Ban on Right-Hand Steering Vehicles Operation

Banks, Non-bank Financial Intermediaries Performing Quasi-Banking Functions (NBQBs), and their subsidiaries/affiliates may engage in derivatives activities only with BSP prior approval.
Banks can transact derivatives both through their regular banking unit and foreign currency deposit units (FCDU/EFCDU).

Applicants must meet capital or net worth thresholds: minimum capital for their category or P200 million, whichever is higher.
Maintain required net worth-to-risk assets ratio for 60 days prior to application.
Fulfill reserves requirements against deposit liabilities, deposit substitutes, common trust funds for 8 weeks prior.
Maintain liquidity floor for government deposits for 6 months prior.
Comply with FCDU/EFCDU foreign currency asset cover on liabilities and foreign exchange position limits for 6 months prior.
Should not have incurred operational losses for 6 months prior; alternatively, infusion of additional capital based on average net worth returns is required.
Possession of adequate electronic data processing capabilities.
Established internal control systems and proper record keeping.
Key officers/traders must have minimum two years’ experience in treasury, international operations, or risk management.
Full compliance with banking laws and BSP regulations.

Authorized entities may enter into any derivatives contract as end-user, dealer/trader, or agent/broker.
Derivatives entered as end-user or dealer/trader must be for hedging purposes.
Commodity or equity-based contracts must not result in open positions at any time.

Entities must adopt a policy manual aligned with BSP’s Risk Management Guidelines for Derivatives.
Clients must receive risk disclosure statements detailing risks involved in derivatives.
Periodic detailed statements on client positions must be provided.

Entities must follow BSP’s specified accounting guidelines for recording derivatives activities.

Monthly reports on derivatives activities must be submitted within five banking days after each month-end.
Reports are submitted to Foreign Exchange Department (original) and BSP’s supervising and examining department (duplicate).
Reports are considered major reports, subject to fines for delays, incompleteness, or errors.

BSP may suspend or revoke authorization for:
- Violation of this Circular.
- Imminent danger of insolvency.
- Probable continuous losses without ceasing derivatives activities.
Fines may be imposed for delayed, incomplete, or erroneous report submissions.

Previously authorized banks may continue existing derivatives activities for 90 days from Circular effectivity, except foreign exchange swaps and forwards which may continue for 6 months.
After expiry, new derivatives contracts require BSP authorization.
Banks with at least P200 million net worth remain authorized pending BSP decision on their new application.
Existing contracts during the transitional period may be consummated even after expiration.

All BSP circulars or regulations inconsistent with this Circular are amended, modified, or repealed.

This Circular takes effect 15 days after publication in a newspaper of general circulation.