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In brief

The Bangko Sentral ng Pilipinas (BSP) issued Circular No. 1105, series of 2020, the Guidelines on the Establishment of Digital Banks (Circular). It took effect on 23 December 2020. The Circular considers digital bank as a distinct classification of bank and provides the framework for its operation and establishment.


Salient Points of the Circular

Guidelines in establishing digital banks

The Circular sets out the for the establishment of digital bank which include the following:

  1. a digital bank is defined as a bank which offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branch, sub-branch or branch-lite unit offering financial products and services;
  2. digital banks are required to maintain a principal or head office in the Philippines to serve as the main point of contact for stakeholders, including the BSP and other regulators;
  3. digital banks are required to have a minimum capitalization of PHP 1 billion;
  4. digital banks are subject to the prudential requirements set out by the BSP, including corporate governance and risk management, particularly on information technology and cyber security, outsourcing, consumer protection and anti-money laundering and combating the financing of terrorism under existing regulations; and
  5. digital banks may offer financial products and services through cash agents and other qualified service providers subject to the guidelines under the MORB.

Limits of Shareholdings

The shareholdings of an individual, corporation, family group, or same group of persons in a digital bank are subject to the limits below:

Particulars Ceiling
Voting shares of stock of a foreign individual or a foreign non-bank corporation 40%
Aggregate ownership of the voting shares of stock of foreign individuals and/or foreign non-bank corporations 40%
Voting shares of stock of a qualified foreign bank 100%
Combined ownership of the voting shares of stock of qualified foreign banks 100%
Voting shares of stock of a Filipino individual or a Philippine non-bank corporation 40%
Combined ownership of an individual and corporation/s which are wholly owned or a majority of the voting shares of stock which is owned by such individual 40%
Family groups or related interests1 40% for each family group
Two or more corporations owned or controlled by the same family group or same group of persons 40% for each corporation

 

Conversion of existing banks to digital banks

The Circular allows existing banks to apply for conversion to a digital bank. The BSP may likewise require banks that already meet the definition of a digital bank to convert their existing banking license to digital banking license. Such banks will need to comply with the requirements above and submit a plan for transitioning to a digital bank.

Actions to Consider

Companies that are looking to establish digital banks in the Philippines or plan to convert to digital banks should consider the guidelines and requirements under the Circular.


1 These are defined as individuals related to each other within the fourth degree of consanguinity or affinity, whether legitimate, illegitimate or common-law.

Author

Dennis Quintero is a partner in the Corporate & Commercial Practice Group of Quisumbing Torres. He heads the Firm's Energy, Mining & Infrastructure Industry Group and Insurance Focus Group. He is cited as a Market Leader by the IFLR 1000: Financial and Corporate Guide 2018. He is consistently ranked as a leading individual in Corporate and M&A by The Legal 500 Asia Pacific and as a leading individual in Projects, Infrastructure, and Energy/Natural Resources and Mining by the leading international legal directories (i.e., Chambers Global and Asia Pacific, IFLR1000/The Petroleum Economist, and The Legal 500 Asia Pacific). Dennis is also a Certified Public Accountant. He was appointed co-chair of the 2013 Conference of the International Bar Association and Australian Resources and Energy Law Association Southeast Asia in Singapore. He is a member of the Association of International Petroleum Negotiators. Dennis is also among Asia Business Law Journal’s inaugural “A-List” of the Top 100 lawyers in the Philippines.

Author

Kristina R. Navarro is an associate in Quisumbing Torres' Banking and Finance Practice Group and a member of the Financial Institutions Industry Group and Fintech Focus Group. She has three years experience in financial regulations, fintech, acquisition finance, and loans and credit facilities.

Author

Danielle Joanna Gaite is a junior associate in Quisumbing Torres. She works with the Dispute Resolution, Intellectual Property, Data & Technology, Employment, and Corporate & Commercial/M&A practice groups. Dani graduated with honors from the Ateneo de Manila University School of Law in 2019, and ranked 8th in her batch.  She also received the Dean's Silver Medal for her J.D. thesis on the interplay between trade conditionalities and human rights.