Firms participating in an ACH told to manage liquidity risks

A DRAFT central bank circular stated that financial institutions should manage liquidity risks that could arise from settlement activities.

FINANCIAL INSTITUTIONS participating in an automated clearing house (ACH) for electronic payments may soon be mandated to put in place liquidity risk management measures to avoid damage from rejected customer transactions, according to draft circular of the Bangko Sentral ng Pilipinas (BSP).

The central bank said financial firms must manage the potential risks associated with the “prescribed settlement mechanism for electronic payments, including the possibility that a payment transaction rejected from a customer due to pre-financing issues could cause damage. serious damage to the reputation of the relevant Clearing Participant. “

Clearing participants for electronic payments must ensure the certainty of the settlement of the multilateral clearing obligations of clearing participants.

To do this, the clearing participant or its settlement sponsor must maintain a BSP demand deposit account to be used for clearing obligations for electronic payments.

Meanwhile, separate deposit accounts should be used for instant retail payments and batch settlement of electronic payments.

The BSP draft circular stated that clearing participants should ensure that their demand deposit accounts can sufficiently settle obligations in each cycle, pre-funding the settlement of their net clearing obligations.

The draft circular also listed the rules applicable to service contracts between clearing participants and the clearing switch operator, including the creation of a record of sight deposit account balances.

“If the clearing participants determine that the funds in their demand deposit accounts for instant retail electronic payments are excessive after taking into account their highest potential clearing obligations, the clearing participants are allowed to withdraw from their deposit accounts. sight deposit to enable them to optimize the use of their funds, ”indicates the draft circular.

Demand deposit accounts will constitute the financial institution’s reserves against deposits and deposit replacement liabilities, the central bank said. – JP Ibañez

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