Law Summary

Introduction

This document summarizes BSP Circular No. 864, issued on December 22, 2014, which amends the regulations pertaining to the derivatives activities of thrift banks (TBs) in the Philippines. The amendments concern the authority classification related to derivatives trading.

Classification of Additional Derivatives Authority

The Circular introduces a classification system for additional derivatives authority, which consists of three types:

Type 1 - Expanded Dealer Authority

• Explanation: This authority allows banks to engage in a broader range of derivatives transactions.
• Requirements: Not specified in the summary.

Type 2 - Limited Dealer Authority

• Explanation:
  • A thrift bank (TB) or a rural bank (KB) may apply for this authority to operate as a dealer in specific derivatives products outside the scope of certain financial derivatives.
  • This authority also permits the bank to act as a broker and end-user for the specified derivatives.
• Key Definitions:
  • Deliverable FX Forwards: Foreign exchange contracts that must be settled by actual delivery of currency.
• Requirements:
  • A TB with existing authority to issue foreign letters of credit may apply for Type 2 authority specifically for deliverable FX forwards.
  • The tenor of the FX forwards must match the term of the underlying trade transaction.
  • Compliance with sales and marketing guidelines as per Appendix 26 is mandatory.
  • The TB must adhere to all regulations regarding capital for market risk.

Type 3 - Limited User Authority

• Explanation: Details are not elaborated in the provided text.

Implementation Timeline

• Effective Date: The Circular takes effect 15 calendar days after publication in either the Official Gazette or a newspaper of general circulation in the Philippines.

Compliance and Liability

• Consequences: Non-compliance with the requirements outlined may lead to penalties or liabilities as defined by the existing regulations. Specific penalties are not detailed in the summary.

Cross-References

• The amendments reference existing regulations, including:
  • Manual of Regulations for Banks, Section X611.
  • Capital requirements for market risk as outlined in other BSP regulations.

Key Takeaways

• The BSP Circular No. 864 establishes a structured framework for additional derivatives authority for thrift banks.
• It introduces distinct categories of authority, particularly focusing on Types 2 and 3, with specific requirements for Type 2 authority.
• Compliance with established guidelines and regulations is crucial for the successful operation of derivatives activities by thrift banks.
• The Circular emphasizes the importance of aligning derivatives transactions with underlying trade transactions and maintaining capital adequacy.

This summary captures the essential aspects of BSP Circular No. 864, providing a clear and structured understanding of the amendments affecting derivatives activities of thrift banks in the Philippines.