Into the Digital: BSP Imposes Additional Regulations on Digital Banks

On September 14, 2022, the BSP issued Memorandum Circular No. 1154, Series of 2022 entitled “Prudential Requirements Applicable to Digital Banks, and Amendments to Relevant Provisions of the Manual of Regulations for Banks and Non-Bank Financial Institutions and Manual of Regulations on Foreign Exchange Transactions” (Digital Banking Memorandum). The Digital Banking Memorandum is the second set of guidelines for digital banks after the digital bank framework was released by the BSP in 2020.

Key provisions

  • Establishment of Digital Banks.The Digital Banking Memorandum revises the bank establishment provisions of the MORB to reflect digital banks. It sets out the definition, prudential requirements, and minimum capitalization requirement for digital banks.
  • Required Reserves and Equity Investments of Digital Banks.The Digital Banking Memorandum sets required reserves against deposit and deposit substitute liabilities of Digital Banks and limits on equity investments of Digital banks.
  • Classification of Digital Banks.The Digital Banking Memorandum classifies a digital bank as a Complex Bank, similar to a universal bank (UB) and commercial bank (KB). This imposes upon digital banks certain requirements on the composition of the Board of Directors, qualifications of officers, confirmation by BSP of its directors and officers, and reportorial requirements on directors and officers.

The BSP, in adopting the prudential requirements and standards applicable to UBs and KBs to digital banks, has said that it aims to strengthen the resilience of digital banks as a new banking category to better absorb financial shocks and promote financial stability. However, a moratorium on granting digital banking licenses is still in effect until September 2024.

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