BSP mulls tougher rules for digital-centric banks

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is drafting new rules to assess and regulate traditional banks that operate primarily on digital platforms, in a bid to level the playing field between digital banks and conventional lenders heavily relying on technology.

“The BSP is crafting its guidelines on the assessment of the level of digital centricity of thrift banks, rural banks and cooperative banks,” BSP Deputy Governor Chuchi Fonacier said at the Chamber of Thrift Banks (CTB)’s 51st Annual Convention held yesterday in Makati.

Fonacier said the upcoming guidelines would define indicators that determine whether a bank is digital-centric and subject them to proportionate prudential standards.

This includes phased implementation of higher regulatory requirements similar to those imposed on digital banks.

“This approach promotes a level playing field and ensures consistent application of regulatory requirements and expectations between digital banks and digital-centric banks,” Fonacier said.

She noted that the guidelines are currently being drafted and are expected to be released in the coming months once approved by the Monetary Board.

Under the BSP’s Manual of Regulations for Banks as of 2022, traditional banks face a wide range of minimum capitalization requirements depending on their type, size and branch network.

For example, a thrift bank with a head office must maintain a minimum capitalization of P500 million, while a rural bank with a head office only needs as little as P50 million. In contrast, digital banks, regardless of size or coverage, are subject to a uniform capitalization requirement of P1 billion.

This disparity has prompted the BSP to propose updated guidelines to level the playing field, ensure regulatory consistency and mitigate risks as more banks shift to digital-heavy models.

Reacting to the BSP’s initiative, CTB president and CARD SME Bank vice chairperson Mary Jane Perreras said many thrift banks are already preparing for the digital transition.

She said many thrift banks already have internal policies on data governance, cybersecurity and privacy. They have also been holding webinars with resource speakers from the BSP itself to help equip their workforce.

She also said that digitalization would entail significant costs, and the budget of thrift banks would vary widely depending on the scope of transformation.

As the BSP considers requiring higher capital for digital-centric conventional banks, Perreras emphasized the distinction between thrift banks and digital banks.

“Digital banks can go without brick-and-mortar branches, so their cost is much smaller,” she said.

“Traditional banks have physical branches and are now going into digitalization, so it will entail budgets,” she added.

“Digital banks are really just digital. (Thrift banks) have to transform into digitalization, to be able to come up with probably better, innovative products for our customers,” she said.

Perreras estimated that 20 to 30 percent of thrift banks may already be moving toward digitalization, starting with mobile banking and loan origination systems.

She expressed hope that more banks will transform by next year, noting that the new generation of customers prefers digital interactions over traditional in-branch services.

Fonacier also announced that the BSP is finalizing guidance on the ethical use of artificial intelligence (AI) in the financial sector.

“Financial institutions should be alert when it comes to upholding data privacy and confidentiality of data control,” she said, adding that the guidance will address algorithmic bias, ethical deployment and accuracy improvement.

Originally slated for release in the first half, the guidelines were delayed due to the need for further study of global best practices.