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    BSP Amends Derivatives Rules, Issues Liquidity Risk Guidelines

    June 06, 2021

    BSP issued a Circular on amendments to the derivatives regulations of banks, quasi-banks, and trust corporations. The amendments govern the derivatives activities of banks under Sections 613 and 622 of the Manual of Regulations for Banks (MORB) and of quasi-banks and of trust corporations under Sections 613-Q and 3O2-T of the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI), Manual of Regulations on Foreign Exchange Transactions (FX Manual), and other related provisions set out in this Circular. Toward the end May 2021, BSP had also published a Circular on the guidelines on management of liquidity risk by Islamic banks and Islamic banking units. Both the Circulars were expected to take effect fifteen calendar days following their publication either in the Official Gazette or in a newspaper of general circulation.

    The regulatory issuance—that is, these liquidity risk management guidelines—is basically anchored on the existing liquidity risk management framework for conventional banks, with additional provisions to cover the specificities of Islamic banking. The aim is to create an enabling environment that will allow Islamic banks to operate alongside the conventional banks under the same regulatory approach, taking into consideration the unique features of Islamic financial activities or transactions. The guidelines emphasize Shari’ah compliance in liquidity risk management, including the choice of instruments or tools to mitigate liquidity risk. The guidelines also offer guidance on the treatment of Islamic banking accounts such as profit and loss sharing investment accounts. Islamic banks and Islamic banking units shall use the same liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) reporting template adopted for conventional banks. 

    An observation period is being adopted from the effectivity of the Circular on liquidity risk management until December 31, 2024. This will provide ample time for Islamic banks and banking units to familiarize and strategize on the choice of liquidity tools to mitigate risks arising from their business activities. During this period, the Islamic banks and banking units shall submit quarterly reports to BSP for monitoring purpose. Continuous dialog and discussion with industry players shall be held to assess their readiness for the implementation of the guidelines by January 01, 2025. As per the guidelines, the LCR and NSFR of 100% is to be applicable on January 01, 2025 and thereafter. The guidelines are among the series of regulations adopted by BSP to implement the Republic Act No. 11439 or An Act Providing for the Regulation and Organization of Islamic Banks.


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    Keywords: Asia Pacific, Philippines, Banking, Liquidity Risk, Guidance, Islamic Banks, LCR, NSFR, Basel, Reporting, Derivatives, Credit Risk, BSP

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