Banks ordered to monitor deposit accts used in online transaction

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is clamping down on online foreign exchange brokerage and trading platforms organized abroad to protect the interest of investors.

BSP Governor Nestor Espenila Jr. issued Memorandum M-2018-032 reminding all banks to deal only with companies involved in or operating online foreign exchange brokerage and trading platforms that are authorized or licensed by, or registered with the appropriate government agency duly empowered by law or its charter to license or authorize entities or businesses to engage in such activities.

“Banks should conduct the appropriate level of due diligence in assessing the propriety of opening the deposit accounts. Moreover, banks should have appropriate risk management systems to identify, measure, monitor and manage the risks posed by such companies,” he said.

Espenilla said the foreign exchange market is a sophisticated market with significant attendant risks and is only for investors who have the appropriate level of expertise and with sufficient knowledge and understanding of the underlying risk of foreign exchange trading.

However, technological innovation has made the foreign exchange market easily accessible to all types of investors through online foreign exchange brokerage and trading platforms.

The BSP chief said online foreign exchange brokerage and trading platforms not only allow investors to trade, but also provides a facility where investors could borrow money to trade and hold positions that are larger than the amount of their initial investment.

“Margin or leverage trading can magnify not only the potential profits, but also the potential losses of investors. This exposes investors to potential losses far beyond their initial investment,” he said.

According to Espenilla, these online foreign exchange brokerage and trading platforms are organized abroad or have their principal offices domiciled abroad and are neither regulated by the BSP nor registered with the Securities and Exchange Commission (SEC).

He added such entities are not governed by the requirements aimed at protecting the interest of investors such as the conduct of client suitability assessments and adoption of consumer protection framework.

It has been observed that companies operating online foreign exchange brokerage and trading platforms use the banking system to collect funds from investors wherein deposit accounts are opened in Philippine banks to facilitate transactions with their investors or to facilitate their operating requirements.

“The failure to provide relevant information, or the provision of false or falsified information or documents by the customer, or unsatisfactory results of the validation process, shall serve as grounds for denying the banking relationship,” Espenilla said.

The BSP is rushing prudential measures to discourage speculative activities in the foreign exchange market as the peso emerged as one of the weakest currencies in the region.

The local currency earlier pierced the 54 to $1 level, shedding more than eight percent since the start of the year and emerged as the third weakest currency in the region after the Indian rupee and Indonesian rupiah.

Speculators continue to take advantage of the volatile foreign exchange market.

The BSP has so far undertaken 11 waves of foreign exchange liberalization measures in line with the central bank’s thrust to further liberalize foreign exchange rules, while maintaining a safe and sound financial system, a stable foreign exchange market, and an appropriate monetary policy.