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Chapter 1: General Concepts o Purpose of which is to relending or purchasing

receivables or other obligations


Definition NOT Quasi-banking if the borrowing is made by
Banks entities engaged in the lending of funds obtained in commercial, industrial and other non-financial companies for
the form of deposits. It is required that banks are stock the limited purpose of financing their own needs or the needs
corporation and that its funds are obtained from the public of their agents or dealers
(deposits of 20 persons or more) NOT Quasi-banking institution is engaged in buying and
Banks moneyed institute founded to facilitate the selling of without recourse instruments
borrowing, lending, and safekeeping of money and to deal in
notes, bills of exchange and credits Nature of Business
Banks any person engaged in the business carried on by Public confidence is the anchor of any banking system
banks of deposit, of discount, or of circulation is doing a Banking business is in the nature of public trust
banking business, although but one of these function is
exercised Utmost Diligence
Required to exercise utmost diligence in the handling of
Quasi-Banks deposits
Quasi-banking entities engaged in the borrowing of funds
through issuance, endorsement, or assignment with Strikes and Lockouts
recourse or acceptance of deposit substitutes for purposes Any strike or lockout involving banks, if unsettled after 7
of relending or purchasing of receivables and other calendar days shall be reported by the BSP to the Secretary
obligations of Labor who has 2 options:
Deposit substitutes alternative forms of obtaining funds o He may assume jurisdiction over and decide the
from the public, other than deposits, through the issuance, dispute
endorsement, or acceptance of debt instruments for the o He may certify the same to the National Labor
borrowers own account, for the purpose of relending or Relations Commission for compulsory arbitration
purchasing or receivables and other obligations Law allows the President of the Philippines to, at any time,
Universal Banks and Commercial Banks may exercise quasi- intervene and assume jurisdiction over such labor dispute in
banking functions without securing prior authority from the order to settle or terminate the same
Monetary Board while other banks must secure such Presidents or Chief Executive Officers of banks are required
authority
to immediately inform the Deputy Governor of the
Supervision and Examination Section of the BSP on the
Quasi-banking elements: status of the strike and lockout in their bank stating the
o Borrowing funds for the borrowers own account cause thereof, the banks position on its legality and the bank
o Twenty (20) or more lenders at any one time operations affected thereby
o Methods of borrowing are issuance, endorsement, or
acceptance of debt instruments of any kind

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Governing Law
Banks are governed by RA No. 8791 aka General Banking
Law of 2000
Took effect on June 13, 2000
RA No. 7653 aka The New Central Bank Act prevails over
general laws, like the Corporation Code, in the regulation of
banks
Primary law of Rural Banks is RA 7353
Primary law for Thrift Banks is RA 7906
Law for Islamic Banks is RA 6848

Authority To Operate
Incorporation Stage: Banking or Quasi-banking corporation
cannot be incorporated without the authority from the
Bangko Sentral ng Pilipinas
Operation: An entity performing banking or quasi-banking
function cannot operate without a certificate of authority from
the BSP
Determination of whether a person or entity is performing
banking or quasi-banking functions without BSP authority
shall be decided by the Monetary Board
Monetary Board shall resolve, through the appropriate
supervising and examining department of the BSP, by
examining, inspecting or investigating the books and records
of such person or entity

Cases
Republic of the Philippines vs. Security Credit and
Acceptance Corporation, et al
Central Bank of the Philippines vs. the Honorable Judge
Jesus P. Morfe, et al

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o Underwriting or equity securities and securities
dealing shall be subject to the pertinent laws and
Chapter 2: Classification of Banks regulations of the Securities and Exchange
Commission
Universal Banks o If the investment house functions are performed
Universal Banks have the authority to exercise, in addition directly by the universal bank, such functions shall
to the powers of a commercial bank, powers of an be undertaken by a separate and distinct department
investment house, and the power to invest in non-allied or other similar unit in the bank
enterprises o It cannot perform functions of an investment house
Has the power to own up to 100% of the equity in a thrift both directly and indirectly. This means that if it
bank, rural bank, financial allied enterprise, or a non-financial already exercises the functions of an investment
allied enterprise house through a subsidiary, the universal bank can
In case of publicly listed universal banks, the power to own no longer open a department or a unit within the
up to 100% of the voting stock of only one other universal same bank to act as an investment house
bank or commercial bank
Required to offer to sale equity shares to the public Non-allied Enterprise
stockholders Broad category of non-allied undertakings in which a
Public stockholders refer to all stockholders excluding the universal bank may invest directly or through its subsidiary
banks directors, shareholders owning up to 20% or more of shall require prior approval of the Monetary Board
the banks subscribed capital stock together with those of No prior approval is necessary if investment is to be made in
their relatives within the fourth degree of consanguinity or any of the following broad categories:
affinity, and corporations controlled or affiliated with them o Enterprise engaged in physically productive activities
Required minimum public stock offering is 10% of the in agriculture, mining and quarrying, manufacturing,
required minimum capital public utilities, construction, wholesale trade and
community and social services following the
Investment House industrial groupings in the Philippine Standard
Investment House enterprise which engages or purports to Industrial Classification
engage, whether regularly or on an isolated basis, in o Industrial park projects and/or industrial estate
underwriting of securities of another person or enterprise developments
Underwriting of securities act or process of guaranteeing o Financial and commercial complex projects arising
distribution and sale within the Philippines of securities of the from or in connection with Governments
Government or its instrumentalities privatization program
Universal Bank may perform the functions of an investment o Such other broad categories as the Monetary Board
house directly or indirectly through a subsidiary investment may declare as appropriate
house; subjected to the following rules:
Commercial Banks

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Commercial banks perform general powers incident to Land Bank of the Philippines finance distribution of estate
corporations and investment banking to resale to small landowners
Functions: accepting drafts; issuing letters of credit; Development Bank of the Philippines provide credit
discounting and negotiating promissory notes, drafts, bills of facilities for development in agriculture, commerce, and
exchange, and other evidences of debt; accepting or industry
creating demand deposits; receiving other types of deposits
and deposits substitutes; buying and selling foreign
exchange and gold or silver bullion; acquiring marketable Foreign Banks
bonds and other debt securities; extending credit, subject to Entry of foreign banks in the Philippines through the
the rules of Monetary Board establishment of branches shall be governed by the
provisions of the Foreign Banks Liberalization Act
Cooperative Banks To create a more competitive environment and encourage
Cooperative Banks organized primarily to provide financial greater foreign participation
and credit services to cooperatives. It may perform any or all Philippine laws shall not reply to the following matters:
services provided by a rural bank o Creation, formation, organization, or dissolution of
Membership of a cooperative bank shall include ONLY corporations
cooperative and federations of cooperatives o Fixing of the relations, liabilities, responsibilities
o Duties of stockholders, members, directors or
Rural Banks officers of corporations to each other or to the
Rural banks banks that promote rural development corporation
MB may revoke:
Thrift Banks o Foreign bank is insolvent
Thrift banks encourages the industry, frugality and o Imminent danger of insolvency
accumulation of savings of the public o Its continuance in business will involve probably loss
to those transacting with it
Islamic Banks
License must be renewed or reissued again
Islamic banks promote socio-economic development in
Foreign banks may enter in the Philippines with prior
autonomous region by performing banking and investing
function based on Islamic concept of banking approval of the BSP through the following modes:
o Acquiring, purchasing or owning up to 60% of the
Other Banks voting stock of an existing domestic bank
Government-owned and controlled that are created by o Investing in up to 60% of the voting stock of a new
special laws for specific purposes banking subsidiary incorporated under the laws of
the Philippines
Philippine Veterans Bank created to provide government
o Establishing branches with full banking authority
depository to veterans for appreciation of grateful nation

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Basic rule in the Manual of Regulations for Banks is for the
depositor to submit necessary specimen signatures and
proper documents for identification

Capacity of Depositor
Incapacitated persons are generally not allowed to open an
account with the bank
Minors are allowed to open savings and time deposits
Chapter 3: Deposit Function provided that they are:
o At least 7 years of age
Bank
o Able to read and write
Basic functions: acceptance of deposits from the public and
o Have sufficient discretion
lending the funds obtained from deposits
Married women are allowed to open bank accounts without
Not a bank if deposit function is absent
the assistance of their husbands. Women of legal age,
Although other entities or persons may extend loans, they regardless of civil status, shall have the capacity to act and
will not be considered performing banking business if they do enter into contracts
not accept deposits from the public Corporations are required to open an account before its life
commences. Life starts from the issuance of the Certificate
Voluntary Creditor-Debtor Relationship
of Incorporation by the Securities and Exchange
Contract of loan contract entered into between bank and Commission which can only be issued upon the approval of
depositor the Articles of Incorporation
Depositor one who pays money into the bank in the usual
course of business, to be placed to his credit, and subject to Bank as Debtor
his check or beneficiary held by the bank Bank has no duty to preserve the amount deposited
Money deposited belongs to the bank and may be used for
Voluntary Agreement
any lawful purpose as it may deem fit
Contracts by their nature are voluntary
Since the contract is governed by rules on simple loan and
May be liable only if the non-acceptance is discriminatory or not contract of deposit, the money received by the bank is
contrary to law, morals, and good customs not being held for safekeeping for the depositor
Bank is not bound to receive deposits from any one, but may Relationship: creditor(client)-debtor(bank)
choose those whom it will accept as depositors and the o Bank can make use of the money deposited. Amount
terms and conditions on which it will accept deposits is not being held in trust for the depositor nor is it
BSP instructed banks to adopt Know-Your-Customer being kept for safekeeping
standards

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o Third persons who may have the right to the money Even though the depository bank owns the deposits, it
deposited cannot hold the bank responsible unless cannot prevent the depositor from demanding payment of
there is a court order or garnishment the depository banks obligation
o Banks deposits are not preferred credits under the
Civil Code Unilateral Freezing Of Account Not Allowed
o Bank has the right to compensation Person whose name appears as depositor in the passbook
Obligation of the bank is to return the same value to the and other bank documents is presumed to be the owner of
depositor and not to return exactly the same thing that was the money in the bank account
given Depository bank does not have a unilateral right to freeze the
accounts of its depositor based on its mere suspicion that
the funds therein were proceeds of fraudulent acts.
Banks do not owe any obligation to third persons another
reason why banks cannot likewise freeze the account of its
Legal Compensation depositor to honor the claim of third persons
Bank has the right to set off the deposits in its hands for the Article 559 does not apply
payment of the indebtedness of the depositor provided that
all the requisites for a valid legal compensation are present Liability For Trust Account
If the indebtedness was the result of payment against Bank cannot stop the withdrawal of funds from an account
uncollected deposit of checks, the bank may debit another on the basis of an allegation that the money deposited in the
account of the depositor in the same bank if the account account is held in trust by the depositor for another person
where the check was originally deposited is already closed and that the withdrawal is in breach of such trust
If a depositor placed a time deposit in a bank, the depositor
has the right to expect that the bank accurately recorded his Cause Of Action Against Banks In Case Of Breach Of Trust
transactions with it A bank may be held liable if it took part in committing the
fraudulent act
Deposit Not Trust Under The Civil Code
Banks relationship with the depositor is not a trustor-trustee Dishonest Assistance
relationship under Title V of the New Civil Code Requisites for dishonest assistance:
In a deposit, the bank becomes the owner of the cash that o There must be a trust or other fiduciary relationship
was deposited subject to the obligation to pay the depositor o There must be a breach of trust
o Person upon whom liability is to be imposed must as
Basic Obligations To Depositor a matter of fact have been an accessory or assisted
Depository bank owns the deposited monies in the account in the misfeasance or breach of trust
of the depositor because the deposit of money in banks is o Accessory must be dishonest
governed by the Civil Code provisions on simple loan
Knowing Receipt

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Another exception involving disposition in breach of trust that Negotiable Order Of Withdrawal Accounts (NOW) interest-
is recognized in common law is when there is knowing bearing deposit accounts that combine the payable on
receipt demand feature of checks and investment feature of savings
Under this exception, claimant must show the ff: accounts
o Disposal of the claimants assets in breach of Time Deposits payment of which generally cannot legally
fiduciary duty be required within a specified number of days. No time
o Beneficial receipt by the defendant of assets which deposit shall be accepted for a term of less than 30 days.
are traceable as representing assets of the claimant o Minimum maturity is 731 days
o Knowledge on the part of the defendant bank that
the assets he received are traceable to a breach of Solicitors
fiduciary duty Bank may be authorized by the BSP to solicit and accept
deposits outside the bank premises through deposit solicitors
Passbook shall be returned to the depositor not less than the
following business day

Court Order Or Garnishment


Bank may be liable if there is already a court order which
recognizes the right or third person or which effectively Deposit
prohibits the bank from releasing funds from the account Contract of loan is real contract
Deposit slips proof that an amount was deposited in an
Effect of Insolvency On Deposit account
In the excess amount covered by the insurance (provided by Bank must exercise due diligence in proper validation of
PDIC), the deposit is treated as an ordinary unsecured credit bank deposits

Kinds Of Deposits Withdrawal


Demand Deposits liabilities of banks which are When cash is deposited in the account, the depositor can
denominated in Philippine currency and are subject to withdraw the amount at any time provided that he complies
payment in legal tender upon demand by presentation of with the prescribed procedure
checks Demand deposits withdrawn through duly issued checks
o Only universal banks or commercial banks can
Savings account presenting deposit slips duly signed by
accept or create demand deposits. Other banks
the depositor
cannot accept unless MB approves.
Bank is liable if it allows withdrawal of funds on the basis of
Savings Account has an investment feature because
forged signatures in withdrawal slips
savings accounts are normally opened for the purpose of
Combo Plan account depositor maintains a saving account
earning interest
and a checking account with the same bank and agree that

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funds may be automatically transferred from the savings Banks are required to disclose to depositors the ff
account information on interest computation and payments:
o Type/kind of deposit
Effect Of Miscredit o Nominal rate of interest and period covered
Depositor is entitled to recover from the bank the amount o Manner of interest payment i.e. whether credited in
which was erroneously deducted from his account and advance or otherwise
without his authority o Basis of interest payment
Depositor has no right to withdraw the amount which was not o Effective rate of interest
actually deposited Joint Accounts
Joint accounts whenever 2 or more persons open an
Consumer Protection account
BSP requires banks to establish and maintain Presumed that depositors own equal shares in the deposit
comprehensive information security program and ensure that
they are properly implemented and strictly enforced Anonymous Accounts
Anonymous accounts accounts under fictitious names
Interest On Deposits
Exception: Foreign Currency Deposit Act where the law
Demand, savings, NOW accounts, time deposits and deposit
allows the opening of numbered accounts for foreign
substitutes shall not be subjected to interest ceilings
currency deposits
Interest or yield on time deposit/deposit substitute may be
paid at maturity or upon withdrawal or in advance. However,
interest or yield paid in advance shall not exceed the interest Deceased Depositor
for 1 year If a depositor dies, heirs cannot withdraw the balance of the
account unless the estate of the deceased is settled
Matured Time Deposits/Deposit Substitutes
A bank that is aware of a depositors death must not allow
Time deposit not withdrawn or renewed on its due date shall
withdrawal of the balance of the account unless a certificate
be treated as a savings account and shall earn interest from
of payment of the estate tax is submitted
maturity to the date of actual withdrawal or renewal at a rate
o Exception: allows the withdrawal not exceeding
applicable to savings deposits
P20,000
A deposit substitute instrument not withdrawn or renewed on
its maturity date shall from said date become payable on
Survivorship Agreements
demand and shall earn an interest or yield from maturity to
In case of death of one the depositors in a joint account, it is
actual withdrawal or renewal at a rate applicable to a deposit
substitute with a maturity of 15 days presumed that the depositors own the account share and
share-alike
Disclosure Requirement Survivorship agreement contract supported by
consideration where the joint depositors agree to permit

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either of them to withdraw the whole deposit during their When there is written permission of the depositor or investor
lifetime and transferring the balance to the survivor upon the Impeachment cases
death of one of them Upon the order of a competent court in cases of bribery or
dereliction of duty of public officials
Closure Of Accounts
Upon the order of a competent court in cases where the
Bank can expressly reserve the right to close an account
money deposited or invested is the subject of litigation
(even without prior notice) whenever certain identified events
Cases involving unexplained wealth
will occur
Inquiry by the Commissioner of Internal Revenue for the
Duty Of Care purpose of determining the net estate of a deceased
Banks are required to exercise the highest degree of care in depositor
the handling of deposits by their clients Money laundering
Dormant deposits for at least 10 years under the Unclaimed
Balances Act
Upon order of Court of Appeals when there is probable
cause under the Human Security Act
Inquiry or examination by the PDIC/BSP
Garnishment
Garnishment of bank deposits does not violate RA 1405
When a bank account is garnished, no real inquiry is made
on the account and the disclosure of the deposit made by the
bank is purely incidental
Secrecy Of Bank Deposits Foreign currency are exempt from attachment or
RA No. 1405 garnishment
To encourage deposit in banking institutions Bank is not liable whenever it releases the amount garnished
To discourage private hoarding so that bans may lend such as ordered by a court of competent jurisdiction
funds and assist in the economic development of the country
Do not apply to foreign currency deposits whether owned by
Filipinos or aliens

Deposits Covered
All bank accounts of whatever nature
Investments in bonds issued by the Philippine government,
its branches, and institutions

Exceptions

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All banks and banking institutions which are engaged in the
business of receiving deposits are mandatorily insured with
the PDIC

Insured Deposit
Insured deposit does not exceed P500,000
If the deposit is less than P500,000, it is covered by the
insurance
Even foreign currency deposits are covered by the insurance

Separate Deposits In Branches


Sum of all deposits in all branches in the Philippines shall be
used in determining if the deposit exceeds P500,000
Excluded however the deposits in foreign branches of the
same bank

Same Right And Capacity


PDIC will add all deposits in the bank maintained in the
same right and capacity for his benefit either in his own
name or in the name of others

In Joint Accounts
Deposit Insurance Joint accounts shall be insured separately from any
Governed by RA No. 3591 created Philippine Deposit individually-owned deposit account
Insurance Corporation which administers the mandatory Maximum insured deposit shall be divided into as many
deposit insurance system in the country equal shares
However total amount of the share in each joint-account
Rationale should not exceed P500,000
Provides a safety net to depositors against the risk of losing If the account is held by a juridical person or entity jointly
the amount they deposited with a bank with one or more natural persons, the maximum insured
Safety net contributes to economic stability because it deposit shall be presumed to belong entirely to such juridical
prevents bank runs in times of financial instability person or entity

Covered Banks Kinds Of Deposits

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Law does not make distinction as to the type of deposit that If such a claim is made, PDIC is required to pay the
is insured depositor within 6 months from the filing of the claim.
Covers all deposit accounts Responsible PDIC officer may be held criminally liable if the
claim is not settled within such period
Deposit Not Covered By Insurance Failure on the part of the depositor to file a claim, depositor
Excess of P500,000 is no longer entitled to the insurance proceeds
Deposit in foreign branches
Investment products such as bonds and securities, trust Computation Of Claims
accounts, and other similar instruments Insured amount = Deposit + Interests Unpaid Obligations
Deposit accounts or transactions that are unfounded, WHT
fictitious, or fraudulent
Interest Computation
Deposit accounts or transactions constituting unsafe and
6% - from the time it is judicially demanded
unsound banking practices
o Determined by PDIC with BSP consultation
Remedy For Denial Of Insurance Claim
Proceeds of an unlawful activity
No appeal is given under the law on the denial of an
Deposit accounts that resulted from splitting of deposits
insurance claim by PDIC
Risks Insured Against
Decision of PDIC is final and executor
Risk involved is the closure and takeover of the bank by the
Only remedy: special civil action for certiorari
Monetary Board (under BSP)
PDIC shall take charge of the bank assets and liabilities of a
Remedy Of Depositors For Amount In Excess Of Coverage
bank upon:
If PDIC paid an insurance claim of P500,000 but the deposit
o Bank is unable to pay its liabilities
is more than such amount, the depositor may claim the
o Bank has insufficient realizable assets
balance from the remaining assets upon liquidation of the
o Bank cannot continue in business without involving closed bank
probable losses Uncovered deposit insurance is considered as an ordinary
o Bank has willfully violated a cease and desist order credit
involving acts which amount to fraud and dissipation
of the assets Splitting Of Deposits
Splitting of deposits whenever a deposit account with an
Filing Of Claim
outstanding balance of more than the statutory maximum
Depositor is required to file a claim within 2 years from actual amount of insured deposit maintained under the name of
takeover of the bank natural or juridical persons is broken down and transferred
Notice shall be published in a newspaper of general into 2 or more accounts
circulation that the depositor is already required to file a
claim Unclaimed Balances

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Deposits that have become dormant for a period of 10 years Meant to stop not only the practice of money laundering in all
may be escheated in favor of the government its stages but more importantly the crimes that generated the
Bank is required to report to the Treasurer of the Philippines proceeds that are being laundered
Treasurer would inform the Solicitor General Placement Stage proceeds of the crime are deposited in a
financial institution
Layering Stage proceeds are moved so as to sever any
audit trail to make the tracing of the source harder
Integration Stage criminal resumes control of the proceeds,
free from any link to the criminal source

Economic Rationale
Depriving potential money launderers of access to financial
markets helps those markets maintain a reputation for
integrity which enhances their stability and attractiveness

The Offense
Money Laundering Offense crime whereby the proceeds of
an unlawful activity are transacted in such a way it would
appear that they come from a legitimate source
Committed by the following:
o Any person knowing that any monetary instrument or
property represents, involves or relates to, the
proceeds of any unlawful activity, transacts or
attempts to transact said monetary instrument or
property
Anti-Money Laundering Act o Any person knowing that any monetary instrument or
Policy of the State to protect and preserve the integrity and property involves the proceeds of any unlawful
activity, performs or fails to perform any act as a
confidentiality of bank accounts and to ensure that the
result of which is facilitates the offense of money
Philippines shall not be used as a money laundering site for
laundering
the proceeds of any unlawful activity
o Any person knowing that any monetary instrument or
Covered entities: all supervised or regulated by the Bangko
property is required under this act to be disclosed
Sentral ng Pilipinas
and filed with the Anti-Money Laundering Council,
fails to do so
Deterrence Function
All cases on money laundering: Regional Trial Court

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Committed by public officers and private persons who are Insurance Companies, regulated by Insurance Commission
conspiring with public officers: Sandiganbayan Security dealers, brokers, salesmen, and other similar
persons managing securities or rendering services as
Terms Defined investment agent, advisor or consultant
Covered transaction transaction in cash or other equivalent Investment companies (trust fund, mutual fund, etc)
monetary instrument involving a total amount in excess of Entities administering or dealing in currency
P500,000 within 1 banking day Jewelry Dealers in precious metals and precious stones
Suspicious transaction transaction with covered Persons who provide the ff services:
institutions, regardless of the amounts involved, where any o Managing of clients money and assets
of the following may exist:
o Management of banks, savings, or securities
o No underlying legal or trade obligation, purpose or
account
economic justification
o Organization of contributions for the creation or
o Client is not properly identified
operations of companies
o Amount involved is not commensurate with the
o Creation, operation or management of juridical
business or financial capacity of the client
persons or arrangements and buying and selling
o Clients transaction is structured in order to avoid
entities
being the subject of reporting requirements under
Excluded: lawyers and accountants acting as independent
this act
legal professionals in relation to information concerning their
o Transaction which is observed to deviate from the
clients or where disclosure of information would compromise
profile of the client and/or the clients past
clients confidences or the attorney-client relationship
transaction with the covered institution
o Transaction is in any way related to an unlawful
Prevention
activity or offense under this act that is about to be,
Customer identification based on official documents
is being, or has been committed
o Any transaction that is similar or analogous to any of Record keeping records of all transactions of covered
the foregoing institutions shall be maintained and safely store for 5 years
Monetary Instrument coins or currency of legal tender of Reporting of covered and serious transactions covered
the Philippines or of any other country; drafts, checks and institutions shall report to the AMLC all covered or suspicious
notes; etc transactions within 5 working days

Covered Institutions
Freezing Of Monetary Instrument Or Property
Banks, non-banks, quasi-banks, trust entities, foreign
Person whose account has been frozen may file a motion to
exchange dealers, pawnshops, money changers, remittance
and transfer companies and other similar entities and all life the freeze order and the court must resolve this motion
other persons and their subsidiaries and affiliates supervised before the expiration of the 20 day original freeze order
and regulated by the BSP

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No court shall issue a temporary restraining order or a writ of
injunction against any freeze order, except the Supreme
Court

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