FINANCIAL REGULATION

AND THE CENRAL BANK

(Written Report)

Submitted by: Submitted to:

BSMA 2-2 Prof. PAYONGAYONG, Luzviminda
CORONG, Pauline
CRUZ, Janwin
MARTINEZ, Aica Marie
MUNSAYAC, Jeralyn
TOPIC: Financial Regulation, Market Drivers, Financial Regulators

REPORTER: CRUZ, Janwin S.

Define Regulation..

1: the act of regulating : the state of being regulated

2a: an authoritative rule dealing with details or procedure safety regulations

b: a rule or order issued by an executive authority or regulatory agency of a government and having the
force of law

SOURCE: https://www.merriam-webster.com/dictionary/regulation

Regulation was designed to set rules and guidelines to be followed that is designed to ensure balance
among the individuals firms and/or citizens as the case maybe.

Regulation is also designed to reconcile conflicting interests.

Regulation is a process whereby the designated government authority provides oversight and establishes
rules for firms in an industry.

SOURCE: Book Financial Markets

Define Financial Regulation

Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain
requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This
may be handled by either a government or non-government organization. Financial regulation has also
influenced the structure of banking sectors by increasing the variety of financial products available.

SOURCE: Joanna Benjamin 'Financial Law' Oxford University Press

Financial regulation refers to the rules and laws firms operating in the financial industry, such as banks,
credit unions, insurance companies, financial brokers and asset managers must follow.

However financial regulation is more than just having rules in place – it’s also about the ongoing
oversight and enforcement of these rules.

SOURCE: https://www.centralbank.ie/consumer-hub/explainers/what-is-financial-regulation-and-why-
does-it-matter

Financial regulations are laws that govern banks, investment firms, and insurance companies. They
protect you from financial risk and fraud. But they must be balanced with the need to allow capitalism to
operate efficiently.

SOURCE: https://www.thebalance.com/financial-regulations-3306234
Financial Regulation is a type of regulation whereby rules and standards were set to oversight the ability
of the companies to establish and maintain appropriate level of capital to sustain its operation. It also
includes setting controls over the market factors that will affect the financial sustainability of the firms
and the players of the industry.

SOURCE: Book, Financial Markets

Why is financial regulation important?

All of us depend on the financial system in one way or another. For example, savers rely on banks to have
their money available when they need it. Businesses need to be able to borrow to maintain and develop
their business. Consumers taking out a mortgage or insurance may need to get advice on the best product
for them. In the case of insurance companies, policyholders rely on getting claims paid when something
goes wrong.

Poorly regulated financial institutions have the potential to undermine the stability of the financial system,
harm consumers and can damage the prospects for the economy.

That’s why strong financial regulation is important – to put rules in place to stop things from going
wrong, and to safeguard the wider financial system and protect consumers if they do go wrong.

SOURCE: https://www.centralbank.ie/consumer-hub/explainers/what-is-financial-regulation-and-why-
does-it-matter

Regulations protect customers from financial fraud. These include unethical mortgages, credit cards, and
other financial products. Effective government oversight prevents excessive risk-taking by companies.
Regulations would have kept the Lehman Brothers failure from catching the government of-guard.

SOURCE: https://www.thebalance.com/financial-regulations-3306234

Market Drivers Regulated

Some firms failed to survive even they comply with the regulation set, the following are the reasons:

 Competitiveness- Government are duty bound to regulate completion in the environment, I this
case the financial sector. The financial market regulated the following: access to capital, credit
and loan term offerings , support to the providers of financing, management of business risks,
transaction costs and tariffs. Take note that the main forces of the market are the buyers and
sellers.
 Market behavior- Regulation will come into play to address failures in the market by setting
parameters to ensure that the firms will comply with the certain standards to ensure integrity of
the firms and level the playing field. The government normally sets: - full disclosure of the
information. – prohibition on insider trading. – control of new players. – setting minimum capital
requirement. – minimum governance rules.
 Consistency- consistency in the market is normally demonstrated to their information disclosure
and policies. They provide sufficient information to the customers. The role of the government is
 to set standards to regulate and ensure that information provided in the market : fair, consistent,
and conservative.
 Stability- Protect the interest of the clients as well as the companies to enable their corporate
sustainability.

SOURCE: Book, Financial Markets

Regulators of Financial Activities

Define Financial Activity

Financial activities are activities that companies undertake to help achieve their economic goals and
objectives. They include events and transactions that affect a business’ equity and long-term liabilities.
Anything to do with the movement of money, i.e., cash inflows and outflows, is a financial activity.

Purchasing and selling assets or products, organizing accounts, and maintaining accounts, for example,
are financial activities. Arranging loans, selling bonds or stocks are also financial activities.

SOURCE: https://marketbusinessnews.com/financial-glossary/financial-activities/

Any transactions or initiatives undertaken by a business to further the fulfillment of economic goals.
Financial activities may include buying and selling of products or assets, organizing and maintaining
accounts, issuing stocks or bonds, arranging loans, or other business activities with specific monetary
objectives.

SOURCE: http://www.businessdictionary.com/definition/financial-activities.html

Financial Activities – that deals on funding certain transaction or expenditures. Financial activities are
focused on the trading of securities and financial investments.

SOURCE: Book, Financial Markets

Financial Regulatory

The objectives of financial regulators are usually:

market confidence – to maintain confidence in the financial system

financial stability – contributing to the protection and enhancement of stability of the financial system

consumer protection – securing the appropriate degree of protection for consumers.

SOURCE: UK FSA statutory objectives (http://www.fsa.gov.uk/about/aims/statutory)

Bangko Sentral ng Pilipinas

Securities and Exchange Commision

Insurance Commission

Board of investments
TOPIC: Bangko Sentral ng Pilipinas, Securities and Exchange Commission, and Insurance Commission

REPORTER: MUNSAYAC, Jeralyn

Overview of the BSP

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the Philippines. It was
established on 3 July 1993 pursuant to the provisions of the 1987 Philippine Constitution and the New
Central Bank Act of 1993. The BSP took over from the Central Bank of Philippines, which was
established on 3 January 1949, as the country’s central monetary authority. The BSP enjoys fiscal and
administrative autonomy from the National Government in the pursuit of its mandated responsibilities.

The BSP Vision and Mission

The BSP Vision
The BSP aims to be recognized globally as the monetary authority and primary financial system
supervisor that supports a strong economy and promotes a high quality of life for all Filipinos.

The BSP Mission

To promote and maintain price stability, a strong financial system, and a safe and efficient payments and
settlements system conducive to a sustainable and inclusive growth of the economy.

Objectives
The BSP’s primary objective is to maintain price stability conducive to a balanced and sustainable
economic growth. The BSP also aims to promote and preserve monetary stability and the convertibility of
the national currency.

Responsibilities
The BSP provides policy directions in the areas of money, banking and credit. It supervises operations of
banks and exercises regulatory powers over non-bank financial institutions with quasi-banking functions.
Under the New Central Bank Act, the BSP performs the following functions, all of which relate to its
status as the Republic’s central monetary authority.

Liquidity Management. The BSP formulates and implements monetary policy aimed at influencing
money supply consistent with its primary objective to maintain price stability.

Currency issue. The BSP has the exclusive power to issue the national currency. All notes and coins
issued by the BSP are fully guaranteed by the Government and are considered legal tender for all private
and public debts.

Lender of last resort. The BSP extends discounts, loans and advances to banking institutions for liquidity
purposes.

Financial Supervision. The BSP supervises banks and exercises regulatory powers over non-bank
institutions performing quasi-banking functions.
Management of foreign currency reserves. The BSP seeks to maintain sufficient international reserves to
meet any foreseeable net demands for foreign currencies in order to preserve the international stability
and convertibility of the Philippine peso.

Determination of exchange rate policy. The BSP determines the exchange rate policy of the Philippines.
Currently, the BSP adheres to a market-oriented foreign exchange rate policy such that the role of Bangko
Sentral is principally to ensure orderly conditions in the market.

Other activities. The BSP functions as the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and government-owned and -controlled
corporations.

Governance of the Bank

The Monetary Board exercises the powers and functions of the BSP, such as the conduct of monetary
policy and supervision of the financial system. Its chairman is the BSP Governor, with five full-time
members from the private sector and one member from the Cabinet.

The Governor is the chief executive officer of the BSP and is required to direct and supervise the
operations and internal administration of the BSP.

http://www.bsp.gov.ph

Securities and Exchange Commission

VISION
By 2022, SEC is the champion of investor protection; the judicious administrator of an automated,
reliable and secured company registration and information systems; and the progressive overseer of a
robust and inclusive capital market in the ASEAN and Asia-Pacific Region.

MISSION
We develop and regulate the capital market and company registration; promote good corporate
governance; empower investors, corporators, and entrepreneurs; and facilitate access to financial products
and resources.

We shall be guided in this mission by the values of INTEGRITY, PROFESSIONALISM,

ACCOUNTABILITY, INDEPENDENCE, INITIATIVE and TEAMWORK.

CORE VALUES

INTEGRITY
We are morally upright, honest and sincere in our private and public lives.
PROFESSIONALISM
We consistently implement the law, provide timely and accurate information to investors, and render
efficient, competent and committed service to the public in a fair and transparent manner.

ACCOUNTABILITY
We abide by prescribed ethical and work standards and good governance principles in government
service.

INDEPENDENCE
We act without fear or favor, and render sound judgment in the performance of our duties and
responsibilities.

INITIATIVE
We are strategic, creative and forward-looking in the fulfillment of our developmental and regulatory
functions including identification and management of risks.

TEAMWORK
We engage in internal collaborative activities organized to facilitate inter-departmental communication
and cooperation.

SEC Quality Policy Statement

We, the Securities and Exchange Commission, the prudent registrar and supervisor of the corporate
sector, and the independent guardian of the capital market, commit to:

Serve our stakeholders with utmost integrity and professionalism in compliance with customer, legal,
regulatory, and other applicable requirements;

Excel in performing our mandate through continuing institutional capability enhancement and effective
resource management; and,

Continually improve our quality management system in pursuit of service, excellence and commitment.

source: www.sec.gov.ph

INSURANCE COMMISSION

VISION
Strong, sustainable and globally competitive regulated entities, as pillars of the economy, to serve every
Filipino.

MISSION
We are committed to implement prudent and progressive regulatory and supervisory policies at par with
international standards.
SHARED CORE VALUES

Integrity
The Insurance Commission upholds the highest standard of honesty and transparency in the fulfillment of
its duties and services.

Commitment
We sustain highest global standards and best practices in regulation and supervision.

Responsibility
In the achievement of its mandate, the Insurance Commission exercises accountability, dedication and
drive.

OBJECTIVES
To promote growth and financial stability of insurance, pre-need, and HMO companies

To professionalize insurance, pre-need, and HMO services, and develop insurance, pre-need, and HMO
consciousness among the general populace

To establish a sound national insurance market

To safeguard the rights and interest of the insuring public, pre-need and HMO customers

FUNCTIONS
Promulgation and implementation of policies, rules and regulations governing the operations of entities
engaged in insurance, pre-need, and HMO activities as well as benevolent features

Licensing of insurance, reinsurance companies, its intermediaries, mutual benefit associations, trusts for
charitable uses, pre-need companies, pre-need intermediaries, and HMO companies

Conducting insurance agent’s examinations, as well as processing of reinsurance treaties and request for
investments of insurance companies

Examination/verification of the financial condition and methods of doing business of entities engaged in
insurance business, pre-need, mutual benefit associations, trusts for charitable uses, and HMO companies

Evaluation and preparation of statistical reports, studies, researches, annual reports, and position papers
relative to insurance, pre-need matters, and HMO matters

Review of premium rates imposed by life and non-life companies, mutual benefit associations; statistical
reports of adjusters to determine compliance with established standards.

Adjudication of claims and complaints involving loss, damage or liability incurred by an insurer under
any kind of policy or contract of insurance or suretyship;

Review and approval of all life and non-life policies, pre-need, and HMO plans before sale to prospective
clients.

source: https://www.insurance.gov.ph/about/mission-vision-and-shared-core-values/
TOPIC: BOI, MONEY SUPPLY, PURCHASING POWER

REPORTER: MARTINEZ, Aica Marie

The Philippine Board of Investments (BOI),

an attached agency of Department of Trade and Industry (DTI), is the lead government agency
responsible for the promotion of investments in the Philippines. Taking the lead in the promotion of
investments, BOI assists Filipino and foreign investors to venture and prosper in desirable areas of
economic activities. The BOI is your one-stop shop in doing business in the Philippines

They offer coordination of activities to create an investor-friendly business environment. At BOI, They
value effective partnerships.

Knowledge-based Research & Information

Get the latest industry updates and information from us. They are in the forefront of the development and
promotion of industries. They provide timely information relevant to your portfolio.

Marketing & Promotions

They organize missions locally and internationally to offer as much exposure to your company so you can
link with other businesses. This option may pave the way for expanding your capital and production
capacity.

Incentives
Know the compote of perks in setting up your business here in the Philippines. Check out how you can
avail of tax holidays and tax and duty exemption of imported capital equipment, among others.

Policy Advocacy
Never lose track of policies that affect your business. They provide information and briefing sessions to
let your know of any policies that affect your business. They can also be your conduit for your feedback
and reactions.
source: www.boi.gov.ph

What is Money Supply?

The money supply is the entire stock of currency and other liquid instruments circulating in a country's
economy as of a particular time. The money supply can include cash, coins, and balances held in checking
and savings accounts, and other near money substitutes. Economists analyze the money supply as a key
variable to understanding the macroeconomy and guiding macroeconomic policy.

Money supply data is collected, recorded and published periodically, typically by the country's
government or central bank.
source: https://www.investopedia.com/terms/m/moneysupply.asp

Clean Note Policy of the BSP

Basic Information from BSP Circular No. 61 Series of 1995 entitled "Consolidated Rules and Regulations
on Currency Notes and Coins"

CLEAN NOTE POLICY

To effect an expeditious withdrawal from circulation of unfit Philippine currency notes classified under
Section 15, Chapter V of Circular No. 61, banks and their branches shall observe the following guidelines
and procedures when making cash deposits with the Cash Department or any of the Regional
Offices/Branches of BSP:

a. Banks shall classify their cash deposits into two types: (1) clean or fit notes and (2) dirty or unfit notes
in accordance with the “Currency Guide for Bank Tellers, Money Counters and Cash Custodians”
prepared by the Cash Department of the BSP. The notes thus classified shall be further sorted by series
and denomination.

b. Banks shall provide securely sealed bags or containers separately for the clean or fit notes and for the
dirty or unfit notes accompanied by a deposit slip for each type/category. The deposit slip for the unfit
currency notes shall be clearly labeled as “unfit.”

c. To facilitate handling of deposits, banks’ deposits shall be packed in sealed bags or containers in
standard quantity of twenty (20) full bundles per denomination (each bundle containing 1,000 notes in ten
(10) equal straps, each strap containing 100 notes).

d. Provincial branches of banks may make direct deposits of currency notes, duly identified and sorted,
with the nearest Bangko Sentral Regional Office/Branch

A currency note shall be considered unfit for circulation when:

a. It contains heavy creases which break the fiber of the paper and indicate that disintegration has begun.
Provided, however, that mere creasing or wrinkling which has not broken nor weakened the note does not
render the note unfit for circulation; or

b. It is badly soiled/contaminated and/or with writings even if it has proper life or sizing; or

c. It presents a limp or rag-like appearance.

The Philippine Board of Investments (BOI),

an attached agency of Department of Trade and Industry (DTI), is the lead government agency
responsible for the promotion of investments in the Philippines. Taking the lead in the promotion of
investments, BOI assists Filipino and foreign investors to venture and prosper in desirable areas of
economic activities. The BOI is your one-stop shop in doing business in the Philippines

They offer coordination of activities to create an investor-friendly business environment. At BOI, They
value effective partnerships.

Knowledge-based Research & Information

Get the latest industry updates and information from us. They are in the forefront of the development and
promotion of industries. They provide timely information relevant to your portfolio.

Marketing & Promotions

They organize missions locally and internationally to offer as much exposure to your company so you can
link with other businesses. This option may pave the way for expanding your capital and production
capacity.

Incentives
Know the compote of perks in setting up your business here in the Philippines. Check out how you can
avail of tax holidays and tax and duty exemption of imported capital equipment, among others.

Policy Advocacy
Never lose track of policies that affect your business. They provide information and briefing sessions to
let your know of any policies that affect your business. They can also be your conduit for your feedback
and reactions.
source: www.boi.gov.ph

What is Money Supply?

The money supply is the entire stock of currency and other liquid instruments circulating in a country's
economy as of a particular time. The money supply can include cash, coins, and balances held in checking
and savings accounts, and other near money substitutes. Economists analyze the money supply as a key
variable to understanding the macroeconomy and guiding macroeconomic policy.

Money supply data is collected, recorded and published periodically, typically by the country's
government or central bank.

source: https://www.investopedia.com/terms/m/moneysupply.asp

Clean Note Policy of the BSP

Basic Information from BSP Circular No. 61 Series of 1995 entitled "Consolidated Rules and Regulations
on Currency Notes and Coins"
CLEAN NOTE POLICY

To effect an expeditious withdrawal from circulation of unfit Philippine currency notes classified under
Section 15, Chapter V of Circular No. 61, banks and their branches shall observe the following guidelines
and procedures when making cash deposits with the Cash Department or any of the Regional
Offices/Branches of BSP:

a. Banks shall classify their cash deposits into two types: (1) clean or fit notes and (2) dirty or unfit notes
in accordance with the “Currency Guide for Bank Tellers, Money Counters and Cash Custodians”
prepared by the Cash Department of the BSP. The notes thus classified shall be further sorted by series
and denomination.

b. Banks shall provide securely sealed bags or containers separately for the clean or fit notes and for the
dirty or unfit notes accompanied by a deposit slip for each type/category. The deposit slip for the unfit
currency notes shall be clearly labeled as “unfit.”

c. To facilitate handling of deposits, banks’ deposits shall be packed in sealed bags or containers in
standard quantity of twenty (20) full bundles per denomination (each bundle containing 1,000 notes in ten
(10) equal straps, each strap containing 100 notes).

d. Provincial branches of banks may make direct deposits of currency notes, duly identified and sorted,
with the nearest Bangko Sentral Regional Office/Branch

A currency note shall be considered unfit for circulation when:

a. It contains heavy creases which break the fiber of the paper and indicate that disintegration has begun.
Provided, however, that mere creasing or wrinkling which has not broken nor weakened the note does not
render the note unfit for circulation; or

b. It is badly soiled/contaminated and/or with writings even if it has proper life or sizing; or

c. It presents a limp or rag-like appearance.

A currency coin shall be considered unfit for circulation when:

a. It is bent or twisted out of shape or defaced, but its genuineness and/or denomination can still be readily
and clearly determined/identified; or

b. It has been considerably reduced in weight by natural abrasion/wear and tear.

source: www.bsp.gov.ph
What Is Purchasing Power?

Purchasing power is the value of a currency expressed in terms of the amount of goods or services that
one unit of money can buy.

Consumer Price Index (CPI), which measures decreases in purchasing power. The price of average goods
and services purchased by consumers changes from month to month

Source: https://www.investopedia.com/terms/p/purchasingpower.asp

What Is Inflation?

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected
goods and services in an economy increases over a period of time. It is the constant rise in the general
level of prices where a unit of currency buys less than it did in prior periods. Often expressed as a
percentage, inflation indicates a decrease in the purchasing power of a nation’s currency.

As prices rise, a single unit of currency loses value as it buys fewer goods and services. This loss of
purchasing power impacts the general cost of living for the common public which ultimately leads to a
deceleration in economic growth. The consensus view among economists is that sustained inflation occurs
when a nation's money supply growth outpaces economic growth.
TOPIC: Payment System

REPORTER: CORONG, Pauline Marie

Payment System

Is a set of interrelated processes of settlement of good/services rendered in exchange for a set of

instrument that will undergo either a banking or non-banking procedure.

It is a financial system supporting transfer of funds from the payers to the payees. We can also use
electronic medium in making transactions and paying without the use of checks or cash and it is called an
Electronic payment system.

Characteristics for an effective payment system

A payment system normally require the following

· Standard methods of transmitting payment messages within the system

· Agreed means of settlement

· Common operating procedure and rule

Standard methods of transmitting payment

The convential way of transmitting payment is the arm's length exchanges of transaction whereby
the seller or the obligor deliver the goods or render service while the other party will deliver in instance.
However it became a challenge especially who are far from each other.

Banking system already provides different ways to settle obligation or payments.

But with the electronic banking it enables the settlement to make through funds transfer or you make
online payment.

This shows that payment system works providing efficient solution and real-time processing of payment
with reduce risk

Agreed means settlement

Given that the exchange is contact between the parties, it is essential that they also on the manner on how
the payment is to be rendered. Even there are online infrastructure to make payments, soe people still
confident doing it manually. What is important in a payment is that the parties will agree on the manner of
payment.

The normal means of settlement are as follows cash or cheque payment -electronic money online payment
- manual money transfer

· automated teller machine

- paybox system

· fund transfer - cash deposit

· credit card -assignment

· debt card and stored value cards

Common operating procedure and rules

Like any other contract these information or guidelines must mutually accepted by boh parties. These
agreement provide guidelines and protection for both parties in case of breaching as well as protection of
the system that the transaction are cleared from the settling party.

In an online banking system, these agreements are provided as a template to all clients or user of the
system. Provides a formal authority to the facility to use information and the user agreed to subscribed to
the banking policies which regulated by the BSP.

Importance of Payment system

Is an essential facility to enable the complete course of transaction.

According to BSP the ff. importance of the system, among others

· Safe and real time transaction

· Effective risk management

· facilitates financial market transaction

Safe and Real time transaction

The payment system are designed to safeguard the identity and transaction as a whole especially on
electronic payment system facilities. It means that the payment is safe given that the characteristics are
mutually agreed by the parties including the manner of payment which is convenient for both.

Real time are normally applicable for electronic/internet-based. Especially the transaction on time.

For e-banking payment facilities, it is debited to the account of the payer real-time however most of the
systems requires 3 banking day before it is credited to the account of the payee. The three banking day
rules is required as part of the clearing process, but most of the time, particularly for fund transfer it is
credited real-time.

The Philippine Bureau of Internal Revenue adopts the use of the Electronic Filing and Payment system.
This allows to file an pay the tax due of both personal and corporate.
Effective risk management

The payment system facilities have verification process to allow the user to validate the transaction before
completing the authority to make payments. The advantage for establishes payment system is the absence
of physical cash, everything can be made virtually this minimize the risk of loss theft and
misappropriation.

Risk of payment system

· Credit risk Ability of the payer to meet the full value of its obligation due to unforeseen charges.

· Liquidity risk Timing difference on posting may affect the visibility of the users or a party to determine

That full amount due and end up its ability to calculated currently maturing obligation.

· Default risk Rich guy's that payment will be made on time

· Technology risk system downtime and system "bugs" may

· occure

· Legal risk. change in rules and regulation affecting the payment system.

Facilitates financial market transaction In the emergence of the e-banking system that serves as the
platform of the payment system facilities. The payment system may facilitate the settlement of the
financial market transaction

The database may also be used to make future analysis or projections of the investors. the system can also
be used to validate the personality or credit rating of certain instrument before completed the trade

Currently, certain platforms are integrated with online brokerage companies to:

1. Facilitate opening an account

2. Facilitate purchase or sale of the transactions; and

3. Reduce human invention provides objective approach to manage financial market transactions.