The Monetary Board approved today the second phase of reforms in the foreign exchange regulatory framework. The second phase focuses largely on two objectives: first, to promote greater integration with international capital markets and risk diversification supportive of an expanding economy with global linkages; and second, to streamline the documentation and reporting requirements on the sale of foreign exchange by banks. Clarifications on certain existing regulations will also be made in new policy issuances.
The policy reforms involve the following: (1) increasing the allowed foreign exchange purchases from banks by residents for non-trade current account transactions (without the need for supporting documentation) and outward investments (without the need for BSP approval); (2) expanding the authority of foreign currency deposit units (FCDUs) of thrift banks and rural/cooperative banks to deposit and borrow; (3) expanding the use of foreign exchange swaps involving the Philippine peso; and (4) enhancing other rules concerning both the current and capital accounts to improve the efficiency of the foreign exchange market. The new measures reinforce the liberalization measures approved by the Monetary Board in March 2007.
The increase in allowed foreign exchange purchases for non-trade transactions aims to address the rising foreign exchange demand by residents for non-trade purposes and also bring down transaction costs for bank clients. Although the documentary requirements will be reduced, existing anti-money laundering regulations will continue to apply to these transactions. At the same time, the further liberalization of outward investments of residents will facilitate better risk diversification by the investing public through greater access to foreign exchange assets.
The revised regulations on FCDU deposits and lending of thrift banks and rural/cooperative banks aim to give thrift banks and rural/cooperative banks sufficient flexibility in their day-to-day operations, minimize potential maturity mismatches of assets and liabilities, promote the development of the domestic capital market, and increase the efficiency and competition within the financial system.
Meanwhile, the expanded rules on the use of foreign exchange swaps involving Philippine pesos will help support the development of the derivatives market and also allow customers to fund their peso requirements via swaps using their foreign exchange resources. The use of foreign exchange swaps for hedging purposes shall be retained. Measures to reduce and simplify the documentation and reporting requirements for forward, swap and spot foreign exchange transactions will help encourage transactions within the formal banking system and thereby help reduce the cost of doing business.
The remaining portion of the proposed reform package includes other amendments that aim to clarify existing regulations and formalize existing requirements on direct delivery or transfers of foreign currency directly to non-resident beneficiaries or domestic creditor banks, and on the settlement in pesos of non-deliverable forward (NDF) contracts with Philippine residents.
The new regulations will take effect fifteen (15) calendar days after publication of appropriate Circulars in the Official Gazette or a newspaper of general circulation in the Philippines.
Please see attached matrix for details of the approved measures.