RECENVED

Republic of the Philippines 4
HOUSE OF REPRESENTATIVE: Dare: 24 AUG 2016
Quezon City ame. Sp
SEVENTEENTH CONGRESS Ln
First Regular Session

3305

House Bill No.

Introduced by Representative GLORIA MACAPAGAL ARROYO

AN ACT

PROVIDING FOR THE REGULATION AND SUPERVISION OF PAYMENT

SYSTEMS

EXPLANATORY NOTE

While many countries have already embraced the advancement of online
payment system, we are still left behind adopting the cash-based payment

According to a study done by Better Than Cash Allliance, the Philippine e-
commerce industry makes up less than 1% of total commerce in the country
This is relatively low compared to our ASEAN neighbors who generate 4-5% in e-
commerce transactions.

In order to ensure the security and efficiency of payments for the benefit of all
stakeholders, we must upgrade the management and regulation of our payment
industry.

Through this measure, we will have the opportunity to protect retailers, enhance
buyer experience, boost confidence in the financial sector and keep pace with
the ever-improving technology for cashless payment

Due to the foregoing reasons, the swift approval of this measure is earnestly
requested.

GLORIA MACAPAGAL ARROYO
" District, Pampanga


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

HouwseBill No, 3805

Introduced by Representative GLORIA MACAPAGAL ARROYO:

ANACT
PROVIDING FOR THE REGULATION AND SUPERVISION OF PAYMENT SYSTEMS

Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:

SECTION 1. Short Title. — This Act shall be known as the "National
Payment Systems Act of 2016."

SECTION 2. Declaration of Policy. - The State recognizes that payment
systems are crucial parts of the financial infrastructure of the country and it is
essential that they function safely and efficiently for the stability and effectiveness
of the monetary and financial system

SECTION 3. Objective. - The State shall promote, through the Bangko
Sentral, the safe, efficient and reliable operation of payment systems in order to
control systemic risk and provide an environment conducive to the sustainable
growth of the economy

SECTION 4. Definition of Terms. — For the purpose of this Act, the
following terms shall refer to:

(a) Bangko Sentral — the Bangko Sentral ng Pilipinas established under
Republic Act No. 7653

(b) Clearing — the process of transmitting, reconciling and in some cases,
confirming payment orders prior to settlement, and the establishment
of final obligations for settlement

(c) Designated payment system — the payment system that has been
designated as such by the Bangko Sentral pursuant to this Act and its
implementing rules and regulations

(d) Director — any member of the board of directors of a participant to the
payment system, or a person considered as such under Bangko
Sentral regulations


(e) End-user — any person who originally initiates the instruction to pay or
the ultimate receiver of funds in a payment system

(f) Fund — any unit of value that forms the consideration or object of
transactions

(g) Issuer — any person who provides the means or the instrument to hold
or transfer funds

(h) Manager — any person of recognized competence in payment system
designated by the Bangko Sentral to manage the operations of the
operator of a designated payment system as provided under Section
18 hereof. For this purpose, personnel of the Bangko Sentral may be
designated as manager.

(i
@

Monetary Board — the Monetary Board of the Bangko Sentral

Netting — an agreed offsetting of obligations by participants of payment
systems

(k) Officer — any person who is an employee holding a management
position in any of the participants to the payment system, or a person
considered as such under Bangko Sentral regulations

(|) Operator — any person who provides clearing or settlement services in
a payment system, or defines, prescribes, designs, controls or
maintains the operational framework for the system

(m) Participant — the operator, issuer, service provider, or any person
involved in the payment system other than the end-user

(n) Payment instrument — any instrument, whether tangible or intangible,
that enables a person to transfer funds

(0) Payment order — an order or message requesting the transfer of funds
to the order of the payee

(p) Payment system — the set of payment instruments, processes,
procedures and participants that ensures the circulation of money or
movement of funds

(q) Payment System Management Body — the entity organized by
participants of the designated payment system for the purpose or self-
regulation

(f) Service provider — an entity that provides process arrangements,
technology or infrastructure to operators of a payment system

(s) Settlement — an act that discharges obligations in respect of fund
transfers between two or more parties

Systemic risk — the risk that the failure of one participant in a payment
system, or in financial markets generally, to meet its required
obligations will cause other participants or financial institutions to be
unable to meet their obligations, including settlement obligations in a
payment system, when due: Provided, That, such failure could
threaten the stability of the system or financial markets.


SECTION 5. Authority of the Bangko Sentral. - The Bangko Sentral shall
oversee the payment systems in the Philippines and exercise supervisory and
regulatory powers for the purpose of ensuring the stability and effectiveness of
the monetary and financial system.

SECTION 6. Powers of the Banko Sentral, — In the performance of its
mandate under this Act, the Bangko Sentral shall have, in addition to its powers
under existing laws, the following powers:

a)

Designate a payment system if it determines the payment system

as posing or having the potential to pose a systemic risk or the designation is
necessary to protect the public interest

b)

1. Any such determination by the Bangko Sentral shall be conclusive
The designation of a payment system by the Bangko Sentral shall
be effective until revoked. The Bangko Sentral may revoke such
designation if it finds that the designated payment system no longer
poses any systemic risk or it is no longer in the public interest that
the system be designated

2. Should the Bangko Sentral designate a payment system, it shall
require the participants of the designated payment system to
comply, within a reasonable period, with the provisions of this Act
and its implementing rules and regulations. The Bangko Sentral
shall give due consideration to the orderly transition of the
operations of the newly designated payment system to ensure that
it operated in a safe, efficient and reliable manner.

Require operators of the designated payment system to ensure

prior authority from the Bangko Sentral

c)

1. In granting the authority, the Bangko Sentral shall take into
consideration the capability of an operator in terms of its financial
resources, technical expertise and reputation. The licensing
process shall include but not be limited to an assessment of the
‘ownership structure, governance, key personnel, business model,
risk management and financial resources.

2. No person or entity shall be allowed to act as an operator of a

designated payment system without prior authority from the Bangko
Sentral. The determination of whether a person or entity is acting
as an operator of a designated payment system without Bangko
Sentral authority shall be made by the Monetary Board. To resolve
such issue, the Monetary Board may, through the appropriate
department of the Bangko Sentral, examine, inspect or investigate
the books and records of such person or entity.

Accredit or require, when deemed necessary, a payment system

management body organized by participants of the designated payment system
for the purpose of self-regulation

1. The accredited payment system management body may issue and
enforce its rules and regulations and impose appropriate sanctions
among participants of the designated payment system; Provided,
That, such rules and regulations shall be with prior Bangko Sentral
approval and subject to its review.


d) Issue, through the Monetary Board, rules and regulations governing
the following:

1. The standard of operation of payment systems and the conduct of
examination of the participants of the designated payment systems,
in such frequency as may be prescribed by the Monetary Board, to
determine compliance with laws and regulations.

2. The adequacy of resources of operators of the designated payment
systems to ensure that the designated payment systems have a
high degree of security and operational reliability and have
contingency requirements for timely completion of daily processing
commitments.

3. The qualifications and disqualifications of individuals elected or
appointed as directors or officers of operators of the designated
payment systems with particular regard to their integrity,
experience, education, training and competence. The Monetary
Board may suspend, disqualify or remove any director or officer
found unfit for the position.

4. The appropriate measures to ensure the confidentiality of payment
information which, under the provisions of this Act and other
existing laws, is considered confidential.

5. The necessary measures to ensure the compliance of designated
payment systems with Republic Act No. 9160, amended, otherwise
known as the Anti-Money Laundering Act of 2001, and other related
laws.

6. The mechanism for the protection of the rights of the end-users and
participants to the designated payment systems.

7. Principles on setting prices or pricing mechanisms in payment
systems

8. Guidelines applicable to payment system management bodies,
including the grant and revocation of accreditation; and

9. Other pertinent matters as may be determined by the Monetary
Board.

e) Issue, through the Monetary Board, directives and orders to any
participant of a payment system whenever the Monetary Board has determined
that it is necessary to ensure the safety, efficiency or reliability or a payment
system or it is in the interest of the public to do so.

f) Require participants of payment systems to submit reports on their
operations and provide information for statistical, policy development,
supervisory and regulatory purposes.

g) Assess and collect from the participants of the designated payment
systems an annual fee in such amount, as may be necessary to cover expenses
related to or incidental to the conduct of supervisory functions over such entities,
subject to the rules prescribed by the Monetary Board

h) Such other powers as may be reasonably necessary to meet the
objectives of this Act.

SECTION 7. Adoption of international Standards and Practices. - In the
exercise of its authority under this Act, the Bangko Sentral shall be guided by
internationally accepted standards and practices.


SECTION 8. Protection of Confidential Information. — Information obtained
by the Bangko Sentral in the course of its oversight of payment systems and
supervision and regulation of participants thereof are considered confidential,
and such confidential information may only be disclosed upon prior authorization
from the Monetary Board or the Governor as may be necessary in the course of
its coordination with other Philippine and foreign regulators as provided under
Section 10 of this Act or when ordered by the courts. Provided, however, That,
the collective data may be released to interested persons or entities.

SECTION 9. Bangko Sentral Authority to Own and Operate a Payment
System. — The Bangko Sentral shall have the authority to own and operate
payment systems as may be deemed necessary by the Monetary Board. The
Bangko Sentral shall have the authority to determine who shall be allowed to
participate in payment systems owned and operated by it and who shall be
allowed to open an account with the Bangko Sentral for settlement purposes.
The Bangko Sentral shall adopt intemal safeguards to ensure appropriate
independent oversight of its operator functions.

SECTION 10. Coordination with Other Goverment Agencies and Foreign
Regulators. - The Bangko Sentral shall coordinate with other regulators and
other concerned government agencies to avoid gaps, inefficiencies, duplications
and inconsistencies in the regulation of other systems which are related to or
interconnected with payment systems. The grant, suspension or revocation of
any government license necessary for the conduct of business of a payment
system operator must be done only with prior consultation with the Bangko
Sentral

The Bangko Sentral shall endeavor to coordinate with the regulators or
overseers of payment systems of other countries to facilitate safe, efficient and
reliable cross-border payment transactions.

SECTION 11. Registration of Payment System Operators. — Within six (6)
months form the effectivity of this Act, all operators of payment systems as
defined under Section 4 of this Act shall register with the Bangko Sentral
Operators of payment systems, which shall commence business or operations
subsequent to the effectivity of this Act, shall register with the Bangko Sentral in
such manner and within such reasonable period as may be prescribed by the
Monetary Board.

SECTION 12. Organization of Operators of Designated Payment Systems.
— Operators of the designated payment system, except payment systems
operated by the Bangko Sentral, shall be required to incorporate as stock
corporations for the purpose of operating a payment system, and shall meet the
minimum requirements as may be prescribed by the Monetary Board. Operators
of designated payment systems, so long as they continue to be authorized by
Bangko Sentral to operate as such, shall not be included in the definition of a
debtor under Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act of 2010.

SECTION 13. Certificate of Authority to Register Operators of Designated
Payment System. — The Securities and Exchange Commission shall not register
the articles of incorporation of any operator of a designated payment system, or
any amendment thereto, or otherwise issue a license to do business in the
Philippines, unless accompanied by a certificate of authority to register issued by
the Monetary Board, under it seal. The Securities and Exchange Commission
shall also not register the by-laws of any operator of a designated payment


system, or any amendment thereto, unless accompanied by a certificate of
authority from the Bangko Sentral

SECTION 14. Transfer and Acquisition of Substantial Shareholdings. —
No person shall acquire shares in an operator of a designated payment system
that will result in ownership or control, directly or indirectly, of more than ten
percent (10%) of the voting stock of such operator, without obtaining the prior
approval of the Monetary Board. Prior to Monetary Board approval, no such
transfer or acquisition of shares shall have legal effect nor shall the same be
recognized in the stock and transfer books of the operator or in the records of
any government agency.

SECTION 15. Responsibilities of the Operator of the Designated Payment
System. — The operator of the designated payment system shall be primarily
responsible for the maintenance and operation of a safe, efficient and reliable
payment system in accordance with rules and regulations. This includes the
development of a process, which shall be subject to Bangko Sentral review, for
the selection, monitoring and disciplining of participants to its system

SECTION 16. Finality of Settlement. — Notwithstanding the provisions of
existing laws to the contrary, settlement effected in accordance with the agreed
procedures of a payment system shall be final and irrevocable and shall not be
subject to reversal for any reason whatsoever: Provided, That, if it is shown and
established that any such fund so paid and transferred was not legally due, the
settlement shall remain and such amount shall constitute a new monetary
obligation owed by the payee to the person who caused the payment

SECTION 17.Notification in case of Insolvency of Participant in a Payment
System. — The participant of a payment system shall notify in writing the operator
of such payment system upon the issuance of a stay order or the declaration or
insolvency, bankruptcy, rehabilitation or placement under the receivership or
liquidation or the participant on the day of the receipt of the order or resolution
issued by the court or quasi-judicial agency. Upon receipt by the operator of such
notice, the operator shall immediately stop the processing of any pending
payment order involving said participant.

The operator of a payment system shall notify in writing its participants
and the Bangko Sentral upon the issuance of a stay order or the declaration of its,
insolvency, bankruptcy, rehabilitation or placement under liquidation on the day
of the receipt of the order or resolution issued by the court or quasi-judicial
agency.

SECTION 18. Designation of a Manager to Manage the Operations of the
Operator of a Designated Payment System. — In order to avert disruptions in
payment systems which may adversely affect the country’s monetary and
financial stability, the Bangko Sentral may, upon determination of the existence
of any of the circumstances enumerated below, based on the report of the head
of the supervising or examining department, and with prior approval of the
Monetary Board, designate without need for prior hearing a manager of
recognized competence in payment systems to manage the operations of the
operator of a designated payment system, as may be necessary or expedient

A threat to the safety, efficiency and reliability of the designated payment
system exists as a result of any of the following:

1. The violation of existing laws, rules and regulations by the operator;


2. The failure of the operator to comply with any order of the Monetary
Board;

3. The assets of the operator are not sufficient to give adequate
protection to its participants or users;

4. The capital of the operator has reached a level or is eroding in a
manner that may detrimentally affect its participants, users or the
public in general; or

5. Any other financial or business condition of the operator which may be
considered by the Monetary Board to be prejudicial to the interests of
its participants, users or the public in general.

The actions of the Monetary Board taken under this section shall be final and
executor, and may not be restrained or set aside by the court except on petition
for certiorari on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to the amount to lack or excess of
jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the operator of the designated payment
system of the notice from the Bangko Sentral advising of the designation of a
manager to manage the operations of such operator.

The designation of a manager who will manage the operations of the operator of
a designated payment system shall only be for such period during which any of
therefore mentioned circumstances exists. The Monetary Board, however, may
replace the manager as it may deem necessary. The manager so designated
shall immediately control, manage, and administer the operations of the operator
of a designated payment system. Effective immediately upon designation, the
powers, functions and duties, as well as allowances, remunerations and
perquisites of the incumbent directors shall be suspended. The suspension shall
also apply to the officers of such operator of a designated payment system,
unless the manager gives its approval in writing for any officer to continue acting
as such under such terms and conditions as the manager may determine. The
relevant provisions of the articles of incorporation and by-laws of such operator
are likewise suspended.

The manager so designated shall determine within the period prescribed by the
Monetary Board, but not to exceed one (1) year from the designation, whether
any of the aforementioned circumstances still exists or whether the operator of a
designated payment system may be permitted to resume management with
safety to its payment system participants and end-users: Provided, That any
determination for the resumption of management of the operator of a designated
payment system shall be subject to prior approval of the Monetary Board.

If the manager so designated determines that the operator of a designated
payment system cannot continue it operation without causing damage to its
participants, end users or the public in general, the manager so designated shall
notify the Monetary Board in writing of its findings and recommend the revocation
of the certificate of authority of an operator of a designated payment system.
Once the certificate of authority is revoked by the Monetary Board, the provisions
of RA No. 10142 shall apply. For this purpose, the Bangko Sentral may initiate
the appropriate action under the aforesaid law.

The costs and expenses in managing the operations of the operator of a
designated payment system, including the remuneration of the designated
manager, shall be paid first before other claims out of the funds and properties of
the operator of a designated payment system.


The Monetary Board shall issue implementing guidelines to govern the
management of the operations of the operator of a designated payment system
by the designated manager, including but not limited to:

1. The responsibilities of the designated manager;

2. The information required to be given by the operator, its directors and
officers to the designated manager to facilitate the management of the
operations of the operator;

3. The circumstances, terms and conditions when the assets of the
operator may be sold or disposed of, and

4. Other matters related to the effective management of the operations of
the operator and the appropriate performance of the duties of the
designated manager to manage the operations of the operator.

SECTION 19. Netting. — Notwithstanding the provisions of existing laws to
the contrary, when an operator receives from the participant a notice pursuant to
Section 17, the operator may effect the netting of all payment orders received
before such notice in accordance with the agreed procedures of the payment
system. The insolvency, bankruptcy, rehabilitation, receivership or liquidation
proceedings shall recognize any such netting as valid.

SECTION 20. Administrative Sanctions. —

a) Without prejudice to the penalties and sanctions provided in Section 21
of this Act, the Monetary Board may, at its discretion, impose upon any
participant of a designated payment system, its directors and officers,
including any person or entity determined by the Monetary Board to be
acting as an operator without the requisite authority from the Bangko
Sentral, for violations of this Act or rules and regulations issued by the
Monetary Board or any order or instruction of the Governor of the
Bangko Sentral, fines in amounts as may be determined by the
Monetary Board to be appropriate, but not to exceed one million pesos
(P1,000,000.00) for each transactional violation or one hundred
thousand pesos (P100,000.00) a day for each continuing violation,
depending on the nature and gravity of the violation or irregularity;
Provided, That, In case profit is gained or loss is avoided as a result of
the violation, an additional fine of no less than the profit gained or loss
avoided but no more than three (3) time the profit gained or loss
avoided may be imposed.

b)

The Monetary Board may suspend, disqualify, or remove any of the
directors or officers of the operator of a designated payment system, in
any of the following instances:

1) Willful violation of the charter or by-laws of the operator of the
designated payment system;

Willful delay in the submission of reports of publications thereof
as required by the rules and regulations to be issued by the
Monetary Board pursuant to this Act;

Refusal to permit examination into the affairs of the operator of
the designated payment system;

Willful making of a false or misleading statement to the
Monetary Board or Bangko Sentral examiners;

Willful failure or refusal to comply with any provision of this Act,
rule or regulation or any order instruction issued by the
Monetary Board pursuant to this Act, or any order or instruction
of the Governor of the Bangko Sentral; and

2)

3)

4

5


6) Willful commission of irregularities or the conduct of business
that threatens the safety, efficiency or reliability of a payment
system as may be determined by the Monetary Board

The suspension of directors and officers of the operator of a designated payment
system shall not be more than one (1) year, depending on the nature and gravity
of the violation or irregularity. Resignation or termination from office shall not
exempt such director or officer from administrative or criminal sanctions.

c) Notwithstanding the institution or pendency of an administrative
proceeding, if the participant or a designated payment system and its
directors and its officers concemed continue with or otherwise persist
in the commission of the cited practice or violation, the Bangko Sentral
may issue an order requiring such participant and its directors and
officers concerned to cease and desist from the cited practice or
violation, and may further order that immediate action be taken to
correct the conditions resulting from such practice or violation. The
cease and desist order shall be immediately effective upon service on
the respondents.

d

The revocation of the certificate of authority of an operator of a
designated payment system may be ordered by the Monetary Board
on the following grounds:

1) The operator committed a violation of or has not complied with the
provisions of this Act or the rules and regulations on orders and
instructions issued by the Monetary Board or any order or
instruction of the Governor of the Bangko Sentral, involving acts or
violations which amount to fraud or expose its participants or the
public to material loss or damage; or

The operator committed a violation of or has not complied with the
provisions of this Act or the rules and regulations or orders and
instructions issued by the Monetary Board or any order or
instruction of the Governor of the Bangko Sentral, or failed to
implement the rules of the payment system or a cease and desist
order issued by the Bangko Sentral, and such violation or failure
has been determined by the Monetary Board to be a threat to the
safety, efficiency or reliability of the payment system or poses a risk
to the stability of the monetary and financial system

2

e)

The cancellation of the registration of any operator of a payment
system may be ordered by the Monetary Board, if it finds that the
payment system operates to facilitate fraud and other transactions
contrary to law, good morals and public policy

The Monetary Board may also order the suspension or revocation of the
certificate of authority or the registration with the Bangko Sentral of an operator
of a payment system on the basis of the suspension or revocation of its permits
or licenses issued by other government agencies.

SECTION 21. Other Penalties and Sanctions. - Whenever any person or
entity willfully violates this Act, rule or regulation, directives or orders duly
promulgated by the Monetary Board pursuant hereto, the person/s responsible
for such violation shall be punished by a fine of not less than two hundred
thousand pesos (P200,000.00) or not more than two million pesos
(P2,000,000.00) or by imprisonment of not less than two (2) years or not more
than ten (10) years, or both, at the discretion of the court.

10


SECTION 22. Implementing Rules and Regulations. — The BSP, within
sixty (60) days from the effectivity of this Act, shall promulgate the necessary
rules and regulations for the effective implementation of this Act.

SECTION 23. Repealing Clause. ~ All laws, decrees, executive orders,
rules and regulations inconsistent with this Act are hereby repealed, amended or
modified accordingly.

SECTION 24. Separability Clause. — If any provisions, or part hereof, is
held invalid or unconstitutional, the remainder of the law of the provision not
otherwise affected shall remain valid and subsisting

SECTION 25. Transitory Provision. - Payment systems existing on the
day of the effectivity of this Act shall be given sufficient time, as may be
determined by the Bangko Sentral, to comply with the requirements of this Act.

SECTION 26. Effectivity Clause. - This Act shall take effect fifteen (15)

days following its complete publication in the Official Gazette or in two (2)
newspapers of general circulation

Approved,