending
                               applications
                 4701Q.7 Exemption
                 4701Q.8 Transitory provision
                 4701Q.9 - 4701Q.11 (Reserved)
                 4701Q.12 Sanctions
                 4701Q.13 Outsourcing of internet and mobile electronic
                              services

SECTIONS   4702Q - 4779Q (Reserved)

SECTION    4780Q Issuance and Operations of Electronic Money
                 4780Q.1 Declaration of policy
                 4780Q.2 Definitions
                  4780Q.3 Prior Bangko Sentral approval
                 4780Q.4 Common provisions
                 4780Q.5 Quasi-bank license requirement
                  4780Q.6 Sanctions
                 4780Q.7 Transitory provisions

SECTIONS   4781Q - 4798Q (Reserved)

SECTION    4799Q General Provision on Sanctions


                                  xxix
PART EIGHT - ANTI-MONEY LAUNDERING REGULATIONS

SECTION    4801Q Prevention of Money Laundering, Customer Identification
                 Requirements and Record Keeping
                 4801Q.1 Customer identification
                 4801Q.2 (Reserved)
                 4801Q.3 Programs against money laundering
                 4801Q.4 Submission of plans of action
                 4801Q.5 Required reporting of certain transaction
                 4801Q.6 Certification of compliance with anti-money
                            laundering regulations
                 4801Q.7 (Reserved)

SECTIONS   4802Q - 4881Q (Reserved)

SECTION    4882Q Sanctions and Penalties

SECTIONS   4883Q - 4894Q (Reserved)

SECTION    4895Q Valid Identification Cards for Financial Transactions

SECTIONS   4896Q - 4898Q (Reserved)

SECTION    4899    General Provision on Sanctions



PART NINE -           OTHER NON-BANK OPERATIONS

                       A. BANKING FEES/CHARGES

SECTION    4901Q (Reserved)
                 4901Q.1 Annual fees on quasi-banks

SECTION    4902Q Payment of Fines and Other Charges
                 4902Q.1 Guidelines on the imposition of monetary penalties
                 4902Q.2 Payment of fines
                 4902Q.3 (Reserved)
                 4902Q.4 Check/demand draft payments to the Bangko
                            Sentral

SECTION    4903Q Underwriting by Investment Houses



                                    xxx
SECTIONS   4904Q - 4920Q (Reserved)

            B. BANK AS COLLECTION/REMITTANCE AGENTS

SECTION    4921Q   Disclosure of Remittance Charges and Other Relevant
                   Information

SECTIONS   4922Q - 4930Q (Reserved)

                     C. CREDIT RATING AGENCIES

SECTION    4931Q   Recognition and Derecognition of Domestic Credit Rating
                   Agencies for Quasi-Bank Supervisory Purposes
                   4931Q.1 Statement of policy
                   4931Q.2 Minimum eligibility criteria
                   4931Q.3 Pre-qualification requirements
                   4931Q.4 Inclusion in Bangko Sentral list
                   4931Q.5 Derecognition of credit rating agencies
                   4931Q.6 Recognition of PhilRatings as domestic credit
                                rating agency for bank supervisory purposes

SECTION    4932Q   Internationally Accepted Credit Rating Agencies

SECTION    4933Q   Recognition of Fitch Singapore Pte., Ltd. as International Credit
                   Rating Agency for Bank Supervisory Purposes

SECTIONS   4934Q - 4998Q (Reserved)

               D. GENERAL PROVISION ON SANCTIONS

SECTION    4999Q General Provision on Sanctions




                                    xxxi
                                                                  List of Appendices
                                                                            09.12.31

                          LIST OF APPENDICES

No.                                    SUBJECT MATTER

Q-1      Guidelines to Evaluate Investment Houses

Q-2      Determination of Amount of Additional Capital the Entity Must Put Up

Q-3      List of Reports Required from Quasi-Banks
         Annex Q-3-a - Information on One-Year Borrowing-Investment
                           Program to be Submitted by Quasi-Banks
         Annex Q-3-b - Guidelines Governing the Consolidation of Financial
                           Statement of Financial Intermediaries and their Allied
                           Undertakings/Subsidiaries/Affiliates
         Annex Q-3-c - Reporting Guidelines on Crimes/Losses
         Annex Q-3-d - Documentary Requirements on Directors/Officers
                           Major Individual Stockholders
         Annex Q-3-e - Documents/Information on Organizational Structure
                           and Operational Policies
         Annex Q-3-f - Guidelines on Calculating Additional Information
                           Required in Published Statement of Condition

Q-4      Guidelines on Prescribed Reports Signatories and Signatory
         Authorization
         Annex Q-4-a - Format of Resolution for Signatories of Category A-1
                       Reports
         Annex Q-4-b - Format of Resolution for Signatories of Category A-2
                       Reports
         Annex Q-4-c - Format of Resolution for Signatories of Categories
                       A-3 and B Reports

Q-5      Minimum Internal Control Standards for Quasi-Banks

Q-6      Standardized Deposit Substitute Instruments

Q-7      New Rules on Registration of Short-Term Commercial Papers

Q-8      New Rules on the Registration of Long-Term Commercial Papers

Q-9      List of Reserve - Eligible and Non-Eligible Securities

Q - 10   Guidelines in Identifying and Monitoring Problem Loans and Other Risk
         Assets and Setting Up of Allowance for Probable Losses

Q - 11   Format-Disclosure Statement of Loan/Credit Transaction

                                    xxxiii
List of Appendices
09.12.31

No.                                          SUBJECT MATTER

Q - 12          Abstract of "Truth in Lending Act" (Republic Act No. 3765)

Q - 13          Agreement for the Enhanced Interbank Call Loan Funds Transfer System

Q - 13a         Settlement Procedures for Interbank Loan Transactions and Purchase
                and Sale of Government Securities under Repurchase Agreements with
                the Bangko Sentral

Q - 13b         Enhanced Intraday Liquidity Facility

Q - 14          Sample Investment Management Agreement

Q - 15          Risk Management Guidelines for Derivatives

Q - 16          Sales and Marketing Guidelines for Derivatives

Q - 16a         Sample Risk Disclosure Statement for Derivatives Activities

Q - 17          (Reserved)

Q - 18          Securities and Exchange Commision Basic Rules and Regulations to
                Implement the Provisions of Presidential Decree No. 129, Otherwise
                Known as "The Investment Houses Law"

Q - 19          New Rules and Regulations to Implement the Provisions of R. A. No.
                5980 (The Financing Company Act), as amended

Q - 20          Classification, Accounting Procedures, Valuation and Sales and
                Transfers of Investments in Debt Securities and Marketable Equity
                Securities
                Annex A      -   Reclassification of Financial Assets between
                                 Categories

Q - 20a         Establishing the Market Benchmarks/Reference Prices and Computation
                Method Used to Mark-to-Market Debt and Marketable Equity Securities

Q - 21          Guidelines on the Use of Scripless (RoSS) Securities as Security Deposit
                for the Faithful Performance of Trust Duties

Q - 22          Procedures on Collection of Fines/Penalties from Quasi-banks and/or
                Directors/Officers of Quasi-banks




                                          xxxiv
                                                                List of Appendices
                                                                          09.12.31

No.                                   SUBJECT MATTER

Q - 22a   Pro-forma Payment Form

Q - 23    (Reserved)

Q - 23a   Certification of Compliance with Anti-Money Laundering Regulations

Q - 23b   Rules on Submission of Covered Transaction Reports and Suspicious
          Transaction Reports by Covered Institutions

Q - 23c   Customer Due Diligence for Banks and Quasi-Banks

Q - 23d   General Identification Requirements

Q - 23e   General Guide to Account Opening and Customer Identification

Q - 23f   Anti-Money Laundering Council Resolution No. 02 Series of 2005

Q - 24    Activities Which May Be Considered Unsafe and Unsound Practices

Q - 25    Revised Implementing Rules and Regulations - R.A. No. 9160, as
          amended by R.A. No. 9194

Q - 26    Investment Houses and Financing Companies with Quasi-Banking
          Functions - Reverse Repurchase Agreements with Bangko Sentral
          Pro-forma Accounting Entries

Q - 27    Details on the Computation of Quarterly Interest Payments Credited to
          the Demand Deposit Accounts of Quasi-Banks' Legal Reserve Deposits
          with the Bangko Sentral

Q - 28    Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle or
          to an Individual

Q - 28a   Accounting Guidelines on the Sale of Non-Performing Assets to Special
          Purpose Vehicles and to Qualified Individuals for Housing Under "The
          Special Purpose Vehicle Act of 2002"
          Annex Q-28-a-1 Illustrative Accounting Entries to Record Sale of Non-
                            Performing Assets to Special Purpose Vehicles under
                            the Special Purpose Vehicle Law of 2002 under
                            Deferred Recognition of Loss/Impairment of Financial
                            Instruments
          Annex Q-28-a-2 Pro-Forma Disclosure Requirement


                                   xxxv
List of Appendices
09.12.31

No.                                         SUBJECT MATTER

Q - 28b         Significant Timelines Relative to the Implementation of R.A. No. 9182,
                also known as the "Special Purpose Vehicle Act", as amended by
                R.A. No. 9343

Q - 29          Guidelines and Minimum Documentary Requirements for Foreign
                Exchange Forward and Swap Transactions

Q - 30          Guidelines to Govern the Selection, Appointment, Reporting
                Requirements and Delisting of External Auditors and/or Auditing Firm
                of Covered Entities

Q - 31          Qualification Requirements for a Bank/Non Bank Financial Institution
                Applying for Accreditation to Act as Trustee on any Mortgage or Bond
                Issued by any Municipality, Government-Owned or Controlled
                Corporation, or any Body Politic

Q - 32          Rules and Regulations on Common Trust Funds

Q - 33          Checklist of BSP Requirements in the Submission of Financial Audit Report,
                Annual Audit Report and Reports Required Under Appendix Q-30
                Annex Q-33-a - Pro-Forma Comparative Analysis

Q - 34          Quarterly Investment Disclosure Statement

Q - 34a         Unit Investment Trust Funds Risk Disclosure Statement

Q - 35          Bangko Sentral Rules of Procedure on Administrative Cases Involving
                Directors and Officers of Quasi-banks and Trust Entities

Q - 36          Format Certification
                Annex Q-36a - Format Certification

Q - 37          Duties and Responsibilities of Banks and their Directors/Officers in All
                Cases of Outsourcing of Banking Functions

Q - 38          Implementation of the Delivery by the Seller of Securities to the Buyer
                or to his Designated Third Party Custodian
                Annex A       -   Template of Letter to Investor

Q - 38a         Disposition of Compliance Issues on Appendix Q-38




                                           xxxvi
                                                                  List of Appendices
                                                                            09.12.31

No.                                  SUBJECT MATTER

Q - 38b   Delivery of Government Securities to the Investor's Principal Securities
          Account with the Registry of Scripless Securities
          Annex A      -   Memorandum of Agreement
          Annex B      -   Investor's Undertaking

Q - 39    The Guidelines for the Imposition of Monetary Penalty for Violations/
          Offenses with Sanctions Falling Under Section 37 of R.A. No. 7653
          on Quasi-Banks, Directors and/or Officers
          Annex A     -    Aggravating and Mitigating Factors to be Considered
                           in the Imposition of Penalty

Q - 40    Prompt Corrective Action Framework

Q - 41    Guidelines for the Change in the Mode of Compliance with the
          Liquidity Reserve Requirement
          Annex A     -    Debit/Credit Authority Format

Q - 42    Guidelines on Supervision by Risk

Q - 43    Guidelines on Market Risk Management

Q - 44    Guidelines on Liquidity Risk Management

Q - 45    Authorization Form for Querying the Bangko Sentral Watchlist Files for
          Screening Applicants and Confirming Appointments of Directors and
          Officials

Q - 46    Risk-Based Capital Adequacy Framework for the Philippine Banking
          System

Q - 46a   Guidelines on the Capital Treatment of Banks' Holdings of Republic of
          the Philippines Global Bonds Paired with Warrants

Q - 46b   Guidelines on the Use of the Standardized Approach in Computing the
          Capital Charge for Operational Risks

Q - 47    Guidelines for Trust Departments' Placements in the Special Deposit
          Account Facility of the Bangko Sentral
          Annex 1     -     Letter of Request
          Annex 2     -     Sample Confirmation




                                    xxxvii
List of Appendices
09.12.31

No.                                      SUBJECT MATTER

Q - 47a         Special Deposit Account Placements of Trust Departments/Entities as
                Agent for Tax-Exempt Institutions and Accounts
                Annex 1      -   Certification

Q - 48          Basic Standards in the Administration of Trust, Other Fiduciary and
                Investment Management Accounts

Q - 49          Guidelines for Days Declared as Public Sector Holidays

Q - 50          Guidelines on the Submission of Application for Merger and
                Consolidation

Q - 51          Guidelines on the Collection of the Annual Supervisory Fees for the
                Year 2009

Q - 52          Guidelines on Banks' Internal Capital Adequacy Assessment Process
                Annex A     -   Internal Capital Adequacy Assessment Process
                                (Suggested Format)
                Annex B     -   Alternative Internal Capital Adequacy Assessment
                                Process Methodologies

Q - 53          Guidelines on the Bangko Sentral's Supervisory Review Process




                                       xxxviii
 POWER OF THE BANGKO SENTRAL TO EXAMINE QUASI-BANKS


(2008 - 4654Q) Examination by the Bangko                     (4) Management contract or any
Sentral. The BSP shall have supervision over,           arrangement granting power to the financial
and conduct periodic or special                         intermediary to direct or cause the direction
examinations of QBs, including their                    of management and policies of the entity,
subsidiaries and affiliates in allied activities.       or vice-versa; or
     The head and examiners of the                           (5) Permanent proxy or voting trust in
appropriate department of the Supervision               favor of the financial intermediary
and Examination Sector (SES) are authorized             constituting ten percent (10%) or more of
to administer oaths to any director, officer,           the outstanding voting stock of the entity,
or employee of QBs, including their                     or vice-versa.
subsidiaries and affiliates engaged in allied                c. Financial allied undertakings refer
activities, and to compel the presentation of           to enterprises or firms with homogeneous
all books, documents, papers or records                 or similar activities/business/functions with
necessary in their judgment to ascertain the            the financial intermediary and may include,
facts relative to the true condition of the             but not limited to, leasing companies,
institution as well as the books and records of         banks, IHs, financing companies, credit
persons and entities relative to or in                  card operations, FIs addressed/catering to
connection with the operations, activities or           small and medium scale industries, and
transactions of the institution under                   such other similar activities as the Monetary
examination, subject to the provision of                Board may declare as appropriate from time
existing laws protecting or safeguarding the            to time.
secrecy or confidentiality of investments of                 d. Non-financial allied undertakings
private persons, natural or juridical, in debt          may include, but not limited to,
instruments issued by the Government.                   warehousing companies, storage
                                                        companies, safe deposit box companies,
(2008 - 4654Q.1) Definitions                            companies engaged in the management of
     a. Subsidiary is a corporation more                mutual funds but not in the mutual funds
than fifty percent (50%) of the outstanding             themselves, management corporations
voting stock of which is directly or                    engaged or to be engaged in activities
indirectly owned, controlled, or held with              similar to the management of mutual
power to vote by a QB.                                  funds, insurance agencies, companies
     b. Affiliate is an entity linked directly          engaged in home building and home
or indirectly to a QB by means of:                      development and companies providing
     (1) Ownership, control or power to vote,           drying and/or including facilities for
of ten percent (10%) or more of the outstanding         agricultural crops such as rice and corn and
voting stock of the entity, or vice-versa;              such other similar activities as the Monetary
     (2) Interlocking directorship or                   Board may declare as appropriate from time
officership;                                            to time.
     (3) Common stockholders owning ten                      e. (2008 - 4661Q) Effective 14 August
percent (10%) or more of the outstanding                2004 the term “examination” shall,
voting stock of each of the financial                   henceforth, refer to an investigation of an
intermediary and the entity;                            institution under the supervisory authority




                                                    i
of the BSP to determine compliance with                   Regular or periodic examination shall
laws and regulations. It shall include               be done once a year, with an interval of
determination that the institution is                twelve (12) months from the last date
conducting its business on a safe and sound          thereof. Special examination may be
basis. Examination requires full and                 conducted earlier, or at a shorter interval,
comprehensive looking into the operations            when authorized by the Monetary Board by
and books of institutions, and shall include,        an affirmative vote of five (5) members.
but need not be limited to, the following:                In the full exercise of the supervisory
    (1) Determination of the QB’s solvency           powers of the BSP, examination by the BSP
and liquidity position;                              of institutions shall be complemented by
    (2) Evaluation of asset quality as well          overseeing thereof. In this regard, the term
as determination of sufficiency of valuation         overseeing shall refer to a limited
reserves on loans and other risk assets;             investigation of an institution, or any
    (3) Review of all aspects of QB                  investigation/s that is limited in scope,
operations;                                          conducted to inquire into a particular area/
    (4) Assessment of risk management                aspect of an institution’s operations, for the
system, including the evaluation of the              purpose of overseeing that laws and
effectiveness of the QB management’s                 regulations are complied with, inquiring
oversight functions, policies, procedures,           into the solvency and liquidity of the
internal control and audit;                          institution, enforcing prompt corrective
    (5) Appraisal of overall management of           action, or such other matters requiring
the QB;                                              immediate investigation: Provided, That
    (6) Review of compliance with                    (i) specific authorizations be issued by the
applicable laws, rules and regulations;              Deputy Governor, SES, and (ii) periodic
and                                                  summary reports on overseeings made be
    (7) Any other activities relevant to the         submitted to the Monetary Board.
above.                                               (Circular No. 442 dated 20 July 2004)




                                                ii
                                                                             §§ 4101Q - 4101Q.1
                                                                                        08.12.31

                                         PART ONE

    ORGANIZATION, MANAGEMENT AND ADMINISTRATION

       A. SCOPE OF AUTHORITY                        claims collectible in money, including
                                                    interbank borrowings or borrowings
Section 4101Q Quasi-Banking Functions               between financial institutions (FIs), or of
Quasi-banking functions consist of the              securities, of any amount and maturity,
following:                                          from domestic or foreign sources.
     a. Borrowing funds for the borrower’s              Relending shall refer to the extension
own account;                                        of loans by an institution with antecedent
     b. Twenty (20) or more lenders at any          borrowing transactions. Relending shall be
one time;                                           presumed in the absence of express
     c. Methods of borrowing: issuance,             stipulation, when the institution is regularly
endorsement, or acceptance of debt                  engaged in lending.
instruments of any kind, other than                     Regularly engaged in lending shall
deposits, such as:                                  refer to the practice of extending loans,
     (1) acceptances;                               advances, discounts or rediscounts as a
     (2) promissory notes;                          matter of business, i.e., continuous or
     (3) participations;                            consistent lending as distinguished from
     (4) certificates of assignment or similar      isolated lending transactions.
instruments with recourse;
     (5) trust certificates;                            § 4101Q.1 Financial intermediaries
     (6) repurchase (repo) agreements; and          Financial intermediaries shall mean persons
     (7) such other instruments as the              or entities whose principal functions include
Monetary Board may determine; and                   the lending, investing or placement of funds
     d. Purpose:                                    or evidences of indebtedness or equity
     (1) relending; or                              deposited with them, acquired by them, or
     (2) purchasing receivables or other            otherwise coursed through them either for
obligations.                                        their own account or for the account of others.
     As used in the definition of quasi-banking         Principal shall mean chief, main, most
functions, the following terms and phrases          considerable or important, of first
shall be understood, as follows:                    importance, leading, primary, foremost,
     Borrowing shall refer to all forms of          dominant or preponderant, as distinguished
obtaining or raising funds through any of           from secondary or incidental.
the methods and for any of the purposes                 Functions shall mean actions, activities
provided in Items "c" and "d" above,                or operations of a person or entity by which
whether the borrower’s liability thereby            his/its business or purpose is fulfilled or
is treated as real or contingent.                   carried out. The business or purpose of a
     For the borrower’s own account shall           person or entity may be determined from
refer to the assumption of liability in one’s       the purpose clause in its articles of
own capacity and not in representation, or          incorporation/partnership, and from the
as an agent or trustee, of another.                 nature of the business indicated in his/its
     Purchasing of receivables or other             application for registration of business filed
obligations shall refer to the acquisition of       with the appropriate government agency.



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                    Part I - Page 1
§§ 4101Q.1 - 4101Q.2
08.12.31

     To be considered a financial                  phrase of similar import which connotes
intermediary, a person or entity must              financial intermediation, or an entity which
perform any of the following functions on          advertises itself as a financial intermediary
a regular and recurring, not on an isolated        and is engaged in the function(s) where
basis:                                             financial intermediation is implied.
     a. Receive funds from one (1) group               (3) A person or entity performing any
of persons, irrespective of number, through        of the functions enumerated in Items "a"
traditional deposits, or issuance of debt or       to "e" of this Subsection.
equity securities; and make available/lend
these funds to another person or entity, and            § 4101Q.2 Guidelines on lender
in the process acquire debt or equity              count. The following guidelines shall
securities;                                        govern lender count on borrowings or
     b. Use principally the funds received         funds mobilized by non-bank financial
for acquiring various types of debt or equity      intermediaries:
securities;                                             a. For purposes of ascertaining the
     c. Borrow against, or lend on, or buy         number of lenders/placers to determine
or sell debt or equity securities;                 whether or not a non-bank financial
     d. Hold assets consisting principally of      intermediary is engaged in quasi-banking
debt or equity securities such as promissory       functions, the names of payees on the face
notes, bills of exchange, mortgages, stocks,       of each debt instrument shall serve as the
bonds, and commercial papers;                      primary basis for counting the lenders/
     e. Realize regular income in the              placers except when proof to the contrary
nature of, but need not be limited to,             is adduced such as the official receipts or
interest, discounts, capital gains,                documents other than the debt instrument
underwriting fees, guarantees, fees,               itself. In such case the actual/real lenders/
commissions, and service fees, principally         placers as appearing in such proof, shall
from transactions in debt or equity                be the basis for counting the number of
securities or by being an intermediary             lenders/placers.
between suppliers and users of funds.                   In a debt instrument issued to two (2)
     Non-banking financial intermediaries          or more named payees under an and/or
shall include the following:                       and or arrangement, the number of payees
     (1) A person or entity licensed and/or        appearing on the instrument shall be the basis
registered with any government regulatory          for counting the number of lenders/ placers:
body as a non-bank financial intermediary,         Provided, however, That a debt instrument
such as investment house (IH), investment          issued in the name of a husband and wife
company, financing company, securities             followed by the word spouses, whether
dealer/broker, lending investor (IH),              under an and, and/or or or arrangement or
pawnshop, money broker, fund manager,              in the name of a designated payee under
cooperative, insurance company, non-               an in trust for (ITF) arrangement, shall be
stock savings and loan association (NSSLA)         counted as one (1) borrowing/placement.
and building and loan association.                      b. Each debt instrument payable to
     (2) A person or entity which holds itself     bearer shall be counted as one (1) lender/
out as a non-banking financial intermediary,       placer except when the non-bank financial
such as by the use of a business name,             intermediary can prove that there is only
which includes the term financing, finance,        one (1) owner for several debt instruments
investment, lending and/or any word/               so payable.




Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 2
                                                                             §§ 4101Q.2 - 4101Q.3
                                                                                          08.12.31

    c. Two (2) or more debt instruments                  b. The mere buying and selling
issued to the same payee, irrespective of           without recourse of instruments mentioned
the date and amount shall be counted as             in Sec. 4101Q: Provided, That:
one (1) borrowing or placement.                          (1) The institution selling without
    d. Debt instruments underwritten by             recourse shall indicate or stamp in
IHs or traded by securities dealers/brokers         conspicuous print on the instrument/s, as
whether on a firm, standby or best efforts          well as on the confirmation of sale (COS),
basis shall be counted on the basis of the          the phrase without recourse or sans
number of purchasers thereof and shall not          recourse and the following statement:
be treated as having been issued solely to               (Name of financial intermediary)
the underwriter or trader: Provided,                   assumes no liability for the payment,
however, That in case of unsold debt                            directly or indirectly, of
instruments in a firm commitment                                    this instrument.
underwriting, the underwriter shall be                   (2) In the absence of the phrase without
counted as a lender.                                recourse or sans recourse and the
    e. Each buyer, assignee, and/or                 above- required accompanying statement,
indorsee shall be counted in determining            the instrument so issued, endorsed or
the number of lenders/placers of funds              accepted shall automatically be considered
mobilized through sale, assignment,                 as falling within the purview of the rules on
and/or indorsement of securities, or                quasi-banking.
receivables on a without recourse basis,                 Provided, further, That any of the following
whenever the terms and/or attendant                 practices or practices similar and/ or
documentation, practice, or circumstances           tantamount thereto in connection with a
indicate that the sale, assignment, and/or          without recourse transaction renders such
indorsement thereof legally obligates the           transaction as with recourse and within the
non-bank financial intermediary to                  purview of the rules on quasi-banking.
repurchase or reacquire the securities/                  (i) Issuance of postdated checks by a
receivables sold, assigned, indorsed or to          financial intermediary, whether for its own
pay the buyer, assignee, or indorsee at             account or as an agent of the debt instrument
some subsequent time.                               issuer, in payment of the debt instrument sold,
    f. Funds obtained by way of advances            assigned or transferred without recourse;
from stockholders, directors, officers,                  (ii) Issuance by a financial intermediary
regardless of nature, shall be considered           of any form of guaranty on sale transactions
borrowed funds or funds mobilized and               or on negotiations or assignment of debt
such stockholders, directors or officers shall      instruments without recourse; or
be counted in determining the number of                  (iii) Payment with the funds of the
lenders/placers.                                    financial intermediary which assigned, sold
                                                    or transferred the debt instrument without
    § 4101Q.3 Transactions not considered           recourse, unless the financial intermediary
quasi-banking. The following shall not              can show that the issuer has with the said
constitute quasi-banking:                           financial intermediary funds corresponding
    a. Borrowing by commercial, industrial          to the amount of the obligation.
and other non-financial companies, through               Any IH violating the provisions of this
the means listed in Sec. 4101Q for the limited      Subsection shall be subject to the sanctions
purpose of financing their own needs or the         provided in Sections 12 and 16 of P.D. No.
needs of their agents or dealers; and               129, as amended.




Manual of Regulations for Non-Bank Financial Institutions                            Q Regulations
                                                                                     Part I - Page 3
§ 4101Q.4
08.12.31

      § 4101Q.4 Delivery of securities 1                            (c) Suspension or revocation of the
      a. Securities sold on a without                          authority to engage in quasi-banking
recourse basis allowed under Subsec.                           function; and/or
4101Q.3(b) shall be delivered physically to                         (d) Suspension or revocation of the
the purchaser, or to his designated custodian                  authority to engage in trust and other
duly accredited by the BSP, if certificated,                   fiduciary business.
or by means of book-entry transfer to the                           b. The guidelines to implement the
appropriate securities account of the                          delivery by the seller of securities to the
purchaser or his designated BSP accredited                     buyer or to his designated third party
custodian in a registry for said securities, if                custodian are shown in Appendix Q-38.
immobilized or dematerialized, while the COS                        Sanctions. Without prejudice to the
or document of conveyance by the seller shall                  penal and administrative sanctions provided
be physically delivered to the purchaser. The                  for under Sections 36 and 37, respectively
custodian shall hold the securities in the name                of R.A. No. 7653 (The New Central Bank
of the buyer: Provided, That a QB/other entity                 Act), violation of any provision of the
authorized by the BSP to perform                               guidelines in Appendix Q-38 shall be subject
custodianship function may not be allowed                      to the following sanctions/penalties
to be custodian of securities issued or sold on                depending on the gravity of the offense:
a without recourse basis by said non-bank                           (a) First offense -
financial institution (NBFI), its subsidiaries or                   (1) Fine of up to P10,000 a day for the
affiliates, or of securities in bearer form.                   institution for each violation reckoned from
      The delivery shall be effected upon                      the date the violation was committed up to
payment and shall be evidenced by a                            the date it was corrected; and
securities delivery receipt duly signed by the                      (2) Reprimand for the directors/officers
authorized officer of the custodian and                        responsible for the violation.
delivered to the purchaser.                                         (b) Second offense -
      Sanctions. Violation of any provision of                      (1) Fine of up to P20,000 a day for the
this Subsection shall be subject to the                        institution for each violation reckoned from
following sanctions/penalties:                                 the date the violation was committed up to
      (1) Monetary penalties                                   the date it was corrected; and
      First offense - Fine of P10,000 a day for                     (2) Suspension for ninety (90) days
each violation reckoned from the date the                      without pay of directors/officers responsible
violation was committed up to the date it                      for the violation.
was corrected.                                                      (c) Subsequent offenses -
      Subsequent offenses - Fine of P20,000                         (1) Fine of up to P30,000 a day for the
a day for each violation reckoned from the                     institution for each violation from the date
date the violation was committed up to the                     the violation was committed up to the date
date it was corrected.                                         it was corrected;
      (2) Other sanctions                                           (2) Suspension or revocation of the
      First offense - Reprimand for the directors/             authority to act as securities custodian
officers responsible for the violation.                        and/or registry; and
      Subsequent offense -                                          (3) Suspension for 120 days without pay
      (a) Suspension for ninety (90) days                      of the directors/officers responsible for the
without pay of directors/officers responsible                  violation.
for the violation;                                             (As amended by M-2007-002 dated 23 January 2007,
      (b) Suspension or revocation of the                      M-2006-009 dated 18 July 2006, M-2006-002 dated
accreditation to perform custodianship function;               05 June 2006 and Circular No. 524 dated 31 March 2006)

1
    Effective 16 November 2004 under Circular 450 dated 06 September 2004.

Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 4
                                                                          §§ 4101Q.5 - 4101Q.6
                                                                                       08.12.31

     § 4101Q.5 Securities custodianship             for under Sections 36 and 37, respectively,
operations                                          of R.A. No. 7653, violation of any provision
     a. Securities sold on a without                of this Subsection shall be subject to the
recourse basis shall be delivered to the            following sanctions/penalties:
purchaser, or to his designated custodian                (1) First offense -
duly accredited by the BSP: Provided , That              (a) Fine of up to P10,000 a day for the
a bank/other entity authorized by the BSP to        institution for each violation reckoned from
perform custodianship function may not be           the date the violation was committed up to
allowed to be custodian of securities issued        the date it was corrected; and
or sold on a without recourse basis by said              (b) Reprimand for the directors/officers
QB/entity, its subsidiaries or affiliates, or of    responsible for the violation.
securities in bearer form. Existing securities           (2) Second offense -
being held under custodianship by QB/other               (a) Fine of up to P20,000 a day for the
entities under BSP supervision, which are           institution for each violation reckoned from
not in accordance with said regulation, must        the date the violation was committed up to
therefore, be delivered to a BSP accredited         the date it was corrected; and
third party custodian. However, banks and                (b) Suspension for ninety (90) days
other FIs under BSP supervision may                 without pay of directors/officers responsible
maintain custody of existing securities of          for the violation.
their clients who are unable or unwilling to             (3) Subsequent offenses -
take delivery pursuant to the provisions of              (a) Fine of up to P30,000 a day for the
this Subsection but who declined to deliver         institution for each violation from the date
their existing securities to a BSP accredited       the violation was committed up to the date
third party custodian subject to the                it was corrected;
following conditions:                                    (b) Suspension or revocation of the
     (1) the custody arrangements with              authority to act as securities custodian and/
clients have been in existence prior to 05          or registry; and
November 2004 (effectivity date of Circular              (c) Suspension for 120 days without pay
No. 457 dated 14 October 2004);                     of the directors/officers responsible for the
     (2) the dealing bank/NBFI under BSP            violation.
supervision had been informed in writing
by the client that he is not willing to have            § 4101Q.6 Sale, discounting, assignment
his existing securities delivered to a third        or negotiation by quasi-banks of their credit
party custodian;                                    rights arising from claims against the Bangko
     (3) any BSP regulated institution shall        Sentral to clients. Pursuant to the policy of
not enter into securities transactions with a       the BSP to promote investor protection and
client who has outstanding securities not           transparency in securities transactions as
delivered to a BSP accredited third party           important components of capital markets
custodian; and                                      development, credit rights in Special
     (4) it shall be the responsibility of any      Deposit Account (SDA) placements and
BSP regulated institution to satisfy itself that    reverse repo agreements with the BSP, shall
the person purchasing securities from it has        not be the subject of sale, discounting,
no outstanding securities holdings which            assignment or negotiation on a with or
were not delivered to a BSP accredited third        without recourse basis.
party custodian.                                        Any violation of the provisions of this
     b. Sanctions. Without prejudice to the         Subsection shall be considered a less
penal and administrative sanctions provided         serious offense and shall subject the QB and



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                   Part I - Page 5
§§ 4101Q.6 - 4102Q.1
08.12.31

the director/s and/or officer/s concerned to           consumer loans, in the case of finance
the sanctions provided under Sec. 4199Q.               companies;
(Circular No. 636 dated 17 December 2008)                   b. That the institution concerned shall
                                                       fully inform investors of the nature of a deposit
    § 4101Q.7 (2008 - 4655Q) Applicability             substitute instrument, e.g., that it is not covered
of rules governing universal banks to quasi-           by the Philippine Deposit Insurance
banks. In case of conflict between rules               Corporation (PDIC), that pre-termination
applicable to banks with universal banking             thereof is subject to penalty, where applicable,
authority and those applicable to QBs in               and such other material risks involved in
activities where they perform the same                 investing in such instrument; and
functions, the rules governing banks with                   c. That the institution concerned shall
universal banking authority shall prevail.             conduct effective investor suitability testing
                                                       procedures.
           B. ESTABLISHMENT AND                        (Circular No. 557 dated 12 January 2007)
               ORGANIZATION
                                                           § 4102Q.1 Preconditions for the
Sec. 4102Q Statement of Policy. It is the              exercise of quasi-banking functions. No
policy of the BSP to promote the                       person or entity shall engage in quasi-
development of the domestic financial                  banking functions without authority from
market so as to foster a sound, efficient and          the BSP. Only a duly incorporated IH and
inclusive financial system fully supportive            finance company may undertake or perform
of sustainable economic growth. Towards                quasi-banking functions as defined in
this end, the grant of authority to engage in          Section 4101Q. An institution securing BSP
quasi-banking functions to IHs and finance             authority to engage in quasi-banking
companies shall be allowed subject to the              functions must meet the following
following conditions:                                  requirements:
     a. That quasi-banking activities shall be             a. It must have complied with the
undertaken by the institution concerned to             minimum adjusted capital accounts of at
pursue its core business, i.e., underwriting           least P300.0 million or such amounts as
of securities of other corporations and of the         may be required by the Monetary Board in
government or its instrumentalities,                   the future;
participating as soliciting dealer or selling              b. It has generally complied with
group member in tender offers, block sales,            applicable laws, rules and regulations,
or exchange offering of securities, and                orders or instructions of appropriate
dealing in options, rights or warrants relating        authority, including the Monetary Board and/
to securities and such other powers which              or BSP Management where applicable;
a dealer may exercise under the Securities                 c. Its accounting records, systems and
Regulation Code (SRC), in the case of IHs,             procedures as well as internal control
and discounting or factoring commercial                systems are satisfactorily maintained;
papers or accounts receivable, or by buying                d. It does not have float items
and selling contracts, leases, chattel                 outstanding for more than sixty (60) calendar
mortgages (CHMs), or other evidences of                days in the “Due From/To Head Office/
indebtedness, or by leasing of motor                   Branches/Offices” accounts exceeding one
vehicles, heavy equipment and industrial               percent (1%) of the total resources as of end
machinery, business and office machines                of preceding month;
and equipment, appliances and other                        e. It has no past due obligation with
movable property, or granting business and             any FI as of date of application;



Q Regulations                               Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 6
                                                                                            §§ 4102Q.1 - 4103Q
                                                                                                       08.12.31

     f. The officers who will be in-charge                          b. A certification signed by the
of the quasi-banking operations have actual                    president or officer of equivalent rank that:
experience of at least two (2) years in a bank                      (1) the institution has complied with all
or QB as in-charge (or at least as assistant-                  conditions/prerequisites for the grant of
in-charge). The directors of the institution,                  authority to engage in quasi-banking
officer-in-charge of the quasi-banking                         functions;
operations and the managerial staff must                            (2) quasi-banking functions shall be
comply with the fit and proper rule prescribed                 pursued/undertaken by the institution in the
under existing law/rules and regulations;                      furtherance of its core business, e.g.,
     g. The institution has elected at least                   underwriting of and dealing in securities of
two (2) independent directors and all its                      other corporations and of the government
directors have attended the required seminar                   or its instrumentalities, in the case of IHs,
for directors of QBs conducted or accredited                   and leasing and/or discounting/factoring
by the BSP;                                                    commercial papers or accounts receivable,
     h. It has not engaged in unsafe and                       or granting business and consumer loans,
unsound practices during the past six (6)                      in the case of finance companies;
months immediately preceding the date of                            (3) investors shall be informed that
application where applicable;                                  their investments/placements are not
     i. It must have in place a comprehensive                  insured by the PDIC and that any pre-
risk management system approved by its board                   termination thereof shall be subject to
of directors appropriate to its operations                     penalty, if applicable, as well as all other
characterized by a clear delineation of                        material risks; and
responsibility for risk management, adequate                        (4) investors shall be subjected to
risk measurement systems, appropriately                        effective investor suitability testing
structured risk limits, effective internal control             procedures;
and complete, timely and efficient risk                             c. An information sheet;
reporting systems. In this connection, a manual                     d. Bio-data signed under oath, of the
of operations and other related documents                      members of the managerial staff who will
embodying the risk management system must                      undertake quasi-banking operations; and
be submitted to the appropriate department                          e. Borrowing-investment program for
of the Supervision and Examination Sector                      one (1) year, and annually thereafter on or
(SES) at the time of application for authority                 before November 30, which should include
and within thirty (30) days from updates.                      at the minimum:
(As amended by Circular No. 557 dated 12 January 2007)              (1) planned distribution of portfolios as
                                                               to:
Sec. 4103Q Application for a Certificate                            (a) underwriting;
of Authority from the Bangko Sentral1. An                           (b) commercial papers;
institution securing BSP’s Certificate of                           (c) stocks and bonds;
Authority to engage in quasi-banking functions                      (d) government securities(GS);
shall file an application with the appropriate                      (e) receivables financing, discounting
department of the SES. The application shall                   and factoring;
be signed by the president or officer of                            (f) leasing; and
equivalent rank of the institution and shall be                     (g) direct loans;
accompanied by the following documents:                             (2) expected sources of funds to support
    a. Certified true copy of the resolution                   investment program classified as to:
of the board of directors of the institution                        (a) maturity: short, medium and
authorizing the application;                                   long-term;

1
    See SEC Circular Nos. 5 dated 17 July 2008, 3 dated 16 February 2006 and 14 dated 24 October 2000.

Manual of Regulations for Non-Bank Financial Institutions                                           Q Regulations
                                                                                                    Part I - Page 7
§§ 4103Q - 4107Q
08.12.31

    (b) interest rates; and                                          In the case of a merger or consolidation
    (c) domestic or foreign sources whether                     of two (2) or more QBs, the authority shall
institutional or personal.                                      continue to have full force and effect. For
    The foregoing requirement shall also                        documentation purposes, in the case of a
apply to QBs existing as of 03 February                         merger, the Certificate of Authority of the
2007.                                                           absorbing corporation shall be maintained;
    Transitory provisions. IHs and finance                      and with respect to consolidation, a new
companies authorized to engage and are                          certificate shall be issued to the new
actually performing quasi-banking functions                     corporation. The Certificate of Authority of the
but do not meet the new capital requirement                     absorbed corporation in a merger and the
are hereby given a period of two (2) years                      certificates of the consolidated corporations
reckoned from 03 February 2007 within                           in a consolidation shall be surrendered to the
which to comply with the minimum capital                        appropriate department of the BSP.
requirement in Subsec. 4102Q.1(a):
Provided, That this may be substituted by a                     Sec. 4105Q Licensing of an Investment
capital build-up program for a period of not                    House. Applications for license as an IH
more than three (3) years which must be                         referred to the BSP by the Securities and
approved by the Monetary Board. Such                            Exchange Commission (SEC) pursuant to P.D.
capital build-up program shall be in equal                      No. 129 shall be evaluated in accordance with
annual or diminishing amounts; and shall                        the Guidelines to Evaluate Investment Houses
be submitted to the appropriate department                      prescribed in Appendix Q-1.
of the SES within three (3) months from
03 February 2007. QBs which fail to                             Sec. 4106Q (2008 - 4656Q) Basic Laws
comply with the required capitalization                         Governing Investment Houses and
upon expiration of said two (2) year period                     Financing Companies. The following are the
given them or those which fail to comply                        basic laws governing investment houses
with the approved capital build-up program                      (IHs) and financing companies:
shall liquidate their quasi-banking                                  a. IHs. P.D. No. 129, as amended,
operations within one (1) year from said                        known as The Investment Houses Law,
deadlines and their licenses shall be                           governs the establishment, operation and
considered revoked/cancelled.                                   regulation of IHs. To effectively carry out
    The licenses of existing QBs not actually                   the provisions of this Decree, the SEC,
performing quasi-banking functions which                        pursuant to the powers vested in it by said
do not meet the required minimum                                Decree, promulgated basic rules and
capitalization provided in Subsec.                              regulations (Appendix Q-18) to implement
4102Q.1(a) on 03 February 2007 shall be                         the provisions of the Decree.
automatically revoked.                                               b. Financing companies. R.A. No.
(As amended by CL-2008-078 dated 15 December 2008,              8556, known as The Financing Company
CL-2008-053 dated 21 August 2008, CL-2008-007 dated             Act of 1998, regulates the organization and
05 February 2008 and Circular No. 557 dated 12 January 2007)    operation of financing companies. To
                                                                effectively carry out the provisions of this
Sec. 4104Q Issuance of Bangko Sentral                           Act, the SEC, pursuant to the powers vested
Certificate of Authority. The BSP shall issue                   in it under said Act, promulgated basic rules
a Certificate of Authority upon proof that                      and regulations to implement the provisions
the applicant has complied with the                             of the Act (Appendix Q-19).
requirements of Secs. 4102Q and 4103Q
and of pertinent laws and regulations.                          Sec. 4107Q (Reserved)



Q Regulations                                        Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 8
                                                                                   §§ 4108Q - 4108Q.3
                                                                                              09.12.31

     C. MERGER/CONSOLIDATION                           The guidelines and procedures in the
                                                    application for merger/consolidation as
Sec. 4108Q (2008 - 4111Q) Merger/                   shown in Appendix Q -51 shall be observed
Consolidation Involving Quasi-Banks. The            by QBs.
merger/ consolidation of QBs is encouraged          (M-2009-028 dated 12 August 2009)
to meet minimum capital requirements and
to develop larger and stronger FIs. QBs                     § 4108Q.2 (Reserved)
which are IHs are likewise encouraged to
merge with banks to obtain authority to                  § 4108Q.3 (2008 - 4112Q) Merger/
perform expanded commercial banking                 consolidation incentives. In pursuance of
functions.                                          the policy to promote mergers and
     Mergers/consolidations involving QBs           consolidations among banks and other
shall comply with the provisions of                 financial intermediaries as a means to
applicable law and shall be subject to              develop larger and stronger FIs, constituent
approval by the BSP.                                entities may, subject to BSP approval, avail
     For purposes of merger and                     themselves of any or all of the following
consolidation of QBs, the following                 incentives:
definitions shall apply:                                 a. Revaluation         of    premises,
     a. Merger is the absorption of one (1)         improvements and equipment of the
or more corporations by another existing            institutions: Provided, That such revaluation
corporation, which retains its identity and         shall be based on fair valuation of the
takes over the rights, privileges, franchises,      property conducted by a reputable appraisal
and properties, and assumes all the                 company which shall be subject to review
liabilities and obligations of the absorbed         and approval by the BSP
corporation(s) in the same manner as if it               The following rules shall govern the
had itself incurred such liabilities or             revaluation of assets:
obligations. The absorbing corporation                   (1) The revaluation of the QB’s
continues its existence while the life or lives     premises, improvements and equipment
of the other corporation(s) is/are terminated.      shall be allowed only to all institutions
     b. Consolidation is the union of two(2)        participating in a merger/consolidation if
or more corporations into a single new              all of them belong to the same category,
corporation, called the consolidated                or at least two (2) of them belong to the
corporation, all the constituent corporations       highest category among the merging/
thereby ceasing to exist as separate entities.      consolidating institutions.
The consolidated corporation shall                       (2) In case the merging/consolidating
thereupon and thereafter possess all the            institutions do not belong to the same
rights, privileges, immunities, franchises          category or only one (1) of them falls under
and properties, and assume all the liabilities      the highest category, all of them may be
and obligations of each of the constituent          allowed to revalue their premises,
corporations in the same manner as if it had        improvements and equipment: Provided,
itself incurred such liabilities or obligations.    That the amount of appraisal increment
                                                    resulting from such revaluation shall be
    § 4108Q.1 Requirement of Bangko                 limited to the amount of the total resources
Sentral approval. Mergers and consolidations        of the institution belonging to the lower
involving QBs shall comply with the                 category or categories.
provisions of applicable law and shall be                (3) The appraisal increment resulting
subject to approval by the BSP.                     from the revaluation shall form part of capital



Manual of Regulations for Non-Bank Financial Institutions                                Q Regulations
                                                                                        Part I - Page - 9
§ 4108Q.3
08.12.31

for purposes of determining the single              allowed to book the required valuation
borrower’s limit and capital-to-risk assets         reserves based upon examination by the BSP
ratio. The use of appraisal increment for cash      on a staggered basis over a maximum
dividend shall be governed by the provisions        period of five (5) years: Provided, That the
of the Corporation Code.                            aggregate amount of the required valuation
     (4) The revaluation of premises,               reserves shall be limited to the amount of
improvements, and equipment of the                  the total resources of the institution
institution as well as the recognition of           belonging to the lower category or
goodwill as an incentive to mergers/                categories.
consolidations shall only be allowed if the              c. If by reason of merger/
following conditions are met:                       consolidation, the resulting QB is unable
     (i) The surviving or consolidated entity       to comply fully with the prescribed net
will meet the existing capital requirements         worth-to-risk assets ratio, the Monetary
after all adjustments are taken up in the           Board may, at its discretion, temporarily
books of accounts of the merging/                   relieve the QB from full compliance with
consolidating entities but before considering       this requirement under such conditions as
appraisal increments and goodwill, or there         it may prescribe;
will be infusion of fresh capital to meet said           In the case of purchase or acquisition
existing capital requirements; and                  of majority or all of the outstanding shares
     (ii) The merger/consolidation will result      of a QB by a bank/another QB, the
in a more viable FI as a result of cost savings     revaluation of assets and the booking of the
and improve competitive position.                   required valuation reserves based upon
     In case of purchase or acquisition of the      examination by the BSP over a period of
majority or all of the outstanding shares of        five (5) years shall be allowed only if such
stock of a QB, the same conditions must be          purchase or acquisition is for the purpose
satisfied.                                          of rehabilitating the former QB: Provided,
     b. Unbooked valuation reserves based           That the revaluation of assets and staggered
upon BSP examination and other capital              booking of reserves shall be allowed in full
adjustments resulting from the merger/              only if the purchaser is another QB and both
consolidation may be booked on staggered            the QBs belong to the same category.
basis over a maximum period of five (5)             Otherwise, only the QB being acquired/
years.                                              rehabilitated shall be allowed to recognize
     The following guidelines shall govern          in full the appraisal increment resulting from
the staggered booking of valuation reserves:        revaluation of assets and to book valuation
     (1) The booking on staggered basis over        reserves on a staggered basis, while in the
a maximum period of five (5) years of               case of the acquiring bank/QB, the appraisal
unbooked valuation reserves based upon              increment resulting from revaluation of
examination by the BSP may be allowed to            assets and the privilege of staggered booking
all institutions participating in a merger/         of valuation reserves shall each be limited
consolidation if all of them belong to the          to the amount of the total resources of the
same category, or at least two (2) of them          QB being acquired/rehabilitated.
belong to the highest category among the                 d. Conversion or upgrading of the
merging/consolidating institutions.                 existing head offices, branches and/or other
     (2) In case the merging/consolidating          offices of the merged/absorbed institutions
institutions do not belong to the same              into branches of the new or surviving FI;
category or only one (1) of them falls under             e. (Deleted by Cir. No. 494 dated
the highest category, all of them may be            20 September 2005)



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part I - Page - 10
                                                                                        § 4108Q.3
                                                                                          08.12.31

    f. Relocation of branches/offices may                 g. Outstanding penalties in legal
be allowed within one (1) year from date of           reserve deficiencies and interest on
merger/consolidation in cases where the               overdrafts with the BSP as of the date of
merger/consolidation resulted in duplication          merger/consolidation may be paid in
of branches/offices in a service area, or in          installments over a period of one (1) year;
such other cases/circumstances as the                     h. Restructuring/plan of payment of past
Monetary Board may prescribe;                         due obligations of the proponents with the



                                    (Next page is Part I - Page 11)




Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                 Part I - Page - 10a
                                                                                   §§ 4108Q.3 - 4113Q
                                                                                              08.12.31

BSP as of the date of merger/consolidation          4326Q.1, the qualification that his
over a period not exceeding ten (10) years;         stockholdings, individually and/or together
     i. Subject to approval of the                  with his related interests in the lending QB,
Monetary Board, concurrent officerships             amount to ten percent (10%) or more of the
between a merged/consolidated bank/FI               total subscribed capital stock of the QB,
and another bank/FI may be allowed; and             shall not apply for purposes of this Item. Any
     j. Any right or privilege granted a            appraisal surplus or appreciation credit as
merging bank under a rehabilitation                 a result of appreciation or an increase in
program previously approved by the                  book value of the assets of the QB shall be
Monetary Board or under any special                 excluded, except in the case of merger and
authority previously granted by the Monetary        consolidation, where the appraisal
Board shall continue to be in effect.               increment resulting from the revaluation
     The revaluation of assets and staggered        shall form part of capital for purposes of
booking of valuation reserves shall be              determining single borrower’s limit and
available for a period of two (2) years from        capital-to-risk assets ratio.
19 February 1999 while the rest of the                  Any foreign equity shall be registered with
incentives enumerated under Subsec.                 and approved by the Board of Investments
4108Q.3 shall be available for a period of          and the appropriate department of the BSP.
three (3) years from 31 August 1998.                (As amended by Circular No. 560 dated 31 January 2007)
     The foregoing incentives may also be
granted in cases of purchases or acquisitions       Sec. 4112Q (2008 - 4107Q) Minimum
of majority or all of the outstanding shares        Capital of Investment House. The minimum
of stock of a QB.                                   paid-in capital requirement for an IH shall
                                                    be P300 million pursuant to R.A. No. 129,
Secs. 4109Q - 4110Q (Reserved)                      as amended by R.A. No. 8366.

          D. CAPITALIZATION                         Secs. 4113Q (2008 - 4108Q) Sanctions
                                                    Any or all of the following sanctions may
Sec. 4111Q (2008 - 4106Q) Minimum                   be imposed on any QB which fails to
Required Capitalization. A QB shall have            maintain at least the applicable minimum
a minimum combined capital accounts of              capital under Secs. 4111Q and 4112Q:
P300.0 million.                                         (1) Suspension of authority to engage in
    Combined capital accounts shall mean            quasi-banking functions;
the total of capital stock, retained earnings           (2) Suspension of authority to engage in
and profit and loss summary, net of (a) such        trust/investment management activities (in
unbooked valuation reserves and other               the case of an IH);
capital adjustments as may be required by               (3) Cease-and-desist order (in the case
the BSP, (b) total outstanding unsecured            of an IH);
credit accommodations, both direct and                  (4) No new/renewal/extension of credit
indirect, to directors, officers, all               accommodations to DOSRI;
stockholders and their related interests                (5) Prohibition against declaration of
(DOSRI) and, (c) unsecured loans, other             cash dividends;
credit accommodations and guarantees                    (6) Suspension of the privilege to
granted to subsidiaries and affiliates. With        establish and/or open approved branches,
respect to Item “b” hereof, the provisions of       agencies, offices, etc.; and
Sec. 4326Q shall apply except that in the               (7) Other sanctions as may be imposed
definition of stockholders in Subsec.               by the Monetary Board.



Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                          Part I - Page 11
§§ 4114Q - 4116Q.2
08.12.31

Sec. 4114Q (Reserved)                                           § 4116Q.1 Scope. QBs that are not
                                                             subsidiaries of UBs or KBs shall continue
           E. RISK-BASED CAPITAL                             to be subject to the risk-based capital
                                                             adequacy framework, as provided below as
Sec. 4115Q (2008 - 4116Q) Basel II Risk-                     well as Subsecs. 4116Q.1 to 4116Q.6.
Based Capital. The guidelines implementing
the revised riskbased capital adequacy                            § 4116Q.2 (2008 - 4116Q.1) Qualifying
framework for the Philippine banking                         capital. The qualifying capital shall be the
system to conform to Basel II                                sum of -
recommendations is provided in Appendix                           a. Tier 1 (core) capital -
Q-46b. These guidelines apply to all                              (1) Paid-up common stock;
Univeral Banks (UBs) and commercial                               (2) Paid-up perpetual and non-
Banks (KBs), as well as their subsidiary                     cumulative preferred stock;
banks and QBs.                                                    (3) Common          stock    dividends
    The risk-based capital ratio of a QB,                    distributable;
expressed as a percentage of qualifying                           (4) Perpetual and non-cumulative
capital to risk-weighted assets, shall not be                preferred stock dividends distributable;
less than ten percent (10%) for both solo                         (5) Surplus;
basis (head office plus branches) and                             (6) Surplus reserves;
consolidated basis (parent QB plus                                (7) Undivided profits; and
subsidiary financial allied undertakings, but                     (8) Minority interest in the equity of
excluding insurance companies).                              subsidiary financial allied undertakings
    The ratio shall be maintained daily. This                which are less than wholly-owned: Provided,
shall be effective 01 January 2004.                          That a QB shall not use minority interests in
(As amended by Circular No. 588 dated 11 December 2007,      the equity accounts of consolidated
M-2007-019 dated 21 June 2007, Circular Nos. 560 dated 31    subsidiaries as avenue for introducing into
January 2007 and 538 dated 04 August 2006)                   its capital structure elements that might not
                                                             otherwise qualify as Tier 1 capital or that
    § 4115Q.1 (2008 - 4116Q) Scope. The                      would, in effect, result in an excessive
Basel II guidelines apply to all UBs and KBs                 reliance on preferred stock within Tier 1:
as well as their subsidiary banks and QBs.                        Provided, further, That the following
                                                             items shall be deducted from the total of
     § 4115Q.2 (Reserved)                                    Tier 1 capital:
                                                                  (a) Common stock treasury shares;
Sec. 4116Q Basel I Risk-Based Capital                             (b) Perpetual and non-cumulative
The risk-based capital ratio of a QB,                        preferred stock treasury shares;
expressed as a percentage of qualifying                           (c) Net unrealized losses on
capital to risk-weighted assets, shall not                   underwritten listed equity securities
be less than ten percent (10%) for both                      purchased (for IH);
solo basis (head office plus branches) and                        (d) Unbooked valuation reserves and
consolidated basis (parent QB plus                           other capital adjustments based on the latest
subsidiary financial allied undertakings,                    report of examination as approved by the
but excluding insurance companies).                          Monetary Board;
(As amended by Circular No. 588 dated 11 December 2007,           (e) Total outstanding unsecured credit
M-2007-019 dated 21 June 2007, Circular Nos. 560 dated 31    accommodations, both direct and indirect,
January 2007 and 538 dated 04 August 2006)                   to DOSRI;




Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 12
                                                                                          § 4116Q.2
                                                                                            08.12.31

     (f) Unsecured loans, other credit              issues can be included as capital. If the debt
accommodations and guarantees granted to            is issued at a premium, the premium
subsidiaries and affiliates;                        cannot be counted as part of capital;
     (g) Deferred income tax; and                        (iv) It must not be redeemable at the
     (h) Goodwill.                                  initiative of the holder;
     b. Tier 2 (supplementary) capital                   (v) It must not contain any clause
which shall be the sum of -                         which requires acceleration of payment of
     (1) Upper Tier 2 (UT2) capital -               principal, except in the event of insolvency;
     (a) Paid-up perpetual and cumulative                (vi) It must not be repayable prior to
preferred stock;                                    maturity without the prior consent of the
     (b) Perpetual and cumulative preferred         BSP: Provided, That repayment may be
stock dividends distributable;                      allowed in connection with call option only
     (c) Appraisal increment reserve - QB           after a minimum of five (5) years from issue
premises, as authorized by the Monetary             date and only if – (1) the QB’s capital ratio
Board;                                              is at least equal to the required minimum
     (d) Net unrealized gains on underwritten       capital ratio; and (2) the debt is
listed equity securities purchased: Provided,       simultaneously replaced with issues of new
That the amount thereof that may be included        capital which is neither smaller in size nor
in UT2 capital shall be subject to a fifty-five     of lower quality than the original issue;
percent (55%) discount (for IH);                         (vii) It may allow a moderate step-up in
     (e) General loan loss provision:               the interest rate in conjunction with a call
Provided, That the amount thereof that may          option, only if the step-up occurs at a
be included in UT2 capital shall be limited         minimum of ten (10) years after the issue date
to a maximum of one and twenty-five                 and if it results in an increase over the initial
hundredths percent (1.25%) of gross risk-           rate that is not more than 100 basis points:
weighted assets, and any amount in excess           Provided, That only one (1) rate step up shall
thereof shall be deducted from the total            be allowed over the life of the instrument;
risk-weighted assets in computing the                    (viii) It must provide for possible
denominator of the risk-based capital ratio;        conversion into common shares or preferred
     (f) With prior BSP approval, unsecured         shares or possible deferral of payment of
subordinated debt (UnSD) with a minimum             principal and interest if the QB’s capital ratio
original maturity of at least ten (10) years,       becomes less than the required minimum
subject to the following conditions:                capital ratio;
     (i) It must not be secured nor covered              (ix) It must provide for the principal and
by a guarantee of the issuer or related party;      interest on the debt to absorb losses where
     (ii) It must be subordinated in the right      the QB would not otherwise be solvent;
of payment of principal and interest to all              (x) It must allow deferment of interest
creditors of the QB, except those creditors         payment on the debt in the event of, and at
expressed to rank equally with, or behind           the same time as, the elimination of dividends
holders of the debt. Subordinated creditors         on all outstanding common or preferred
must waive their right to set off any amounts       stock of the issuer. It is acceptable for the
they owe the QB against subordinated                deferred interest to bear interest, but the
amounts owed to them by the QB. The issue           interest rate payable on deferred interest
documentation must clearly state that the           should not exceed market rates;
debt is subordinated;                                    (xi) It must be underwritten by a third party
     (iii) It must be fully paid-up. Only the       not related to the issuer QB nor acting in
net proceeds actually received from debt            reciprocity for and in behalf of the issuer QB;



Manual of Regulations for Non-Bank Financial Institutions                             Q Regulations
                                                                                     Part I - Page 13
§ 4116Q.2
08.12.31

      (xii) It must be issued in minimum                five (5) years, subject to the following
denominations of at least P500,000 or its               conditions:
equivalent; and                                              (i) It must not be secured nor covered
      (xiii) It must clearly state on its face that     by a guarantee of the issuer or related party;
it is not a deposit and is not insured by the                (ii) It must be subordinated in the right
PDIC:                                                   of payment of principal and interest to all
      Provided, That it shall be subject to a           creditors of the QB, except those creditors
cumulative discount factor of twenty percent            expressed to rank equally with, or behind
(20%) per year during the last five (5) years           holders of the debt. Subordinated creditors
to maturity [i.e., twenty percent (20%) if the          must waive their right to set off any amounts
remaining life is four (4) years to less than           they owe the QB against subordinated
five (5) years, forty percent (40%) if the              amounts owed to them by the QB. The issue
remaining life is three (3) years to less than          documentation must clearly state that the
four (4) years, etc.]: Provided, further, That          debt is subordinated;
where it is denominated in a foreign                         (iii) It must be fully paid-up. Only the
currency, it shall be revalued periodically             net proceeds actually received from debt
(at least monthly) in Philippine peso at                issues can be included as capital. If the debt
prevailing exchange rate using the same                 is issued at a premium, the premium cannot
exchange rate used for revaluation of foreign           be counted as part of capital;
currency-denominated assets, liabilities and                 (iv) It must not be redeemable at the
forward contracts under existing regulations:           initiative of the holder;
Provided furthermore, That, for purposes of                  (v) It must not contain any clause
reserve requirement regulation, it shall not            which requires acceleration of payment of
be treated as a deposit substitute liability or         principal, except in the event of insolvency;
other forms of borrowings;                                   (vi) It must not be repayable prior to
      (g) Deposit for common stock                      maturity without the prior consent of the
subscription; and                                       BSP: Provided, That repayment may be
      (h) Deposit for perpetual and                     allowed in connection with call option only
non-cumulative preferred stock subscription:            after a minimum of five (5) years from issue
Provided, That the following items shall be             date and only if – (1) the QB’s capital ratio
deducted from the total of UT2 capital:                 is at least equal to the required minimum
      (i) Perpetual and cumulative preferred            capital ratio; and (2) the debt is
stock treasury shares;                                  simultaneously replaced with issues of new
      (2) Lower Tier 2 (LT2) capital -                  capital which is neither smaller in size nor
      (a) Paid-up limited life redeemable               of lower quality than the original issue;
preferred stock: Provided, That these shall                  (vii) It may allow a moderate step-up in
be subject to a cumulative discount factor              the interest rate in conjunction with a call
of twenty percent (20%) per year during the             option, only if the step-up occurs at a
last five (5) years to maturity [i.e., twenty           minimum of five (5) years after the issue date
percent (20%) if the remaining life is four             and if it results in an increase over the initial
(4) years to less than five (5) years, forty            rate that is not more than 100 basis points
percent (40%) if the remaining life is three            or fifty percent (50%) of the initial credit
(3) years to less than four (4) years, etc.];           spread, at the option of the bank: Provided,
      (b) Limited life redeemable preferred             That only one (1) rate step up shall be
stock dividends distributable;                          allowed over the life of the instrument;
      (c) With prior BSP approval, UnSD                      (viii) It must be underwritten by a third
with a minimum original maturity of at least            party not related to the issuer QB nor acting



Q Regulations                                Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 14
                                                                                 §§ 4116Q.2 - 4116Q.3
                                                                                              08.12.31

in reciprocity for and in behalf of the issuer      shall be a maximum of 100% of total
QB;                                                 Tier 1 capital (net of deductions therefrom);
      (ix) It must be issued in minimum                 c. Less deductions from the total of
denominations of at least P500,000 or its           Tier 1 and Tier 2 capital, as follows:
equivalent; and                                         (1) Investments in equity of
      (x) It must clearly state on its face that    unconsolidated subsidiary banks and other
it is not a deposit and is not insured by the       subsidiary financial allied undertakings, but
PDIC:                                               excluding insurance companies (for solo
      Provided, That it shall be subject to a       basis);
cumulative discount factor of twenty                    (2) Investments in debt capital
percent (20%) per year during the last five         instruments of unconsolidated subsidiary
(5) years to maturity [i.e., twenty percent         banks (for solo basis);
(20%) if the remaining life is four (4) years           (3) Investments in equity of subsidiary
to less than five (5) years, forty percent          insurance companies and subsidiary
(40%) if the remaining life is three (3) years      non-financial allied undertakings;
to less than four (4) years, etc.]: Provided,           (4) Reciprocal investments in equity of
further, That where it is denominated in a          other banks/enterprises; and
foreign currency, it shall be revalued                  (5) Reciprocal        investments       in
periodically (at least monthly) in Philippine       unsecured subordinated term debt
peso using the same exchange rate used for          instruments of other banks/QBs in excess
revaluation of foreign currency denominated         of the lower of (i) an aggregate ceiling of
assets, liabilities and forward contracts           five percent (5%) of total Tier 1 capital of
under existing regulations: Provided, finally,      the QB; or (ii) ten percent (10%) of the total
That, for purposes of reserve requirement           outstanding unsecured subordinated term
regulation, it shall not be treated as              debt issuance of the other bank/QB:
equivalent to a deposit substitute liability            Provided, That any asset deducted from
or other forms of borrowings; and                   the qualifying capital in computing the
      (d) Deposit for perpetual and                 numerator of the risk-based capital ratio shall
cumulative preferred stock subscription;            not be included in the risk-weighted assets
      Provided, That the following items shall      in computing the denominator of the ratio.
be deducted from the total of Lower Tier 2          (As amended by Circular No. 560 dated 31 January 2007)
capital:
      (1) Limited life redeemable preferred             § 4116Q.3 (2008 - 4116Q.2) Risk-
stock treasury shares; and                          weighted assets. The risk-weighted assets
      (2) Sinking fund for redemption of            shall be determined by assigning risk
limited life redeemable preferred stock:            weights to amounts of on-balance sheet
Provided, That the amount to be deducted            assets and to credit equivalent amounts of
shall be limited to the balance of redeemable       off-balance sheet items (inclusive of
preferred stock after applying the cumulative       derivative contracts): Provided, That the
discount factor:                                    following shall be deducted from the total
      Provided, further, That the total amount      risk-weighted assets:
of LT2 capital that may be included in the Tier 2       (1) general loan loss provision (in
capital shall be a maximum of fifty percent (50%)   excess of the amount permitted to be
of total Tier 1 capital (net of deductions          included in UT2 capital); and
therefrom): Provided furthermore, That the              (2) unbooked valuation reserves and
total amount of upper and lower Tier 2 capital      other capital adjustments affecting asset
that may be included in the qualifying capital      accounts based on the latest report of



Manual of Regulations for Non-Bank Financial Institutions                                   Q Regulations
                                                                                           Part I - Page 15
§ 4116Q.3
08.12.31

examination as approved by the Monetary               (c) Claims on or portions of claims
Board.                                            guaranteed by Philippine incorporated
    a. On-balance sheet assets. The               banks/QBs with the highest credit quality
risk-weighted amount shall be the product         as defined in Subsec. 4116Q.4;
of the book value of the asset multiplied             (d) Claims on or portions of claims
by the risk weight associated with that           guaranteed by foreign incorporated banks
asset, as follows:                                with the highest credit quality as defined
    (1) Zero percent (0%) risk weight             in Subsec. 4116Q.4;
    (a) Cash on hand;                                 (e) Claims on or portions of claims
    (b) Claims on or portions of claims           guaranteed by or collateralized by
guaranteed by or collateralized by                securities issued by multilateral
securities issued by -                            development banks (MDBs);
    (i) Philippine national government and            (f) Loans to exporters to the extent
BSP; and                                          guaranteed by Small Business Guarantee
    (ii) Central governments and central          and Finance Corporation (SBGFC); and
banks of foreign countries with the highest           (g) Foreign         currency         COCIs
credit quality as defined in Subsec. 4116Q.4;     denominated in currencies acceptable as
    (c) Loans to the extent covered by hold-      international reserves;
out on, or assignment of deposit substitutes          (3) Fifty percent (50%) risk weight -
maintained with the lending QB;                       (a) Loans for housing purpose, fully
    (d) Portions of loans covered by              secured by first mortgage on residential
Industrial Guarantee and Loan Fund (IGLF)         property that is or will be occupied or
guarantee;                                        leased out by the borrower; and
    (e) Real estate mortgage (REM) loans              (b) Local government unit (LGU)
to the extent guaranteed by the Home              bonds which are covered by deed of
Guaranty Corporation (HGC);                       assignment of Internal Revenue Allotment
    (f) Loans to the extent guaranteed by         (IRA) of the LGU and guaranteed by the
the Trade and Investment Development              LGU Guarantee Corporation;
Corporation of the Philippines (TIDCORP);             (4) One hundred percent (100%) risk
    (g) Residual value of leased equipment        weight -
to the extent covered by deposits on lease            All other assets including, among
contracts (for FCs);                              others, the following:
    (h) Lease contract receivables to the             (a) Claims on central governments and
extent covered by the excess of deposits          central banks of foreign countries other than
on lease contracts over residual value of         those with the highest credit quality;
leased equipment (for FCs); and                       (b) Claims on Philippine (LGUs);
    (i) Foreign currency notes and coins on           (c) Claims on non-central government
hand acceptable as international reserves;        public sector entities of foreign countries other
    (2) Twenty percent (20%) risk weight          than those with the highest credit quality;
    (a) Checks and other cash items                   (d) Claims on government-owned or
(COCIs);                                          controlled commercial corporations;
    (b) Claims on or portions of claims               (e) Claims on Philippine incorporated
guaranteed by or collateralized by                banks/QBs other than those with the
securities issued by non-central                  highest credit quality;
government public sector entities of                  (f) Claims on foreign incorporated
foreign countries with the highest credit         banks other than those with the highest
quality as defined in Subsec. 4116Q.4;            credit quality;



Q Regulations                          Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 16
                                                                                        § 4116Q.3
                                                                                          08.12.31

    (g) Loans to companies engaged in               the QB; or (ii) ten percent (10%) of the total
speculative residential building or property        outstanding unsecured subordinated term
development;                                        debt issuance of the other bank/QB;
    (h) Claims on the private sector                     b. Off-balance sheet items. The
(except those deducted from capital);               risk-weighted amount shall be calculated
    (i) Equity investments (except those            using a two (2)-step process.
deducted from capital);                                  First, the credit equivalent amount of
    (j) Equipment and other real estate             an off-balance sheet item shall be
for lease (for FCs);                                determined by multiplying its notional
    (k) Real estate for sale/lease;                 principal amount by the appropriate credit
    (l) QB premises, furniture, fixtures            conversion factor, as follows:
and equipment (net);                                     (1) One hundred percent (100%)
    (m) Appraisal increment - QB                    credit conversion factor -
premises, furniture, fixtures and equipment              This shall apply to direct credit
(net);                                              substitutes, e.g. general guarantees of
    (n) Real and other properties owned             indebtedness and acceptances (including
or acquired (net);                                  endorsements with the character of
    (o) Foreign currency notes and coins            acceptances), and shall include -
on hand not acceptable as international                  (a) Outstanding guarantees issued
reserves; and                                            This shall also apply to sale and repo
    (p) Foreign COCIs not denominated               agreements and asset sales with recourse
in foreign currencies acceptable as                 where the credit risk remains with the QB
international reserves, except those which          [to the extent not included in the (BS)], as
are deducted from capital, as follows:              well as to forward asset purchases, and
    (i) Unsecured credit accommodations,            partly-paid shares and securities, which
both direct and indirect, to DOSRI;                 represent commitments with certain
    (ii) Deferred income tax;                       drawdown: Provided, That these items
    (iii) Goodwill;                                 shall be weighted according to the type of
    (iv) Sinking fund for redemption of             asset and not according to the type of
limited life redeemable preferred stock;            counterparty with whom the transaction
    (v) Equity investments in unconsolidated        has been entered into.
subsidiary banks and other subsidiary                    (2) Fifty percent (50%) credit
financial allied undertakings, but excluding        conversion factor - This shall apply to -
insurance companies;                                     (a) Note issuance facilities and
    (vi) Investments in debt capital                revolving underwriting facilities (for IHs); and
instruments of unconsolidated subsidiary                 (b) Other commitments, e.g., formal
banks;                                              standby facilities and credit lines with an
    (vii) Equity investments in subsidiary          original maturity of more than one (1) year.
insurance companies and subsidiary                  This shall include -
non-financial allied undertakings;                       (i) Underwritten accounts unsold
    (viii) Reciprocal investments in equity         (for IHs).
of other banks/enterprises; and                          (3) Zero percent (0%) credit
    (ix) Reciprocal investments in                  conversion factor -
unsecured subordinated term debt                         This shall apply to commitments with
instruments of other banks/QBs, in excess           an original maturity of up to one (1) year.
of the lower of (i) an aggregate ceiling of              This shall also apply to those not
five percent (5%) of total Tier 1 capital of        involving credit risk, and shall include -



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part I - Page 17
§§ 4116Q.3 - 4116Q.4
08.12.31

     (a) Items held for safekeeping/                     That for contracts that are structured to settle
custodianship;                                           outstanding exposure following specified
     (b) Trust department accounts;                      payment dates and where the terms are
     (c) Items held as collaterals; etc.                 reset such that the market value of the
     Second, the credit equivalent amount                contract is zero on these specified dates,
shall be treated like any on-balance sheet               the residual maturity would be set equal
asset and shall be assigned the appropriate              to the time until the next reset date, and in
risk weight, i.e., according to the obligor,             the case of interest rate contracts with
or if relevant, the qualified guarantor or the           remaining maturities of more than one (1)
nature of collateral.                                    year that meet these criteria, the potential
     c. Derivative contracts. The credit                 future credit conversion factor is subject
equivalent amount shall be the sum of the                to a floor of five tenths percent (0.5%):
current credit exposure (or replacement                  Provided, furthermore, That no potential
cost) and an estimate of the potential future            future credit exposure shall be calculated
credit exposure (or add-on): Provided, That              for single currency floating/ floating interest
the following shall not be included in the               rate swaps, i.e., the credit exposure on
computation:                                             these contracts would be evaluated solely
     (1) Instruments which are traded on                 on the basis of their mark-to-market value.
exchange where they are subject to daily                      The credit equivalent amount shall be
receipt and payment of cash variation                    treated like any on-balance sheet asset,
margin; and                                              and shall be assigned the appropriate risk
     (2) Exchange rate contracts with original           weight, i.e., according to the obligor, or if
maturity of fourteen (14) calendar days or less.         relevant, the qualified guarantor or the
     The current credit exposure shall be the            nature of collateral: Provided, That a fifty
positive mark-to-market value of the                     percent (50%) risk weight shall be applied
contract (or zero if the mark-to-market                  in respect of obligors which would
value is zero or negative). The potential                otherwise attract a 100% risk weight.
future credit exposure shall be the product                   The extent to which a claim is
of the notional principal amount of the                  guaranteed/collateralized shall be
contract multiplied by the appropriate                   determined by the amount of guarantee
potential future credit conversion factor, as            coverage/current market value of securities
indicated below:                                         pledged, in comparison with the book
                                                         value of the on-balance sheet asset or the
    Interest           Exchange
    Residual             Rate       Rate                 notional principal amount of the off-balance
    Maturity            Contract   Contract              sheet exposure, except for derivative
    One (1)              0.0%       1.0%
    year or less                                         contracts for which determination is
                                                         generally made in relation to credit
    Over one            0.5%        5.0%
    (1) year to five
                                                         equivalent amount.
    (5) years
                                                             § 4116Q.4 (2008 - 4116Q.3) Definitions
    Over five           1.5%        7.5%
    (5) years                                                a. Amount due from the BSP. This
                                                         refers to all deposits of the reporting QB
   Provided, That for contracts with multiple            with the BSP.
exchanges of principal, the factors are to be                b. Appraisal increment reserve. This
multiplied by the number of remaining                    shall form part of capital only if authorized
payments in the contract: Provided, further,             by the Monetary Board.



Q Regulations                                 Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 18
                                                                                       § 4116Q.4
                                                                                         08.12.31

     c. QB premises, furniture, fixtures            undertakings, but excluding insurance
and equipment net of depreciation. This             companies.
refers to the cost of land and improvements              h. Debt capital instruments. This
used as the QB premises, and furniture,             refers to unsecured subordinated term debt
fixtures and equipment owned by the QB.             instruments qualifying as capital of banks.
     d. Cash on hand. This refers to total               i. Equity investments. This refers to
cash held by the QB consisting of both              investments in capital stock of companies,
notes and coins in Philippine currency.             firms or enterprises, made for purposes of
     e. Central government of a foreign             control, affiliation or other continuing
country. This refers to the central                 business advantage.
government which is regarded as such by                  j. Exchange rate contracts. This
a recognized banking supervisory                    includes cross-currency interest rate swaps,
authority in that country.                          forward foreign exchange (FX) contracts,
     f. Claims. This refer to loans or debt         currency futures, currency options
obligations of the entity on whom the claim         purchased and similar instruments.
is held, and shall include, but shall not be             k. Financial allied undertakings. This
limited to, the following accounts,                 refers to enterprises or firms with
inclusive of accumulated market gains/              homogenous or similar activities/business/
(losses) and accumulated bond discount/             functions with the financial intermediary
(premium amortization), and net of specific         and may include but not limited to leasing
allowance for probable losses:                      companies, banks, IHs, FCs, credit card
     (1) Due from BSP;                              companies, FIs catering to small and
     (2) Due from other banks;                      medium scale industries (including venture
     (3) Interbank loans receivable;                capital corporations), companies engaged
     (4) Loans and discounts, including             in stock brokerage/securities dealership,
lease contract receivables, net of advance          companies engaged in FX dealership/
leasing income received and receivables             brokerage, holding companies, and such
financed for Financing Companies (FCs);             other similar activities as the Monetary
     (5) Restructured loans;                        Board may declare as appropriate from
     (6) Trading account securities - loans;        time to time, but excluding insurance
     (7) Underwriting accounts - debt               companies.
securities (for IHs);                                    l. Foreign country/foreign incorporated
     (8) Underwriting accounts - equity             bank and Philippine incorporated bank/QB
securities (for IHs);                               with the highest credit quality. This refers
     (9) Trading account securities - debt          to a foreign country/foreign incorporated
securities;                                         bank and Philippine incorporated bank/QB
     (10) Trading account securities - equity       given the highest credit rating of any two
securities (for IHs);                               (2) of the following internationally accepted
     (11) Available for sale securities;            rating agencies:
     (12) Investments in bonds and other
debt instruments (IBODI); and                           Rating Agency       Highest Rating
     (13) Others, e.g., accounts receivable
                                                        (1) Moody’s          “Aa3” and above
and accrued interest receivable.
                                                        (2) Standard and     “AA-” and above
     Accruals on a claim shall be classified and            Poor's
risk weighted in the same way as the claim.             (3) Fitch IBCA       “AA-” and above
     g. Consolidated basis. This refers to              (4) Others as may
combined statement of condition (SOC) of                    be approved by
parent QB and subsidiary financial allied                   the Monetary Board



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                  Part I - Page 19
§ 4116Q.4
08.12.31

    m. Forward asset purchases. This                     t. Note issuance facilities and
refers to a commitment to purchase a loan,          revolving underwriting facilities. This
security or other asset at a specified future       refers to an arrangement whereby a
date, usually on pre-arranged terms.                borrower may draw down funds up to a
    n. Goodwill. This refers to an intangible       prescribed limit over an extended period
asset that represents the excess of the             by repeated issues to the market of
purchase price over the fair market value of        promissory notes which the QB committed
identifiable assets acquired less liabilities       to underwrite.
assumed in acquisitions accounted for under              u. Other commitments. This includes
the purchase method of accounting.                  undrawn portion of any binding
    o. Interest rate contracts. This includes       arrangements which obligate the QB to
single-currency interest rate swaps, basis          provide funds at some future date.
swaps, forward rate agreements, interest                 v. Other commitments with an
rate futures, interest rate options purchased       original maturity of up to one (1) year. This
and similar instruments.                            includes any revolving or undated open-
    p. Loans for housing purpose, fully             ended commitments, e.g., unused credit
secured by first mortgage on residential            lines: Provided, That these can be
property that is or will be occupied or             unconditionally cancelled at any time and
leased out by the borrower. This shall not          are subject to credit revision at least annually.
include loans to companies engaged in                    w. Partly-paid shares and securities.
speculative residential building or property        This arises where only a part of the issue
development.                                        price or nominal face value of a security
    q. Loans to the extent covered by               purchased has been subscribed and the
hold-out on, or assignment of deposit               issuer may call for the outstanding balance
substitutes maintained in the lending QB.           (or a further installment), either on a date
A loan shall be considered as secured by a          predetermined at the time of issue, or at
hold-out on, or assignment of deposit               an unspecified future date.
substitute only if such deposit substitute               x. Perpetual preferred stock. This refers
account is covered by a hold-out agreement          to preferred stock that does not have a
or deed of assignment signed by the investor/       maturity date, that cannot be redeemed at
placer in favor of the QB. This shall not           the option of the holder of the instrument,
include loans transferred to/carried by the         and that has no provision that will require
QB’s trust department secured by deposit            future redemption of the issue. Consistent
substitute hold-out/assignment.                     with these provisions, any perpetual
    r. MDBs. This refers to International           preferred stock with a feature permitting
Bank for Reconstruction and Development             redemption at the option of the issuer may
(IBRD), Inter-American Development                  qualify as capital only if the redemption is
Bank, Asian Development Bank (ADB),                 subject to prior approval of the BSP.
African Development Bank (AfDB),                         y. Philippine LGUs. This refers to the
European Investment Bank (EIB) and                  Philippine government units below the
European Bank for Reconstruction and                level of national government, such as city,
Development.                                        provincial, and municipal governments.
    s. Non-central government public                     z. Philippine national government.
sector entity of a foreign country. This refers     This shall refer to the Philippine national
to entities which are regarded as such by a         government and its agencies such as
recognized banking supervisory authority in         departments, bureaus, offices, and
the country in which they are incorporated.         instrumentalities,          but      excluding



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 20
                                                                             §§ 4116Q.4 - 4117Q
                                                                                        08.12.31

government owned and-controlled                     after the end of reference quarter,
commercial corporations.                            respectively. Only QBs with subsidiary
    (1) Private sector. This refers to entities     financial allied undertakings (excluding
other than banks, QBs and governments.              insurance companies) which under existing
This shall also include commercial                  regulations are required to prepare
companies owned by the public sector,               consolidated statements of condition on a
such as government-owned or-controlled              line-by-line basis shall be required to submit
commercial corporations.                            report on consolidated basis. The above-
    (2) Redeemable preferred stock. This            mentioned reports shall be classified as
refers to preferred stock which may be              Category A-2 reports.
redeemed at the specific dates or periods
fixed for redemption.                                    § 4116Q.6 (2008 - 4116Q.5) Sanctions
    (3) Sale and repo agreements and                Whenever the capital accounts of a QB are
asset sales with recourse. This refers to           deficient with respect to the prescribed
arrangements whereby a QB sells a loan,             CAR, the Monetary Board after considering
security or fixed asset to a third party with       a report of the appropriate department of
a commitment to repurchase the asset after          the SES on the state of solvency of the
a certain time, or in the event of a certain        institution concerned, shall limit or prohibit
contingency.                                        the distribution of the net profits and shall
    (4) Solo basis. This refers to combined         require that part or all of net profits be used
SOC of head office and branches.                    to increase the capital accounts of the QB
    (5) Subsidiary. This refers to a                until the minimum requirement has been
corporation or firm more than fifty percent         met. The Monetary Board may restrict or
(50%) of the outstanding voting stock of            prohibit the making of new investments of
which is directly or indirectly owned,              any sort by the QB, with the exception of
controlled or held with the power to vote           purchases of readily marketable evidences
by a QB.                                            of indebtedness issued by the Philippine
    (6) Treasury shares. This refers to the         national government and BSP included in
QB’s own shares of stock that have been             Item “a(1)(b)i” of Subsec. 4116Q.3, until the
issued and fully paid for, subsequently             minimum required capital ratio has been
reacquired through purchase or donations            restored.
and have not been cancelled or re-issued.
This also refers to shares of a parent QB               § 4116Q.7 (2008 - 4116Q.6) Temporary
held by a subsidiary financial allied               relief. In case of QB merger or
undertaking in a consolidated statement of          consolidation, or when a QB is under
condition (CSOC).                                   rehabilitation under a program approved by
                                                    the BSP, the Monetary Board may
    § 4116Q.5 (2008 - 4116Q.4) Required             temporarily relieve the surviving QB,
reports. QBs shall submit a report of their         consolidated QB, or constituent QB or
risk-based CAR on a solo basis (head office         corporations under rehabilitation from full
plus branches) and on a consolidated basis          compliance with the required capital ratio
(parent QB plus subsidiary financial allied         for a maximum period of one (1) year.
undertakings, but excluding insurance
companies) quarterly to the appropriate             Sec. 4117Q Treatment of Equity Investment
department of the SES in the prescribed             with Reciprocal Stockholdings. For
forms within the deadlines, i.e., fifteen (15)      purposes of computing the prescribed ratio
business days and thirty (30) business days         of net worth (or combined capital accounts)



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part I - Page 21
§§ 4117Q - 4119Q
09.12.31

to risk assets, equity investments of a QB               (b) For every consecutive reporting
in another QB shall be deducted from its             period, the suspension shall extend for
net worth if the investee QB has a                   another thirty (30) calendar days.
reciprocal equity investment in the                      (c) The suspension shall be
investing QB, in which case the                      automatically lifted if on the final reporting
investment of the QB or the reciprocal               period of the period of suspension, the entity
investment of the other QB, whichever is             maintains the minimum capital required
lower, shall be deducted from the net                under Secs. 4115Q and 4116Q as may be
worth of the QBs.                                    apllicable for every day of such reporting
                                                     period.
Sec. 4118Q Sanctions on Net Worth                        (3) In all of the cases abovementioned,
Deficiency                                           establishment of branches, agencies,
     a. Any QB which is deficient in the             extension offices, etc., shall be suspended.
capital requirement under Sec. 4115Q shall               b. For improperly accomplished report,
be liable to the following sanctions:                QBs shall pay P600 per day for every day the
     (1) In case of capital deficiency for five      report is not corrected, counted as of the date
(5) or more times within a reporting period:         the error is brought to its attention until the
     (a) For the first offense - a fine of           corrected report is submitted.
P3,000.                                                  c. For willfully making false statements
     (b) For the second consecutive offense          in the report or submitting a false report,
- prohibition from extending new loans or            the Certificate of Authority for quasi-banking
making new investments for a period of               functions shall be suspended/revoked.
thirty (30) calendar days.                               d. The Monetary Board may impose
     New loans and new investments shall             additional sanctions on the entity engaged
refer to any loan or investment involving            in quasi-banking functions by:
disbursement of funds, except GS.                        (1) Revoking the Certificate of Authority
     (c) For the third consecutive offense -         to engage in quasi-banking functions; and
extension of the penalty under the                       (2) Such other sanctions as the BSP may
preceding paragraph for another thirty (30)          deem necessary.
calendar days.                                       (As amended by Circular No. 585 dated 15 October 2007)
     (d) For the fourth consecutive offense -
suspension of the Certificate of Authority to        Sec. 4119Q Internal Capital Adequacy
engage in quasi-banking functions for a              Assessment Process and Supervisory
period of thirty (30) calendar days. The             Review Process. The guidelines on internal
suspension shall be automatically lifted if          capital adequacy assessment process
in the final reporting period of the period of       (ICAAP) and BSP’s supervisory review
suspension, the entity maintains the                 process (SRP) are shown in Appendices
minimum capital required under Sec.                  Q-53 and Q-54 respectively.
4115Q and 4116Q as may be applicable                     The ICAAP guidelines shall apply to all
for every day of such reporting period.              UBs and KBs on a group-wide basis.
     (2) In case of continuous capital                   All covered UBs and KBs are required
deficiency:                                          to submit the interim ICAAP document on
     (a) For two (2) consecutive reporting           or before 30 April 2010 and the final ICAAP
periods - suspension of the Certificate of           document together with the Corporate
Authority to engage in quasi-banking                 Secretary’s Certificate attesting to the
functions for a period of thirty (30) calendar       approval by the bank’s board of directors
days.                                                on or before 31 January 2011.



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 22
                                                                                           §§ 4119Q - 4136Q.1
                                                                                                      09.12.31

    The guidelines shall take effect on                                 b. Well secured - A debt shall be
01 January 2011.                                                  considered well secured (or fully
(Circular No. 639 dated 15 January 2009, as amended by Circular   secured) if it is covered by collateral in
No. 29 December 2009)                                             the form of a duly constituted mortgage,
                                                                  pledge, or lien on real or personal
Sec. 4120Q (Reserved)                                             properties, including securities. The
                                                                  outstanding debt, accrued interest and
                    F. (RESERVED)                                 other pertinent fees and expenses
                                                                  thereon shall not be in excess of seventy
Secs. 4121Q - 4135Q (Reserved)                                    percent (70%) of the appraised value
                                                                  (AV) of real estate, or fifty percent (50%)
    G. STOCK, STOCKHOLDERS AND                                    of the other personal properties offered
             DIVIDENDS                                            as lien.
                                                                        c. In process of collection - A debt
Sec. 4136Q (2008 - 4126Q) Dividends                               due to a QB shall be considered in process
Pursuant to Section 57 of R.A. No. 8791,                          of collection when it is the subject of
no QB shall declare dividends greater                             continuing extrajudicial or judicial
than its accumulated net profits then on                          proceedings aimed towards its full
hand, deducting therefrom its losses and                          settlement or liquidation, or otherwise to
bad debts. Neither shall the QB declare                           place it in current status.
dividends if, at the time of declaration, it                            The extrajudicial proceedings, such as
has not complied with the provisions of                           the writing of collection or demand letters,
Subsec. 4136Q.2.                                                  must have been initiated by the QB and/or
                                                                  its lawyers before the interest or installments
    § 4136Q.1 (2008 - 4126Q.1) Definition                         or amortizations on the debt become past
of terms. For purposes of this Section, the                       due and unpaid for a period of six (6)
following definitions shall apply:                                months.
    a. Bad debts shall include any debt                                 The debt shall continue to be
on which interest is past due for a period                        considered in process of collection for a
of six (6) months, unless it is well secured                      period of six (6) months counted from date
and in process of collection.                                     of the first collection or demand letter and
    A loan payable in installment with an                         if, within this period, the debtor fails to
automatic acceleration clause shall be                            make a payment of at least twenty percent
considered a bad debt within the                                  (20%) of the outstanding balance of the
contemplation of this Section where                               principal on his account, plus all interests
installments or amortizations have                                which may have accrued thereon, the
become past due for a period of six (6)                           same shall automatically be classified as
months, unless the loan is well secured                           bad debt unless judicial proceedings are
and in process of collection. For a loan                          instituted.
payable in installments without an                                      The debt shall continue to be
acceleration clause, only the installments                        considered in process of collection during
or amortizations that have become past                            the pendency of the judicial proceedings.
due for a period of six (6) months and                            When judgment against the debtor has
which are not well secured and in the                             been obtained, the QB must be active in
process of collection shall be considered                         enforcing the judgment for the debt to
bad debts within the contemplation of this                        continue to be considered in process of
Section.                                                          collection.



Manual of Regulations for Non-Bank Financial Institutions                                          Q Regulations
                                                                                                  Part I - Page 23
§§ 4136Q.2 - 4136Q.4
08.12.31

     § 4136Q.2 (2008 - 4126Q.2) Requirements           (i) Failure to comply with the capital
on the declaration of dividends/net amount         build-up program approved by the
available for dividends                            Monetary Board.
     a. Requirements on the declaration of             QBs which have committed any of the
dividends. At the time of declaration, QBs         major violations under Item “a(6)” above
shall have complied with the following:            may only be allowed to declare dividends
     (1) Clearing account with the BSP is not      by the Monetary Board upon
overdrawn;                                         recommendation of the appropriate
     (2) Minimum capitalization requirement        department of the SES that the QB has
and risk-based capital ratio;                      corrected the major violation/s that it has
     (3) Statutory and liquidity reserves          committed.
requirement;                                           b. Amount available. The net amount
     (4) No past due loans with any                available for dividends shall be the amount
institution;                                       of unrestricted or free retained earnings
     (5) No net losses from operations in          and profit and loss summary less:
any one of the two (2) fiscal years                    (1) Bad debts against which valuation
immediately preceding the date of                  reserves are not required by the BSP to be
dividend declaration; and                          set up;
     (6) Has not committed any of the                  (2) Unbooked valuation reserves, and
following major violations:                        other unbooked capital adjustments
     (a) Loans      and      other    credit       required by the BSP, whether or not
accommodations and guarantees granted              allowed to be set up on a staggered basis;
in excess of the single borrower’s limit;              (3) Deferred income tax;
     (b) Loans      and      other    credit           (4) Accumulated profits not yet
accommodations granted/extended in                 received but already recorded by the QB
excess of the ceilings on accommodations           representing its share in profits of its
to DOSRI;                                          subsidiaries under the equity method of
     (c) Unsafe and unsound banking                accounting;
practice as defined under existing BSP                 (5) Accrued interest as required to be
regulations;                                       excluded pursuant to Item “c” of Subsec.
     (d) Equity investments in excess of the       4305Q.4, net of booked valuation reserves
prescribed ceilings;                               on accrued interest receivable or allowance
     (e) Investments in real estate, QB            for uncollectible interest on loans; and
premises and equipment in excess of                    (6) FX profit arising from revaluation of
prescribed ceilings;                               FX denominated accounts.
     (f) Major violations/exceptions cited         (As amended by Circular No. 571 dated 21 June 2007)
in the previous examination not duly acted
upon or not yet corrected;                              § 4136Q.3 (Reserved)
     (g) Transactions or activities without
prior approval or necessary license from               § 4136Q.4 (2008 - 4126Q.3) Reporting
the BSP such as, but not limited to                and verification. Declaration of cash
derivatives, trust and e-banking;                  dividend shall be reported by the QB
     (h) Refusal to permit examination into        concerned to the appropriate department of
the affairs of the institution or any willful      the SES within ten (10) business days from
making of a false or misleading statement          date of approval of the declaration by the
to the Monetary Board or to the                    QB’s board of directors, in the prescribed
appropriate department of the SES; and             form.



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 24
                                                                                         § 4136Q.4
                                                                                           08.12.31

    Pending verification of abovementioned             against such declaration has been
report by the appropriate department of the            received by the QB concerned, subject to
SES, the QB concerned shall not make any               the condition that the record date for such
announcement or communication on the                   dividends cannot be set earlier than thirty
declaration of cash dividends nor shall any            (30) business days after declaration.
payment be made thereon.                                   QBs whose shares are listed with any
    In any case, the declaration may be                domestic stock exchange may give notice
announced and the dividends paid, if,                  of cash dividend declaration in accordance
after thirty (30) business days from the               with pertinent rules of the SEC: Provided,
date the report required herein shall have             That no record date is fixed for such cash
been received by the BSP, no advice                    dividend, pending verification of the report


                                    (Next page is Part I - Page 25)




Manual of Regulations for Non-Bank Financial Institutions                            Q Regulations
                                                                                   Part I - Page 24a
                                                                           §§ 4136Q.4 - 4141Q.1
                                                                                        08.12.31

on such declaration by the appropriate                   § 4141Q.1 Limits on the number of
department of the SES.                              the members of the board of directors
                                                    Pursuant to Sections 15 and 17 of R.A. No.
    § 4136Q.5 (2008 - 4126Q.4) Recording            8791, there shall be at least five (5), and a
of dividends. The liability for cash dividends      maximum of fifteen (15) members of the
declared shall be taken up in the books upon        board of directors of a QB/trust entity two
receipt of BSP approval thereof, or if no such      (2) of whom shall be independent
approval is received, after thirty (30) business    directors: Provided, That in case of a
days from the date required report on cash          QB/trust entity merger or consolidation,
dividend declaration was received by the            the number of directors may be increased
appropriate department of the SES,                  up to twenty-one (21).
whichever comes earlier. A memorandum                    An independent director shall mean a
entry may be made to record the dividend            person who -
declaration on the date of approval by the               (1) Is not or has not been an officer or
board of directors and for full disclosure          employee of the QB/trust entity, its
purposes. The cash dividends may be                 subsidiaries or affiliates or related interests
disclosed in the financial statements by            during the past three (3) years counted from
means of a footnote which should include            the date of his election;
a statement to the effect that the dividend              (2) Is not a director or officer of the
declaration is subject to review by the BSP.        related companies of the institution’s
Dividends of all kinds, whether on                  majority stockholder;
common or on preferred shares of stock,                  (3) Is not a majority stockholder of the
shall not be treated as interest expense,           institution, any of its related companies, or
considering that as a general policy only           of its majority shareholders;
irredeemable stock may be issued by QBs.                 (4) Is not a relative within the fourth
                                                    degree of consanguinity or affinity, legitimate
    § 4136Q.6 (Reserved)                            or common-law of any director, officer or
                                                    majority shareholder of the QB/trust entity or
   § 4136Q.7 (2008 - 4126Q.5) Rules on              any of its related companies;
declaration of stock dividends. The                      (5) Is not acting as a nominee or
declaration of stock dividends shall be             representative of any director or substantial
subject to the preceding regulations on             shareholder of the QB/trust entity, any of its
declaration of cash dividends. Additional           related companies or any of its substantial
paid-in capital may be included in the              shareholders; and
amount available for stock dividends.                    (6) Is not retained as professional
                                                    adviser, consultant, agent or counsel of the
Secs. 4137Q - 4140Q (Reserved)                      institution, any of its related companies or
                                                    any of its substantial shareholders, either
     H. DIRECTORS, OFFICERS AND                     in his personal capacity or through his firm;
             EMPLOYEES                              is independent of management and free
                                                    from any business or other relationship, has
Sec. 4141Q Definition; Qualifications;              not engaged and does not engage in any
Powers; Responsibilities and Duties of              transaction with the institution or with any
Board of Directors and Directors. The               of its related companies or with any of its
following shall be the definition,                  substantial shareholders, whether by
qualifications, powers, responsibilities and        himself or with other persons or through a
duties of the board of directors and directors.     firm of which he is a partner or a company



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part I - Page 25
§ 4141Q.1
08.12.31

of which he is a director or substantial           exist even when ownership is one-half or
shareholder, other than transactions which         less of the voting power of an enterprise
are conducted at arms length and could not         when there is:
materially interfere with or influence the             (i) power over more than one-half of
exercise of his judgment.                          the voting rights by virtue of an agreement
     An independent director of a QB/trust         with other stockholders; or
entity can be elected as an independent                (ii) power to govern the financial and
director of its: (a) parent or holding             operating policies of the enterprise under
company; (b) subsidiary or affiliate;              a statute or an agreement; or
(c) substantial shareholder; or (d) other              (iii) power to appoint or remove the
related companies, or vice-versa: Provided,        majority of the members of the board of
That he is not a substantial shareholder of        directors or equivalent governing body; or
the QB/trust entity or any of the said                 (iv) power to cast the majority votes at
concerned entities.                                meetings of the board of directors or
     The terms and phrases used in Items           equivalent governing body; or
“(1)” to “(6)” shall have the following                (v) any other arrangement similar to
meaning:                                           any of the above.
    (a) Parent is a corporation which has              (f) Related company means another
control over another corporation directly          company which is: (a) its parent or holding
or indirectly through one (1) or more              company; (b) its subsidiary or affiliate; or
intermediaries.                                    (c) a corporation where a QB/trust entity
    (b) Subsidiary means a corporation             or its majority stockholder own such
more than fifty percent (50%) of the voting        number of shares that will allow/enable
stock of which is owned or controlled directly     him to elect at least one (1) member of the
or indirectly through one (1) or more              board of directors or a partnership where
intermediaries by a QB/trust entity.               such majority stockholder is a partner.
    (c) Affiliate is a juridical person that           (g) Substantial or major shareholder
directly or indirectly, through one (1) or         shall mean a person, whether natural or
more intermediaries, is controlled by, or is       juridical, owning such number of shares
under common control with the QB/trust             that will allow him to elect at least one (1)
entity or its affiliates.                          member of the board of directors of a QB/
    (d) Related interests as defined under         trust entity or who is directly or indirectly
Sections 12 and 13 of R.A. No. 8791 shall          the registered or beneficial owner of more
mean individuals related to each other             than ten percent (10%) of any class of its
within the fourth degree of consanguinity          equity security.
or affinity, legitimate or common law, and             (h) Majority stockholder or majority
two (2) or more corporations owned or              shareholder means a person, whether
controlled by a single individual or by the        natural or juridical, owning more than fifty
same family group or the same group of             percent (50%) of the voting stock of a QB/
persons.                                           trust entity.
    (e) Control exists when the parent                 Non-Filipino citizens may become
owns directly or indirectly through                members of the board of directors of a QB/
subsidiaries more than one-half of the             trust entity to the extent of the foreign
voting power of an enterprise unless, in           participation in the equity of said QB/trust
exceptional circumstance, it can be clearly        entity: Provided, That pursuant to Section
demonstrated that such ownership does              23 of the Corporation Code of the
not constitute control. Control may also           Philippines (BP Blg. 68), a majority of the



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 26
                                                                          §§ 4141Q.1 - 4141Q.3
                                                                                       08.12.31

directors must be residents of the                  those elected after 31 December 2002, as
Philippines.                                        the case may be; and
     The meetings of the board of directors             d. He must be fit and proper for the
may be conducted through modern                     position of a director of the QB/trust entity.
technologies such as, but not limited to,           In determining whether a person is fit and
teleconferencing and videoconferencing as           proper for the position of a director, the
long as the director who is taking part in          following matters must be considered:
said meetings can actively participate in           integrity/probity, competence, education,
the deliberations on matters taken up               diligence and experience/training.
therein: Provided, That every member of                 The foregoing qualifications for
the board shall participate in at least fifty       directors shall be in addition to those
percent (50%) and shall physically attend           required or prescribed under R.A. No. 8791
at least twenty-five percent (25%) of all           and other existing applicable laws and
board meetings every year: Provided,                regulations.
further, That in the case of a director who
is unable to physically attend or participate           § 4141Q.3 Powers/responsibilities and
in board meetings via teleconferencing or           duties of board of directors and directors
videoconferencing, the corporate                        a. Powers of the board of directors.
secretary shall execute a notarized                 The corporate powers of a QB/trust entity
certification attesting that said director was      shall be exercised, its business conducted
given the agenda materials prior to the             and all its property shall be controlled and
meeting and that his/her comments/                  held by its board of directors. The powers
decisions thereon were submitted for                of the board of directors as conferred by
deliberation/discussion and were taken up           law are original and cannot be revoked by
in the actual board meeting, and that the           the stockholders. The directors hold their
submission of said certification shall be           office charged with the duty to act for the
considered compliance with the required             QB/trust entity in accordance with their
fifty percent (50%) minimum attendance              best judgment.
in board meetings.                                      b. General responsibility of the board
                                                    of directors. The position of a QB/trust
    § 4141Q.2 Qualifications of a director          entity director is a position of trust. A
A director shall have the following                 director assumes certain responsibilities to
minimum qualifications:                             different constituencies or stakeholders,
    a. He shall be at least twenty-five (25)        i.e., the QB/trust entity itself, its
years of age at the time of his election or         stockholders, its clients and other creditors,
appointment;                                        its management and employees, and the
    b. He shall be at least a college               public at large. These constituencies or
graduate or have at least five (5) years            stakeholders have the right to expect that
experience in business;                             the institution is being run in a prudent and
    c. He must have attended a special              sound manner.
seminar for board of directors conducted                The board of directors is primarily
or accredited by the BSP: Provided, That            responsible for the corporate governance
incumbent directors as well as those                of the QB/trust entity. To ensure good
elected after 17 September 2001 must                governance of the QB/trust entity, the
attend said seminar on or before                    board of directors should establish strategic
31 December 2002 or within a period of              objectives, policies and procedures that
six (6) months from date of election for            will guide and direct the activities of the



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                  Part I - Page 27
§ 4141Q.3
08.12.31

QB/trust entity and the means to attain the          of conduct and other standards of
same as well as the mechanism for                    appropriate behaviour for itself, the senior
monitoring management’s performance.                 management and other employees.
While the management of the day-to-day               Among others, activities and transactions
affairs of the institution is the responsibility     that could result or potentially result in
of the management team, the board of                 conflict of interest, personal gain at the
directors is, however, responsible for               expense of the institution, or unethical
monitoring and overseeing management                 conduct shall be strictly prohibited. It
action.                                              should provide policies that will prevent
     c. Specific duties and responsibilities         the use of the facilities of the QB/trust entity
of the board of directors                            in furtherance of criminal and other illegal
     (1) To select and appoint officers who          activities.
are qualified to administer the QB’s/trust               (4) To establish and ensure compliance
entity’s affairs effectively and soundly and         with sound written policies. The board
to establish adequate selection process for          should adopt written policies on all major
all personnel. It is the primary responsibility      business activities, i.e., investments, loans,
of the board of directors to appoint                 asset and liability management, business
competent management team at all times.              planning and budgeting. A mechanism to
The board of directors should apply fit and          ensure compliance with said policies shall
proper standards on key personnel.                   also be provided.
Integrity, technical expertise and                       (5) To prescribe a clear assignment of
experience in the institution’s business,            responsibilities and decision-making
either current or planned, should be the key         authorities, incorporating a hierarchy of
considerations in the selection process. And         required approvals from individuals to the
because mutual trust and a close working             board of directors. The board should
relationship are important, the board’s              establish in writing the limits of the
choice should share its general operating            discretionary powers of each officer,
philosophy and vision for the institution.           committee, sub-committee and such other
The board of directors shall establish an            group for the purpose of lending, investing
appropriate compensation package for all             or committing the QB/trust entity to any
personnel which shall be consistent with             financial undertaking or exposure to risk
the interest of all stakeholders.                    at any time. The board should have a
     (2) To establish objectives and draw            schedule of matters and authorities
up a business strategy for achieving them.           reserved to it for decision, such as: major
Consistent with the institution’s objectives,        capital expenditures, equity investments
business plans should be established to              and divestments.
direct its on-going activities. The board                (6) To effectively supervise the QB’s/
should ensure that performance against plan          trust entity’s affairs. As QBs/trust entities
is regularly reviewed, with corrective               are entrusted with the handling and
action taken as needed.                              investment of public funds, the supervision
     (3) To conduct the affairs of the               required from the board involves a higher
institution with high degree of integrity.           degree of wisdom, prudence, good
Since reputation is a very valuable asset, it        business judgment and competence than
is in the institution’s best interest that in        that of directors of ordinary companies.
dealings with the public, it observes a high         Although directors may delegate certain
standard of integrity. The board of directors        authority to senior officers, it is their
should prescribe corporate values, codes             responsibility to supervise and be



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 28
                                                                                                  § 4141Q.3
                                                                                                    08.12.31

responsible for the institution’s sound                        whom shall be independent directors,
management, as well as its problems. The                       including the chairman, preferably with
board of directors should establish a                          accounting, auditing, or related financial
system of checks and balances which                            management expertise or experience. The
applies in the first instance to the board                     audit committee provides oversight of the
itself. Among the members of the board,                        institution’s financial reporting and control
an effective system of checks and                              and internal and external audit functions.
balances must exist. The system should                         It shall be responsible for the setting up of
also provide a mechanism for effective                         the internal audit department and for the
check and control by the board over the                        appointment of the internal auditor as well
chief executive officer (CEO) and key                          as the independent external auditor who
managers and by the latter over the line                       shall both report directly to the audit
officers of the QB/trust entity.                               committee. It shall monitor and evaluate
     (7) To monitor, assess and control the                    the adequacy and effectiveness of the
performance of management. The board                           internal control system.
shall put in place an appropriate reporting                         Upon setting up the audit committee,
system so that it is provided with relevant                    the board of directors shall draw up a
and timely information to be able to                           written charter or terms of reference which
effectively assess the performance of                          clearly sets out the audit committee’s
management. For this purpose, it may                           authority and duties, as well as the
constitute a governance committee.                             reporting relationship with the board of
     (8) To adopt and maintain adequate                        directors. This charter shall be approved
risk management policy. The board of                           by the board of directors and reviewed and
directors shall be responsible for the                         updated periodically.
formulation and maintenance of written                              The audit committee shall have explicit
policies and procedures relating to the                        authority to investigate any matter within
management of risks throughout the                             its terms of reference, full access to and
institution. The risk management policy                        cooperation by management and full
shall include:                                                 discretion to invite any director or
     (a) a comprehensive risk management                       executive officer to attend its meetings,
approach;                                                      and adequate resources to enable it to
     (b) a detailed structure of limits,                       effectively discharge its functions.
guidelines and other parameters used to                             The audit committee shall ensure that
govern risk-taking;                                            a review of the effectiveness of the
     (c) a clear delineation of lines of                       institution’s internal controls, including
responsibilities for managing risk;                            financial, operational and compliance
     (d) an adequate system for measuring                      controls, and risk management, is
risk; and                                                      conducted at least annually.
     (e) effective internal controls and a                          The Audit Committee shall establish
comprehensive risk-reporting process.                          and maintain mechanisms by which
     The board may constitute a committee                      officers and staff may, in confidence, raise
for this purpose.                                              concerns about possible improprieties or
     (9) To constitute the following                           malpractices in matters of financial
committees:1                                                   reporting, internal control, auditing or other
     (a) Audit committee. The audit                            issues to persons or entities that have the
committee shall be composed of members                         power to take corrective action. It shall
of the board of directors, at least two (2) of                 ensure that arrangements are in place for

1
    Effective 01 January 2005 under Circular 456 dated 04 October 2004.

Manual of Regulations for Non-Bank Financial Institutions                                     Q Regulations
                                                                                             Part I - Page 29
§ 4141Q.3
08.12.31

the independent investigation, appropriate              The corporate governance committee
follow-up action, and subsequent                    shall decide the manner by which the
resolution of complaints.                           board’s performance may be evaluated
    (b) Corporate governance committee.             and propose an objective performance
The corporate governance committee shall            criteria approved by the board. Such
assist the board of directors in fulfilling its     performance indicators shall address how
corporate governance responsibilities. It           the board has enhanced long term
shall review and evaluate the qualifications        shareholders’ value.
of all persons nominated to the board as                (c) Risk management committee. The
well as those nominated to other positions          risk management committee shall be
requiring appointment by the board of               responsible for the development and
directors. The committee shall be                   oversight of the institution’s risk
composed of at least three (3) members of           management program. The committee
the board of directors, two (2) of whom             shall be composed of at least three (3)
shall be independent directors.                     members of the board of directors who
    The corporate governance committee              shall possess a range of expertise as well
shall have a written charter that describes         as adequate knowledge of the institution’s
the duties and responsibilities of its              risk exposures to be able to develop
members. This charter shall be approved by          appropriate strategies for preventing losses
the board of directors and reviewed and             and minimizing the impact of losses when
updated at least annually.                          they occur. It shall oversee the system of
    The committee shall be responsible for          limits to discretionary authority that the
ensuring the board’s effectiveness and due          board delegates to management, ensure
observance of corporate governance                  that the system remains effective, that the
principles and guidelines. It shall oversee the     limits are observed and that immediate
periodic performance evaluation of the board        corrective actions are taken whenever
and its committees and executive                    limits are breached.
management; and shall also conduct an                   The risk management committee shall
annual self-evaluation of its performance. The      have a written charter that defines the
committee shall also decide whether or not          duties and responsibilities of its members.
a director is able to and has been adequately       The charter shall be approved by the board
carrying out his/her duties as director bearing     of directors and reviewed and refined
in mind the director’s contribution and             periodically.
performance (e.g., competence, candor,                  The core responsibility of the risk
attendance, preparedness and participation).        management committee are:
Internal guidelines shall be adopted that               (i) Identify and evaluate exposures.
address the competing time commitments              The committee shall assess the probability
that are faced when directors serve on              of each risk becoming reality and shall
multiple boards.                                    estimate its possible effect and cost. Priority
    The       committee        shall     make       areas of concern are those risks that are the
recommendations to the board regarding              most likely to occur and are costly when
the continuing education of directors,              they happen.
assignment to board committees,                         (ii) Develop risk management
succession plan for the board members and           strategies. The risk management
senior officers, and their remuneration             committee shall develop a written plan
commensurate with corporate and                     defining the strategies for managing and
individual performance.                             controlling the major risks. It shall identify



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 30
                                                                                        § 4141Q.3
                                                                                          08.12.31

practical strategies to reduce the chance           condition. It should also provide appropriate
of harm and failure or minimize losses if           information that flows internally and to the
the risk becomes real.                              public. All members of the board shall have
     (iii) Implement the risk management            reasonable access to any information about
plan. The risk management committee                 the institution.
shall communicate the risk management                    (12) To ensure that the QB/trust entity
plan and loss control procedures to affected        has beneficial influence on the economy.
parties. The committee shall conduct                The board has a continuing responsibility
regular discussions on the institution’s            to provide those services and facilities
current risk exposure based on regular              which will be supportive of the national
management reports and direct concerned             economy.
units or offices on how to reduce these risks.           (13) To assess at least annually its
     (iv) Review and revise the plan as             performance and effectiveness as a body,
needed. The committee shall evaluate the            as well as its various committees, the CEO
risk management plan to ensure its continued        and the QB/trust entity itself. The
relevancy, comprehensiveness, and                   composition of the board shall also be
effectiveness. It shall revisit strategies, look    reviewed regularly with the end in view
for emerging or changing exposures, and stay        of having a balanced membership.
abreast of developments that affect the             Towards this end, a system and procedure
likelihood of harm or loss. The committee           for evaluation shall be adopted which may
shall report regularly to the board of directors    include, but not limited to, the setting of
the entity’s over-all risk exposure, actions        benchmark and peer group analysis.
taken to reduce the risks, and recommend                 (14) To keep their authority within the
further action or plans as necessary.               powers of the institution as prescribed in
     (10) To meet regularly. To properly            the articles of incorporation, charter, by-
discharge its function, the board of directors      laws and in existing laws, rules and
shall meet regularly. Independent views             regulations. To conduct and maintain the
in board meetings shall be given full               affairs of the institution within the scope of
consideration and all such meetings shall           its authority as prescribed in its charter and
be duly minuted.                                    in existing laws, rules and regulations, the
     The meetings of the board of directors         board shall appoint a compliance officer
may be conducted through modern                     who shall be responsible for coordinating,
technologies such as, but not limited to,           monitoring and facilitating compliance
teleconferencing and video-conferencing             with existing laws, rules and regulations.
as long as the director who is taking part          The compliance officer shall be vested with
in said meetings can actively participate           appropriate authority and provided with
in the deliberations on matters taken up            appropriate support and resources. It may
therein: Provided, That every member of             also constitute a compliance committee.
the board shall be physically present in at              If the directors carry the institution into
least fifty percent (50%) of all board              a transaction outside the scope of the
meetings in every year.                             business agreed upon in the articles, with
     (11) To keep the individual members of         resulting loss to the institution, they may
the board and the shareholders informed. It         be called upon to reimburse the institution
is the duty of the board to present to all its      for that loss. If directors willfully do an act,
members and to the shareholders a balanced          which they know or ought to know to be
and understandable assessment of the QB’s/          unauthorized, they are clearly liable to the
trust entity’s performance and financial            institution for resulting damages.



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part I - Page 31
§§ 4141Q.3 - 4141Q.4
08.12.31

     d. Specific duties and responsibilities        the affairs of the institution, he should
of a director                                       neither accept his nomination nor run for
     (1) To conduct fair business transactions      election as member of the board.
with the QB/trust entity and to ensure that             (4) To act judiciously. Before deciding
personal interest does not bias board               on any matter brought before the board of
decisions. A director should, whenever              directors, every director should thoroughly
possible, avoid situations that would give          evaluate the issues, ask questions and seek
rise to a conflict of interest. If transactions     clarifications when necessary.
with the institution cannot be avoided, it              (5) To      exercise       independent
should be done in the regular course of             judgment. A director should view each
business and upon terms not less favorable          problem/situation objectively. When a
to the institution than those offered to            disagreement with others occurs, he
others. The basic principle to be observed          should carefully evaluate the situation and
is that a director should not use his position      state his position. He should not be afraid
to make profit or to acquire benefit or             to take a position even though it might be
advantage for himself and/or his related            unpopular. Corollarily, he should support
interests. He should avoid situations that          plans and ideas that he thinks will be
would compromise his impartiality.                  beneficial to the institution.
     (2) To act honestly and in good faith,             (6) To be generally informed of both
with loyalty and in the best interest of the        the QB’s/trust entity’s business
institution, its stockholders, regardless of        environment and legal and regulatory
the amount of their stockholdings, and              framework controlling its activities. A
other stakeholders such as its investors,           director should have a working
borrowers, other clients and the general            knowledge of the statutory and
public. A director must always act in good          regulatory requirements affecting the
faith, with the care which an ordinarily            institution, including the content of its
prudent man would exercise under similar            articles of incorporation and by-laws, the
circumstances. While a director should              requirements of the BSP and where
always strive to promote the interest of all        applicable, the requirements of other
stockholders, he should also give due               regulatory agencies and must exercise
regard to the rights and interests of other         care to see that these are not violated.
stakeholders.                                       He should also keep himself informed
     (3) To devote time and attention               of the industry developments and
necessary to properly discharge his duties          business trends in order to safeguard the
and responsibilities. A director should             institution’s competitiveness.
devote sufficient time to familiarize                   (7) To observe confidentiality. A
himself with the institution’s business. He         director must observe the confidentiality
must be constantly aware of the institution’s       of non-public information acquired by
condition and be knowledgeable enough               reason of his position as director. He may
to contribute meaningfully to the board’s           not disclose said information to any other
work. He must attend and actively                   person without the authority of the board.
participate in board and committee
meetings, request and review meeting                    § 4141Q.4 Confirmation of the
materials, ask questions, and request               election/appointment of directors and
explanations and be familiar with audits and        officers. The election/appointment of
supervisory communications. If a person             directors and officers of QBs/trust entities
cannot give sufficient time and attention to        shall be subject to confirmation by the:



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 32
                                                                                    §§ 4141Q.4 - 4142Q
                                                                                               09.12.31

    Confirming                 Position Level                   Copies of the acknowledgment and
    Authority                                              certification herein required shall be submitted
a. Monetary Board          director, president,            in accordance with Appendix Q-3.
                           chief executive officer,
                           chief operating officer,            § 4141Q.10 Sanctions. Without
                           senior vice president or        prejudice to the other sanctions prescribed
                           equivalent rank of QBs/         under Section 37 of R.A. No. 7653 and to
                           trust entities with total       the provisions of Section 16 of R.A. No.
                           assets of at least              8791, any director/trustee of a QB/trust
                           P1 billion.                     entity who violates or fails to observe and/
                                                           or perform any of the above responsibilities
b. A Committee             director/trustee, senior vice   and duties shall for each violation or offense,
   to be composed          president and above or          be penalized for P15,000.
   of:                     equivalent rank of
• The Deputy               QBs/trust entities              Sec. 4142Q Definition and Qualifications
   Governor - SES          whose election/                 of Officers. Officers shall include the
• Managing Directors       appointment is not              president, executive vice president (EVP),
   of SE I and II          subject to confirmation         senior vice-president, vice president,
• Directors of the         by the Monetary Board           general manager, treasurer, secretary, trust
   concerned appropriate                                   officer and others mentioned as officers
   department of the SES                                   of the QB/trust entity, or those whose
                                                           duties as such are defined in the by-laws,
    The election/appointment of all                        or are generally known to be the officers
incumbent directors/trustees and officers of               of the QB/trust entity (or any of its
QBs/trust entities as of 17 September 2001                 branches and offices other than the head
not previously approved/confirmed by the                   office) either through announcement,
Monetary Board shall be submitted to the                   representation, publication or any kind of
BSP through the appropriate department of                  communication made by the QB/trust
the SES for confirmation.                                  entity: Provided, That a person holding the
                                                           position of chairman or vice-chairman of
    §§ 4141Q.5 - 4141Q.8 (Reserved)                        the board or another position in the board
                                                           shall not be considered as an officer
    § 4141Q.9 Reports required. QBs/ trust                 unless the duties of his position in the
entities shall furnish all of their directors/             board include functions of management
trustees with a copy of the specific duties                such as those ordinarily performed by
and responsibilities of the board of directors/            regular officers: Provided, further, That
trustees prescribed under Items “b” and “c”                members of a group or committee,
of Subsec. 4141Q.3 within thirty (30)                      including sub-groups or sub-committees,
business days from 17 May 2001 in cases                    whose duties include functions of
of incumbent directors/trustees and at the                 management such as those ordinarily
time of election in cases of directors/trustees            performed by regular officers, and are not
elected after such date.                                   purely recommendatory or advisory, shall
    The directors/trustees concerned shall                 likewise be considered as officers.
each be required to acknowledge receipt of                     An officer shall have the following
the copies of such specific duties and                     minimum qualifications:
responsibilities and shall certify that they                   a. He shall be at least twenty-one
fully understand the same.                                 (21) years of age;



Manual of Regulations for Non-Bank Financial Institutions                                   Q Regulations
                                                                                           Part I - Page 33
§§ 4142Q - 4143Q.1
09.12.31

     b. He shall be at least a college                       the Monetary Board from holding a
graduate, or have at least five (5) years                    director/trustee position:
creditable experience or training in financial                    (1) Persons who have been convicted
management or related activities, or in a field              by final judgment of a court for offenses
related to his position and responsibilities:                involving dishonesty or breach of trust
Provided, however, That trust officers shall                 such as but not limited to, estafa,
have at least five (5) years of actual                       embezzlement, extortion, forgery,
experience in trust operations, or at least                  malversation, swindling, theft, robbery,
three (3) years of actual experience in trust                falsification, bribery, violation of B.P. Blg.
operations and completed at least one (1)                    22, violation of Anti-Graft and Corrupt
year training program in trust operations                    Practices Act and prohibited acts and
acceptable to the BSP, or at least five (5)                  transactions under Section 7 of R.A. No.
years of actual experience as officer of a                   6713 (Code of Conduct and Ethical
bank, NBFI or related activities and                         Standards for Public Officials and
completed at least one (1) year training                     Employees);
program in trust operations acceptable to                         (2) Persons who have been convicted
the BSP; and                                                 by final judgment of a court sentencing
     c. He must be fit and proper for the                    them to serve a maximum term of
position he is being proposed/appointed                      imprisonment of more than six (6) years;
to. In determining whether a person is fit                        (3) Persons who have been convicted
and proper for a particular position, the                    by final judgment of the court for violation
following matters must be considered:                        of banking laws, rules and regulations;
integrity probity, competence, education,                         (4) Persons who have been judicially
diligence and experience/training.                           declared insolvent, spendthrift or
     The foregoing qualifications for                        incapacitated to contract;
officers shall be in addition to those                            (5) Directors/trustees, officers or
required or prescribed under R.A. No.                        employees of closed QBs who were
8791 and other existing applicable laws                      found to be culpable for such institution’s
and regulations.                                             closure as determined by the Monetary
(As amended by Circular Nos. 665 dated 04 September 2009     Board;
and 562 dated 13 March 2007)                                      (6) Directors/trustees and officers of
                                                             QBs found by the Monetary Board as
Sec. 4143Q Disqualification of Directors/                    administratively liable for violation of
Trustees and Officers. The following                         banking laws, rules and regulations where
regulations shall govern the disqualification                a penalty of removal from office is
of QB/trust entity directors/trustees and                    imposed, and which finding of the
officers.                                                    Monetary Board has become final and
                                                             executory; or
    § 4143Q.1 Persons disqualified to                             (7) Directors/trustees and officers of
become directors/trustees. Without                           QBs or any person found by the Monetary
prejudice to specific provisions of law                      Board to be unfit for the position of directors
prescribing disqualifications for directors/                 trustees or officers because they were
trustees, the following are disqualified from                found administratively liable by another
becoming directors/trustees:                                 government agency for violation of
    a. Permanently disqualified                              banking laws, rules and regulations or any
    Directors/trustees/officers/                             offense/violation involving dishonesty or
employees permanently disqualified by                        breach of trust, and which finding of said



Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 34
                                                                                         § 4143Q.1
                                                                                           08.12.31

government agency has become final and                     (1) Persons who refuse to fully disclose
executory.                                             the extent of their business interest or any
    b. Temporarily disqualified                        material information to the appropriate
    Directors/trustees/officers/                       department of the SES when required
employees disqualified by the Monetary                 pursuant to a provision of law or of a
Board from holding a director/trustee                  circular, memorandum, rule or regulation
position for a specific/indefinite period              of the BSP. This disqualification shall be in
of time. Included are:                                 effect as long as the refusal persists;


                                    (Next page is Part I - Page 35)




Manual of Regulations for Non-Bank Financial Institutions                             Q Regulations
                                                                                    Part I - Page 34a
                                                                                      § 4143Q.1
                                                                                        08.12.31

    (2) Directors/trustees who have been                 (iv) A partnership of which a director/
absent or who have not participated for             trustee or officer, or his spouse is the
whatever reasons in more than fifty percent         managing partner or a general partner
(50%) of all meetings, both regular and             owning a controlling interest in the
special, of the board of directors/trustees         partnership; and
during their incumbency, and directors/                  (v) A corporation, association or firm
trustees who failed to physically attend for        wholly-owned or majority of the capital of
whatever reasons in at least twenty-five            which is owned by any or a group of
percent (25%) of all board meetings in any          persons mentioned in the foregoing Items
year, except that when a notarized                  “(i)”, “(ii)” and “(iv)”;
certification executed by the corporate                  This disqualification shall be in effect
secretary has been submitted attesting that         as long as the delinquency persists.
said directors/trustees were given the                   (4) Persons who have been convicted
agenda materials prior to the meeting and           by a court for offenses involving dishonesty
that their comments/decisions thereon               or breach of trust such as, but not limited
were submitted for deliberation/discussion          to, estafa, embezzlement, extortion,
and were taken up in the actual board               forgery, malversation, swindling, theft,
meeting, said directors/trustees shall be           robbery, falsification, bribery, violation of
considered present in the board meeting.            B.P. Blg. 22, violation of Anti-Graft and
This disqualification applies only for              Corrupt Practices Act and prohibited acts
purposes of the immediately succeeding              and transactions under Section 7 of
election;                                           R.A. No. 6713 (Code of Conduct and Ethical
    (3) Persons who are delinquent in the           Standards for Public Officials and
payment of their obligations as defined             Employees), violation of banking laws, rules
hereunder:                                          and regulations or those sentenced to serve
    (a) Delinquency in the payment of               a maximum term of imprisonment of more
obligations means that an obligation of a           than six (6) years but whose conviction has
person with a QB/trust entity where he              not yet become final and executory;
is a director/trustee or officer, or at least            (5) Directors/trustees and officers of
two (2) obligations with other QBs/trust            closed QBs/trust entities pending their
entities/FIs, under different credit lines          clearance by the Monetary Board;
or loan contracts, are past due pusuant                  (6) Directors/trustees disqualified for
to Secs. X306, 4306Q, 4306S and 4303P;              failure to observe/discharge their duties
    (b) Obligations shall include all               and responsibilities prescribed under
borrowings from a QB/trust entity/FI                existing regulations. This disqualification
obtained by:                                        applies until the lapse of the specific
    (i) A director/trustees or officer for his      period of disqualification or upon
own account or as the representative or             approval by the Monetary Board on
agent of others or where he acts as a               recommendation by the appropriate
guarantor, indorser or surety for loans from        department of the SES of such directors’/
such FIs;                                           trustees’ election/re-election;
    (ii) The spouse or child under parental              (7) Directors/trustees who failed to
authority of the director/trustee or officer;       attend the special seminar for board of
    (iii) Any person whose borrowings or            directors/trustees required under Item “c”
loan proceeds were credited to the account          of Subsec. 4141Q.2. This disqualification
of, or used for the benefit of, a director/         applies until the director/trustee concerned
trustee or officer;                                 had attended such seminar;



Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                 Part I - Page 35
§§ 4143Q.1 - 4143Q.2
08.12.31

    (8) Persons         dismissed        from       offense/violation involving dishonesty or
employment for cause. This disqualification         breach of trust, and which finding of said
shall be in effect until they have cleared          government agency is pending appeal
themselves of involvement in the alleged            before the appellate court, unless execution
irregularity or upon clearance, on their            or enforcement thereof is restrained by the
request, from the Monetary Board after              court; and
showing good and justifiable reasons, or                 (13) Directors/trustees and officers of
after the lapse of five (5) years from the          QBs found by the Monetary Board as
time they were officially advised by the            administratively liable for violation of
appropriate department of the SES of their          banking laws, rules and regulations where
disqualification;                                   a penalty of suspension from office or fine
    (9) Those under preventive suspension;          is imposed, regardless whether the finding
    (10) Persons with derogatory records as         of the Monetary Board is final and
certified by, or on the official files of, the      executory or pending appeal before the
judiciary, National Bureau of Investigation         appellate court, unless execution or
(NBI), Philippine National Police (PNP),            enforcement thereof is restrained by the
quasi-judicial bodies, other government             court. The disqualification shall be in effect
agencies, international police, monetary            during the period of suspension or so long
authorities and similar agencies or                 as the fine is not fully paid.
authorities of foreign countries for                (As amended by Circular Nos. 584 dated 28 September 2007 and
irregularities or violations of any law, rules      513 dated 10 February 2006)
and regulations that would adversely affect
the integrity of the director/trustee/officer           § 4143Q.2 Persons disqualified to
or the ability to effectively discharge his         become officers
duties. This disqualification applies until             a. The disqualifications for directors/
they have cleared themselves of the                 trustees mentioned in Subsec. 4143Q.1
alleged irregularities/violations or after a        shall likewise apply to officers, except
lapse of five (5) years from the time the           those stated in Items “b(2)” and “b(7)”.
complaint, which was the basis of the                   b. Except as may be authorized by
derogatory record, was initiated;                   the Monetary Board or the Governor, the
    (11) Directors/trustees and officers of         spouse or a relative within the second
QBs found by the Monetary Board as                  degree of consanguinity or affinity of any
administratively liable for violation of            person holding the position of chairman,
banking laws, rules and regulations where           president, executive vice president or
a penalty of removal from office is                 any position of equivalent rank, general
imposed, and which finding of the                   manager, treasurer, chief cashier or chief
Monetary Board is pending appeal before             accountant is disqualified from holding
the appellate court, unless execution or            or being elected or appointed to any of
enforcement thereof is restrained by the            said positions in the same QB/trust
court;                                              entity; and the spouse or relative within
    (12) Directors/trustees and officers of         the second degree of consanguinity or
QBs or any person found by the Monetary             affinity of any person holding the position
Board to be unfit for the position of director/     of manager, cashier, or accountant of a
trustee or officer because they were found          branch or office of a QB/trust entity is
administratively liable by another                  disqualified from holding or being
government agency for violation of                  appointed to any of said positions in the
banking laws, rules and regulations or any          same branch or office.



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 36
                                                                                 §§ 4143Q.3 - 4143Q.4
                                                                                              08.12.31

    § 4143Q.3 Effect of non-possession of                 the supervision of the BSP. Grounds for
qualifications or possession of                           disqualification made known to the
disqualifications. Director/trustee/officer               institution, shall be reported to the
elected or appointed who does not possess                 appropriate department of the SES within
all the qualifications mentioned under                    seventy-two (72) hours from knowledge
Subsec. 4141Q.2 and the last paragraph                    thereof.
of Sec. 4142Q and/or has any of the                           b. On the basis of knowledge and
disqualifications mentioned under                         evidence on the existence of any of the
Subsecs. 4143Q.1 and 4143Q.2 shall not                    grounds for disqualification mentioned in
be confirmed by the confirming authority                  Subsecs. 4143Q.1 and 4143Q.2, the
under Subsec. 4141Q.4 and shall be                        director/trustee or officer concerned shall
removed from office even if he/she                        be notified in writing either by personal
assumed the position to which he/she was                  service or through registered mail with
elected or appointed. Confirmed director/                 registry return receipt card at his/her last
trustee/officer or officer not requiring                  known address by the appropriate
confirmation possessing any of the                        department of the SES of the existence of
disqualifications, as enumerated in the                   the ground for his/her disqualification and
abovementioned subsections shall be                       shall be allowed to submit within fifteen
subject to the disqualification procedures                (15) calendar days from receipt of such
provided under Subsec. 4143Q.4.                           notice an explanation on why he/she
Director/trustee/officer, prior to assuming               should not be disqualified and included in
the position to which he/she was elected/                 the watchlisted file, together with the
appointed, must submit to the                             evidence in support of his/her position. The
appropriate department of the SES a                       head of said department may allow an
verified statement that he/she has all the                extension on meritorious ground.
aforesaid qualifications and none of the                      c. Upon receipt of the reply/
disqualifications. The submission of                      explanation of the director/trustee/officer
verified statement will apply to directors/               concerned, the appropriate department of
trustees/officers elected/appointed after                 the SES shall proceed to evaluate the case.
14 March 2006.                                            The director/trustee/officer concerned shall
(As amended by Circular No. 513 dated 10 February 2006)   be afforded the opportunity to defend/clear
                                                          himself/herself.
    § 4143Q.4 Disqualification procedures                     d. If no reply has been received from
    a. The board of directors/trustees and                the director/trustee/officer concerned upon
management of every institution shall be                  the expiration of the period prescribed
responsible for determining the existence                 under Item “b” above, said failure to reply
of the ground for disqualification of the                 shall be deemed a waiver and the
institution’s director/trustee/officer or                 appropriate department of the SES shall
employee and for reporting the same to                    proceed to evaluate the case based on
the BSP. While the concerned institution                  available records/evidence.
may conduct its own investigation and                         e. If the ground for disqualification is
impose appropriate sanction/s as are                      delinquency in the payment of obligation,
allowable, this shall be without prejudice                the concerned director/trustee or officer
to the authority of the Monetary Board to                 shall be given a period of thirty (30) calendar
disqualify a director/trustee/officer/                    days within which to settle said obligation
employee from being elected/appointed                     or, restore it to its current status or, to
as director/trustee/officer in any FI under               explain why he/she should not be



Manual of Regulations for Non-Bank Financial Institutions                                 Q Regulations
                                                                                         Part I - Page 37
§ 4143Q.4
08.12.31

disqualified and included in the watchlisted        director/trustee/officer concerned is
file, before the evaluation on his                  warranted or not. The evaluation of the
disqualification and watchlisting is elevated       case shall be made for the purpose of
to the Monetary Board.                              determining if disqualification would be
     f. For directors/trustees/officers of          appropriate and not for the purpose of
closed banks, the concerned department              passing judgment on the findings and
of the SES shall make appropriate                   decision of the entity concerned. The
recommendation to the Monetary Board                appropriate department of the SES may
clearing said directors/trustees/officers           decide to recommend to the Monetary
when there is no pending case/complaint             Board a penalty lower than disqualification
or evidence against them. When there is             (e.g., reprimand, suspension, etc.) if, in its
evidence that a director/trustee/officer has        judgment the act committed or omitted by
committed irregularity, the appropriate             the director/trustee/officer concerned does
department of the SES shall make                    not warrant disqualification.
recommendation to the Monetary Board                     h. All other cases of disqualification,
that his/her case be referred to the Office         whether permanent or temporary shall be
of Special Investigation (OSI) for further          elevated to the Monetary Board for
investigation and that he/she be included           approval and shall be subject to the
in the masterlist of temporarily disqualified       procedures provided in Items “a”,”b”,”c”
persons until the final resolution of his/her       and “d” above.
case. Directors/trustees/officers with                   i. Upon approval by the Monetary
pending cases/complaints shall also be              Board, the concerned director/trustee/
included in said masterlist of temporarily          officer shall be informed by the appropriate
disqualified persons upon approval by the           department of the SES in writing either by
Monetary Board until the final resolution           personal service or through registered
of their cases. If the director/trustee/officer     mail with registry return receipt card, at
is cleared from involvement in any                  his/her last known address of his/her
irregularity, the appropriate department of         disqualification from being elected/
the SES shall recommend to the Monetary             appointed as director/trustee/officer in any
Board his/her delisting. On the other hand,         FI under the supervision of BSP and/or of
if the director/trustee/officer concerned is        his/her inclusion in the masterlist of
found to be responsible for the closure of          watchlisted persons so disqualified.
the institution, the concerned department                j. The board of directors/trustees of
of the SES shall recommend to the                   the concerned institution shall be
Monetary Board his/her delisting from the           immediately informed of cases of
masterlist of temporarily disqualified              disqualification approved by the Monetary
persons and his/her inclusion in the                Board and shall be directed to act thereon
masterlist of permanently disqualified              not later than the following board meeting.
persons.                                            Within seventy-two (72) hours thereafter,
     g. If the disqualification is based on         the corporate secretary shall report to the
dismissal from employment for cause, the            Governor of the BSP through the
appropriate department of the SES shall, as         appropriate department of the SES the
much as practicable, endeavor to establish          action taken by the board on the director/
the specific acts or omissions constituting         trustee/officer involved.
the offense or the ultimate facts which                  k. Persons who are elected or
resulted in the dismissal to be able to             appointed as director/trustee or officer in
determine if the disqualification of the            any of the BSP-supervised institutions for



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 38
                                                                                  §§ 4143Q.4 - 4143Q.5
                                                                                               08.12.31

the first time but are subject to any of the                    b. Inclusion of directors/trustees/
grounds for disqualification provided for                  officers/employees in the watchlist.
under Subsecs. 4143Q.1 and 4143Q.2,                        Directors/trustees/officers/employees
shall be afforded the procedural due process               disqualified under Subsec. 4143Q.4
prescribed above.                                          included in the watchlist disqualification
     l. Whenever a director/trustee/officer                files “A” or “B”.
is cleared in the process mentioned under                       c. Confidentiality. Watchlist files shall
Item “c” above or, when the ground for                     be for internal use only of the BSP and may
disqualification ceases to exist, he/she                   not be accessed or queried upon by outside
would be eligible to become director/trustee               parties including banks, QBs and trust
or officer of any bank, QB, trust entity or                entities except with the authority of the
any institution under the supervision of the               person concerned and with the approval of
BSP only upon prior approval by the                        the Deputy Governor, SES or the Governor
Monetary Board. It shall be the responsibility             or the Monetary Board.
of the appropriate department of the SES to                     BSP will disclose information on its
elevate to the Monetary Board the lifting of               watchlist files only upon submission of a
the disqualification of the concerned                      duly accomplished and notarized
director/trustee/officer and his/her delisting             authorization from the concerned person
from the masterlist of watchlisted persons.                and approval of such request by the
(As amended by Circular No. 584 dated 28 September 2007)   Deputy Governor, SES or the Governor or
                                                           the Monetary Board. The prescribed
    § 4143Q.5 Watchlisting. To provide the                 authorization form to be submitted to the
BSP with a central information file to be used             concerned department of SES is Appendix
as reference in passing upon and reviewing                 Q-45.
the qualifications of persons elected or                        QBs can gain access to information in
appointed as director/trustee or officer of a              the said watchlist for the sole purpose of
bank, QB or trust entity, the SES shall                    screening their applicants for hiring and/or
maintain a watchlist of persons disqualified               confirming their elected directors/trustees
to be a director/trustee or officer of such                and appointed officers. QBs must obtain the
entities under its supervision under the                   said authorization on an individual basis.
following procedures:                                           d. Delisting. All delistings shall be
    a. Watchlist categories. Watchlisting                  approved by the Monetary Board upon
shall be categorized as follows:                           recommendation of the operating
    (1) Disqualification         File      “A”             departments of SES except in cases of
(Permanent)                                                persons known to be dead where delisting
    - Directors/trustees/officers/                         shall be automatic upon proof of death and
employees permanently disqualified by the                  need not be elevated to the Monetary Board.
Monetary Board from holding a director/                    Delisting may be approved by the Monetary
trustee/officer position.                                  Board in the following cases:
    (2) Disqualification         File      “B”                  (1) Watchlist - Disqualification File “B”
(Temporary)                                                (Temporary)
    - Directors/trustees/officers/                              (a) After the lapse of the specific period
employees temporarily disqualified by the                  of disqualification;
Monetary Board from holding a director/                         (b) When the conviction by the court
trustee/officer position.                                  for crimes involving dishonesty, breach of




Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                          Part I - Page 39
§§ 4143Q.5 - 4145Q
09.12.31

trust and/or violation of banking law                    from office even if he/she has assumed the
becomes final and executory, in which case               position to which he/she was elected
the director/trustee/officer/employee is                 appointed pursuant to Section 9-A of
relisted to Watchlist - Disqualification File            R.A. No. 337, as amended.
“A” (Permanent); and
     (c) Upon favorable decision or                      Sec. 4145Q (2008 - 4144Q) Interlocking
clearance by the appropriate body, i.e.,                 Directorships and/or Officerships. In
court, NBI, BSP, bank, QB, trust entity or               order to safeguard against the excessive
such other agency/body where the                         concentration of economic power, unfair
concerned individual had derogatory record.              competitive advantage or conflict of
     Directors/trustees/officers/employees               interest situations to the detriment of
delisted from the Watchlist                              others through the exercise by the same
     - Disqualification File “B” other than              person or group of persons of undue
those upgraded to Watchlist                              influence over the policy-making and/or
     - Disqualification File “A” shall be                management functions of similar FIs while
eligible for re-employment with any bank,                at the same time allowing banks, QBs and
QB or trust entity.                                      NBFIs without quasi-banking functions to
(As amended by CL-2007-001 dated 04 January 2007 and     benefit from organizational synergy or
CL-2006-046 dated 21 December 2006)                      economies of scale and effective sharing
                                                         of managerial and technical expertise, the
    § 4143Q.6 Prohibition against foreign                following regulations shall govern
officers/employees        of    financing                interlocking directorships and/or
companies. Except in the case of technical               officerships within the financial system
personnel whose employment may be                        consisting of banks, QBs and NBFIs.
specifically authorized by the Secretary of                   For purposes of this Section, QBs shall
Justice, foreigners cannot be officers or                refer to IHs, finance companies, trust entities
employees of financing companies.                        and all other NBFIs with quasi-banking
                                                         functions while NBFIs shall refer to IHs,
Sec. 4144Q (2008 - 4146Q) Monetary                       finance companies, trust entities, insurance
Board Confirmation of Directors/Trustees                 companies, securities dealers/brokers, credit
and Senior Officers. The election/                       card companies, NSSLAs, holding
appointment of directors/trustees and                    companies, investment companies,
officers with the rank of senior vice-president          government NBFIs, asset management
and up shall require confirmation by the                 companies, insurance agencies/brokers,
Monetary Board.                                          venture capital corporations, FX dealers,
     The election/appointment of the                     money changers (MCs), lending investors,
directors/trustees and such officers shall be            pawnshops, fund managers, mutual building
deemed to have been confirmed by the                     and loan associations, remittance agents and
Monetary Board if after sixty (60) business              all other NBFIs without quasi-banking
days from receipt of the reports required in             functions.
Appendix Q-3 by the BSP, no advice against                    a. Interlocking          directorships
said election/appointment has been received              While concurrent directorship may be the
by the QB concerned.                                     least prejudicial of the various relationships
     If the Monetary Board finds grounds for             cited in this Section to the interests of the
disqualification, the director/trustee/officer           FIs involved, certain measures are still
so elected/appointed may be removed                      necessary to safeguard against the




Q Regulations                                 Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 40
                                                                                          § 4145Q
                                                                                          09.12.31

disadvantages that could result from                self-dealing and conflict of interest. Multiple
indiscriminate concurrent directorship.             positions may result in poor governance or
     (1) Except as may be authorized by the         unfair competitive advantage. Considering
Monetary Board or as otherwise provided             the full-time nature of officer positions, the
hereunder, there shall be no concurrent             difficulties of serving two (2) offices at the
directorships between QBs or between a              same time, and the need for effective and
QB and a bank; and                                  efficient management, the following rules
     (2) Without the need for prior approval        shall be observed:
of the Monetary Board, concurrent                        As a general rule, there shall be no
directorships and officership shall be              concurrent officerships, including
allowed in the following cases:                     secondments, between QBs or between a
     (a) Between a QB and one (1) or more           QB and a bank or between a QB and an
of its subsidiary QB/s and NBFI/s;                  NBFI. For this purpose, secondment shall
     (b) Between a QB, other than an                refer to the transfer/detachment of a person
investment house and one (1) or more of its         from his regular organization for temporary
subsidiary banks, QBs and NBFI/s other              assignment elsewhere where the seconded
than investment house/s; and                        employee remains the employee of the
     (c) Between a bank and one (1) or more         home employer although his salaries and
of its subsidiary bank/s, QB/s, and NBFIs,          other remuneration may be borne by the host
other than investment house/s.                      organization.
     For purposes of the foregoing, a                    However, subject to prior approval of
husband and his wife shall be considered            the Monetary Board, concurrent
as one (1) person.                                  officerships, including secondments, may be
     b. Interlocking directorships and              allowed in the following cases:
officerships                                             (1) Between a QB, other than an IH,
     In order to prevent any conflict of            and not more than two (2) of its subsidiary
interest resulting from the exercise of             bank/s, QB/s,and NBFI/s other than IH/s; or
directorship coupled with the reinforcing                (2) Between two (2) QBs, or between a
influence of an officer’s decision-making           QB, other than an IH, and a bank, or
and implementing powers, the following              between a QB and an NBFI: Provided, That
rules shall be observed.                            at least twenty percent (20%) of the equity
     (1) Except as may be authorized by             of each of the banks, QBs or NBFIs is
the Monetary Board or as otherwise                  owned by a holding company or a QB/bank
provided hereunder, there shall be no               and the interlocking arrangement is
concurrent directorship and officership             necessary for the holding company or the
between QBs, or between a QB and a                  QB/bank to provide technical expertise or
bank, and between a QB and an NBFI.                 managerial assistance to its subsidiaries/
     (2) Without the need for prior approval        affiliates.
of the Monetary Board, concurrent                        (3) Between a QB and not more than
directorship and officership between a bank         two (2) of its subsidiary QB/s, and
and one (1) or more of its subsidiary bank/s,       NBFI/s; or
QB/s, and NBFI/s, other than IH/s, shall be              (4) Between a bank and not more than
allowed.                                            two (2) of its subsidiary bank/s, QB/s, and
     c. Interlocking officerships                   NBFIs, other than IH/s; or
     A concurrent officership in different FIs           (5) Between a bank and not more than
may present more serious problems of                two (2) of its subsidiary QB/s, and NBFI/s.




Manual of Regulations for Non-Bank Financial Institutions                            Q Regulations
                                                                                    Part I - Page 41
§§ 4145Q - 4146Q
09.12.31

     Aforementioned concurrent officerships               It shall be the responsibility of the
may be allowed, subject to the following             Corporate Governance Committee to
conditions:                                          conduct an annual performance evaluation
     (a) that the positions do not involve any       of the board of directors/trustees and senior
functional conflict of interests;                    management. When a director/trustee or
     (b) that any officer holding the positions      officer has multiple positions, the
of president, CEO, chief operating officer or        Committee should determine whether or not
chief financial officer may not be                   said director/trustee or officer is able to and
concurrently appointed to any of said                has been adequately carrying out his/her
positions or their equivalent;                       duties and, if necessary, recommend
     (c) that the officer involved, or his           changes to the board based upon said
spouse or any of his relatives within the            performance/review.
first degree of consanguinity or affinity or         (As amended by Circular Nos. 646 dated 23 February 2009
by legal adoption, or a corporation,                 and 592 dated 28 December 2007)
association or firm wholly-or majority
owned or controlled by such officer or his               § 4145Q.1 (2008 - 4144Q.1)
relatives enumerated above, does not own             Representatives of government. The
in his/its own capacity more than twenty             provisions of this Subsection shall apply
percent (20%) of the subscribed capital              to persons appointed to such positions
stock of the entities in which the QB has            as representatives of the government or
equity investments; and                              government-owned or controlled
     (d) that where any of the positions             entities unless otherwise provided
involved is held on full-time basis, adequate        under existing laws.
justification shall be submitted to the              (As amended by Circular No. 592 dated 28 December 2007)
Monetary Board.
     (6) Concurrent officership position in          Sec. 4146Q (2008 - 4145Q) Profit Sharing
the same capacity which do not involve               of Directors/Trustees/Officers and
management functions, i.e., internal                 Employees. Profit sharing programs adopted
auditors, corporate secretary, assistant             in favor of directors/trustees/officers and
corporate secretary and security officer,            employees shall be reflected in the by-laws
between a QB and one or more of its                  of QBs, subject to the following guidelines:
subsidiary QB/s and NBFI/s, or between a                 a. The base in any profit sharing
bank and one or more of its subsidiary QBs           program shall be the net income for the year
and NBFIs, or between bank/s, QB/s and               of the QB, as shown in its Consolidated
NBFI/s, other than IH/s: Provided, That at           Statement of Income and Expenses (CSIE) for
least twenty percent (20%) of the equity of          the year, net of the following:
each of the banks, QBs and NBFIs is owned                (1) All cumulative dividends accruing
by a holding company or by any of the                to preferred stock to the extent not covered
banks/QBs within the group.                          by earned surplus;
     For purposes of this Section, members               (2) Accrued interest receivable credited
of a group or committee, including                   to income but not yet collected, net of
sub-groups or sub-committees, whose                  reserves already set up for uncollected
duties include functions of management               interest on loans;
such as those ordinarily performed by                    (3) Unbooked valuation reserves on
regular officers, shall likewise be                  loans or an amount required to update
considered as officers.                              valuation reserves in accordance with the




Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 42
                                                                               §§ 4146Q - 4148Q
                                                                                        08.12.31

schedule approved by the Monetary Board,            condition such as, but not limited to, the
as well as all amortizations due on                 following cases:
deferred charges;                                        (1) Its capital is impaired;
     (4) Provisions for the current year’s taxes;        (2) It has suffered continuous losses
     (5) Income tax deferred for the year:          from operations for the past three (3) years;
Provided, however, That in case of reversal              (3) Its composite CAMELS rating in the
of deferred income taxes excluded from net          latest examination is below “3”; and
income in previous years’ profit sharings,               (4) It is under rehabilitation by the BSP/
the deferred income tax reversed to expense         PDIC which rehabilitation may include
shall be added back to net income to arrive         debt-to-equity conversion, etc.
at the basis for profit sharing for the year             In the presence of any one (1) or
during which the reversal is made;                  more of the circumstances mentioned
     (6) Accumulated profits not yet received       above, the Monetary Board may impose
but already recorded by a QB representing           the following restrictions in the
its share in profits of its subsidiaries under      compensation and other benefits of
the equity method of accounting; and                directors and officers:
     b. The QB may provide in its by-laws                a. In the case of profit sharing, the
for other priorities in the computation of net      provision of Sec. 4146Q shall be observed
profits for purposes of profit sharing:             except that for purposes of this Section, the
Provided, That in no case shall profit sharing      total amount of unbooked valuation reserves
take precedence over any of the items in            and deferred charges shall be deducted from
the preceding paragraph.                            the net income.
                                                         b. Except for the financial assistance
Sec. 4147Q Compensation and Other                   to meet expenses for the medical,
Benefits of Directors/Trustees and                  maternity, education and other emergency
Officers. To protect the funds of creditors,        needs of the directors/trustees or officers
the Monetary Board may regulate/restrict            or their immediate family, the other forms
the payment by the QB/trust entity of               of financial assistance may be suspended.
compensation, allowances, fees, bonuses,                 c. When the total compensation
stock options, profit sharing and fringe            package including salaries, allowances,
benefits to its directors/trustees and officers     fees and bonuses of directors/trustees and
in exceptional cases and when the                   officers are significantly excessive as
circumstances warrant, such as, but not             compared with peer group averages, the
limited to, the following:                          Monetary Board may order their reduction
    a. When the QB/trust entity is under            to reasonable levels: Provided, That even
controllership, conservatorship or when it          if a QB/trust entity is in financial trouble,
has outstanding emergency loans and                 it may nevertheless be allowed to grant
advances and such other forms of credit             relatively higher salary packages in order
accommodation from the BSP which are                to attract competent officers and quality
intended to provide it with liquidity in times      staff as part of its rehabilitation program.
of need;                                                 The foregoing provisions founded on
    b. When the institution is found by the         Section 18 of R.A. No. 8791 shall be deemed
Monetary Board to be conducting business            part of the benefits and compensation
in an unsafe or unsound manner; and                 programs of QBs/trust entities.
    c. When it is found by the Monetary
Board to be in an unsatisfactory financial          Sec. 4148Q (Reserved)




Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part I - Page 43
§§ 4149Q - 4149Q.9
09.12.31

Sec. 4149Q Conducting Business in an                   The list of activities which may be
Unsafe/Unsound Manner. Whether a                   considered unsafe and unsound is shown
particular activity may be considered as           in Appendix Q-24.
conducting business in an unsafe or                (As amended by Circular No. 640 dated 16 January 2009)
unsound manner, all relevant facts must be
considered. An analysis of the impact                   §§ 4149Q.1 - 4149Q.8 (Reserved)
thereof on the QB’s/trust entity’s operations
and financial conditions must be                        § 4149Q.9 Sanctions. The Monetary
undertaken, including evaluation of capital        Board may, at its discretion and based on
position, asset condition, management,             the seriousness and materiality of the acts
earnings posture and liquidity position.           or omissions, impose any or all of the
     In determining whether a particular           following sanctions provided under Section
act or omission, which is not otherwise            37 of R.A. No. 7653 and Section 56 of
prohibited by any law, rule or regulation          R.A. No. 8791, whenever a QB/trust entity
affecting QBs/trust entities, may be               conducts business in an unsafe and unsound
deemed as conducting business in an                manner:
unsafe or unsound manner, the Monetary                  a. Issue an order requiring the QB/trust
Board, upon report of the head of the              entity to cease and desist from conducting
supervising or examining department                business in an unsafe and unsound manner
based on findings in an examination or a           and may further order that immediate action
complaint, shall consider any of the               be taken to correct the conditions resulting
following circumstances:                           from such unsafe or unsound practice;
     a. The act or omission has resulted or             b. Fines in amounts as may be
may result in material loss or damage, or          determined by the Monetary Board to be
abnormal risk or danger to the safety,             appropriate, but in no case to exceed
stability, liquidity or solvency of the            P30,000 a day on a per transaction basis
institution;                                       taking into consideration the attendant
     b. The act or omission has resulted           circumstances, such as the gravity of the act
or may result in material loss or damage           or omission and the size of the QB/trust
or abnormal risk to the institutions,              entity, to be imposed on the QB/trust entity,
creditors, investors, stockholders, or to the      their directors and/or responsible officers;
BSP, or to the public in general;                       c. Suspension of lending or FX
     c. The act or omission has caused any         operations or authority to accept new deposit
undue injury, or has given unwarranted             substitutes and/or new trust accounts or to
benefits, advantage or preference to the           make new investments;
QB/trust entity or any party in the                     d. Suspension of responsible directors
discharge by the director or officer of his        and/or officers;
duties and responsibilities through                     e. Revocation of quasi-banking license
manifest partiality, evident bad faith or          and/or trust authority; and/or
gross inexcusable negligence; or                        f. Receivership and liquidation under
     d. The act or omission involves               Section 30 of R.A. No. 7653.
entering into any contract or transaction               All other provisions of Sections 30 and
manifestly and grossly disadvantageous to          37 of R.A. No. 7653, whenever
the QB/trust entity, whether or not the            appropriate, shall also be applicable on
director or officer profited or will profit        the conduct of business in an unsafe or
thereby.                                           unsound manner.




Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 44
                                                                              §§ 4149Q.9 - 4150Q
                                                                                        08.12.31

     The imposition of the above                       Sec. 4150Q Rules of Procedure on
sanctions is without prejudice to the                  Administrative Cases Involving Directors
filing of appropriate criminal charges                 and Officers of Quasi-Banks. The rules
against culpable persons as provided in                of procedure on administrative cases
Sections 34, 35 and 36 of R.A. No.                     involving directors and officers of QBs are
7653.                                                  shown in Appendix Q-35.


                                     (Next page is Part I - Page 45)




Manual of Regulations for Non-Bank Financial Institutions                            Q Regulations
                                                                                   Part I - Page 44a
                                                                             §§ 4151Q - 4151Q.5
                                                                                        08.12.31

 I. BRANCHES AND OTHER OFFICES                          b. Profitability and capacity to absorb
                                                    losses; and
Sec. 4151Q Establishment. Prior BSP                     c. Reserve and liquidity position.
authority shall be obtained before
operating a branch, extension office or                 § 4151Q.4 Conditions precluding
agency, including any arrangement                   processing of applications. The existence
whereby another person or entity is                 of any of the following conditions shall
authorized to act as an agent for                   preclude/suspend the processing of the
solicitation, issuance or servicing of              application:
deposit substitutes for the QB.                         a. The applicant has not complied with
    Agency arrangements shall refer to all          the ceilings on credit accommodations to
or any type of services to be performed             DOSRI during the last sixty (60) days
by another party as an agent other than             immediately preceding the date of
collection agency for loans payable in              application;
installments/amortization, and paying                   b. The net worth of the applicant is
agency under a definite and specific period         found to be deficient during the last sixty
for purposes of redeeming long-term notes           (60) days immediately preceding the date
and/or bonds.                                       of application; and
                                                        c. The applicant has incurred net
    § 4151Q.1 Evaluation guideposts. The            deficiencies in reserves against deposit
rate at which branches, agencies, extension         substitute liabilities during the last eight (8)
offices, etc. are to be established shall           weeks immediately preceding the date of
depend upon the ability of the company              application.
to conduct operations from the head office,
as well as correspondent/banking                         § 4151Q.5 Documentary requirements
arrangements.                                       All applications shall be supported by the
                                                    following documents:
   § 4151Q.2 Additional capital, if                      a. Ability to conduct operations from
required. An applicant QB may be                    the head office as not to be a cause for
required to put up additional capital in an         delayed submission of reports to the BSP
amount to be determined by the                      and/or recording of transactions in the head
appropriate department of the SES, based            office;
on criteria which consider expected                      b. Correspondent banking and audit
growth of risk assets and capital accounts          arrangements between the branch and the
and for this purpose, the methods of                head office to ensure effective and efficient
computing such additional capital, as               cash/money transactions;
shown in Appendix Q-2, shall be used.                    c. Certified true copy of the board
                                                    resolution authorizing the establishment of
    § 4151Q.3 Other requirements/factors            a branch;
to be considered. Other requirements/                    d. Services to be offered, as well as
factors to be considered are the applicant          any extension offices, etc. to be opened;
QB’s general compliance with laws, rules,                e. Days and hours to be observed;
and regulations, and policies of the BSP,                f. Areas to be served;
such as:                                                 g. Bio-data of the proposed branch
    a. Capital adequacy and solvency;               manager and organizational chart;




Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part I - Page 45
§§ 4151Q.5 - 4160Q.3
08.12.31

    h. Business and/or economic                                K. BANKING PREMISES
justifications (including data) for the
establishment of the branch; and                     Sec. 4160Q (2008 - 4651Q) Quasi-Bank
    i. Number of FIs in the area (banks,             Premises and Other Fixed Assets. The
IHs, finance companies and pawnshops).               following rules shall govern the premises
                                                     and other fixed assets of QBs.
    § 4151Q.6 Filing of applications
Applications for a certificate of authority               § 4160Q.1 (2008 - 4651Q.1) Appreciation
to operate a branch, an extension office             or increase in book value. QB premises,
or an agency shall be filed with the SEC,            furniture, fixtures and equipment shall be
which office shall refer the same to the             accounted for using the cost model under
appropriate department of the SES for                Philippine Accounting Standards (PAS) 16
comments and recommendations. A                      “Property, Plant and Equipment.” Outstanding
copy of the application filed with the SEC,          appraisal increment as of 13 October 2005
with the pertinent documents, shall                  arising from mergers and consolidation and
simultaneously be furnished the                      other cases approved by the Monetary Board,
appropriate department of the SES for                shall be deemed part of the cost of the assets.
advance verification of the QB’s                     However, appraisal increment previously
compliance with the requirements under               allowed to be booked shall be reversed.
the provisions of Sec. 4151Q.                             Accordingly, the booking of appreciation
                                                     or increase in the book value of QB premises
    § 4151Q.7 Period within which to                 and other fixed assets in cases where the
submit complete requirements. The                    market value of the property has greatly
applicant QB shall have one (1) month from           increased since the original purchase is no
notice of the receipt of the SEC referral by         longer allowed.
the appropriate department of the SES within         (As amended by Circular No. 520 dated 20 March 2006)
which to submit/complete the requirements
under this Section, after which the non-                  § 4160Q.2 (Reserved)
submission of complete documents shall
cause the return of the application for the QB’s          § 4160Q.3 (2008 - 4651Q.3)
lack of interest to pursue the same.                 Reclassification of real and other properties
                                                     owned or acquired as quasi-bank premises
    § 4151Q.8 Prohibition against                    Real and other Properties Acquired (ROPA)
operating without Securities and                     reclassified either as Real Property-Land
Exchange Commission license. No branch,              or Real Property- Building shall be booked
extension office or agency shall start               at their ROPA balance, net of any valuation
operations unless the appropriate SEC                reserve: Provided, That only such acquired
license, which likewise serves as                    asset or a portion thereof that will be
authorization for the branch/extension               immediately used or earmarked for future
office/agency to perform quasi-banking               use may be reclassified and booked as
functions, has been issued.                          Real Property- Land/Building.
                                                          QBs, prior to the reclassification of their
Secs. 4152Q - 4155Q (Reserved)                       ROPA accounts to Real Property - Land/
                                                     Building, shall first secure prior BSP approval
              J.   (RESERVED)                        before effecting the reclassification and shall
                                                     submit, in case of future use, justification
Secs. 4156Q - 4159Q (Reserved)                       and plans for expansion/use.



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 46
                                                                                    §§ 4160Q.4 - 4174Q
                                                                                               09.12.31

    §§ 4160Q.4 - 4160Q.9 (Reserved)                 Existing agreements shall be allowed up to
                                                    the termination date thereof: Provided,
     § 4160Q.10 (2008 - 4651Q.9) Batas              however, That any renewal or extension
Pambansa Blg. 344 – An Act to Enhance               upon termination date shall be subject to
the Mobility of Disabled Persons by                 approval by the BSP.
Requiring Certain Buildings, Institutions,
Establishments and Public Utilities to              Sec. 4162Q (2008 - 4190Q) Duties and
Install Facilities and Other Devices. In            Responsibilities of Quasi-Banks and their
order to promote the realization of the             Directors/Officers in All Cases of
rights of disabled persons to participate           Outsourcing of Quasi-Banking Functions
fully in the social life and the development        The rules on outsourcing of banking functions
of the societies in which they live and the         as shown in Appendix Q-37 shall be adopted
enjoyment of the opportunities available            in so far as they are applicable to QBs.
to other citizens, no license or permit for         (As amended by Circular Nos. 642 dated 30 January 2009, 610
the construction, repair or renovation of           dated 26 May 2008, 596 dated 11 January 2008, 548 dated
public and private buildings for public use,        25 September 2006 and 543 dated 08 September 2006)
educational institutions, airports, sports and
recreation centers and complexes,                   Sec. 4163Q - 4167Q (Reserved)
shopping centers or establishments, public
parking places, workplaces, public                                     M. (RESERVED)
utilities, shall be granted or issued unless
the owner or operator thereof shall install         Sec. 4168Q - 4172Q (Reserved)
and incorporate in such building,
establishment or public utility, such                           N. RISK MANAGEMENT
architectural facilities or structural features
as shall reasonably enhance the mobility            Sec. 4173Q (2008 - 4193Q) Supervision by
of disabled persons such as sidewalks,              Risks. The guidelines on supervision by risk
ramps, railings and the like. If feasible, all      to provide guidance on how QBs should
such existing buildings, institutions,              identify, measure, monitor and control risks
establishments, or public utilities may be          are shown in Appendix Q-42.
renovated or altered to enable the disabled             The guidelines set forth the
persons to have access to them.                     expectations of the BSP with respect to the
                                                    management of risks and are intended to
 L. MANAGEMENT CONTRACTS AND                        provide more consistency in how the risk-
    OUTSOURCING OF BANKING                          focused supervision function is applied to
          FUNCTIONS                                 these risks. The BSP will review the risks
                                                    to ensure that a QB’s internal risk
Sec. 4161Q (2008 - 4182Q) Management                management processes are integrated and
Contracts. Subject to existing laws, all            comprehensive. All QBs should follow the
agreements whereby the affairs or                   guidance in their risk management efforts.
operations of a QB will be carried out by           (Circular No. 510 dated 19 January 2006)
another corporation, person or group of
persons, shall be subject to prior approval         Sec. 4174Q (2008 - 4194Q) Market Risk
by the BSP.                                         Management. The guidelines on market risk
    The agreements referred to in the               management in Appendix Q-43 set forth the
preceding paragraph shall not be entered            expectations of the BSP with respect to the
into for a period longer than five (5) years.       management of market risk and are intended



Manual of Regulations for Non-Bank Financial Institutions                                       Q Regulations
                                                                                               Part I - Page 47
§§ 4174Q - 4180Q.1
08.12.31

to provide more consistency in how the risk-            Sec. 4180Q (2008 - 4191Q) Compliance
focused supervision function is applied to              System; Compliance Officer. QBs shall
this risk. QBs are expected to have an                  develop and implement a compliance
integrated approach to risk management to               system and appoint/designate a compliance
identify, measure, monitor and control risks.           officer to oversee its implementation.
Market risk should be reviewed together
with other risks to determine overall risk                   § 4180Q.1 (2008 - 4191Q.1) Compliance
profile.                                                system. The compliance system shall have
    The BSP is aware of the increasing                  the following basic elements.
diversity of financial products and that                     a. A written compliance program
industry techniques for measuring and                   approved by the board of directors:
managing market risk are continuously                        (1) The compliance program shall
evolving. As such, the guidelines are                   enable the QB to identify the relevant
intended for general application; specific              Philippine laws and regulations, analyze
application will depend to some extent on               the corresponding risks of non-compliance,
the size, complexity and range of activities            and prioritize the compliance risks
undertaken by individual QBs.                           (e.g., low, medium, high).
    The guidelines on market risk                            (2) The program shall provide for
management are shown in Appendix Q - 15.                periodic compliance testing with
(Circular No. 544 dated 15 September 2006)              applicable legal and regulatory
                                                        requirements. Testing frequency shall be
Sec. 4175Q (2008 - 4195Q) Liquidity Risk                commensurate with identified risk levels
Management. The guidelines on liquidity                 (e.g., annual testing for low-risk, quarterly
risk management in Appendix Q-44 set forth              testing for medium-risk, monthly testing
the expectations of the BSP with respect to             for high-risk). It shall also provide for the
the management of liquidity risk and are                reporting of compliance findings noted to
intended to provide more consistency in                 appropriate levels of management.
how the risk-focused supervision function                    (3) The program shall establish the
is applied to this risk. QBs are expected to            responsibilities and duties of the compliance
have an integrated approach to risk                     officer and other personnel (if any) involved
management to identify, measure, monitor                in the compliance function.
and control risks. Liquidity risk should be                  (4) A copy of the compliance program
reviewed together with other risks to                   and the written approval of the board of
determine overall risk profile.                         directors shall be submitted to the
     The guidelines are intended for general            appropriate department of the SES within
application; specific application will                  twenty (20) business days from date of
depend on the size and sophistication of a              approval.
particular QB and the nature and                             (5) The program shall be updated at
complexity of its activities.                           least annually to incorporate changes in
     The guidelines on liquidity market risk            laws and regulations. Any changes in the
management are shown in Appendix Q - 15.                program shall likewise be approved by the
(Circular No. 545 dated 15 September 2006)              QB’s board of directors and submitted to
                                                        BSP within twenty (20) business days from
Secs. 4176Q - 4179Q (Reserved)                          the date of approval.




Q Regulations                                Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 48
                                                                                 §§ 4180Q.1 - 4180Q.4
                                                                                              08.12.31

    b. A       constructive          working             d. QBs with total resources of P500
relationship with regulatory agencies.              million and above shall appoint an
    The QB, through its compliance officer,         independent full-time compliance officer,
may consult the regulatory agencies for             who shall have a rank of at least a vice
additional clarification on specific provisions     president or its equivalent.
of laws and regulations and/or discuss                   e. For QBs with total resources of
compliance findings with the regulatory             below P500 million, an incumbent senior
authorities. A dialogue may also be initiated       officer may be designated concurrently as
with respect to borderline issues.                  the QB’s compliance officer: Provided, That
    c. A clear and open communication               such designation will not give rise to any
process within the QB to educate and                conflict of interest situation and that the
address compliance matters.                         main function of the senior officer shall be
    Officers and staff shall be trained on          that of a compliance officer.
the regulatory requirements through                      The internal auditor of a QB may also
regular meetings, distribution of manuals           be designated as its compliance officer
and dissemination of regulatory issuance.           subject to the condition that his main
    d. Continuous monitoring and                    function shall be that of a compliance
assessment of the compliance program.               officer.
    The program shall provide for the                    Transitory provision. Compliance
periodic review of the compliance function          officers concurrently holding the position
to measure its effectiveness. The review            of Head of Internal Audit or Internal Auditor
may be carried out by the internal audit            shall be given one (1) year from 02
department of the QB.                               February 2008 within which to comply with
    The compliance program may                      this Subsection.
operate parallel to or as part of a QB’s            (As amended by Circular No. 598 dated 11 January 2008)
internal control and auditing program.
                                                         § 4180Q.3 (2008 - 4191Q.3) Compliance
    § 4180Q.2 (2008 - 4191Q.2) Compliance           risk. Compliance risk is the risk of legal or
officer                                             regulatory sanctions, financial loss, or loss
    a. The principal function of the                to reputation a QB may suffer as a result of
compliance officer is to oversee and                its failure to comply with all applicable
coordinate the implementation of the                laws, regulations, codes of conduct and
compliance system. His responsibility               standards of good practice.
shall include the identification, monitoring
and controlling of compliance risk.                     § 4180Q.4 (2008 - 4191Q.4)
    b. The appointment/designation of a             Responsibilities of the board of directors
compliance officer shall require prior              and senior management on compliance
approval of the Monetary Board. The bio-            Aside from the duties and responsibilities
data of the proposed compliance officer             of the board of directors mentioned under
shall be submitted to the appropriate               Subsec. 4141Q.3, the board should
department of the SES.                              oversee the implementation of the
    c. The compliance officer shall have            compliance policy and ensure that
the skills and expertise to provide                 compliance issues are resolved
appropriate guidance and direction to the           expeditiously. Senior management should
bank on the development, implementation             be responsible for establishing a
and maintenance of the compliance                   compliance policy, ensuring that it is
program.                                            observed, reporting to the board of



Manual of Regulations for Non-Bank Financial Institutions                                   Q Regulations
                                                                                           Part I - Page 49
§§ 4180Q.4 - 4180Q.8
08.12.31

directors on its ongoing implementation                 § 4180Q.6 (2008 - 4191Q.6)
and assessing its effectiveness and                 Independence of compliance function
appropriateness. Senior management                  The compliance function should be
should, at least once a year, report to the         independent from the business activities of
board of directors or a committee of the            the institution. It should be able to carry
board on matters relevant to the                    out its responsibilities on its own initiative
compliance policy and its implementation,           in all units or departments where
recommending any required changes to                compliance risk exists and must be
the policy. The report should assist the            provided with sufficient resources to carry
board members in making an informed                 out its responsibilities effectively. It must
assessment as to whether the institution is         be free to report to senior management
managing its compliance risk effectively.           and the board or a committee of the board
However, any material breaches of laws,             on any irregularities or breaches of laws,
rules and standards shall be reported               rules and standards discovered, without
promptly.                                           fear of retaliation or disfavor from
                                                    management or other affected parties. The
    § 4180Q.5 (2008 - 4191Q.5) Status of            compliance function should have access
compliance function. The compliance                 to all operational areas as well as any
function should have a formal status within         records or files necessary to enable it to
the organization established by a charter           carry out its duties and responsibilities.
or other formal document approved by the
board of directors that defines the                      § 4180Q.7 (2008 - 4191Q.7) Role and
compliance function’s standing, authority           responsibilities of the compliance function
and independence, and addresses the                 The role and responsibilities of the
following issues:                                   compliance function should be clearly
    (1) measures         to    ensure       the     defined. If there is a division of duties and
independence of the compliance function             responsibilities between different functions
from the business activities of the QB;             such as legal, compliance, internal audit
    (2) its role and responsibilities;              or risk management, the allocation of
    (3) its relationship with other functions       duties and responsibilities to each function
or units within the organization;                   should be properly delineated. There
    (4) its right to obtain access to               should likewise be formal arrangements
information necessary to carry out its              for cooperation between each function and
responsibilities;                                   for the exchange of relevant information.
    (5) its right to conduct investigations
of possible breaches of the compliance                   § 4180Q.8 (2008 - 4191Q.8) Cross-
policy;                                             border issues. The compliance function for
    (6) its formal reporting relationships to       institutions that conduct business in other
senior management and the board of                  jurisdictions should be structured to ensure
directors; and                                      that local compliance concerns are
    (7) its right of direct access to the board     satisfactorily addressed within the
of directors or an appropriate committee            framework of the compliance policy for
of the board.                                       the organization as a whole. As there are
    The compliance charter or other formal          significant differences in legislative and
document defining the status of the                 regulatory frameworks across countries or
compliance function shall be communicated           from jurisdiction to jurisdiction,
throughout the organization.                        compliance issues specific to each



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 50
                                                                         §§ 4180Q.8 - 4185Q.9
                                                                                      08.12.31

jurisdiction should be coordinated within the       Sec. 4185Q (2008 - 4171Q) Internal
structure of the institution’s group-wide           Control Systems. The minimum internal
compliance policy. The organization and             control standards established in Appendix
structure of the compliance function and its        Q-5 shall guide all QBs. The following
responsibilities should be in accordance with       records/data shall be compiled and made
local legal and regulatory requirements.            available for the inspection of BSP
                                                    examiners.
     § 4180Q.9 (2008 - 4191Q.9)                         a. Records showing compliance with
Outsourcing of compliance function. QBs             independent balancing procedures. These
should establish policies for managing the          records should indicate the accounts and
risks associated with outsourcing activities.       the periodic balancing procedures
     Outsourcing of services/activities can         performed.
reduce the institution’s risk profile by                b. Statements of actual duties of
transferring activities to others with the          persons assigned to handle cash and
necessary expertise to manage the risks             securities.
associated with specialized business                    c. All internal control audit reports or
activities. However, the use of third parties       their equivalent.
does not diminish the responsibility of the             d. Information/data on the direct
board of directors and senior management            and/or indirect equity holdings and/or
to ensure that the outsourced activity is           connection with any firm, partnership or
conducted in a safe and sound manner and            corporation organized for profit, of all the
in compliance with applicable laws and              institution’s directors, officers, and major
regulations.                                        stockholders, as defined under Secs.
     Compliance risk assessment and                 4141Q and 4142Q.
testing may be outsourced, subject to                   e. Information/data pertaining to
appropriate oversight by the compliance             electronic data processing (EDP)
officer: Provided, That a copy of the               department or service bureau of the QB
outsourcing agreement stating the duties            particularly on organization, input control,
and responsibilities as well as rights and          processing control, output control,
obligations of the contracting parties, which       software, program and documentation
agreement shall be approved by the board            standards, logs on the operations of
of directors of the institution concerned,          mainframes and peripherals, hardware
must be submitted to the appropriate                control and such other EDP control
department of the SES at least thirty (30)          standards prescribed by the BSP in separate
days prior to its execution to enable review        rules and regulations.
of its compliance with existing regulations
on outsourcing of quasi-banking functions.              § 4185Q.1 - 4185Q.8 (Reserved)
     The service level agreement shall
ensure a clear allocation of responsibilities           § 4185Q.9 (2008 - 4164Q.1)
between the external service providers              Independence of Internal Audit Function
and the QB. Furthermore, the outsourcing            The internal audit function must be
QB should manage residual risks                     independent of the activities audited and
associated with outsourcing arrangements,           from day-to-day internal control process. It
including default, operational failures, and        must be free to report audit results,
possible disruption of services.                    findings, opinions, appraisals and other
                                                    information to the appropriate level of
Secs. 4181Q - 4184Q (Reserved)                      management. It shall have authority to



Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                 Part I - Page 51
§§ 4185Q.9 - 4186Q.3
08.12.31

directly access and communicate with any                § 4186Q.3 (2008 - 4164Q.3)
officer or employee, to examine any                Qualification standards of the internal
activity or entity of the institution, as well     auditor. The internal auditor of a UB or a
as to access any records, files or data            KB must be a Certified Public Accountant
whenever relevant to the exercise of its           (CPA) and must have at least five (5) years
assignment. The Audit Committee or                 experience in the regular audit (internal
4senior management should take all                 or external) of a UB or KB as auditor-in-
necessary measures to provide the                  charge, senior auditor or audit manager.
appropriate resources and staffing that            He must possess the knowledge, skills,
would enable internal audit to achieve its         and other competencies to examine all
objectives.                                        areas in which the institution operates.
                                                   Professional competence as well as
Sec. 4186Q (2008 - 4164Q) Internal Audit           continuing training and education shall be
Function. Internal audit is an independent,        required to face up to the increasing
objective assurance and consulting function        complexity and diversity of the institution’s
established to examine, evaluate and               operations.
improve the effectiveness of risk                       The internal auditor of a Thrift Bank
management, internal control, and                  (TB), QB, trust entity or national
governance processes of an organization.           Cooperative Bank (Coop Bank) must be a
                                                   CPA with at least five (5) years experience
    § 4186Q.1 (Reserved)                           in the regular audit (internal or external) of
                                                   a TB, QB, trust entity or national Coop Bank
     § 4186Q.2 (2008 - 4164Q.2) Scope              as auditor-in-charge, senior auditor or audit
The scope of internal audit shall include:         manager or, in lieu thereof, at least three
     a. Examination and evaluation of the          (3) years experience in the regular audit
adequacy and effectiveness of the internal         (internal or external) of a QB as auditor-in-
control systems;                                   charge, senior auditor or audit manager.
     b. Review of the application and                   The internal auditor of an RB, NSSLA or
effectiveness of risk management procedures        local Coop Bank must be at least an
and risk assessment methodologies;                 accounting graduate with two (2) years
     c. Review of the management and               experience in external audit or in the regular
financial information systems, including the       audit of an Rural Bank (RB), NSSLA or local
electronic information system and                  Coop Bank or, in lieu thereof, at least one
electronic banking services;                       (1) year experience in the regular audit
     d. Assessment of the accuracy and             (internal or external) of a UB, KB, TB, QB,
reliability of the accounting system and of        trust entity or national Coop Bank as
the resulting financial reports;                   auditor-in-charge, senior auditor or audit
     e. Review of the systems and                  manager.
procedures of safeguarding assets;                      A qualified internal auditor of a UB or
     f. Review of the system of assessing          a KB shall be qualified to audit TBs, QBs,
capital in relation to the estimate of             trust entities, national Coop Banks, RBs,
organizational risk;                               NSSLAs, local Coop Banks, subsidiaries
     g. Transaction testing and assessment         and affiliates engaged in allied activities,
of specific internal control procedures; and       and other FIs under BSP supervision.
     h. Review of the compliance system                 A qualified internal auditor of a TB or
and the implementation of established              national Coop Bank shall likewise be
policies and procedures.                           qualified to audit QBs, trust entities, RBs,



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 52
                                                                                  §§ 4186Q.3 - 4190Q
                                                                                             09.12.31

NSSLAs, local Coop Banks, subsidiaries and          FIs which under special laws are subject to
affiliates engaged in allied activities, and        BSP supervision, and to ensure reliance by
other FIs under BSP supervision.                    BSP and the public on the opinion of
                                                    external auditors and auditing firms by
    § 4186Q.4 (2008 - 4164Q.4) Code of              prescribing the rules and regulations that
ethics and internal auditing standards. The         shall govern the selection, appointment,
internal auditor should conform with the            reporting requirements and delisting for
Code of Professional Ethics for CPAs and            external auditors and auditing firms of said
ensure compliance with sound internal               institutions, subject to the binding provisions
auditing standards, such as the Institute of        of and implementing regulations pursuant
Internal Auditors’ International Standards for      to the aforesaid MOA.
the Professional Practice of Internal Auditing           a. Rules and regulations. The revised
(e-mail: standards@theiia.org; Web: http://         rules and regulations that shall to govern the
www.theiia.org.) and other supplemental             selection and delisting by the BSP of covered
standards issued by regulatory authorities/         institutions which under special laws are
government agencies. The standards address          subject to BSP supervision are shown in
independence and objectivity, professional          Appendix Q-30.
proficiency, scope of work, performance of               b. Sanctions. The applicable sanctions/
audit work, management of internal audit,           penalties prescribed under Sections 36 and
quality assurance reviews, communication            37 of R. A. No. 7653 to the extent applicable
and monitoring of results.                          shall be imposed on the covered institution,
                                                    its audit committee and the directors
Secs. 4187Q - 4188Q (Reserved)                      approving the hiring of external auditors/
                                                    auditing firm who/which are not in the BSP
Sec. 4189Q (2008 - 4180Q) Selection,                list of selected auditors for covered
Appointment, Reporting Requirements and             institution or for hiring, and/or retaining the
Delisting of External Auditors and/or               services of the external auditor/auditing firm
Auditing Firm; Sanction. Pursuant to Section        in violation of any of the provisions of this
58, R.A. No. 8791, and the existing                 Section and for non-compliance with the
provisions of the executed Memorandum of            Monetary Board directive under Item “K" in
Agreement (MOA) dated 12 August 2009,               Appendix Q-30. Erring external auditors/
binding the BSP, SEC, Professional                  auditing firm may also be reported by the BSP
Regulation Commission (PRC) – Board of              to the PRC for appropriate disciplinary action.
Accountancy (BoA) and the Insurance                 (As amended by Circular Nos. 660 dated 25 August 2009 and
Commission (IC) for a simplified and                529 dated 11 May 2006)
synchronized accreditation requirements for
external auditor and/or auditing firm,              Sec. 4190Q (2008 - 4172Q) Audited
following are the revised rules and                 Financial Statements of Quasi-Banks;
regulations that shall govern the selection         Financial Audit. The following rules shall
and delisting by the BSP of covered                 govern the utilization and submission of
institutions which under special laws are           audited financial statements (AFS) of QBs.
subject to BSP supervision.                              For purposes of this Section, AFS shall
      Statement of policy. It is the policy of      include the balance sheets, income
the BSP to ensure effective audit and               statements (IS), statements of changes in
supervision of banks, QBs, trust entities and/      equity, statements of cash flows and notes
or NSSLAs including their subsidiaries and          to financial statements which shall include
affiliates engaged in allied activities and other   among other information, disclosure of the



Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                          Part I - Page 53
§ 4190Q
08.12.31

volume of past due loans as well as loan-            trust department submitted to the BSP
loss provisions. On the other hand, financial        including copies of adjusting entries on the
audit report (FAR) shall refer to the AFS and        reconciling items; and (3) other information
the opinion of the auditor. The AFS of QBs           that may be required by the BSP.
with subsidiaries shall be presented side by              In addition, the external auditor shall
side on a solo basis (parent) and on a               be required by the QB to submit to the board
consolidated basis (parent and subsidiaries).        of directors, a Letter of Comment (LOC)
     QBs shall cause an annual financial             indicating any material weakness or breach
audit by an external auditor acceptable to           in the institution’s internal control and risk
the BSP not later than thirty (30) calendar          management systems within thirty (30)
days after the close of the calendar year or         calendar days after submission of the FAR.
the fiscal year adopted by the QB. Report of         If no material weakness or breach is noted
such audit shall be submitted to the board           to warrant the issuance of an LOC,
of directors and the appropriate department          a certification under oath stating that no
of the SES not later than 120 calendar days          material weakness or breach in the internal
after the close of the calendar year or the          control and risk management systems was
fiscal year adopted by the QB. The report to         noted in the course of the audit of the QB
the BSP shall be accompanied by the:(1)              shall be submitted in its stead, together with
certification by the external auditor on the:        the FAR.
(a) dates of start and termination of audit;              Material weakness shall be defined as
(b) date of submission of the FAR and                a significant control deficiency, or
certification under oath stating that no             combination of deficiencies, that results
material weakness or breach in the internal          in more than a remote likelihood that a
control and risk management systems was              material misstatement of the financial
noted in the course of the audit of the QB to        statements will not be detected or
the board of directors; and (c) the absence          prevented by the institution’s internal
of any direct or indirect financial interest and     control. A material weakness does not
other circumstances that may impair the              mean that a material misstatement has
independence of the external auditor;                occurred or will occur, but that it could
(2) reconciliation statement between the AFS         occur. A control deficiency exists when the
and the balance sheet and IS for the QB and          design or operation of a control does not




Q Regulations                              Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 54
                                                                                         § 4190Q
                                                                                         08.12.31

allow management or employees, in the               That when warranted by supervisory
normal course of performing their assigned          concern such as material weakness/breach
functions, to prevent or detect                     in internal control and/or risk management
misstatements on a timely basis. A                  systems, the Monetary Board may, upon
significant deficiency is a control                 recommendation of the appropriate
deficiency, or combination of control               department of the SES, require the financial
deficiencies, that adversely affects the            audit to be conducted by an external
institution’s ability to initiate, authorize,       auditor acceptable to the BSP, at the
record, process, or report financial data           expense of the QB: Provided, further , That
reliably in accordance with generally               when circumstances such as, but not
accepted accounting principles. The term            limited to loans from multilateral FIs,
more than remote likelihood shall mean              privatization, or public listing warrant, the
that future events are likely to occur or are       financial audit of the QB concerned by an
reasonably possible to occur.                       acceptable external auditor may also be
     The board of directors, in a regular or        allowed.
special meeting, shall consider and act on               QBs and other FIs under the concurrent
the FAR and the certification under oath            jurisdiction of the BSP and COA shall,
submitted in lieu of the LOC and shall              however, submit a copy of the annual audit
submit, within thirty (30) banking days             report (AAR) of the COA to the appropriate
after receipt of the reports, a copy of its         department of the SES of the BSP within
resolution to the appropriate department            thirty (30) banking days after receipt of
of the SES. The resolution shall show,              the report by the board of directors. The
among other things, the actions(s) taken            AAR shall be accompanied by the:
on the reports and the names of the                 (1) certification by the institution concerned
directors present and absent.                       on the date of receipt of the AAR by the
     The board shall likewise consider and          board of directors; (2) reconciliation
act on the LOC and shall submit, within             statement between the AFS in the AAR and
thirty (30) banking days after receipt              the balance sheet and IS of the QB and trust
thereof, a copy of its resolution together          department submitted to the BSP, including
with said LOC to the appropriate                    copies of adjusting entries on the
department of the SES. The resolution shall         reconciling items; and (3) other information
show the action(s) taken on the findings            that may be required by the BSP.
and recommendations and the names of                     The board of directors of said
the directors present and absent, among             institutions, in a regular or special meeting,
other things.                                       shall consider and act on the AAR, as well
     The LOC shall be accompanied by the            as on the comments and observations and
certification of the external auditor of the        shall submit, within thirty (30) banking days
date of its submission to the board of              after receipt of the report, a copy of its
directors.                                          resolution to the appropriate department of
     Government-owned or -controlled                the SES. The resolution shall show the
banks, including their subsidiaries and             action(s) taken on the report, including the
affiliates, as well as other FIs under BSP          comments and observations and the names
supervision which are under the concurrent          of the directors present and absent, among
jurisdiction of the Commission on Audit             other things.
(COA) shall be exempt from the                           The AFS required to be submitted shall
aforementioned annual financial audit by            in all respect be PFRS/PAS compliant:
an acceptable external auditor: Provided,           Provided, That FIs shall submit to the BSP



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                  Part I - Page 55
§§ 4190Q - 4190Q.4
08.12.31

adjusting entries reconciling the balances                             QB management shall be present
in the financial statements for prudential                        during discussions or at least be informed
reporting with that in the audited annual                         of the adverse findings in order to preserve
financial statements.                                             the concerns of the supervisory authority
     QBs as well as external auditors shall                       and external auditors regarding the
strictly observe the requirements in the                          confidentiality of information.
submission of the FAR and reports required                             b. Sanction. The auditing firm(s) shall
to be submitted under Appendix Q-33.                              be blacklisted by the Monetary Board for
     The reports and certifications of QBs,                       a period as the Board may deem
schedules and attachments required under                          appropriate for their failure to perform their
this Subsec. shall be considered Category                         duty of reporting to the BSP any matter
B reports, delayed submission of which                            adversely affecting the condition or
shall be subject to the penalties under                           soundness of the QB. QBs shall not be
Subsec. 4192.Q.3.b.II.                                            allowed to engage the services of the
(As amended by Circular Nos. 554 dated 22 December 2006 and       blacklisted auditing firm.
540 dated 09 August 2006 )
                                                                      § 4190Q.4 (2008 - 4172Q.3) Disclosure
     § 4190Q.1 (Reserved)                                         requirement in the notes to the audited
                                                                  financial statements. QBs shall require
     § 4190Q.2 (2008 - 4172Q.1) Posting                           their external auditors to include the
of audited financial statements. QBs shall                        following additional information in the
post in conspicuous places in their head                          notes to financial statements:
offices, all their branches and other offices,                        a. Basic quantitative indicators of
as well as in their respective web-sites,                         financial performance such as return on
their latest FAR.                                                 average equity, return on average assets
(As amended by Circular No. 540 dated 9 August 2006)              and net interest margin;
                                                                      b. Capital-to-risk assets ratio under
    § 4190Q.3 (2008 - 4172Q.2)                                    Sec. 4115Q;
Disclosure of external auditor’s adverse                              c. Concentration of credit as to
findings to the Bangko Sentral; sanction                          industry/economic          sector     where
    a. Findings to be disclosed. QBs shall                        concentration is said to exist when total loan
require their external auditors to report to                      exposures to a particular industry/
the BSP any matter adversely affecting the                        economic sector exceeds thirty percent
condition or soundness of the bank, such                          (30%) of total loan portfolio (TLP);
as, but not limited to:                                               d. Breakdown of total loans as to
    (1) Any serious irregularity, including                       secured and unsecured and breakdown
those involving fraud or dishonesty, that                         of secured loans as to type of security;
may jeopardize the interest of creditors;                             e. Total outstanding loans to QB’s
    (2) Losses incurred which substantially                       DOSRI, percent of DOSRI loans to total
reduce the capital funds of the QB; and                           loan portfolio, percent of unsecured DOSRI
    (3) Inability of the auditor to confirm                       loans to total DOSRI loans, percent of past
that the claims of creditors are still covered                    due DOSRI loans to total DOSRI loans and
by the QB’s assets.                                               percent of non-performing DOSRI loans
    The disclosure of information by the                          to total DOSRI loans;
external auditor to the BSP shall not be a                            f. Nature        and       amount       of
ground for civil, criminal or disciplinary                        contingencies and commitments arising
proceedings against the former.                                   from off-balance sheet items [include direct



Q Regulations                                          Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 56
                                                                                        §§ 4190Q.4 - 4190Q.6
                                                                                                     08.12.31

credit substitutes (e.g., export Letter of                  c. Net Interest    =       Net Interest Income x 100
                                                               Margin (%)             Average Interest Earning Assets
Credit (LCs) confirmed, underwritten
accounts unsold), transaction-related                       Where:
contingencies (e.g., performance bonds,                     Net Interest
                                                            Income            = Total Interest Income – Total Interest
bid bonds, standby LCs), short-term self-                   Expense
liquidating trade related contingencies
                                                            Average Interest = Sum of Total Interest Earning Assets as
arising from the movement of goods                          Earning Assets     of the 12 month-ends in the calendar/
(e.g., sight/usance domestic LCs, sight/                                           fiscal year adopted by the QB
                                                                                                 12
usance import LCs), sale and repo
agreements not recognized in the balance                        § 4190Q.5 (2008 - 4172Q.4) Disclosure
sheet; interest and FX rate related items;                  requirements in the annual report. QBs
and other commitments];                                     shall prepare an annual report which shall
    g. Provisions and allowances for losses                 include, in addition to the AFS and other
and how these are determined;                               usual information contained therein, a
    h. Aggregate amount of secured                          discussion and/or analysis of the following
liabilities and assets pledged as security; and             information:
    i. Accounting policies which shall                          a. Financial performance;
include, but shall not be limited to, general                   b. Financial position and changes
accounting principles, changes in                           therein;
accounting policies/practices, principles of                    c. Overall       risk    management
consolidation, policies and methods for                     philosophy (a general statement of the risk
determining when assets are impaired,                       management policy adopted by the QB’s
recognizing income on impaired assets and                   board of directors which serves as the basis
losses on non-performing credits, income                    for the establishment of its risk
recognition, valuation policies and                         management system), risk management
accounting policies on securitizations,                     system and structure;
foreign currency translations, loan fees,                       d. Qualitative and quantitative
premiums and discounts, repo agreements,                    information on risk exposures (credit,
premises/fixed assets, income taxes,                        market, liquidity, operational, legal and
derivatives, etc.                                           other risks); and
    For purposes of computing the                               e. Basic business management and
indicators in Item “a” above, the following                 corporate governance information such as
formulas shall be used:                                     the QB’s organizational structure, incentive
                                                            structure including its remuneration
a.   Return on Average = Net Income (or Loss) after         policies, nature and extent of transactions
     Equity (%)              Income Tax x 100
                                                            with affiliates and related parties.
                       Average Total Capital Accounts
Where:
Average Total = Sum of Total Capital Accounts as of the          § 4190Q.6 (2008 - 4172Q.5) Posting and
Capital Accounts 12 month-ends in the calendar/fiscal       submission of annual report. A copy of the
                        year adopted by the QB
                                 12
                                                            latest annual report shall be posted by the
                                                            QB in a conspicuous place in its head office,
b.  Return on Average = Net Income (or Loss) after          all its branches and other offices.
    Assets (%)              Income Tax x 100
                            Average Total Assets                 The deadline for the submission of the
Where:                                                      annual report to the appropriate department
Average Total Assets = Sum of Total Assets as of the 12     of the SES is 180 calendar days after the
                       month- ends in the calendar/fiscal
                          year adopted by the QB            close of the calendar or fiscal year adopted
                                    12                      by the QB.



Manual of Regulations for Non-Bank Financial Institutions                                          Q Regulations
                                                                                                  Part I - Page 57
§§ 4191Q - 4191Q.3
08.12.31

Sec. 4191Q (2008 - 4161Q) Records. QBs                 For purposes hereof, the PFRS/PAS
shall have a true and accurate account,            shall refer to issuances of the ASC and
record or statement of their daily                 approved by the PRC.
transactions. The making of any false entry            Accounting treatment for prudential
or the willful omission of entries relevant to     reporting. For prudential reporting, FIs shall
any transaction is a ground for the imposition     adopt in all respect the PFRS and PAS except
of administrative sanctions under Section 37       as follows:
of R.A. No. 7653, without prejudice to the             a. In preparing consolidated financial
criminal liability of the director or officer      statements, only investments in financial
responsible therefor under Sections 35 and         allied subsidiaries except insurance
36 of R.A. No. 7653 and/or the applicable          subsidiaries shall be consolidated on a
provisions of the Revised Penal Code.              line-by-line basis; while insurance and
Records shall be up-to-date and shall contain      non-financial allied subsidiaries shall be
sufficient detail so that an audit trail is        accounted for using the equity method.
established.                                       Financial/non-financial allied/non-allied
                                                   associates shall be accounted for using the
    § 4191Q.1 (2008 - 4161Q.1) Uniform             equity method in accordance with the
system of accounts. QBs shall strictly             provisions of PAS 28 “Investments in
adopt/implement the Uniform System of              Associates”.
Accounts prescribed for QBs in the                     b. For purposes of preparing separate
recording of daily transactions including          financial statements, financial/non-financial
reportorial and publication requirements.          allied/non-allied subsidiaries/associates,
                                                   including insurance subsidiaries/associates,
    § 4191Q.2 (Reserved)                           shall also be accounted for using the equity
                                                   method; and
     § 4191Q.3 (2008 - 4161Q.2) Philippine             c. FIs shall be required to meet the
Financial Reporting Standards/Philippine           BSP recommended valuation reserves.
Accounting Standards                                   Government grants extended in the
     Statement of policy. It is the policy of      form of loans bearing nil or low interest
the BSP to promote fairness, transparency          rates shall be measured upon initial
and accuracy in financial reporting. It is in      recognition at its fair value (i.e., the
this light that the BSP aims to adopt all PFRS     present value of the future cash flows of
and PAS issued by the Accounting                   the financial instrument discounted using
Standards Council (ASC) to the greatest            the market interest rate). The difference
extent possible.                                   between the fair value and the net
     QBs/FIs shall adopt the PFRS and PAS          proceeds of the loan shall be recorded
which are in accordance with generally             under “Unearned Income-Others”, which
accepted accounting principles in recording        shall be amortized over the term of the
transactions and in the preparation of             loan using the effective interest method.
financial statements and reports to BSP.               The provisions on government grants
However, in cases where there are                  shall be applied retroactively to all
differences between BSP regulations and            outstanding government grants received.
PFRS/PAS as when more than one (1) option          FIs that adopted an accounting treatment
are allowed or certain maximum or                  other than the foregoing shall consider the
minimum limits are prescribed by the               adjustment as a change in accounting
PFRS/PAS, the option or limit prescribed           policy, which shall be accounted for in
by BSP regulations shall be adopted by FIs.        accordance with PAS 8.



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 58
                                                                               §§ 4191Q.3 - 4192Q
                                                                                          08.12.31

    Notwithstanding the exceptions in                     4. Is not a relative within the fourth
Items “a”, “b” and “c”, the audited annual            degree of consanguinity or affinity, legitimate
financial statements required to be                   or common-law of any director, officer or
submitted to the BSP in accordance with               majority shareholder of the QB/trust entity
the provision of Sec. 4190Q shall in all              or any of its related companies;
respect be PFRS/PAS compliant: Provided,                  5. Is not acting as a nominee or
That FIs shall submit to the BSP adjusting            representative of any director or substantial
entries reconciling the balances in the               shareholder of the QB/trust entity, any of
financial statements for prudential                   its related companies or any of its
reporting with that in the audited annual             substantial shareholders;
financial statements.                                     6. Is not retained as professional
(As amended by Circular No. 572 dated 22 June 2007)   adviser, consultant, agent or counsel of
                                                      the institution, any of its related
Sec. 4192Q (2008 - 4162Q/4162Q.2)                     companies or any of its substantial
Reports/Manner of filing. QBs shall submit            shareholders, either in his/her personal
to the appropriate department of the SES              capacity or through his/her firm; is
the reports listed in Appendix Q-3 in the             independent of management and free
forms as may be prescribed by the Deputy              from any business or other relationship,
Governor, SES.                                        has not engaged and does not engage in
     Any change in, or amendment to, the              any transaction with the institution or with
articles of incorporation, by-laws or                 any of its related companies or with any
material documents required to be                     of its substantial shareholders, whether
submitted to the BSP shall be reported by             by himself/herself or with other persons
submitting copies of the amended articles             or through a firm of which he/she is a
of incorporation, by laws, or material                partner or a company of which he/she is
documents to the appropriate department               a director or substantial shareholder,
of the SES within fifteen (15) days                   other than transactions which are
following such change.                                conducted at arms length and could not
     In the case of the independent                   materially interfere with or influence the
directors, the bio-data shall be accompanied          exercise of his/her judgment; and
by a certification under oath from the                    7. Complies with all the qualifications
director concerned that he/she is an                  required of an independent director and
independent director as defined under                 does not possess any of the disqualifications
Subsec. 4141Q.1 that all the information              therefor and has not withheld nor
thereby supplied are true and correct, and            suppressed any information material to
that he/she:                                          his/her qualification or disqualification as
     1. Is not or has not been an officer or          an independent director.
employee of the QB/trust entity, its                      The submission of the reports shall be
subsidiaries or affiliates or related interests       effected by filing them personally with the
during the past three (3) years counted from          appropriate department of the SES or with
the date of his/her election;                         the BSP Regional Offices/Units, or by
     2. Is not a director or officer of the           sending them by registered mail or special
related companies of the institution’s                delivery through private couriers unless
majority stockholder;                                 otherwise specified in the circular or
     3. Is not a majority stockholder of the          memorandum of the BSP.
institution, any of its related companies, or             Where the reports are prescribed by
of its majority shareholders;                         the BSP to be submitted through



Manual of Regulations for Non-Bank Financial Institutions                             Q Regulations
                                                                                     Part I - Page 59
§§ 4192Q - 4192Q.2
08.12.31

electronic mail, the original notarized                          § 4192Q.2 (2008 - 4162Q.3) Sanctions
affidavit/last page of each report, hard copy               in case of willful delay in the submission
of the covering control prooflist, or any                   of reports/refusal to permit examination
other related documents required to be                           a. Definition of terms. For purposes of
submitted shall be filed in the manner                      this Subsection, the following definitions
prescribed in the preceding paragraph.                      shall apply:
     In line with the policy direction of                        (1) Report shall refer to any report or
R.A. No. 8792 (E-Commerce Act), the                         statement required of a QB to be submitted
BSP is strongly encouraging QBs to                          to the BSP periodically or within a specified
submit their regular reports to the BSP in                  period.
electronic form.                                                 (2) Willful delay in the submission of
     However, the BSP cannot presently                      reports shall refer to the failure of a QB to
guarantee the security/confidentiality of                   submit a report on time. Failure to submit
data in the course of transmitting electronic               a report on time due to fortuitous events,
reports to BSP. BSP recommends that                         such as fire and other natural calamities
sensitive or confidential information be                    and public disorders, including strike or
provided by ordinary post or courier. The                   lockout affecting a QB as defined in the
BSP will accept no responsibility for                       Labor Code or national emergency
electronic messages/ reports/information                    affecting operations of QBs, shall not be
that may be hacked or cracked, intercepted,                 considered as willful delay.
copied or disclosed outside BSP’s                                (3) Examination shall include, but
information system.                                         need not be limited to, the verification,
(As amended by Circular Nos. 591 dated 27 December 2007,    review, audit, investigation and inspection
CL-2007-059 dated 28 November 2007, CL-2007-050 dated       of the books and records, business affairs,
04 October 2007, 576 dated 08 August 2007, 574 dated        administration and financial condition of
10 July 2007, 560 dated 31 January 2007, and 557 dated      any QB including the reproduction of its
12 January 2007)                                            records, as well as the taking possession
                                                            of the books and records and keeping them
    § 4192Q.1 (2008 - 4162Q.1) Categories                   under the BSP’s custody after giving proper
and signatories of reports. Reports                         receipt therefore. It shall also include the
required to be submitted to the BSP are                     interview of the directors and personnel
classified into Categories A-1, A-2, A-3 and                of the QB including its EDP servicer. Books
B reports as indicated in the list of reports               and records shall include, but shall not be
required to be submitted to the BSP in                      limited to, data and information stored in
Appendix Q-3.                                               magnetic tapes, disks, printouts, logbooks
    Appendix Q-4 prescribes the                             and manuals kept and maintained by the QB
signatories for each report category and the                or the EDP servicer, necessary and incidental
requirements on signatory authorization.                    to the use of EDP systems by the QB.
    Reports submitted by QBs in computer                         (4) Refusal to permit examination shall
media shall be subject to the same                          mean any act or omission which impedes,
requirements.                                               delays, or obstructs the duly authorized BSP
    A report submitted to the BSP under                     officer/examiner/employee from conducting
the signature of an officer who is not                      an examination, including the act of refusing
authorized in accordance with the                           to accept or honor a letter of authority to
requirements in this Subsection shall be                    examine presented by any officer/examiner/
considered as not having been submitted.                    employee of the BSP.




Q Regulations                                    Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 60
                                                                                  §§ 4192Q.2 - 4192Q.3
                                                                                               08.12.31

    b. Fines for willful delay in submission             c. Fines for refusal to permit
of reports. QBs incurring willful delay in          examination
the submission of required reports shall pay             (1) Amount of fine - Any QB which shall
a fine in accordance with the following             willfully refuse to permit examination shall
schedule:                                           pay a fine of P3,000 daily from the day of
                                                    refusal and for as long as such refusal lasts.
I.   For Categories A-1, A-2 and A-3                     (2) Procedures in imposing the fine -
     reports                                             (a) The BSP officer/examiner/employee
     Per day of default                             shall report the refusal of the QB to permit
     until the report is filed         P600         examination to the head of the appropriate
                                                    department of the SES, who shall forthwith
II. For Category B reports                          make a written demand upon the concerned
     Per day of default                             for such examination. If the QB continues
     until the report is filed         P120         to refuse said examination without any
                                                    satisfactory explanation therefore, the BSP
     Delay or default shall start to run on the     officer/examiner/employee concerned shall
day following the last day required for the         submit a report to that effect to the said
submission of reports. However, should the          department head.
last day of filing fall on a non-working day             (b) The fine shall be imposed starting
in the locality where the reporting FI is           on the day following the receipt by the said
situated, delay or default shall start to run       department of the written report submitted
on the day following the next working day.          by the BSP officer/examiner/employee
The due date/deadline for submission of             concerned regarding the continued refusal
reports to BSP as prescribed under                  of the QB to permit the desired examination.
Sec. 4192Q governing the frequency and                   d. Manner of payment or collection of
deadlines indicated in Appendix Q-3 shall           fines - The regulations embodied in Sec.
be automatically moved to the next business         4902Q shall be observed in the collection
day whenever a halfday suspension of                of the fines from QBs.
business operations in government offices                e. Other penalties - The imposition of
is declared due to an emergency such as             the foregoing penalties shall be without
typhoon, floods, etc.                               prejudice to the imposition of the other
     For purposes of establishing delay or          administrative sanctions and to the filing of
default, the date of acknowledgment by              a criminal case as provided for in other
the appropriate department of the SES or            provisions of law.
the BSP Regional Offices/Units appearing                 f. Appeal to the Monetary Board -
on the copies of such reports filed or                   Any aggrieved QB may appeal to the
submitted, the date of mailing postmarked           Monetary Board a ruling of the appropriate
on the envelope/the date of registry/               department of the SES imposing a fine.
special delivery receipt, as the case may           (As amended by Circular No. 585 dated 15 October 2007)
be, or the date of the acknowledgment
receipt issued by the appropriate office of             § 4192Q.3 (2008 - 4181Q) Publication
the BSP if the reports were submitted               requirements. The quarterly CSOC of a QB/
through electronic mail, shall be                   trust entity and its subsidiaries and
considered as the date of filing by the QB.         associates shall be published side-by-side
     Delayed schedules/attachments and              with the SOC of its head office and its
amendments shall be considered late                 branches/other offices as of such dates as
reporting subject to the above penalties.           the BSP may require, within twenty (20)



Manual of Regulations for Non-Bank Financial Institutions                                    Q Regulations
                                                                                            Part I - Page 61
§§ 4192Q.3 - 4199Q
09.12.31

working days from receipt of call letter, in          b. The names and positions/
any newspaper of general circulation in the       designations of:
country in the prescribed format.                     (1) members of the board of directors;
    The CSOC of a QB/trust entity and its         and
subsidiaries and associates shall conform             (2) president and executive vice-
with the guidelines of PAS 27                     presidents (senior vice-presidents, if there are
“Consolidated and Separate Financial              no executive vice-president) or equivalent
Statements”, except that for purposes of          positions shall be presented in the right side
consolidated financial statements, only           column of the published SOC as of June of
investments in financial allied subsidiaries      every year.
except insurance subsidiaries shall be
consolidated on a line-by-line basis; while          O. PROMPT CORRECTIVE ACTION
insurance and non-financial allied                           FRAMEWORK
subsidiaries shall be accounted for using
the equity method. Financial/non-financial        Sec. 4193Q (2008 - 4192Q) Prompt
allied/non-allied associates shall be             Corrective Action Framework. The
accounted for using the equity method in          framework for the enforcement of prompt
accordance with the provisions of PAS 28          corrective action (PCA) on banks which is
“Investments in Associates”. For purposes         in Appendix Q-40, shall govern the PCA
of separate financial statements,                 taken on QBs to the extent applicable, or
investments in financial/non-financial            by analogy.
allied/non-allied subsidiaries/associates,        (Circular No. 523 dated 23 March 2006, as amended by Circular
including insurance subsidiaries/                 No. 664 dated 15 September 2009)
associates, shall be accounted for using
the equity method.                                Sec. 4194Q (Reserved)
    a. The following information shall be
disclosed in the Statements of Condition:                            P. (RESERVED)
    (1) Non-performing loans (NPLs) and
ratio to total loan portfolio;                    Secs. 4195Q - 4198Q (Reserved)
    (2) Classified loans and other risk
assets;                                                  Q. GENERAL PROVISION ON
    (3) General loan loss reserve;                              SANCTIONS
    (4) Specific loan loss reserve;
    (5) Return on equity (ROE);                   Sec. 4199Q General Provision on
    (6) DOSRI loans/advances and ratio to         Sanctions. Any violation of the provisions
total loan portfolio; and                         of this Part shall be subject to Sections 36
    (7) Past due DOSRI loans/advances             and 37 of R.A. No. 7653.
and ratio to total loan portfolio.                     The guidelines for the imposition of
    For uniform calculation of the additional     monetary penalty for violations/offenses
information required, the guidelines in           with sanctions falling under Section 37 of
Annex Q-3-f of Appendix Q-3 shall be              R. A. No. 7653 on QBs, their directors and/or
observed.                                         officers are shown in Appendix Q-39.




Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part I - Page 62
                                                                                §§ 4201Q - 4235Q.3
                                                                                           08.12.31

                                             PART TWO

      DEPOSIT SUBSTITUTES AND BORROWING OPERATIONS

             A. - D. (RESERVED)                       interest rate and such other information as
                                                      may be necessary to enable the parties to
Secs. 4201Q - 4234Q (Reserved)                        determine the cost or yield of the borrowing
                                                      or placement shall be specified.
E. DEPOSIT SUBSTITUTE OPERATIONS                           b. The date of issuance shall be
                                                      indicated at the upper right corner of the
Section 4235Q (2008 - 4211Q) Deposit                  instrument, and directly below which shall
Substitute Instruments. Only the following            be the maturity period or the word
types of instruments may be issued by QBs             “demand”, if it is a demand instrument.
as evidence of deposit substitute liabilities:             c. The payee may be identified by his
    a. Promissory notes;                              trust account/deposit account number in both
    b. Repurchase agreements (Repos); and             negotiable and non-negotiable instruments.
    c. Certificates of assignment/                         d. Securities which are the subject of
participation with recourse.                          a repo or a certificate of assignment/
                                                      participation with recourse, shall be
     § 4235Q.1 (2008 - 4211Q.1) Prohibition           particularly described on the face of said
against use of certain instruments as deposit         instruments or on a separate instrument
substitutes. Acceptances, bills of exchange and       attached and specifically referred to therein
trust certificates shall not be used as evidence of   and made an integral part thereof as to the
deposit substitute liabilities. This prohibition      maker, value, maturity, serial number, and
shall not apply to the acceptance or negotiation      such other particulars as shall clearly
of bills of exchange in connection with trade         identify the securities.
transactions, or to the issuance of trust                  e. The instrument shall provide for the
certificates creating trust relationship.             payment of liquidated damages, in addition
                                                      to stipulated interest, in case of default by
     § 4235Q.2 (2008 - 4211Q.2) Negotiations          the maker/issuer, as well as attorney’s fees
of promissory notes. Negotiable promissory            and cost of collection in case of suit.
notes acquired by QBs shall not be                         f. A conspicuous notice at the lower
negotiated by mere indorsement and/or delivery,       center margin of the face of the instrument that
if they do not conform with the minimum               the transaction is not insured by the PDIC.
features prescribed under Subsec. 4235Q.3. If              g. The corporate name of the issuer
these notes do not contain the features in said       shall be printed at the upper center margin
Subsection, their negotiation shall be covered        of the instrument and directly below which
by any of the appropriate deposit substitute          shall be a designation of the instrument,
instruments mentioned in Sec. 4235Q.                  such as, “Promissory Note” or “Repo”.
                                                           h. The words “duly authorized officer”
    § 4235Q.3 (2008 - 4211Q.3) Minimum                shall be placed directly below the signature
features. Deposit substitute instruments              of the person signing for the maker/issuer.
issued by QBs shall have the following                     i. Each instrument shall be serially pre-
minimum features.                                     numbered.
    a. The present value and maturity                      j. The copy delivered to the payee shall
value and/or the principal amount and                 bear the word “Original” and the copies


Manual of Regulations for Non-Bank Financial Institutions                              Q Regulations
                                                                                       Part II - Page 1
§§ 4235Q.3 - 4235Q.5
08.12.31

retained by the issuer shall be identified as                shall be physically delivered to the lender/
“Duplicate,” “File Copy” or words of similar                 purchaser. The custodian shall hold the
import.                                                      securities in the name of the borrower/
    k. Only security paper with adequate                     seller, but shall keep said securities
safeguards against alteration or falsification               segregated from the regular securities
shall be used.                                               account of the borrower/seller if the
    Deposit substitute instruments shall                     borrower/seller has an existing securities
conform to the language prescribed by the                    account with the custodian. Provided, That
BSP.                                                         a financial institution (NBFI) authorized by
    Any substantial deviation therefrom or                   the BSP to perform custodianship function
any additional stipulation therein shall be                  may not be allowed to be custodian of
referred to the BSP for prior approval. The                  securities issued or owned by said
size and appearance of these instruments                     institution, its subsidiaries or affiliates, or
shall not be similar to the size and                         of securities in bearer form.
appearance of checks. Formats of                                  The delivery shall be effected upon
standardized instruments in Appendices Q-                    payment and shall be evidenced by a
6 to Q-6-k shall be followed.                                securities delivery receipt duly signed by
    Rubber stamping, typewriting and                         authorized officers of the custodian and
handwriting some provision shall not be                      delivered to both the lender/purchaser and
considered compliance with said regulations.                 seller/borrower.
    Borrowings of QBs from the loans and                          Sanctions. Violation of any provision of
discounts window of banks or QBs shall                       Item “a” shall be subject to the following
be exempted from the documentation                           sanctions/penalties:
requirements of this Section: Provided, That                      (1) Monetary penalties
the exemption from the documentation                              First Offense – Fine of P10,000 a day
requirements shall not be construed or                       for each violation reckoned from the date
interpreted as exemption of said borrowings                  the violation was committed up to the date
from the other rules on borrowings by QBs                    it was corrected.
and from other BSP regulations on deposit                         Subsequent offenses – Fine of P20,000
substitutes.                                                 a day for each violation reckoned from the
                                                             date the violation was committed up to the
       § 4235Q.4 (Reserved)                                  date it was corrected.
                                                                  (2) Other sanctions
     § 4235Q.5 (2008 - 4211Q.4) Delivery                          First offense – Reprimand for the directors/
of securities1                                               officers responsible for the violation.
     a. Securities, warehouse receipts,                           Subsequent offense –
quedans and other documents of title which                        (a) Suspension for ninety (90) days
are the subject of quasi-banking functions,                  without pay of directors/officers responsible
such as repos, shall be physically delivered,                for the violation;
if certificated, to a BSP accredited custodian                    (b) Suspension or revocation of the
that is mutually acceptable to the lender/                   accreditation to perform custodianship
purchaser and borrower/seller, or by means                   function;
of book-entry transfer to the appropriate                         (c) Suspension or revocation of the
securities account of the BSP accredited                     authority to engage in quasi-banking
custodian in a registry for said securities, if              function; and/or
immobilized or dematerialized while the                           (d) Suspension or revocation of the authority
overlying principal borrowing instrument                     to engage in trust and other fiduciary business.

1
    Effective 16 November 2004 under Circular No. 450 dated 06 September 2004.

Q Regulations                                   Manual of Regulations for Non-Bank Financial Institutions
Part II - Page 2
                                                                               §§ 4235Q.5 - 4235Q.12
                                                                                             08.12.31

     b. The guidelines to implement the                  shall be specifically referred to in the
delivery by the seller of securities to the              deposit substitute instruments and made an
buyer or to his designated third party                   integral part thereof.
custodian are shown in Appendix Q-38.
     Sanctions. Without prejudice to the                     § 4235Q.7 (2008 - 4211Q.6) Substitution
penal and administrative sanctions                       of underlying securities. Any agreement
provided for under Sections 36 and 37,                   allowing the issuer/maker to substitute the
respectively of the R.A. No. 7653 (The                   underlying securities shall further provide
New Central Bank Act), violation of any                  that the actual substitution shall be with the
provision of the guidelines in Appendix                  prior written consent of the payee.
Q-38 shall be subject to the following
sanctions/penalties depending on the                         § 4235Q.8 (2008 - 4211Q.7) Call slips/
gravity of the offense:                                  tickets for 24-hour loans. Call slips or
     (a) First offense –                                 tickets may be used to evidence call loan
     (1) Fine of up to P10,000 a day or the              transactions of not more than twenty-four
institution for each violation reckoned from             (24) hours maturity or to cover reserve
the date the violation was committed up                  deficiencies. In all other cases, call loan
to the date it was corrected; and                        transactions shall be evidenced by a
     (2) Reprimand for the directors/officers            promissory note containing the minimum
responsible for the violation.                           features prescribed in Subsec. 4235Q.3.
     (b) Second offense -
     (1) Fine of up to P20,000 a day for the                  § 4235Q.9 (2008 - 4211Q.8) Requirement
institution for each violation reckoned from             to state nature of underlying securities. In
the date the violation was committed up                  case of REPOs and certificates of
to the date it was corrected; and                        assignment/ participation with recourse, the
     (2) Suspension for ninety (90) days                 stipulation shall clearly state either (a) that
without pay of directors/officers responsible            the underlying securities are being delivered
for the violation.                                       to the buyer or assignee as collaterals or (b)
     (c) Subsequent offenses–                            that the ownership thereof is being
     (1) Fine of up to P30,000 a day for the             transferred to the buyer or assignee.
institution for each violation from the date
the violation was committed up to the date                  § 4235Q.10 (2008 - 4211Q.9) Compliance
it was corrected;                                        with SEC rules. QBs shall comply with the
     (2) Suspension or revocation of the                 new rules on the registration of short-term
authority to act as securities custodian and/            and long-term commercial papers appended
or registry; and                                         hereto as Appendices Q-7 and Q-8.
     (3) Suspension for 120 days without pay
of the directors/officers responsible for the                § 4235Q.11 (Reserved)
violation.
(As amended by M-2007-002 dated 23 January 2007;             § 4235Q.12 (2008 - 4211Q.12)
M-2006-009 dated 06 July 2006, M-2006-002 dated          Repurchase agreements covering government
05 June 2006 and Circular No. 524 dated 31 March 2006)   securities, commercial papers and other
                                                         negotiable and non-negotiable securities or
   § 4235Q.6 (2008 - 4211Q.5) Regulation                 instruments. The following regulations shall
on additional stipulation. Stipulations                  govern REPOs covering government
between the maker/issuer and the payee                   securities, commercial papers and other
which are embodied in separate instruments               negotiable and non-negotiable securities or



Manual of Regulations for Non-Bank Financial Institutions                                Q Regulations
                                                                                         Part II - Page 3
§ 4235Q.12
08.12.31

instruments of QBs as well as sale on a            not benefit from any insurance otherwise
without recourse basis of said securities by       applicable to deposits such as, but not
QBs.                                               limited to, R.A. No. 3591, as amended,
     a.    Proper        recording         and     otherwise known as the PDIC law;
documentation of repos.                                (b) Informed and explained to the
     QBs shall have a true and accurate            client all the basic features of the security
account, record or statement of their daily        being sold on a without recourse basis, such
transactions. As such, repos covering              as but not limited to:
government securities, commercial papers               (i) issuer and its financial condition;
and other negotiable and non-negotiable                (ii) term and maturity date;
securities or instruments must be properly             (iii) applicable interest rate and its
recorded and documented in accordance              computation;
with existing BSP regulations.                         (iv) tax features (whether taxable, tax
     The absence of proper documentation           paid or tax-exempt);
for repos is tantamount to willful omission            (v) risk factors and investment
of entries relevant to any transaction, which      considerations;
shall be a ground for the imposition of                (vi) liquidity feature of the instrument:
administrative sanctions and the                       (aa) procedures for selling the security
disqualification from office of any director       in the secondary market (e.g., OTC or
or officer responsible therefor under              exchange);
existing laws and regulations.                         (bb) authorized selling agents; and
     b. Responsibilities of the chief                  (cc) minimum selling lots.
executive officer (CEO) or officer of                  (vii) disposition of the security:
equivalent rank.                                       (aa) registry (address and contact
     It shall be the responsibility of the CEO     numbers);
or the officer of equivalent rank in a QB to:          (bb) functions of the registry; and
     (1) Institute policies and procedures             (cc) pertinent registry rules and
to prevent undocumented or improperly              procedures.
documented repos covering government                   (viii) collecting and paying agent of the
securities, commercial papers and other            interest and principal; and
negotiable and non-negotiable securities or            (ix) other pertinent terms and
instruments;                                       conditions of the security and if possible, a
     (2) Submit a notarized certification at       copy of the prospectus or information sheet
the end of every semester that the QB did          of the security.
not enter into any repo covering government            (c) Informed the client that pursuant
securities, commercial papers and other            to Subsecs. 4235Q.5 and 4101Q.4:
negotiable and non-negotiable securities or            (i) Securities sold under repos shall
instruments that are not documented in             be physically delivered, if certificated, to a
accordance with existing BSP regulations           BSP accredited custodian that is mutually
and that the QB has strictly complied with         acceptable to the client and the QB, or by
the pertinent rules of the SEC and the BSP         means of book-entry transfer to the appropriate
on the proper sale of securities to the public     securities account of the BSP accredited
and performed the necessary representations        custodian in a registry for said securities, if
and disclosures on the securities particularly     immobilized or dematerialized; and
the following:                                         (ii) Securities sold on a without
     (a) Informed the clients that such            recourse basis are required to be delivered
securities are not deposits and as such, do        physically to the purchaser, or to his



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part II - Page 4
                                                                         §§ 4235Q.12 - 4235Q.14
                                                                                        08.12.31

designated custodian duly accredited by the         date the violation was committed up to the
BSP, if certificated, or by means of book-          date it was corrected;
entry transfer to the appropriate securities            (2) Suspension of interbank clearing
account of the purchaser or his designated          privileges/immediate exclusion from
custodian in a registry for said securities if      clearing;
immobilized or dematerialized.                          (3) Suspension of access to BSP
    (d) Clearly stated to the client that:          rediscounting facilities;
    (i) The QB does not guarantee the                   (4) Suspension of lending or foreign
payment of the security sold on a “without          exchange operations or authority to accept
recourse basis” and in the event of default         new deposits or make new investments;
by the issuer, the sole credit risk shall be            (5) Revocation of quasi-banking
borne by the client; and                            license;
    (ii) The QB is not performing any                   (6) Revocation of authority to perform
advisory or fiduciary function.                     trust operations; and
    (3) Report to the appropriate                       (7) Suspension for 120 days without pay
department of the SES any undocumented              of the directors/officers responsible for the
repo within seventy-two (72) hours from             violation.
knowledge of such transactions.
    c. Treatment as deposit substitutes                  § 4235Q.13 (2008 - 4212Q) Recording;
All sales of government securities,                 payment; maturity; renewal
commercial papers and other negotiable                   a. Deposit substitutes shall be
and non-negotiable securities or                    recorded in the books at their respective
instruments that are not documented in              principal amounts, and reported
accordance with existing BSP regulations            accordingly, regardless of whether the
shall be deemed to be deposit substitutes           interest thereon has been paid in advance
subject to regular reserves.                        or not.
    d. Certification. The submission                     b. If there is any stipulation that
deadline for the required certification from        payment of the deposit substitute shall be
the CEO/officer of equivalent rank of the           chargeable against a particular deposit
QB shall initially be 1 February 2005 using         account, it shall further provide that the
the format in Appendix Q-36-a. Thereafter,          liability of the maker/issuer of the
the required succeeding certification shall         instrument shall not be limited to the
be submitted within five (5) banking days           outstanding balance of said amount.
from end of reference semester using the                 c. The minimum maturity of any
format in Appendix Q-36.                            single deposit substitute transaction shall be
    e. Sanctions. The Monetary Board                fifteen (15) days. Interbank borrowings shall
may, at its evaluation and discretion,              not be subject to the limitations in this
impose any or all of the following sanctions        Section.
to a QB or the director/s or officer/s found             d. Automatic renewal from maturity
to be responsible for repos covering                of the instrument may be effected only
government securities, commercial papers            under terms and conditions previously
and other negotiable and non-negotiable             stipulated by the parties.
securities or instruments that are not
documented in accordance with existing BSP              § 4235Q.14 (2008 - 4214Q) Interbank
regulations:                                        borrowings. The regulations on interbank
    (1) Fine of up to P30,000 a day to the          loan transactions prescribed in Sec. 4343Q
concerned entity for each violation from the        shall also apply to interbank borrowings.



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                   Part II - Page 5
§§ 4235Q.15 - 4237Q.3
08.12.31

    § 4235Q.15 (2008 - 4215Q)                         Money market placements shall include
Borrowings from trust departments or              investments in debt instruments, including
managed funds of banks or investment              purchases of receivables with recourse to
houses. Funds borrowed by QBs from trust          the lending institution, except purchases
departments or managed funds of banks             of government securities on an outright
or investment houses are not considered           basis.
as interbank borrowings and, therefore,               Government securities shall include
are subject to the:                               evidences of indebtedness of the Republic
    a. reserve requirement on deposit             of the Philippines and the BSP and other
substitutes;                                      evidences of indebtedness or obligations of
    b. minimum fifteen (15)-day maturity          government entities, the servicing and
period; and                                       repayment of which are fully guaranteed
    c. minimum trading lot rule.                  by the Republic of the Philippines.

Sec. 4236Q (2008 - 4213Q) Minimum Trading              § 4237Q.2 (2008 - 4216Q.2) Conditions
Lot. The minimum size of any single deposit       required on accepted placements
substitute transaction shall be P50,000.          Placements accepted must comply with the
    In connection with the minimum trading        following conditions:
lot rule above stated, no QB shall issue               a. That the total money market
deposit substitute instruments in the name        placements of an RB, as stated in the
of two (2) or more persons or accounts            certification, including the placement being
except those falling under the following          accepted by the entity concerned, shall not
relationships in which cases, commingling         exceed the RB’s combined capital accounts
may be allowed: (a) husband and wife; (b)         or net worth less current obligations with
persons related to each other within the          the BSP or other government FIs;
second degree of consanguinity; and (c) in             b. The maturity of the money market
trust for (ITF) arrangements.                     placement shall not exceed sixty (60)
                                                  days; and
Sec. 4237Q (2008 - 4216Q) Money Market                 c. That placements shall be evidenced
Placements of Rural Banks. QBs shall not          in all cases by promissory notes of accepting
accept money market placements from               entities/REPOs and/or certificates of
any RB unless the latter presents a               participation/assignment with recourse and
certification under oath stating: (a) that it     that underlying instruments shall be
has no overdue special time deposits; (b)         government securities the servicing and
that it has no past due obligations with          repayment of which are guaranteed by the
the BSP or other government FIs; (c) the          Republic of the Philippines.
amount of its current obligations, if any,
with said government FIs; and (d) the                 § 4237Q.3 (2008 - 4216Q.3) Sanctions
amount of its total outstanding money             Violations of the provisions of this Section
market placements. However, in no case            shall be subject to the following sanctions/
shall such QBs sell receivables to RBs            penalties:
without recourse.                                     a. Fines
                                                      First offense - Fines of P3,000 a day,
    § 4237Q.1 (2008 - 4216Q.1) Definition         reckoned from the date placement started
of terms. As used in this Section, the            up to the date when said placement was
following terms shall have the following          withdrawn, for each violation shall be
meanings:                                         assessed on the bank.



Q Regulations                          Manual of Regulations for Non-Bank Financial Institutions
Part II - Page 6
                                                                             §§ 4237Q.3 - 4239Q.3
                                                                                          08.12.31

    Subsequent offenses - Fines of P5,000 a              b. Net book value shall refer to the
day, reckoned from the date placement               acquisition cost of property or accounts,
started up to the date placement was                plus additions and improvements thereon,
withdrawn, for each violation shall be              less valuation reserves, if any.
assessed on the bank.                                    c. Current market value shall refer to
    b. Other sanctions                              the value of the property as established by a
    First offense - Reprimand for the               duly licensed and independent appraiser.
directors/officers who approved the                      d. Affiliate shall refer to an entity linked
acceptance/placement with a warning that            directly or indirectly to a QB by means of:
subsequent violations will be subject to                 (1) Ownership, control or power to vote,
more severe sanctions.                              of ten percent (10%) or more of the outstanding
    Subsequent offenses -                           voting stocks of the entity, or vice-versa;
    (1) Suspension for ninety (90) days                  (2) Interlocking directorships or
without pay for directors/officers who              officerships;
approved the placement.                                  (3) Common stockholders owning ten
    (2) Suspension or revocation of the             percent (10%) or more of the outstanding
authority to engage in quasi-banking functions.     voting securities;
                                                         (4) Management contract or any
Sec. 4238Q (2008 - 4391Q.2) Without                 arrangement granting power to direct or
Recourse Transactions. No QB shall sell,            cause the direction of management and
discount, assign, negotiate, in whole or in         policies;
part such as thru syndications, participations           (5) Voting trustee holding ten percent
and other similar arrangements, any note,           (10%) or more of the outstanding voting
receivable, loan, debt instrument and any           securities;
type of financial asset or claim, except                 (6) Permanent proxy or voting trust
government securities, on a without                 constituting ten percent (10%) or more of
recourse basis, or be a party in any capacity       the outstanding voting securities.
in any such transactions on a without                    e. Subsidiary shall refer to a corporation
recourse basis, unless such receivable, note,       or firm more than fifty percent (50%) of
loan, debt instrument and financial asset or        the outstanding voting stock of which is
claim is registered with the SEC. This              directly or indirectly owned, controlled, or
prohibition includes transactions between           held with power to vote by another.
an investment house and its trust
department.                                             § 4239Q.2 (2008 - 4217Q.3) Compliance
                                                    with SEC rules. QBs issuing or intending to
Sec. 4239Q (2008 - 4217Q) Bond Issues of            issue bonds shall comply with the new rules
Quasi-banks. The following guidelines shall         on the registration of long-term commercial
govern the bond issues of QBs.                      papers (Appendix Q-8).

    § 4239Q.1 (2008 - 4217Q.1) Definition               § 4239Q.3 (2008 - 4217Q.4) Notice
of terms. For purposes of this Section, the         to Bangko Sentral Within three (3) days
following terms shall mean:                         from approval by the SEC of its bond issue,
    a. Government securities shall refer to         a QB shall notify the appropriate
the evidences of indebtedness of the                department of the BSP of the approval,
Republic of the Philippines or its                  attaching documents required by the SEC
instrumentalities, or of the BSP, and must          for the issuance and registration of the
be freely negotiable and regularly serviced.        bond issue.



Manual of Regulations for Non-Bank Financial Institutions                            Q Regulations
                                                                                     Part II - Page 7
                                                                                §§ 4239Q.4 - 4239Q.6
                                                                                             08.12.31

     § 4239Q.4 (2008 - 4217Q.5) Minimum                       Government and private securities,
features. Bond issues by QBs shall have                  certificates of title and documents
the following minimum features:                          evidencing receivables offered as security
     a. Form; issue price; denomination. The             shall be physically delivered to the indenture
trust indenture and the name of the indenture            trustee.
trustee shall be indicated on the face of the                 Substitution of collaterals shall be
bond certificate.                                        allowed: Provided, That in no case shall the
     The SEC-assigned bond registration                  collateral fall below the herein-required
number and expiry date, if any, shall                    ratios.
likewise be indicated, stamped on the face                    The issuer may, at his option, provide
of each bond certificate issued.                         for the retirement at maturity of the bond
     Bonds may be issued at face value, at a             issue through a sinking fund to be
discount, or at a premium. Minimum                       deposited with and managed by the
denomination shall be P20,000.                           indenture trustee.
     b. Term. The minimum maturity of the                     e. Bond registry. The bonds shall be
bonds shall be four (4) years. No optional               fully registered as to principal and interest.
redemption before the fourth year shall be               The issuer, its trustee, agent or underwriter
allowed.                                                 must maintain a bond registry duly approved
     c. Interest; manner; form of payment                by the SEC for recording, in initial and
The bonds shall not be subject to interest               subsequent transfers, the names of
rate ceilings prescribed by the Monetary                 transferees, date of transfer, purchase price
Board or Act No. 2655, as amended.                       and serial numbers of bonds transferred.
     Interest paid in advance shall not exceed
the interest for one (1) year: Provided, That                § 4239Q.5 (2008 - 4217Q.2) Underwriting
interest shall not be paid in kind.                      of bonds.         Bond issues may be
     d. Trust indenture; collaterals; sinking            underwritten by entities including those
fund. A trust indenture shall be executed                which are affiliates or subsidiaries of the
between the issuer and a qualified trust                 issuer. The investment of affiliates or
corporation as trustee, which shall neither be           subsidiaries in said bond issue shall be
an affiliate nor a subsidiary of the issuer.             subject to:(a) individual and aggregate
     The following shall be deemed as eligible           ceilings of ten percent (10%) and thirty
collateral and shall be maintained at respective         percent (30%), respectively, of the bond
values indicated in relation to the face value           issue; and (b) the condition that the
of the bond issue:                                       investing affiliate or subsidiary does not
 (1) Government securities       - Aggregate current     have any outstanding loan from the issuer
                                   market value of       or that it shall not incur any indebtedness
                                   100%
                                                         from the issuer during the period that the
 (2) High-grade private - Aggregate current              investment remains outstanding.
     securities listed in the market value of
     big board of stock       150%
     exchanges                                               § 4239Q.6 (2008 - 4217Q.6) Reserve
 (3) Real estate                 - Net book value of     requirement. A five percent (5%) reserve
                                   100%                  shall be maintained against all bond issues
                                                         of QBs.
 (4) Unmatured receivables       - Net book value of         The form/composition of reserves
     acquired with recourse;       150%
     lease contracts recei-                              for bond issues shall be in accordance
     vable                                               with the applicable rules on reserve
 (5) Unmatured receivables       - Net book value of     against deposit substitute liabilities and
     acquired without recourse     200%                  borrowings.

Q Regulations                                 Manual of Regulations for Non-Bank Financial Institutions
Part II - Page 8
§§ 4239Q.7 - 4254Q
08.12.31

    § 4239Q.7 (2008 - 4217Q.7) Inapplicability                      On top of the regular reserve
of certain regulations. Secs. 4235Q and                         requirements, an additional eleven percent
4236Q shall not apply to bonds issued                           (11%)2 liquidity reserves against deposit
under these guidelines.                                         substitute liabilities (except Items “a” to “d”
                                                                above) of QBs shall be imposed which may
                  F. (RESERVED)                                 be maintained in the form prescribed in Item
                                                                “a” of Sec.. 4254Q. Any deficiency shall
Sec. 4240Q (Reserved)                                           be in the form prescribed in Item “b” of
                                                                Sec. 4254Q.
                  G. INTEREST                                       Provided, That deposit substitutes
                                                                evidenced by repo agreements covering
Sec. 4241Q (2008 - 4236Q) Yield/Interest                        government securities up to the amount
Rates                                                           equivalent to the adjusted Tier 1 capital
    a. Deposit substitutes of QBs shall not                     of the QB shall be subject to the statutory
be subject to yield or interest rate ceilings.                  reserve of two percent (2%)3: Provided,
    b. A matured and an unclaimed                               further, That such rate shall apply only to
deposit substitute shall be payable on                          repo agreements, the documentation of
demand and shall earn interest or yield from                    which conforms with, and were delivered
maturity to actual withdrawal or renewal                        to a BSP accredited third party custodian
at a rate applicable to a deposit substitute                    as required under existing BSP
with a maturity of fifteen (15) days.                           regulations.
                                                                (As amended by Circular No. 632 dated 19 November 2008)
Secs. 4242Q - 4252Q (Reserved)
                                                                Sec. 4254Q (2008 - 4246Q.1) Composition
                  H. RESERVES                                   of reserves. The composition of the reserves
                                                                shall be as follows:
Sec. 4253Q (2008 - 4246Q) Reserves Against                          a. Not more than the percentage of
Deposit Substitutes. QBs shall maintain                         liquidity reserves required under Sec. 4253Q
regular reserves of eight percent (8%)1 of                      shall be maintained in the Reserve Deposit
deposit substitute liabilities as defined in                    Account (RDA) with the BSP or may be in
Section 95 of R.A. No. 7653, regardless of                      the form of the following: Provided, That it
maturities except: (a) borrowings from the BSP                  complies with the guidelines shown in
through the sale of government securities                       Appendix Q-41.
under repo agreements made in connection                            (1) Short-term         market-yielding
with the provisions of Sec. 4601Q; (b)                          government securities purchased directly
deposit substitutes arising from special                        from the BSP-Treasury Department;
financing programs of the Government and/                           (2) NDC Agri-Agra ERAP Bonds,
or international FIs; (c) interbank call loan                   regardless of maturity; and
transactions under Sec. 4343Q; and (d)                              (3) Poverty Eradication and Alleviation
bonds under Sec. 4239Q for which the                            Certificates (PEACe) bonds only to the extent
reserve requirement shall be five percent                       of the original gross issue proceeds
(5%).                                                           determined at the time of the auction, plus

1
  Under Circular No. 632 dated 19 November 2008, the reduction in regular reserves shall be effective the reserve week
starting 14 November 2008.
2
  From 10% to 11% under Circular No. 491 dated 21 July 2005, effective the reserve week starting 15 July 2005.
3
  The statutory reserve of two percent (2%) may not be availed of pending:
  (1) the issuance of the pertinent market convention acceptable to BSP that shall govern deposit substitutes transactions
       evidenced by repo agreements covering government securities; and
  (2) the opening for the purpose of a separate RoSS account with the Bureau of the Treasury by the BSP-accredited third
       party custodian.

Manual of Regulations for Non-Bank Financial Institutions                                               Q Regulations
                                                                                                        Part II - Page 9
                                                                                     §§ 4254Q - 4254Q.3
                                                                                                08.12.31

capitalized interest on the underlying                 That any substitution or acquisition satisfies
zero-coupon Treasury Notes as and when                 the eligibility requirements prescribed
the corresponding interest is earned over the          above: Provided, further, That the QB notifies
life of the bonds.                                     the BSP of any such change not later than the
     Any deficiency in the liquidity reserve           reporting day following the change.
shall continue to be in the forms or modes                  Securities counted as reserves which
prescribed under existing regulations for the          are hypothecated or encumbered in any
composition of required reserves.                      way or earmarked for any other purpose
     b. The balance shall be as follows:               shall automatically lose their eligibility as
     (1) At least ten percent (10%) in the             reserves.
form of deposit balances with the BSP;                      Only the buying/lending QB in a resale
     (2) A maximum of seventy-five percent             agreement covering eligible government
(75%) in the form of government securities;            securities may use such securities as
and                                                    reserves against deposit substitute liabilities.
     (3) The balance in the form of demand             Conversely, the selling/borrowing QB in a
deposit accounts with banks which are not              repo agreement covering eligible
restricted as to withdrawal or use for current         government securities may not use such
operations but not with FIs which have been            securities as reserves against deposit
closed and are under receivership or                   substitute liabilities.
liquidation.                                                The reserve eligibility of government
     For purposes of this Subsection,                  securities under the reverse repo operations
government securities eligible as reserves             of the BSP shall be suspended during the
against deposit substitute liabilities of QBs          term of the repo agreement. The phrase non-
as referred to in Item "b(2)" above shall be           reserve eligible shall be stamped on the face
limited to bonds or other evidences of                 of the custodian receipt being issued by the
indebtedness representing direct obligations           BSP to buyer FIs.
of the government of the Republic of the               (As amended by Circular Nos. 551 dated 17 November 2006
Philippines having the following minimum               and 539 dated 09 August 2006)
features/conditions:
     (i) The securities must bear an interest             § 4254Q.1 (2008 - 4246Q.5) Matured
rate of not more than four percent (4%) per            and unclaimed deposit substitutes. Matured
annum, must be non-negotiable and shall                and unclaimed deposit substitutes shall
carry BSP support; and                                 continue to be subject to reserves.
     (ii) The instrument must expressly state
in its face the amount, maturity date and                   § 4254Q.2 (Reserved)
interest rate of the obligation.
     A list of reserves-eligible and                       § 4254Q.3 (2008 - 4246Q.7) Interest
non-eligible securities may be found in                on reserve deposit with Bangko Sentral
Appendix Q-9.                                          Deposits maintained by QBs with the BSP
     Other government securities being used            up to forty percent (40%) of their reserve
for reserve purposes shall continue to be eligible     requirement (excluding the percentage of
as such: Provided, That whenever said securities       liquidity reserves required on deposit
shall have matured, they shall be replaced by          substitute liabilities of QBs under Sec.
securities carrying the above features.                4253Q) shall be paid interest at four percent
     Securities held as reserves shall be              (4%) per annum based on the average daily
valued at cost of acquisition, and the QB              balance of said deposits to be credited
may freely alter its composition: Provided,            quarterly.



Q Regulations                               Manual of Regulations for Non-Bank Financial Institutions
Part II - Page 10
§§ 4254Q.3 - 4256Q.5
08.12.31

    The computation of quarterly interest           Philippines and all other offices located
payments credited to the QBs’ DDAs with             therein shall be treated as a single unit.
BSP are shown in Appendix Q-27.                         The guidelines on the computation of
    Effective 1 July 2003, published interest       a bank's reserve position during public
rates that will be applied on BSP’s Regular         sector holidays are shown in Appendix
DDAs of QBs shall be inclusive of the ten           Q-49.
percent (10%) Value Added Tax (VAT).                    The required reserves in the current
                                                    period (reference reserve week) shall be
     § 4254Q.4 (2008 - 4246Q.6) Book entry          computed based on the corresponding
method for reserve securities. Transactions         levels of deposit substitute liabilities of the
concerning reserve-eligible securities shall        prior week.
be entered in the respective securities             (As amended by M-2008-025 dated 13 August 2008)
account of each QB with the BSP and shall
be evidenced by securities account debit or                 §§4256Q.1 - 4256Q.4 (Reserved)
credit advices to be promptly furnished the
institution/s concerned. No certificates shall          § 4256Q.5 (2008 - 4246Q.8) Guidelines
be issued for any purpose. Transactions with        in calculating and reporting to the BSP
third parties other than the BSP shall not be       the required reserves on deposit
recognized.                                         substitutes evidenced by repurchase
                                                    agreements covering government
Sec. 4255Q (2008 - 4246Q.4) Exemptions              securities
Certificates of assignment issued with                  a. The Supervisory Data Center (SDC)
recourse by QBs under the IGLF Program              shall determine the maximum allowable
are not covered by the reserve requirements.        amount of repo agreements covering
                                                    government securities that will qualify for
Sec. 4256Q (2008 - 4246Q.2) Computation             the reduced statutory reserve requirements
of reserve position. The reserve position of        of two percent (2%). It shall be based on
any QB and the penalty on reserve                   the amount reported by QBs in their weekly
deficiency shall be computed based on a             Consolidated Daily Report of Condition. The
seven (7)-day week, starting Friday and             adjusted Tier 1 capital reported daily should
ending Thursday, including Saturdays,               approximate the quarterly adjusted Tier 1
Sundays, public special/legal holidays,             capital as submitted by banks in compliance
non-business days, unexpected declared              with the provisions of Sec. 4115Q.
non-business days or declared half-day                  b. Any material differences that may be
holidays and days when there is no clearing:        noted by the SDC between the daily and
Provided, That with reference to public             the quarterly report shall be considered as
special/legal holidays, non-business                erroneous reporting and shall be subject to
unexpected declared non-business days,              the penalties under existing regulations. The
declared halfday holidays and days when             SDC shall also make a re-run of its
there is no clearing, the reserve position as       computation of the QB’s reserve position
calculated at the close of the business day         and in the event that the reserve position
immediately preceding such public                   resulted to a reserve deficiency/ies, the
special/legal holidays, non-business days           corresponding penalties on reserve
and unexpected declared non-business day/s          deficiencies shall also apply.
and declared half-day holidays and days when            c. The lagged system in the
there is no clearing, shall apply thereon. For      measurement of a QB’s reserve requirement,
this purpose, the principal office in the           as provided in Sec.4256Q, shall also be



Manual of Regulations for Non-Bank Financial Institutions                                 Q Regulations
                                                                                         Part II - Page 11
                                                                            §§ 4256Q.5 - 4277Q
                                                                                      08.12.31

adopted in the calculation of the two percent      or prohibit the making of new loans or
(2%) statutory reserve requirements for repo       investments by the QB concerned; (2)
agreements covering government securities.         prohibit the declaration of cash dividends;
    d. Deposit substitutes evidenced by            and/or (3) impose such other sanctions, as
repo agreements covering government                it may deem necessary. The board of
securities in excess of the adjusted               directors of such QB shall be notified of
Tier 1 capital shall be treated as regular         such chronic reserve deficiency and the
deposit substitutes and shall be subject to        penalties therefor, and shall be required to
the regular statutory and liquidity reserve        immediately correct the reserve position of
requirements under existing regulations.           the QB.
                                                       As used in this Section, the
Sec.4257Q (2008 - 4246Q.3) Reserve                 following terms shall have the following
Deficiencies; Sanctions                            meanings:
    a. Whenever the reserve position of                Chronic reserve deficiency shall mean
any QB computed in the manner specified            having net reserve deficiency for two (2)
in Sec.4256Q is below the required                 consecutive weeks.
minimum, the QB concerned shall pay the                New loan and new investment shall
BSP one-tenth of one percent (1/10 of 1%)          refer to any loan and any investment
per day on the amount of the deficiency            involving disbursement of funds.
or the prevailing ninety-one (91)- day T-              c. Fines on legal reserve deficiencies
Bill rate plus three (3) percentage points,        on deposit substitute liabilities shall be
whichever is higher: Provided, however,            paid by the QB in accordance with Sec.
That the QB shall be permitted to offset           4902Q: Provided, That where the credit
any reserve deficiency occurring one (1)           balance of the QB's demand deposit
or more days of the week covered by the            account (DDA) with the BSP is insufficient
report against excess reserves which it            and it fails to settle the assessment within
may hold on other days of the same week,           fifteen (15) days from receipt, the
and shall be required to pay the penalty           Monetary Board may limit or prohibit the
only on the average daily net deficiency           making of new loans or investments by
during the week.                                   the QB.
    In case of abuse, the QB shall
automatically lose the privilege of offsetting                    I. (RESERVED)
reserve deficiency in the aforesaid manner
until such time that it maintains its daily        Secs. 4258Q - 4269Q (Reserved)
reserve position at the required minimum
for at least two (2) consecutive weeks.                  J. BORROWINGS FROM THE
    As used in this Section, abuse in the                     BANGKO SENTRAL
privilege of offsetting reserve deficiencies
against excess reserves shall mean having          Sec. 4270Q (2008 - 4276Q) Repurchase
reserve deficiencies occurring four (4) or         Agreements with the Bangko Sentral. Repo
more times during any given week for two           agreements with the BSP under its open
(2) consecutive weeks, whether or not              market operations (OMOs) shall be
resulting in net weekly deficiencies.              governed by the provisions of Subsec.
    b. In cases where the QB has chronic           4601Q.1.
reserve deficiency on deposit substitute
liabilities, the Monetary Board may (1) limit      Secs. 4271Q - 4277Q (Reserved)




Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part II - Page 12
§§ 4278Q - 4299Q
08.12.31

Sec. 4278Q Enhanced Intraday Liquidity                  or controlled corporations (GOCCs) as
Facility. The ILF is a smoothening                      defined herein, and shall comprise "revenue
mechanism which is available to eligible                funds", "trust funds", and "depository funds"
participant QBs in the Philippine Payments              as these terms are defined in the Revised
and Settlements System (PhilPaSS) to support            Administrative Code of 1987, and
their liquidity requirements and avoid                  deposits of, borrowings from, and all other
payment gridlocks in PhilPaSS. The revised              liabilities to, the Government and
features of the enhanced intraday liquidity             government entities.
facility are shown in Appendix Q-13-B.                      b. GOCCs shall refer to GOCCs which
(As superseded by the MOA between the BSP, BTr, BAP     are created by special laws. It shall exclude
and Money Market Association of the Philippines dated   government FIs such as the Development
25 March 2008)                                          Bank of the Philippines (DBP), Land Bank
                                                        of the Philippines (LBP) and Al-Amanah
Secs. 4279Q - 4280Q (Reserved)                          Islamic Investment Bank of the Philippines,
                                                        corporations which are organized as
        K. OTHER BORROWINGS                             subsidiaries of GOCCs under the provisions
                                                        of the Corporation Law (Act No. 1459, as
Sec. 4281Q Borrowings from the                          amended) or the Corporation Code (BP Blg.
Government. QBs shall not borrow any                    68) and private corporations which are taken
fund or money from the Government and                   over by GOCCs.
government entities, through the issuance
or sale of its acceptances, notes or other              Secs. 4282Q - 4298Q (Reserved)
evidence of debt, except as may be
authorized by existing statutes.                             L. GENERAL PROVISION ON
                                                                    SANCTIONS
    § 4281Q.1 Definition of terms. For
purposes of this Section, the following terms           Sec. 4299Q General Provision on
shall have the meaning indicated unless the             Sanctions. Any violation of the provisions
context clearly indicates otherwise:                    of this Part shall be subject to Sections 36
    a. Fund or money from the                           and 37 of R.A. No. 7653.
Government and government entities                          The guidelines for the imposition of
includes public moneys of every sort,                   monetary penalty for violations/offenses
whether pertaining to the National                      with sanctions falling under Section 37
Government, province, city, municipality,               of R.A. No. 7653 on QBs, their
or other branch or agency of the                        directors and/or officers are shown in
Government, including government-owned                  Appendix Q-39.




Manual of Regulations for Non-Bank Financial Institutions                             Q Regulations
                                                                                     Part II - Page 13
                                                                                        § 4301Q
                                                                                        08.12.31

                                       PART THREE

                    LOANS, INVESTMENTS AND SPECIAL CREDITS


Section 4301Q Management of Risk                   For this purpose, credit investigations must
Assets/Minimum Guidelines on Lending               be conducted and appropriate statements of
Operations. It shall be the responsibility         assets and liabilities and of income and
of the board of directors of a QB to formulate     expenditures shall be required of credit
written policies on the extension of credit        applicants.
and risk diversification and to set the                 d. Amounts, purpose and terms of
guidelines for evaluation of risk assets.          credit accommodations. Loans/credit
Well-defined lending policies and sound            accommodations shall be granted only in
lending practices are essential if a QB is to      amounts and for periods necessary for the
perform its credit-extension function              completion of the operations to be financed,
effectively and minimize the risk inherent         and for purposes which are attuned to
in any extension of credit. The responsibility     government economic policies. The
should be approached in a way that will            amount and period of the loan shall be
provide assurance to the public, the               justified by the financial statements
stockholders and supervisory authorities that      submitted or by specific feasibility/project
timely and adequate action will be taken to        studies for a particular operation to be
maintain the quality of the loan portfolio and     financed by the loan applied for.
other risk assets.                                      e. Documentation of loans. All loans/
     a. Requirement of lending policies            credit extensions shall be supported by
QBs shall have well-defined lending policies       evidences of indebtedness and/or loan
which shall ensure that lending shall be           agreements which shall contain, among
upon terms which are in the best interest of       other things, a statement of the purpose of
the institution and in accordance with             the loan and a program of repayment of
existing policy, rules and regulations of the      the obligation.
Monetary Board. Such policies shall be in               f. Credit files. Adequate credit files of
writing to form part of the institution’s          borrowers shall be maintained which shall
permanent records and shall be made                contain documents such as credit
available for inspection by the Bangko             investigation reports, balance sheets,
Sentral.                                           statements of assets and liabilities, income
     b. Lending operations, definition             and expense statements, income tax
Lending operations refer to any credit             returns, bank and trade checkings, and other
accommodation and purchase of                      documents/papers showing information
receivables and commercial papers,                 which form the bases for the credit
including purchase of commercial papers            extension.
in the secondary market.                                g. Periodic review. A periodic review
     c. Creditworthiness of borrowers              of the loan portfolio and the credit standing
Before extending credit in any form, the           of borrowers shall be made.
QB must exercise proper caution to                      h. Arm’s length transactions. A QB
ascertain that the debtors, co-makers,             shall not relend to or purchase
endorsers, sureties and/or guarantors are          receivables or other obligations of other
capable of fulfilling their commitments.           corporations, majority of the voting stock



Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                 Part III - Page 1
§§ 4301Q - 4301Q.6
09.12.31

of which is owned by subject corporation,            concentrations of the QB. The board
unless the terms of the transactions are not         should review these policies regularly (at
more favorable than those of other similar           least annually) to ensure that they
transactions.                                        remain adequate and appropriate for the
                                                     QB. Subsequent changes to the
    §§ 4301Q.1 - 4301Q.5 (Reserved)                  established policies must be approved by
                                                     the board.
     § 4301Q.6 Large exposures and credit                (6) The policy on large exposures and
risk concentrations. The following                   credit risk concentrations shall, at a
guidelines shall govern managing large               minimum, covers the following:
exposures and credit risk concentrations in              (a) Exposure limits that are reasonable
line with the objective of strengthening risk        in relation to capital and resources for –
management in the quasi-banking system.                  (i) Various types of borrowers/
     a. General principles                           counterparties (e.g. government, banks and
     (1) A QB can be exposed to various              other FIs, corporate and individual
forms of credit risk concentration which if          borrowers);
not properly managed may cause significant               (ii) A group of related borrowers/
losses that could threaten its financial             counterparties;
strength and undermine public confidence                 (iii) Individual industry sectors;
in the QB.                                               (iv) Individual countries; and
     (2) Credit risk concentrations may arise            (v) Various types of investments.
from excessive exposures to individual                   (b) The circumstances in which the
counterparties, groups of related                    above limits can be exceeded and the party
counterparties and groups of counterparties          authorized to approve such excesses, e.g.,
with similar characteristics (e.g.,                  the QB’s board of directors or credit
counterparties in specific geographical              committee with delegated authority from
locations, economic or industry sectors).            the board;
     (3) Diversification of risk is essential in         (c) The delegation of credit authority
quasi-banking. Many past QB failures have            within the QB for approving large
been due to credit risk concentrations of            exposures;
some kind. It is essential for QBs to prevent            (d) The procedures for identifying,
undue credit risk concentrations from                reviewing, managing and reporting large
excessive exposures to particular                    exposures of the QB;
counterparties, industries, economic sectors,            (e) The definition of exposure.
regions or countries.                                QBs should take into account the nature of
     (4) While concentration of credit risks         their business and the complexity of their
is inherent in quasi-banking and cannot be           products. In any case, a QB’s exposures to
totally eliminated, they can be limited and          a counterparty should include its on and off-
reduced by adopting proper risk control              balance sheet exposures and indirect
and diversification strategies. Safeguarding         exposures; and
against credit risk concentrations should                (f) The criteria to be used for
form an important component of a                     identifying a group of related persons;
QB’s risk management system.                             (7) The board and senior management
     (5) The board of directors of a QB shall        of a QB should ensure that:
be responsible for establishing and                      (a) Adequate systems and controls are
monitoring compliance with policies                  in place to identify, measure, monitor and
governing large exposures and credit risk            report large exposures and credit risk



Q Regulations                              Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 2
                                                                                             § 4301Q.6
                                                                                               09.12.31

concentrations of the QB in a timely                    (a) The QB’s relevant policies, limits
manner; and                                        and procedures are complied with; and
     (b) Large exposures of the QB are kept             (b) The existing policies and controls
under regular review. “Large exposures”            remain adequate and appropriate for the
shall refer to exposures to a counterparty or      QB’s business.
a group of related counterparties equal or              (4) Management should take prompt
greater than five percent (5%) of QB’s             corrective action to address concerns and
qualifying capital as defined under Section        exceptions raised.
4115Q.                                                  (5) There should also be an
     (8) A QB should, where appropriate,           independent compliance function to ensure
conduct stress testing and scenario                that all relevant internal and prescribed
analysis of its large exposures to assess          requirements and limits are complied with.
the impact of changes in market conditions         Breaches of prescribed requirements and
or key risk factors (e.g., economic cycles,        deviations from established policies and
interest rate, liquidity conditions or other       limits should be reported to senior
market movements) on its profile and               management in a timely manner.
earnings.                                               c. Unsafe and unsound practice
     (9) It is expected that QBs would                  Non-observance of the principles and
generally observe a lower internal SBL than        the requirements of Items “a” and “b” above
the prescribed limit of twenty-five percent        may be a ground for a finding of unsafe
(25%) as a matter of sound practice.               and unsound practice under Section 56 of
     b. Monitoring of large exposures/credit       R.A. No. 8791 (Appendix Q-24) and may
risk concentrations                                be subject to appropriate sanction as may
     (1) QBs should have a central liability       be determined by the Monetary Board.
record (preferably based on automated                   d. Notification requirements
system) for each loan exposure. QBs                     A QB must inform BSP immediately
should be able to monitor such exposures           where it has concerns that its large
against prescribed and internal limits on a        exposures or credit risk concentrations
daily basis.                                       have the potential to impact materially upon
     (2) Every QB should have adequate             its capital adequacy, along with proposed
management information and reporting               measures to address these concerns.
systems that enable management to                       e. Reporting
identify credit risk concentrations within              QB’s records on monitoring of large
the asset portfolio of the QB or of the group      exposures shall be made available to the BSP
(including subsidiaries and overseas               examiners for verification at any given time.
branches) on a timely basis. If a                  When warranted, the BSP may impose
concentration does exist, QBs should               additional reporting requirements on QB in
reduce it in accordance with their                 relation to its large exposures and credit risk
prescribed policies. Large exposures shall         concentrations.
be subject to more intensive monitoring.                f. Sanction
     (3) QBs should ensure that their                   Any failure or delay in complying with
internal or external auditors conduct at least     the requirements under Items “d” and “e”
an annual review of the quality of large           of this Subsection shall be subject to
exposures and controls to safeguard against        penalty applicable to those involving
credit risk concentrations. Their review           major reports.
should ascertain whether:                          (As amended by Circular No. 640 dated 16 January 2009)




Manual of Regulations for Non-Bank Financial Institutions                               Q Regulations
                                                                                       Part III - Page 3
§§ 4302Q - 4303Q
08.12.31

Sec. 4302Q Loan Portfolio and Other Risk                           The specific allowance for probable
Assets Review System. To ensure that timely                    losses for classified loans and other risk
and adequate management action is taken                        assets and the general loan loss provision
to maintain the quality of the loan portfolio                  as required in Appendix Q-10 shall be set
and other risk assets and that adequate loss                   up immediately.
reserves are set up and maintained at a level
sufficient to absorb the loss inherent in the                      § 4302Q.2 Sanctions. Non-compliance
loan portfolio and other risk assets, QBs shall                with the requirement to book the valuation
establish a system of identifying and                          reserves required under the preceding
monitoring existing or potential problem                       Subsection shall be a ground for the
loans and other risk assets and of evaluating                  imposition of any or all of the following
credit policies vis-a-vis prevailing                           sanctions:
circumstances and emerging portfolio                               a. Denial of requests for authority to
trends. Management must also recognize that                    establish branches/offices; and
loss reserve is a stabilizing factor and that                      b. Fine of P5,000 a day, counted as
failure to account appropriately for losses                    follows:
or make adequate provisions for estimated                          (1) from the date the QB was
future losses may result in misrepresentation                  informed that the recommendation of the
of the QB’s financial condition.                               appropriate department of the SES was
     The system of identifying and monitoring                  confirmed by the Monetary Board up to
problem loans and other risk assets and                        the date that said recommended valuation
setting up of allowance for probable losses                    reserves were actually booked, in case
shall include, but is not limited to, the                      of the allowance for probable losses for
guidelines in Appendix Q-10.                                   loans and other risk assets classified as
(As amended by Circular Nos. 622 dated 16 September 2008 and   Substandard (Unsecured), Doubtful and
520 dated 20 March 2006)                                       Loss as required by the BSP; and
                                                                   (2) from the dates prescribed under the
    § 4302Q.1 Provisions for losses;                           preceding Subsection up to the date of the
booking. The board of directors of QBs are                     actual booking in cases of the two percent
responsible for ensuring that their                            (2%) general provision for probable loan
institutions have controls in place to                         losses, the twenty-five percent (25%)
determine the allowance for probable losses                    allowance for probable losses on secured
on loans, other credit accommodations,                         loans classified as Substandard, and the five
advances and other assets consistent with                      percent (5%) allowance for probable losses
the institutions’ stated policies and                          on Loans Especially Mentioned.
procedures, generally accepted accounting
principles (GAAP), the BSP rules and                                    A. LOANS IN GENERAL
regulations and the safe and sound banking
practices. The board of directors, in fulfilling               Sec. 4303Q (2008 - 4306Q) Loan Limit to a
this responsibility, shall require                             Single Borrower. The total liabilities of any
management to develop and maintain an                          person, company, corporation or firm, to a
appropriate, systematic and uniformly                          QB for money borrowed, excluding (a)
applied process consistent and in                              loans secured by obligations of the BSP
compliance with existing BSP rules and                         or of the Philippine Government; (b) loans fully
regulations to determine the amount of                         guaranteed by the government as to the
reserves for bad debts or doubtful accounts                    payment of principal and interest; (c) loans
or other contingencies.                                        fully secured by US Treasury Notes and other



Q Regulations                                        Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 4
                                                                              §§ 4303Q - 4303Q.5
                                                                                         08.12.31

securities issued by central governments            of a commercial paper issuer for
and central banks of foreign countries with         commercial papers held by a QB as a firm
the highest credit quality given by any two         underwriter shall not be counted in
(2) internationally accepted rating agencies;       determining compliance with the SBL
(d) loans to the extent covered by the hold-        within a period of 180 days from the
out on or assignment of, deposits                   acquisition of the commercial paper by a
maintained in the lending QB and held in            QB: Provided, That in no case shall such
the Philippines; (e) loans and acceptances          liabilities exceed five percent (5%) of the net
under letters of credit to the extent covered       worth of the selling agent beyond the normal
by margin deposits; and (f) other loans or          applicable SBL.
credits which the Monetary Board may,
from time to time, specify as non-risk                   § 4303Q.2 (2008 - 4306Q.2) Contingent
assets, shall at no time exceed twenty-five         liabilities included in loan limit. Outstanding
percent (25%) of the combined capital               foreign and domestic standby and deferred
accounts as defined in Sec. 4111Q.                  letters of credit less margin deposits, and
     The total liabilities of any borrower may      outstanding guarantees, the nature of which
amount to a further fifteen percent (15%)           requires the guarantor to assume the
of the combined capital accounts of such            liabilities/obligations of third parties in case
QB: Provided, That the additional liabilities       of their inability to pay, shall be included in
are adequately secured by real estate               determining the SBL except those fully
mortgage, assignment or pledge of readily           secured by cash, hold-out on deposit
marketable bonds and other high-grade               substitutes, or government securities.
debt securities, except those issued by the
lending entity.                                         §§4303Q.3 - 4303Q.4 (Reserved)
     For purposes of this Section, the term
liabilities shall mean the direct liability of           § 4303Q.5 (2008 - 4306Q.3) Sanctions
the maker or acceptor of paper discounted           Violations of the provisions of the foregoing
with or sold to such QB and the liability of        rules shall be subject to the following
the endorser, drawer or guarantor who               sanctions/penalties:
obtains a loan from or discounts paper with              a. Fines. Fines of one-tenth of one
or sells papers under his guaranty to such          percent (1/10 of 1%) of the excess but not
QB and shall include in the case of liabilities     to exceed P30,000 a day for each violation,
of a co-partnership or association, the             reckoned from the date the excess started
liabilities of the several members thereof and      up to the date when such excess was
shall include, in the case of liabilities of a      eliminated, shall be assessed on the QB.
corporation, all liabilities of its subsidiaries:        b. Other sanctions
Provided, That even in cases where the                   First Offense
parent corporation, co-partnership or                    Reprimand for the directors/officers
association has no liability to the QB, the         who approved the credit line or availment
liabilities of subsidiary corporations or           which resulted in the excess with a warning
members of the co-partnership or association        that subsequent violations will be subject
shall be combined for purposes of the single        to more severe sanctions.
borrower’s limit (SBL).                                  Subsequent offenses
                                                         (1) For the duration of each violation,
   § 4303Q.1 (2008 - 4306Q.1) Exclusions            imposition of a fine of P500 a day for each of
from loan limit. In addition to those               the directors/officers who approved the credit
enumerated in Sec. 4303Q, the total liabilities     line or availment which resulted in an excess.



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part III - Page 5
§§ 4303Q.5 - 4304Q.1
08.12.31

    (2) Suspension of the QB from branching         The consistency of the data/figures in said
privileges until the excess is eliminated.          ITRs and financial statements shall also be
                                                    checked and considered in the evaluation of
Sec. 4304Q (2008 - 4312Q) Grant of Loans and        the financial capacity and creditworthiness of
Other Credit Accommodations. The following          credit applicants. The waiver of
regulations shall be observed in the grant of       confidentiality of client information and/or
loans and other credit accommodations.              an authority of the QB to conduct random
                                                    verification with the BIR need not be
     § 4304Q.1 (2008 - 4312Q.1) General             submitted annually since once submitted
guidelines. Consistent with safe and sound          these documents remain valid unless
business practices, a QB shall grant loans          revoked.
or other credit accommodations only in                   Should the document(s) submitted prove
amounts and for the periods of time                 to be spurious or incorrect in material detail,
essential for the effective completion of the       the QB may terminate any loan or other
operation to be financed.                           credit accommodation granted on the basis
     Before granting loans or other credit          of said document(s) and shall have the right
accommodations, a QB must ascertain that            to demand immediate repayment or
the borrower, co-maker, endorser, surety            liquidation of the obligation. Moreover, the
and/or guarantor, if applicable, is/are             QB may seek redress from the court for any
financially capable of fulfilling his/their         harm done by the borrower’s submission
commitments to the QB. For this purpose,            of spurious documents.
a QB shall obtain adequate information on                The required submission of additional
his/their credit standing and financial             documents shall cover loans, other credit
capacities.                                         accommodations, and credit lines granted,
     In addition to the usual information sheet     restructured, renewed or extended after
about the borrower, a QB shall require from         02 November 2006 including any availment
the credit applicant the following:                 and/or re-availment against existing credit
     a. A copy of the latest Income Tax             lines, except:
Return (ITR) of the borrower and his                     (1) Microfinance loans. This represents
co-maker, if applicable, duly stamped as            small loans granted to the basic sectors such
received by the BIR;                                as farmer-peasant, artisanal fisherfolk,
     b. Except as otherwise provided by             workers in the formal and informal sector,
law and in other regulations, if the                migrant workers, indigenous peoples and
borrower is engaged in business, a copy             cultural communities, women, differently-
of the borrower’s latest financial statements       abled persons, senior citizens, victims of
as submitted for taxation purposes to the           calamities and disasters, youth and students,
BIR; and                                            children, and urban poor, as defined in the
     c. A waiver of confidentiality of client       Social Reform and Poverty Alleviation Act
information and/or an authority of the QB           of 1997 (R.A. No. 8425), and other loans
to conduct random verification with the BIR         granted to poor and low-income
in order to establish authenticity of the ITR       households for their microenterprises and
and accompanying financial statements               small businesses. The maximum principal
submitted by the client.                            amount of microfinance loans shall not
     The documents under Items “a” and ”b”          exceed P150,000 and may be amortized
above shall be required to be submitted             on a daily, weekly, semi-monthly or
annually for as long as the loan and/or             monthly basis, depending on the cash flow
credit accommodation is outstanding.                conditions of the borrowers. Said loans are



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 6
                                                                                 §§ 4304Q.1 - 4304Q.2
                                                                                              08.12.31

usually unsecured, for relatively short                 Consumer loans, with original amounts
periods of time (180 days) and often               not exceeding P2.0 million, are exempted
featuring joint and several guarantees of one      from updating requirements or the required
(1) or more persons;                               annual submission of the same requirements
     (2) Loans to registered BMBEs;                forwarded during the initial submission
     (3) Interbank loans;                          under this Subsection but not in their
     (4) Loans secured by hold-outs on or          restructuring, renewal, or extensions or
assignment of deposits or other assets             availment/re-availment against existing
considered non-risk by the Monetary Board;         credit lines: Provided, That these loans are
     (5) Loans to individuals who are not          supported by ITRs or by BIR Form 2316 or
required to file ITRs under BIR regulations,       payslips for at least three (3) months
as follows:                                        immediately preceding the date of loan
     (a) Individuals       whose        gross      application, and financial statements
compensation income does not exceed their          submitted for taxation purposes to the BIR,
total personal and additional exemptions,          as may be applicable, at the time the loans
or whose compensation income derived               were granted, restructured, renewed, or
from one (1) employer does not exceed              extended.
P60,000 and the income tax on which has                 For purposes of this Subsection, the
been correctly withheld;                           following definitions shall apply:
     (b) Those whose income has been                    1. Micro and small enterprises shall be
subjected to final withholding tax;                defined as any business activity or enterprise
     (c) Senior citizens not required to file a    engaged in industry, agribusiness and/or
return pursuant to R.A. No. 7432, as               services whether single proprietorship,
amended by R.A. No. 9257, in relation to           cooperative, partnership or corporation
the provisions of the National Internal            whose total assets, inclusive of those arising
Revenue Code (NIRC) or the Tax Reform              from loans but exclusive of the land on
Act of 1997; and                                   which the particular business entity’s office,
     (d) An individual who is exempt from          plant and equipment are situated, must have
income tax pursuant to the provisions of the       a value of up to P3.0 million and P15.0
NIRC and other laws, general or special; and       million respectively, or as may be defined
     (6) Loans to borrowers, whose only            by the SMED Council or other competent
source of income is compensation and the           government agency.
corresponding taxes on which has been                   2. Consumer loans is defined to include
withheld at source: Provided, That the             housing loans, loans for purchase of car,
borrowers submitted, in lieu of the ITR, a         household appliance(s), furniture and fixtures,
copy of their Employer’s Certificate of            loans for payment of educational and hospital
Compensation Payment/Tax Withheld (BIR             bills, salary loans and loans for personal
Form 2316) or their payslips for at least three    consumption, including credit card loans.
(3) months immediately preceding the date          (As amended by Circular Nos. 622 dated 16 September 2008 and
of loan application.                               549 dated 09 October 2006)
     Loans to micro and small enterprises
which are not specifically exempted from               § 4304Q.2 (2008 - 4312Q.2) Purpose
the additional documentary requirements            of     loans      and    other     credit
specified under the third paragraph of this        accommodations. Before granting a loan
Subsection shall be exempted from said             or other credit accommodation, QBs shall
additional documentary requirement up to           ascertain the purpose of the loan or other
31 December 2011.                                  credit accommodation which shall be



Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                          Part III - Page 7
§§ 4304Q.2 - 4305Q.3
08.12.31

clearly stated in the application and in the                  Sec. 4305Q (2008 - 4307Q) Interest and
contract between the QB and borrower.                         Other Charges. The following rules shall
The proceeds of a loan or other credit                        govern the rates of interest on loans by QBs.
accommodation shall be utilized only for
the purpose(s) stated in the application and                      § 4305Q.1 (2008 - 4307Q.6) Rate of
contract; otherwise, the QB may terminate                     interest in the absence of stipulation. The
the loan or other credit accommodation                        rate of interest for the loan or forbearance
and demand immediate repayment of the                         of any money, goods or credit and the rate
obligation. Notwithstanding the                               allowed in judgments, in the absence of
preceding sentence, the proceeds of a loan                    express contract as to such rate of interest,
or other credit accommodation may be                          shall be twelve percent (12%) per annum.
utilized by the borrower for a purpose(s)
other than that originally stated in the                          § 4305Q.2 (2008 - 4307Q.5) Escalation
application and contract: Provided, That                      clause; when allowable. Parties to an
such other purpose(s) is/are among those                      agreement pertaining to a loan or
for which the lending QB may grant                            forbearance of money, goods or credits may
loans and other credit accommodations                         stipulate that the rate of interest agreed upon
under existing laws and regulations:                          may be increased in the event that the
Provided, further, That such utilization                      applicable maximum rate of interest is
shall be with prior written approval of                       increased by law or by the Monetary Board:
duly authorized officer(s)/committee/                         Provided, That such stipulation shall be valid
board of directors of the lending QB and                      only if there is also a stipulation in the
such written approval shall form part of                      agreement that the rate of interest agreed
the contract between the QB and the                           upon shall be reduced in the event that the
borrower.                                                     applicable maximum rate of interest is
(Circular No. 622 dated 16 September 2008)                    reduced by law or by the Monetary Board:
                                                              Provided, further, That the adjustment in the
    § 4304Q.3 (2008 - 4312Q.3) Prohibited                     rate of interest agreed upon shall take effect
use of loan proceeds. QBs are prohibited                      on or after the effectivity of the increase or
from requiring their borrowers to acquire                     decrease in the maximum rate of interest.
shares of stock of the lending QB out of the
loan or other credit accommodation                                § 4305Q.3 (2008 - 4307Q.2) Floating
proceeds from the same QB.                                    rates of interest. The rate of interest on a
(Circular No. 622 dated 16 September 2008)                    floating rate loan during each interest period
                                                              shall be stated based on the Manila Reference
    § 4304Q.4 (2008 - 4312Q.4) Signatories                    Rate (MRR), Treasury Bill Rate (TBR) or other
QBs shall require that loans and other credit                 market-based reference rates, plus a margin
accommodations be made under the                              as may be agreed upon by the parties.
signature of the principal borrower and,                          The MRRs for various interest periods
in the case of unsecured loans and other                      shall be determined and announced by the
credit accommodations to an individual                        BSP every week and shall be based on the
borrower, at least one (1) co-maker, except                   weighted average of the interest rates paid
that a co-maker is not required when the                      during the immediately preceding week by
principal borrower has the financial                          the ten (10) commercial banks with the
capacity and a good track record of paying                    highest combined levels of outstanding
his obligations.                                              deposit substitutes and time deposits, in
(As amended by Circular No. 622 dated 16 September 2008)      promissory notes issued and time deposits



Q Regulations                                       Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 8
                                                                          §§ 4305Q.3 - 4305Q.4
                                                                                       08.12.31

received by such banks, of P100,000 and                Interest on non-performing loan
over per transaction account, with maturities      accounts shall be taken up as income only
corresponding to the interest periods for          when actual payments thereon are received.
which such MRRs are being determined.                  Interest income on past due loans arising
Such rates and the composition of the sample       from discount amortization (and not from
commercial banks shall be reviewed and             the contractual interest of the accounts) shall
determined at the beginning of every               be accrued as provided in PAS 39.
calendar semester on the basis of the banks’           b. Interest earned on an extended or
combined levels of outstanding deposit             renewed loans may be accrued: Provided,
substitutes and time deposits as of May 31         That there is no previously accrued but
or November 30, as the case may be.                uncollected interest thereon.
     The rate of interest on floating rate loans       Interest income on restructured loans
existing and outstanding as of 23 December         (principal plus capitalized interest thereon)
1995 shall continue to be determined on            may be accrued: Provided, That these are:
the basis of the MRRs obtained in                      (1) In current status; and
accordance with the provisions of the rules            (2) Fully secured by real estate with loan
existing as of 01 January 1989: Provided,          value of up to sixty percent (60%) of the
however, That the parties to such existing         appraised value of the real estate security
floating rate loan agreement are not               and the insured improvements thereon, and
precluded from amending or modifying their         such other first class collaterals as may be
loan agreements by adopting a floating rate        deemed appropriate by the Monetary Board.
of interest determined on the basis of TBR             c. Accrued interest earned but not yet
or other market-based reference rates.             collected/received shall not be considered
     Where the loan agreement provides for         as profits and/or earnings eligible for
a floating interest rate, the interest period,     dividend declaration and/or profit sharing.
which shall be such period of time for which           d. A contra account to be designated
the rate of interest is fixed, shall be such       Allowance for Uncollected Interest on
period as may be agreed upon by the parties.       Loans shall be set up in accordance with
                                                   Appendix 10 if accrued interest receivable
    § 4305Q.4 (2008 - 4307Q.7) Accrual             on loans or loan installments is still
of interest earned on loans. QBs are               uncollected after three (3) months from the
allowed to accrue interest earned on loans,        date such loans and loan installments
subject to the following guidelines and/or         have matured or have become non-
procedures.                                        performing.
    a. No accrual of interest income is                e. The amount representing Allowance
allowed if a loan has become non-                  for Uncollected Interest on Loans may be
performing as defined in Sec. 4309Q.               chargeable against the excess of outstanding
Likewise, interest income shall not be             valuation reserves for loans and other risk
accrued for unmatured loans/receivables            assets as appearing in the QB’s books over
with indications that collectibility thereof       those recommended by the appropriate
has become doubtful. These indications             department of the SES. The balance thereof,
include declaration of bankruptcy,                 if any, shall be chargeable against
insolvency, cessation of operations, or such       operations.
other conditions of financial difficulties or          f. For all purposes, the Allowance for
inability to meet financial obligations as         Uncollected Interest on Loans shall be
they mature. Separate appropriate records          considered a valuation reserve/allowance
shall be maintained for these non-accruing         against the Accrued Interest Receivable
unmatured loans.                                   account.


Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                  Part III - Page 9
§§ 4305Q.5 - 4306Q.1
08.12.31

    § 4305Q.5 (2008 - 4307Q.1) Rate                   months from date of grant, whichever comes
ceilings. The rate of interest, including             earlier;
commissions, premiums, fees and other                      b. Bills discounted and time loans,
charges on loan transactions, regardless of           whether or not representing availments
maturity and whether secured or unsecured,            against a credit line - if not paid on the
shall not be subject to any ceiling.                  respective maturity dates of the promissory
                                                      notes;
     § 4305Q.6 (2008 - 4307Q.3) Effect of                  c. Customers’ liability on drafts under
prepayment. If there is no agreement on the           letters of credit/trust receipts:
rebate of interest in the event of prepayment              (1) Sight Bills - if dishonored upon
of the loan, the QB is not under any legal            presentment for payment or not paid within
obligation to return the interest                     thirty (30) days from date of original entry,
corresponding to the period from date of              whichever comes earlier;
prepayment to the stipulated maturity date                 (2) Usance Bills - if dishonored upon
of the loan. Any prepayment made by the               presentment for acceptance or not paid on
debtor should not, therefore, affect                  due date, whichever comes earlier; and
computation of the effective rate stipulated               (3) Trust Receipts - if not paid on due
in the loan contract.                                 date.
                                                           d. Bills and other negotiable
    § 4305Q.7 (2008 - 4307Q.4) Loan                   instruments purchased - if dishonored upon
prepayment. The borrower of a QB shall not            presentment for acceptance/payment or not
be prohibited from prepaying a loan. A                paid on maturity date, whichever comes
stipulation requiring the consent of the              earlier: Provided, however, That an out-of-
lending QB to such prepayment shall be                town check and a foreign check shall be
contrary to this provision. In case of                considered as past due if outstanding for
prepayment in the loan contract, such                 thirty (30) days and forty-five (45) days,
prepayment shall not be subject to penalty            respectively, unless earlier dishonored;
in the absence of any stipulation as to                    e. Loans/receivables payable in
penalty. However, the parties may stipulate           installments - the total outstanding balance
that prepayment shall be subject to penalty:          thereof shall be considered past due in
Provided, That the penalty is not excessive           accordance with the following schedule:
or unconscionable.
                                                                                Minimum Number
                                                      Mode of Payment      of Installments in Arrears
Sec. 4306Q (2008 - 4308Q) Past Due                        Monthly                        3
Accounts. Past due accounts of a QB shall, as             Quarterly                      1
a general rule, refer to all accounts in its loan         Semestral                      1
portfolio, all receivable components of trading           Annual                         1
account securities and other receivables, as
defined in the manual of accounts for NBFIs,          Provided, however, That when the total
which are not paid at maturity.                       amount of arrearages reaches twenty
                                                      percent (20%) of the total outstanding
   § 4306Q.1 (2008 - 4308Q.1) Accounts                balance of the loan/receivable, the total
considered past due. The following shall be           outstanding balance of the loan/
considered as past due:                               receivable shall be considered as past
   a. Loans or receivables payable on                 due, regardless of the number of
demand - if not paid on the date indicated            installments in arrears: Provided, further,
on the demand letter, or within three (3)             That for modes of payment other than those



Q Regulations                               Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 10
                                                                          §§ 4306Q.1 - 4306Q.5
                                                                                       08.12.31

listed above (e.g. daily, weekly or                against allowance for probable losses
semi-monthly), the entire outstanding              (valuation reserves) or current operations as
balance of the loan/receivable shall be            soon as they are satisfied that such loans,
considered as past due when the total              other credit accommodations, advances and
amount of arrearages reaches ten percent           other assets are worthless as follows:
(10%) of the total loan/receivable balance;             (1) In the case of secured loans, QBs
      For this purpose, the term installments      may write-off loans, other credit
shall refer to principal and/or interest           accommodations and other assets in an
amortizations that are due on several dates as     amount corresponding to the booked
indicated/specified in the loan documents.         valuation reserves: Provided, That the
    f. Credit card receivables - if the            balance of the secured loans, other credit
amount due is not paid within ten (10) days        accommodations, advances and other assets
from the deadline indicated in the billing         shall remain in the books.
statement; and                                          (2) In the cases of unsecured loans,
    g. (Deleted by Circular No. 202                other credit accommodations, advances and
dated 27 May 1999)                                 other assets, QBs shall write-off said loans,
      For the purpose of determining               other credit accommodations, advances and
delinquency in the payment of obligations          other assets in full amount outstanding.
as defined in Subsec. 4143Q.1(e), any due               However, write-off of loans, other credit
and unpaid loan installment or portion             accommodations, advances and other assets
thereof, from the time the obligor defaults,       considered transactions with DOSRI shall
shall be considered as past due.                   be with prior approval of the Monetary
                                                   Board.
    § 4306Q.2 (2008 - 4308Q.4) Demand                   b. Definitions. For purposes of this
loans. QBs shall, in case of non-payment of a      Section, the following terms are hereby
demand loan, make a written demand within          defined as follows:
three (3) months following the grant of such            (1) Loans. The term loans shall refer to
loan. The demand shall indicate a period of        all the accounts under the loan portfolio of
payment which shall not be later than three        a QB as enumerated in the Manual of
(3) months from the date of said demand.           Accounts for Quasi-Banks.
                                                        (2) Other credit accommodations. The
    § 4306Q.3 (2008 - 4308Q.2) Renewal/            term other credit accommodations shall refer
extension. No loan shall be renewed nor            to exposures of QBs other than loans such
its maturity date extended unless the              as sales contract receivables, accounts
corresponding accrued interest receivable          receivables, accrued interest receivables,
shall have been paid.                              lease receivables, and rental receivables.
                                                        (3) Advances. The term advances shall
    § 4306Q.4 (2008 - 4308Q.3) Restructured        refer to any advance by means of an
loans. A restructured loan shall be                incidental or temporary overdraft, cash
immediately classified past due in case of         “vale”, any advance by means of DAUD
default of any principal or interest payment.      and any advances of unearned salary or
                                                   unearned compensation.
    § 4306Q.5 (2008 - 4308Q.5) Write-off                (4) Other assets. The term other assets
of loans as bad debts                              shall refer to investments, placements,
    a. QBs, upon approval by their board           ROPAs and all other asset accounts that will
of directors, may write-off loans, other credit    not fall under loans and other credit
accommodations, advances and other assets          accommodations.



Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 11
§§ 4306Q.5 - 4307Q.1
08.12.31

    (5) Bad debts. The term bad debts shall               The following regulations shall apply to
refer to the definition under Subsec.                 all QBs engaged in the following types of
4136Q.1.                                              credit transactions:
    c. Reporting requirements. Notice of                  a. Any loan, mortgage, deed of trust,
write-off of loans, other credit                      advance and discount;
accommodations, advances and other                        b. Any conditional sales contract, any
assets shall be submitted in the prescribed           contract to sell, or sale or contract of sale of
form to the appropriate department of the             property or services, either for present or
SES at least twenty five (25) banking days            future delivery, under which part or all of
prior to the intended date of write-off.              the price is payable subsequent to the
    The income tax expense deferred                   making of such sale or contract;
corresponding to the amount of loan, other                c. Any rental-purchase contract;
credit accommodation, advances and other                  d. Any contract or arrangement for the
asset written-off considered deductible for           hire, bailment, or leasing of property;
income tax purposes shall be recognized                   e. Any option, demand, lien, pledge,
and reversed in QB’s books.                           or other claim against, or for delivery of
                                                      property or money;
     § 4306Q.6 (Reserved)                                 f. Any purchase, or other acquisition
                                                      of, or any credit upon the security of, any
    § 4306Q.7 (2008 - 4308Q.6) Updating               obligation or claim arising out of any of the
of information provided to credit                     foregoing; and
information bureaus. QBs which have                       g. Any transaction or series of
provided adverse information, such as the             transactions having a similar purpose or effect.
past due or litigation status of loan accounts,           The following categories of credit
to credit information bureaus, or any                 transactions are outside the scope of these
organization performing similar functions,            regulations:
shall submit monthly reports to these bureaus             (1) Credit transactions which do not
or organizations on the full payment or               involve the payment of any finance charge
settlement of the previously reported                 by the debtor; and
accounts within five (5) business days from               (2) Credit transactions in which the
the end of the month when such full payment           debtor is the one specifying a definite and
was received. For this purpose, it shall be           fixed set of credit terms such as bank deposits,
the responsibility of the reporting QBs to            insurance contracts, sale of bonds, etc.
ensure that their disclosure of any
information about their borrowers/clients                 § 4307Q.1 (2008 - 4309Q.1) Definition
is with the consent of borrowers/clients              of terms
concerned.                                                a. Person means any individual,
(Circular No. 589 dated 18 December 2007)             partnership, corporation, association, or
                                                      other organized group of persons, or the
Sec. 4307Q (2008 - 4309Q) “Truth in                   legal successor or representative of the
Lending Act” Disclosure Requirement                   foregoing, and includes the Philippine
QBs are required to strictly adhere to the            Government or any agency thereof, or any
provisions of R.A. No. 3765, otherwise                other government, or any of its political
known as the “Truth in Lending Act”, and              subdivisions, or any agency of the foregoing.
shall make the true and effective cost of                 b. Cash price or delivered price, in
borrowing an integral part of every loan              case of trade transactions, is the amount of
contract.                                             money which would constitute full



Q Regulations                               Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 12
                                                                                      §§ 4307Q.1 - 4307Q.2
                                                                                                   08.12.31

payment upon delivery of the property                          In the case of single payment upon
(except money) or service purchased at the                 maturity, the simple annual rate (R) in percent
QB’s place of business. In the case of                     is determined by the following method:
financial transactions, cash price represents
the amount of money received by the debtor                     finance charge      12
upon consummation of the credit                            R = amount to be x maturity period          x 100
transaction, net of finance charges collected                     financed     in months
at the time the credit is extended, if any.
     c. Down payment represents the                            In the case of the normal installment type
amount paid by the debtor at the time of the               of credit of at least one (1) year in duration,
transaction in partial payment for the                     where installment payments of equal amount
property or service purchased.                             are made in regular time periods spaced not
     d. Trade-in represents the value of an                more than one (1) year apart, the R in percent
asset agreed upon by the QB and debtor,                    is computed by the following method:
given at the time of the transaction as partial                                    number of
payment for the property or service                                                payments
purchased.                                                         finance charge in a year
     e. Non-finance charges correspond to                  R = 2 x amount to be x total number          x 100
the amounts advanced by the QB for items                              financed     of payments
normally associated with the ownership of                                          plus one
the property or the availment of the service
purchased which are not incidental to the                      In cases where the credit matures in less
extension of credit. For example, in the case              than one (1) year (e.g., installment payments
of the purchase of an automobile on credit,                are required every month for six (6) months),
the QB may advance the insurance premium                   the same formula will apply except that
as well as the registration fee for the account            number of payments in a year would refer
of the debtor.                                             to the number of installment periods, as
     f. Amount to be financed consists of                  defined in the credit contract, as if the credit
the cash price plus non-finance charges less               matures in one (1) year. For example,
the amount of the down payment and value                   number of payments in a year would be
of the trade-in.                                           twelve (12) for this purpose in cases where
     g. Finance charge represents the                      six (6) monthly installment payments are
amount to be paid by the debtor incidental                 called for in the credit transaction1. In cases
to the extension of credit such as interest                where credit terms provide for premium or
or discount, collection fee, credit                        penalty charges depending on, for instance,
investigation fee, attorney’s fee and other                the timeliness of the debtor’s payments, the
service charges.                                           annual rate to be disclosed in writing shall
     The total finance charge represents the               be the rate for regular payments, i.e., the
difference between (i) the aggregate                       premium and penalty need not be taken into
consideration (down payment plus                           account in the determination of the annual
installments) on the part of the debtor, and               rate. Such premium or penalty charges shall,
(ii) the sum of the cash price and non-                    however, be indicated in the credit contract.
finance charges.
     h. Simple annual rate is the uniform                      § 4307Q.2 (2008 - 4309Q.2) Information
percentage which represents the ratio, on                  to be disclosed. QBs shall furnish to each
an annual basis, between the finance                       person to whom credit is extended, prior to
charges and amount to be financed.                         the consummation of the transaction, a clear

1
  This can be determined by dividing twelve, the number of months in a year, by the number or fraction of months
between installment payments.
Manual of Regulations for Non-Bank Financial Institutions                                     Q Regulations
                                                                                            Part III - Page 13
§§ 4307Q.2 - 4309Q.1
08.12.31

statement in writing setting forth the                  § 4307Q.4 (2008 - 4309Q.4) Posters
following information:                              An abstract of R.A. No. 3765 (Appendix
     a. The cash price or delivered price           Q-12) shall be reproduced in a format sixty
of the property or service to be acquired;          (60) cm. wide and seventy-five (75) cm. long
     b. The amounts, if any, to be credited         and posted on a conspicuous place in the
as down payment and/or trade-in;                    QB’s place(s) of business.
     c. The difference between the amounts
set forth under Items “a” and “b”;                  Sec. 4308Q       (Reserved)
     d. The charges, individually itemized,
which are paid or to be paid by such person         Sec. 4309Q (2008 - 4311Q) Non-
in connection with the transaction but which        Performing Loans
are not incident to the extension of credit;
     e. The total amount to be financed;                 § 4309Q.1 (2008 - 4311Q.1) Accounts
     f. The finance charges expressed in            considered non-performing; definitions
terms of pesos and centavos; and                         a. Non-performing loans (NPLs) shall,
     g. The percentage that the finance charge      as a general rule, refer to loan accounts
bears to the total amount to be financed            whose principal and/or interest is unpaid
expressed as a simple annual rate on the            for thirty (30) days or more after due date
outstanding unpaid balance of the obligation.       or after they have become past due in
     The contract covering the credit               accordance with existing rules and regulations.
transaction, or any other document to be            This shall apply to loans payable in lump sum
acknowledged and signed by the debtor,              and loans payable in quarterly, semi-annual
shall indicate the above seven (7) items of         or annual installments, in which case, the total
information. In addition, the contract or           outstanding balance thereof shall be
document shall specify additional charges,          considered non-performing.
if any, which will be collected in case                  b. In the case of loans payable in
certain stipulations in the contract are not        monthly installments, the total outstanding
met by the debtor.                                  balance thereof shall be considered
     In case the seven (7) items of                 non-performing when three (3) or more
information mentioned are not disclosed in          installments are in arrears.
the contract covering the credit transaction,            c. In the case of loans payable in daily,
all of the items, to the extent applicable,         weekly or semi-monthly installments, the
shall be disclosed in another document in           total outstanding balance thereof shall be
the form (Appendix Q-11) prescribed by the          considered non-performing at the same
Monetary Board, to be signed by the debtor          time that they become past due in
and appended to the main contract. A copy           accordance with Sec. 4306Q, i.e., the entire
of such disclosure statement shall be               outstanding balance of the loan/receivable
furnished to the borrower.                          shall be considered as past due when the
                                                    total amount of arrearages reaches ten
    § 4307Q.3 (2008 - 4309Q.3) Inspection           percent (10%) of the total loan/ receivable
of contracts covering credit transactions.QBs       balance.
shall keep in their office or place of business          d. Restructured loans shall be
copies of contracts which involve the               considered non-performing in accordance
extension of credit and the payment of              with existing rules and regulations.
finance charges therefore. Such copies shall             e. All items in litigation as defined in
be available for inspection or examination          the Manual of Accounts shall be considered
by the appropriate department of the SES.           NPLs.



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 14
                                                                                 §§ 4309Q.2 - 4320Q.1
                                                                                              08.12.31

    § 4309Q.2 (2008 - 4311Q.2) Interest            co-maker, except that a co-maker is not
accrual on past due loans. No accrual of           required when the principal borrower has
interest income is allowed if a loan has           the financial capacity and a good track
become non-performing as defined under             record of paying his obligations.
Subsec. 4322Q.1. Interest on NPLs shall be         (As amended by Circular No. 622 dated 16 September 2008)
taken up as income only when actual
payment thereon is received.                           § 4319Q.1 (2008 - 4336Q.1) General
    Interest income on past due loans arising      guidelines
from discount amortization (and not from              (Deleted by Circular No. 622 dated
the contractual interest of the accounts) shall    16 September 2008)
be accrued as provided in PAS 39.
                                                       § 4319Q.2 (2008 - 4336Q.2) Proof of
    § 4309Q.3 (2008 - 4311Q.3) Allowance           financial capacity of borrower
for uncollected interest on loans. A contra           (Deleted by Circular No. 622 dated
account to be designated Allowance for             16 September 2008)
Uncollected Interest on Loans shall be set
up in accordance with Appendix Q-10 if                  § 4319Q.3 (2008 - 4336Q.3) Signatories
accrued interest receivable on loans and              (Deleted by Circular No. 622 dated
loan installments is still uncollected after       16 September 2008)
three (3) months from the date such loans
have become non-performing.                             § 4319Q.4 (2008 - 4336Q.4) (Reserved)

    § 4309Q.4 (2008 - 4311Q.4) Reporting           Sec. 4320Q (2008 - 4337Q) Credit Card
requirement. QBs shall report the following        Operations; General Policy. The BSP shall
data at the end of each month as additional        foster the development of consumer credit
information in the monthly Consolidated            through innovative products such as credit
Statement of Condition starting with their         cards under conditions of fair and sound
report as of 31 May 1999.                          consumer credit practices. The BSP likewise
                                                   encourages competition and transparency to
Total non-performing loans          xxx            ensure more efficient delivery of services and
  Non -performing regular loans     xxx            fair dealings with customers.
  Non -performing restructured loan xxx                 Towards this end, the following rules and
                                                   regulations shall govern the credit card operations
Sec. 4310Q - 4313Q (Reserved)                      of QBs and subsidiary/affiliate credit card
                                                   companies, aligned with global best practices.
               B. (RESERVED)
                                                        § 4320Q.1 (2008 - 4337Q.1) Definition
Secs. 4314Q - 4318Q (Reserved)                     of terms
                                                        a. Credit card. Means any card, plate,
         C. UNSECURED LOANS                        coupon book or other credit device existing
                                                   for the purpose of obtaining money, property,
Sec. 4319Q (2008 - 4336Q) Loans Against            labor or services on credit.
Personal Security. The grant, renewal,                  b. Credit card receivables. Represents
restructuring or extension of unsecured loans      the total outstanding balance of credit
shall, in addition to the requirements of          cardholders arising from purchases of goods
Sec. 4304Q, be made under the signature of         and services, cash advances, annual
the principal borrower and, at least one (1)       membership/renewal fees as well as interest,



Manual of Regulations for Non-Bank Financial Institutions                                 Q Regulations
                                                                                        Part III - Page 15
§§ 4320Q.1 - 4320Q.2
08.12.31

penalties, insurance fees, processing/service      more of the outstanding voting stock of the
fees and other charges.                            entity, or vice-versa;
     c. Minimum amount due or minimum                  (2) Interlocking directorship or
payment required. Means the minimum                officership, except in cases involving
amount that the credit cardholder needs to         independent directors as defined under
pay on or before the payment due date for a        existing regulations;
particular billing period/cycle as defined             (3) Common stockholders owning
under the terms and conditions or reminders        at least ten percent (10%) of the
stated in the statement of account/billing         outstanding voting stock of each FI and
statement which may include: (1) total             the entity; or
outstanding balance multiplied by the                  (4) Management contract or any
required payment percentage or a fixed             arrangement granting power to the
amount whichever is higher; (2) any amount         QB or other FI to direct or cause the
which is part of any fixed monthly                 direction of management and policies of the
installment that is charged to the card; (3)       entity, or vice-versa.
any amount in excess of the credit line; and
(4) all past due amounts, if any.                      § 4320Q.2 (2008 - 4337Q.2) Risk
     d. Default or delinquency. Shall mean         management system. To safeguard their
non-payment of, or payment of any amount           interests, QBs and subsidiary/affiliate
less than, the “Minimum Amount Due” or             credit card companies are required to
“Minimum Payment Required” within two              establish an appropriate system for
(2) cycle dates, in which case, the “Total         managing risk exposures from credit card
Amount Due” for the particular billing             operations which shall be documented in
period as reflected in the monthly statement       a complete and concise manner. The risk
of account may be considered in default or         management system shall cover the
delinquent.                                        organizational set-up, records and reports,
     e. Acceleration clause. Shall mean any        accounting, policies and procedures and
provision in the contract between the QB           internal control.
and the cardholder that gives the QB the               Written policies, procedures and
right to demand the obligation in full in case     internal control guidelines shall be
of default or non-payment of any amount            established on the following aspects of
due or for whatever valid reason.                  credit card operations:
     f. Subsidiary refers to a corporation             a. Requirements for application;
or firm more than fifty percent (50%) of               b. Solicitation and application
the outstanding voting stock of which is           processing;
directly or indirectly owned, controlled or            c. Determination and approval of
held with the power to vote by a QB or             credit limits;
other FI.                                              d. Pre-approved cards;
     g. Affiliate refers to an entity linked           e. Issuance, distribution and activation
directly or indirectly to a QB or other FI         of cards;
through any one or a combination of any of             f. Supplementary or extension cards;
the following:                                         g. Cash advances;
     (1) Ownership, control or power to                h. Billing and payments;
vote, whether by permanent or temporary                i. Deferred payment program or
proxy or voting trust, or other similar            special installment plans;
contracts, by a QB or other financial                  j. Collection of past due accounts;
institution of at least ten percent (10%) or           k. Handling of accounts for write-off;



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 16
                                                                          §§ 4320Q.2 - 4320Q.4
                                                                                       08.12.31

    l. Suspension, cancellation and                     § 4320Q.4 (2008 - 4337Q.4)
withdrawal or termination of card;                 Information to be disclosed. QBs or their
    m. Renewal of cards, upgrade or                subsidiaries/affiliate credit card companies
downgrade of credit limit;                         shall disclose to each person to whom the
    n. Lost or stolen cards and their              credit card privilege is extended in the
replacement;                                       agreement, contract or any equivalent
    o. Accounts of DOSRI and                       document governing the issuance or use of
employees;                                         the credit card or any amendment thereto
    p. Disposition of errors and/or                or in such other statement furnished to the
questions about the billing statement/             cardholder from time to time, prior to the
statement of account and other customers’          imposition of the charges and to the extent
complaints; and                                    applicable, the following information:
    q. Dealings with marketing agents/                  a. non-finance charges, individually
collection agents.                                 itemized, which are paid or to be paid by
                                                   the cardholder in connection with the
     § 4320Q.3 (2008 - 4337Q.3) Minimum            transaction but which are not incident to
requirements. Before issuing credit cards,         the extension of credit;
QBs and/or their subsidiary/affiliate credit            b. the percentage that the interest bears
card companies must exercise proper                to the total amount to be financed expressed
diligence by ascertaining that applicants          as a simple monthly or annual rate, as the
possess good credit standing and are               case may be, on the outstanding balance of
financially capable of fulfilling their credit     the obligation;
commitments. The net take home pay of                   c. the effective interest rate per annum;
applicants who are employed, the net                    d. for installment loans, the number of
monthly receipts of those engaged in trade         installments, amount and due dates or
or business, or the net worth or cash flow         periods of payment schedules to repay the
inferred from deposits of those who are            indebtedness;
neither employed nor engaged in trade or                e. the default, late payment/penalty
business or the credit behavior exhibited          fees or similar delinquency-related charges
by the applicant from his other existing           payable in the event of late payments;
credit cards, or other lifestyle indicators             f. the conditions under which interest
such as but not limited to club                    may be imposed, including the time period,
memberships, ownership and location of             within which any credit extended may be
residence and motor vehicle ownership              repaid without interest;
shall be determined and used as basis for               g. the method of determining the
setting credit limits. The gross monthly           balance upon which interest and/or
income may also be used provided                   delinquency charges may be imposed;
reasonable deductions are estimated for                 h. the method of determining the
income taxes, premium contributions, loan          amount of interest and/or delinquency
amortizations and other deductions.                charges, including any minimum or fixed
     All credit card applications, especially      amount imposed as interest and/or
those solicited by third party                     delinquency charge;
representatives/agents, shall undergo a                 i. where one (1) or more periodic rates
strict credit risk assessment process and          may be used to compute interest, each such
the information stated thereon validated           rate, the range of balances to which it is
and verified by persons other than those           applicable, and the corresponding simple
handling marketing.                                annual rate;



Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 17
§§ 4320Q.4 - 4320Q.9
08.12.31

     j. other fees, such as membership/                   § 4320Q.8 (2008 - 4337Q.8) Late
renewal fees, processing fees, collection             payment/penalty fees. No late payment or
fees, credit investigation fees and attorney’s        penalty fee shall be collected from
fees; and                                             cardholders unless the collection thereof is
     k. for transactions made in foreign              fully disclosed in the contract between the
currencies and/or outside the Philippines,            issuer and the cardholder: Provided, That
for dual currency accounts (peso and dollar           late payment or penalty fees shall be based
billings), as well as payments made by credit         on the unpaid minimum amount due or a
cardholders in any currency other than the            prescribed minimum fixed amount:
billing currency: the application of                  Provided, further, That said late payment
payments; the manner of conversion from               or penalty fees may be based on the total
the transaction currency and payment                  outstanding balance of the credit card
currency to Philippine pesos or billing               obligation, including amounts payable
currency; definition or general description           under installment terms or deferred
of verifiable blended exchange/conversion             payment schemes, if the contract between
rates (e.g., MASTERCARD and/or VISA                   the issuer and the cardholder contains an
International rates on the day the item was           “acceleration clause” and the total
processed/posted to the billing statement,            outstanding balance of the credit card is
plus markup, if any) including conversion             classified and reported as past due.
commission; and/or other currency
conversion charges and costs arising from                 § 4320Q.9 (2008 - 4337Q.9)
the purchase by the card company of foreign           Confidentiality of information. QBs and
currency to settle the customer’s transactions        subsidiary/affiliate credit card companies
shall also be disclosed.                              shall keep strictly confidential the data on
                                                      the cardholder or consumer, except under
    § 4320Q.5 (2008 - 4337Q.5) Accrual                the following circumstances:
of interest earned. Interest accrued and/or               a. disclosure of information is with the
booked shall be reversed and no accrual of            consent of the cardholder or consumer;
interest shall be allowed ninety (90) days                b. release, submission or exchange of
after the credit card receivable has become           customer information with other FIs, credit
past due as defined in Subsec. 4306Q.1.               information bureaus, credit card issuers,
                                                      their subsidiaries and affiliates;
    § 4320Q.6 (2008 - 4337Q.6) Finance                    c. upon orders of court of competent
charges. The amount of finance charges in             jurisdiction or any government office or
connection with any credit card transaction           agency authorized by law, or under such
shall refer to interest charged to the cardholder.    conditions as may be prescribed by the
                                                      Monetary Board;
    § 4320Q.7 (2008 - 4337Q.7) Deferral                   d. disclosure to collection agencies,
charges. The QB and the cardholder may,               counsels and other agents of the QB or card
prior to the consummation of the                      company to enforce its rights against the
transaction, agree in writing to a deferral of        cardholder;
all or part of one (1) or more unpaid                     e. disclosure to third party service
installments and the QB may collect a                 providers solely for the purpose of assisting
deferral charge which shall not exceed the            or rendering services to the QB or card
rate previously disclosed pursuant to the             company in the administration of its credit
provisions on disclosure.                             card business; and




Q Regulations                               Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 18
                                                                         §§ 4320Q.9 - 4320Q.14
                                                                                       08.12.31

     f. disclosure to third parties such as             § 4320Q.13 (2008 - 4337Q.13)
insurance companies, solely for the purpose        Handling of complaints. QBs or subsidiary/
of insuring the QB from cardholder default         affiliate credit card companies shall give
or other credit loss, and the cardholder from      cardholders at least twenty (20) calendar
fraud or unauthorized charges.                     days from statement date to examine
                                                   charges posted in his/her statement of
     § 4320Q.10 (2008 - 4337Q.10)                  account and inform the QB/subsidiary
Suspension, termination of effectivity and         credit card companies in writing of any
reactivation. QBs or their subsidiary/affiliate    billing error or discrepancy. Within ten
credit card companies shall formulate              (10) calendar days from receipt of such
criteria or parameters for suspension,             written notice, the QB/subsidiary credit
revocation and reactivation of the right to        card company shall send a written
use the card and shall include in their            acknowledgement to the cardholder unless
contract with cardholders a provision              the action required is taken within such ten
authorizing the issuer to suspend or terminate     (10)-day period.
its effectivity, if circumstances warrant.              Not later than two (2) billing cycles or
                                                   two (2) months which in no case shall
    § 4320Q.11 (2008 - 4337Q.11)                   exceed ninety (90) days after receipt of the
Inspection of records covering credit card         notice and prior to taking any action to
transactions. QBs or their subsidiary/affiliate    collect the contested amount, or any part
credit card companies shall make available         thereof, QBs/subsidiary credit card
for inspection or examination by the               companies shall make appropriate
appropriate department of the SES complete         corrections in their records and/or send a
and accurate files on card applicant/              written explanation or clarification to the
cardholder to support the consideration for        cardholder after conducting an
approval of the application and                    investigation. Nothing in this Subsection
determination of the credit limit which shall      shall be construed to prohibit any action
be in accordance with the verified debt            by the QB/subsidiary credit card company
repayment ability and/or net worth of the          to collect any amount which has not been
card applicant/cardholder.                         indicated by the cardholder to contain a
                                                   billing error or apply against the credit limit
    § 4320Q.12 (2008 - 4337Q.12) Offsets           of the cardholder the amount indicated to
For purposes of transparency and adequate          be in error.
disclosure, the credit card issuer shall
inform/notify the credit cardholder in the             § 4320Q.14 (2008 - 4337Q.14) Unfair
agreement, contract or any equivalent              collection practices. QBs, subsidiary/
document governing the issuance or use of          affiliate credit card companies,
the credit card that, pursuant to the              collection agencies, counsels and other
provisions of Articles 1278 to 1290 of the         agents may resort to all reasonable and
New Civil Code of the Philippines, as              legally permissible means to collect
amended the use of his credit card will            amounts due them under the credit card
subject his deposit/s with the QB to offset        agreement: Provided, That in the exercise
against any amount/s due and payable on            of their rights and performance of duties,
his credit card which have not been paid in        they must observe good faith and
accordance with the terms of the agreement/        reasonable conduct and refrain from
contract.                                          engaging in unscrupulous or untoward acts.




Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 19
§§ 4320Q.14 - 4322Q.1
08.12.31

Without limiting the general application of        Sec. 4321Q (Reserved)
the foregoing, the following conduct is a
violation of this Subsection:                              D. RESTRUCTURED LOANS
    a. the use or threat of violence or other
criminal means to harm the physical person,        Sec. 4322Q (2008 - 4351Q) Restructured
reputation, or property of any person;             Loans; General Policy. QBs shall have full
    b. the use of obscenities, insults, or         discretion in the restructuring of loans in
profane language which amount to a criminal        order to provide flexibility in arranging the
act or offense under applicable laws;              repayment of such loans without impairing
    c. disclosure of the names of credit           or endangering the lending QB’s financial
cardholders who allegedly refuse to pay debts,     interest, except in special cases approved
except as allowed under Subsec. 4320Q.9;           by the Monetary Board such as loans funded
    d. threat to take any action that cannot       partly or wholly by foreign currency
legally be taken;                                  obligations. However, the restructuring of
    e. communicating or threat to                  loans granted to DOSRI shall be upon terms
communicate to any person credit                   not less favorable to the QB than those
information which is known to be false,            offered to others. While agreements on loan
including failure to communicate that a debt       restructuring should be considered as
is being disputed;                                 management tools to maintain or improve
    f. any false representation or deceptive       the soundness of the QB’s lending
means to collect or attempt to collect any         operations, these should be drawn mainly
debt or to obtain information concerning a         to assist borrowers towards the settlement
cardholder; and                                    of their loan obligations, taking into account
    g. making contact at unreasonable/             their capacity to pay.
inconvenient times or hours which shall be
defined as contact before 6:00 A.M. or after           § 4322Q.1 (2008 - 4351Q.1)
10:00 P.M., unless the account is past due         Definition; when to consider performing/
for more than sixty (60) days or the               non-performing. Restructured loans are
cardholder has given express permission or         loans the principal terms and conditions of
said times are the only reasonable or              which have been modified in accordance
convenient opportunities for contact.              with a restructuring agreement setting forth
                                                   a new plan of payment or a schedule of
     § 4320Q.15 (2008-4337Q.15)                    payment on a periodic basis. The
Sanctions. Violations of the provisions of         modification may include, but is not
this Section shall be subject to any or all of     limited to, change in maturity, interest
the following sanctions depending upon their       rate, collateral or increase in the face
severity:                                          amount of the debt resulting from the
     a. Disqualification of the QB                 capitalization of accrued interest/
concerned from the credit facilities of the        accumulated charges. Items in litigation
BSP except as may be allowed under Section         and loans subject of judicially-approved
84 of R.A. No. 7653;                               compromise, as well as those covered by
     b. Prohibition of the QB concerned            petitions for suspension or for new plans of
from the extension of additional credit            payment approved by the court or the
accommodation against personal security;           SEC, shall not be classified as restructured
and                                                loans.
     c. Penalties and sanctions provided               A loan which is restructured shall be
under Sections 36 and 37 of R.A. No. 7653.         considered non-performing except:



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 20
                                                                           §§ 4322Q.1 - 4322Q.2
                                                                                        08.12.31

     (1) When the loan is current and                   (1) the basis of or justification for the
performing (i.e., with updated principal and       approval;
interest payments) on the date of                       (2) determination of the borrower’s
restructuring, in which case, the loan shall       capacity to pay, such as viability of the
retain its performing status; and                  business; and
     (2) Fully secured by real estate with loan         (3) the nature and extent of protection
value of up to sixty percent (60%) of the          of the QB’s exposure.
appraised value of the real estate security             The authority to approve the
and the insured improvements thereon, and          restructuring of loans may be delegated by
such other first class collaterals as may be       the QB’s board of directors to a committee
deemed appropriate by the Monetary Board:          or officer(s): Provided, That there are board-
Provided, That a restructured loan, with or        prescribed guidelines specifically on
without capitalized interest, must be yielding     restructuring of loans: Provided, further, That
a rate of interest equal to or greater than the    said guidelines shall be submitted to the
QB’s average cost of funds at the date of          appropriate department of the SES within
restructuring, otherwise, it shall be considered   thirty (30) days following the date of
non-performing.                                    approval thereof. However, loans previously
     The restoration to a performing loan          approved by the executive committee as well
shall only be effective after a satisfactory       as those granted to DOSRI shall be subject
track record of payments of the required           to approval by the board as provided under
amortizations of principal and/or interest         existing rules and regulations. Loans
has been established.                              restructured other than those approved by
     For this purpose, a satisfactory track        the board shall be reported to it for
record of payments of principal and/or             confirmation.
interest shall mean three (3) consecutive               b. A second restructuring of a loan
payments of the required amortizations of          shall be allowed only if there are reasonable
principal and/or interest have been made.          justifications: Provided that it shall be
However, in the case of a restructured loan        considered a non-performing loan and
with capitalized interest but not fully            classified, at least, “Substandard”. The
secured by real estate with loan value of up       restoration to a performing loan status
to sixty percent (60%) of the appraised value      and/or the upgrading of loan classification,
of the real estate security and the insured        e.g., from “Substandard” to “Loans
improvements thereon or other first class          Especially Mentioned”, if circumstances
collaterals, six (6) consecutive payments of       warrant an upgrading in accordance with
the required amortizations of principal and/       the criteria under Appendix Q-10, shall
or interest must have been made.                   only be allowed after a satisfactory track
     A restructured loan which has been            record of at least six (6) consecutive
restored to a performing loan status shall be      payments of the required amortization of
immediately considered non-performing in           principal and/or interest has been
case of default of any principal or interest       established.
payment in accordance with Sec. 4306Q.                  c. In the restructuring process, the QB
                                                   shall encourage the borrower to improve the
    § 4322Q.2 (2008 - 4351Q.2) Procedural          quality of the loan either by strengthening
requirements                                       financial capacity or providing additional
    a. A loan may be restructured subject          collateral.
to the approval of the QB’s board of                    The real estate security and/or other first
directors in a resolution which shall              class collaterals offered shall be appraised
embody, among other things:                        at the time of restructuring to ensure that


Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part III - Page 21
§§ 4322Q.2 - 4326Q
08.12.31

current market values are being used. Real          Provided, further, That restructured loans
estate security shall be appraised by an            with capitalized interest shall be classified,
independent appraisal company acceptable            at least, “Substandard” and the required
to the BSP and shall be reappraised every           valuation reserves shall be set up
year thereafter.                                    accordingly: Provided, finally, That a more
     The term “first class collaterals” refers      adverse classification may be given, i.e.,
to assets and securities which have relatively      “Substandard”, “Doubtful” or “Loss”, if the
stable and clearly definable value and/or           circumstances warrant it as provided under
greater liquidity and are free from lien/           Appendix Q-10.
encumbrance, such as:                                    The upgrading of loan classification, e.g.,
     (1) Real estate;                               from “Substandard” to “Loans Especially
     (2) Evidences of indebtedness of the           Mentioned”, if circumstances warrant an
Republic of the Philippines and of the BSP,         upgrading in accordance with the criteria
and other evidences of indebtedness or              in Appendix Q-10, shall only be effective
obligations the servicing and repayment of          after a satisfactory track record of payments
which are fully guaranteed by the Republic          of the required amortizations of principal
of the Philippines;                                 and/or interest has been established.
     (3) Hold-out on and/or assignment of                For this purpose, a satisfactory track
deposit substitutes maintained in the lending       record of payments of principal and/or
institutions;                                       interest shall mean three (3) consecutive
     (4) “Blue chip” shares of stocks, except       payments of the required amortizations of
those issued by the lending entity or by its        principal and/or interest have been made.
parent company which owns more than fifty           However, in the case of a restructured loan
percent (50%) of its outstanding shares of          with capitalized interest but not fully
stocks. For this purpose, the issuer                secured by real estate with loan value of
corporation must be a listed corporation with       up to sixty percent (60%) of the appraised
a net worth of at least P1.0 billion and with       value of the real estate security and the
annual net earnings during the immediately          insured improvements thereon or other
preceding five (5) years; and                       first class collaterals, six (6) consecutive
     (5) Such other collaterals that the            payments of the required amortizations of
Monetary Board may declare as first class           principal and/or interest must have been
collaterals from time to time.                      made.
     It is understood that the loan value to be
assigned the collateral shall be as prescribed      Secs. 4323Q - 4325Q (Reserved)
under existing regulations.
                                                              E. LOANS/CREDIT
    § 4322Q.3 (Reserved)                              ACCOMMODATIONS TO DIRECTORS,
                                                        OFFICERS, STOCKHOLDERS AND
    § 4322Q.4 (2008 - 4351Q.3)                            THEIR RELATED INTERESTS
Classification. The classification of a loan
prior to restructuring, e.g., “Loans Especially     Sec. 4326Q (2008 - 4356Q) General
Mentioned”, “Substandard” or “Doubtful”             Policy. Dealings of a QB with any of its
shall be retained: Provided, That a loan that       DOSRI shall be in the regular course of
is not classified but which is non-performing       business and upon terms not less
prior to restructuring shall be classified, at      favorable to the QB than those offered
least, “Loans Especially Mentioned”:                to others.




Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 22
                                                                             §§ 4326Q - 4326Q.1
                                                                                        08.12.31

     No QB shall grant, renew or extend any             e. Book value of the paid-in capital
credit accommodation to its DOSRI                  contribution shall mean the proportional
whenever its combined capital accounts is          amount of the QB’s total capital accounts (net
deficient relative to risk assets held under       of such unbooked valuation reserves and other
Sec. 4115Q, or whenever its paid-in capital        capital adjustments as may be required by the
is deficient relative to the required minimum      BSP) as the corresponding paid-in capital
capitalization. Neither shall it grant, renew      contribution of each director, officer or
or extend any credit accommodation to any          stockholder concerned bears to the total paid-
of its DOSRI who has past due credit               in capital of the QB: Provided, That as a basis
accommodations with the QB.                        for determining the individual ceiling
                                                   referred to in Sec. 4330Q, corresponding
     § 4326Q.1 (2008 - 4356Q.1)                    book value of the shares of stock of such
Definitions. For purposes of these                 director, officer or stockholder which are
regulations, the following definitions shall       the subject of pledge, assignment or any
apply.                                             other encumbrance shall be deducted
     a. Directors shall refer to QB directors      therefrom.
as defined in Sec. 4141Q.                               f. Secured loan, borrowing, or credit
     b. Officers shall refer to QB officers as     accommodation shall refer to any loan,
defined in Sec. 4142Q.                             discount, credit or advance, or portion
     c. Stockholder shall refer to any             thereof referred to in Sec. 4327Q which is
stockholder of record in the books of the          secured by real estate mortgage, chattel
QB/trust entity, acting personally, or through     mortgage on tangible assets, standby letters
an attorney-in-fact; or any other person duly      of credit issued by foreign banks,
authorized by him or through a trustee             assignments of or hold-out on deposit
designated pursuant to a proxy or voting           substitutes issued by the lending entity, cash
trust or other similar contracts, whose            margin deposits, assignment or pledge of
stockholdings in the lending QB/trust entity,      government securities or readily marketable
individual and/or collectively with the            bonds and other highgrade debt securities
stockholdings of: (i) his spouse and/or            except those issued by the lending entity,
relative within the first degree by                or by its parent company which owns more
consanguinity or affinity or legal adoption;       than fifty percent (50%) of its outstanding
(ii) a partnership in which the stockholder        shares of stocks, or receivables arising from
and/or the spouse and/or any of the                financial leases to the extent of the guaranty
aforementioned relatives is a general              deposit plus sixty percent (60%) of the
partner; and (iii) corporation, association or     remaining value of the leased equipment.
firm of which the stockholder and/or his           For this purpose, the remaining value of the
spouse and/or the aforementioned                   equipment under lease shall be determined
relatives own more than fifty percent (50%)        by dividing the acquisition cost by the
of the total subscribed capital stock of such      original term of the lease and multiplying
corporation, association or firm, amount to        the resulting ratio by the unexpired portion
one percent (1%) or more of the total              of the term.
subscribed capital stock of the QB/trust                For investment houses with
entity.                                            quasi-banking functions, a secured loan,
     d. Outstanding loans to and                   borrowing or credit accommodation shall
placements with the QB shall refer to loans        likewise include:
to and deposit substitutes of the QB which              (1) Customer’s liability under import
are not subject of an assignment or                bills outstanding for not more than thirty
hold-out agreement.                                (30) days from date of original entry;


Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 23
§§ 4326Q.1 - 4328Q
08.12.31

     (2) Sales contract receivable arising out          f. The increase of an existing
of sale of real property on credit wherein          indebtedness, as well as additional
title to the property is retained by the QB;        availments under a credit line or additional
and                                                 drawings against a letter of credit;
     (3) Customer’s liability-import bills              g. The sale of assets, such as shares
under trust receipts outstanding for not            of stock, on credit;
more than thirty (30) days from date of                 h. Leasing transactions under R.A.
booking: Provided, That the booking under           No. 5980, as amended; and
trust receipts shall have been made not later           i. Any other transaction as a result of
than the thirty-first (31st) day from the date      which a director, officer or stockholder
of original entry referred to in Sub-item (1)       becomes obligated or may become
above.                                              obligated to the lending QB, directly or
     g. Unsecured loan, borrowing or                indirectly, by any means whatsoever to pay
credit accommodation shall refer to any             money or its equivalent.
loan, discount, credit or advance, or portion
thereof referred to in Sec. 4327Q which is          Sec. 4328Q (2008 - 4358Q) Transactions
not secured in accordance with Item “f”             Not Covered. The terms loan, borrow,
above.                                              money borrowed or credit accommodation
                                                    as used herein shall not refer to the
Sec. 4327Q (2008 - 4357) Transactions               following transactions:
Covered. The terms loan, borrow, money                   a. Advances against accrued
borrowed and credit accommodations as               compensation, or for the purpose of
used herein shall refer to transactions which       providing payment of authorized travel,
involve the grant, renewal, extension or            legitimate expenses or other transactions
increase of any loan, discount, credit or           for the account of the QB or for utilization
advance in any form whatsoever, and shall           of maternity and other leave credits;
include:                                                 b. The increase in the amount of
     a. Outstanding availments under an             outstanding credit accommodation as a
established credit line;                            result of additional charges or advances
     b. Drawings against an existing letter         made by the QB to protect its interests such
of credit;                                          as taxes, insurance, etc.;
     c. The acquisition by discount,                     c. The discount of bills of exchange
purchase, exchange or otherwise of any note,        drawn in good faith against actually existing
draft, bill of exchange or other evidence of        values, and the discount of commercial or
indebtedness upon which a director, officer         business paper actually owned by the
or stockholder may be liable as a maker,            person negotiating the same, including, but
drawer, acceptor, endorser, guarantor, or           not limited to, the acquisition of export bills
surety;                                             from any of its DOSRI which are drawn in
     d. Any advance of unearned salary or           accordance with the terms and conditions
unearned compensation for periods in excess         of the covering letters of credit: Provided,
of thirty (30) days;                                That the transaction shall automatically be
     e. Loans or other credit accommodations        subject to the ceiling as herein provided
granted by another FI to such director, officer     once the DOSRI who is a party to the
or stockholder from funds of the QB invested        transaction becomes directly liable to the
in the other institution’s trust or other           QB;
department when there is a clear                         d. Transactions with a foreign bank or
relationship between the transactions;              other FI which has stockholding in the QB



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 24
                                                                            §§ 4328Q - 4328Q.5
                                                                                       09.12.31

where the foreign bank or other FI acts as              § 4328Q.5 (2008 - 4328Q) Loans, other
guarantor through the issuance of letters of       credit accommodations and guarantees
credit, guarantee letters or assignment of a       granted to subsidiaries and/or affiliates
deposit in a currency eligible as part of the           a. Statement of policy. Dealings of a
international reserves and held in a bank          QB with its subsidiaries and/or affiliates
in the Philippines to secure credit                shall be in the regular course of business
accommodations granted to another                  and upon terms not less favorable to the
person or entity: Provided, That the foreign       institution than those offered to others.
bank stockholder shall automatically be                 b. Ceilings. The total outstanding
subject to the ceilings as herein provided         loans, other credit accommodations and
in the event that its contingent liability as      guarantees to each of the QB’s
guarantor becomes a real liability; and            subsidiaries and affiliates shall not exceed
    e. Deposits of a QB with a bank,               ten percent (10%) of the net worth of the
whether domestic or foreign, which has             lending QB: Provided, That the unsecured
stockholdings in the QB.                           loans, other credit accommodations and
                                                   guarantees to each of said subsidiaries and
    § 4328Q.1 (2008 - 4358Q.1) Applicability       affiliates shall not exceed five percent (5%)
to credit card operations. The credit card         of such net worth: Provided, further, That
operations of QBs shall not be subject to          the total outstanding loans, other credit
these regulations where the credit                 accommodations and guarantees to all
cardholder is a director, officer or               subsidiaries and affiliates shall not exceed
stockholder of the QB or their related             twenty percent (20%) of the net worth of
interests (DOSRI): Provided, That (a) the          the lending QB: Provided, finally, That these
privilege of becoming a credit cardholder          subsidiaries and affiliates are not related
is open to all qualified persons on the            interest of any of the director, officer, and/
basis of selective criteria which are              or stockholder of the lending institution,
applied by the QB to all applicants                except where such director, officer or
thereof; and (b) the director, officer or          stockholder sits in the board of directors or
stockholder/related interest concerned             is appointed officer of such corporation as
reimburses/pays the QB for the billed              representative of the QB.
amount in full on or before the payment                 Loans, other credit accommodations
due date in the billing or statement of            and guarantees granted by a QB to its
account, as set by the QB for all other            subsidiaries and affiliates engaged in energy
qualified credit cardholders on availments         and power generation consistent with the
made for the same period on their credit           medium-term Philippine development plan/
cards. However, the transaction shall be           medium-term public investment program of
subject to applicable DOSRI regulations            the National Government duly certified as
if the director, officer, or stockholder/          such by the secretary of the socio-economic
related interest concerned:                        planning shall be subject to a separate
    a. fails to reimburse/pay the QB within        individual limit of twenty-five percent (25%)
the period mentioned herein; or                    of the net worth of the lending QB: Provided,
    b. on the outset, opts for deferred            That the unsecured portion thereof shall not
payment scheme, and the availment is               exceed twelve and one-half percent (12.5%)
booked by the QB.                                  of such net worth: Provided, further, That
                                                   these subsidiaries and affiliates are not
Sec. 4328Q.2 - 4328Q.4 (Reserved)                  related interests of any of the director,




Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 25
§ 4328Q.5
09.12.31

officer, and/or stockholder of the lending            (c) Date of resolution;
QB, except where such director, officer or            (d) Names of the directors who
stockholder sits in the board of directors or     participated in the deliberation of the
is appointed officer of such corporation as       meeting; and
representative of the QB.                             (e) Names in print and signatures of the
     c. Exclusions from the ceilings.             directors approving the resolution: Provided,
Loans, other credit accommodations and            That in instances where a director who
guarantees secured by assets considered           participated in the board meeting and who
as non-risk under existing BSP regulations        approved such resolution failed to sign, the
as well as interbank call loans shall be          corporate secretary may issue a certification
excluded in determining compliance with           to this effect indicating the reason for the
the ceilings prescribed under Item “b”            failure of the said director to sign the
above.                                            resolution.
     d. Procedural requirements. The                  (5) Transmittal of copy of board
following provisions shall apply if a QB          approval; contents thereof. A copy of the
grants a loan, other credit accommodation         written approval of the board of directors,
or guarantee to any of its subsidiaries and       as herein required, shall be submitted to the
affiliates.                                       appropriate department of the SES within
     (1) Approval of the board, when to           twenty (20) business days from the date of
obtain. Except with prior written approval        approval. The copy may be a duplicate of
of the majority of all the members of the         the original, or a reproduction copy showing
board of directors, no loan, other credit         clearly the signatures of the approving
accommodation and guarantee shall be              directors: Provided, That if a reproduction
granted to a subsidiary or affiliate.             copy is to be submitted, it shall be duly
     (2) Approval by the board, how               certified by the corporate secretary that it is
manifested. The approval shall be                 a reproduction of the original written
manifested in a resolution passed by the          approval.
board of directors during a meeting and               e. Reportorial requirements. Each QB
made of record.                                   shall maintain a record of loans, other credit
     (3) Determination of majority of all the     accommodations and guarantees covered
members of the board of directors. The            by these regulations in a manner and form
determination of the majority of all the          that will facilitate verification of such
members of the board of directors shall be        transactions by BSP examiners.
based on the total number of directors of             The appropriate department of the SES
the QB as provided in its articles of             may require QBs to furnish such data or
incorporation and by-laws.                        information as may be necessary for
     (4) Contents of the resolution. The          purposes of implementing the provisions
resolution of the board of directors shall        of the foregoing rules.
contain the following information:                    f. Sanctions. Without prejudice to the
     (a) Name of the subsidiary or affiliate;     criminal sanctions under Section 36 of R.A.
     (b) Nature of the loan or other credit       No. 7653 (The New Central Bank Act), any
accommodation or guarantee, purpose,              violation of the provisions of the foregoing
amount, credit basis for such loan or other       rules shall be subject to any or all of the
credit accommodation or guarantee,                following sanctions:
security and appraisal thereof, maturity,             (1) Restriction or prohibition on the QB
interest rate, schedule of repayment and          from declaring dividends for non-
other terms;                                      compliance with the herein prescribed



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 26
                                                                                                   § 4328Q.5
                                                                                                     09.12.31

ceilings until the outstanding loans, other            accommodation or guarantee in excess of
credit accommodations and guarantees                   any of the ceilings prescribed above.
have been reduced to within the herein                     g. Transitory provisions. Outstanding
prescribed ceilings;                                   loans, other credit accommodation and
    (2) For the duration of each violation,            guarantees to subsidiaries/affiliates that will
imposition of a fine of one tenth (1/10) of            exceed the ceilings mentioned above shall
one percent (1%) of the excess over the                not be subject to penalty until 09 April 2007
ceilings per day but not to exceed P30,000             or until said accommodations become past
a day on the following:                                due, or are extended, renewed or
    (a) The lending QB;                                restructured, whichever comes later.
    (b) Each of the directors voting for the           (Circular No. 560 dated 31 January 2007, as amended by 654
approval of the loan, other credit                     dated 12 May 2009)



                                   (Next page is Part III - Page 27)




Manual of Regulations for Non-Bank Financial Institutions                                     Q Regulations
                                                                                           Part III - Page 26a
                                                                                         § 4329Q
                                                                                         08.12.31

Sec. 4329Q (2008 - 4359Q) Direct or                voting stock thereof is owned by any one
Indirect Borrowings. For purposes of this          (1) person or by persons related to each
Section, a credit accommodation shall be           other within the third degree of
considered a direct or indirect borrowing          consanguinity or affinity; or (ii) where the
in accordance with the following criteria.         director, officer or stockholder of the lending
     a. Direct borrowing - If the director,        QB sits as a representative of the QB in the
officer or stockholder of the lending              board of directors of such corporation:
QB is a party to any of the transactions           Provided, That the QB representative shall
enumerated in Sec. 4327Q for himself or            not have any equity interest in the borrower
as a representative or agent of others, or         corporation except for the minimum shares
if he acts as a guarantor, endorser or surety      required by law, rules and regulations, or
for loans from the QB, or if the loan or           by the by-laws of the corporation, to qualify
credit accommodation to another party is           a person as director of the corporation:
secured by a property interest or right of         Provided, further, That the borrowing
the director, officer or stockholder.              corporation under (i) or (ii) is not among
     b. Indirect borrowing - If in any of          those mentioned in Items “b(5)” and “b(6)”
the transactions in Sec. 4327Q the                 of this Section;
borrower, guarantor, indorser, or surety                (5) Corporation, association or firm of
is a:                                              which any or a group of directors, officers,
     (1) Spouse or relative within the first       stockholders of the lending QB and/or their
degree of consanguinity or affinity, or            spouses or relatives within the first degree
relative by legal adoption of a director,          of consanguinity or affinity or relative by
officer or stockholder of the QB;                  legal adoption, hold/own more than twenty
     (2) Partnership of which a director,          percent (20%) of the subscribed capital of
officer, or stockholder or his spouse or           such corporation, or of the equity of such
relative within the first degree of                association or firm; or
consanguinity or affinity, or relative by               (6) Corporation, association or firm
legal adoption, is a general partner;              wholly or majority-owned or controlled by
     (3) Co-owner with the director,               any or a group of related entities mentioned
officer, stockholder or his spouse or              in Items “b(2)”, “b(4)” and “b(5)” of this
relative within the first degree of                Section.
consanguinity or affinity, or relative by               Other cases of direct/indirect borrowing
legal adoption, of the property or interest        shall be resolved on a case-to-case basis.
or right mortgaged, pledged or assigned                 It shall be the responsibility of the
to secure the loans or credit                      QB concerned to ascertain whether the
accommodations, except when the                    borrower, guarantor, representative,
mortgage, pledge or assignment covers              endorser or surety is related to persons
only said co-owner’s undivided interest;           mentioned in Item “b(1)” of this Section
     (4) Corporation, association, or firm         or connected with any of the directors,
of which a director or officer of the QB,          officers or stockholders of the QB in any
or his spouse is also a director or officer        of the capacities mentioned in Items
of such corporation, association or firm,          “b(2)”, “b(3)”, “b(4)”, “b(5)” and “b(6)” of
except (i) where the securities of such            this Section.
corporation, association or firm are listed             In determining indirect borrowings as
and traded in the domestic stock exchange          enumerated above, only those cases
and less than fifty percent (50%) of the           involving living relatives shall be considered.




Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 27
§§ 4330Q - 4333Q
08.12.31

Sec. 4330Q (2008 - 4360Q) Individual                 In evaluating requests for extension of
Ceiling; Single- Borrower Limit. The total       loans in excess of the aggregate ceiling, the
outstanding direct credit accommodations         BSP shall consider the credit standing of the
to each of the QB’s directors, officers or       borrower, viability of the projects financed
stockholders, excluding those granted under      by such loans in relation to national
officers’ fringe benefit plans, shall not        objectives, collateral or security and other
exceed, at any time, an amount equivalent        pertinent considerations.
to the unencumbered portion of his loans
to, and placements with, the QB and the          Sec. 4332Q (2008 - 4362Q) Exclusions
book value of his paid-in capital                from Aggregate Ceiling. The following credit
contribution in the lending QB: Provided,        accommodations shall be excluded in
That unsecured credit accommodations to          determining compliance with the
each of the QB’s directors, officers or          aggregate ceiling:
stockholders shall not exceed thirty                  a. Credit accommodations to the
percent (30%) of his total credit                extent covered by a hold-out on, or
accommodations.                                  assignment of, deposit substitutes in the
    Notwithstanding the provisions of            lending QB, or covered by cash margin
this Section, credit accommodations of           deposits or secured by evidences of
a QB to any one of its directors, officers,      indebtedness of the Republic of the
stockholders or their related interests          Philippines or of the Bangko Sentral, or by
shall not exceed the SBL prescribed for          other evidences of indebtedness or
QBs.                                             obligations, the servicing and repayment
                                                 of which are fully guaranteed by the
Sec. 4331Q (2008 - 4361Q) Aggregate              Republic of the Philippines;
Ceiling; Ceiling On Unsecured                         b. Credit accommodations to a
Loans. Except with prior approval of the         corporate stockholder which meets all the
Monetary Board, the total outstanding            following conditions:
borrowings of directors, officers, or                 (1) The corporation is a non-financial
stockholders, whether direct or                  institution;
indirect,shall not exceed 100% of                     (2) Its shares are listed and traded in the
combined capital accounts, net of deferred       domestic stock exchanges;
income tax as defined in Item “i” of Subsec.          (3) Its stockholdings in the lending QB
4116Q.2 and such unbooked valuation              do not exceed thirty percent (30%) of the
reserves and other capital adjustments as        voting stock of the QB; and
may be required by the BSP: Provided,                 (4) No person or group of persons
That in no case shall the total unsecured        related within the first degree of
direct and indirect borrowings of                consanguinity or affinity holds/owns more
directors, officers, and stockholders            than twenty percent (20%) of the subscribed
exceed thirty percent (30%) of the               capital of the corporation; and
aggregate ceiling or the outstanding direct/          c. Credit accommodations granted
indirect loans thereto, whichever is lower.      under officers’ fringe benefit plans.
For the purpose of determining
compliance with the ceiling on unsecured         Sec. 4333Q (2008 - 4363Q) Credit
loans, QBs shall be allowed to average           Accommodations Under Officers’ Fringe
their ceiling on unsecured loans and             Benefit Plans. The aggregate outstanding
their outstanding unsecured loans every          liabilities to a QB of its officers, extended
week.                                            under officers’ fringe benefit plans for the



Q Regulations                          Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 28
                                                                              §§ 4333Q - 4336Q
                                                                                      08.12.31

purpose of house, car, and appliance               basis for such loan or credit accommodation,
financing, and meeting educational,                security and appraisal thereof, maturity,
medical, hospital, and other similar               interest rate, schedule of repayment, and
expenses, shall not exceed thirty percent          other terms of the loan or credit
(30%) of the combined capital accounts of          accommodation;
the lending entity: Provided, That QBs shall           (3) Date of the resolution;
submit, for record purposes, copies of their           (4) Names of the directors who were
officers’ fringe benefit plans to the              present and who participated in the
appropriate department of the BSP.                 deliberations of the meeting;
                                                       (5) Names in print and signatures of
Sec. 4334Q (2008 - 4364Q) Procedural               the directors approving the resolution:
Requirements. The following provisions             Provided, That the corporate secretary may
shall apply if a director or officer is a          sign, under a power-of-attorney, in behalf
party, directly or indirectly, to, or acts         of a director who was present in the board
as the representative or agent of, others          meeting and who approved such
in any of the transactions under Sec.              resolution, in instances where such
4327Q.                                             signature is necessary, to indicate that
    a. Approval of the board of directors;         such resolution was approved by a
when to obtain. Except with the prior              majority of the directors; and
written approval of the majority of the                (6) Such other information as may be
directors, excluding the director concerned,       required by the appropriate department of
no loan or other credit accommodation              the SES.
shall be granted nor any of the transactions           e. Transmittal of copy of board of
under Sec. 4327Q be entered into.                  directors’ approval; contents thereof. A
    b. Approval by the board; how                  copy of the written approval of the board
manifested. The approval shall be                  of directors, as herein required, shall be
manifested in a resolution passed by the           submitted to the appropriate department
board of directors duly assembled during a         of the SES within twenty (20) business
regular or special meeting for the purpose         days from the date of approval. The copy
and made of record.                                may be a duplicate of the original, or a
    c. Majority of the directors;                  reproduction copy showing clearly the
computation of. The computation of the             signatures of the approving directors:
majority of the directors, excluding the           Provided, That if a reproduction copy is
director concerned, shall be based on the          to be submitted, it shall contain, on its face
total number of directors of the QB, as            or reverse side, a signed certification by
provided in its articles of incorporation and      the secretary that it is a reproduction of
by-laws.                                           the original written approval.
    d. Contents of the resolution. The
resolution of the board of directors shall         Sec. 4335Q (Reserved)
contain the following information:
    (1) Name of the director or officer            Sec. 4336Q (2008 - 4365Q) Sanctions. Any
concerned and his relationship as regards          violation of the provisions of the foregoing
the credit accommodation, such as                  rules shall be subject to any or all of the
principal, endorser, spouse of borrower,           following sanctions:
etc.;                                                  a. Restriction or prohibition on the QB
    (2) Nature of the loan or other credit         from declaring dividends until the
accommodation, purpose, amount, credit             outstanding loans and other credit



Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 29
§§ 4336Q - 4340Q
08.12.31

accommodations have been reduced to                  guarantees granted to the National
within the herein prescribed ceilings;               Government or Republic of the Philippines,
     b. Disqualification of the directors            its     political     subdivisions      and
voting for the approval of the loan or credit        instrumentalities as well as GOCCs, subject
in excess of any of the ceilings prescribed in       to the following clarifications:
Secs. 4330Q and 4331Q from participating                  a. Loans, other credit accommodations,
in the approval of loans or credit to officers,      and guarantees to the Republic of the
directors, and stockholders of the QB:               Philippines and/or its agencies/departments/
Provided, however, That the disqualification         bureaus shall be considered: (1) non-risk;
may be lifted by the BSP, as the                     and (2) not subject to any ceiling;
circumstances warrant;                                    b. Loans, other credit accommodations,
     c. Application of (1) the borrowing             and/or guarantees to: (1) GOCCs; and
director’s or officer’s share in the QB’s profit     (2) corporations where the Republic of the
sharing program and (2) the share of the             Philippines, its agencies/departments/
director voting for the approval of the loan         bureaus, and/or GOCCs own at least
or credit accommodation against the excess           twenty percent (20%) of the subscribed
of such loan or credit accommodation over            capital stock shall be considered indirect
any of the herein prescribed ceilings for such       borrowings of the Republic of the
period of time as may be approved by the             Philippines and shall form part of the
Monetary Board; and                                  individual ceiling as well as the aggregate
     d. For the duration of each violation,          ceiling: Provided, That the following loans,
imposition of a fine of one-tenth of one             other credit accommodations, and/or
percent (1/10 of 1%) of the excess over the          guarantees to GOCCs and corporations
ceilings per day but not to exceed P30,000           where the Republic of the Philippines, its
a day on (1) the lending QB and the                  agencies/departments/bureaus, and/or
director, officer, or stockholder whose              GOCCs own at least twenty percent (20%)
borrowing exceeds his individual ceiling             of the subscribed capital stock, shall be
and (2) each of the directors voting for the         excluded from the thirty percent (30%)
approval of the loan or credit accommodation         ceiling on unsecured loans under Secs.
in excess of any of the ceilings prescribed          X330 and X331 of the MORB:
in Secs. 4330Q and 4331Q.                                 (1) Loans, other credit accommodations,
     The penalty for exceeding the individual        and/or guarantees for the purpose of
ceiling, aggregate ceiling and ceiling on            undertaking priority infrastructure projects
unsecured loans shall be computed on the             consistent with the Medium-Term
average amount of loans in excess of said            Development Plan/Medium-Term Public
ceilings during the same week.                       Investment Program of the National
                                                     Government, duly certified as such by the
Secs. 4337Q - 4339Q (Reserved)                       Secretary of Socio-Economic Planning;
                                                          (2) Loans, other credit accommodations,
Sec. 4340Q (2008 - 4366Q) Bank DOSRI                 and/or guarantees granted to participating
Rules and Regulations Applicable to                  financial institutions (PFIs) in the lending
Government Borrowings in Government-                 programs of the government wherein the
Owned or - Controlled Quasi-Banks. The               funds borrowed are intended for relending
provisions of Secs. X326 to X337 of the              to other PFIs or end-user borrowers; and
Manual of Regulations for Banks (MORB),                   (3) Loans, other credit accommodations,
to the extent applicable, shall also apply to        and/or guarantees granted for the purpose
loans, other credit accommodations, and              of providing (i) wholesale and retail loans



Q Regulations                              Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 30
                                                                                      §§ 4340Q - 4343Q
                                                                                              08.12.31

to the agricultural sector, and micro, small       as in the determination of majority of the
and medium enterprises (MSMEs); and/or (ii)        directors in cases of loans, other credit
rediscounting and guarantee facilities for         accommodations, and guarantees to the
loans granted to the said sector or                Republic of the Philippines and/or its
enterprises.                                       agencies/departments/bureaus; and
     c. Loans, other credit accommodations,            h. A director of the lending institution
and/or guarantees granted to state                 shall be excluded in the deliberation as
universities and colleges (SUCs) shall be          well as in the determination of majority of
excluded from the thirty percent (30%)             the directors in cases of loans, other credit
ceiling on unsecured loans under Secs.             accommodations, and guarantees to the
X330 and X331 of the MORB.                         borrowing government entity other than the
     d. In view of the fiscal autonomy             Republic of the Philippines, its agencies,
granted under R.A. No. 7653 and the                departments or bureaus where said director
independence prescribed under the                  is also a director, officer or stockholder
Constitution, the BSP shall be considered          under existing DOSRI regulations.
an independent entity, hence, not a related        (Circular No. 514 dated 06 March 2006 as amended by Circular
interest of the Republic of the Philippines        Nos. 635 dated 10 November 2008, 616 dated 30 July 2008,
and/or its agencies/departments/bureaus.           580 dated 09 September 2007)
Loans, other credit accommodations and
guarantees of the BSP shall be considered:                            F. (RESERVED)
(1) non-risk; and (2) not subject to any
ceiling;                                           Secs. 4341Q - 4342Q (Reserved)
     e. LGUs shall be considered separate
from the Republic of the Philippines, other                 G. SPECIAL TYPES OF LOANS
government entities, and from one another
due to the full autonomy in the exercise of        Sec. 4343Q (2008 - 4376Q) Interbank
their proprietary functions and in the             Loans. Interbank loan transactions shall
management of their economic enterprises           include, among other things, (a) interbank
granted to them under the Local                    call loan (IBCL) transactions; (b) borrowings
Government Code of the Philippines,                evidenced by deposit substitute instruments;
subject to certain limitations provided by         and (c) purchases of receivables with
law, hence, not a related interest of the          recourse: Provided, however, That only IBCL
Republic of the Philippines and/or its             transactions which are evidenced by interbank
agencies/departments/bureaus;                      loan advices or repayment transfer tickets the
     f. Local Water Districts (LWDs),              settlement of which is effected by the BSP in
although GOCCs, shall be considered                the QBs’ respective demand deposit accounts
separate from the Republic of the                  with the BSP shall be eligible to zero percent
Philippines, other government entities, and        (0%) reserve: Provided, further, That funds
from one another due to their fiscal               borrowed by QBs from trust departments of
independence from the national                     banks/investment houses shall be excluded
government, hence, not related interests of        from the herein definition of interbank loan
the Republic of the Philippines and/or its         transactions.
agencies/department/bureaus, for purposes               Interbank loan transactions not
of these regulations;                              evidenced by interbank loan advice or
     g. A director who acts as a government        repayment transfer tickets and submitted to
representative in the lending institution shall    the BSP Comptrollership Department shall
not be excluded in the deliberation as well        be reported to the BSP in the prescribed form.



Manual of Regulations for Non-Bank Financial Institutions                                 Q Regulations
                                                                                        Part III - Page 31
§§ 4343Q.1 - 4382Q
08.12.31

    § 4343Q.1 (2008 - 4376Q.1) Systems                      transfer of their excess funds which are not
and procedures for interbank call loan                      otherwise lent out in the interbank loan
transactions. IBCL transactions of QBs shall                market from their BSP reserve accounts to
be governed by the Agreement for the                        their operating accounts with their
PhilPaSS executed between the BSP and the                   depository banks.
Investment Houses Association of the                            The “Authority to Debit Slip” shall have
Philippines (IHAP) on 12 December 2002                      a standard size of 4 3/4" x 8 1/2" and shall
and any subsequent amendments thereto.                      be orange in color. It shall contain the
(As superseded by the agreement between the BSP and IHAP    minimum data or information as required
dated 12 December 2002)                                     and shall be accomplished and submitted
                                                            to the BSP Comptrollership Department in
    § 4343Q.2 (2008 - 4376Q.2) Accounting                   duplicate after having been duly signed
procedures                                                  and/or authenticated by authorized officers
    a. QBs shall immediately pass the                       of the QB.
corresponding entries in their books and,
upon receipt of a copy of the transfer                      Secs. 4344Q - 4380Q (Reserved)
instruction reported as matched in the
expanded MultiTransaction Interbank                                 H. EQUITY INVESTMENTS
Payment System (MIPS2 Plus), the
borrowing QB shall attach the same to the                   Sec. 4381Q Investment in Non-Allied
corresponding ticket debitings its Due from                 Undertakings. In order to avoid undue
BSP account in its books and, in the case                   concentration of economic power, the total
of the lending QB, to the same ticket                       equity investments in any single non-allied
passed in its books on the day payment is                   enterprise or industry of QBs, UBs and their
made.                                                       subsidiaries, whether or not the parent
    b. IBCL transactions shall be recorded                  financial intermediaries have equity
by the borrowing QB as Bills Payable -                      investments in the enterprise, shall, in any
Interbank Call Loans.                                       case, remain a minority in that enterprise,
    c. QBs shall reconcile their demand                     except as may be otherwise approved by
deposit accounts with the BSP against                       the President of the Philippines. Non-allied
monthly statements of account to be furnished               enterprises are those allowed for UBs in the
by the BSP Comptrollership Department.                      MORB.
                                                                Equity investments as of 01 April
   § 4343Q.3 (2008 - 4376Q.4) Settlement                    1980, which exceed the limitation under
procedures. Interbank loan transactions (call               this Section, may be retained but shall not
and term) among QBs shall be settled in                     be increased percentage-wise, and
accordance with the provisions of the                       whenever reduced, shall not thereafter be
Agreement for the PhilPaSS executed                         increased beyond the prescribed
between the BSP and the IHAP on 12                          limitation.
December 2002 and any subsequent
amendments thereto.                                         Sec. 4382Q Investments Abroad. Except
(As superseded by the agreement between the BSP and IHAP    as may be authorized by the Monetary
dated 12 December 2002)                                     Board, the total equity investments in
                                                            and/or loans to any single enterprise
    § 4343Q.4 (2008 - 4376Q.3) Transfer                     abroad by any QB shall not at any time
of excess funds. The prescribed “Authority                  exceed fifteen percent (15%) of the net
to Debit Slip” shall be used by QBs in the                  worth of the investing QB.



Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 32
                                                                            §§ 4383Q - 4388Q.5
                                                                                       09.12.31

Sec. 4383Q Underwriting Exempted. The                  No QB shall sell, discount, assign,
limitations on equity investments under            negotiate, in whole or in part such as thru
Sec. 4381Q shall not apply to inventories          syndications, participations and other similar
of equity securities arising out of firm           arrangements, any note, receivable, loan,
underwriting commitments of investment             debt instrument and any type of financial
houses: Provided, That such equity holding         asset or claim, except government securities,
shall be disposed of within two (2) years          on a without recourse basis, or be a party
from acquisition by the investment house.          in any capacity in any such transactions on
                                                   a without recourse basis, unless such
               I. (RESERVED)                       receivable, note, loan, debt instrument and
                                                   financial asset or claim is registered with
Secs. 4384Q - 4387Q (Reserved)                     the SEC. This prohibition includes
                                                   transactions between an investment house
         J. OTHER OPERATIONS                       and its trust department.
                                                       Unregistered commercial papers may be
Sec. 4388Q (2008 - 4391Q) Purchase of              sold, discounted, assigned or negotiated by
Receivables and Other Obligations. The             QBs to other financial intermediaries with
following rules shall govern the purchase          quasi-banking functions.
of receivables and other obligations.                  Any violation of the above rules and
                                                   regulations shall be subject to any or all of
     § 4388Q.1 (2008 - 4391Q.1) Yield on           the following sanctions:
purchase of receivables. The rate of yield,            a. Suspension of quasi-banking
including commissions, premiums, fees and          authority for a period of six (6) months; and
other charges from the purchase of receivables         b. Monetary penalty of P500 per
and other obligations, regardless of maturity,     day per transaction for each and every
that may be charged or received by QBs shall       officer of the QB involved in any
not be subject to any regulatory ceiling.          capacity in any transaction violative of
     Receivables and other obligations shall       these regulations.
include claims collectible in money of any
amount and maturity from domestic and                  § 4388Q.4 (2008 - 4392Q) Reverse
foreign sources. The Monetary Board shall          Repurchase Agreements with the Bangko
determine in doubtful cases whether a              Sentral. Reverse repo agreements may be
particular claim is included within said phrase.   effected with the BSP under its open market
                                                   operations, subject to the terms and
    § 4388Q.2 (Reserved)                           conditions in Subsec. 4601Q.2.

    § 4388Q.3 (2008 - 4391Q.2) Purchase                § 4388Q.5 (2008 - 4391Q.3) Investments
of commercial paper. Before purchasing             in debt and marketable equity securities
registered commercial paper, QBs shall:            The classification, accounting procedures,
    a. Require the issuing entity to submit        valuation, sales and transfers of investments
a duly certified true copy of its Certificate of   in debt securities and marketable equity
Registration and Authority to Issue                securities shall be in accordance with the
Commercial Paper; and                              guidelines in Appendices Q-20 and Q-20-a.
    b. Ascertain that the registration                 Penalties and sanctions. The following
number and expiry date indicated in the            penalties and sanctions shall be imposed
commercial paper are the same as those in          on FIs and concerned officers found to
the Certificate of Registration submitted.         violate the provisions of these regulations:



Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 33
§§ 4388Q.5 - 4394Q.2
09.12.31

     a. Fines of P2,000/day to be imposed                   on PAS 39 provisioning requirements)
on NBFIs for each violation, reckoned from                  plus transaction costs incurred upon
the date the violation was committed up to                  acquisition (such as non-refundable
the date it was corrected; and                              capital gains tax and documentary stamp
     b. Sanctions to be imposed on                          tax paid in connection with the foreclosure/
concerned officers:                                         purchase of the acquired real estate
     (1) First offense – reprimand the                      property): Provided, That if the carrying
officers responsible for the violation; and                 amount of ROPA exceeds P5.0 million, the
     (2) Subsequent offenses – suspension                   appraisal of the foreclosed/purchased asset
of ninety (90) days without pay for officers                shall be conducted by an independent
responsible for the violation                               appraiser acceptable to the BSP.
(As amended by Circular Nos. 670 dated 18 November 2009,        b. The carrying amount of ROPA shall
628 dated 31 October 2008, 626 dated 23 October 2008 and    be allocated to land, building, other
585 dated 15 October 2007, M-2007-006 dated 28 February     non-financial assets and financial assets
2007, Circular Nos. 558 dated 22 January 2007, 546 dated    (e.g., receivables from third party or equity
17 November 2006 and 509 dated 01 February 2006)            interest in an entity) based on their fair
                                                            values, which allocated carrying amounts
Secs. 4389Q - 4393Q (Reserved)                              shall become their initial costs.
                                                                c. The non-financial assets portion of
Sec. 4394Q Acquired Assets in Settlement                    ROPA shall remain in ROPA and shall be
of Loans. The following rules shall govern                  accounted for as follows:
assets acquired in settlement of loans.                         (1) Land and buildings shall be
                                                            accounted for using the cost model under
     § 4394Q.1 (Reserved)                                   PAS 40 “Investment Property”;
                                                                (2) Other non-financial assets shall be
    § 4394Q.2 (2008 - 4394Q.1) Booking                      accounted for using the cost model under
    a. ROPA in settlement of loans                          PAS 16 “Property Plant and Equipment”;
through foreclosure or dation in payment                        (3) Buildings and other non-financial
shall be booked under the ROPA account                      assets shall be depreciated over the
as follows:                                                 remaining useful life of the assets, which
    (1) Upon entry of judgment in case of                   shall not exceed ten (10) years and three (3)
judicial foreclosure;                                       years from the date of acquisition,
    (2) Upon execution of the Sheriff’s                     respectively; and
Certificate of Sale in case of extrajudicial                    (4) Land, buildings and other
foreclosure; and                                            non-financial assets shall be subject to the
    (3) Upon notarization of the Deed of                    impairment provisions of PAS 36
Dacion in case of dation in payment (dacion                 “Impairment”.
en pago). ROPA shall be booked initially at                     d. Financial assets, shall be reclassified
the carrying amount of the loan (i.e.,                      and booked according to intention under
outstanding loan balance adjusted for any                   HFT, DFVPL, AFS, HTM, INMES,
unamortized premium or discount less                        Unquoted Debt Securities Classified as
allowance for credit losses computed based                  Loans or Loans and Receivable and
on PAS 39 provisioning requirements,                        accounted for in accordance with the
which take into account the fair value of the               provisions of PAS 39, except interests in
collateral) plus booked accrued interest less               subsidiaries, associates and joint ventures,
allowance for credit losses (computed based                 which shall be booked under Equity




Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 34
                                                                                §§ 4394Q.2 - 4394Q.3
                                                                                             08.12.31

Investments in Subsidiaries, Associates and            The provisions of this Subsection shall
Joint Ventures and accounted for in                be applied retroactively to all outstanding
accordance with the provisions of PAS 27,          ROPAs and sales contract receivables:
28 and 31, respectively.                           Provided: That for properties acquired before
     e. ROPAs that comply with the                 01 January 2005, the carrying amount of the
provisions of PFRS 5 “Non-Current Assets           acquired properties when initially booked
Held for Sale” shall be reclassified and           under ROPA shall be the cost subject to
accounted for as such.                             depreciation and impairment testing, which
     f. Claims arising from deficiency             shall be reckoned from the time of
judgments rendered in connection with the          acquisition.
foreclosure of mortgaged properties shall          (As amended by Circular Nos. 555 dated 12 January 2007 and
be lodged under the real account                   520 dated 20 March 2006)
“Deficiency Judgment Receivable”; while
probable claims against the borrower                   § 4394Q.3 (2008 - 4394Q.2) Sales
arising from the foreclosure of mortgaged          contract receivable
properties shall be lodged under the                   a. Sales Contract Receivable (SCR)
contingent account “Deficiency Claims              shall be recorded based on the present
Receivable”.                                       value of the installment receivables
     g. Appraisal of properties. Before            discounted at the imputed rate of interest.
foreclosing or acquiring any property in           Discount shall be accreted over the life of
settlement of loans, it must be properly           the SCR by crediting interest income using
appraised to determine its true economic           the effective interest method. Any
value. If the amount of ROPA to be booked          difference between the present value of the
exceeds P5.0 million, the appraisal must be        SCR and the derecognized assets shall be
conducted by an independent appraiser              recognized in profit or loss at the date of
acceptable to the BSP. An in-house appraisal       sale in accordance with the provisions of
of all ROPAs shall be made at least every          PAS 18 “Revenue” Provided, furthermore,
other year: Provided, That immediate               That SCR shall be subject to impairment
re-appraisal shall be conducted on ROPAs           provision of PAS 39.
which materially decline in value.                     The provisions of this Section shall be
     h. Non-cash payment for interest              applied retroactively to all outstanding
FIs that accept non-cash payments for              ROPAs and SCRs: Provided: That for
interest on their borrowers’ loans shall book      properties acquired before 01 January
the acquired assets as ROPA. The amount            2005, the carrying amount of the acquired
to be booked as ROPA shall be the booked           properties when initially booked under
accrued interest less allowance for credit         ROPA shall be the cost subject to
losses (computed based on PAS 39                   depreciation and impairment testing,
provisioning requirements): Provided, That         which shall be reckoned from the time of
if the carrying amount of ROPA exceeds             acquisition.
P5.0 million, the appraisal of the foreclosed/         b. SCRs which meet all the
purchased asset shall be conducted by an           requirements/conditions enumerated
independent appraiser acceptable to the            below are hereby considered performing
BSP. The carrying amount of ROPA shall be          assets and therefore, not subject to
allocated in accordance with Item “b” and          classification:
shall be subsequently accounted for in                 (1) That there has been a down-
accordance with Item “c” of this Subsection.       payment of at least twenty percent (20%)




Manual of Regulations for Non-Bank Financial Institutions                                Q Regulations
                                                                                       Part III - Page 35
§§ 4394Q.3 - 4394Q.15
08.12.31

of the agreed selling price or in the                                The accounting guidelines on the sale
absence thereof, the installment payments                        of NPAs to SPVs and to qualified
on the principal had already amounted to                         individuals for housing under the SPV Act of
at least twenty percent (20%) of the agreed                      2002 are presented in Appendix Q-28-a.
selling price;                                                       The significant timelines relative to the
     (2) That payment of the principal must                      implementation of R.A. No. 9182, also
be in equal installments or in diminishing                       known as the “Special Purpose Vehicle
amounts and with maximum intervals of                            Act”, as amended by R.A. No. 9343 are
one (1) year;                                                    presented in Appendix Q-28b.
     (3) That any grace period in the                            (As amended by M-2008-014 dated 17 March 2008, M-2008-005
payment of principal shall not be more than                      dated 04 February 2008, M-2007-013 dated 11 May 2007 and
two (2) years; and                                               M-2006-001 dated 11 May 2006)
     (4) That there is no installment
payment in arrear either on principal or                              §§ 4394Q.11 - 4394Q.14 (Reserved)
interest. Provided, That a “Sales Contract
Receivable” account shall be automatically                           §§ 4394Q.15 Joint venture of quasi-
classified “Substandard” and considered                          banks with real estate development
non-performing in case of non-payment of                         companies
any amortization due: Provided, further,                             a. Statement of policy. It is the policy
That a “Sales Contract Receivable” which                         of the BSP to encourage QBs to dispose of
has been classified “Substandard” and                            their ROPA in settlement of loans and other
considered non-performing due to                                 advances either through foreclosure or
non-payment of any amortization due may                          dacion en pago as well as other properties
only be upgraded/restored to unclassified                        acquired as a consequence of a merger/
and/or performing status after a satisfactory                    consolidation which are no longer
track record of at least three (3) consecutive                   necessary for their quasi-banking
payments of the required amortization of                         operations. Towards this end, QBs are
principal and/or interest has been established.                  hereby authorized to enter into Joint
(As amended by Circular No. 520 dated 20 March 2006)             Venture Agreements (JVA) with real estate
                                                                 development companies for the
     §§ 4394Q.4 - 4394Q.9 (Reserved)                             development of said properties, subject to
                                                                 the requirements prescribed under this
    § 4394Q.10 (2008 - 4396Q) Transfer/                          Subsection.
Sale of non-performing assets to a special                           b. For purposes of this Subsection,
purpose vehicle or to an individual. The                         joint venture shall refer to a contractual
procedures governing the transfer/sale of                        arrangement/undertaking between a QB
non-performing assets (NPAs) to a Special                        and a duly registered real estate
Purpose Vehicle (SPV) or to an individual                        development company (developer) for the
that involves a single family residential                        purpose of developing the above-
unit, or transactions involving dacion en                        mentioned properties of the QB. The QB
pago by the borrower or third party of a                         contributes said properties to the
non-performing loan (NPL), for the purpose                       undertaking while the developer
of obtaining the Certificate of Eligibility                      contributes all the development funds,
(COE) which is required to avail of the                          resources, technical expertise, equipment,
incentives provided under R.A. No. 9182                          personnel and all other requirements
are presented in Appendix Q-28.                                  desired or needed for the implementation




Q Regulations                                          Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 36
                                                                                    § 4394Q.15
                                                                                       08.12.31

and completion of the undertaking including            d. Requirements and limitations in a
marketing, where applicable. The QB and            joint venture. A QB desiring to enter into a
the developer shall be bound by the                JVA with a developer for the purpose of
contract that establishes joint control of the     developing its ROPAs and/or other
undertaking. Although the developer may            properties acquired as a consequence of
be designated as operator or manager of the        merger/consolidation shall comply with the
undertaking, it does not, however,                 following:
absolutely control the undertaking but only            (1) The JVA shall be approved by the
acts in accordance with the authorities            board of directors of the QB.
granted to him under the JVA.                          (2) The QB’s contribution to the joint
     c. Forms of a joint venture. A QB and         venture, in whatever form undertaken,
a developer may undertake a joint venture          shall be limited to ROPAs and properties
under the following forms:                         acquired as a consequence of the QB’s
     (1) A jointly-controlled operation/           merger/consolidation with another QB/FI.
undertaking, which does not involve the                (3) The QB shall not recognize income
establishment of a corporation, partnership        out of its contribution to the joint venture,
or other entity, or a financial structure that     regardless of the agreed valuation of said
is separate from the QB and the developer          properties.
themselves. Under this form of joint                   (4) The QB shall not provide funds to
venture, the rights and obligations of the QB      the joint venture either as a loan or capital
and the developer shall be governed                contribution.
primarily by their contract that must clearly          (5) The      JVA     or    contractual
specify the following:                             arrangement shall clearly stipulate the
     (a) authority of the developer to             rights and obligations of the QB and the
develop/subdivide the property and                 developer.
subsequently, to sell the individual lots              (6) The QB shall secure prior Monetary
under a special power of attorney;                 Board approval of the JVA.
     (b) sharing in the sales proceeds of the          e. Application for authority to enter
developed ROPAs or in the developed lots;          into JVA. A QB desiring to enter into a JVA
     (c) sharing in taxes;                         with a developer for the purpose of
     (d) sharing in the assets of the joint        developing its ROPAs and other properties
venture particularly in the developed/             acquired as a consequence of its merger/
subdivided lots should there still be unsold       consolidation with another QB/FI shall
lots at the time of termination of the joint       secure prior Monetary Board approval of
venture; and                                       said agreement. For that purpose, the
     (e) name under which the subdivided           concerned QB shall submit an application
lots shall be registered pending their sale.       for Monetary Board approval to the
     (2) A jointly-controlled entity, which        appropriate department of the SES. The
involves the establishment of a new                application shall be signed by the QB’s
juridical entity, preferably a corporation         president or officer of equivalent rank and
that is separate and distinct from the QB          shall be accompanied by the following
and the developer. A jointly controlled            documents/information:
corporation may be established either for              (1) The name of the developer;
the purpose of developing properties of QBs            (2) Name        of    the     principal
for immediate sale or converting them into         stockholders and officers as well as
earning assets such as hotels and shopping         members of the board of directors of said
malls.                                             company;



Manual of Regulations for Non-Bank Financial Institutions                        Q Regulations
                                                                               Part III - Page 37
§ 4394Q.15
08.12.31

     (3) Relationship of the QB with the           shall continue to recognize in its books
developer, if any;                                 the properties contributed to the
     (4) List and brief description of the         undertaking. However, the regular
properties to be contributed by the QB             provisioning against probable losses
including their market values, book values         required under existing regulations may
and the valuation agreed upon under the            be discontinued upon execution and
proposed JVA;                                      implementation of the JVA.
     (5) Certification by the QB’s president            (2) In a joint venture in which a
or officer of equivalent rank that the JVA is      corporation is created, the QB shall book
strictly in compliance or will strictly comply     the properties contributed to the undertaking
with the requirements of this Subsection;          as investment pursuant to the provisions of
and                                                PAS 31. It shall also recognize its interest in
     (6) Such other documents/information          the corporation using the proportionate
that the concerned department of the SES           consolidation method or the equity method
may require.                                       as long as it continues to have joint control
     f. Non-financial allied undertaking           over the corporation: Provided, That the QB
All types of QBs are hereby authorized             shall not recognize income out of its
to invest in the equities of companies             contribution to the joint venture. The excess
engaged in real estate development as a            of the value of the capital stock received by
non-financial allied undertaking, subject          the QB over the book value of the
to the following conditions:                       contributed properties shall be credited to
     (1) Investments shall be limited to           the account “Deferred Credits”.
ROPAs and other properties acquired as                  (3) Properties invested in equities of
a consequence of a QB’s merger/                    developers shall be booked in accordance
consolidation with another QB/FI;                  with the PAS: Provided, That the QB shall
     (2) Investments shall be subject to           not recognize income out of the properties
existing BSP requirements applicable to            invested if there is already an existing
investments in non-financial allied                subsidiary or affiliate relationship between
undertakings; and                                  the QB and the investee corporation prior
     (3) If there is already an existing           to the investment, regardless of the agreed
subsidiary or affiliate relationship between       valuation of said properties. The excess of
the QB and the investee corporation prior          the agreed valuation of said properties over
to the investment, the QB shall not recognize      their book value shall be booked as
income out of its invested properties. The         “Deferred Credits”.
excess of the value of the capital stock                h. Coverage. The provisions of this
received by the QB over the book value of          Subsection shall apply to ROPAs existing,
its invested properties shall be booked as         as well as those which may be acquired
“Deferred Credits”.                                by QBs in settlement of non-performing
     g. Accounting treatment. Accounting           or past due loans and advances
treatment of the properties contributed by         outstanding, as of 09 March 2006 and to
a QB to a joint venture or invested in the         properties acquired as a consequence of
equities of developers.                            merger or consolidation which are
     (1) In a joint venture in the form of a       outstanding in the books of QBs as of said
jointly controlled operations/undertaking,         date.
which does not involve the establishment                i. Sanctions. Any violation of the
of a corporation or other entity, the QB           provisions of this Subsection and/or any




Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part III - Page 38
                                                                           §§ 4394Q.15 - 4399Q
                                                                                      08.12.31

misrepresentation in the certification and                  L. GENERAL PROVISION ON
information required to be submitted to the                        SANCTIONS
BSP under this Subsection shall subject
the QB and the officer or officers                 Sec. 4399Q General Provision on Sanctions.
responsible therefore, to the penalties            Unless otherwise provided for, any violation
provided under Sections 35, 36 and 37 of           of the provisions of this Part shall be subject
R. A. No. 7653.                                    to Sections 36 and 37 of R.A. No. 7653.
(Circular No. 518 dated 09 March 2006)                  The guidelines for the imposition of
                                                   monetary penalty for violations/offenses with
    K. MISCELLANEOUS PROVISIONS                    sanctions falling under Section 37 of R. A.
                                                   No. 7653 on QBs, their directors and/or
Secs. 4395Q - 4398Q (Reserved)                     officers are shown in Appendix Q-39.




Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                Part III - Page 39
                                                                                  §§ 4401Q - 4403Q
                                                                                          08.12.31

                                                  PART FOUR

                            TRUST, OTHER FIDUCIARY BUSINESS
                         AND INVESTMENT MANAGEMENT ACTIVITIES


Section 4401Q Statement of Principles                   Sec. 4402Q Scope of Regulations. These
The cardinal principle common to all trust              regulations shall govern the grant of
and other fiduciary relationships is fidelity.          authority to and the management,
Policies predicated upon this principle are             administration and conduct of trust, other
directed towards confidentiality, scrupulous            fiduciary business and investment
care, safety and prudent management of                  management activities (as these terms are
property including reasonable probability               defined in Sec. 4403Q) of NBFIs (e.g.,
of income with proper accounting and                    investment houses (IHs) and trust
appropriate reporting thereon. Practices are            corporations) allowed by law to perform
designed in accordance with the basic                   such operations.
standards for trust, other fiduciary and                    The regulations are divided into three
investment management accounts (IMAs)                   (3) Sub-Parts where:
in Appendix Q-48 to promote efficiency                      A. Trust and Other Fiduciary Business
in administration and operation; to adhere              shall apply to institutions authorized to
and conform to the terms of the instrument              engage in trust and other fiduciary business
or contract; and to maintain absolute                   including investment management
separation of property free from any                    activities;
intrusion of conflict of interest.                          B. Investment Management Activities
     An institution incorporated or                     shall apply to institutions without trust
authorized to engage in trust and fiduciary             authority but engaged in investment
business is under no obligation, either legal           management activities; and
or moral, to accept any such business being                 C. General Provisions shall apply to
offered nor has it the right to accept if the           both.
same is contrary to law, rules, regulations,
public order and public policy. It shall                Sec. 4403Q Definitions. For purposes of
advertise its services in a dignified manner            regulating the operations of trust and other
and enter such business only when demand                fiduciary business and investment
for such service is evident, when specially             management activities, unless the context
equipped to render such service and upon                clearly connotes otherwise, the following
full appreciation of the responsibilities               shall have the meaning indicated.
involved. It shall be ready and willing to                  a. Trust business shall refer to any
give full disclosure of the services being              activity resulting from a trustor-trustee
offered and shall conduct its dealing with              relationship (trusteeship) involving the
transparency. Harmonious relationship                   appointment of a trustee by a trustor for
shall likewise be pursued with other                    the administration, holding, management
professions to achieve the common goal                  of funds and/or properties of the trustor by
of mutual service to the public and                     the trustee for the use, benefit or advantage
protection of its interest.                             of the trustor or of others called
(As amended by Circular No. 618 dated 20 August 2008)   beneficiaries.




Manual of Regulations for Non-Bank Financial Institutions                             Q Regulations
                                                                                     Part IV - Page 1
§§ 4403Q
08.12.31

     b. Other fiduciary business shall refer            h. Beneficiary is any person for
to any activity of trust-licensed institutions     whose benefit a trust is created.
resulting from a contract or agreement                  i. Fiduciary shall refer to any person
whereby the institution binds itself to            or entity engaged in any of the other
render services or to act in a representative      fiduciary business as herein defined where
capacity such as in an agency,                     no trustor-trustee relation exists.
guardianship, administratorship of wills,               j. Agency shall refer to a contract
properties and estates, executorship,              whereby a person binds himself to render
receivership and other similar services            some service or to do something in
which do not create or result in a                 representation or on behalf of another,
trusteeship. It shall exclude collecting or        with the consent or authority of the latter.
paying agency arrangements and similar                  k. Principal shall refer to the person
fiduciary services which are inherent in the       who grants authority to another person
use of the facilities of the other operating       called an agent, under a contract to enter
departments of such institution. Investment        into transactions in his behalf.
management activities, which are                        l. Agent shall refer to a person who
considered as among other fiduciary                acts in representation or on behalf of
business, shall be separately defined in the       another person with the latter's authority.
succeeding item to highlight its being a                m. Trust Department shall refer to the
major source of fiduciary business.                department, office, unit, group, division or
     c. Investment management activity             any aggrupation which carries out the trust
shall refer to any activity resulting from a       and other fiduciary business of an
contract or agreement primarily for                institution.
financial return whereby the institution (the           n. Trust Officer shall refer to the
investment manager) binds itself to handle         designated head or officer-in-charge of the
or manage investible funds or any                  trust department.
investment portfolio in a representative                o. Trust account shall refer to an
capacity as financial or managing agent,           account where transactions arising from a
adviser, consultant or administrator of            trusteeship are kept and recorded.
financial or investment management,                     p. Common Trust Fund (CTF) shall
advisory, consultancy or any similar               refer to a fund maintained by an institution
arrangement which does not create or               authorized to perform trust functions under
result in a trusteeship.                           a written and formally established plan,
     d. Trust is a relationship or an              exclusively for the collective investment
arrangement whereby a person called a              and reinvestment of certain money
trustee is appointed by a person called a          representing participations in the plan
trustor to administer, hold and manage             received by it in its capacity as the trustee.
funds and/or property of the trustor for the            q. Fiduciary account shall refer to an
benefit of a beneficiary.                          account where transactions arising from
     e. Trust agreement is an instrument           any of the other fiduciary businesses are
in writing covering the terms and                  kept and recorded.
conditions of the trust.                                r. Investment Manager shall refer to
     f. Trustee is any person who holds            any person or entity engaged in investment
legal title to the funds and/or property of a      management activities as herein defined.
trust.                                                  s. Investment            Management
     g. Trustor is any person who creates          Department shall refer to the department,
a trust.                                           unit, group, division or any aggrupation



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 2
                                                                                          §§ 4403Q - 4404Q.3
                                                                                                     08.12.31

which carries out the investment                            transfer or turnover of any trust and other
management activities of an institution that                fiduciary and/or IMA to duly incorporated
does not have an authority to engage in                     and licensed entities of the choice of the
trust and other fiduciary business.                         trustor, beneficiary or client, as the case
    t. Investment Management Officer                        may be.
shall refer to the designated head or                            No entity shall advertise or represent
officer-in-charge of the investment                         itself as being engaged in trust and other
management department of an institution                     fiduciary business or in investment
which does not have the authority to                        management activities or represent itself
engage in trust and other fiduciary                         as trustee or investment manager or use
business.                                                   words of similar import and/or use in
    u. Investment management account                        connection with its business title, the words
shall refer to an account where                             trust, trust corporation, trust company, trust
transactions arising from investment                        plan or words of similar import, without
management activities are kept and                          having obtained the required authority to
recorded.                                                   do so.
                                                                 Starting year 2001, IHs authorized to
    A. TRUST AND OTHER FIDUCIARY                            engage in trust and other fiduciary business
               BUSINESS                                     shall renew their existing licenses yearly,
                                                            subject to the implementing guidelines to
Sec. 4404Q Authority to Perform Trust                       be issued thereon.
and Other Fiduciary Business. With prior                    (As amended by CL-2008-078 dated 15 December 2008,
approval of the Monetary Board, trust                       CL-2008-053 dated 21 August 2008 and CL-2008-007 dated
corporations and IHs may engage in trust                    21 January 2008)
and other fiduciary business under Chapter
IX of R.A. No. 8791, as amended and                              §§ 4404Q.1 - 4404Q.2 (Reserved)
Section 7 of P.D. No. 129, as amended.
    Entities whose articles of incorporation1                   § 4404Q.3 Prerequisites for engaging
or any amendments thereto, include the                      in trust and other fiduciary business. An
purpose or power to engage in trust and                     institution, before it may engage in trust
other fiduciary business, shall secure the                  and other fiduciary business, shall comply
prior favorable recommendation of the                       with the following requirements:
Monetary Board pursuant to Section 17 of                        a. The applicant has combined capital
the Corporation Code.                                       accounts of not less than P250 million or
    If an entity is found to be engaged in                  such amount as may be required by the
unauthorized trust and other fiduciary                      Monetary Board or other regulatory
business and/or investment management                       agency. For this purpose, combined capital
activities, whether as its primary,                         accounts shall have the same meaning as
secondary or incidental business, the                       in Sec. 4111Q;
Monetary        Board      may       impose                     b. The applicant has been duly
administrative sanctions against such                       licensed or incorporated as an FI by the
entity or its principal officers and/or                     appropriate government agency or created
majority stockholders or proceed against                    by special law or charter;
them in accordance with law.                                    c. The articles of incorporation or
    The Monetary Board may take such                        charter of the institution shall include
action as it may deem proper such as, but                   among its powers or purposes, acting as
may not be limited to, requiring the                        trustee or administering any trust or holding

1
    SEC Memorandum Circular Nos. 5 dated 17 July 2008, 3 dated 16 February 2006 and 14 dated 24 October 2000.

Manual of Regulations for Non-Bank Financial Institutions                                        Q Regulations
                                                                                                Part IV - Page 3
§ 4404Q.3
05.12.31

property in trust or on deposit for the use,             (7) It has corrected as of the date of
or in behalf of others;                             application the violations noted in its latest
     d. The by-laws of the institution shall        examination related to the single borrower’s
include, among other things, provisions on          loan limit and all other ceilings prescribed
the following:                                      by the BSP;
     (1) The organization plan or structure              (8) It does not have float items
of the department, office, or unit which            outstanding for more than sixty (60)
shall conduct the trust and other fiduciary         calendar days in the “Due From/To Head
business;                                           Office/Branches” accounts and the “Due
     (2) The creation of a trust committee, the     from Bangko Sentral” account exceeding
appointment of a trust officer and subordinate      one percent (1%) of its total resources as
officers of the trust department; and               of the end of the month immediately
     (3) A clear definition of the duties and       preceding the date of application; and
responsibilities as well as the line and staff           (9) It has shown substantial
functional relationships of the various units,      compliance with other pertinent laws,
officers and staff within the organization.         rules and regulations, policies and
     e. Where the applicant is authorized           instructions of the BSP and it has not been
to engage in quasi-banking functions, it            cited for serious violations or exceptions
shall also meet the following additional            affecting its solvency, liquidity and
requirements:                                       profitability.
     (1) Its operations during the year                  Where the applicant is not authorized
immediately preceding the filing of the             to engage in quasi-banking functions:
application have been profitable, i.e., its              (i) The adoption of a formula or
rate of return on equity is at least ten            criteria for QBs in the determination of
percent (10%);                                      compliance with the capital-to-risk
     (2) It has continuously complied with          assets ratio and ceilings on loans to
its net worth-to-risk assets ratio, liquidity       DOSRI; and
floor and ceilings on DOSRI loans during                 (ii) The substitution of the reserve and
the last six (6) months immediately                 liquidity floor requirements with the cash
preceding the date of application;                  ratio, as follows:
     (3) It has not incurred net weekly                  (a) Primary reserves to Bills Payable;
reserve deficiency against deposit                  and
substitutes during the last six (6) months               (b) Primary and secondary reserves to
immediately preceding the date of                   Bills Payable; where primary reserves
application;                                        consist of cash on hand, cash in vault,
     (4) The ratio of its total NPLs to its         COCIs, due from the BSP and due from
gross loan portfolio as of the date of filing       banks; and where secondary reserves
of application does not exceed the industry         consist of BSP supported government
average as of the end of the quarter                securities, T-Bills and other government
immediately preceding the date of                   securities.
application;                                             Compliance with the foregoing, as well
     (5) It does not have any past due              as with other requirements under existing
obligation with the BSP or with any                 regulations, shall be maintained up to the
government or non-government FI;                    time the trust license is granted. An
     (6) It has not engaged in unsafe and           applicant that fails in this respect shall be
unsound practice/s during the year                  required to show compliance for another
immediately preceding the date of application;      test period of the same duration.



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 4
                                                                            §§ 4404Q.4 - 4405Q.2
                                                                                         08.12.31

    § 4404Q.4 (2008 - 4404Q.2) Pre-operating             a. Evidences of indebtedness of the
requirements. An institution authorized to          Republic of the Philippines and of the BSP
engage in trust and other fiduciary business        and any other evidences of indebtedness
shall, before engaging in actual operations,        or obligations the servicing and repayment
submit to the BSP the following:                    of which are fully guaranteed by the
    a. Government securities acceptable             Republic of the Philippines; and such other
to the BSP amounting to P500,000 as                 kinds of securities which may be declared
minimum basic security deposit for the              eligible by the Monetary Board: Provided,
faithful performance of trust and other             That such securities shall be free,
fiduciary duties required under Subsec.             unencumbered, and not utilized for any
4405Q.1;                                            other purpose: Provided, further, That such
    b. Organization chart of the trust              securities shall have remaining maturities
department which shall carry out the trust          of not more than three (3) years from the
and other fiduciary business of the                 date of deposit with the BSP;
institution; and                                         b. NDC Agri-Agra ERAP Bonds,
    c. Names and positions of individuals           regardless of remaining maturities;
designated as chairman and members of                    c. Five (5) - and Ten (10) - year Special
the trust committee, trust officer and other        Purpose Treasury Bonds (SPTBs) provided
subordinate officers of the trust department        such bonds shall not be hypothecated in
with their respective bio-data and                  any way or earmarked for any other
statement of duties and responsibilities.           purpose and they meet the three (3)-year
                                                    remaining maturity requirement to ensure
Sec. 4405Q Security for the Faithful                that such bonds are liquid;
Performance of Trust and Other                           d. Securities backed by the
Fiduciary Business                                  unreleased Internal Revenue Allotments
                                                    (IRA) of LGUs (issued by a Special Purpose
     § 4405Q.1 Basic security deposit. An           Trust administered by the DBP under the
institution authorized to engage in trust and       IRA Monetization Program of the Union of
other fiduciary business shall deposit with         Local Authorities of the Philippines) the
the BSP eligible government securities as           release of which IRA on scheduled date of
security for the faithful performance of its        payment has been certified by the DBM
trust and other fiduciary duties equivalent         as not being subject to any conditionalities:
to at least one percent (1%) of the book            Provided, That such securities shall be
value of the total volume of trust, other           eligible only to the extent of the present
fiduciary and investment management                 value of the bond computed using the
assets: Provided, That at no time shall such        original yield to maturity (as of auction/
deposit be less than P500,000.                      issue date): Provided, further, That for
     Scripless securities under Registry of         reserve for trust and other fiduciary duties,
Scripless Securities (RoSS) system of the           the remaining maturities of the securities
Bureau of Treasury (BTr) may be used as             shall not exceed three (3) years; and
basic security deposit for trust duties using            e. Zero Coupon Bond Issue by the
the guidelines in Appendix Q-21.                    HGC of up to P7.0 billion five (5)-year
                                                    regular series and up to P3.0 billion seven
    § 4405Q.2 Eligible securities                   (7)-year special series to finance its guaranty
Government securities which shall be                servicing of socialized and low-cost
deposited in compliance with the above              housing projects: Provided, That they meet
basic security deposit shall consist of:            the three (3)-year remaining maturity



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part IV - Page 5
§§ 4405Q.2 - 4405Q.4
08.12.31

requirement to ensure that such bonds are                     of every calendar quarter within which to
liquid: Provided, further, That such bonds                    deposit with the BSP the securities
shall qualify as eligible reserve for trust and               required under this Section.
other fiduciary duties only to the extent of                       The following sanctions shall be
the present value of the bond computed                        imposed for any deficiency in the basic
using the original yield to maturity (as of                   security deposit for the faithful performance
auction/issue date).                                          of trust and other fiduciary duties:
    f. Tobacco Excise Tax Receivable                               a. On the QB:
Monetization Program Investment                                    i. Monetary penalty/ies:
Certificates (TEXTR Certificates) backed by
receivables representing the unreleased                                                                                                              Offense                            Third and
portion of the obligation of the National                                                                  Trust                                                  First      Second     subsequent
Government to its LGUs for their share of                                                                      Asset Size                                                                offense(s)
the Tobacco Excise Taxes under R.A. No.                                                                                                           Up to
7171 amounting to P1.85 billion and                                                                                                                P500           P600.00    P700.00      P800.00
covering the years 2001 and 2002:                                                                                                                 million
Provided, That such securities shall be eligible                                                                                                  Above
                                                                                         QBs with Full Trust Authority and with Trust Assets of




only to the extent of the present value of the                                                                                                     P500
securities computed using the original yield                                                                                                      million       P1,000.00   P1,250.00   P1,500.00
                                                              Penalty per Calendar Day




to maturity as of auction/issue date.                                                                                                             but not
    g. Securities received, pursuant to the                                                                                                       exceeding
Domestic Debt Exchange Offer of the                                                                                                                P1 billion
Republic of the Philippines, in exchange                                                                                                          Above
for securities that are eligible reserves for                                                                                                     P1 billion
trust duties.                                                                                                                                     but not       P2,000.00   P3,000.00   P4,000.00
(As amended by Circular No. 509 dated 01 February 2006)                                                                                           exceeding
                                                                                                                                                  P10 billion
    § 4405Q.3 Valuation of securities and                                                                                                         Above
basis of computation of the basic security                                                                                                        P10 billion
deposit requirement. For purposes of                                                                                                               but not      P5,000.00   P6,000.00   P7,000.00
determining compliance with the basic                                                                                                             exceeding
security deposit under this Section, the                                                                                                          P50 billion
amount of securities so deposited shall be                                                                                                        Above
based on their book value, that is, cost as                                                                                                       P50 billion   P8,000.00   P9,000.00   P10,000.00
increased or decreased by the
corresponding discount or premium                                 ii. Non-monetary penalty beginning
amortization.                                                 with the third offense (all QBs) - Prohibition
    The base amount for the basic security                    against the acceptance of new trust and
deposit shall be the average of the                           other fiduciary accounts, and from renewing
month-end balances of total trust,                            expiring trust and other fiduciary contracts
investment management and other                               up to the time the violation is corrected.
fiduciary assets of the immediately                               b. On the trust officer and/or other
preceding calendar quarter.                                   officer(s) responsible for the deficiency/
                                                              non-compliance:
   § 4405Q.4 Compliance period;                                   (1) First offense - warning that
sanctions. The trustee or fiduciary shall                     subsequent violations shall be dealt with
have thirty (30) calendar days after the end                  more severely;



Q Regulations                                      Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 6
                                                                                                §§ 4405Q.4 - 4405Q.5
                                                                                                             08.12.31

    (2) Second offense - written reprimand                            (a) The funds are composed of
with a stern warning that subsequent                              contributions from two (2) or more investors;
violations shall be subject to suspension;                            (b) The funds are managed/administered
    (3) Third offense - thirty (30) calendar                      as a vehicle for collective investment and
day-suspension without pay; and                                   reinvestment;
    (4) Subsequent offense(s) - sixty (60)                            (c) The trustee/administrator/agent has
calendar day-suspension without pay.                              the exclusive management and control
    For purposes of determining the                               over the funds and the sole right at any time
frequency of the violation, the QB's                              to sell, convert, invest, exchange, transfer
compliance profile for the immediately                            or otherwise change or dispose of the
preceding three (3) years or twelve (12)                          assets comprising the funds; and
quarters will be reviewed: Provided, That                             (d) Investments/contributions to, or
for purposes of determining appropriate                           withdrawals from, the funds are being
penalty on the trust officer and/or other                         allowed at anytime or as of a fixed date in
responsible officer(s), any offense                               the future, and/or the income, net of all
committed outside the preceding three (3)                         expenses incurred in the management of
year or twelve (12) quarter-period shall be                       the fund plus the fee of the trustee/
considered as the first offense: Provided,                        administrator/agent, are being distributed
further, That in the case of trust officer, all                   among the participants of the funds,
offenses committed by him in the past as                          without the need to liquidate all assets of
trust officer of other institution(s) shall also                  the funds.
be considered: Provided, finally, That if the                         The reserves to be maintained shall be
offense cannot be attributed to any other                         as follows:
officer of the QB, the trust officer shall be                         (i) Regular reserves         10%1
automatically held responsible since the                              (ii) Liquidity reserves      11%2
ultimate responsibility for ensuring                                  The liquidity reserve shall be
compliance with the regulation rests upon                         maintained in the RDA with the BSP, or
him, as evidence may warrant.                                     may be in the form of the following:
(As amended by Circular Nos. 617 dated 30 July 2008 and 585       Provided, That it complies with the
dated 15 October 2007)                                            guidelines shown in Appendix Q-41.
                                                                      (i) Short-term         market-yielding
     § 4405Q.5 Reserves against peso-                             government securities purchased directly
denominated Common Trust Funds (CTFs)                             from the BSP-Treasury Department (TD);
and Trust and Other Fiduciary Accounts                                (ii) NDC Agri-Agra ERAP Bonds,
(TOFA) - Others                                                   regardless of maturity. The requirement that
     a. Reserves against peso-denominated                         the securities used shall have a term of
CTFs. In addition to the basic security                           not more than one (1) year shall not apply;
deposit, an institution authorized to engage                      and
in trust and other fiduciary business shall                           (iii) Poverty Eradication and Alleviation
maintain reserves on -                                            Certificates (PEACe) bonds only to the
     (1) peso-denominated CTF; and                                extent of the original gross issue proceeds
     (2) such other managed peso funds                            determined at the time of the auction, plus
which partake the nature of collective                            capitalized interest on the underlying
investment of a peso-denominated CTF as                           zero-coupon Treasury Notes as and when
may be indicated by the presence of the                           the corresponding interest is earned over
following features:                                               the life of the bonds.
1
    From 6% to 9% regular reserve effective the reserve week starting 7 January 2005 under MAB dated 29 December 2004
    and from 9% to 10% regular reserve effective the reserve week starting 15 July 2005 under Circular 491 dated 12 July 2005
2
    From 10 % to 11% under Circular 491 dated 12 July 2005, effective the reserve week starting 15 July 2005.

Manual of Regulations for Non-Bank Financial Institutions                                                 Q Regulations
                                                                                                         Part IV - Page 7
§§ 4405Q.5 - 4405Q.6
08.12.31

     Any defiency in the liquidity reserves                        prescribed under existing regulations for
shall continue to be in the forms or modes                         the composition of required reserves.
prescribed under existing regulations for the                          The reserves on TOFA-Others shall be
composition of required reserves.                                  provided by the institution out of said funds.
     The reserves on peso-denominated                              (As amended by Circular Nos. 551 dated 17 November 2006
CTFs and such other managed peso funds                             and 539 dated 09 August 2006)
shall be provided out of said funds.
     b. Reserves against TOFA-Others. In                                § 4405Q.6 Composition of reserves
addition to the basic security deposit, an                              a. The provisions of Section 4254Q
institution authorized to engage in trust and                      shall govern the composition of reserves
other fiduciary business shall maintain                            against peso-denominated CTFs and such
reserves on TOFA-Others, except accounts                           other managed peso funds as well as
held under (1) Administratorship; (2) Bond                         TOFA-Others of institutions authorized to
Issues/Other Obligations Under Deed of                             engage in trust and other fiduciary business.
Trust or Mortgage; (3) Custodianship and                                For purposes of this Subsection, a
Safekeeping; (4) Depository and                                    special deposit account shall be maintained
Reorganization; (5) Employee Benefit                               by the institutions with the BSP exclusively
Plans Under Trust; (6) Escrow; (7) Personal                        for trust reserves which deposits up to forty
Trust (testementary and living trust);                             percent (40%) of the required reserves
(8) Executorship; (9) Guardianship; (10) Life                      against peso-denominated CTFs and such
Insurance Trust; and (11) Pre-need Plans                           other managed peso funds (less the
(institutional/individual).                                        percentage allowed to be maintained in
     The reserves to be maintained shall be                        the form of short-term market-yielding
as follows:                                                        government securities), as well as the
     (i) Regular reserves         6%1                              required reserves against TOFA-Others
     (ii) Liquidity reserves    11%2                               (less the percentage allowed to be
     The liquidity reserves shall be                               maintained in the form of short-term
maintained in the RDA with the BSP, or                             market-yielding government securities),
may be in the form of the following:                               shall be paid interest at four percent (4%)
Provided, That it complies with the                                per annum, based on the average daily
guidelines shown in Appendix Q-41.                                 balance of said deposits to be credited
     (i) Short-term        market-yielding                         quarterly.
government securities purchased directly                                Likewise, institutions may also
from the BSP-TD.                                                   maintain a special demand deposit
     (ii) NDC Agri-Agra ERAP Bonds,                                account with local banks exclusively for
regardless of maturity; and                                        trust duties.
     (iii) PEACe bonds only to the extent of                            Effective 1 July 2003, published
the original gross issue proceeds                                  interest rates that will be applied on BSP’s
determined at the time of the auction, plus                        Special Deposit Accounts of QBs shall be
capitalized interest on the underlying                             inclusive of the ten percent (10%) VAT.
zero-coupon Treasury Notes as and when                                  b. The portion of reserves that may
the corresponding interest is earned over                          be maintained in the form of short-term
the life of the bonds.                                             market-yielding government securities
     Any deficiency in the liquidity reserves                      refers to government securities shall be
shall continue to be in the forms or modes                         purchased directly from the BSP Treasury

1
    From 6% to 9% regular reserve effective the reserve week starting 7 January 2005 under MAB dated 29 December 2004
    and from 9% to 10% regular reserve effective the reserve week starting 15 July 2005 under Circular 491 dated 12 July 2005
2
    From 10 % to 11% under Circular 491 dated 12 July 2005, effective the reserve week starting 15 July 2005.

Q Regulations                                       Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 8
                                                                                   §§ 4405Q.6 - 4406Q.1
                                                                                                08.12.31

Department at one-half percent (1/2%)               as well as TOFA-Others, the term value
below the prevailing market rate for an             per books shall refer to the total volume of
equivalent term and volume and subject to           CTFs, other managed peso funds, as well
BSP’s firm commitment to buy back at any            as TOFA-Others less booked “Allowance
time at prevailing market rates. Such               for Probable Losses”.
reserves in the form of short-term market-          (As amended by Circular No. 535 dated 04 July 2006)
yielding government securities shall be in
addition to other forms of eligible reserves            § 4405Q.8 Reserve deficiencies;
such as cash in vault or on deposit with            sanctions. The provisions of Section 4257Q
the BSP.                                            shall govern the computation of reserve
    All purchases of said government                deficiencies for peso-denominated CTFs and
securities shall be under the RoSS system           such other managed peso funds, as well as
of the BTr. Transactions covering said              for TOFA-Others, of institutions authorized
securities shall be recorded in accordance          to engage in trust and other fiduciary
with the guidelines in Appendix Q-21.               business, including the sanctions provided
                                                    in said Subsection.
    § 4405Q.7 Computation of reserve
position. An institution authorized to                  § 4405Q.9 Report of compliance
engage in trust and other fiduciary business        Every institution shall make a weekly
shall calculate daily the required and              report to the BSP of its daily required and
available reserves on the value per books           available reserves on peso-denominated
of its peso-denominated CTFs and such               CTFs and such other managed peso
other managed peso funds, as well as on             funds, as well as on TOFA-Others, to be
TOFA-Others, based on the seven-day                 submitted not later than the close of the
week, starting Friday and ending Thursday           third business day following the
including Saturdays, Sundays, holidays,             reference week.
non-business days and days when there is
no clearing: Provided, That with reference          Sec.  4406Q                 Organization              and
to holidays, non-business days and days             Management
where there is no clearing, the reserve
position at the close of business day                    § 4406Q.1 Organization. An institution
immediately preceding such holidays,                authorized to engage in trust and other
non-business days and days where there              fiduciary business shall, pursuant to Subsec.
is no clearing, shall apply thereon. For the        4404Q.1, include in its by-laws, provisions
purpose of computing reserve position, the          on the organization plan or structure of the
principal office in the Philippines and all         department, office or unit which shall
branches and agencies located therein shall         conduct such business. The by-laws shall
be treated as a single unit.                        also include provisions on the creation of a
    The required reserves in the current            trust committee, the appointment of a trust
period (reference reserve week) shall be            officer and other subordinate officers and a
computed based on the corresponding                 clear definition of their duties and
levels of peso-denominated CTFs and such            responsibilities as well as their line and staff
other managed peso funds, as well as                functional relationships within the
TOFA-Others of the prior week.                      organization which shall be in accordance
    For purposes of computing the                   with the following guidelines:
required and available statutory and                     a. Trust and other fiduciary business
liquidity reserves for peso-denominated             of an institution shall be carried out through
CTFs and such other managed peso funds,             a trust department which shall be


Manual of Regulations for Non-Bank Financial Institutions                                   Q Regulations
                                                                                           Part IV - Page 9
§§ 4406Q.1 - 4406Q.2
08.12.31

organizationally, operationally, administratively         c. The organization structure and
and functionally separate and distinct from           definition of duties and responsibilities of
the other departments and/or businesses of            the trust committee, officers and employees
the institution.                                      of the trust department shall reflect
    An institution which is also engaged in           adherence to the minimum internal control
investment management activities shall                standards prescribed by the BSP.
conduct the same only through its trust                   d. Provisions shall be made by the
department and the responsibilities of the            institution to have legal assistance readily
board of directors, trust committee and trust         available in the review of proposed and/or
officer shall be construed to include the             existing trust and fiduciary agreements and
proper administration and management of               documents and in the handling of legal and
investment management activities.                     tax matters related thereto.
    No institution shall undertake any of
the trust and other fiduciary business and,                § 4406Q.2 Composition of trust
whenever applicable, investment                       committee. The trust committee shall be
management activities outside the direct              composed of at least five (5) members
control, authority and management of the              including the president, the trust officer and
trust department or through any                       directors who are appointed by the board
department or office which is involved in             of directors on a regular rotation basis and
the other businesses of the institution, such         who are not officers of the institution
as the Treasury, Funds Management or any              proper. No member of the audit
similar department; otherwise, any such               committee, if the institution has any, shall
business shall be considered part of the              be concurrently designated as a member
institution’s real liabilities.                       of the trust committee: Provided, That in
    The institution proper and the trust              the case of a trust committee composed of
department may share the following                    more than five (5) members, the
activities: (1) electronic data processing; (2)       appointment therein of an operating officer
credit investigation; (3) collateral appraisal;       may be allowed only if the required
and (4) messengerial, janitorial and security         balance in the membership of at least three
services.                                             (3) members of the board for every
    b. The trust department, trust officer            operating officer shall be maintained.
and other subordinate officers of the trust                For purposes of this Subsection, the
department shall only be directly                     term officer shall include the president,
responsible to the institution’s trust                executive vice-president, general
committee which shall, in turn, be only               manager, corporate secretary, treasurer and
directly responsible to the institution’s             others mentioned as officers of the
board of directors.                                   institution, or those whose duties as such
    No director, officer or employee taking           are defined in the by-laws, or are generally
part in the management of trust and other             known to be officers of the institution (or
fiduciary accounts shall perform duties in            any of its branches and offices other than
other departments or the audit committee              the Head Office) either through
of the institution and vice versa. However,           announcement, representation, publication
branch managers duly authorized by the                or any kind of communication made by the
board of directors may, for or on behalf of           institution.
the officer, sign predrawn trust instruments               The board of directors shall duly note in
such as CTFs.                                         the minutes the committee members and




Q Regulations                              Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 10
                                                                                   §§ 4406Q.2 - 4406Q.4
                                                                                                09.12.31

designate the chairman who shall be one of                 (a) acceptance, termination, or closure of
the directors referred to above.                           trust and other fiduciary accounts; (b) proper
                                                           administration and management of each
     § 4406Q.3 Qualifications of committee                 trust and other fiduciary accounts; and
members, officers and staff. The                           (c) investment, reinvestment and disposition
institution’s trust department shall be staffed            of funds or property held in its capacity as
by persons of competence, integrity and                    trustee or fiduciary;
honesty. Directors, committee members and                       (2) It shall direct and review the actions
officers charged with the administration of                of the trust committee and all officers and
trust and other fiduciary activities shall, in             employees designated to manage the trust
addition to meeting the qualification                      and other fiduciary accounts, especially
standards prescribed for directors and                     accounts without specific agreements on
officers of FIs, possess the necessary                     investments or discretionary accounts;
technical expertise in such business:                           (3) It shall approve or confirm the
Provided, That trust officers who shall be                 acceptance, termination or closure of all
appointed shall have at least five (5) years               trust and other fiduciary accounts and shall
of actual experience in trust operations, or               record such in its minutes;
at least three (3) years of actual experience                   (4) Upon the acceptance of an account,
in trust operations and completed at least                 it shall immediately review all non-cash
one (1) year training program in trust                     assets received for management. Likewise,
operations acceptable to the BSP, or at least              it shall make a review of the trust and/or
five (5) years of actual experience as officer             fiduciary assets at least once every twelve
of a bank, NBFI or related activities and                  (12) months to determine the advisability of
completed at least one (1) year training                   retaining or disposing of such assets;
program in trust operations acceptable to                       (5) It shall be responsible for taking
the BSP.                                                   appropriate action on the examination
(As amended by Circular No. 665 dated 04 September 2009)   reports of supervisory agencies, internal
                                                           and/or external auditors on the institution’s
    § 4406Q.4 Responsibilities of                          trust and other fiduciary business and
administration                                             recording such actions thereon in the
    a. Board of Directors. The board of                    minutes;
directors is responsible for the proper                         (6) It shall designate the members of
administration and management of trust and                 the trust committee, the trust officer and
other fiduciary business. Funds and                        subordinate officers of the trust
properties held in trust or in any fiduciary               department and shall be responsible for
capacity shall be administered with the skill,             requiring reports from said committee and
care, prudence and diligence necessary                     officers and recording its actions thereon
under the circumstances then prevailing that               in the minutes; and
a prudent man, acting in like capacity and                      (7) It shall establish an appropriate
familiar with such matters, would exercise                 staffing pattern and adopt operating budgets
in the conduct of an enterprise of like                    that shall enable the trust department to
character and with similar aims.                           effectively carry out its functions. It shall
    The responsibilities of the board of                   likewise be responsible for providing the
directors shall include, but need not be                   officers and staff of the institution with
limited to the following:                                  appropriate training programs in the
    (1) It shall determine and formulate                   administration and operation of all phases
general policies and guidelines on the:                    of trust and other fiduciary business.



Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                         Part IV - Page 11
§§ 4406Q.4 - 4407Q
09.12.31

    The board of directors may, by action            (2) The implementation of policies and
duly entered in the minutes, delegate its        instructions of the board of directors and
authority for the acceptance, termination,       the trust committee;
closure or management of trust and other             (3) The submission of reports on
fiduciary accounts to the trust committee or     matters which require the attention of the
to the trust officer, subject to certain         trust committee and the board of directors;
guidelines approved by the board.                    (4) The maintenance of adequate
    b. Trust Committee. The trust                books, records and files for each trust or
committee duly constituted and authorized        other fiduciary account; and
by the board of directors shall act within           (5) The maintenance of necessary
the sphere of authority which may be             controls and measures to protect assets
provided in the by-laws and/or as may be         under his custody and held in trust or
delegated by the board, such as, but not         other fiduciary capacity.
limited to, the following:
    (1) The acceptance and closing of trust           § 4406Q.5 - 4406Q.8 (Reserved)
and other fiduciary accounts;
    (2) The initial review of assets placed          § 4406Q.9 Outsourcing services in
under the trustee’s or fiduciary’s custody;      trust departments. Trust departments of
    (3) The investment, reinvestment and         QBs performing trust and other fiduciary
disposition of funds or property;                business and investment management
    (4) The review and approval of               activities are covered by the requirement of
transactions between trust and/or fiduciary      prior BSP approval for outsourcing services
accounts; and                                    under Appendix Q-37.
    (5) The review of trust and other            (M-2007-009 dated 22 March 2007)
fiduciary accounts at least once every
twelve (12) months to determine the                  § 4406Q.10 Approval of the
advisability of retaining or disposing of        appointment/designation of trust
the trust or fiduciary assets, and/or            officers. Regardless of rank, the
whether the account is being managed             appointment/designation of trust officers
in accordance with the instrument                shall require prior approval of the
creating the trust or other fiduciary            Monetary Board. The bio-data of the
relationship.                                    proposed trust officers shall be submitted
    For this purpose, the trust committee        to the appropriate department of the SES.
shall meet whenever necessary and keep               The appointment/designation of all
minutes of its actions and make periodic         incumbent trust officers not previously
reports thereon to the board.                    approved/confirmed by the Monetary
    c. Trust Officer. The trust officer          Board shall be submitted, within six (6)
designated by the board of directors as          months from 24 September 2009, to the
head of the Trust Department shall act and       BSP, through the appropriate department
represent the institution in all trust and       of the SES, for approval.
other fiduciary matters within the sphere        (Circular 665 dated 04 September 2009)
of his authority as may be provided in the
by-laws or as may be delegated by the            Sec. 4407Q Non-Trust, Non-Fiduciary and/or
board. His responsibilities shall include,       Non-Investment Management Activities
but need not be limited to, the following:       The basic characteristic of trust, other
    (1) The administration of trust and          fiduciary and investment management
other fiduciary accounts;                        relationship is the absolute non-existence



Q Regulations                         Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 12
                                                                               §§ 4407Q - 4408Q
                                                                                       09.12.31

of a debtor-creditor relationship, thus, there      and it does not, therefore, entitle the client
is no obligation on the part of the trustee,        to a fixed interest or return on his
fiduciary or investment manager to                  investments: Provided, further, That any of
guarantee returns on the funds or properties        the following practices or practices similar
regardless of the results of the investment.        and/or tantamount thereto shall be
The trustee, fiduciary or investment manager        construed as fixing or guaranteeing the rate
is entitled to fees/commissions which shall         of interest, income or return:
be stipulated and fixed in the contract or               (1) Issuance of certificates, side
indenture and the trustor or principal is           agreements, letters of undertaking, or other
entitled to all the funds or properties and         similar documents providing for fixed rates
earnings less fees/commissions, losses and          or guaranteeing interest, income or return;
other charges. Any agreement/arrangement                 (2) Paying trust earnings based on
that does not conform to these shall not be         indicated or expected yield regardless of the
considered as trust, other fiduciary or             actual investment results;
investment management relationship.                      (3) Increasing or reducing fees in order
     The following shall not constitute a trust,    to meet a quoted or expected yield; and
other fiduciary and/or investment                        (4) Entering into any arrangement,
management relationship:                            scheme or practice which results in the
     a. When there is a preponderance of            payment of fixed rates or yield on trust
purpose or of intent that the arrangement           investments or in the payment of the
creates or establishes a relationship other         indicated or expected yield regardless of the
than a trust, fiduciary and/or investment           actual investment results; and
management;                                              e. Where the risk or responsibility is
     b. When the agreement or contract is           exclusively with the trustee, fiduciary or
itself used as a certificate of indebtedness        investment manager in case of loss in the
in exchange for money placement from                investment of trust, fiduciary or investment
clients and/or as the medium for confirming         management funds, when such loss is not
placements and investment thereof;                  due to the failure of the trustee or fiduciary
     c. When the agreement or contract of           to exercise the skill, care, prudence and
an account is accepted under the                    diligence required by law.
signature(s) of those other than the trust               Trust, other fiduciary and investment
officer or subordinate officer of the trust         management activities involving any of the
department or those authorized by the board         foregoing which are accepted, renewed or
of directors to represent the trust officer;        extended after 16 October 1990 shall be
     d. Where there is a fixed rate or              reported as deposit substitutes and shall
guaranty of interest, income or return in favor     be subject to the reserve requirement for
of its client or beneficiary: Provided,             deposit substitutes from the time of
however, That where funds are placed in             inception, without prejudice to the
fixed income-generating investments, a              imposition of the applicable sanctions
quotation of income expectation or like             provided for in Sections 36 and 37 of
terms, shall neither be considered as               R.A. No. 7653, and Sections 12 and 16 of
arrangements with a fixed rate nor a                P.D. No. 129, as amended.
guaranty of interest, income or return when
the agreement or indenture categorically            Sec. 4408Q Unsafe and Unsound
states in bold letters that the quoted income       Practices. Whether a particular activity may
expectation or like terms is neither assured        be considered as conducting business in an
nor guaranteed by the trustee or fiduciary          unsafe or unsound manner, all relevant facts



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part IV - Page 13
§§ 4408Q - 4408Q.9
09.12.31

must be considered. An analysis of the                 a. Entering in an arrangement whereby
impact thereof on the QB’s/trust entity’s          the client is at the same time the borrower
operations and financial conditions must be        of his own fund placement, or whereby the
undertaken, including evaluation of capital        trustor or principal is a borrower of other
position, asset condition, management,             trust, fiduciary or investment management
earnings posture and liquidity position.           funds belonging to the same family or
     In determining whether a particular act       business group of such trustor or principal;
or omission, which is not otherwise                    b. Granting loans or accommodations
prohibited by any law, rule or regulation          to any trust committee member, officer and
affecting QBs/trust entities, may be deemed        employee of the trust department except
as conducting business in an unsafe or             where such loans are obtained by said
unsound manner, the Monetary Board, upon           persons as members of an employee benefit
report of the head of the SES based on             fund of the trustee’s own institution;
findings in an examination or a complaint,             c. Borrowing from, or selling trust,
shall consider any of the following                other fiduciary and/or investment
circumstances:                                     management assets to, the trust corporation
     a. The act or omission has resulted or        or IH proper to cover portfolio losses
may result in material loss or damage, or          and/or to guarantee the return of principal
abnormal risk or danger to the safety,             or income;
stability, liquidity or solvency of the                d. Granting new loans to any borrower
institution;                                       who has a past due and/or classified loan
     b. The act or omission has resulted or        account with the institution itself or its trust
may result in material loss or damage or           department; and
abnormal risk to the institution’s depositors,         e. Requiring clients to sign documents
creditors, investors, stockholders, or to the      in blank.
BSP, or to the public in general;                  (As amended by Circular No. 640 dated 16 January 2009)
     c. The act or omission has caused any
undue injury, or has given unwarranted                  §§ 4408Q.1 - 4408Q.8 (Reserved)
benefits, advantage or preference to the QB/
trust entity or any party in the discharge by           § 4408Q.9 Sanctions. The Monetary
the director or officer of his duties and          Board may, at its discretion and based on
responsibilities through manifest partiality,      the seriousness and materiality of the acts
evident bad faith or gross inexcusable             or omissions, impose any or all of the
negligence; or                                     following sanctions provided under Section
     d. The act or omission involves entering      37 of R.A. No. 7653 and Section 56 of
into any contract or transaction manifestly        R.A. No. 8791, whenever a QB/trust entity
and grossly disadvantageous to the QB/trust        conducts business in an unsafe and unsound
entity, whether or not the director or officer     manner:
profited or will profit thereby.                        a. Issue an order requiring the QB/trust
     The list of activities which may be           entity to cease and desist from conducting
considered unsafe and unsound is shown             business in an unsafe and unsound manner
in Appendix Q-24.                                  and may further order that immediate action
     In line with the statement of principles      be taken to correct the conditions resulting
governing trust and other fiduciary business       from such unsafe or unsound practice;
under Sec. 4401Q, the trustee, fiduciary or             b. Fines in amounts as may be
investment manager shall desist from the           determined by the Monetary Board to be
following unsound practices:                       appropriate, but in no case to exceed



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 14
                                                                                     § 4408Q.9
                                                                                       08.12.31

P30,000 a day on a per transaction basis                e. Revocation of quasi-banking license
taking into consideration the attendant             and/or trust authority; and/or
circumstances, such as the gravity of the               f. Receivership and liquidation under
act or omission and the size of the QB/             Section 30 of R.A. No. 7653.
trust entity, to be imposed on the QB/trust             All other provisions of Sections 30 and
entity, their directors and/or responsible          37 of R.A. No. 7653, whenever appropriate,
officers;                                           shall also be applicable on the conduct of
    c. Suspension of lending or foreign             business in an unsafe or unsound manner.
exchange operations or authority to accept              The imposition of the above sanctions
new deposit substitutes and/or new trust            is without prejudice to the filing of
accounts or to make new investments;                appropriate criminal charges against
    d. Suspension of responsible directors          culpable persons as provided in Sections 34,
and/or officers;                                    35 and 36 of R.A. No. 7653.


                                  (Next page is Part IV- Page 15)




Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                               Part IV - Page 14a
                                                                                §§ 4409Q - 4409Q.2
                                                                                           08.12.31

Sec. 4409Q Trust and Other Fiduciary                     (10) The amount or rate of the
Business. The conduct of trust and other            compensation of trustee or fiduciary;
fiduciary business shall be subject to the               (11) A statement in noticeable print to
following regulations.                              the effect that trust and other fiduciary
                                                    business are not covered by the PDIC and
    § 4409Q.1 Minimum documentary                   that losses, if any, shall be for the account
requirements. Each trust or fiduciary               of the client; and
account shall be covered by a written                    (12) Disclosure requirements for
document establishing such account, as              transactions requiring prior authority
follows:                                            and/or specific written investment directive
    a.    In the case of accounts created by        from the client, court of competent
an order of the court or other competent            jurisdiction or other competent authority.
authority, the written order of said court or
authority.                                               § 4409Q.2 Lending and investment
    b. In the case of accounts created by           disposition. Assets received in trust or in other
corporations, business firms, organizations         fiduciary capacity shall be administered in
or institutions, the voluntary written              accordance with the terms of the instrument
agreement or indenture entered into by              creating the trust or other fiduciary relationship.
the parties, accompanied by a copy of the                When a trustee or fiduciary is granted
board resolution or other evidence                  discretionary powers in the investment
authorizing the establishment of, and               disposition of trust or other fiduciary funds and
designating the signatories to, the trust or        unless otherwise specifically enumerated in
other fiduciary account.                            the agreement or indenture and directed in
    c.    In the case of accounts created by        writing by the client, court of competent
individuals, the voluntary written                  jurisdiction or other competent authority,
agreement or indenture entered into by the          loans and investments of the fund shall be
parties.                                            limited to:
    The voluntary written agreement or                   a. Evidences of indebtedness of the
indenture shall include the following               Republic of the Philippines and of the BSP,
minimum provisions:                                 and any other evidences of indebtedness or
    (1) Title or nature of contractual              obligations the servicing and repayment of
agreement in noticeable print;                      which are fully guaranteed by the Republic
    (2) Legal capacities, in noticeable             of the Philippines or loans against such
print, of parties sought to be covered;             government securities;
    (3) Purposes and objectives;                         b. Loans fully guaranteed by the
    (4) Funds and/or properties subject of          Republic of the Philippines as to the
the arrangement;                                    payment of principal and interest;
    (5) Distribution of the funds and/or                 c. Loans fully secured by a hold-out on,
properties;                                         assignment or pledge of deposit substitutes
    (6) Duties and powers of trustee or             of the institution or deposits with other
fiduciary;                                          banks, or mortgage and chattel mortgage
    (7) Liabilities of the trustee or               bonds issued by the trustee or fiduciary;
fiduciary;                                               d. Loans fully secured by real estate or
    (8) Reports to the client;                      chattels in accordance with Section 78 of
    (9) Termination of contractual                  R.A. No. 337, as amended, and subject to
arrangement and, in appropriate cases,              the requirements of Sections 75, 76 and 77
provision for successor-trustee or fiduciary;       of R.A. No. 337, as amended; and



Manual of Regulations for Non-Bank Financial Institutions                             Q Regulations
                                                                                    Part IV - Page 15
§§ 4409Q.2 - 4409Q.4
08.12.31

     e. Investment in the BSP special                   not as trustee nor in a representative
deposit account (SDA) facility made in                  capacity;
accordance with the guidelines in Appendix                   c. Invest in equities of, or in securities
Q-46.                                                   underwritten by, the trustee or fiduciary or
     The specific directives required under             a corporation in which the trustee or
this Subsection shall consist of the following          fiduciary owns at least fifty percent (50%)
information:                                            of the subscribed capital or voting stock in
     (1) The transaction to be entered into;            its own right and not as trustee nor in a
     (2) The borrower’s name;                           representative capacity; and
     (3) Amount involved; and                                d. Sell, transfer, assign, or lend money
     (4) Collateral security(ies), if any.              or property from one trust or fiduciary
(As amended by M-2007-038 dated 29 November 2007 and    account to another trust or fiduciary account
M-2007-011 dated 08 May 2007)                           except where the investment is in any of
                                                        those enumerated in Items "a" to "d" of
    § 4409Q.3 Transactions requiring                    Subsec. 4409Q.2.
prior authority. A trustee or fiduciary shall                Directors, officers, stockholders, and
not undertake any of the following                      their related interest covered by this
transactions for the account of a client,               Subsection shall be those considered as
unless prior to its execution, such                     such under existing regulations on loans
transaction has been fully disclosed and                to DOSRI in Part III-E of this Manual. The
specifically authorized in writing by the               procedural and reportorial requirements in
client, beneficiary, other party-in-interest,           said regulations shall also apply.
court of competent jurisdiction or other                     The disclosure required under this
competent authority:                                    Subsection shall consist of the following
    a. Lend, sell, transfer or assign money             minimum information:
or property to any of the departments,                       (1) The transactions to be entered into;
directors, officers, stockholders or                         (2) Identities of the parties involved
employees of the trustee or fiduciary, or               in the transactions and their relationships
relatives within the first degree of                    (shall not apply to Item "d" of this
consanguinity or affinity, or the related               Subsection);
interests of such directors, officers and                    (3) Amount involved; and
stockholders; or to any corporation where                    (4) Collateral security(ies), if any.
the trustee or fiduciary owns at least fifty                 The above information shall be made
percent (50%) of the subscribed capital or              known to clients in a separate instrument
voting stock in its own right and not as                or in the very instrument creating the trust
trustee nor in a representative capacity;               or fiduciary relationship.
    b. Purchase or acquire property or
debt instruments from any of the                            § 4409Q.4 Ceilings on loans. Loans
departments,         directors,     officers,           funded by trust accounts shall be subject
stockholders, or employees of the trustee               to the single borrower’s loan limit and
or fiduciary, or relatives within the first             DOSRI ceilings imposed on QBs under
degree of consanguinity or affinity, or the             Part III - A and - E of this Manual. For
related interest of such directors, officers            purposes of determining compliance with
and stockholders; or from any corporation               said ceilings, the total amount of said loans
where the trustee or fiduciary owns at                  granted by the institution and its trust
least fifty percent (50%) of the subscribed             department to the same person, firm or
capital or voting stock in its own right and            corporation shall be combined.



Q Regulations                                Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 16
                                                                                 §§ 4409Q.5 - 4409Q.6
                                                                                              09.12.31

    § 4409Q.5 Funds awaiting investment             by the trustee or fiduciary as dividends/
or distribution. Funds held by the trustee          earnings or divestment proceeds on such
or fiduciary awaiting investment or                 investment are intended for reinvestment
distribution shall not be held uninvested           abroad, the same proceeds are not required
or undistributed any longer than is                 to be inwardly remitted and sold for pesos
reasonable for the proper management of             through authorized agent banks: Provided,
the account.                                        That such proceeds are reinvested abroad
                                                    within two (2) banking days from receipt of
    § 4409Q.6 Other applicable                      the funds abroad;
regulations on loans and investments - trust             (2) The trustee or fiduciary shall
and other fiduciary accounts. The loans and         purchase, invest, reinvest, sell, transfer or
investments of trust and other fiduciary            dispose foreign currency-denominated
accounts shall be subject to pertinent laws,        financial instruments, including securities as
rules and regulations for QBs that shall            defined in Section 3 of the SRC, through a
include, but need not be limited to, the            distributor or underwriter duly authorized
following:                                          or licensed by the government of the issuer
    a. Requirements of Sections 39 and 40           of such instruments, or a counterparty FI
of R.A. No. 8791 (The General Banking               (seller or buyer) accredited by the trustee or
Law of 2000);                                       fiduciary: Provided, That, the conduct,
    b. Provisions of Section 4(e) of the New        documentation, and settlement of any of
Rules on Registration of Short-Term                 these transactions shall be outside
Commercial Papers and Section 7(f) of the           Philippine jurisdiction;
New Rules on the Registration of Long-Term               (3) The trustee of fiduciary shall record
Commercial Papers issued by the SEC                 cross-currency investment transactions in
(Appendices Q-7 and Q-8).                           the peso regular books at their foreign
    c. Criteria for past due accounts; and          currency amounts and their local currency
    d. Qualitative appraisal of loans,              equivalent using the Philippine Dealing
investments and other assets that may               System peso/US dollar closing rate and the
require provisions for probable losses              New York US dollar/third currencies closing
which shall be booked in accordance with            rate; and
the Financial Reporting Package for Trust                (4) The trustee or fiduciary shall comply
Institutions (FRPTI);                               with the reportorial requirements that may
    e. Requirements of Sections 3 and 8             be prescribed by the BSP, which shall
of the Securities and Regulation Code               include as a minimum, the foreign currency
(SRC); and                                          amount and the local currency equivalent
    f. Provisions of Section 44 –                   of the total cross currency investments with
Investments by Philippine residents – of            details on: (a) type of investments; and
the BSP Manual of Regulations on Foreign            (b) amount of cash flow converted.
Exchange Transactions (FX Manual), such                  For purposes of this Subsection,
that the cross-currency investments of peso         “resident”, as defined under Section 1 of the
trust and other fiduciary accounts,                 FX Manual, shall refer to the (a) trustee or
including peso unit investment trust (UIT)          fiduciary that administers the assets received
funds, shall be subject to the following            in trust or in other fiduciary capacity; or
conditions:                                         (b) principal that engages the services of the
    (1) All cash flows of the trustee or            investment manager under an investment
fiduciary shall only be in pesos. In case           management agreement.
the foreign exchange acquired or received           (As amended by Circular No. 676 dated 29 December 2009)




Manual of Regulations for Non-Bank Financial Institutions                                 Q Regulations
                                                                                        Part IV - Page 17
§§ 4409Q.7 - 4409Q.9
09.12.31

     § 4409Q.7 Operating and accounting                         Necessarily, the trust indenture/
methodology. Trust and other fiduciary                     agreement shall clearly indicate the date
accounts shall be operated and accounted                   when the trustee-bank actually received the
for in accordance with the following:                      trust funds which shall serve as basis for
     a. The trustee or fiduciary shall                     determining the holding period of the funds.
administer, hold or manage the fund or                          d. A trustee may accept additional
property in accordance with the instrument                 funds for inclusion in trust accounts which
creating the trust or other fiduciary                      have been established as tax-exempt under
relationship; and                                          R.A. No. 8424. However, the receipt of
     b. Funds or property of each client                   additional funds shall be properly
shall be accounted separately and distinctly               documented by indicating that they are part
from those of other clients herein referred                of existing tax-exempt trust accounts and
to as individual account accounting.                       that the interest income of the additional
                                                           funds derived from investments in interest-
     § 4409Q.8 Tax-exempt individual trust                 bearing instruments shall be exempt from
accounts. The following shall be the features/             the twenty percent (20%) final tax under the
requirements of individual trust accounts                  same conditions mentioned in the preceding
which may be exempted from the twenty                      item. The document shall also indicate the
percent (20%) final tax under Section                      date when the funds were received by the
24(B)(1) of R.A. No. 8424 (The Tax Reform                  trustee-bank to serve as basis for determining
Act of 1997):                                              the minimum five (5) - year holding period
     a. The tax exemption shall apply to                   for tax exemption purposes of the additional
trust indentures/agreements contracted on                  funds; and
or after 03 January 2000;                                       e. Tax-exempt individual trust
     b. The trust indenture/agreement shall                accounts established under this Subsec.
only be between individuals who are Filipino               shall be subject to the provisions of Subsecs.
citizens or resident aliens and QBs acting as              4409Q.1(c) and 4409Q.2 up to 4409Q.7.
trustee. The trust indenture/agreement shall be
non-negotiable and non-transferable;                            § 4409Q.9 Living trust accounts
     c. The trust indenture/agreement shall                The guidelines on living trust accounts are
indicate that pursuant to Section 24(B)(1) of              as follows:
R.A. No. 8424, interest income of the trust                     a. Definition. Living Trust is defined
fund derived from investments in interest-                 under the Manual of Accounts for Trust, as
bearing instruments (e.g., time deposits,                  a personal trust created by agreement.
government securities, loans and other debt                It becomes operational during the lifetime
instruments) which are otherwise subject to                of the trustor as soon as the agreement is
the twenty percent (20%) final tax shall be                accomplished.
exempt from said final tax provided the fund                    Under a living trust, the trustor (also
was held by the trustee-QB for at least five               known as settlor) conveys property or a sum
(5) years. If said fund was held for a period              of money to be managed by the trustee, as
less than five (5) years interest income shall             the agreement dictates, for the benefit of the
be subject to a final tax based on the                     trustor and third person(s) or third person(s)
following schedule –                                       only. However, the trustor/s cannot create
                                                           a trust with himself/ themselves as the sole
       Holding Period                       Rate of Tax
Four (4) years to less than five (5) years         5%
                                                           beneficiary/(ies). The functions and
Three (3) years to less than four (4) years      12%       authorities of the trustee as defined in the
Less than three (3) years                        20%       agreement shall include:


Q Regulations                                   Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 18
                                                                                       § 4409Q.9
                                                                                         09.12.31

     (1) the purpose or intention of the trust;          (5) Pre-printed living trust agreements
     (2) the nature and value of the property       may be allowed for expediency: Provided
or sum of money that comprise the trust;            That the sections for the trust purpose and
     (3) the trustee’s investment powers;           the dispositive provision are left blank and
     (4) the name(s) of the beneficiaries; and      shall only be filled-up upon the client’s
     (5) the terms and conditions under             signing thereof. The purpose shall
which the income and/or principal of the            categorically state the real intention of the
trust is to be paid or to be disposed of during     trustor, which may include, but need not
the lifetime and ultimately, upon the death         be limited to:
of the trustor or upon the occurrence of a               (a) providing his/her and beneficiary/
specified event(s).                                 (ies) present and/or future financial support;
     A living trust may either be revocable              (b) protecting his/her beneficiary/(ies)
or irrevocable.                                     against his/her inexperience in business
     b. Minimum criteria. In line with such         matters;
definition, transactions considered as living            (c) preventing him/her from making
trust accounts should meet the following            imprudent expenditures;
minimum criteria:                                        (d) prevent the beneficiary/(ies) from
     (1) Minimum entry amount and                   living beyond their means in case of outright
maintaining balance shall at least be               disposition of assets in their favor;
P100,000: Provided, That living trust                    (e) protecting the beneficiary/(ies)
accounts with balances of up to P500,000            against unforeseen contingencies such as
shall only be invested in deposits and              incompetency, incapacity, physical
government securities;                              disability or similar misfortune; and
     (2) Living trust accounts shall be                  (f) setting aside and segregating
maintained for a minimum period of six (6)          particular assets, proceeds or payments for
months. The termination of the living trust         administration and distribution pursuant to
agreement, for any cause, within the                a court decree or by agreement.
minimum holding period shall render the                  The dispositive provision should clearly
trustor ineligible from opening a new living        and specifically define the terms and
trust account within a period of one (1) year       conditions under which the principal
from termination date;                              and/or income shall be distributed in order
     (3) Reversion of any part of the principal     to accomplish such purpose/(s), by taking
to the trustor, except in cases provided            into consideration the frequency of
under the dispositive portion, shall be             redemption; the respective interests of each
allowed only upon termination of the living         beneficiary; and to whom the proceeds shall
trust agreement: Provided, That in no case          be payable. Redemption of funds shall
can there be a complete or substantial              strictly be in accordance with the said terms
reversion of the principal pursuant to the          and conditions; and
dispositive portion within the minimum                   (6) A living trust account may be
holding period nor can the principal fall           opened jointly under one (1) living trust
below P100,000;                                     agreement by related individuals up to the
     (4) Any living trust account that does not     second degree of consanguinity or affinity:
meet the requirement on the minimum entry           Provided, That the requirements under Item
and minimum maintaining balance or is not           “5” above are fully complied with. Unrelated
invested in qualified outlets shall be considered   individuals or those beyond the second
as other fiduciary accounts subject to              degree of consanguinity or affinity may
applicable reserve and other requirements;          likewise open a joint living trust account



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                Part IV - Page 18a
§ 4409Q.9
09.12.31

under one (1) living trust agreement:                           managers/officers may be allowed to refer
Provided, That the minimum contribution                         clients to the Trust Department and give
of each individual is at least P100,000:                        short introduction on the living trust
Provided further, That the trust is for a                       products to prospective clients.
common purpose and: Provided, finally,                               d. Transitory Provision. Outstanding
That the requirements under Item “5” are                        living trust accounts that do not meet the
fully complied with.                                            foregoing additional requirements shall be
     c. Marketing. Officers and personnel                       given twelve (12)1 months from 11 April
of the institution proper, including branch                     2006 to comply with the aforestated
managers, shall not be allowed to market                        requirements; otherwise, such accounts shall
living trust products and sign pre-printed                      be considered as Other Fiduciary Accounts
living trust agreements. However, branch                        subject to applicable reserve requirements.


                                            (Next page is Part IV - Page 19)




1
    Original 6 months transitory period under Circular No. 521 extended by another 6 months under Circular No. 553.

Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 18b
                                                                              §§ 4409Q.09 - 4409Q.16
                                                                                             08.12.31

   e. Sanctions. Any violation of the                     or bond and/or his related interests own
provisions of this Subsection shall be                    such number of shares of the QB that will
subject to the sanctions provided under                   allow him or his related interests to elect at
Section 37 of R.A. No. 7653 (The New                      least one (1) member of the board of
Central Bank Act).                                        directors of such QB or is directly or
(Circular Nos. 553 dated 22 December 2006 and 521 dated   indirectly the registered or beneficial owner
21 March 2006)                                            of more than ten percent (10%) of any class
                                                          of its equity security.
    §§ 4409Q.10 - 4409Q.15 (Reserved)                          e. Investment and management of the
                                                          funds. A domestic QB designated as trustee
    § 4409Q.16 Qualification and                          of a mortgage or bond issuance may hold
accreditation of quasi-banks acting as trustee            and manage, in accordance with the
on any mortgage or bond issuance by any                   provisions of the trust indenture or
municipality, government-owned or                         agreement, the proceeds of the mortgage
controlled corporation, or any body politic               or bond issuance and such assets and funds
    a. Applicability. QBs duly accredited                 of the issuing municipality, corporation, or
by the BSP may act as trustee on any                      body politic as may be required to be
mortgage or bond issued by any                            delivered to the trustee under the Trust
municipality, GOCC, or any body politic.                  indenture/agreement, subject to the
    b. Application for accreditation. A QB                following conditions/restrictions:
desiring to act as trustee on any mortgage                     (1) Pending the utilization of such
or bond issued by any municipality,                       funds pursuant to the provisions of the trust
GOCC, or any body politic shall file an                   indenture/agreement, the same shall only
application for accreditation with the                    be (i) deposited in a bank authorized to
appropriate department of the SES. The                    accept deposits from the Government or
application shall be signed by the president              government entities: Provided, That the
or officer of equivalent rank of the QB and               depository bank is not a subsidiary or
shall be accompanied by the following                     affiliate of the trustee QB, or (ii) invested
documents:                                                in peso-denominated treasury bills
    (1) certified true copy of the resolution             acquired/purchased from any securities
of the institution’s board of directors                   dealer/entity, other than the trustee or any
authorizing the application;                              of its unit/department, its subsidiary or
    (2) a certification signed by the                     affiliate.
president or officer of equivalent rank that                   (2) Investments of funds constituting
the institution has complied with all the                 or forming part of the sinking fund created
qualification requirements for accreditation.             as the primary source for the payment of
    c. Qualification requirements. A QB                   the principal and interests due the
applying for accreditation to act as trustee              mortgage or bonds shall also be limited
on any mortgage or bond issued by any                     to deposits in any bank authorized to
municipality, GOCC, or any body politic                   accept deposits from the Government or
must comply with the requirements in                      government entities and investments in
Appendix Q-31.                                            government securities that are consistent
    d. Independence of the trustee. A QB                  with such purpose which must be
is prohibited from acting as trustee of a                 acquired/purchased from any securities
mortgage or bond issuance if any elective                 dealer/entity, other than the trustee or any
or appointive official of the LGU, GOCC,                  of its unit/department, its subsidiary or
or body politic which issued said mortgage                affiliate.



Manual of Regulations for Non-Bank Financial Institutions                                Q Regulations
                                                                                       Part IV - Page 19
§§ 4409Q.16 - 4409Q.17
08.12.31

     f. Waiver of confidentiality. A QB                (c) Revocation of the authority to act as
designated as trustee of any mortgage or          trustees on any mortgage or bond issuance
bond issued by any municipality, GOCC,            by any municipality, GOCCs, or body
or any body politic shall submit to the           politic.
appropriate department of the SES a waiver             (3) Subsequent offense –
of the confidentiality of information under            (a) Fine of up to P30,000 a day for the
Sections 2 and 3 of R.A. No. 1405, as             institution for each violation reckoned from
amended, duly executed by the issuer of the       the date the violation was committed up to
mortgage or bond in favor of the BSP.             the date it was corrected;
     g. Reportorial requirements. A QB                 (b) Suspension or revocation of the trust
authorized by the BSP to act as trustee of        license;
the proceeds of mortgage or bond issuance              (c) Suspension for 120 days without
of a municipality, GOCC, or body politic          pay of the directors/officers responsible for
shall comply with reportorial requirements        the violation.
that may be prescribed by the BSP.
     h. Applicability of the rules and                 § 4409Q.17 Trust fund of pre-need
regulations on Trust, Other Fiduciary             companies. The following rules and
Business and Investment Management                regulations shall govern the acceptance,
Activities. The provisions of the Rules and       management and administration of the trust
Regulations on Trust, Other Fiduciary             funds of pre-need companies by entities
Business and Investment Management                authorized to perform trust and other
Activities not inconsistent with the              fiduciary functions.
provisions of this Subsection shall form part          a. Administration of trust fund. In line
of these rules.                                   with the policy of providing greater
     i. Sanctions. Without prejudice to the       protection to pre-need planholders,
penal and administrative sanctions                prudential measures are hereby laid out in
provided for under Sections 36 and 37,            the administration of trust funds of pre-need
respectively, of the R.A. No. 7653,               companies. The trust fund, inclusive of
violation of any provision of this Subsection     earnings, shall be administered and
shall be subject to the following sanctions/      managed by the trustee with the skill, care,
penalties depending on the gravity of the         prudence and diligence necessary under
offense:                                          the circumstances then prevailing that a
     (1) First offense –                          prudent man, acting in the same capacity
     (a) Fine of up to P10,000 a day for the      and familiar with such matters, would
institution for each violation reckoned from      exercise in the conduct of an enterprise of
the date the violation was committed up           a like character and similar aims.
to the date it was corrected; and                      The trustee shall have exclusive
     (b) Reprimand for the directors/officers     management and control over the trust
responsible for the violation.                    fund and the right at any time to sell,
     (2) Second offense –                         convert, invest, change, transfer or
     (a) Fine of up to P20,000 a day for the      otherwise dispose of the assets comprising
institution for each violation reckoned from      the funds.
the date the violation was committed up                b. Trustee. No trust entity shall act as
to the date it was corrected;                     a trustee or administer or hold a trust fund
     (b) Suspension for ninety (90) days          established by a pre-need company, which
without pay for directors/officers                is a subsidiary or affiliate, as defined under
responsible for the violation; and                existing BSP regulations, of such trust entity.



Q Regulations                          Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 20
                                                                                       § 4409Q.17
                                                                                          08.12.31

Trust entities currently holding or                       (6) Loans      fully    secured        by
administering trust funds of an affiliate            unconditional payment guarantees (such as
pre-need company may continue to act as              standby letters of credit and letter of
trustee of such funds after the transition           indemnity) issued by banks/multilateral FIs.
period provided under Item “g” only upon                  d. Transactions with DOSRI. The
prior approval of the Monetary Board on the          trustee shall not, for the account of the
basis of a clear showing that no potential           trustor or the beneficiary of the trust,
conflict of interest will arise. An absence of       purchase or acquire property from, or sell,
any exception or finding on conflicts of             transfer, assign or lend money or property
interest during an examination of the trust          to, or purchase debt instruments of, any of
entity shall be deemed as prima facie                the departments, directors, officers,
evidence that no potential conflict of interest      stockholders, employees, subsidiaries and
will arise.                                          affiliates of the trustee and/or the trustor,
    c. Investment of the trust fund. Unless          and relatives within the first degree of
otherwise allowed under existing laws or             consanguinity or affinity, or the related
regulations issued by the agency having              interests, of such directors, officers and
jurisdiction and supervision over pre-need           stockholders, without prejudice to any rule
companies, or with prior written approval            that may be issued by the agency having
by said agency, loans and investments of             jurisdiction and supervision over such
the trust funds shall be limited to:                 pre-need company allowing such
    (1) Evidences of indebtedness of the             transaction with the prior written approval
Republic of the Philippines and of the BSP,          of such agency. Such written approval
and any other evidences of indebtedness or           shall clearly specify the amount of the loan
obligations wherein the servicing and                and/or investment including the name of
repayment of which are fully guaranteed by           the concerned director, officer, stockholder
the Republic of the Philippines or loans             and their related interests.
against such government securities;                       e. Applicability of the Rules and
    (2) Commercial papers duly registered            Regulations on Trust, Other Fiduciary
with the SEC with a credit rating of one (1)         Business and Investment Management
for short term and “AAA” for long-term or            Activities (Trust Rules). The provisions of
their equivalent;                                    the Trust Rules consistent with the
    (3) Loans fully guaranteed by the                provisions of this Subsection shall
Republic of the Philippines, as to the               supplementarily apply to trust funds of
payment of principal and interest;                   pre-need companies.
    (4) Loans fully secured by a hold-out                 f. Penalties and sanctions. Any
on, assignment or pledge of deposits                 violation of the provisions of this Subsection
maintained with banks, and/or of deposit             shall be a ground for prohibiting the
substitutes or of mortgage and chattel               concerned entity from accepting, managing
mortgage bonds issued by the trustee/                and administering trust funds of pre-need
fiduciary or by banks;                               companies without prejudice to the
    (5) Loans fully secured by real estate in        imposition of the applicable sanctions
accordance with Section 37 and subject to            prescribed or allowed under the Trust Rules.
the requirements of Sections 39 and 40 of                 g. Transitory provisions. Institutions
R.A. No. 8791 and their implementing                 performing trust and other fiduciary
regulations; and                                     business which are presently administering




Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                  Part IV - Page 21
§§ 4409Q.17 - 4410Q.5
08.12.31

and managing trust funds of pre-need                              § 4410Q.3 Administration of a Unit
companies are hereby given a period of one                    Investment Trust Fund. The trustee shall
(1) year from 25 April 2006 to comply with                    have exclusive management and control
the requirements hereof.                                      of each UIT Fund under its administration,
(Memorandum to All Banks and NBFIs dated 28 March 2006)       and the sole right at any time to sell,
                                                              convert, reinvest, exchange, transfer or
Sec. 4410Q Unit Investment Trust Funds/                       otherwise change or dispose of the assets
Common Trust Funds1. The following rules                      comprising the fund: Provided, That no
and regulations shall govern the creation,                    participant in a UIT Fund shall have or be
administration and investment/s of Unit                       deemed to have any ownership or interest
Investment Trust (UIT) Funds.                                 in any particular account or investment in
    The rules and regulations on Common                       the UIT Fund but shall have only its
Trust Funds (CTFs) are in Appendix Q-32.                      proportionate beneficial interest in the fund
                                                              as a whole.
     § 4410Q.1 Definition
     a. Unit Investment Trust Funds. Unit                         § 4410Q.4 Relationship of trustee with
Investment Trust Funds are open-ended                         Unit Investment Trust Fund. A trustee
pooled trust funds denominated in pesos or                    administering a UIT Fund shall not have
any acceptable currency, which are operated                   any other relationship with such fund other
and administered by a trust entity and made                   than its capacity as trustee of the UIT Fund:
available by participation. The term Unit                     Provided, however, That a trustee which
Investment Trust Fund is synonymous to                        simultaneously administers other trust,
CTFs. As an open-ended fund, participation                    fiduciary or investment management funds
or redemption is allowed as often as stated                   may invest such funds in the trustee’s UIT
in its plan rules.                                            Fund, if allowed under a policy approved
     UIT Funds shall not include long term                    by the board of directors.
funds designed for the primary purpose of
availing the tax incentives/exemption under                        § 4410Q.5 Operating and accounting
Section 24(B)(1) of R.A. No. 8424 (The Tax                    methodology. A UIT Fund shall be
Reform Act of 1997).                                          operated and accounted for in accordance
     b. Trust entity. Any bank, IH or a stock                 with the following:
corporation duly authorized by the Monetary                        a. The total assets and accountabilities
Board to engage in trust, investment                          of each fund shall be accounted for as a
management and fiduciary business.                            single account referred to as pooled-fund
     c. Board of directors. For this purpose,                 accounting method.
the term shall include a trust entity’s duly                       b. Contributions to each fund by clients
constituted board of directors or its                         shall always be through participation in units
functional oversight equivalent which shall                   of the fund and each unit shall have uniform
include the country head in the case of                       rights or privileges, as any other unit.
foreign institutions.                                              c. All such participations shall be
                                                              pooled and invested as one (1) account
    § 4410Q.2 Establishment of a Unit                         (referred to as collective investments).
Investment Trust Fund. Any trust entity                            d. The beneficial interest of each
authorized to perform trust functions may                     participation unit shall be determined under
establish, administer and maintain one (1)                    a unitized net asset value per unit (NAVPu)
or more UIT Funds subject to applicable                       valuation methodology defined in the
provisions under this Section.                                written plan of the UIT Fund, and no
1
 The regulations on common trust funds (CTFs) were relocated to Appendix Q-32. UIT Funds regulations took effect on 01
October 2004 (effectivity of Circular 447 dated 03 September 2004).
Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 22
                                                                            §§ 4410Q.5 - 4410Q.6
                                                                                         08.12.31

ticipation shall be admitted to, or redeemed             e. The unitized NAVPu valuation
from, the fund except on the basis of such          methodology as prescribed under Subsec.
valuation. To arrive at a fund’s NAVPu, the         4410Q.5.d shall be employed.
fund’s total Net Assets is divided by the                f. Terms and conditions governing the
total outstanding units. Total Net Assets is        admission or redemption of units of
a summation of the market value of each             participation in the fund. The Plan rules shall
investment less fees, taxes, and other quali-       state that the trustee, prior to admission of a
fied expenses, as defined under the plan            client’s initial participation in the UIT Fund,
rules.                                              shall conduct a client suitability assessment
                                                    to profile the risk-return orientation and
     § 4410Q.6 Plan rules. Each UIT Fund            suitability of the client to the specific type
shall be established, administered and              of fund. If the frequency of admission or
maintained in accordance with a written             redemption is other than daily; that is, any
trust agreement drawn by the trustee,               business day, the same should be explicitly
referred to as the “Plan” which shall be            stated in the Plan rules: Provided, That the
approved by the board of directors of the           admission and redemption shall be based
trustee and a copy of which shall be                on the end of day NAVPu of the fund
submitted to the BSP for processing and             computed after the cut-off time for fund
approval prior to its implementation. Each          participation and redemption for that
new UIT Fund Plan filed for approval shall          reference day, in accordance with existing
be charged a processing fee of P10,000.00.          BSP regulations on mark to market valuation
     The Plan shall contain the following           of investment securities.
minimum elements:                                        g. Aside from the regular audit
     a. Title of the Plan. This shall               requirement applicable to all trust
correspond to the product/brand name by             accounts, an external audit of each UIT
which the UIT Fund is proposed to be                Fund shall be conducted annually by an
known and made available to its clients.            independent auditor acceptable to the BSP
The Plan rules shall state the classification       and the results thereof made available to
of the UIT Fund (e. g., money market fund,          participants. The external audit shall be
bond fund, balanced fund and equity fund).          conducted by the same external auditor
     b. Manner by which the fund is to be           engaged for the audit of the trust entity.
operated. A statement of the fund’s                      h. Basis upon which the fund may be
investment objectives and policies                  terminated. The Plan rules shall state the
including limitations, if any.                      rights of participants in case of termination
     c. Risk disclosure. The Plan rules shall       of the fund. Termination of the fund shall
state both the general risks and risks              be duly approved by the trustee’s board of
specific to the type of fund.                       directors and a copy of the resolution
     d. Investment powers of the trustee            submitted to the appropriate department
with respect to the fund, including the             of the BSP.
character and kind of investments, which                 i. Liability clause of the trustee. There
may be purchased, by the fund. There must           must be a clear and prominent statement
be an unequivocal statement of the full             adjacent to where a client is required to
discretionary powers of the trustee as far          sign the participating trust agreement that
as the fund’s investments are concerned.            (1) the UIT Fund is a trust product and not
These powers shall be limited only by the           a deposit account or an obligation of, or
duly stated investment objective and                guaranteed, or insured by the trust entity
policies of the fund.                               or its affiliates or subsidiaries; (2) the UIT



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part IV - Page 23
§§ 4410Q.6 - 4410Q.7
08.12.31

Fund is not insured or governed by the               and benefits of persons having interest in
PDIC; (3) due to the nature of the                   such participation, as beneficiaries or
investment, yields and potential yields              otherwise. The Plan may be amended by
cannot be guaranteed; (4) any loss/income            a resolution of the board of directors of the
arising from market fluctuations and price           trustee: Provided, however, That
volatility of the securities held by the UIT         participants in the fund shall be
Fund, even if invested in government                 immediately notified of such amendments
securities, is for the account of the client/        and shall be allowed to withdraw their
participant; (5) as such, the units of               participations within a reasonable time but
participation of the investor in the UIT Fund,       in no case less than thirty (30) calendar days
when redeemed, may be worth more or                  after the amendments are approved, if they
be worth less than his/her initial investment        are not in conformity with the amendments
contributions; (6) historical performance,           made thereto: Provided further, That
when presented, is purely for reference              amendments to the Plan shall be submitted
purposes and is not a guarantee of similar           to the BSP within ten (10) business days
future result; and (7) the trustee is not liable     from approval of the amendments by the
for losses unless upon willful default, bad          board of directors. For purposes of imposing
faith or gross negligence.                           monetary penalties provided under Subsec.
     j. Amount of fees/commission and                4192Q.2 for delayed submission of reports,
other charges to be deducted from the fund           the amendments to the Plan shall be
The amount of fees that shall be charged to a        considered as “Category A-3” report. The
fund shall cover the fund’s fair and equitable       amendments shall be deemed approved
share of the routine administrative expenses         after thirty (30) business days from date of
of the trustee such as salaries and wages,           completion of requirements.
stationery and supplies, credit investigation,           A copy of the Plan shall be available at
collateral appraisal, security, messengerial         the principal office of the trustee during
and janitorial services, EDP expenses, BSP           regular office hours, for inspection by any
supervision fees and internal audit fees.            person having an interest in the fund or by
However, the trustee may charge a UIT                his authorized representative. Upon
Fund for special expenses in case such               request, a copy of the Plan shall be
expenses are (1) necessary to preserve or            furnished such interested person.
enhance the value of the fund, (2) payable           (As amended by Circular No. 593 dated 08 January 2008)
to a third party covered by a separate
contract, and (3) disclosed to participants.             § 4410Q.7 Minimum disclosure
The trustee shall secure prior BSP approval          requirements
for outsourcing services provided under                  a. Disclosure        of    UIT      Fund
existing regulations. No other fees shall be         investments. A list of prospective and
charged to the fund.                                 outstanding investment outlets shall be
     Marketing or other promotional related          made available by the trustee for the
expenses shall be for the account of the             review of all UIT Fund clients. Such
trustee and shall be presumed covered by             disclosure shall be substantially in the form
the trust fee.                                       as shown in Appendix Q-34. The list of
     k. Such other matters as may be                 investment outlets shall be updated
necessary or proper to define clearly the            quarterly.
rights of participants in the UIT Fund. The              b. Distribution of investment units The
provisions of the Plan shall govern                  trustee may issue such conditions or rules,
participation in the fund including the rights       as may affect the distribution of investment



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 24
                                                                                                           § 4410Q.7
                                                                                                             08.12.31

units subject to the minimum conditions                        their characteristics, preferences or
enumerated hereunder.                                          circumstances to enable the trustee to update
     (1) Marketing materials. All printed                      client’s profile at least every three (3) years.
marketing materials related to the sale of a                        (c) The participation is not a “deposit
UIT Fund shall clearly state:                                  account” but a trust product; and that any
     (a) The designated name and                               loss/income is for the account of the
classification of the fund and the fund’s                      participant; that the trustee is not liable for
trustee.                                                       losses unless upon willful default, bad faith
     (b) Minimum information regarding:                        or gross negligence.
     (i) The general investment policy and                          (d) A balanced assessment of the
applicable risk profile. There shall be a                      possible gains and losses of the UIT Fund
clear description/explanation of the                           and that the participation does not carry any
general risks attendant with investing in a                    guaranteed rate of return, and is not insured
UIT Fund, including risk specific to a type                    by the PDIC.
of fund. Technical terms should likewise                            (e) An advisory that the investor must
be defined in laymen’s terms1.                                 read the complete details of the fund in the
     (ii) Particulars or administrative and                    Plan Rules, make his/her own risk
marketing details like pricing and cut-off                     assessment, and when necessary, he/she
time.                                                          must seek independent/professional
     (iii) All charges made/to be made                         opinion, before making an investment.
against the fund, including trust fees, other                       (2) Evidence of participation. Every
related charges.                                               UIT Fund participant shall be given -
     (iv) The availability of the Plan rules                        (a) A participating trust agreement.
governing the fund, upon the client’s                          Such agreement shall clearly indicate that
request.                                                       (1) the UIT Fund is a trust product and not a
     (v) Client and Product Suitability                        deposit account or an obligation of, or
Standards. Prior to admission, the trustee                     guaranteed, or insured by the trust entity
shall perform a client profiling process for                   or its affiliates or subsidiaries; (2) the UIT
all UIT Fund participants under the general                    Fund is not insured or governed by the
principles on client suitability assessment                    PDIC; (3) due to the nature of the
to guide the client in choosing investment                     investment, yields and potential yields
outlets that are best suited to his objectives,                cannot be guaranteed; (4) any loss/income
risk tolerance, preferences and                                arising from market fluctuations and price
experience. The profiling process shall, at                    volatility of the securities held by the UIT
the minimum, require the trustee to obtain                     Fund, even if invested in government
client information through the Client                          securities, is for the account of the client/
Suitability Assessment (CSA) form, classify                    participant; (5) as such, the units of
the client according to his financial                          participation of the investor in the UIT
sophistication and communicate the CSA                         Fund, when redeemed, may be worth
results to the subject client. The general                     more or be worth less than his/her initial
principles on CSA shall also require the                       investment/contributions; (6) historical
trustee to adopt a notice mechanism                            performance, when presented, is purely for
whereby clients are advised and/or                             reference purposes and is not a guarantee
reminded of the explicit requirement to                        of similar future result; and (7) the trustee
notify the trustee or its UIT Fund                             is not liable for losses unless upon willful
marketing personnel of any change in                           default, bad faith or gross negligence.

1
  Example: “Fixed income securities” does not really mean a guarantee of fixed earnings on the investor’s participation;
“Risk-free” government securities which may be sovereign “risk-free” but not interest rate “risk-free”.

Manual of Regulations for Non-Bank Financial Institutions                                            Q Regulations
                                                                                                   Part IV - Page 25
§§ 4410Q.7 - 4410Q.8
08.12.31

    In addition to the agreement, every UIT       implementing rules and regulations of R.A.
Fund participant shall be provided with –         No. 8792, otherwise known as the
    (1) CSA form to be accomplished               E-Commerce Act.
during the profiling process required under            c. Regular publication/computation/
the general principles on CSA. This is            availability of the fund’s NAVPu. Trust
designed to ensure that based on relevant         entities managing a UIT Fund shall cause
information about the client, his investment      at least the weekly publication of the
profile is matched against the investment         NAVPu of such fund in one (1) or more
parameters of the UIT Fund. At the                newspaper of national circulation:
minimum, client information shall include         Provided, That a pooled weekly publication
personal or institutional data, investment        of such NAVPu shall be considered as
objective, investment horizon, investment         substantial compliance with this
experience, and risk tolerance; and               requirement. The said publication, at the
    (2) Risk disclosure statement, which in       minimum, shall clearly state the name of
reference to Subsec. 4410Q.6c, shall              the fund, its general classification, the fund’s
describe the attendant general and specific       NAVPu and the moving return on
risks that may arise from investing in the        investment (ROI) of the fund on a year-to-
UIT Fund. Such statement shall be                 date (YTD) and year-on-year (YOY) basis.
substantially similar to the form in Annex             NAVPu shall be computed daily and
A of Appendix Q-34a.                              shall be made available to participants and
    Both documents shall be signed by the         prospective participants upon request.
client/participant and the UIT marketing               d. Marketing personnel. To ensure
personnel who assessed and explained to           the competence and integrity of all duly
the concerned client his/her ability to bear      designated UIT marketing personnel, all
the risks and potential losses.                   personnel involved in the sales of these
    (b) A confirmation of participation and       funds shall be required to undergo
redemption made to/from the fund that             standardized training program in
shall contain the following information:          accordance with the guidelines of this
    (i) NAVPu of the fund on day of               Subsection. This training program may be
purchase /redemption;                             conducted by their respective trust entities
    (ii) Number of units purchased/               in accordance with the minimum training
redeemed; and                                     program guidelines provided by the Trust
    (iii) Absolute peso or foreign currency       Officers Association of the Philippines
value.                                            (TOAP). Such training program shall
    No indicative rates of return shall be        however be regularly validated by TOAP.
provided in the trust participating               (As amended by Circular No. 593 dated 08 January 2008)
agreement. Marketing materials may
present relevant historical performance               § 4410Q.8 Exposure limit to single
purely for reference and with clear               person/entity. The combined exposure of
indication that past results do not guarantee     the UIT Fund to any entity and its related
similar future results.                           parties shall not exceed fifteen percent
    (3) A participating trust agreement or        (15%) of the market value of the UIT Fund:
confirmation of contribution/redemption           Provided, That, a UIT Fund invested,
need not be manually signed by the trustee        partially or substantially, in exchange
or his authorized representative if the           traded equity securities shall be subject to
same is in the form of an electronic              the fifteen percent (15%) exposure limit
document that conforms with the                   to a single entity/issuer: Provided, further,



Q Regulations                          Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 26
                                                                                  §§ 4410Q.8 - 4410Q.10
                                                                                                09.12.31

That, in the case of an exchange traded                 subject to Items “e” and “f” of Subsec.
equity security which is included in an index           4409Q.6.
and tracked by the UIT Fund, the exposure                   Provided further, That a financial
of the UIT Fund to a single entity shall be             instrument is regarded as tradable if
the actual benchmark weighting of the issuer            quoted two-way prices are readily and
or fifteen percent (15%), whichever is                  regularly available from an exchange,
higher.                                                 dealer, broker, industry group, pricing
    This limitation shall not apply to                  service or regulatory agency, and those
non-risk assets as defined by the BSP.                  prices represent actual and regularly
    In case the limit is breached due to the            occurring market transactions on an arm’s
marking-to-market of certain investment/s or            length basis.
any extraordinary circumstances, e.g.,                      The UIT Fund may avail itself of
abnormal redemptions which are beyond                   financial derivatives instruments solely for
the control of the trustee, the trustee shall           the purpose of hedging risk exposures of
be given thirty (30) days from the time the             the existing investments of the Fund,
limit is breached to correct the same.                  provided these are accounted for in
(As amended by Circular No. 577 dated 17 August 2007)   accordance with existing BSP hedging
                                                        guidelines as well as the trust entity’s risk
    § 4410Q.9 Allowable investments and                 management and hedging policies duly
valuation. UIT Fund investments shall be                approved by the Trust Committee and
limited to bank deposits and the following              disclosed to participants.
financial instruments:                                      The use of hedging instruments shall
    (a) Securities issued by or guaranteed              also be disclosed in the “Plan” as provided
by the Philippine government, or the BSP;               in Item “c” of Subsec. 4410Q.6 and
    (b) Tradable securities issued by the               specified in the quarterly “list of investment
government of a foreign country, any                    outlets” as provided in Item “a” of Subsec.
political subdivision of a foreign country or           4410Q.7.
any supranational entity;                               (As amended by Circular Nos. 676 dated 29 December 2009
    (c) Exchange-listed securities;                     and 675 dated 22 December 2009)
    (d) Marketable instruments that are
traded in an organized exchange;                            § 4410Q.10 Other related guidelines
    (e) Loans traded in an organized                    on valuation of allowable investments
market;                                                     a. In pricing debt securities,
    (f) Loans arising from repo agreements              interpolated yields shall be used for
which are transacted through an exchange                securities with odd or off-the-run tenors
recognized by the SEC, subject to the                   using the straight-line basis and generally
condition that the repo contracts may be                accepted market convention.
pre-terminated lawfully by the trust                        b. In case outstanding UIT Fund
institution (TI) administering the UITF and             investments may deteriorate in quality, i.e.,
acting as lender, with due notice to its                no longer tradable as defined under Subsec.
counterparty and the market operator; and               4410Q.9, the trustee shall immediately
    (g) Such other tradable investments                 provision to reflect fair value in accordance
outlets/categories as the Monetary Board                with generally accepted accounting
may allow.                                              principles or as may be prescribed by the
    Provided, That the investment of the                BSP. If no fair value is available, the
peso UIT Fund in tradable foreign currency-             instrument shall be assumed to be of no
denominated financial instruments shall be              market value.



Manual of Regulations for Non-Bank Financial Institutions                                    Q Regulations
                                                                                           Part IV - Page 27
§§ 4410Q.11 - 4411Q.1
08.12.31

    § 4410Q.11 Unit investment trust fund            in allowable investments denominated in
administration support                               pesos or any acceptable foreign currency
    a. Backroom operations. Administrative           as expressly allowed under the fund’s Plan
rules on backroom under Sec. 4421Q shall             rules and properly disclosed to fund
be applicable to UIT Fund. Adequate                  participants.
systems to support the daily marking-to-
market of the fund’s financial instruments               § 4410Q.14 Exemptions from statutory
shall be in place at all times. In this respect,     and liquidity reserves, single borrowers
a daily reconcilement of the fund’s resultant        limit, directors, officers, stockholders and
marked-to-market value with the unrealized           their related interest. The provisions on
market losses and gains (respective contra           reserves, single borrower’s limit and DOSRI
asset balance) versus the book value of the          ceilings under Secs. 4330Q and 4331Q,
fund for investments in financial instruments        respectively, applicable to trust funds in
shall be done and all differences resolved           general shall not be made applicable to UIT
within the day.                                      Funds.
    b. Custody of securities. Investments in
securities of a UIT Fund shall be held for           Sec. 4411Q Investment Management
safekeeping by BSP accredited third party            Activities. The conduct of investment
custodians which shall perform independent           management activities shall be subject to
marking-to-market of such securities.                the following regulations.

     § 4410Q.12 Counterparties                           § 4411Q.1 Minimum documentary
     a. Dealings with related interests/QB           requirements. An investment management
proper/holding company/subsidiaries/                 account (IMA) shall be covered by a written
affiliates and related companies. A trustee          document establishing such account, as
of a UIT Fund shall be transparent at all            follows:
times and maintain an audit trail for all                a. In the case of accounts created by
transactions with related parties or entities.       corporations, business firms, organizations
The trustee shall observe the principle of           or institutions, the voluntary written
best execution and no purchase/sale shall            agreement or indenture entered into by the
be made with related counterparties                  parties, accompanied by a copy of the board
without considering at least two (2)                 resolution or other evidence authorizing the
competitive quotes from other sources.               establishment of, and designating the
     b. Accreditation of counterparties              signatories, to the investment management
The Fund shall only invest with approved             account.
counterparties qualified in accordance with              b. In the case of accounts created by
the policy duly approved by the Trust                individuals, the voluntary written agreement
Committee. Counterparties shall be subject           or indenture entered into by the parties.
to appropriate limits in accordance with                 The voluntary written agreement or
sound risk management principles.                    contract shall include the following
                                                     minimum provisions:
    § 4410Q.13 Foreign currency-                         (1) Prenumbered contractual agreement
denominated unit investment trust funds              form;
UIT Fund denominated in any acceptable                   (2) Title or nature of contractual
foreign currency provided under existing             agreement in noticeable print;
BSP rules and regulations may be                         (3) Legal capacities, in noticeable print,
established. Such fund may only be invested          of parties sought to be covered;



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 28
                                                                          §§ 4411Q.1 - 4411Q.4
                                                                                       08.12.31

     (4) Purposes and objectives;                   investment losses shall be exempt from this
     (5) The initial amount of funds and/or         requirement.
value of securities subject of the
arrangement delivered to the investment                 § 4411Q.3 Commingling of funds
manager;                                            Two (2) or more individual IMAs shall not
     (6) Statement in underlined noticeable         be commingled except for the purpose of
print that:                                         investing in government securities or in duly
     (a) The agreement is an agency and not         registered commercial papers: Provided,
a trust agreement. As such, the client shall        That the participation of each of the
at all times retain legal title to funds and        aforementioned accounts in the commingled
properties subject of the arrangement;              account shall not be less than P1 million:
     (b) The arrangement does not guaranty          Provided, further, That such commingling
a yield, return or income by the investment         has been fully disclosed and specifically
manager. As such, past performance of the           agreed in writing by the clients.
account is not a guaranty of future
performance and the income of investments               § 4411Q.4 Lending and investment
can fall as well as rise depending on               disposition. Assets received in investment
prevailing market conditions; and                   management capacity shall be administered
     (c) The investment management                  in accordance with the terms of the
agreement is not covered by the PDIC and            instrument creating the investment
that losses, if any, shall be for the account       management relationship.
of the client;                                          When an investment manager is
     (7) Duties and powers of the                   granted discretionary powers in the
investment manager;                                 investment disposition of investment
     (8) Liabilities of the investment              management funds and unless otherwise
manager;                                            specifically enumerated in the agreement
     (9) Reports to the client;                     or indenture and directed in writing by the
     (10) The amount or rate of the                 client, loans and investments of the fund
compensation of the investment manager;             shall be limited to:
     (11) Terms and conditions governing                a. Evidences of indebtedness of the
withdrawals from the account;                       Republic of the Philippines and of the BSP,
     (12) Termination of contractual                and any other evidences of indebtedness or
arrangement; and                                    obligations the servicing and repayment of
     (13) Disclosure requirements for               which are fully guaranteed by the Republic
transactions requiring prior authority              of the Philippines or loans against such
and/or specific written investment directives       government securities;
from the client.                                        b. Loans fully guaranteed by the
     A sample investment management                 Republic of the Philippines as to the payment
agreement which conforms to the                     of principal and interest;
foregoing requirements is shown as                      c. Loans fully secured by a hold-out
Appendix Q-14.                                      on, assignment or pledge of deposit
                                                    substitutes maintained with the institution
    § 4411Q.2 Minimum size of each                  or deposits with banks, or mortgage and
investment management account. No IMA               chattel mortgage bonds issued by the
shall be accepted or maintained for an              investment manager; and
amount less than P1.0 million. An IMA                   d. Loans fully secured by real estate or
reduced to less than P1.0 million due to            chattels in accordance with Section 78 of



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part IV - Page 29
§§ 4411Q.4 - 4411Q.7
08.12.31

R.A. No. 337, as amended, and subject to           its own right and not as trustee, nor in a
the requirements of Sections 75, 76 and 77         representative capacity; and
of R.A. No. 337, as amended.                            d. Sell, transfer, assign or lend money
     The specific directives required under        or property from one trust fiduciary or IMA
this Subsection shall consist of the following     to another trust, fiduciary or IMA except
information:                                       where the investment is in any of those
     (1) The transaction to be entered into;       enumerated in Items "a" to "d" of Subsec.
     (2) Borrower’s name;                          4411Q.4.
     (3) Amount involved; and                           Directors, officers, stockholders and
     (4) Collateral security(ies), if any.         their related interest covered by this Sub-
                                                   section shall be those considered as such
     § 4411Q.5 Transactions requiring prior        under existing regulations on loans to
authority. An investment manager shall not         DOSRI under Part III - E of this Manual. The
undertake any of the following transactions        procedural and reportorial requirements in
for the account of a client, unless prior to       said regulations shall also apply.
its execution, such transaction has been fully          The disclosure required under this
disclosed and specifically authorized in           Subsec. shall consist of the following
writing by the client:                             minimum information:
     a. Lend, sell, transfer or assign money            (1) The transactions to be entered into;
or property to any of the departments,                  (2) Identities of the parties involved in
directors, officers, stockholders, or              the transaction and their relationships (shall
employees of the investment manager, or            not apply to Item “d” of this Subsec.);
relatives within the first degree of                    (3) Amount involved; and
consanguinity or affinity, or the related               (4) Collateral security(ies), if any.
interests of such directors, officers and               The above information shall be made
stockholders; or to any corporation where          known to clients in a separate instrument
the investment manager owns at least fifty         or in the very instrument creating the
percent (50%) of the subscribed capital or         investment management relationship.
voting stock in its own right and not as
trustee nor in a representative capacity;               § 4411Q.6 Title to securities and other
     b. Purchase or acquire property or debt       properties. Securities such as promissory
instruments from any of the departments,           notes, shares of stocks, bonds and other
directors, officers, stockholders, or              properties of the portfolio shall be issued
employees of the investment manager, or            or registered in the name of the principal or
relatives within the first degree of               of the investment manager: Provided, That
consanguinity or affinity, or the related          in case of the latter, the instrument shall
interests of such directors, officers and          indicate that the investment manager is
stockholders; or from any corporation where        acting in a representative capacity and that
the investment manager owns at least fifty         the principal’s name is disclosed thereat.
percent (50%) of the subscribed capital or
voting stock in its own right and not as                § 4411Q.7 Ceilings on loans. Loans
trustee nor in a representative capacity;          funded by IMAs shall be subject to the
     c. Invest in equities of or in securities     DOSRI ceilings imposed on QBs in Part
underwritten by the investment manager or          III - E of this Manual. For purposes of
a corporation in which the investment              determining compliance with said ceilings,
manager owns at least fifty percent (50%)          the total amount of said loans granted by
of the subscribed capital or voting stock in       the institution and its trust department to



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 30
                                                                                  §§ 4411Q.7 - 4411Q.9
                                                                                               09.12.31

the same person, firm or corporation shall          dispose foreign currency-denominated
be combined.                                        financial instruments, including securities as
                                                    defined in Section 3 of the SRC, through a
    § 4411Q.8 Other applicable regulations          distributor or underwriter duly authorized
on loans and investments - investment               or licensed by the government of the issuer
management account. The loans and                   of such instruments, or a counterparty FI
investments of IMAs shall be subject to             (seller or buyer) authorized in writing by the
pertinent laws, rules and regulations for           principal and/or accredited by the
QBs that shall include, but need not be             investment manager: Provided, That, the
limited to, the following:                          conduct, documentation, and settlement of
    a. Requirements of Sections 39 and 40           any of these transactions shall be outside
of R.A. No. 8791 (The General Banking               Philippine jurisdiction;
Law of 2000);                                            (3) The investment manager shall
    b. Provisions of Section 4(e) of the            record cross-currency investment
New Rules on Registration of Short-Term             transactions in the peso regular books at
Commercial Papers and Section 7(f) of the           their foreign currency amounts and their
New Rules on Registration of Long-Term              local currency equivalent using the
Commercial Papers issued by the SEC                 Philippine Dealing System peso/US dollar
(Appendices 13 and 14);                             closing rate and the New York US dollar/
    c. Criteria for past due accounts;              third currencies closing rate; and
    d. Qualitative appraisal of loans,                   (4) The investment manager shall
investments and other assets that may               comply with the reportorial requirements
require provision for probable losses which         that may be prescribed by the BSP, which
shall be booked in accordance with the              shall include as a minimum, the foreign
FRPTIs;                                             currency amount and the local currency
    e. Requirements of Sections 3 and 8             equivalent of the total cross currency
of the SRC; and                                     investments with details on: (a) type of
    f. Provisions of Section 44 –                   investments; and (b) amount of cash flow
Investments by Philippine Residents – of            converted.
the FX Manual, such that the cross-                      For purposes of this Subsection,
currency investments of peso IMAs, shall            “resident”, as defined under Section 1 of the
be subject to the following conditions:             FX Manual, shall refer to the principal that
    (1) All cash flows of the investment            engages the services of the investment
manager shall only be in pesos. In case the         manager under an investment management
foreign exchange acquired or received by            agreement.
the principal as dividends/earnings or              (Circular No. 676 dated 29 December 2009)
divestment proceeds on such investment are
intended for reinvestment abroad, the same              § 4411Q.9 Operating and accounting
proceeds are not required to be inwardly            methodology. IMAs shall be operated and
remitted and sold for pesos through                 accounted for in accordance with the
authorized agent banks: Provided, That such         following:
proceeds are reinvested abroad within two               a. The investment manager shall
(2) banking days from receipt of the funds          administer, hold or manage the fund or
abroad;                                             property in accordance with the instrument
    (2) The investment manager shall                creating the investment management
purchase, invest, reinvest, sell, transfer or       relationship; and




Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                         Part IV - Page 31
§§ 4411Q.9 - 4413Q
09.12.31

    b. Funds or property of each client                           Necessarily, the investment management
shall be accounted separately and distinctly                 agreement shall clearly indicate the date
from those of other clients herein referred                  when the investment manager actually
to as individual account accounting.                         received the funds which shall serve as basis
(As amended by Circular No. 676 dated 29 December 2009)      for determining the holding period of the
                                                             funds;
     § 4411Q.10 Tax-exempt individual                             e. The investment manager may accept
investment management accounts. The                          additional funds for inclusion in IMAs
following shall be the features/requirements                 which have been established as tax-exempt
of IMAs of individuals which may be                          under R.A. No. 8424. However, the receipt
exempted from the twenty percent (20%)                       of additional funds shall be properly
final tax under Section 24(B)(1) of R.A. No.                 documented by indicating that they are part
8424 (The Tax Reform Act of 1997):                           of existing tax-exempt IMAs and that the
     a. The tax exemption shall apply to                     interest income of the additional funds
investment management agreements                             derived from investments in interest bearing
contracted on or after 03 January 2000;                      instruments shall be exempt from the twenty
     b. The investment management                            percent (20%) final tax under the same
agreement shall only be between individuals                  conditions mentioned in the preceding item.
who are Filipino citizens or resident aliens                 The document shall also indicate the date
and investment manager banks. The                            when the additional funds were received
agreement shall be non-negotiable and non-                   by the investment manager bank to serve as
transferable;                                                basis for determining the minimum five (5)-
     c. The minimum amount of investment                     year holding period for tax exemption
for an IMA shall be P1.0 million;                            purposes of the additional funds; and
     d. The investment management                                 f. Tax-exempt individual IMAs
agreement shall indicate that pursuant to                    established under this Subsection shall be
Section 24(B)(1) of R.A. No. 8424, interest                  subject to the provisions of Subsecs.
income of the investment management funds                    4411Q.1(b) and 4411Q.2 up to 4411Q.8.
derived from investments in interest-bearing
instruments (e.g., time deposits, government                 Sec. 4412Q (Reserved)
securities, loans and other debt instruments)
which are otherwise subject to the twenty                    Sec. 4413Q Required Retained Earnings
percent (20%) final tax, shall be exempt from                Appropriation. An institution authorized to
said final tax provided the funds are held                   engage in trust and other fiduciary business
under investment management by the                           shall, before the declaration of dividends,
investment manager for at least five (5) years.              carry to retained earnings appropriated for
If said funds are held by the investment                     trust business at least ten percent (10%) of
manager for a period less than five (5) years,               its net profits realized out of its trust,
interest income shall be subject to a final                  investment management and other fiduciary
tax which shall be deducted and withheld                     business since the last preceding dividend
from the proceeds of the IMA based on the                    declaration until the retained earnings shall
following schedule–                                          amount to twenty percent (20%) of its
                                                             authorized capital stock and no part of such
         Holding Period                    Rate of Tax       retained earnings shall at any time be paid
Four (4) years to less than five (5) years         5%        out in dividends but losses accruing in the
Three (3) years to less than four (4) years      12%         course of its business may be charged
Less than three (3) years                         20%        against surplus.



Q Regulations                                     Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 32
                                                                                           §§ 4414Q - 4414Q.1
                                                                                                      08.12.31

       B. INVESTMENT MANAGEMENT                                    § 4414Q.1 Prerequisites for engaging
                ACTIVITIES                                    in investment management activities. An
                                                              entity before it may engage in investment
Sec. 4414Q Authority to Perform                               management activities shall comply with the
Investment Management. An IH may act                          following requirements:
as financial consultant, investment adviser                        a. It has been duly licensed by the
or portfolio manager under Section 7 of P.D.                  appropriate government agency or created
No. 129, as amended. However, this shall                      by special law or charter.
not be construed as authority to engage in                         b. The articles of incorporation or
trust and other fiduciary business. Entities                  charter of the institution shall include
whose articles of incorporation1 or any                       among its powers or purposes the authority
amendments thereto, include the purpose                       to engage in investment management
or power to act as financial consultant,                      activities.
investment adviser or portfolio manager                            c. The by-laws of the institution shall
shall secure the prior favorable                              include, among other things:
recommendation of the Monetary Board                               (1) The organization plan or structure
before the filing of said articles of                         of the department, office or unit which shall
incorporation or amendments thereto with                      conduct the investment management
the SEC.                                                      activities of the institution;
     If an entity is found to be engaged in                        (2) The creation of an investment
unauthorized investment management                            management committee, the appointment of
activities, whether as its primary, secondary                 an investment management officer and
or incidental business, the Monetary Board                    subordinate officers of the investment
may impose administrative sanctions against                   management department; and
such entity or its principal officers and/or                       (3) A clear definition of the duties and
majority stockholders or proceed against                      responsibilities, as well as the line and staff
them in accordance with law.                                  functional relationships, of the various units,
     The Monetary Board may take such                         officers and staff within the organization.
action as it may deem proper such as, but                          d. Where the applicant is authorized
may not be limited to, requiring the transfer                 to engage in quasi-banking functions, the
or turnover of any IMA to duly incorporated                   applicant shall also meet the following
and licensed entities of the choice of the                    additional requirements:
client.                                                            (1) It has continuously complied with
     An entity not authorized to engage in                    the capital-to-risk assets ratio, reserve
investment management activities shall not                    requirements against deposit substitutes,
advertise or represent itself as being engaged                liquidity floor, and ceilings on DOSRI loans
in investment management activities or                        for the last sixty (60) days immediately
represent itself as investment manager or use                 preceding the date of application;
words of similar import.                                           (2) It has not incurred net weekly
     Starting year 2001, IHs authorized to                    reserve deficiencies against deposit
engage in investment management activities                    substitutes during the last eight (8) weeks
shall renew their existing licenses yearly,                   immediately preceding the date of
subject to the implementing guidelines to                     application; and
be issued thereon.                                                 (3) It has shown substantial
(As amended by CL-2008-078 dated 15 December 2008,            compliance with other pertinent laws, rules
CL-2008-053 dated 21 August 2008 and CL-2008-007 dated        and regulations, policies and instructions of
21 January 2008)                                              the BSP and has not been cited for serious/

1
    SEC Memorandum Circular Nos. 5 dated 17 July 2008, 3 dated 16 February 2006 and 14 dated 24 October 2000.

Manual of Regulations for Non-Bank Financial Institutions                                         Q Regulations
                                                                                                Part IV - Page 33
§§ 4414Q.1 - 4415Q.3
08.12.31

major violations or exceptions affecting its        the investment management committee,
solvency, liquidity and profitability.              investment management officer and other
    Where the applicant is not authorized           subordinate officers of the investment
to engage in quasi-banking functions:               management department.
    (a) The adoption of a formula/criteria
for QBs in the determination of compliance          Sec. 4415Q Security for the Faithful
with the capital-to-risk assets ratio and           Performance of Investment Management
ceilings on loans to DOSRI; and                     Activities
    (b) The substitution of the reserve and
liquidity floor requirements with the cash               § 4415Q.1 Basic security deposit
ratio, as follows:                                  An institution authorized to engage in
    (i) Primary reserves to Bills Payable;          investment management activities shall
and                                                 deposit with the BSP eligible government
    (ii) Primary and secondary reserve to           securities as security for the faithful
Bills Payable:                                      performance of its investment management
where primary reserves consist of cash on           activities equivalent to at least one percent
hand, cash in vault, checks and other cash          (1%) of the book value of the total volume
items, due from the BSP and due from                of investment management assets: Provided,
banks; and where secondary reserves                 That at no time shall such deposit be less
consist of BSP-supported government                 than P500,000.
securities, T- Bills and other government                Scripless securities under the RoSS
securities.                                         system of the BTr may be used as basic
    Compliance with the foregoing, as well          security deposit for the faithful performance
as with other requirements under existing           of investment management activities using
regulations, shall be maintained up to the          the guidelines in Appendix Q-21.
time the authority is granted. An applicant
that fails in this respect shall be required to         § 4415Q.2 Eligible securities. Securities
show compliance for another test period of          enumerated in Subsec. 4405Q.2 shall be
the same duration.                                  eligible as security deposit for faithful
                                                    performance of investment management
     § 4414Q.2 Pre-operating requirements           activities.
An institution authorized to engage in
investment management activities shall,                 § 4415Q.3 Valuation of securities and
before engaging in actual operations, submit        basis of computation of the basic security
to the BSP the following:                           deposit requirement. For purposes of
     a. Government securities acceptable            determining compliance with the basic
to the BSP amounting to P500,000 as                 security deposit under this Section, the
minimum basic security deposit for the              amount of securities so deposited shall be
faithful performance of investment                  based on their book value, that is, cost as
management duties required under Subsec.            increased or decreased by the
4415Q.1;                                            corresponding discount or premium
     b. Organization chart of the investment        amortization.
management department which shall carry                 The base amount for the basic security
out the investment management activities of         deposit shall be the average of the
the institution; and                                month-end balances of the total assets of
     c. Names and positions of individuals          investment management funds of the
designated as chairman and members of               immediately preceding calendar quarter.



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 34
                                                                                                                                                                      §§ 4415Q.4 - 4416Q
                                                                                                                                                                                08.12.31

    § 4415Q.4 Compliance period;                                                                                                        officer(s) responsible for the deficiency/
sanctions. The investment manager shall                                                                                                 non-compliance:
have thirty (30) calendar days after the end                                                                                                 (1) First offense - warning that
of every calendar quarter within which to                                                                                               subsequent violations shall be dealt with
deposit with the BSP securities required                                                                                                more severely;
under this Section.                                                                                                                          (2) Second offense - written reprimand
    The following sanctions shall be                                                                                                    with a stern warning that subsequent
imposed for any deficiency in the basic                                                                                                 violations shall be subject to suspension;
security deposit for the faithful                                                                                                            (3) Third offense - thirty (30) calendar
performance of investment management                                                                                                    day-suspension without pay; and
activity:                                                                                                                                    (4) Subsequent offense(s) - sixty (60)
    a. On the QB:                                                                                                                       calendar day-suspension without pay.
    i. Monetary penalty/ies:                                                                                                                 For purpose of determining the
                                                                                                                                        frequency of the violation the QB’s
                                                                                       Offense                            Third and     compliance profile for the immediately
                                       Trust                                                        First      Second     subsequent    preceding three (3) years or twelve (12)
                                           Asset Size                                                                      offense(s)   quarters will be reviewed: Provided, That
                                                                                    Up to                                               for purposes of determining appropriate
                                                                                     P500           P600.00    P700.00      P800.00     penalty on the head of the Investment
                                                                                    million                                             Management Department and/or other
                                                                                    Above                                               responsible officer(s), any offense committed
                           QBs with Full Trust Authority and with Trust Assets of




                                                                                     P500                                               outside the preceding three (3) year or
                                                                                    million       P1,000.00   P1,250.00    P1,500.00    twelve (12) quarter-period shall be
Penalty per Calendar Day




                                                                                    but not                                             considered as the first offense: Provided,
                                                                                    exceeding                                           further, That in the case of the head of the
                                                                                     P1 billion                                         Investment Management Department, all
                                                                                    Above                                               offenses committed by him in the past as
                                                                                    P1 billion                                          the head of the Investment Management
                                                                                    but not       P2,000.00   P3,000.00   P4,000.00     Department of other institution(s) shall also
                                                                                    exceeding                                           be considered: Provided, finally, That if the
                                                                                    P10 billion                                         offense cannot be attributed to any other
                                                                                    Above                                               officer of the QB, the head of the Investment
                                                                                    P10 billion                                         Management Department shall be
                                                                                     but not      P5,000.00   P6,000.00   P7,000.00     automatically held responsible since the
                                                                                    exceeding                                           ultimate responsibility for ensuring
                                                                                    P50 billion                                         compliance with the regulation rests upon
                                                                                    Above                                               him, as evidence may warrant.
                                                                                    P50 billion   P8,000.00   P9,000.00   P10,000.00    (As amended by Circular Nos. 617 dated 30 July 2008 and
                                                                                                                                        585 dated 15 October 2007)
    ii. Non-monetary penalty beginning
with the third offense (all QBs) - Prohibition                                                                                          Sec. 4416Q Organization and Management
against the acceptance of new IMAs, and                                                                                                 The provisions under Sec. 4406Q up to
from renewing expiring investment                                                                                                       Subsec. 4406Q.9 shall govern the
management contracts up to the time the                                                                                                 organization and management of institutions
violation is corrected.                                                                                                                 without trust license which are engaged in
    b. On the Head of the Investment                                                                                                    investment management activities only. The
Management Department and/or other                                                                                                      following terms shall, however, be used:



Manual of Regulations for Non-Bank Financial Institutions                                                                                                                    Q Regulations
                                                                                                                                                                           Part IV - Page 35
§§ 4416Q - 4421Q
09.12.31

     a. Investment management activities in                          C. GENERAL PROVISIONS
lieu of trust and other fiduciary business;
     b. IMAs in lieu of trust and other                     Sec. 4421Q Books and Records. The
fiduciary accounts;                                         institution’s trust department or
     c. Investment management committee                     investment management department shall
in lieu of trust committee;                                 keep books and records on trust, other
     d. Investment management officer in                    fiduciary and IMAs separate and distinct
lieu of trust officer; and                                  from the books and records of its other
     e. Investment management department                    businesses and shall follow the FRPTI
in lieu of trust department.                                prescribed by the BSP.
(As amended by M-2007-009 dated 22 March 2007)                  Each trust, other fiduciary or IMA shall
                                                            have a record separate from all other
Sec. 4417Q Non-Investment Management                        accounts except only in the case of CTFs
Activities. The provisions of Sec. 4407Q                    where the trustee can maintain common
shall apply in determining non-investment                   records utilizing pooled fund accounting
management activities except that the terms                 method for each fund: Provided, That the
trust, other fiduciary, trustee and fiduciary               trustee shall clearly indicate in the records
shall be disregarded.                                       the trustors owning participation in the
                                                            CTF and the extent of the interest of such
Sec. 4418Q Unsound Practices. The                           trustors.
provisions of Sec. 4408Q shall govern the                       Books and records shall contain full
unsound practices for IMAs.                                 information relative to each trust, other
                                                            fiduciary or IMA and shall be supported by
Sec. 4419Q Conduct of Investment                            duplicate signed copies of related
Management Activities. The provisions of                    documents. Said records and duplicate
Sec. 4411Q shall govern the conduct of                      signed copies or related documents shall
investment management activities of an                      be compiled and kept as to allow inspection
institution without trust license that is                   by BSP examiners and submission of
engaged in investment management                            information or reports as may be required
activities.                                                 by competent authorities.
                                                                The QB's trust department or
Sec. 4420Q Required Retained Earnings                       investment management department shall
Appropriation. An institution authorized to                 maintain separate general ledger accounts
engage in investment management                             and other relevant sub-accounts for
activities shall, before the declaration of                 tax-exempt individual trust accounts,
dividends, carry to retained earnings                       CTFs and individual management
appropriated for trust business at least ten                accounts established under Section
percent (10%) of its net profits realized                   24(B)(1) of R.A. No. 8424 and Subsecs.
out of its investment management                            4409.8, 4411.9, and Item “8” of Appendix
activities since the last preceding dividend                Q-32. The bank’s trust department or
declaration until the retained earnings                     investment management department shall
shall amount to twenty percent (20%) of                     also adopt appropriate systems, internal
its authorized capital stock and no part of                 control procedures and audit trail
such retained earnings shall at any time                    mechanisms to ensure that the correct
be paid out in dividends, but losses                        amount of final tax is withheld or
accruing in the course of its business may                  exempted from such accounts.
be charged against retained earnings.                       (As amended by Circular No. 653 dated 05 May 2009)




Q Regulations                                    Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 36
                                                                                       §§ 4422Q - 4424Q
                                                                                               08.12.31

Sec. 4422Q Custody of Assets. All monies,           estate brokers, insurance agents and similar
properties or securities received by an             persons or entities unless the rebates, fees
institution in its capacity as trustee,             and other payments shall accrue to the
fiduciary, or investment manager shall be           benefit of the trust, other fiduciary or IMA
kept physically separate and distinct from          or the beneficiaries thereof.
the assets of its other businesses and shall            Officers and employees of the trust
be under the joint custody of at least two          department or investment management
(2) persons, one of whom shall be an officer        department of institutions, while serving as
of the trust or investment management               such, shall be prohibited from retaining any
department, designated for that purpose by          compensation for acting as co-trustee or
the board of directors.                             fiduciary in the administration of a trust,
     The investment of each trust, other            other fiduciary or IMA.
fiduciary or IMA shall be kept physically               No institution shall collect, for its own
separated from those of other trust, other          account, referral and/or arrangement fees,
fiduciary or IMAs, and adequately identified        or any other fees that take the nature of
as the assets or property of the relevant           payment to the institution from whatever
account.                                            source, in connection with loans sourced
                                                    from trust funds managed by its trust
Sec. 4423Q Fees and Commissions. An                 department: Provided, That if such fees are
institution acting as trustee, fiduciary or         collected, the same shall be properly
investment manager shall be entitled to             disclosed to the trustor, and shall accrue to
reasonable fees and commissions which               the benefit of the trust, in accordance with
shall be determined on the basis of the cost        the provisions of Secs. 4401Q and 4407Q.
of services rendered and the responsibilities       (As amended by Circular No. 541 dated 30 August 2006)
assumed: Provided, That where the trustee,
fiduciary or investment manager is acting           Sec. 4424Q Taxes. The terms and conditions
as such under appointment by a court, the           of trust, other fiduciary or investment
compensation shall be that allowed or               management agreements, including CTF
approved by the court: Provided, further,           plans, shall contain provisions regarding the
That in the case of CTFs, the fee which a           applicability of regulations governing
trustee may charge each participant shall           taxation on the income of trust, other
be fully disclosed by the trustee in the CTF        fiduciary or investment management
plan, prospectus, flyers, posters and all           accounts. For this purpose, the trustee,
forms of advertising materials to market the        fiduciary or investment manager shall
fund and in the documents given to clients          maintain adequate records and shall include
as proof of participation in the fund. In no        information such as the amount of final
case shall such fees and commissions be             income tax withheld at source and the
based on the excess of the income of the            amount withheld by the trustee, fiduciary
trust, other fiduciary or investment                or investment manager in the periodic
management funds over a certain amount              reports submitted to trustors, beneficiaries,
or percentage.                                      principals and other parties in interest.
    No trustee, fiduciary or investment                 With respect to tax-exempt CTFs,
manager shall solicit or receive rebates on         individual trust and investment management
commissions, fees and other payments for            accounts established under Section 24(B)(1)
the services rendered to the trust, other           of R.A. No. 8424, the bank’s trust
fiduciary or IMA or beneficiaries of the trust,     department or investment management
other fiduciary or IMA by stockbrokers, real        department shall be responsible for



Manual of Regulations for Non-Bank Financial Institutions                                   Q Regulations
                                                                                          Part IV - Page 37
§§ 4424Q - 4425Q.3
09.12.31

obtaining the tax-exemption certifications               (6) Amount of earnings;
which may be required by the BIR for the                 (7) Transaction date; and
interest-bearing instruments where the CTFs,             (8) Maturity date;
individual trust funds and investment                    c. The reports shall be prepared in
management funds will be invested.                  such frequency as required under the
Likewise, the banks shall ensure that the           agreement but shall not in any case be longer
correct amount of final tax on the interest         than once every quarter; and
income on the interest-bearing instruments               d. The reports shall be made available
is withheld/deducted from the proceeds              to clients not later than twenty (20) calendar
from the CTF participation, trust or                days from the end of the reference date/
investment management account and                   period in Item “c” above.
remitted to the BIR in the event said tax
becomes due such as when funds are                      § 4425Q.2 To the Bangko Sentral
withdrawn before the required five (5)-year         An institution acting as trustee, fiduciary or
holding period or when corporations                 investment manager shall submit periodic
happen to invest in the tax-exempt trust            reports prescribed by the appropriate
instruments created within the purview of           department of the SES on the institution’s
R.A. No. 8424.                                      trust and other fiduciary business and
                                                    investment management activities within
Sec. 4425Q Reports Required                         the deadline indicated in Appendix Q-3.

     § 4425Q.1 To trustor, beneficiary,                  § 4425Q.3 Audited financial statements
principal. Every institution acting as trustee,     The trust/investment management
fiduciary or investment manager shall render        department of an institution shall adopt the
reports on the trust, other fiduciary or IMAs       provisions of the Philippine Financial
to the trustor, beneficiary, principal or other     Reporting Standards (PFRS)/Philippine
party in interest or the court concerned or         Accounting Standards (PAS) in all respect,
any party duly designated by the court order,       for purposes of preparing the AFS of its trust
as the case may be, under the following             and other fiduciary and investment
guidelines:                                         management activities. The following
     a. The reports shall be in such forms          guidelines shall likewise be observed in the
as to apprise the party concerned of the            preparation of the AFS:
significant developments in the                          (a) The provisions of PFRS/PAS shall be
administration of the account and shall             adopted effective the annual financial
consist of:                                         statements beginning 01 January 2008;
     (1) A balance sheet;                                (b) A complete set of financial
     (2) An income statement;                       statements shall comprise of the following:
     (3) A schedule of earning assets of the             (1) Balance sheet as of the end of the
account; and                                        period;
     (4) An investment activity report;                  (2) Income statement for the period;
     b. Items (3) and (4) above shall include            (3) Statement of changes in
at least the following:                             accountabilities, which shall show a
     (1) Name of issuer or borrower;                reconciliation of the net carrying amount at
     (2) Type of instrument;                        the beginning and end of the period of the
     (3) Collateral, if any;                        following accounts:
     (4) Amount invested;                                (i) principal;
     (5) Earning rate or yield;                          (ii) accumulated income; and



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 38
                                                                                  §§ 4425Q.3 - 4426Q.1
                                                                                               09.12.31

     (iii) net unrealized gains/(losses) on         Generally Accepted Accounting Principles
available for sale financial assets, separately     (GAAP) previously applied, shall be
disclosing the changes in each of the               presented in the notes to financial
foregoing accounts;                                 statements: Provided, further, That
     (4) Notes, which shall comprise of a           comparative periods shall be presented in
summary of significant accounting policies          the AFS for the financial reporting period
and other disclosure requirements provided          beginning 01 January 2009 and thereafter.
under PFRS/PAS: Provided, That for                      (e) The following transitory rules and
purposes of complying with the disclosure           regulations shall govern the accounting
of the nature and extent of risks arising from      treatment of specific items for purposes of
financial instruments as required under             preparing the AFS for the financial reporting
PFRS 7, disclosure statements may be made           period beginning 01 January 2008:
based on the general categories of                      (1) The provisions of PFRS/PAS shall
contractual relationships (i.e., UITF-trust,        only be applied to accounts outstanding as
institutional-trust, and individual-trust; other    of end-December 2008;
fiduciary; institutional-agency, and                    (2) Reclassification of previously
individual-agency; and special purpose trust)       recognized financial instruments shall no
of the trust/investment management                  longer be allowed except as allowed under
department of a bank with its clients; and          existing regulations; and
     (5) Balance sheet as at the beginning              (3) The fair value of ROPA and
of the earliest comparative period when a           Investment Properties as of the date of
trust/investment management department              transition to PFRS/PAS may be used as the
applies an accounting policy retrospectively        deemed cost of said properties as of that
or when it makes a retrospective                    date: Provided, That said ROPA and
restatement of items in the financial               Investment Properties shall be subsequently
statements, or when it reclassifies items in        accounted for in accordance with the
the financial statements.                           provisions of the FRPTI.
     (c) The balance sheet, income                  (Circular No. 653 dated 05 May 2009)
statement and statement of changes in
accountabilities shall be presented for each        Sec. 4426Q Audits
of the general categories of contractual
relationships (i.e., UITF-trust, institutional-          § 4426Q.1 Internal audit. The institution’s
trust, and individual-trust; other fiduciary;       internal auditor shall include among his
institutional-agency, and individual-agency;        functions, the conduct of periodic audits of
and special purpose trust) of the trust/            the trust department or investment
investment management department of an              management department at least once every
institution with its clients;                       twelve (12) months. The board of directors, in
     (d) Comparative information for                a resolution entered in its minutes, may also
periods before 01 January 2008 need not             require the internal auditor to adopt a suitable
be presented in the AFS for the financial           continuous audit system to supplement and/
reporting period beginning 01 January 2008:         or to replace the periodic audit. In any case,
Provided, That disclosure statements on the         the audit shall ascertain whether the
end-2007 balances of total assets of the            institution’s trust and other fiduciary business
general categories of contractual                   and investment management activities have
relationships of the trust/investment               been administered in accordance with laws,
management department of an institution             BSP rules and regulations, and sound trust or
with its clients prepared based on the              fiduciary principles.



Manual of Regulations for Non-Bank Financial Institutions                                     Q Regulations
                                                                                           Part IV - Page 38a
§§ 4426Q.2 - 4428Q
09.12.31

    § 4426Q.2 External audit. The trust and                          § 4426Q.3 Board action. A report of
other fiduciary business and investment                         the foregoing audits, together with the
management activities of an institution shall                   actions thereon, shall be noted in the
be included in the annual financial audit by                    minutes of the board of directors of the
independent external auditors required                          institution.
under Sec. 4190Q.
    The audit of the assets and                                 Sec. 4427Q Authority Resulting from
accountabilities of the trust department/                       Merger or Consolidation. In merger of FIs,
investment management department of an                          the authority to engage in trust and other
NBFI authorized to engage in trust and                          fiduciary business and in investment
other fiduciary business/investment                             management activities shall continue to be
management activities, which shall cover                        in effect if the surviving institution has such
at the minimum a review of the trust/                           authority and the same has not been
investment management operations,                               withdrawn by the BSP. In case the surviving
practices and policies, including audit and                     institution does not have previous authority
internal control system, shall be subject                       but desires to engage in trust and other
to auditing standards to the extent                             fiduciary business and in investment
necessary to express an opinion on the                          management activities, it shall secure the
financial statements.                                           prior approval of the Monetary Board to
    The audit of the trust/investment                           engage in such business as part of its
management department of an institution                         application for merger to enable it to
authorized to engage in trust and other                         incorporate such among its powers or
fiduciary business/investment management                        purpose clause in its articles of
activities shall be covered by a separate                       incorporation, articles of merger, by-laws
supplemental audit report to be submitted                       and such other pertinent documents.
to the institution’s board of directors and                          In the consolidation of FIs where the
to the BSP within the prescribed period                         resulting entity is an entirely new one, it
containing, among other things, the                             shall secure from the Monetary Board an
complete set of financial statements of the                     authority to engage in trust and other
trust/investment management department                          fiduciary business or in investment
of an institution prepared in accordance                        management activities before it may engage
with the provisions of Subsec. 4426Q                            in such business.
together with the other information
required by the BSP to be submitted under                       Sec. 4428Q Receivership. Whenever a
Sec. 4190Q: Provided, That a                                    receiver is appointed by the Monetary Board
reconciliation statement of the balance                         for an institution that is authorized to engage
sheet in the AFS and the FRPTI shall be                         in trust and other fiduciary business or in
prepared for each of the general categories                     investment management activities, the
of contractual relationships (i.e., UITF-                       receiver shall, pursuant to the instructions
trust, institutional-trust, and individual                      of the Monetary Board, proceed to close the
trust; other fiduciary; institutional-agency,                   trust, other fiduciary and IMAs promptly
and individual-agency; and special                              and/or transfer all other accounts to
purpose trust) of the trust/investment                          substitute trustees, fiduciaries or investment
management department of an institution                         managers acceptable to the trustors,
with its clients following the format in                        beneficiaries, principals or other parties in
Appendix Q-50.                                                  interest: Provided, That where the trustee,
(As amended by Circular No. 653 dated 05 May 2009)              fiduciary or investment manager is acting



Q Regulations                                        Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 38b
                                                                                     §§ 4428Q - 4441Q.4
                                                                                                08.12.31

as such under appointment by a court, the                        § 4441Q.1 Statement of policy. It is the
receiver shall proceed pursuant to the                      policy of the BSP to promote the protection
instructions of said court.                                 of investors in order to gain their confidence
                                                            and encourage their participation in the
Sec. 4429Q Surrender of Trust or                            development of the domestic capital
Investment Management License. Any NBFI                     market. Therefore, the following rules and
which has been authorized to engage in                      regulations are promulgated to enhance
trust and other fiduciary business or in                    transparency of securities transactions
investment management activities and                        with the end in view of protecting
which intends to surrender said authority                   investors.
shall file with the BSP a certified copy of
the resolution of its board of directors                         § 4441Q.2 Applicability of this
manifesting such intention. The                             regulation. This regulation shall govern
appropriate department of the SES shall                     securities custodianship and securities
then conduct an examination of the                          registry operations of banks and NBFIs
institution’s trust, other fiduciary business               under BSP supervision. It shall cover all
and investment management activities. If                    their transactions in securities as defined
the institution is found to have                            in Section 3 of the SRC, whether exempt
satisfactorily discharged its duties and                    or required to be registered with the SEC,
responsibilities as trustee, fiduciary or                   that are sold, borrowed, purchased,
investment manager, and has provided for                    traded, held under custody or otherwise
the orderly closure or transfer of its trust,               transacted in the Philippines where at least
fiduciary or IMAs, the Monetary Board,                      one (1) of the parties is a bank or an NBFI
on the basis of the recommendation of the                   under BSP supervision. However, this
examining department, shall order the                       regulation shall not cover the operations
withdrawal of the institution’s authority                   of stock and transfer agents duly registered
to engage in trust and other fiduciary                      with the SEC pursuant to the provisions
management activities.                                      of SRC Rule 36-4.1 and whose only
                                                            function is maintain the stock and transfer
Secs. 4430Q - 4440Q (Reserved)                              book for shares of stock.

Sec. 4441Q Securities Custodianship and                        § 4441Q.3 Prior Bangko Sentral
Securities Registry Operations. The                         approval. QBs/trust entities may act as
following rules and regulations shall govern                securities custodian and/or registry only
securities custodianship and securities                     upon prior Monetary Board approval.
registry operations of QBs/trust entities.
     The guidelines to implement the                            § 4441Q.4 Application for authority
delivery by the seller of securities to the                 A QB/trust entity desiring to act as securities
buyer or to his designated third party                      custodian and/or registry shall file an
custodian are shown in Appendix Q-38.                       application with the appropriate department
     Violation of any provision of the                      of the SES. The application shall be signed
guidelines in Appendix Q-38 shall be subject                by the highest ranking officer of the
to the sanctions/penalties under Subsec.                    institution and shall be accompanied by a
4441Q.29.                                                   certified true copy of the resolution of its
(As amended by M-2007-002 dated 23 January 2007, M-2006-    board of directors authorizing the institution
009 dated 06 July 2006, M-2006 002 dated 05 June 2006 and   to engage in securities custodianship and/
Circular No. 524 dated 31 March 2006)                       or registry.



Manual of Regulations for Non-Bank Financial Institutions                                   Q Regulations
                                                                                         Part IV - Page 38c
§ 4441Q.5
08.12.31

    § 4441Q.5 P r e - q u a l i f i c a t i o n            c. I t m u s t h a v e a C A M E L S
requirements for a securities custodian/               composite rating of at least “4” (as
registry                                               rounded off) in the last regular
    a. It must be a QB or a trust entity;              examination;
    b. It must have complied with the                      d. It must have in place a
minimum capital accounts required under                comprehensive risk management system
existing regulations not lower than an                 approved by its board of directors
adjusted capital of P300 million or such               appropriate to its operations characterized
amounts as may be required by the                      by a clear delineation of responsibility for
Monetary Board in the future;                          risk management, adequate risk


                                    (Next page is Part IV - Page 39)




Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 38d
                                                                            §§ 4441Q.5 - 4441Q.6
                                                                                         08.12.31

measurement systems, appropriately                       k. It has submitted additional
structured risk limits, effective internal          documents/information which may be
control and complete, timely and efficient          requested by the appropriate department
risk reporting systems. In this connection,         of the SES, such as, but not limited to:
a manual of operations (which includes                   (1) Standard custody/registry agreement
custody and/or registry operations) and             and other standard documents;
other related documents embodying the                    (2) Organizational structure of the
risk management system must be                      custody/registry business;
submitted to the appropriate department                  (3) Transaction flow; and
of the SES at the time of application for                (4) For those already in the custody or
authority and within thirty (30) days from          registry business, a historical background
updates;                                            for the past three (3) years;
    e. It must have adequate technological               l. It shall be conducted in a separate
capabilities and the necessary technical            unit headed by a qualified person with at
expertise to ensure the protection, safety and      least two (2) years experience in custody/
integrity of client assets, such as:                registry operations; and
    (1) It can maintain an electronic                    m. It can interface with the clearing
registry dedicated to recording of                  and settlement system of any recognized
accountabilities to its clients; and                exchange in the country capable of
    (2) It has an updated and                       achieving a real time gross settlement of
comprehensive computer security system              trades.
covering        system,       network     and
telecommunication facilities that will:                  § 4441Q.6 Functions and responsibilities
    (a) limit access only to authorized users;      of a securities custodian. A securities
    (b) preserve data integrity; and                custodian shall have the following basic
    (c) provide for audit trail of                  functions and responsibilities:
transactions.                                            a. Safekeeps the securities of the
    f. It has complied, during the period           client;
immediately preceding the date of                        b. Holds title to the securities in a
application, with the following:                    nominee capacity;
    (1) ceilings on credit accommodation                 c. Executes purchase, sale and other
to DOSRI; and                                       instructions;
    (2) single borrower’s limit.                         d. Performs at least a monthly
    g. It has no reserve deficiencies               reconciliation to ensure that all positions are
during the eight (8) weeks immediately              properly recorded and accounted for;
preceding the date of application;                       e. Confirms tax withheld;
    h. It has set up the prescribed                      f. Represents clients in corporate
allowances for probable losses, both general        actions in accordance with the direction
and specific, as of date of application;            provided by the securities owner;
    i. It has not been found engaging in                 g. Conducts mark-to-market valuation
unsafe and unsound practices during the last        and statement rendition;
six (6) months preceding the date of                     h. Does earmarking of encumbrances
application;                                        or liens such as, but not limited to, Deeds
    j. It has generally complied with laws,         of Assignment and court orders; and
rules and regulations, orders or instructions            In addition to the above basic functions,
of the Monetary Board and/or BSP                    it may perform the following value-added
Management;                                         service to clients:



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part IV - Page 39
§§ 4441Q.6 - 4441Q.8
08.12.31

    i. Acts as a collecting and paying             in a separate subsidiary ledger account
agent: Provided, That the management of            “Securities Held Under Custodianship” if
funds that may be collected shall be clearly       booked in the Bank Proper or the subsidiary
defined in the custody contract or in a            ledger account “Safekeeping and
separate document or agreement attached            Custodianship – Securities Held Under
thereto: Provided, further, That the               Custodianship”, if booked in the Trust
custodian shall immediately make known             Department: Provided, That securities held
to the securities owner all payments made          under custodianship where the custodian
and collections received with respect to the       also performs securities borrowing and
securities under custody;                          lending as agent shall be booked in the
    j. Securities borrowing and lending            Trust Department.
operations as agent.                                    b. Documentation. The appropriate
                                                   documentation for custodianship shall be
    §     4441Q.7        Functions        and      made and it shall clearly define, among
responsibilities of a securities registry          others, the authority, role, responsibilities,
    a. Maintains an electronic registry            fees and provision for succession in the
book;                                              event the custodian can no longer discharge
    b. Delivers        confirmation        of      its functions. It shall be accepted in writing
transactions and other documents within            by the counterparties.
agreed trading periods;                                 The     governing        custodianship
    c. Issues registry confirmations for           agreement shall be pre-numbered and this
transfers of ownership as it occurs;               number shall be referred to in all
    d. Prepares regular statement of               amendments and supplements thereto.
securities balances at such frequency as                c. Confirmation of custody. The
may be required by the owner on record             custodian shall issue a custody confirmation
but not less frequent than every quarter;          to the purchaser or borrower of securities
and                                                to evidence receipt or transfer of securities
    e. Follows        appropriate       legal      as they occur. It shall contain, as a
documentation to govern its relationship           minimum, the following information on
with the Issuer.                                   the securities under custody:
                                                        (1) Owner of securities;
    § 4441Q.8 Protection of securities of               (2) Issuer;
the customer. A custodian must incorporate              (3) Securities type;
the following procedures in the discharge               (4) Identification or serial numbers;
of its functions in order to protect the                (5) Quantity;
securities of the customer:                             (6) Face value; and
    a. Accounting and recording for                     (7) Other information, which may be
securities. Custodians must employ                 requested by the parties.
accounting and safekeeping procedures that              d. Periodic reporting. The custodian
fully protect customer securities. It is           shall prepare at least quarterly (or as
essential that custodians segregate customer       frequent as the owner of securities will
securities from one another and from its           require) securities statements delivered to
proprietary holdings to protect the same           the registered owner’s address on record.
from the claims of its general creditors.          Said statement shall present detailed
    All securities held under custodianship        information such as, but not limited to,
shall be recorded in the books of the              inventory of securities, outstanding
custodian at the face value of said securities     balances, and market values.



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 40
                                                                          §§ 4441Q.9 - 4441Q.12
                                                                                        08.12.31

     § 4441Q.9 Independence of the                  this Section and is likewise exempted
registry and custodian. A BSP-accredited            from the independence requirement under
securities registry must be a third party           Subsec. 4441Q.9. However, securities
with no subsidiary/affiliate relationship           registered under the RoSS shall only be
with the issuer of securities while a               considered delivered if said securities
BSP-accredited custodian must be a third            were transferred by means of book entry
party with no subsidiary/affiliate                  to the appropriate securities account of the
relationship with the issuer or seller of           purchaser or his designated custodian.
securities. A QB trust entity accredited by         Book entry transfer to a sub-account for
BSP as securities custodian may, however,           clients under the primary account of the
continue holding securities it sold under           seller shall not constitute delivery for
the following cases:                                purposes of this Section and of Subsec.
     a. where the purchaser is a related            4235Q.5.
entity acting in its own behalf and not as
agent or representative of another;                      § 4441Q.11 Confidentiality. A BSP-
     b. where the purchaser is a                    accredited securities custodian/registry shall
non-resident with existing global custody           not disclose to any unauthorized person any
agreement governed by foreign laws and              information relative to the securities under
conventions wherein the institution is              its custodianship/registry. The management
designated as custodian or sub-custodian;           shall likewise ensure the confidentiality of
and                                                 client accounts of the custody or registry unit
     c. upon approval by the BSP, where             from other units within the same
the purchaser is an insurance company               organization.
whose custody arrangement is either
governed by a global custody agreement                  § 4441Q.12 Compliance with anti-
where the QB/trust entity is designated as          money laundering laws/regulations. For
custodian or sub-custodian or by a direct           purposes of compliance with the
custody agreement with features at par              requirements of R.A. No. 9160,
with the standards set under this                   otherwise known as the “Anti-Money
Subsection drawn or prepared by the                 Laundering Act of 2001,” as amended,
parent company owning more than fifty               particularly the provisions regarding
percent (50%) of the capital stock of the           customer identification, record keeping and
purchaser and executed by the purchaser             reporting of suspicious transactions,
itself and its custodian.                           a BSP-accredited custodian may rely on
     Purchases by non-residents and                 referral by the seller/ issuer of securities:
insurance companies that are exempted               Provided, That it maintains a record of such
from the independence requirement of this           referral together with the minimum
Section shall, however, be subject to all           identification, information/documents
other provisions of this Subsection.                required under the law and its implementing
                                                    rules and regulations.
   § 4441Q.10 Registry of scripless                     A BSP accredited custodian must
securities of the Bureau of the Treasury            maintain accounts only in the true and full
The Registry of Scripless Securities                name of the owners of the security.
(RoSS), operated by the Bureau of the               However, said securities owners may be
Treasury, which is acting as a registry for         identified by number or code in reports and
government securities is deemed to be               correspondences to keep his identity
automatically accredited for purposes of            confidential.



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part IV - Page 41
§§ 4441Q.12 - 4499Q
08.12.31

     Securities subject of pledge and/or deed of        shall be subject to the following sanctions/
assignment as of 14 October 2004 (date of               penalties:
Circular 457), may be held by a lending QB up                a. First offense –
to the original maturity of the loan or full payment         (1) Fine of up to P10,000 a day for the
thereof, whichever comes earlier.                       institution for each violation reckoned from
                                                        the date the violation was committed up
     § 4441Q.13 Basic security deposit                  to the date it was corrected; and
Securities held under custodianship                          (2) Reprimand for the directors/officers
whether booked in the Trust Department                  responsible for the violation.
or carried in the regular books of the                       b. Second offense -
QB/trust entity shall be subject to a security               (1) Fine of up to P20,000 a day for the
deposit for faithful performance of duties at           institution for each violation reckoned from
the rate of 1/25 of one percent (1%) of the total       the date the violation was committed up
face value or P500,000 whichever is higher.             to the date it was corrected; and
     However, securities held under                          (2) Suspension for ninety (90) days
custodianship where the custodian also                  without pay of directors/officers responsible
performs securities borrowing and lending               for the violation.
as agent shall be subject to a higher basic                  c. Subsequent offenses –
security deposit of one percent (1%) of the                  (1) Fine of up to P30,000 a day for the
total face value. For this purpose, the                 institution for each violation from the date
following subsidiary ledger account shall               the violation was committed up to the date
be created in the Trust Department Books:               it was corrected;
     “Safekeeping and Custodianship -                        (2) Suspension or revocation of the
Securities Held Under Custodianship with                authority to act as securities custodian
Securities Borrowing and Lending As Agent”              and/or registry; and
     Compliance shall be in the form of                      (3) Suspension for 120 days without
government securities deposited with the                pay of the directors/officers responsible for
BSP eligible pursuant to existing                       the violation.
regulations governing security for the
faithful performance of trust and other                 Secs. 4442Q - 4498Q (Reserved)
fiduciary business.
                                                        Sec. 4499Q Sanctions. Any violation of the
    § 4441Q.14 Reportorial requirements                 provisions of this Part shall be subject to
An accredited securities custodian shall                Sections 36 and 37 of R.A. No. 7653, without
comply with reportorial requirements that               prejudice to the imposition of other sanctions
may be prescribed by the BSP, which shall               as the Monetary Board may consider
include as a minimum, the face and                      warranted under the circumstances that may
market value of securities held under                   include the suspension or revocation of an
custodianship.                                          institution’s authority to engage in trust and
                                                        other fiduciary business or in investment
    §§ 4441Q.15 - 4441Q.28 (Reserved)                   management activities, and such other
                                                        sanctions as may be provided by law.
    § 4441Q.29 Sanctions. Without                            The guidelines for the imposition of
prejudice to the penal and administrative               monetary penalty for violations/offenses with
sanctions provided for under Sections 36 and            sanctions falling under Section 37 of R. A.
37, respectively, of the R.A. No. 7653,                 No. 7653 on QBs, their directors and/or
violation of any provision of this Section              officers are shown in Appendix Q-39.



Q Regulations                                Manual of Regulations for Non-Bank Financial Institutions
Part IV - Page 42
                                                                              §§ 4501Q - 4505Q
                                                                                      08.12.31

                                           PART FIVE

                           FOREIGN EXCHANGE OPERATIONS


Section 4501Q Authority; Coverage                        c. Holding foreign currency balances
With prior approval of the Monetary Board,          with foreign correspondents in connection
and subject to the provisions of Article III,       with export-related services but in no case
Chapter IV of R.A. No. 7653 and Section             for speculative purposes;
7(13) of P.D. No. 129, as amended, an IH                 d. Entering into forward foreign
may engage in foreign exchange operations           exchange contracts with the BSP in
which shall be limited to the servicing of          connection with the foregoing activities;
project or program requirements of the              and/or
following enterprises:                                   e. Such other related foreign exchange
    a. BSP-certified export-oriented firms;         activities as may be approved by the
    b. Board of Investments-registered              Monetary Board.
export-oriented firms; and
    c. Construction or service firms with           Sec. 4503Q Separate Department. Any
overseas contracts approved by the                  IH that may be authorized to engage in
Department of Labor and Employment.                 foreign exchange operations shall set up
                                                    a separate department/unit to handle such
Sec. 4502Q Specific Foreign Exchange                operations.
Activities. The specific foreign exchange
operations which IHs may undertake in               Sec. 4504Q Applicability of Pertinent
connection with the preceding Section are:          Bangko Sentral Rules. The foreign exchange
     a. Arranging or contracting of foreign         operations of an IH are subject to all
loans for the account of the client firm, or        applicable BSP rules and regulations on
contracting of foreign loans for the account        foreign exchange operations, including
of the IH for relending to the client firm,         modifications thereof, considering the
subject to pertinent BSP rules and                  special nature of IH operations, and the
regulations;                                        sanctions in connection therewith.
     b. Providing import- and export-related
services to said firms such as letters of credit    Sec. 4505Q Aggregate Ceiling on
and other acceptable modes of payment, and          Issuance of Guarantees. Total standby
the discounting of export drafts: Provided,         letters of credit, foreign and domestic,
That the total amount of foreign exchange           including guarantees, the nature of which
transactions IHs may deal in shall not exceed       requires the guarantor to assume the
the amount of the financing arranged or             liabilities/obligations of third parties in
provided by the IH which involves the               case of their inability to pay, that may be
importation and exportation of related goods        issued by QBs and outstanding at any
and services: Provided, further, That the           given time, shall not exceed fifty percent
amount of letters of credit outstanding of an       (50%) of the QB’s net worth, except those
IH shall not exceed, at any given time, twice       fully secured by cash, hold-out on deposits/
its net worth, except as may otherwise be           deposit substitutes on government
specifically authorized by the Monetary Board;      securities.




Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                  Part V - Page 1
§§ 4506Q - 4599Q
08.12.31

Secs. 4506Q - 4598Q (Reserved)                        The guidelines for the imposition of
                                                  monetary penalty for violations/offenses
Sec. 4599Q General Provision on                   with sanctions falling under Section 37
Sanctions. Any violation of the provisions        of R.A. No. 7653 on QBs, their
of this Part shall be subject to Sections 36      directors and/or officers are shown in
and 37 of R.A. No. 7653.                          Appendix Q-39.




Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part V - Page 2
                                                                             §§ 4601Q - 4601Q.1
                                                                                        08.12.31

                                          PART SIX

                   TREASURY AND MONEY MARKET OPERATIONS


   A. OPEN MARKET OPERATIONS                        If settlement of the amount due is not made
                                                    within three (3) days from the date of its
Section 4601Q Open Market Operations                disqualification, the BSP shall proceed to
The following rules and regulations shall           collect said amount in accordance with the
govern the buying and selling of government         preceding paragraph.
securities in the open market pursuant to                d. Reverse repo agreements covering
Section 91 of R.A. No. 7653:                        the sale of portion of the security holdings
    a. The BSP may buy and sell in the              of the BSP portfolio may be made under the
open market for its own account:                    terms provided for in Subsec. 4601Q.2.
    (1) Evidences of indebtedness issued
directly by the Government of the Philippines            § 4601Q.1 (2008 - 4602Q) Repurchase
or by its political subdivisions; and               agreements with the Bangko Sentral. Repo
    (2) Evidences of indebtedness issued            agreements may be effected with the BSP
by government instrumentalities and fully           subject to the following terms and
guaranteed by the Government.                       conditions:
    The above evidences of indebtedness                  a. Rate. The rates on the repurchase
must be freely negotiable and regularly             facility shall be set by the Treasury
serviced and must be available to the               Department, with the concurrence of the
general public through banks, QBs and               Governor, taking into account prevailing
accredited government securities dealers.           liquidity/market conditions.
    b. Outright purchases and sales of                   b. Term. At the option of the Treasury
government securities shall be effected on          Department, availments may be for a
the basis of the lowest price offered or the        minimum of one (1) day (overnight) and a
highest price bid.                                  maximum of ninety-one (91) days.
    c. Repo agreements shall be open to                  c. Security. Only obligations of
banks (except RBs), QBs and accredited              the National Government and its
government securities dealers and shall be          instrumentalities and political subdivisions,
made under the terms provided for in                which are fully guaranteed by the
Sec. 4601Q.1 and the following:                     Government, with a remaining maturity
    (1) The repo agreement may be paid at           of not more than ten (10) years and which
any time before maturity at the option of           are freely negotiable and regularly
the issuer of the repo agreement;                   serviced, shall be eligible as underlying
    (2) In the event the securities covered         instruments for repo agreements, subject
by the repo agreement are not repurchased           to the collateral requirement prescribed by
by the issuer of such agreement, they may           the BSP.
be sold in the open market or transferred to             d. Delivery. Delivery of the underlying
the BSP Portfolio; and                              instruments shall be made to the BSP at the
    (3) Should an issuer of a repo                  prescribed time. For overnight repo
agreement become no longer qualified as             agreements, delivery of the underlying
such, its outstanding repo agreement shall          instruments shall be made not later than
immediately become due and payable.                 12:00 noon of the date of transaction.




Manual of Regulations for Non-Bank Financial Institutions                         Q Regulations
                                                                                 Part VI - Page 1
§§ 4601Q.1 - 4601Q.2
09.12.31

    Government securities which are held                        term “deposit substitutes” under Sec. 22 (y)
by the issuer of the repo agreement under                       Chapter 1 of the National Internal Revenue
the book-entry system with the BSP may be                       Code of 1997.
used as underlying instruments only with                            The BSP shall withhold twenty percent
the conformity of the BSP.                                      (20%) Final Withholding Tax (FWT) on its
    e. Upon termination of the repo                             overnight reverse repo agreements starting
agreement, the issuer of such agreement                         January 01, 2008, under the following
shall claim and take delivery of the                            guidelines:
underlying instruments at the Treasury                              (1) All overnight reverse repo
Department, BSP. Failure to claim and take                      agreements with the BSP shall be subject to
delivery of the underlying instruments                          the twenty percent (20%) FWT in the same
immediately upon such termination shall                         manner as term reverse repo agreements,
relieve the BSP of any liability or                             which tax is deducted on each maturity date
responsibility for the loss or misplacement                     and remitted to the BIR;
of said instruments.                                                (2) With respect to the overnight RRPs
                                                                from 01 January 2008 to 22 August 20081,
    § 4601Q.2 (2008 - 4602Q.1) Reverse                          the concerned QBs shall reimburse the BSP
repurchase agreements with Bangko                               the amount equivalent to forty percent (40%)
Sentral. Reverse repo agreements may be                         of the twenty percent (20%) FWT due
effected with the BSP subject to the                            thereon. However, QBs which choose to
following terms and conditions:                                 pay the whole twenty percent (20%) FWT
    a. Rate. The rates shall be set by the                      shall remit the amount equivalent to the sixty
Treasury Department, with the concurrence                       percent (60%) balance thereof to the BIR,
of the Governor, taking into account the                        through the BSP as withholding agent. In
prevailing liquidity/market conditions.                         both cases, payment of the FWT to the BSP
    b. Term. At the option of the Treasury                      shall be made on or before 03 April 2009,
Department, availments may be for a                             either in full or in three (3) installments:
minimum of one (1) day (overnight) and a                        Provided, That a QB which intends to pay
maximum of 364 days.                                            in installments shall remit the first
    c. Security. The collateral shall consist                   payment on or before 06 March 2009, the
of obligations of the National Government                       second on or before 20 March 2009 and
and other freely negotiable securities in the                   the last on or before 03 April 2009:
BSP portfolio valued at 100%.                                   Provided, further, That payments due shall
    d. Delivery. No delivery of the                             be deducted from the Regular Demand
collateral shall be made, but a custody                         Deposit Account (RDDA) of concerned
receipt shall be issued instead.                                QBs. The BSP shall issue the certificate of
    e. Reservation. Prepayment may be                           final withholding tax reflecting the
made by the BSP at its option anytime                           amount of the FWT paid; and
before maturity.                                                    (3) Concerned banks shall issue the
    Effective 01 July 2003, published interest                  corresponding debit authority to the BSP
rates that will be applied on BSP’s reverse                     to cover the twenty percent (20%) FWT
repo agreements shall be inclusive of Value                     on their overnight reverse repo agreements
Added Tax (VAT).                                                with the BSP mentioned in Item “2”
    Reverse repo agreements entered into                        above.
by the BSP with any authorized agent bank                       (As amended by Circular Nos. 647 dated 03 March 2009,
(AAB) are included in the definition of the                     636 dated 17 December 2008 and 619 dated 22 August 2008)



1
    Interest income payments from 01 January 2008 to 26 August 2008.

Q Regulations                                      Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 2
                                                                                    §§ 4601Q.3 - 4611Q
                                                                                              09.12.31

    § 4601Q.3 (2008 - 4601Q.1) Settlement                  of derivatives instruments involving foreign
procedures. Purchase and sale of                           currencies and/or other foreign currency-
government securities under repo                           denominated assets, the transacting QB shall
agreements (GS/repo agreements) between                    observe the pertinent foreign exchange
and among banks and QBs and BSP in                         (“FX”) rules and regulations. For purposes
connection with the latter’s open market                   of these guidelines, a QB that transacts
operations shall be settled in accordance                  (i.e., transacting bank), whether as end-user,
with the provisions of the agreement for the               broker or dealer, in derivatives instruments
PhilPaSS executed on 12 December 2002                      is considered to be engaging in a derivatives
between the BSP and IHAP and any                           activity.
subsequent amendments thereto.                                  Derivative is broadly defined as a
(As superseded by the agreement between the BSP and IHAP   financial instrument that primarily derives
dated 12 December 2002)                                    its value from the performance of an
                                                           underlying variable. For purposes of these
     §§ 4601Q.4 - 4601Q.5 (Reserved)                       guidelines, a financial derivative is any
                                                           financial instrument or contract with all of
    § 4601Q.6 Bangko Sentral trading                       the following characteristics:
windows and services during public sector                       a. Its value changes in response to a
holidays. The guidelines on BSP’s trading                  change in a specified interest rate,
windows and services during public sector                  financial instrument price, commodity
holidays are shown in Appendix Q-50.                       price, FX rate, index of prices or rates,
(M-2008-025 dated 13 August 2008)                          credit spread, credit rating or credit index
                                                           or other variables not prohibited under
Secs. 4602Q - 4610Q (Reserved)                             existing laws, rules and regulations (“the
                                                           underlying”);
      B. FINANCIAL INSTRUMENTS                                  b. It requires either no initial net
                                                           investment or an initial net investment that
Sec. 4611Q (2008 - 4603Q) Derivatives. A                   is smaller than would be required for other
QB may engage in authorized derivatives                    types of contracts that would be expected
activities: Provided, That a QB:                           to have a similar response to changes in
    a. Understands, measures, monitors                     market factors; and
and controls the risks assumed from its                         c. It is settled at a future date.
derivatives activities;                                         Financial derivatives activities shall
    b. Adopts effective risks management                   also include transactions in cash
practices whose sophistication are                         instruments with embedded derivatives
commensurate to the risks being monitored                  that reshape the risk-return profile of the
and controlled; and                                        host instrument, such as credit-linked
    c. Maintains capital commensurate                      notes (“CLNs”) and their structured
with the risk exposures assumed.                           products (“SPs”).
    Further, a QB may engage in financial                       A market participant may take any of
derivatives activities in accordance with                  the following roles in a derivatives
these guidelines. The transacting QB shall                 transaction:
have the responsibility to comply with the                      a. An end-user is defined as a financial
guidelines set out in this Section, including              market participant that enters, for its own
the relevant appendices, and other                         account, in a derivatives transaction for
applicable laws, rules and regulations                     legitimate economic purposes. These
governing derivatives transactions. In case                purposes may include, but are not limited



Manual of Regulations for Non-Bank Financial Institutions                                 Q Regulations
                                                                                         Part VI - Page 3
§§ 4611Q - 4611Q.2
09.12.31

to, the following: hedging proprietary                            § 4611Q.1 (2008 - 4603.Q.1) Generally
trading, managing capital or funding costs,                   authorized derivatives activities. A QB may
obtaining indirect exposures to desired                       enter in any financial derivatives transaction
market factors, investment, yield-                            with BSP-authorized dealers and brokers
enhancement, and/or altering the risk-                        without need of prior BSP approval solely
reward profile of a particular item or an                     for hedging purposes: Provided, That it
entire balance sheet.                                         observes all the requirements for hedging
     An end-user may be classified                            transactions under Philippines Accounting
according to its financial sophistication:                    Standards (“PAS”): Provided further, That it
     (1) Market counterparty - refers to FI,                  observes the provisions of Appendix Q-15.
only with respect to the instruments for                          A trust department of a QB may enter,
which it is authorized to engage in as a                      as an institutional counterparty, into any
dealer;                                                       financial derivatives with the BSP-approved
     (2) Institutional counterparty - refers to               authorized dealers and brokers, on behalf
an institution which is not a market                          of its trustor/principal/s as may be
counterparty and has the level of net worth,                  authorized by such trustor/principals/s
knowledge, expertise, and experience to                       without need of prior BSP approval, solely
deal with financial derivatives;                              for hedging purposes: Provided, That the
     (3) Sophisticated individual end-user -                  trust department observes all the
refers to an individual who has                               requirements for hedging transactions under
demonstrated to the FI as having the level                    PAS: Provided further, That it observes the
of net worth, knowledge and experience in                     provisions of Appendix Q-15.
dealing with financial products, including                    (As amended by Circular No. 668 dated 02 October 2009)
financial derivatives. An individual may
register as a sophisticated individual end-                       § 4611Q.2 (2008 - 4603Q.2) Activities
user with the Centralized Applications and                    requiring additional derivatives authority
Licensing Group of the BSP.                                   QB may apply for prior BSP approval of
     (4) Other end-user - this refers to all                  additional derivatives authority to engage
other institutional or individual clients not                 in all other financial derivatives activities
categorized as market counterparty,                           not expressly allowed in Subsec. 4611Q.1.
institutional counterparty or sophisticated                   A QB may apply for two (2) or more
individual end-user.                                          additional authorities. A QB applying for
     b. A broker is a financial market                        additional derivatives authority/ies must
participant that facilitates a derivatives                    have and maintain a risk management
transaction between a dealer and its client,                  system commensurate to the additional
for a fee or commission. The                                  authority/ies being applied for, in
counterparties to the derivatives contract                    accordance with the provisions of Appendix
are the client and an authorized dealer.                      Q-15 and meet other conditions specified
     c. A dealer is defined as a financial                    under this Subsection.
market participant that engages in a                              a. Classification of additional
derivatives activity as an originator of                      derivatives authority
derivatives products or as market-maker in                        (1) Type 2 - Limited Dealer Authority
derivatives products. A dealer can distribute                     A QB that is also an investment house
its own derivatives products, including those                 may apply for a Type 2 Authority. A QB
of others. A dealer can also act as broker                    with Type 2 Authority may operate as a
and/or end-user of derivatives instruments.                   dealer in specific types of derivatives
(As amended by Circular No. 668 dated 02 October 2009)        products with specific underlying reference,



Q Regulations                                      Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 4
                                                                                        § 4611Q.2
                                                                                          09.12.31

as applied for by the QB: Provided, That a              (a) CAMELS composite rating of at least
QB with Type 2 Authority shall comply               “3” with a similar rating for Management,
with the sales and marketing guidelines             as applicable;
prescribed in Appendix Q-16. The Type 2                 (b) No unresolved major safety and
Authority also carries authority to transact        soundness issues that threaten liquidity or
as broker and end-user of the said specific         solvency; and
derivatives instruments.                                (c) Substantial compliance with
     (2) Type 3 - Limited User Authority            regulations on anti-money laundering,
     A QB or a trust department of a QB,            corporate governance and risk management.
may apply for a Type 3 Authority. A QB or               (2) Hold capital commensurate to the
a trust department of a QB with Type 3              risks assumed or to be assumed from the
Authority may transact, as an end-user, in          derivatives activities. A QB applying for or
specific types of derivatives product, with         holding a Type 2 Limited Dealer Authority
specific underlying reference, as applied           or Type 3 Limited User Authority
for by the QB, outside of those instruments         automatically agrees to be covered by all
that meet the conditions under Subsec.              regulations prescribing capital for market
4611Q.1. A Type 3 Authority will enable             risk, notwithstanding any provision to the
said QB or trust department to transact as          contrary. In addition, the BSP expects a QB
end-user of derivatives instruments as may          applying for or holding additional derivatives
be applied for by the QB or trust                   authority to have adequate capital to
department.                                         accommodate existing and future risks from
     (3) Type 4 - Special Broker Authority          additional and generally authorized
     A QB that is also an investment house          derivatives activities as well as risks arising
may likewise apply for a Type 4 Authority.          from the QB’s other business activities. For
A QB with Type 4 Authority may facilitate           this purpose, the BSP may require capital
a derivatives transaction between a BSP-            higher than the minimum required under
authorized dealer and end-user clients:             prudential regulations.
Provided, That the QB, acting as broker,                (3) Have and maintain a risk
ensures that its client fully understands its       management system that conforms to the
limited responsibility as a broker and              principles and complies with the minimum
observes the provisions of Appendix Q-16.           standards prescribed in Appendix Q-15.
     A QB with additional Type 2 or 4                   (4) Demonstrate the relevance of
Authorities shall be responsible for                proposed derivatives activities to the QB’s
complying with pertinent securities laws,           main purpose as an institution. The BSP
rules and regulations.                              reserves the right to deny applications
     For purposes of this Subsection, the           whose proposed derivatives activities do
types of derivatives are classified as              not reasonably fit the nature of their
follows: forwards, swaps and options.               business operations.
Underlying reference pertains to the                    c. Applicability to trust department of
following: interest, foreign currencies/            QBs. Trust departments of QBs may apply
foreign exchange, equity, credit and                for Type 3 Authority, provided they comply
commodity.                                          with the requirements prescribed and
     b. Qualification requirements. A QB            observe the provisions of Appendix Q-15
applying for additional authority to engage         and Q-16.
in additional derivatives activities shall:             d. Application procedures. The
     (1) Demonstrate adequate competence            applicant shall submit to the Capital Markets
in its general operations as evidenced by:          Specialist Group, SES of the BSP a written



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part VI - Page 5
§§ 4611Q.2 - 4611Q.3
09.12.31

application for additional derivatives             management capabilities, if this is deemed
authority/ies accompanied by;                      necessary.
     (1) A copy of the board resolution                (5) Payment of the following non-
approving the application for a specific type      refundable processing fee shall be made
of derivatives authority;                          upon approval or denial of the QB’s
     (2) A notarized certification signed          application:
jointly by the president, treasurer, or
equivalent trust officer and compliance                                                 Amount
officer of the applicant QB stating that the           Type 2 Authority              P 50,000.00
QB complies with all the requirements for              Type 3 Authority                25,000.00
the authority being applied for specified in           Type 4 Authority                25,000.00
Subsec. 4611Q.2; and
     (3) A list of the types of derivatives             (6) A QB whose application for
and underlying reference the QB intends            additional derivatives authority/ies or an
to engage in, including the following              upgrade thereof (e.g., from Type 3 to Type
information for each derivatives class or          2 Authority) has been denied cannot submit
type:                                              a new application for additional derivatives
     (a) Target customers for such                 authorities until after six (6) months from
derivatives;                                       receipt of denial. The same rule applies for
     (b) The capacity in which the QB              a QB whose authorities have been limited
intends to engage in such derivatives;             or downgraded.
     (c) Description of each type of                    (7) A QB that holds an additional
derivatives and underlying reference with          derivatives authority may apply for additional
which it will deal;                                derivatives authorities (e.g., currently
     (d) Analysis of the risks involved in         holding Type 3 Authority who wish to apply
transacting in each type of derivatives;           for Type 4 Authority) or an upgrade thereof
     (e) Procedures/methodologies that the         only after the lapse of six (6) months from
QB will implement to measure, monitor              the grant of the previous additional
(including risk management reports) and            derivatives authority.
control the risks inherent in the type of          (As amended by Circular No. 668 dated 02 October 2009)
derivatives;
     (f) Relevant accounting guidelines,               § 4611Q.3 (2008 - 4603Q.3) Intra-
including pro-forma accounting entries;            group transactions. All derivatives
     (g) Analysis of any actual or potential       transactions between a QB and any of its
legal/regulatory restrictions; and                 subsidiaries and affiliates shall comply with
     (h) Process flow chart, from deal             minimum risk management standards for
initiation to risk reporting, indicating the       related-party transactions outlined in
departments and personnel involved in              Appendix Q-15 as part of the QB’s internal
identified processes.                              control procedures. The BSP expects QBs
     (4) The BSP will not accept applications      to establish internal reporting and
lacking any of the above-stated                    monitoring system for derivatives activities
requirements. The BSP, however, may                for related-party transactions. Failure to
require additional documents to aid its            comply with minimum standards shall be a
evaluation of the application. By virtue of        ground for citing non-compliance with
the application, the applicant automatically       provisions under Subsecs. 4611Q.1 and
authorizes the BSP to conduct an on-site           4611Q.2 without prejudice to other BSP
evaluation of the applicant’s risk                 rules and regulations such as those related



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 6
                                                                                 §§ 4611Q.3 - 4611Q.6
                                                                                              09.12.31

to corporate governance and unsafe and                   reports. For purposes of imposing monetary
unsound banking practices.                               penalties, the reports shall be classified
(As amended by Circular No. 668 dated 02 October 2009)   as a Category A-1 report. Habitual delayed
                                                         or erroneous reporting may be a ground
    § 4611Q.4 (2008 - 4603Q.5) Accounting                for further sanction, including limitation
guidelines. A QB that engages in derivatives             of generally authorized activities and/or
activities must strictly account for such                additional authorities and/or suspension
transactions in accordance with relevant                 of authority to engage in such derivatives
PAS.                                                     activities.
(As amended by Circular No. 668 dated 02 October 2009)        c. Non-compliance with the provisions
                                                         of this Section, its Subsecsections and
     § 4611Q.5 (2008 - 4603Q.6) Reporting                Appendices Q-15 and Q-16.
requirements. A QB engaged in any                             Any QB found violating any of the
derivatives transactions shall submit a                  provision of Sec. 4111Q and its Subsections
monthly report on derivatives transactions/              and/or Appendices Q-15 and Q-16 shall be
outstanding derivatives in accordance with               sanctioned with the penalties prescribed
the format shown in Annex "A" of Appendix                under Sections 36 and 37 of R.A. No. 7653
Q-16 within fifteen (15) banking days from               in accordance with the gravity/seriousness
end of the reference month. The reports shall            of the offense taking into consideration the
be certified by the treasurer.                           number of times the offense was committed,
(As amended by Circular No. 668 dated 02 October 2009)   possible consequent losses on the clients,
                                                         effect on the financial markets and other
    § 4611Q.6 (2008 - 4603Q.7) Sanctions                 relevant factors.
    a. Unauthorized transactions                              d. Curtailment of derivatives authority
    Sanctions prescribed under Sections                       The BSP reserves the right to suspend,
36 and 37 of R.A. No. 7653 shall be                      modify, downgrade, limit or revoke any
imposed on any QB (including its                         QB’s derivatives authority (including any
directors and officers) found to have                    or all of those generally authorized
engaged in an unauthorized derivatives                   activities) for prudential reasons as may
activity.                                                be evidenced by any or all of the
    A QB undertaking unauthorized                        following:
derivatives activities may be considered                      i. The QB is assigned a CAMELS
as conducting its business in an unsafe                  composite rating or component
and unsound manner under Section 56 of                   Management rating of lower than that
R.A. No. 8791.                                           prescribed under Subsec. 4611Q.2 in the
    b. Delayed/Erroneous/Inaccurate                      most recent regular examination.
reporting                                                     ii. The QB has not maintained
    QBs failing to submit the reports                    adequate risk management systems given the
required under Subsec. 4611Q.5 within the                level and type of derivatives activities it has
prescribed deadline shall be subject to                  engaged in as may be determined by the BSP
monetary penalties applicable for delayed                in any on-site evaluation and confirmed by
reporting under existing regulations.                    the Monetary Board.
Moreover, submission of incomplete,                           iii. The Monetary Board has confirmed
uncertified or improperly certified or                   an SES finding that the QB has conducted
otherwise erroneous reports shall be                     business in an unsafe and unsound manner.
considered non-reporting, subject to                          An erring QB may apply for
applicable penalties for amended/delayed                 reinstatement of its derivatives authority



Manual of Regulations for Non-Bank Financial Institutions                               Q Regulations
                                                                                      Part VI - Page 6a
§§ 4611Q.6 - 4625Q.2
09.12.31

only after six (6) months from lapse of the                       § 4625Q.2 (2008 - 4603Q.15) Definition
implementation of the sanction, provided                      of terms
the QB has satisfactorily addressed all the                       a. Customers shall refer to:
BSP concerns.                                                     (1) resident banks (other than KBs and
(As amended by Circular No. 668 dated 02 October 2009)        UBs) and non-bank BSP-supervised entities
                                                              (NBBSEs) not authorized to engage in FX
Secs. 4612Q - 4624Q (Reserved)                                forwards and swaps as dealers;
                                                                  (2) resident non-bank entities; and
Sec. 4625Q (2008 - 4603Q.14) Forward                              (3) non-residents, both banks and
and Swap Transactions                                         non-banks.
    Statement of policy. It is the policy of                      b. Foreign exchange obligation shall
the BSP to support the deepening of the                       refer to an actual commitment to repatriate
Philippine financial markets. In line with                    or pay to a non-resident or any AAB a
this policy, customers may, thru FX                           specific amount of foreign currency on a
forwards, hedge their market risks arising                    pre-agreed date.
from FX obligations and/or exposures:                             c. Foreign exchange exposure shall
Provided, That forward sale of FX                             refer to an FX risk arising from an existing
(deliverable and non-deliverable) may only                    commitment which will lead to an actual
be used when the underlying transaction is                    payment of FX to, or receipt of FX assets
eligible for servicing by the banking system                  from, non-residents or any AAB based on
under FX Manual, as amended. Customers                        verifiable documents on deal date. FX risks
may, likewise, cover their funding                            arising from BSP-registered foreign
requirements thru FX swaps.                                   investments without specific repatriation
    QBs may only engage in FX                                 dates are considered FX exposures.
forwards and swap transactions with                               d. Resident shall refer to -
customers if the latter is hedging market                         (1) An individual citizen of the
risk or covering funding requirements.                        Philippines residing therein; or
There shall be no double/multiple                                 (2) An individual who is not a citizen
hedging such that at any given point in                       of the Philippines but is permanently
time, the total notional amount of the                        residing therein; or
FX derivatives transaction/s shall not                            (3) A corporation or other juridical
exceed the amount of the underlying FX                        person organized under the laws of the
obligation/exposure.                                          Philippines; or
    The customer shall no longer be                               (4) A branch, subsidiary, affiliate,
allowed to buy FX from the banking                            extension office or any other unit of
system for FX obligations/exposures that                      corporations or juridical persons which are
are fully covered by deliverable FX                           organized under the laws of any country
forwards and FX swaps.                                        and operating in the Philippines, except
    The following guidelines, as well as                      offshore banking units (OBUs).
minimum documentary requirements,                                 e. Non-resident shall refer to an
shall cover FX forward and swap                               individual, a corporation or other juridical
transactions involving the Philippine peso                    person not included in the definition of
between authorized dealer QBs and their                       resident.
customers.                                                        f. Foreign exchange swap shall refer
(As amended by Circular No. 591 dated 27 December 2007)       to a transaction involving the actual
                                                              exchange of two (2) currencies (principal
     § 4625Q.1 (Reserved)                                     amount only) on a specific date at a rate



Q Regulations                                      Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 6b
                                                                                           §§ 4625Q.2 - 4625Q.4
                                                                                                        08.12.31

agreed on deal date (the first leg), and a                        § 4625Q.4 (2008 - 4603Q.17) Tenor/
reverse exchange of the same two (2)                          maturity and settlement
currencies at a date further in the future (the                   a. Forward sale of FX (whether
second leg) at a rate (different from the rate                deliverable or non-deliverable). The tenor/
applied to the first leg) agreed on deal date.                maturity of such contracts shall not be
     g. Foreign exchange forward shall                        longer than: (i) the maturity of the
refer to a contract to purchase/sell a specified              underlying FX obligation; or (ii) the
amount of currency against another at a                       approximate due date or settlement of the
specified exchange rate for delivery at a                     FX exposure. For deliverable FX forward
specified future date three (3) or more                       contracts, the tenor/maturity shall be
business days after deal date.                                co-terminus with the maturity of the
     h. Non-deliverable forward (NDF)                         underlying obligation or the approximate
shall refer to an FX forward contract where                   due date or settlement of the FX exposure.
only the net difference between the                           This shall not preclude pre-termination of
contracted forward rate and the market rate                   the contract due to prepayment of the
at maturity (i.e., the fixing rate) shall be                  underlying obligation or exposure:
settled on the forward date.                                  Provided, That for foreign currency loans,
(As amended by Circular No. 591 dated 27 December 2007)       prior BSP approval has been obtained for
                                                              the prepayment and a copy of such
    § 4625Q.3 (2008 - 4603Q.16)                               approval is presented to the QB
Documentation. Minimum documentary                            counterparty.
requirements for FX forward and swap                              b. FX Swaps - No restriction on
transactions in Appendix Q-29 shall be                        tenor.
presented on or before deal date to the QBs                       c. Settlement of NDFs - All NDF
unless otherwise indicated.                                   contracts with residents shall be settled in
    FX selling QBs shall stamp the                            pesos.
supporting documents upon presentation by                         d. Remittance of FX proceeds of
customers as follows:                                         deliverable forward and swap contracts.
    a. For hedging transactions: “FX                              FX proceeds of deliverable forward
HEDGED/DELIVERABLE” or “FX HEDGED/                            and swap contracts shall be delivered by
NON-DELIVERABLE”;                                             the QB counterparty directly to the
    b. For      funding       transactions:                   beneficiaries concerned except for foreign
“FX SOLD”, indicating the contract date and                   investments where said FX proceeds are
amount involved, and signed by the QB’s                       reconverted to Philippine pesos and
authorized officer. Copies of all duly marked                 re-invested in eligible peso instruments
supporting documents shall be retained by                     such as those listed in Item “A.2.2” of
the QBs and made available to the BSP for                     Appendix Q - 2 9 . F o r t h i s p u r p o s e ,
verification. The retained copies shall also                  beneficiaries shall refer to the FCDU of
be marked “DOCUMENTS PRESENTED AS                             a QB or a non-resident entity (e.g.,
REQUIRED” and signed by the QB’s                              creditor, supplier, investor) to whom the
authorized officer.                                           customer is committed to pay/remit FX.
(As amended by Circular No. 591 dated 27 December 2007)       (As amended by Circular No. 591 dated 27 December 2007)



                                            (Next page is Part VI - Page 7)




Manual of Regulations for Non-Bank Financial Institutions                                            Q Regulations
                                                                                                   Part VI - Page 6c
                                                                                      §§ 4625Q.5 - 4625Q.14
                                                                                                    08.12.31

     § 4625Q.5 (Reserved)                                      § 4625Q.9 (2008 - 4603Q.21) Reporting
                                                          requirements. QBs duly authorized to engage
     § 4625Q.6 (2008 - 4603Q.18)                          in derivatives transactions shall continue to be
Cancellations, roll overs or non-delivery of              covered by the BSP’s existing reporting
FX forward and swap contracts. All                        requirements on financial derivatives.
cancellations, roll-overs or non-delivery of all          Cancellations, roll-overs or non-delivery of
FX deliverable forward contracts and the                  deliverable FX forward contracts and under
forward leg of swap contracts shall be subject            the forward leg of swap contracts shall be
to the following guidelines to determine the              reported electronically in excel format to the
validity thereof:                                         BSP not later than five (5) business days after
     a. Eligibility test - Contracts must be              reference month as indicated in Appendix Q-3.
supported by documents listed in Appendix                      Swap contracts with counterparties
Q-29 hereof.                                              involving purchase of FX by QBs at the initial
     b. Frequency test - the reasonableness               leg shall likewise be reported electronically
of the cancellation, roll-over or non-delivery            in excel format to the BSP not later than
shall be based on the results of the evaluation           five (5) business days after reference month
of the justification/explanation submitted by             as indicated in Appendix Q-3.
QBs as evidenced by appropriate documents.                     The reports shall be transmitted to the
     c. Counterparty test – the cancellation              International Department at iod@bsp.gov.ph,
or roll-over of contracts must be duly                    copy furnished the SDC.
acknowledged by the counterparty to the                   (As amended by Circular No. 591 dated 27 December 2007)
contract as shown in documents submitted
by QBs, e.g., there should be conforme of                      §§ 4625Q.10 - 4625Q.13 (Reserved)
counterparty as evidenced by the counterparty
signature on pertinent documents.                             § 4625Q.14 (2008 - 4603.26) Sanctions
     d. Mark-to-Market test– the booking or               Violations of 4625Q and Subsecs. 4625Q.2
recording in the books of accounts of the profit          to 4626Q.4 and 4625Q.6 to 4625Q.9 shall
or loss on contracts and cash flows/settlement            be subject to the penalty provisions under R.A.
to counterparties must be fully supported by              No. 7653 (The New Central Bank Act) and
appropriate documents such as authenticated               other existing banking laws and regulations.
copy of debit/credit tickets, schedules showing
among others, mark-to-market valuation                    a. Monetary Penalties
computation, etc.                                             Per Calendar Month                  Daily Penalty
(As amended by Circular No. 591 dated 27 December 2007)         1 st business day                  P 10,000
                                                                2nd business day                     20,000
                                                                3rd business day of
    § 4625Q.7 (2008 - 4603Q.19) Non-
                                                                   violation, and onwards,
deliverable forward contracts with non-                            or if the excess FX
residents. Only banks with expanded                                position is 30% or more
derivatives license may enter into NDF                             of the allowable limits in
contracts to sell FX to non-residents.                             any business day,
                                                                   regardless of whether a
                                                                   QB is in the first, second,
    § 4625Q.8 (2008 - 4603Q.20)                                    third or more days of
Compliance with Anti-Money Laundering                              violation                           30,000
rules. All transactions under Section 4625Q and
Subsecs. 4625Q.2 to 4626Q.4 and 4625Q.6 to                   b. In addition, the following
4625Q.9 shall comply with existing regulations            non-monetary sanctions shall be imposed
on anti-money laundering under Sec. 4801Q.                on the QB committing violations
(As amended by Circular No. 591 dated 27 December 2007)   considered as:


Manual of Regulations for Non-Bank Financial Institutions                                         Q Regulations
                                                                                                 Part VI - Page 7
§§ 4625Q.14 - 4651Q.1
08.12.31

    (1) chronic, i.e., when the violation                      Sec. 4651Q (2008 - 4626Q) Asset-Backed
continues beyond three (3) business days                       Securities. The following regulations shall
within a calendar month, but the excess                        govern the origination, issuance, sale,
position is less than thirty percent (30%) of                  servicing and administration of asset-
the allowable limit; and                                       backed securities (ABS) by any QB
    (2) abusive, i.e., when the violation                      including its subsidiaries and affiliates
continues beyond three (3) business days                       engaged in allied activities, which are
within a calendar month and excess position                    domiciled in the Philippines.
is thirty percent (30%) or more of the
allowable limit.                                                   § 4651Q.1 (2008 - 4626Q.1) Definition
                                                               of terms
 "Chronic"          Suspension of the QB’s cash dividend
  violation                                                        a. Assets shall mean loans or
                    declaration and branching privileges
                    until the violation is corrected but in    receivables existing in the books of the
                    no case shall such suspension be less      originator prior to securitization. Such
                    than thirty (30) calendar days.            assets are generated in the ordinary course
 " Abusive"         Suspension of the QB's cash dividend
   violation                                                   of business of the originator and may
                    declaration and branching privileges
                    until the violation is corrected but in    include mortgage loans, consumption
                    no case shall such suspension be less      loans, trade receivables, lease receivables,
                    than sixty (60) calendar days.             credit card receivables and other similar
                                                               financial assets.
    c. The Monetary Board may impose                               b. Asset-backed securities shall refer to
other non-monetary sanctions on a QB for                       the certificates issued by a special purpose
violations determined by BSP as “chronic”                      trust (SPT) representing undivided
or “abusive” on a case-to-case basis,                          ownership interest in the asset pool.
pursuant to Section 37 of R.A. No. 7653.                           c. Asset pool shall mean a group of
    d. QBs shall be duly advised by the                        identified, self-amortizing assets that is
BSP of their violations and the                                conveyed to the SPT issuing the ABS and
corresponding sanctions imposed for such                       such other assets acquired as a
violations.                                                    consequence of the securitization.
    e. A monetary penalty imposed on a                             d. Clean-up call shall refer to an option
QB shall be paid to the BSP Cash                               granted to the seller to purchase the
Department, within three (3) business days                     remaining assets in the asset pool.
from the receipt of advice of said penalty                         e. Credit enhancement shall refer to
imposition.                                                    any legally enforceable scheme that is
    For purposes of imposing sanctions for                     intended to enhance the marketability of
delayed, erroneous or unsubmitted                              the ABS and increase the probability that
reports, reports required under Subsec.                        investors receive payment of amounts due
4625Q.9 are classified as Category B                           them.
reports and subject to corresponding                               f. Guarantor shall refer to an entity
penalties.                                                     that guarantees the repayment of principal
    Counterparties that habitually cancel                      and interests on loans or receivables
deliverable forwards without proper                            included in the asset pool in the event of
justification may be subject of a BSP                          default by the borrower.
watchlist.                                                         g. Investible funds shall refer to the
(As amended by Circular No. 591 dated 27 December 2007)        proceeds of collection of loans or receivables
                                                               included in the asset pool which are not yet
Secs. 4626Q - 4650Q (Reserved)                                 due for distribution to investors.



Q Regulations                                       Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 8
                                                                           §§ 4651Q.1 - 4651Q.4
                                                                                        08.12.31

     h. Issuer shall refer to the SPT that              § 4651Q.4 (2008 - 4626Q.4) Minimum
issues the ABS.                                     documents required. The application to
     i. Originator shall refer to a QB and/         securitize must be accompanied by the
or its subsidiary or affiliate engaged in allied    following documents as a minimum
activities that grants or purchases loans or        requirement:
receivables and assembles them into a pool              a. Trust indenture evidencing the
for securitization.                                 conveyance of the assets from the seller to
     j. Residual certificates shall refer to        the issuer or SPT, the features of which shall
certificates issued representing claims on the      include the following:
remaining value of the asset pool after all             (1) Title or nature of the contract in
ABS holders are paid.                               noticeable print;
     k. Seller shall refer to the entity which          (2) The parties involved, indicating in
conveys to the SPT the assets that constitute       noticeable print, their respective legal
the asset pool.                                     capacities, responsibilities and functions;
     l. Servicer shall refer to the entity              (3) Features and amount of ABS;
designated by the issuer primarily to                   (4) Purposes and objectives;
collect and record payments received on                 (5) Description and amount of assets
the assets, to remit such collections to the        comprising the asset pool;
issuer and perform such other services as               (6) Representation and warranties;
may be specifically required by the issuer              (7) Credit enhancements;
excluding asset management or                           (8) Distribution of funds;
administration.                                         (9) Authorized investment of
     m. Special purpose trust shall refer to        investible funds;
a trust administered by a trustee and created           (10) Rights of the investor;
solely for the purpose of issuing and                   (11) Reports to investors; and
administering an ABS.                                   (12) Termination and final settlement.
     n. Trustee shall refer to the entity               The trust indenture shall include as
designated to administer the SPT.                   annexes the servicing agreement between
     o. Underwriter shall refer to the entity       the trustee and the servicer and the
engaged in the act or process of distributing       underwriting agreement between the seller
and selling of the ABS either on guaranteed         and the underwriter.
or best-efforts basis.                                  b. Prospectus. As a minimum
                                                    requirement, it shall contain the following:
    § 4651Q.2 (2008 - 4626Q.2) Authority                (1) Summary of the contents of the
Any QB including its subsidiaries and               prospectus;
affiliates engaged in allied activities,                (2) Description of each class of
may securitize its assets upon prior                certificates, including such matters as
approval of the BSP.                                probable yields, payment dates and priority
                                                    of payments;
     § 4651Q.3 (2008 - 4626Q.3) Management              (3) Description of the assets
oversight. The originator/seller shall have         comprising the asset pool as well as the
the securitization program approved by its          representations and warranties set forth by
board of directors. The originator/seller shall     the originator and/or seller;
integrate such securitization program into              (4) Assumptions underlying the cash
its corporate strategic plan. The board of          flow projections for each class of certificate;
directors shall ensure that the securitization          (5) Description of any credit
of assets is consistent with such program.          enhancement;



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                  Part VI - Page 9
§§ 4651Q.4 - 4651Q.7
08.12.31

    (6) Identity of the servicer; and                  § 4651Q.7 (2008 - 4626Q.7) Conveyance
    (7) Disclosure statements as                   of assets
required under Subsec. 4651Q.6.                        a.     The conveyance of the assets
    c.   Specimen of application to                comprising the asset pool shall be done
purchase ABS. It shall include the terms           within the context of a true sale and, for this
and conditions of the purchase and the             purpose, the seller may not retain in its books
disclosures required under Subsec.                 the ABS, except the residual certificate, if
4651Q.6.                                           any.
    d. Specimen of certificate. It shall               b. The seller shall have no obligation
indicate the features of the ABS and the           to repurchase or substitute an asset or any
disclosures required under Subsec.                 part of the asset pool at any time, except in
4651Q.6.                                           cases of a breach of representation or
                                                   warranty, or under a revolving structure, to
    § 4651Q.5 (2008 - 4626Q.5)                     replace performing assets which have been
Minimum features of asset-backed                   paid out in part or in full.
securities. The ABS shall be pre-numbered              c.     The seller shall be under no
and printed on security paper. The ABS             obligation to provide additional assets to the
shall be signed and authenticated by the           SPT to maintain a coverage ratio of collateral
trustee. They are transferable by                  to outstanding ABS. A breach of this
endorsement of the certificate. The transfer       requirement will be considered a credit
shall be recorded in the books of the              enhancement and should be charged against
trustee, indicating the names of the parties       capital. However, this will not apply to an
to the transaction, the date of the transfer       asset pool conveyed under a revolving
and the number of the certificate                  structure such as the securitization of credit
transferred.                                       card receivables.
    The minimum denomination of any                    d. Securitized assets shall be
ABS shall be P10,000.                              considered the subject of a true sale
                                                   between the seller and the SPT. Sold
    § 4651Q.6 (2008 - 4626Q.6)                     assets shall be taken off the books of the
Disclosures. The following disclosures             seller and shall be transferred to the books
must be provided in a conspicuous                  of the SPT.
manner in any document inviting                        For accounting purposes, the transfer
investment, application to purchase ABS            shall only be considered a true sale if the
and in the certificate itself:                     following three (3) conditions have been
    a.   The ABS do not represent deposit          satisfied:
substitutes or liabilities of the originator,          (1) the transferred assets have been
servicer or trustee and that they are not          isolated and put beyond the reach of the
insured with PDIC;                                 seller and its creditor;
    b. The investor has investment                     (2) the SPT has the right to pledge or
risks;                                             exchange its interest in the assets; and
    c.   The trustee does not guarantee                (3) the seller does not effectively
the capital value of the ABS or the                maintain control over the transferred assets
collectibility of the asset pool; and              by any concurrent agreement.
    d. The rights of an investor.                      e. All expenses incidental to
    The investors shall be required to sign        underwriting, conveyance of the asset pool
an acknowledgment indicating that they             including expenses for credit enhancement
have read and understood the disclosures.          may be paid by the originator/seller:



Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 10
                                                                           §§ 4651Q.7 - 4651Q.12
                                                                                         08.12.31

Provided, That no further expenses shall                b. The seller or originator shall deliver
be borne by the originator/seller after the         to the trustee all original documents or
asset pool has been conveyed to the SPT.            instruments with respect to each asset sold.

     § 4651Q.8 (2008 - 4626Q.8)                          § 4651Q.11 (2008 - 4626Q.11) Trustee
Representations and warranties                      and issuer
     a. Standard representations and                     a. The trustee shall be the trust
warranties refer to an existing state of facts      department of a bank licensed to do business
that the originator, seller or servicer can         in the Philippines.
either control or verify with reasonable due             b. The trustee shall have the right to
diligence at the time the assets are sold. Any      manage or administer the asset pool. The
breach of representation or warranty may            trustee shall see to it that necessary
give rise to legal recourse.                        measures are taken to protect the asset
     b. The representations or warranties           pool.
shall be clear and explicit and, in particular,          c. The trustee shall undertake a
shall not relate to the future creditworthiness     performance review of the asset pool at least
of the assets in the asset pool or the              quarterly and shall prepare a report to investors
performance of the SPT or the securities            indicating, among others, collections, fees and
issued.                                             other expenses as well as defaults, which
     c. Any agreement to pay damages as a           report shall be made available to the investors
result of breach of warranties and                  at anytime after thirty (30) days from end of
representations shall hold only where:              the reference quarter.
     (1) there is a well-documented                      d. The trustee shall initiate all civil
negotiation of the agreement in good faith;         actions including foreclosure of mortgaged
     (2) the burden of proof for a breach of        properties to effect collection of receivables
representation or warranty rests with the           in the asset pool. The servicer or any other
other party;                                        party may be designated by the trustee to
     (3) damages are limited to the loss            perform such function on a case-by-case basis.
incurred as a result of the breach; and                  e. The trustee may invest the investible
     (4) there is a written notice of claim         funds only in obligations issued and/or fully
specifying the basis for the claim.                 guaranteed by the government of the
     The BSP shall be notified of any instance      Republic of the Philippines or by the BSP
where a QB or its subsidiaries/affiliates has       and such other high-grade readily marketable
agreed to pay damages arising out of any            debt securities as the BSP may approve.
breach of representation or warranty.                    f. The trustee shall designate a
                                                    replacement of the servicer if the latter fails
    § 4651Q.9 (2008 - 4626Q.9) Third                to satisfactorily perform its duties and
party review. A due diligence review by an          responsibilities according to the terms and
independent entity mutually agreed upon             conditions of the servicing agreement.
by the seller and the issuer shall be done
before the assets are sold.                             § 4651Q.12 (2008 - 4626Q.12) Servicer
                                                        a. The servicer shall perform its duties
    § 4651Q.10 (2008 - 4626Q.10)                    according to the terms and conditions of
Originator and seller                               the servicing agreement and such other
    a. The seller may itself be the                 written instructions as the trustee may issue
originator, and may likewise be designated          on a case-by-case basis. Collections made
as the servicer.                                    by the servicer shall be remitted promptly



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                  Part VI - Page 11
§§ 4651Q.12 - 4651Q.15
08.12.31

to the trustee or as may be agreed upon by                 b. The guarantor must have the
the parties in the servicing agreement, but           financial capacity to perform its
in no case shall the remittance period be             responsibilities in accordance with the terms
longer than one (1) month.                            and conditions of the guarantee agreement.
    b. The servicer shall prepare periodic            It shall submit to the trustee at least once in
reports as may be required by the trustee.            every six (6) months such financial reports
    c. The servicer shall report to the               as the trustee may require.
trustee within thirty (30) days any borrower               c. The originator or seller may not issue
which fails to pay its debt at maturity date          a counter-guarantee in favor of the guarantor.
or any adverse development that may affect
the collectibility of any loan account or                  § 4651Q.15 (2008 - 4626Q.15) Credit
receivable comprising the asset pool.                 enhancement. Credit enhancement may be
    d. The servicer shall have no authority           provided in any of the following manner:
to waive penalties and charges except with                 a. Standby letter of credit issued by an
a written authority from the trustee.                 UB/KB other than the originator’s/seller’s
                                                      subsidiary/affiliate, parent bank or the parent
     § 4651Q.13 (2008 - 4626Q.13)                     bank’s subsidiary/affiliate, and trustee or its
Underwriter                                           subsidiary/affiliate.
     a. A UB or IH shall have written policies             b. Surety bond issued by any insurance
and procedures on underwriting of ABS.                company other than the originator’s/seller’s
     b. The underwriter shall perform its             subsidiary or affiliate, the subsidiary or
functions according to the terms and                  affiliate of the originator’s seller’s parent
conditions of the underwriting agreement.             bank and the trustee or its subsidiary/
     c. An underwriter may deal in ABS,               affiliate.
except those administered by its trust                     c. Guarantee issued by any entity
department, the trust departments of its              other than the originator/seller or its
subsidiaries/affiliates, the trust department         subsidiary/affiliate, its parent bank or the
of its parent bank or the trust department of         parent bank’s subsidiary/affiliate, and
its parent bank’s subsidiaries/affiliates.            trustee or its subsidiary/affiliate.
     d. A UB/IH may act as underwriter, on                 d. Overcollateralization provided by
a firm basis, of ABS except those                     the originator/seller wherein the assets
administered by its trust department, the             conveyed to the SPT exceed the amount
trust departments of its subsidiaries/affiliates,     of securities to be issued.
the trust department of its parent bank or                 Losses arising from overcollateralization
the trust department of its parent bank’s             shall be recognized by the originator/seller
subsidiaries/affiliates.                              upfront. Such losses shall be treated as
     e. The underwriter may not extend                capital charges.
credit for the purpose of purchasing the ABS               e. Spread account wherein the income
which such UB/IH underwrites or that                  from the underlying pool of receivables is
which is underwritten by its subsidiaries/            made available to cover any shortfall in the
affiliates, its parent bank or its parent bank’s      repayment of ABS. The spread account shall
subsidiaries/affiliates.                              be handled by the trustee which shall
                                                      account for it separately. If not needed, this
     § 4651Q.14 (2008 - 4626Q.14) Guarantor           “spread” generally reverts to the holder of
     a. Only an entity the regular business           the residual certificate.
of which includes the issuance of guarantees               f. Subordinated securities that are
or similar undertaking may act as guarantor.          lower ranking, or junior to other obligations



Q Regulations                              Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 12
                                                                         §§ 4651Q.15 - 4651Q.19
                                                                                        08.12.31

and are paid after claims to holders of senior      commit to extend any credit facility to the
securities are satisfied.                           issuer and/or trustee.
    g. Other credit enhancements as may                  d. The ABS shall not be eligible as
be approved by the Monetary Board.                  collateral for a loan extended by a QB which
    To be consistent with the concept of a          originated/sold the underlying assets of such
true sale, subordinated securities shall be         ABS.
sold to third party investors other than the             e. The trust department of a bank that
originator’s/seller’s parent company or its         has discretion in the management of any
subsidiary/affiliate and the trustee or its         trust or investment management account
subsidiary/affiliate or, if held by the seller,     may not purchase for said trust/investment
capital charges should be booked upfront.           management account ABS administered by
Otherwise, the subordinated securities shall        the trust department of the same bank, the
be treated as deposit substitute subject to         trust department of such trustee’s
legal reserves.                                     subsidiaries/affiliates, the trust department
                                                    of such trustee’s parent bank and the trust
    § 4651Q.16 (2008 - 4626Q.16) Clean-             department of the parent bank’s subsidiaries/
up call. A clean-up call may be exercised           affiliates.
by the seller once the outstanding                       The trustee may not designate its
principal balance of the receivable                 subsidiary/affiliate, its parent or the parent’s
component of the asset pool falls to ten            subsidiaries/affiliates as servicer or vice
percent (10%) or less of the original               versa.
principal balance of the asset pool. Where
the asset pool includes foreclosed and                   § 4651Q.18 (2008 - 4626Q.18)
other assets, such assets shall be included         Amendment. Any amendment to the trust
in the clean-up call and the consideration          indenture shall require the prior approval
thereof shall be at current market value. Such      of the BSP.
a clean-up call shall not be considered
recourse or in violation of Subsec. 4651Q.7              § 4651Q.19 (2008 - 4626Q.19)
on conveyance of assets.                            Miscellaneous provision. Without prior
                                                    approval of the BSP, any entity supervised
     § 4651Q.17 (2008 - 4626Q.17) Prohibited        by the BSP authorized to engage in trust
activities                                          and fiduciary business may act as trustee
     a. The seller may not, under any               or servicer in a securitization scheme
circumstance, designate its trust department,       originated by an entity not supervised by
the trust department of its subsidiaries/           the BSP: Provided, That the assets which
affiliates, the trust department of its parent      are the subject of such securitization are
bank or the trust department of its parent          existing in the books of the entity prior to
bank’s subsidiaries/affiliates as trustee.          securitization: Provided, further, That
     b. Any director, officer or employee of        such entity acting as trustee or servicer is
the originator, seller or servicer may not          not a subsidiary/affiliate of the originator/
serve as a member of the board of directors         seller, its parent bank or the parent bank’s
or trust committee of the trustee or vice versa     subsidiaries/affiliates or vice versa:
for the duration of the securitization.             Provided, finally, That such entity acting
     c. The trust indenture shall not contain       as trustee may not designate its subsidiaries/
any stipulation whereby the seller, its             affiliates, its parent or the parent’s
subsidiaries/affiliates, its parent bank or the     subsidiaries/affiliates as servicer or vice
parent bank’s subsidiaries/affiliates shall         versa.



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                  Part VI - Page 13
§§ 4651Q.20 - 4699Q
08.12.31

    § 4651Q.20 (2008 - 4626Q.20) Report                  C. GENERAL PROVISION ON
to Bangko Sentral. The trustee shall submit a                   SANCTIONS
report of every securitization scheme in
formats to be prescribed by the BSP. The report     Sec. 4699Q General Provision on Sanctions
shall be submitted to the appropriate               Unless otherwise provided, any violation
department of the SES, within fifteen (15)          of the provisions of this Part shall be subject
business days after the end of every reference      to Sections 36 and 37 of R.A. No. 7653.
quarter. Such report shall be considered a               The guidelines for the imposition
Category A report for purposes of implementing      of monetary penalty for violations/offenses
fines in the submission of required reports         with sanctions falling under Section 37
pursuant to existing regulations.                   of R.A. No. 7653 on QBs, their
                                                    directors and/or officers are shown in
Secs. 4652Q - 4698Q (Reserved)                      Appendix Q-39.




Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part VI - Page 14
                                                                                     §§ 4701Q - 4701Q.2
                                                                                                09.12.31

                                          PART SEVEN

                      ELECTRONIC OPERATIONS AND OTHER SERVICES


Section 4701Q Electronic Services. The                   (4) Integrity – assures that data have not
following are the guidelines concerning             been altered; and
electronic activities.                                   (5) Confidentiality – assures that no one
(Circular No. 649 dated 09 March 2009)              except the sender and the receiver of the
                                                    data can actually understand the data.
     § 4701Q.1 Application. QBs wishing                  c. The system had been tested prior to
to provide and/or enhance existing                  its implementation and that the test results
electronic services shall submit to the BSP         are satisfactory. As a minimum standard,
an application describing the services to be        appropriate systems testing and user
offered/enhanced and how it fits the QB’s           acceptance testing should have been
overall strategy. This shall be accompanied         conducted; and
by a certification signed by its president or            d. A business continuity planning
any officer of equivalent rank and function         process and manuals have been adopted
to the effect that the QB has complied with         which should include a section on
the following minimum pre-conditions:               electronic services channels and systems.
     a. An adequate risk management                 (Circular No. 649 dated 09 March 2009)
process is in place to assess, control,
monitor and respond to potential risks                  § 4701Q.2 Pre-screening of applicants
arising from the proposed electronic                    a. The BSP, thru the Technical Working
services;                                           Group on Electronic Banking, shall pre-screen
     b. A manual on corporate security              the overall financial condition as well as the
policy and procedures exists that shall             applicant-QB’s compliance with BSP rules
address all security issues affecting its           and regulations based on the latest available
electronic services, particularly the               Bank Performance Rating equivalent for QBs
following:                                          and Report of Examination (ROE) including
     (1) Authentication – establishes the           CAMELS Rating.
identity of both the sender and the receiver;           b. The Working Group shall ensure
uses trusted third parties that verify identities   that the applicant QB’s overall financial
in cyberspace;                                      condition can adequately support its
     (2) Non-repudiation – ensures that             electronic services that it shall have
transactions cannot be repudiated or                complied with certain comprehensive
presents undeniable proof of participation          prudential requirements such as, but not
by both the sender and the receiver in a            limited to, the following:
transaction;                                            (1) Minimum capital requirement and
     (3) Authorization – establishes and            net worth to risk assets ratio;
enforces the access rights of entities (both            (2) Satisfactory solvency, liquidity and
persons and/or devices) to specified                profitability positions;
computing resources and application                     (3) CAMELS composite rating of at least
functions; also locks out unauthorized              "3", (this rating, however can be flexible
entities from physical and logical access to        depending on other circumstances
the secured systems;                                prevailing), and with at least a moderate risk



Manual of Regulations for Non-Bank Financial Institutions                                      Q Regulations
                                                                                             Part VII - Page 1
§§ 4701Q.2 - 4701Q.5
09.12.31

assessment system (RAS) based on the latest              (3) A list of software and hardware
regular examination.                                components indicating the purpose of the
    (4) There are no uncorrected major              software and hardware in the electronic
findings/exceptions noted in the latest BSP         services infrastructure;
examination.                                             (4) A description of the security policies
(Circular No. 649 dated 09 March 2009)              and procedures manual containing:
                                                         (i) description of the QB’s security
    § 4701Q.3 Approval in principle                 organization;
    a. Based on the recommendation of                    (ii) definition of responsibilities for
the Technical Working Group on                      designing, implementing, and monitoring
Electronic Banking, the Deputy Governor,            information security measures; and
SES, shall approve in principle the                      (iii) established procedures for
application so that QBs may immediately             evaluating policy compliance, enforcing
launch and/or enhance their existing                disciplinary measures and reporting security
electronic services.                                violations;
    b. QBs shall be informed of the                      (5) A brief description of the
conditional approval of the DG, SES and             contingency and disaster recovery plans for
they shall in turn notify the BSP on the actual     electronic facilities and event scenario/
date of its launching/enhancement.                  problem management plan/program to
(Circular No. 649 dated 09 March 2009)              resolve or address problems, such as
                                                    complaints errors and intrusions and the
      § 4701Q.4 Documentary requirements            availability of back-up facilities;
      a. Within thirty (30) calendar days                (6) Copy of contract with the
from such launching/enhancement, QBs                communications carrier, arrangements for
shall submit to the BSP thru the SDC for            any liability arising from breaches in the
evaluation, the following documentary               security of the system or from unauthorized/
requirements:                                       fraudulent transactions;
      (1) A discussion on the services to be             (7) Copy of the maintenance
offered/enhanced, the business objectives           agreements with the software/hardware
for such services and the corresponding             provider/s; and
procedures, both automated and manual,                   (8) Latest report on the periodic review
offered through the electronic services             of the system, if applicable.
channels;                                                b. If after the evaluation of the submitted
      (2) A description or diagram of the           documents, the Working Group has still some
configuration of the QB’s electronic services       unresolved issues and gray areas, the QB
system and its capabilities showing:                may be required to make a presentation of
      (i) how the electronic services system        its electronic transactions to BSP.
is linked to other host systems or the network      (Circular No. 649 dated 09 March 2009)
infrastructure in the QB;
      (ii) how transaction and data flow                 § 4701Q.5 Conditions for Monetary
through the network;                                Board approval. Upon completion of
      (iii) what types of telecommunications        evaluation, the appropriate recommendation
channels and remote access capabilities             shall be made to the Monetary Board. The
(e.g., direct modem dial-in, internet access,       following shall be the standard conditions for
or both) exist; and                                 approval:
      (iv) what security controls/measures are           a. Existence at all times of appropriate
installed;                                          top-level risk management oversight;



Q Regulations                             Manual of Regulations for Non-Bank Financial Institutions
Part VII - Page 2
                                                                                §§ 4701Q.5 - 4701Q.12
                                                                                              09.12.31

    b. Operation of electronic system                   § 4701Q.6 Requirements for quasi-
outsourced to a third party service provider        banks with pending applications. The same
taking into consideration the existence of          procedure and requirements stated in the
adequate security controls and the                  foregoing shall apply to all QBs with
observance of confidentiality [as required          pending applications with the BSP, except
in R.A. No. 1405 (Bank Secrecy Law)] of             on the submission of the documents
customer information;                               enumerated in Subsec. 4701Q.4. QBs
    c. Adoption of measures to properly             which have already submitted all the
educate customers on safeguarding of user           required information/documents need not
ID, PIN and/or password, use of QB’s                comply with this requirement.
products/services, actual fees/QB charges           (Circular No. 649 dated 09 March 2009)
thereon and problem/error resolution
procedures;                                             § 4701Q.7 Exemption. Electronic
    d. Clear communication with its                 services that are purely informational in
customers in connection with the terms and          nature are exempted from these regulations:
condition which would highlight how any             Provided, however, That should such
losses from security breaches, systems              services be upgraded to transactional
failure or human error will be settled              service, then prior BSP approval shall be
between the QB and its customers;                   required.
    e. Customer’s acknowledgement in                (Circular No. 649 dated 09 March 2009)
writing that they have understood the
terms and conditions and the                            § 4701Q.8 Transitory provision. QBs
corresponding risks that entail in availing         with existing electronic services but do not
electronic service;                                 qualify as a result of the pre-screening
    f. The QB’s oversight process shall             process mentioned in Subsec. 4701Q.2,
ensure that business expansion shall not            shall be given three (3) months from
put undue strains on its systems and risk           21 December 2000, within which to
management capability;                              show proof of improved overall financial
    g. The establishment of procedures for          condition and/or substantial compliance
the regular review of the QB’s security             with BSP’s prudential requirements,
arrangements to ensure that such                    otherwise, their electronic activities will
arrangements remain appropriate having              be temporarily suspended until such
regard to the continuing developments in            time that the same have been complied
security technology;                                with.
    h. Strict adherence to BSP regulations          (Circular No. 649 dated 09 March 2009)
on fund transfers in cases where clients
use the electronic services to transfer                     §§ 4701Q.9 - 4701Q.11 (Reserved)
funds;
    i. The electronic service shall not be              § 4701Q.12 Sanctions. For failure to
used for money laundering or other illegal          seek BSP approval before launching/
activities that will undermine the confidence       enhancing/implementing electronic
of the public; and                                  services, and/or submit within the
    j. The BSP shall be notified in writing         prescribed deadline the required
thirty (30) days in advance of any                  information/documents, the following
enhancements that may be made to the                monetary penalties and/or suspension of
online electronic service.                          electronic activities or both, shall be
(Circular No. 649 dated 09 March 2009)              imposed on erring QBs and/or its officers:



Manual of Regulations for Non-Bank Financial Institutions                                      Q Regulations
                                                                                             Part VII - Page 3
§§ 4701Q.12 - 4780Q.4
09.12.31

    Monetary Penalties               Amount                       a. electronically stored in an
 a. For responsible officer/s        P200,000                 instrument or device;
    and/or director/s - for          (one-time                    b. issued against receipt of funds of an
    failure to seek prior BSP        penalty)                 amount not lesser in value than the
    approval and/or for                                       monetary value issued;
    non-submission/delayed                                        c. accepted as a means of payment by
    submission of required                                    persons or entities other than the issuer;
    information/documents                                         d. withdrawable in cash or cash
 b. On the QB - for failure           P30,000 per day         equivalent; and
    to seek prior BSP                 starting from the           e. issued in accordance with this
    aproval and/or for                day the offense         Section.
    non-submission/delayed            was committed               Electronic money issuer (EMI) shall be
    submission of required            up to the time          classified as follows:
    information documents             the same was                a. Banks (hereinafter called EMI-Bank);
                                      corrected                   b. NBFI supervised by the BSP
(Circular No. 649 dated 09 March 2009)                        (hereinafter called EMI-NBFI); and
                                                                  c. Non-bank institutions registered
    § 4701Q.13 Outsourcing of internet and                    with the BSP as a money transfer agent
mobile electronic services. Outsourcing of                    under Sec. 4511N of the MORNBFI
internet and mobile electronic services shall                 (hereinafter called EMI-Others).
be governed by Item "c" of Appendix Q-37.                         For purposes of this Section:
(Circular No. 649 dated 09 March 2009)                            a. Electronic instruments or devices
                                                              shall mean cash cards, e-wallets accessible
Secs. 4702Q - 4779Q (Reserved)                                via mobile phones or other access device,
                                                              stored value cards, and other similar
Sec. 4780Q Issuance and Operations of                         products.
Electronic Money. The following guidelines                        b. E-money issued by QBs shall not be
shall govern the issuance of electronic                       considered as deposits.
money (e-money) and the operations of                         (Circular No. 649 dated 09 March 2009)
electronic money issuers (EMIs).
(Circular No. 649 dated 09 March 2009)                           § 4780Q.3 Prior Bangko Sentral
                                                              approval. QBs planning to be an EMI-NBFI
    § 4780Q.1 Declaration of policy. It is                    shall comply with the requirements of
the policy of the BSP to foster the                           Sec. 4701Q and Sec. 4162Q, when
development of efficient and convenient                       applicable.
retail payment and fund transfer mechanism                    (Circular No. 649 dated 09 March 2009)
in the Philippines. The availability and
acceptance of e-money as a retail payment                         § 4780Q.4 Common provisions. The
medium will be promoted by providing the                      following provisions are applicable to all
necessary safeguards and controls to                          EMIs:
mitigate the risks associated in an e-money                       a. E-money instrument issued shall
business.                                                     be subject to aggregate monthly load limit
(Circular No. 649 dated 09 March 2009)                        of P100,000 unless a higher amount has
                                                              been approved by BSP. In case an EMI
    § 4780Q.2 Definitions                                     issues several e-money instruments to a
    E-money shall mean monetary value as                      person (e-money holder), the total amount
represented by a claim on its issuer, that is -               loaded in all the e-money instruments



Q Regulations                                       Manual of Regulations for Non-Bank Financial Institutions
Part VII - Page 4
                                                                                      § 4780Q.4
                                                                                        09.12.31

shall be consolidated in determining                for complaints together with the address and
compliance with the aggregate monthly               contact information of the issuer shall also
load limit;                                         be provided.
     b. EMIs shall put in place a system to              h. Prior to the issuance of e-money,
maintain accurate and complete record of            EMIs should ensure that the following
e-money instruments issued, the identity of         minimum systems and controls are in
e-money holders, and the individual and             place:
consolidated balances thereof. The system                (1) Sound and prudent management,
must have the capability to monitor the             administrative and accounting procedures
movement of e-money transactions and link           and adequate internal control mechanisms;
e-money instruments issued to common                     (2) Properly-designed computer
e-money holders. The susceptibility of a            systems which are thoroughly tested prior
system to intentional or unintentional              to implementation;
misreporting of transactions and balances                (3) Appropriate security policies and
shall be sufficient ground for imposition           measures intended to safeguard the integrity,
by the BSP of sanctions, as may be                  authenticity and confidentiality of data and
applicable.                                         operating processes;
     c. E-money may only be redeemed at                  (4) Adequate business continuity and
face value. It shall not earn interest nor          disaster recovery plan; and
rewards and other similar incentives                     (5) Effective audit function to provide
convertible to cash, nor be purchased at a          periodic review of the security control
discount. E-money is not considered a               environment and critical systems.
deposit, hence, it is not insured with the               i. EMIs shall provide the SDC
PDIC.                                               quarterly statements containing, among
     d. EMIs shall ensure that e-money              others, information on investments, volume
instruments clearly identify the issuer who         of transactions, total outstanding e-money
is ultimately responsible to the e-money            balances, and liquid assets in such forms as
holders. This shall be communicated to the          may be prescribed later on.
client who shall acknowledge the same in                 j. EMIs shall notify BSP in writing of
writing.                                            any change or enhancement in the e-money
     e. It is the responsibility of EMIs to         facility thirty (30) days prior to
ensure that their distributors/e-money agents       implementation. If said change or
comply with all applicable requirements of          enhancement requires prior BSP approval,
the Anti-Money Laundering laws, rules and           the same shall be evaluated accordingly.
regulations.                                        Any change or enhancement that shall
     f. EMIs shall provide an acceptable            expand the scope or change the nature of
redress mechanism to address the                    the e-money instrument shall be subject to
complaints of its customers.                        prior approval of the Deputy Governor, SES.
     g. EMIs shall disclose in writing and          These changes or enhancements may
its customers shall signify agreement to the        include the following:
information embodied in Item “c” above                   (1) Additional capabilities of the
upon their participation in the e-money             e-money instrument/s, like access to new
system. In addition, it shall provide clear         channels (e.g. inclusion of internet channel
guidance in English and Filipino on                 in addition to merchant Point of Sale
consumers’ right of redemption, including           terminals);
conditions and fees for redemption, if any.              (2) Change in technology service
Information on available redress procedures         providers and other major partners in the



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part VII - Page 5
§§ 4780Q.4 - 4799Q
09.12.31

e-money business (excluding partner                                In addition, the susceptibility of a
merchants), if any; and                                        system to intentional or unintentional
   (3) Other changes or enhancements.                          misreporting of transactions and balances
(Circular No. 649 dated 09 March 2009)                         shall be sufficient ground for appropriate
                                                               BSP action or imposition of sanctions,
    § 4780Q.5 Quasi-bank license                               whenever applicable.
requirement. EMI-NBFIs and EMI-Others                          (Circular No. 649 dated 09 March 2009)
that engage in lending activities must
secure a quasi-banking license from the                            § 4780Q.7 Transitory provisions. EMI-
BSP.                                                           NBFIs granted an authority to issue
(Circular No. 649 dated 09 March 2009)                         e-money prior to 26 March 2009 may
                                                               continue to exercise such authority:
    § 4780Q.6 Sanctions. Monetary                              Provided, That it shall submit to the BSP,
penalties and other sanctions for the                          within one (1) month from 26 March 2009
following violations committed by EMI-                         a certification signed by the President or
NBFIs shall be imposed:                                        Officer with equivalent rank and function
                                                               that it is in compliance with all the
  Nature of Violation/          Sanction/Penalties             applicable requirements of this Section.
        Exception                                              Otherwise, they are required to submit
  1. Issuing e-money           Applicable penalties
                                                               within the same period the measures they
  without prior BSP            under Sections 36 &
                                                               will undertake, with the corresponding
  approval                     37 of R.A. No. 7653;
                               Watchlisting of
                                                               timelines, to conform to the provisions that
                               owners/partners/                they have not complied with, subject to
                               principal officers              BSP approval.
  2. Violation of any          Applicable penalties            (Circular No. 649 dated 09 March 2009)
  of the provisions of         prescribed under the
  R.A. No. 9160 (Anti-         Act                             Secs. 4781Q - 4798Q (Reserved)
  Money Laundering
  Law of 2001 as                                               Sec. 4799Q General Provision on
  amended by R.A.No.
                                                               Sanctions. Any violation of the provisions
  9194) and its
                                                               of this Part shall be subject to Sections 36
  implementing rules
  and regulations
                                                               and 37 of R.A. No. 7653.
  3. Violation/s of            Penalties and sanctions             The guidelines for the imposition of
  this Section                 under the                       monetary penalty for violations/offenses
                               abovementioned laws             with sanctions falling under Section 37
                               and other applicable            of R.A. No. 7653 on QBs, their
                               laws rules and                  directors and/or officers are shown in
                               regulations                     Appendix Q-39.




Q Regulations                                        Manual of Regulations for Non-Bank Financial Institutions
Part VII - Page 6
                                                                                    §§ 4801Q - 4801Q.1
                                                                                               08.12.31

                                               PART EIGHT

                         ANTI - MONEY LAUNDERING REGULATIONS


Section 4801Q (2008 - 4691Q & App. Q-23)                      When establishing business relations or
Prevention of Money Laundering, Customer                  conducting transactions (particularly
Identification Requirements and Record                    opening of deposit accounts, accepting
Keeping. Banks, OBUs, QBs, trust entities,                deposit substitutes, entering into trust and
NSSLAs, pawnshops, and all other                          other fiduciary transactions, renting of safety
institutions, including their subsidiaries and            deposit boxes, performing remittances and
affiliates supervised and/or regulated by the             other large cash transactions) CIs should
BSP, otherwise known as “covered institutions             take reasonable measures to establish and
(CIs)” shall comply with the provisions of                record the true identity of their clients.
R.A. No. 9160, as amended, otherwise known                Said client identification may be based on
as the "Anti-Money Laundering Act of 2001"                official or other reliable documents and
and its Revised Implementing Rules and                    records.
Regulations (IRRs) in Appendix Q-25.                          a. In cases of corporate and other legal
      CIs shall strictly comply with the                  entities, the following measures should be
following rules and regulations on anti-                  taken, when necessary:
money laundering.                                             (1) Verification of the legal existence
(As amended by Circular Nos. 612 dated 13 June 2008 and   and structure of the client from the
564 dated 03 April 2007)                                  appropriate agency or from the client itself
                                                          or both, proof of incorporation, including
     § 4801Q.1 (2008 - App. Q-23) Customer                information concerning the customer’s
identification. CIs shall establish and record            name, legal form, address, directors,
the true identity of its clients based on official        principal officers and provisions regulating
documents. They shall maintain a system                   the power behind the entity.
of verifying the true identity of their clients               (2) Verification of the authority and
and, in case of corporate clients, require a              identification of the person purporting to act
system of verifying their legal existence and             on behalf of the client.
organizational structure, as well as the                      b. In case of doubt as to whether their
authority and identification of all persons               purported clients or customers are acting for
purporting to act on their behalf.                        themselves or for another, reasonable
     The guidelines on Customer Due                       measures should be taken to obtain the true
Diligence for QBs issued by the BASEL                     identity of the persons on whose behalf an
Committee on Banking Supervision which                    account is opened or a transaction
highlights the Know-Your-Customer (KYC)                   conducted.
standards to be observed in the design of                     c. The provisions of existing laws to
KYC programs are shown in Annex Q-23c.                    the contrary notwithstanding, anonymous
     The guidelines on the Account Opening                accounts, accounts under fictitious names,
and Customer Identification issued by the                 and all other similar accounts shall be
BASEL Committee on Banking Supervision                    absolutely prohibited. In case where
represent the starting point, which can be                numbered accounts is allowed (i.e., peso
used by banks in the area of customer                     and foreign currency non-checking
identification are shown in Annex Q-23d.                  numbered accounts), CIs should ensure



Manual of Regulations for Non-Bank Financial Institutions                                Q Regulations
                                                                                       Part VIII - Page 1
§§ 4801Q.1 - 4801Q.5
09.12.31

that the client is identified in an official               laundering of proceeds of crimes and
or other identifying documents.                            other illegal activities.
     The BSP may conduct annual testing
solely limited to the determination of the                      § 4801Q.2 (Reserved)
existence and the identity of the owners of
such accounts.                                                 § 4801Q.3 (2008 - App. Q - 23) Programs
     CIs shall phase out within a period of                against money laundering. Programs against
one (1) year from 02 April 2001 or upon                    money laundering should be developed.
their maturity, whichever is earlier,                      These programs, should include, as a
anonymous accounts or accounts under                       minimum:
fictitious names as well as numbered                           a. The development of internal
accounts being kept or managed by them,                    policies, procedures and controls, including
which are not expressly allowed under                      the designation of compliance officers at
existing law.                                              management level, and adequate screening
     d. The identity of existing clients or                procedures to ensure high standards when
beneficial owners of deposits and other                    hiring employees;
funds held or being managed by CIs                             b. An ongoing employee training
should be renewed/updated at least every                   program; and
other year.                                                    c. An audit function to test the system.
     e. All records of all transactions of CIs
shall be maintained and safely stored for five                 § 4801Q.4 (2008 - App. Q - 23) Submission
(5) years from the dates of transactions. With             of plans of action. CIs shall submit a plan
respect to closed accounts, the records on                 of action on how to comply with the
customer identification, account files and                 requirements of Subsecs. 4801Q.1,
business correspondence, shall be preserved                4801Q.3 and 4801Q.5 within thirty (30)
and safely stored for at least five (5) years              business days from 31 July 2000 or from
from the dates when they were closed.                      opening of the institution.
     Such records must be sufficient to                    (As amended by Circular No. 661 dated 01 September 2009)
permit reconstruction of individual
transactions so as to provide, if necessary,                    § 4801Q.5 (2008 - App. Q-23) Required
evidence for prosecution of criminal                       reporting of certain transactions.1 If there
behaviour.                                                 is reasonable ground to believe that the funds
     f. Special attention should be given                  are proceeds of an unlawful activity as
to all complex, unusual large transactions,                defined under R.A. No. 9160 and/or its
and all unusual patterns of transactions,                  IRRs, the transactions involving such funds
which have no apparent or visible lawful                   or attempts to transact the same, should be
purpose.The background and purpose of                      reported to the Anti-Money Laundering
such transactions should, as far as                        Council (AMLC) in accordance with Rules
possible, be examined, the findings                        5.2 and 5.3 of the AMLA IRRs.
established in writing, and be available to                     a. Report on suspicious transactions.2
help supervisors, auditors and law                         Banks shall report covered transactions and
enforcement agencies.                                      suspicious transactions, as defined in Rules
     g. CIs should not, or should at least                 5.2 and 5.3 of the AMLA IRRs, to the AMLC
avoid, transacting business with criminals.                using the forms prescribed by the AMLC.
Reasonable measures should be adopted                      Reportable transactions shall include the
to prevent the use of their facilities for                 following:

1
    See amendments in Appendix Q-23b.
2
    Amended by AMLC Resolution No. 292 dated 30 November 2003 (Annex Q-23b).

Q Regulations                                  Manual of Regulations for Non-Bank Financial Institutions
Part VIII - Page 2
                                                                                        § 4801Q.5
                                                                                          09.12.31

    (1) Outward remittances without                 country from which the remittance is
visible lawful purpose;                             made.
    (2) Inward remittances without visible               (h) Client was reported and/or
lawful purpose or without underlying trade          mentioned in the news to be involved in
transactions;                                       terrorist activities.
    (3) Unusual purchases of foreign                     (i) Client is under investigation by law
exchange without visible lawful purpose;            enforcement agencies for possible
    (4) Unusual sales of foreign exchange           involvement in terrorist activities.
whose sources are not satisfactorily                     (j) Transactions of individuals,
established;                                        companies or NGOs that are affiliated or
    (5) Complex,          unusual      large        related to people suspected of being
transactions, and all unusual patterns of           connected to a terrorist group or a group
transactions, which have no apparent or             that advocates violent overthrow of a
visible lawful purpose;                             government.
    (6) Funds being managed or held as                   (k) Transactions of individuals,
deposit substitutes if there is reasonable          companies or NGOs that are suspected as
ground to believe that the same are                 being used to pay or receive funds from
proceeds of criminal and other illegal              revolutionary taxes.
activities; and                                          (l) The NGO does not appear to have
    (7) Suspicious Transaction Indicators or        expenses normally related to relief or
“Red Flags” as a Guide in the Submission            humanitarian effort.
to the AMLC of Reports of Suspicious                     (m) The absence of contributions from
Transactions Relating To Potential or Actual        donors located within the country of origin
Financing of Terrorism.                             of the NGO.
    (a) Wire transfers between accounts,                 (n) A mismatch between the pattern and
without visible economic or business                size of financial transactions on the one
purpose, especially if the wire transfers are       hand and the stated purpose and activity of
effected through countries which are                the NGO on the other.
identified or connected with terrorist                   (o) Incongruities between apparent
activities.                                         sources and amount of funds raised or
    (b) Sources and/or beneficiaries of wire        moved by the NGO.
transfers are citizens of countries which are            (p) Any other transaction that is similar,
identified or connected with terrorist              identical or analogous to any of the foregoing.
activities.                                              (8) All other suspicious transactions/
    (c) Repetitive deposits or withdrawals          activities which can be reported without
that cannot be explained or do not make             violating any law.
sense.                                                   The report on suspicious transactions
    (d) Value of the transaction is over and        shall provide the following minimum
above what the client is capable of earning.        information:
    (e) Client is conducting a transaction               (a) Name or names of the parties
that is out of the ordinary for his known           involved.
business interest.                                       (b) A brief description of the transaction
    (f) Deposits being made by individuals          or transactions.
who have no known connection or relation                 (c) Date or date the transaction(s)
with the account holder.                            occurred.
    (g) An individual receiving remittances,             (d) Amount(s) involved in every
but has no family members working in the            transaction.



Manual of Regulations for Non-Bank Financial Institutions                          Q Regulations
                                                                                 Part VIII - Page 3
§§ 4801Q.5 - 4895Q
09.12.31

    (e) Such other relevant information                        § 4801Q.6 (2008 - App. Q-23a)
which can be of help to the authorities                    Certification of compliance with anti-
should there be an investigation.                          money laundering regulations. CI shall
    b. Exemption from Bank Secrecy Law                     submit annually to the BSP thru the
When reporting covered transactions to the                 appropriate department of the SES a
AMLC, CIs and their officers, employees,                   certification (Annex Q-23a) signed by the
representatives, agents, advisors, consultants             president or officer of equivalent rank and
or associates shall not be deemed to have                  by their compliance officer to the effect that
violated R.A. No. 1405, as amended;                        they have monitored compliance with
R.A. No. 6426, as amended; R.A. No. 8791                   existing anti-money laundering regulations.
and other similar laws, but are prohibited                     The certification shall be submitted in
from communicating, directly or indirectly,                accordance with Appendix Q-3 and shall
in any manner or by any means, to any                      be considered a Category A-2 report.
person the fact that a covered transaction                 (As amended by Circular No. 661 dated 01 September 2009
report was made, the contents thereof, or
any other information in relation thereto. In                   § 4801Q.7 (Reserved)
case of violation thereof, the concerned
officer, employee, representative, agent,                  Secs. 4802Q - 4881Q (Reserved)
advisor, consultant or associate of the CI,
shall be criminally liable. However, no                    Sec. 4882Q (2008 - 4691Q.9) Sanctions
administrative, criminal or civil proceedings,             and Penalties
shall lie against any person for having made                    a. Whenever a CI violates the
a covered transaction report in the regular                provisions of Section 9 of R.A. No. 9160,
performance of his duties and in good faith,               as amended, or of the preceding Sections,
whether or not such reporting results in any               the officer(s) or other persons responsible
criminal prosecution under R.A. No. 9160                   for such violation shall be punished by a
or any other Philippine law.                               fine of not less than P50,000 nor more than
    c. Prohibition from disclosure of the                  P200,000 or by imprisonment of not less
covered transaction report. When reporting                 than two (2) years nor more than ten (10)
covered transactions to the AMLC, CIs and                  years, or both, at the discretion of the court
their officers, employees, representatives,                pursuant to Section 36 of R.A. No. 7653.
agents, advisors, consultants or associates                     b. Without prejudice to the criminal
are prohibited from communicating,                         sanctions prescribed above against the
directly or indirectly, in any manner or by                culpable persons, the Monetary Board may,
any means, to any person, entity, the                      at its discretion, impose upon any CI, its
media, the fact that a covered transaction                 directors and/or officers for any violation of
report was made, the contents thereof, or                  Section 9 of R.A. No. 9160, as amended,
any other information in relation thereto.                 the administrative sanctions provided under
Neither may such reporting be published                    Section 37 of R.A. No. 7653.
or aired in any manner or form by the
mass media, electronic mail, or other                      Secs. 4883Q - 4894Q (Reserved)
similar devices. In case of violation
thereof, the concerned officer, employee,                  Sec. 4895Q (2008 - 4695Q) Valid
representative, agent, advisor, consultant                 Identification Cards for Financial
or associate of the CI, or media shall be                  Transactions. The following guidelines
held criminally liable.                                    govern the acceptance of valid ID cards
(As amended by CL-2009-037 dated 04 May 2009)              for all types of financial transactions by



Q Regulations                                   Manual of Regulations for Non-Bank Financial Institutions
Part VIII - Page 4
                                                                                       §§ 4895Q - 4899Q
                                                                                               09.12.31

QBs, including financial transactions               supervised or regulated either by the BSP,
involving overseas Filipino workers (OFWs),         SEC or IC; and
in order to promote access of Filipinos to              (u) Passports issued by foreign
services offered by formal FIs, particularly        governments.
those residing in the remote areas, as well             b. Students who are beneficiaries of
as to encourage and facilitate remittances          remittances/fund transfers and who are not
of OFWs through the banking system:                 yet of voting age, may be allowed to
     a. Clients who engage in a financial           present the original and submit a clear
transaction with CIs for the first time shall       copy of one (1) valid photo-bearing school
be required to present the original and             ID duly signed by the principal or head of
submit a clear copy of at least one (1) valid       the school.
photo-bearing ID document issued by an                  c. QBs shall require their clients to
official authority.                                 submit a clear copy of the one (1) valid ID
     For this purpose, the term official            on a one-time basis only, or at the
authority shall refer to any of the following:      commencement of a business relationship.
     (1) Government of the Republic of the          They shall require their clients to submit an
Philippines;                                        updated photo and other relevant
     (2) Its political subdivisions and             information whenever the need for it arises.
instrumentalities;                                      The foregoing shall be in addition to the
     (3) GOCCs; and                                 customer identification requirements under
     (4) Private entities or institutions           Rule 9.1.c of the Revised IRRs of R.A. No.
registered with or supervised or regulated          9160, as amended (Appendix Q-25).
either by the BSP or SEC or IC.                         For purposes of this Section, financial
     Valid IDs include the following:               transactions may include remittances, among
    (a) Passport;                                   others, as falling under the definition of
    (b) Driver’s license;                           transaction. Under the Anti-Money Laundering
    (c) PRC ID;                                     Act of 2001, as amended, a financial
    (d) NBI clearance;                              transaction is any act establishing any right
    (e) Police clearance;                           or obligation or giving rise to any contractual
    (f) Postal ID;                                  or legal relationship between the parties
    (g) Voter’s ID;                                 thereto. It also includes any movement of
    (h) Barangay certification;                     funds by any means with a CI.
    (i) GSIS e-Card;                                (Circular No. 564 dated 03 April 2007 as amended by Circular
    (j) SSS card;                                   Nos. 657 dated 16 June 2009 and 608 dated 20 May 2008)
    (k) Senior Citizen card;
    (l) OWWA ID;                                    Secs. 4896Q - 4898Q (Reserved)
    (m) OFW ID;
    (n) Seaman’s Book;                              Sec. 4899Q (2008 - 4699Q) General
    (o) Alien Certification of Registration/        Provision on Sanctions. Unless otherwise
Immigrant Certificate of Registration;              provided, any violation of the provisions of
    (p) Government office and GOCC ID,              this Part shall be subject to Sections 36 and
(e.g., AFP, HDMF IDs);                              37 of R.A. No. 7653.
    (q) Certification from the NCWDP;                    The guidelines for the imposition of
    (r) DSWD certification;                         monetary penalty for violations/offenses with
    (s) IBP ID;                                     sanctions falling under Section 37 of
    (t) Company IDs issued by private               R.A. No. 7653 on QBs, their directors
entities or institutions registered with or         and/or officers are shown in Appendix Q-39.



Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                         Part VIII - Page 5
                                                                                  §§ 4901Q - 4902Q.1
                                                                                             09.12.31

                                        PART NINE

                            OTHER NON-BANK OPERATIONS


     A. BANKING FEES/CHARGES                        to pay the bill within the prescribed period
                                                    shall subject the QB to administrative
Sec. 4901Q (Reserved)                               sanctions.
                                                        The guidelines in the collection of the
    § 4901Q.1 (2008 - 4652Q) Annual Fees            annual supervisory fees for the years 2008
on quasi-banks. QBs shall contribute to the         and 2009 are provided in Appendix Q-52.
BSP an annual fee to help defray the cost of        (As amended by M-2009-046 dated 17 November 2009,
maintaining the appropriate department of           M-2009-004 dated 12 February 2009 and Circular No. 643
the SES.                                            dated 10 February 2009)
    For purposes of computing the annual
fees chargeable against QBs, the term Total         Sec. 4902Q (2008 - 4653Q) Payment of
Assessable Assets shall be the amount               Fines and Other Charges. The following
referred to as the total assets under Section       regulations shall govern the payment of fines
28 of R.A. No. 7653 (end-of-quarter total           and other charges by QBs.
assets per balance sheet, after deducting
cash on hand and amounts due from banks,                § 4902Q.1 (2008 - 4653Q.1) Guidelines
including the BSP and banks abroad) plus            on the imposition of monetary penalties
Trust Department accounts.                          The following are the guidelines on the
    Average Assessable Assets (AAAs) shall          imposition of monetary penalties on QBs,
be the summation of end-of-quarter total            their directors and/or officers:
assessable assets divided by the number of              a. Definition of terms. For purposes of
quarters in operation during the particular         the imposition of monetary penalties, the
assessment period.                                  following definitions are adopted:
    The annual fees for QBs for the current             (1) Continuing offenses/violations are
year shall be one twenty-eighth (1/28) of one       acts, omissions or transactions entered
percent (1%) multiplied by their AAAs of            into, in violation of laws, BSP rules and
the preceding year.                                 regulations, Monetary Board directives,
    Annual fees to be collected from QBs            and orders of the Governor which persist
shall be debited from their respective              from the time the particular acts were
deposits with the BSP by the BSP                    committed or omitted or the transactions
Comptrollership Department upon receipt             were entered into until the same were
of the notice of the assessment from the            corrected/rectified by subsequent acts or
appropriate department of the SES.                  transactions. They shall be penalized on
    Where the deposit account is                    a per calendar day basis from the time the
insufficient to cover the assessment fee, the       acts were committed/omitted or the
BSP shall bill the QB for the full amount of        transactions were effected up to the time
the annual fee or for the balance thereof not       they were corrected/rectified.
covered by its deposit account, as the case             (2) Transactional offenses/violations
may be.                                             are acts, omissions or transactions entered
    Within thirty (30) calendar days from           into in violation of laws, BSP rules and
receipt of the bill, the QB shall make the          regulations, Monetary Board directives,
corresponding remittance to the BSP. Failure        and orders of the Governor which cannot



Manual of Regulations for Non-Bank Financial Institutions                               Q Regulations
                                                                                       Part IX - Page 1
§§ 4902Q.1 - 4902Q.2
09.12.31

be corrected/rectified by subsequent acts           fifteen (15)-day period up to the day of
or transactions. They shall be meted with           actual payment.
one-time monetary penalty on a per                       d. Appeal         or      request      for
transaction basis.                                  reconsideration. A one (1)-time appeal or
     (3) Continuing penalty refers to the           request for reconsideration on the monetary
monetary penalty imposed on continuing              penalty approved by the Governor/
offenses/violations on a per calendar day           Monetary Board to be imposed on the QB,
basis reckoned from the time the offense/           its directors and/or officers shall be allowed:
violation occurred or was committed until           Provided, That the same is filed with the
the same was corrected/rectified.                   appropriate department of the SES within
     (4) Transactional penalty refers to a one      fifteen (15) calendar days from receipt of the
(1)-time penalty imposed on a transactional         Statement of Account/billing letter. The
offense/violation.                                  appropriate department of the SES shall
     b. Basis for the computation of the            evaluate the appeal or request for
period or duration of penalty. The                  reconsideration of the QB/individual and
computation of the period or duration of            make recommendations thereon within
all penalties shall be based on calendar            thirty (30) calendar days from receipt thereof.
days. For this purpose the terms “per               The appeal or request for reconsideration
banking day”, “per business day”, “per              on the monetary penalty approved by the
day” and/or “a day” as used in the Manual,          Governor/Monetary Board shall be elevated
and other BSP rules and regulations shall           to the Monetary Board for resolution/
mean “per calendar day” and/or “calendar            decision. The running of the penalty period
day” as the case may be.                            in case of continuing penalty and/or the
     c. Additional charge for late payment          period for computing additional charge shall
of monetary penalty. Late payment of                be interrupted from the time the appeal or
monetary penalty shall be subject to an             request for reconsideration was received by
additional charge of six percent (6%) per           the appropriate department of the SES up to
annum to be reckoned from the business              the time that the notice of the Monetary
day immediately following the day said              Board decision was received by the QB/
penalty becomes due and payable up to the           individual concerned.
day of actual payment. The penalty shall            (As amended by Circular Nos.662 dated 09 September 2009
become due and payable fifteen (15)                 and 585 dated 15 October 2007)
calendar days from receipt of the Statement
of Account from the BSP. For QBs which                  § 4902Q.2 (2008 - 4653Q.2) Payment
maintain DDA with the BSP, penalties                of fines. QBs shall, within fifteen (15)
which remain unpaid after the lapse of the          calendar days from receipt of the
fifteen (15)-day period shall be automatically      statement of account from the BSP, pay
debited against their corresponding DDA             the fines for reserve deficiency, reportorial
on the following business day without               delay/deficiency, refusal to permit
additional charge. If the balance of the            examination, or failure to comply with,
concerned QB’s DDA is insufficient to               or violation of, any law or any order,
cover the amount of the penalty, said               instruction or regulation issued by the
penalty shall already be subject to an              Monetary Board, or any order, instruction
additional charge of six percent (6%) per           or ruling by the Governor.
annum to be reckoned from the business                  For QBs which maintain DDAs with
day immediately following the end of said           the BSP, fines which are unpaid after the




Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part IX - Page 2
                                                                                     §§ 4902Q.2 - 4921Q
                                                                                               09.12.31

lapse of the fifteen (15)-day period shall be                        B. BANK AS COLLECTION/
automatically debited against the                                    REMITTANCE AGENTS
corresponding DDA of the QB concerned:
Provided, That if the balance of the entity’s              Sec. 4921Q (2008 - 4660Q) Disclosure of
account is insufficient to cover the fines due,            Remittance Charges and Other Relevant
such fines shall be paid not later than the                Information. It is the policy of the BSP to
following business day. For the purpose of                 promote the efficient delivery of competitively-
this Section, business day means a day on                  priced remittance services by banks and other
which the BSP head office and the head                     remittance service providers by promoting
office of the QB are open for business. For                competition and the use of innovative payment
uniform implementation of the above                        systems, strengthening the financial
regulations, the procedural guidelines                     infrastructure, enhancing access to formal
embodied in Appendix Q-22 shall be                         remittance channels in the source and
observed.                                                  destination countries, deepening the financial
(As amended by Circular Nos. 662 dated 09 September 2009   literacy of consumers, and improving
and 585 dated 15 October 2007)                             transparency in remittance transactions,
                                                           consistent with sound practices.
     § 4902Q.3 (Reserved)                                       Towards this end, NBFIs under BSP
                                                           supervision, including FXDs/MCs and RAs,
     § 4902Q.4 (2008 - 4653Q.3) Check/                     providing overseas remittance services shall
demand draft payments to the Bangko                        disclose to the remittance sender and to the
Sentral. QBs shall make all check and                      recipient/beneficiary, the following
demand draft payments for transactions                     minimum items of information regarding
other than those required to be paid through               remittance transactions, as defined herein:
the QBs’ DDA either to the BSP Cash                             a. Transfer/remittance fee - charge for
Department or to the BSP Regional Offices                  processing/sending the remittance from the
and Branches. Such payments shall be                       country of origin to the country of
accompanied by the appropriate form as                     destination and/or charge for receiving the
shown in Appendix Q-22a. Payments not                      remittance at the country of destination;
accompanied by the required payment forms                       b. Exchange rate - rate of conversion
shall be presumed to be additions to                       from foreign currency to local currency, e.g.,
reserves and shall be credited to the DDA                  peso-dollar rate;
of the paying QB.                                               c. Exchange rate differential/spread -
     Check payments shall be value-dated                   foreign exchange mark-up or the difference
when the check is cleared.                                 between the prevailing BSP reference/
(As amended by Circular Nos. 662 dated 09 September 2009   guiding rate and the exchange/conversion
and 585 dated 15 October 2007)                             rate;
                                                                d. Other currency conversion charges
Sec. 4903Q (2008 - 4604Q) Underwriting                     commissions or service fees, if any;
by Investment Houses. Underwriting                              e. Other related charges - e.g.,
commitments and fees of IHs shall be                       surcharges, postage, text message or
subject to the rules issued by the SEC to                  telegram;
implement the provisions of P.D. No. 129,                       f. Amount/currency paid out in the
as amended (Appendix Q-18).                                recipient country - exact amount of money
                                                           the recipient should receive in local currency
Secs. 4904Q - 4920Q (Reserved)                             or foreign currency; and




Manual of Regulations for Non-Bank Financial Institutions                                  Q Regulations
                                                                                          Part IX - Page 3
§§ 4921Q - 4931Q.2
08.12.31

    g. Delivery time to recipients/                     (2) A domestic CRA must have at least
beneficiaries - delivery period of remittance       five (5) years track record in the issuance of
to beneficiary stated in number of days,            reliable and credible ratings. In the case of
hours or minutes.                                   new entrants, a probationary status may be
    Non-bank remittance service providers           granted: Provided, That the CRA employs
shall likewise post said information in their       professional analytical staff with experience
respective websites and display them                in the credit rating business.
prominently in conspicuous places within their          b. Resources
premises and/or remittance/service centers.             (1) Human Resources
(Circular No. 534 dated 26 June 2006)                   (a) The size and quality of the CRA’s
                                                    professional analytical staff must have the
Secs. 4922Q - 4930Q (Reserved)                      capability to thoroughly and competently
                                                    evaluate the assessed/rated entity’s
       C. CREDIT RATING AGENCIES                    creditworthiness;
                                                        (b) The size of the CRA’s professional
Sec. 4931Q (2008 - 4657Q) Recognition               analytical staff must be sufficient to allow
and Derecognition of Domestic Credit                substantial on-going contact with senior
Rating Agencies for Quasi-Bank                      management and operational levels of
Supervisory Purposes. The following                 assessed/rated entities as a routine
regulations shall govern the recognition            component of the surveillance process;
and derecognition of domestic credit                    (c) The CRA shall establish a Rating
rating agencies (CRAs) for QB supervisory           Committee composed of adequately
purposes.                                           qualified and knowledgeable individuals in
                                                    the rating business, majority of whom must
    § 4931Q.1 (2008 - 4657Q.1) Statement            have at least five (5) years experience in
of policy. The introduction in the financial        credit rating business;
market of new and innovative products                   (d) The directors of the CRA must
create increasing demand for and reliance           possess a high degree of competency
on CRAs by the industry players and                 equipped with the appropriate education
regulators as well. As a matter of policy, the      and relevant experience in the rating
BSP wants to ensure that the reliance on            business;
credit ratings is not misplaced. The                    (e) The directors, officers, members
following rules and regulations that shall          of the rating committee and professional
govern the recognition/derecognition of             analytical staff of the CRA have not at any
domestic CRAs for QB supervisory purposes.          time been convicted of any offense
                                                    involving moral turpitude or violation of
    § 4931Q.2 (2008 - 4657Q.2) Minimum              the SRC; and
eligibility criteria. Only ratings issued by            (f) The directors, officers, members of
CRAs recognized by the BSP shall be                 the rating committee and professional
considered for BSP QB supervisory                   analytical staff of the CRA are not currently
purposes. The BSP, through the Monetary             involved as a defendant in any litigation
Board, may officially recognize a credit            connected with violations of the SRC nor
rating agency upon satisfaction of the              included in the BSP watchlist.
following requirements:                                 (2) Financial resources
    a. Organizational structure                         (a) The CRA must have the financial
    (1) A domestic CRA must be a duly               capability to invest in the necessary
registered company under the SEC; and               technological infrastructure to ensure



Q Regulations                            Manual of Regulations for Non-Bank Financial Institutions
Part IX - Page 4
                                                                                        § 4931Q.2
                                                                                          08.12.31

speedy acquisition and processing of                       c. Objectivity
data/information and timely release of                     (1) The CRA must use a rigorous and
reliable and credible ratings; and                     systematic assessment methodology that has
    (b) The CRA must have financial                    been established for at least one (1) year;
independence that will allow it to operate             however, a three (3)-year period is
free from economic and political pressures.            preferable;


                                    (Next page is Part IX - Page 5)




Manual of Regulations for Non-Bank Financial Institutions                            Q Regulations
                                                                                   Part IX - Page 4a
                                                                                        § 4931Q.2
                                                                                          08.12.31

     (2) The assessment methodology of the              (c) Material changes within the CRA
CRA must be based both on qualitative and           (i.e., changes in management or
quantitative approaches; and                        organizational structure, rating personnel,
     (3) The CRA must use an assessment             modifications of rating practices, financial
methodology that is subject to on-going             deterioration) that may affect its ability to
review and is responsive to changes in the          provide reliable and credible ratings.
operations of assessed/rated entities.                  (2) Quantitative disclosures
     d. Independence                                    (a) Actual default rates experienced in
     (1) The CRA must be free from control          each rating category; and
of and undue influence by the entities it               (b) Rating transitions of assessed/rated
assesses/rates;                                     entities over time (i.e., likelihood of an AAA
     (2) The assessment process must be             credit rating transiting to AA etc. over time).
free from ownership pressures to allow                  g. Credibility
management to exercise independent                      (1) The CRA must have a general
professional judgement;                             reputation of high standards of integrity and
     (3) Persons directly involved in the           fairness in dealing with its clients and
assessment process of the CRA are free              conducts its business in an ethical manner;
from conflicts of interest with assessed/               (2) The CRA is generally accepted by
rated entities, and                                 predominant users in the market (i.e.,
     (4) The CRA does not assess/rate an            issuers, investors, bankers, FIs, securities
associate entity.                                   traders); and
     e. Transparency                                    (3) The CRA must carry out its rating
     (1) A general statement of the                 activities with due diligence to ensure
assessment methodology used by the CRA              ratings are fair and appropriate.
should be publicly available;                           For purposes of this Section, a
     (2) The CRA shall disseminate to the           subsidiary refers to a corporation, more
public thru a well-circularized publication,        than fifty percent (50%) of the voting stock
all assigned ratings disclosing whether the         of which is owned or controlled directly
rating issued is solicited or unsolicited;          or indirectly by the CRA while an affiliate
     (3) The rationale of ratings issued and        refers to a corporation, not more than fifty
risk factors considered in the assessment           percent (50%) but not less than ten
should be made available to the public;             percent (10%) of the voting stock of
     (4) The ratings issued by the CRA              which is owned or controlled directly or
should be available both to domestic and            indirectly by the CRA.
foreign institutions with legitimate                    Control exists when the parent owns
interest; and                                       directly or indirectly through subsidiaries
     (5) Publication of changes in ratings          more than one-half (½) of the voting power
together with the basis for the change              of an enterprise unless, in exceptional
should be done on a timely basis.                   circumstance, it can be clearly
     f. Disclosure requirements                     demonstrated that such ownership does
     (1) Qualitative disclosures                    not constitute control. Control may also
     (a) Definition of ratings along with           exist even when ownership is one-half (½)
corresponding symbols;                              or less of the voting power of an enterprise
     (b) Definition of what constitutes a           when there is:
default, time horizon within which a default            (a) power over more than one-half (½)
is considered and measure of loss given a           of the voting rights by virtue of an
default;                                            agreement with other stockholders;



Manual of Regulations for Non-Bank Financial Institutions                           Q Regulations
                                                                                   Part IX - Page 5
§§ 4931Q.2 - 4931Q.5
08.12.31

    (b) power to govern the financial and          information as the Monetary Board may
operating policies of the enterprise under         consider necessary for selection purposes;
a statute or an agreement;                              (3) For new entrants, employment of
    (c) power to appoint or remove the             professional analytical staff with experience
majority of the members of the board of            in the credit rating business;
directors or equivalent governing body;                 (4) List of major stockholders/partners
    (d) power to cast the majority votes at        [owning at least ten percent (10%) of the
meetings of the board of directors or              voting stocks of the CRA directly or along
equivalent governing body; or                      with relatives within the 1st degree of
    (e) any other arrangement similar to           consanguinity or affinity];
any of the above.                                       (5) List of directors, officers, members
    h. Internal compliance procedures              of the rating committee and professional
    (1) The CRA must have the necessary            analytical staff of the CRA; including their
internal procedures to prevent misuse or           qualifications, experience related to
unauthorized disclosure of confidential/           rating activities, directorship and
non-public information; and                        shareholdings in the CRA and in other
    (2) The CRA must have rules and                companies, if any;
regulations that prevent insider trading and            (6) List of subsidiaries and affiliates
other conflict of interest situations.             including their line of business and the
                                                   nature of interest of the CRA in these
     § 4931Q.3 (2008 - 4657Q.3) Pre-               companies;
qualification requirements. The application             (7) Details of the denial of a previous
of a domestic CRA for BSP recognition              request for recognition, if any (i.e.,
shall be submitted to the appropriate              application date, date of denial, reason for
department of the SES together with the            denial, etc.); and
following information/documents:                        (8) Details of all settled and pending
     a. An undertaking                             litigations connected with the securities
     (1) That the CRA shall comply with            market against the CRA, its directors,
regulations, directives and instructions           officers, stockholders, members of the
which the BSP or other regulatory agency/          rating committee and professional
body may issue from time to time; and              analytical staff, if any.
     (2) That the CRA shall notify the BSP
in writing of any material changes within              § 4931Q.4 (2008 - 4657Q.4) Inclusion
the organization (i.e., changes in                 in BSP list. The BSP will regularly
management or organizational structure,            circularize to all banks and NBFIs an
rating personnel, modifications of its             updated list of recognized CRAs. The BSP,
rating practices, financial deterioration)         however, shall not be liable for any damage
that may affect its ability to provide             or loss that may arise from its recognition
reliable and credible ratings.                     of CRAs to be engaged by users.
     b. Other documents/information:
     (1) Brief history of the CRA, major               § 4931Q.5 (2008 - 4657Q.5)
rating activities handled including                Derecognition of credit rating agencies
information on the name of the client, type            a. Grounds for derecognition. CRAs
of instruments rated, size and year of issue;      may be derecognized from the list of BSP
     (2) Audited financial statements for          recognized CRAs under the following
the past three (3) years and such other            circumstances:




Q Regulations                           Manual of Regulations for Non-Bank Financial Institutions
Part IX - Page 6
                                                                            §§ 4931Q.5 - 4999Q
                                                                                      08.12.31

    (1) Failure to maintain compliance with         Accordingly, credit ratings assigned by
the requirements under Subsec. 4657Q.2              said CRAs may be used, among others, as
or any willful misrepresentation in the             basis for determining appropriate risk
information/documents required under                weights in ascertaining compliance with
Subsec. 4657Q.3;                                    existing rules and regulations on risk-based
    (2) Involvement in illegal activities           capital requirements.
such as ratings blackmail; creation of a false
market or insider trading; divulging any            Sec. 4933Q (2008 - 4659Q.6) Recognition
confidential information about a client             of Fitch Singapore Pte Ltd as International
without prior consent to a third party              Credit Rating Agency for Bank
without legitimate interest; indulging in           Supervisory Purposes. The national or
unfair competition (i.e., luring clients of         domestic credit ratings of Fitch Singapore
another rating agency by assuring higher            Pte Ltd., a BSP-recognized international
ratings, etc.); and                                 CRA with representative office in the
    (3) Any violation of applicable laws,           Philippines, is hereby recognized by the
rules and regulations.                              BSP for bank supervisory purposes.
    b. Procedure for derecognition. A               Accordingly, national or domestic credit
CRA shall only be derecognized upon prior           ratings assigned by Fitch Singapore Pte
notice and after being given the                    Ltd. may be used, among others, as basis
opportunity to defend itself.                       for determining appropriate risk weights
                                                    in ascertaining compliance with existing
    § 4931Q.6 (2008 - 4657Q.6) Recognition          rules and regulations on risk-based capital
of PhilRatings as domestic credit rating            requirements.
agency for bank supervisory purposes
Credit ratings assigned by Philippine Rating        Secs. 4934Q - 4998Q (Reserved)
Services Corporation (PhilRatings) may be
used, among others, for determining                         D. GENERAL PROVISION ON
appropriate risk weights in ascertaining                           SANCTIONS
compliance with existing rules and
regulations on risk-based capital                   Sec. 4999Q (2008 - 4199Q) General
requirements.                                       Provision on Sanctions. Unless otherwise
                                                    provided, any violation of the provisions
Sec. 4932Q (2008 - 4659Q) Internationally           of this Part shall be subject to Sections 36
Accepted Credit Rating Agencies                     and 37 of R.A. No. 7653.
Internationally accepted CRAs are                       The guidelines for the imposition of
recognized for bank supervisory purposes            monetary penalty for violations/offenses
to undertake local and national ratings:            with sanctions falling under Section 37 of
Provided, That said CRAs shall have at least        R.A. No. 7653 on QBs, their directors and/
a representative office in the Philippines.         or officers are shown in Appendix Q-39.




Manual of Regulations for Non-Bank Financial Institutions                        Q Regulations
                                                                                 Part IX- Page 7
                                                                                   APP. Q-1
                                                                                    08.12.31

             GUIDELINES TO EVALUATE INVESTMENT HOUSES
                                 (Appendix to Sec. 4105Q)


    a. Capital - The requirement is a               (c) Fund usage. Support of priority
minimum paid-in capital of P200.0 million       investment areas of the Government and
for an investment house to be established       other projects which may be determined
in Metro Manila and P100.0 million for all      by the BSP shall be emphasized. Funds
others. Foreign equity, if any, shall be        placed on maturities beyond one (1) year
registered with and approved by the Board       shall be preferred.
of Investments and the BSP.
                                                     (d) Planned distribution of portfolio
    b. Citizenship - Majority (51%) of the      Activities indicating money-market
voting stock shall be owned by Filipinos.       services and investment in subsidiaries
                                                and affiliates, while necessary to sustain
    c. Directorship/Officership - Majority      the investment house, shall be
of the board members shall be Filipinos.        subordinated to the preferred activities
Resident foreign directors and technicians      above-indicated. Other activities as
shall register with the Bureau of               financial management, counseling,
Immigration and Deportation. Compliance         distribution of equity and debentures for
with the prohibition on interlocking            "public" ownership, etc., shall be
directorship/officership between banks and      considered.
investment houses and between QBs shall              (2) The one (1)-year investment
be observed.                                    program of the investment house shall be
                                                related to the government development
    d. Promotion of Public Interest and         plan by indicating the portion of the
Economic Growth -                               investment and savings targets in the plan
    (1) Submission of a one (1)-year            which would be supported by the
investment program indicating:                  investment house industry.
    (a) Underwriting and distribution                (3) A one (1)-year projected income
activities. These shall show in details the     statement showing major sources of
various stages leading to the completion        income and expense items.
of an agreement. Target dates for each stage         (4) Operational agreement with other
in the underwriting process shall be            FIs.
indicated which should serve as reference            (5) A statement justifying the operation
points in the event that an investment house    of the investment house as not in conflict
is unable to bring the program and its          with public interest and economic growth,
components to fruition. Target volume of        taking into account the existing number of
underwriting would be set initially at          investment houses, indicating:
twenty-five percent (25%) of paid-in capital.        (a) record of underwriting;
    (b) Fund mobilization. Emphasis                  (b) evidence of medium and long-term
shall be on maturities beyond one (1)           loans;
year. Domestic and foreign sources shall             (c) evidence of obtaining funds with
be indicated and the latter shall be            maturity beyond one (1) year; and
evaluated in terms of pertinent BSP                  (d) equity investments which were
regulations.                                    subsequently distributed to the public.




Manual of Regulations for Non-Bank Financial Institutions                    Q Regulations
                                                                     Appendix Q-1 - Page 1
APP. Q-1
08.12.31

    e. Organization, Direction and                    (3) Absence of administrative or
Administration - The organizational/              criminal conviction; and
functional chart should match the organization        (4) Affiliation with professional
framework with operational objectives. The        organizations.
management of the company, board of
directors and the managerial staff, must be           g. Branching - The rate at which
firmly designated before it can be granted a      branch offices are to be established shall
license to operate as an investment house.        depend upon the ability of the company
                                                  to conduct operations from headquarters/
    f. Integrity, Experience and Expertise        head offices as well as on correspondent
of Board and Management Staff                     (banking) arrangements.
    (1) Formal training, academic or others;          Other factors to be considered are the
    (2) Experience along financial                following:
management, securities dealing, fund                  (1) Reserve and liquidity position; and
management, project evaluation and                    (2) Profitability and capacity to absorb
feasibility studies;                              losses.




Q Regulations                       Manual of Regulations for Non-Bank Financial Institutions
Appendix Q-1 - Page 2
                                                                               APP. Q-2
                                                                                08.12.31



                DETERMINATION OF AMOUNT OF ADDITIONAL CAPITAL
                             THE ENTITY MUST PUT UP
                   (PROJECTION BASE - LATEST AVAILABLE REPORT)
                                (in thousand pesos)
                                 (Appendix to Subsec. 4151Q.2)


                                         (Name of Entity)

 A.   1.   Estimated Amount of Risk Assets of Present
           Office for the Next 12 Months

           a.    Actual Risk Assets                                       P   xxx
           b.    Add: xx% of (a)                                              xxx
                 Risk Assets - (Base Period)                     P xxx
                 Risk Assets - (Previous Year)                     xxx
                 Increase                                        P xxx
                 Rate of Increase =       increase       = xx%
                                      actual risk assets
           c.    Total of (a) and (b)                                     P   xxx

      2. Maximum Possible Level of Risk Assets Based
         on the Base Period Figures:

           a.    Net worth Less 30% of Paid-in
                 Capital (Pxxx - xxx)                            P xxx
           b.    100% of Borrowings (Bills Payable)                xxx
           c.    80% of Unutilized Acceptances or
                 Credit Line with Foreign Bank(s)                  xxx    P   xxx

 B.   Estimated Risk Assets for the First 12
      Months of Operation:

           1.    Branch Approved but not yet Opened:             P xxx

           2.    Branch Being Applied for:                         xxx

                 Add: Lower of A.1 or A.2                          xxx

 C.   Total Estimated Risk Assets for 12 Months                           P   xxx

 D.   10% of C (Minimum Paid-in Capital Required)                         P   xxx




Manual of Regulations for Non-Bank Financial Institutions                  Q Regulations
                                                                   Appendix Q-2 - Page 1
APP. Q-2
08.12.31




E.    Less:
                   Present Combined Capital Accounts                                 P xxx
                   (Base Period Figures)
                   Add: xx% of above                                                    xxx               xxx


                   Capital Accounts - (Base Period)                                  P xxx
                   Capital Accounts - (Previous Year)                                  xxx

                   Increase                                                          P xxx

                   *Rate of Increase =            Increase        = xx%
                                              Capital Accounts of
                                               Previous Year

F.    Estimated Excess of Capital over Minimum Capital
      Required or Additional Amount of Capital Applicant
      Must Put Up, as the case may be                                                               P     xxx




*The computation to arrive at the "rate of increase" in capital accounts shall only be considered if there is sufficient
indication or evidence that the NBQB will continue to follow the same amount of increase in capital accounts for the
succeeding year. If no evidence is found that the NBQB will continue to increase its capital accounts for the same amount
for the succeeding year, then computations should consider only the amount of net profits (after dividends) plowed into the
business for the year immediately preceding the date of application plus the amount of capital that the NBQB promised to
put up per its schedule or program submitted to the Bangko Sentral. If no such schedule or program was submitted, then
only the amount of net profits (after dividends) for the year immediately preceding the date of application should be
considered.

Q Regulations                                Manual of Regulations for Non-Bank Financial Institutions
Appendix Q-2 - Page 2
          Manual of Regulations for Non-Bank Financial Institutions
                                                                                                                           LIST OF REPORTS REQUIRED FROM QUASI-BANKS
                                                                                                                                     [Appendix to Sec. 4192Q (2008 - 4162Q)]


                                                                                                                                                                                              Submission                 Submission
                                                                      Category        Form No.       MOR Ref.                            Report Title                      Frequency           Deadline                   Procedure

                                                                           A-1     Unnumbered         4115Q        Computation of the Adjusted Risk-Based Capital          Quarterly                               Original copy to
                                                                                                     (Cir. No.     Adequacy Ratio Covering Combined Credit Risk,                                                   CPCD/ISD
                                                                                                      574 dated    Market Risk and Operational Risk1
                                                                                                      07.10.07)
                                                                                                                   -
                                                                                                                          solo basis (Head Office and branches)                        - 15th business day after
                                                                                                                                                                                       end of reference quarter
                                                                                                                   -    consolidated basis (Parent QB plus subsidiary                  -30th business day after
                                                                                                                   financial allied undertakings but excluding insurance               end of reference quarter
                                                                                                                   companies)

                                                                           A-2                                     Computation of the Risk-Based Capital Adequacy ratio    Quarterly                               Appropriate department
                                                                                                                   Covering credit Risks                                                                           of the SES

                                                                                                                   -      solo basis (Head Office and branches)                        - 15th business day after
                                                                                                                                                                                       end of reference quarter
                                                                                                                   -    consolidated basis (Parent QB plus subsidiary                  -30th business day after
                                                                                                                   financial allied undertakings but excluding insurance               end of reference quarter
                                                                                                                   companies)

                                                                           A-1                       4192Q.3       Copy of Published Statement of Condition with           Quarterly   5th business day from       Original - Appropriate
                                                                                                                   Publisher's Certificate                                             publication date            department of the SES

                                                                           A-1     Unnumbered        4611Q.5       Report on Outstanding Derivatives Contracts             Monthly     15th banking day from                -do-
                                                                                                     (Cir.No.                                                                          end of reference month
Appendix Q-3 - Page 1




                                                                                                     668 dated
                                                                                                     10.02.09)
      Q Regulations




                                                                                                                                                                                                                                            APP. Q-3
                                                                                                                                                                                                                                            09.12.31
                                                                      1
                                                                          For QBs which are subsidiaries of UBs and KBs
Appendix Q-3 - Page 2
Q Regulations




                                                                                                                                                                                                                                               09.12.31
                                                                                                                                                                                                                                               APP. Q-3
                                                                                                                                                                                              Submission                 Submission
                                                                      Category      Form No.       MOR Ref.                          Report Title                        Frequency             Deadline                   Procedure

                                                                       A-1       Unnumbered        4611Q.5     Report on Trading Gains/(Losses) on Financial              Monthly       15th banking day from     Original - Appropriate
                                                                                                   (Cir. No.   Derivatives                                                              end of reference month    department of the SES
                                                                                                   668 dated
                                                                                                   10.02.09)

                                                                       A-2       Unnumbered        4141Q.9     Acknowledgment receipt of copies of specific duties        Annual or     30th business day after   Appropriate department of
                                                                                 (no prescribed                and responsibilities of the board of directors and of a   as directors   date of election          the SES
                                                                                 form)                         director and certification that they fully understand     are elected
                                                                                                               the same

                                                                       A-2       BSP-7-26-02-A/B 4192Q         Consolidated Statement of Condition                        Monthly       15th business day after   Separate report for Head
                                                                                                                                                                                        end of reference month    Office and each Branch;
                                                                                                               Schedules:                                                                                         and a Consolidated Report
                                                                                                                                                                                                                  for Head Office and
                                                                       A-2       BSP-7-26-02-A     4192Q       Loans/Receivables, Trading Account Securities (TAS)                                                Branches; to be submitted
                                                                                 Schedule 1                    - Loans Underwritten Debt Securities                                                               via electronic mail to SDC
                                                                                 (IHs only)
          Manual of Regulations for Non-Bank Financial Institutions




                                                                       A-2       BSP-7-26-02-B     4192Q       Loans/Receivables and Trading Account Securities
                                                                                 Schedule 1                    (TAS) - Loans
                                                                                 (FCs only)

                                                                       A-2       BSP-7-26-02-A     4192Q       Bills Payable and Bonds Payable
                                                                                 Schedule 5
                                                                                 (For IHs)

                                                                       A-2       BSP 7-26-02-B     4192Q       Bills Payable and Bonds Payable
                                                                                 Schedule 5
                                                                                 (For FCs)

                                                                       A-2       BSP-7-26-02-A/B 4192Q         Remaining Maturities of Selected Accounts Interest
                                                                                 Schedule 4                    Rate and Maturity Matching

                                                                         A-2     BSP-7-26-02-A/B   4192Q       Interest Rate and Maturity Matching
                                                                                 Schedule 3
                                                                                                                                                                                Submission   Submission




          Manual of Regulations for Non-Bank Financial Institutions
                                                                      Category      Form No.     MOR Ref.                        Report Title                       Frequency    Deadline     Procedure

                                                                         A-2     BSP-7-26-02-A   4192Q      Underwritten Securities, Trading Account Securities -
                                                                                 Schedule 2                 Investments, Available for Sale Securities and
                                                                                 (For IHs)                  Investments in Bonds & Other Debt Instruments

                                                                         A-2     BSP-7-26-02-B   4192Q      Trading Account Securities Investments, Available for
                                                                                 Schedule 2                 Sale Securities and Investments in Bonds & Other Debt
                                                                                 (For FCs)                  Instruments

                                                                         A-2     BSP-7-26-02-A   4192Q      Underwritten Securities, Trading Account Securities -
                                                                                 Schedule 2.1               Investments, Available for Sale Securities and
                                                                                 (For IHs)                  Investments in Bonds & Other Debt Instruments
                                                                                                            (Government Issue - Local Government Units)

                                                                         A-2     BSP-7-26-02-B   4192Q      Trading Account Securities - Investments, Available
                                                                                 Schedule 2.1               for Sale Securities and Investments in Bonds & Other
                                                                                 (For FCs)                  Debt Instruments (Government Issue - Local
                                                                                                            Government Units)

                                                                         A-2     BSP-7-26-02-A   4192Q      Loans/Receivables, Trading Account Securities - Loans
                                                                                 Schedule 1                 and Underwritten Debt Securities
                                                                                 (For IHs)

                                                                         A-2     BSP-7-26-02-B   4192Q      Loans/Receivables and Trading Account Securities -
                                                                                 Schedule 1                 Loans
                                                                                 (For FCs)

                                                                         A-2     BSP-7-26-02-B   4192Q      Loans/Receivables and Trading Account Securities -
                                                                                 Schedule 1.1               Loans (Borrowing of Local Government Units)
                                                                                 (For FCs)
Appendix Q-3 - Page 3




                                                                         A-2     BSP-7-26-02-A   4192Q      Loans/Receivables, Trading Account Securities - Loans
                                                                                 Schedule 1.1               and Underwritten Debt Securities (Borrowings of Local
                                                                                 (For IHs)                  Government Units)
       Q Regulations




                                                                         A-2     BSP-7-26-02-B   4192Q      Data on Firm's Businesses




                                                                                                                                                                                                          APP. Q-3
                                                                                                                                                                                                          09.12.31
                                                                                 Schedule 6
                                                                                 (FCs only)
                                                                                                                                                                                            Submission                  Submission




                                                                                                                                                                                                                                               09.12.31
                                                                                                                                                                                                                                               APP. Q-3
Appendix Q-3 - Page 4
Q Regulations
                                                                      Category     Form No.        MOR Ref.                          Report Title                        Frequency           Deadline                    Procedure

                                                                         A-2     BSP-7-26-03-A/B   4192Q       Consolidated Statement of Income and Expenses             Monthly     15th business day            Separate report for Head
                                                                                                                                                                                     following end of             Office and each branch;
                                                                                                                                                                                     reference month              and a Consolidated Report
                                                                                                                                                                                                                  for Head Office and
                                                                                                                                                                                                                  Branches; to be submitted
                                                                                                                                                                                                                  via electronic mail

                                                                         A-2     BSP-7-26-05       4253Q       Consolidated Report on Required and Available             Weekly      4th business day following   cc: mail or e-mail to SDC,
                                                                                                   (As         Reserves Against Deposit Substitutes and Special                      end of reference week        hard copy to appropriate
                                                                                                   amended     Financing                                                                                          department of the SES
                                                                                                   by MAB
                                                                                                   dated
                                                                                                   02.24.05)

                                                                         A-2     BSP-7-26-05.1     4253Q       Components of Deposit Substitutes with Original             -do-                -do-               Separate report for Head
                                                                                                               Maturities of 730 Days or Less                                                                     Office and each branch;
                                                                                                                                                                                                                  and a Consolidated Report
          Manual of Regulations for Non-Bank Financial Institutions




                                                                                 BSP-7-26-05.2     4253Q       Components of Deposit Substitutes with Original                                                    for Head Office and
                                                                                                               Maturities of more than 730 days                                                                   Branches; to be submitted
                                                                                                                                                                                                                  via electronic