Central Bank of the Philippines revises the definition of financial intermediaries and updates bond and commercial paper issuance rules for banks and quasi-banks

The Central Bank of the Philippines (BSP) issued amendments to the Manual of Regulations for Banks (MORB) and the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) that revise how “financial intermediaries” are defined for quasi-banking purposes and update requirements for banks’ and quasi-banks’ issuance of bonds, commercial papers and other debt securities, including notification, compliance and related-party holding restrictions. Under the revised definition, financial intermediaries are juridical entities whose principal functions include lending, investing or placing funds or evidences of indebtedness or equity deposited with, acquired by, or coursed through them, for their own or others’ account, with “functions” assessed by reference to an entity’s stated purpose and the nature of business in its registration. The definition covers entities performing such functions on a regular and recurring basis and includes (among others) regulated entities such as banks, quasi-banks, investment houses, trust entities (including borrowings from funds managed under a trust agreement), financing companies, securities dealers/brokers, cooperatives and insurance companies, as well as government financial institutions and international financial institutions performing banking, credit or investment functions. For debt issuance, banks with quasi-banking authority may issue debt securities to lenders meeting the relevant definition without prior BSP approval if prudential criteria are met and the instruments are enrolled and/or traded in an SEC-organized market, while eligible banks without quasi-banking authority may issue via private offering without prior BSP approval subject to prudential and applicable Securities and Exchange Commission (SEC) requirements. Banks must also meet applicable rules including anti-money laundering and counter-terrorism financing requirements and, for foreign currency issuance, foreign currency liquidity management rules, and must notify BSP within five banking days of board approval with specified documentation including a three-year funding plan; the issuing bank and its related parties (with a trust-related exception) are prohibited from holding or acting as market makers for the bank’s listed or traded debt securities, with a limited allowance for related-party underwriters/arrangers under the underwriting agreement. Parallel amendments are adopted for quasi-banks in MORNBFI, and the borrowing rules are updated to link debt securities issued to banks, quasi-banks and other financial intermediaries to the revised issuance requirements. A transitory provision provides that borrowings from lenders that cease to qualify as financial intermediaries under the revised definition will continue to be excluded from the lender count until such borrowings are paid or renewed. The amendments take effect 15 calendar days after publication in the Official Gazette or a newspaper of general circulation.