In brief
The Bangko Sentral ng Pilipinas (BSP) issued Circular No. 1105, series of 2020, the Guidelines on the Establishment of Digital Banks (Circular). It took effect on 23 December 2020. The Circular considers digital bank as a distinct classification of bank and provides the framework for its operation and establishment.
Salient Points of the Circular
Guidelines in establishing digital banks
The Circular sets out the for the establishment of digital bank which include the following:
- a digital bank is defined as a bank which offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branch, sub-branch or branch-lite unit offering financial products and services;
- digital banks are required to maintain a principal or head office in the Philippines to serve as the main point of contact for stakeholders, including the BSP and other regulators;
- digital banks are required to have a minimum capitalization of PHP 1 billion;
- digital banks are subject to the prudential requirements set out by the BSP, including corporate governance and risk management, particularly on information technology and cyber security, outsourcing, consumer protection and anti-money laundering and combating the financing of terrorism under existing regulations; and
- digital banks may offer financial products and services through cash agents and other qualified service providers subject to the guidelines under the MORB.
Limits of Shareholdings
The shareholdings of an individual, corporation, family group, or same group of persons in a digital bank are subject to the limits below:
| Particulars | Ceiling |
| Voting shares of stock of a foreign individual or a foreign non-bank corporation | 40% |
| Aggregate ownership of the voting shares of stock of foreign individuals and/or foreign non-bank corporations | 40% |
| Voting shares of stock of a qualified foreign bank | 100% |
| Combined ownership of the voting shares of stock of qualified foreign banks | 100% |
| Voting shares of stock of a Filipino individual or a Philippine non-bank corporation | 40% |
| Combined ownership of an individual and corporation/s which are wholly owned or a majority of the voting shares of stock which is owned by such individual | 40% |
| Family groups or related interests1 | 40% for each family group |
| Two or more corporations owned or controlled by the same family group or same group of persons | 40% for each corporation |
Conversion of existing banks to digital banks
The Circular allows existing banks to apply for conversion to a digital bank. The BSP may likewise require banks that already meet the definition of a digital bank to convert their existing banking license to digital banking license. Such banks will need to comply with the requirements above and submit a plan for transitioning to a digital bank.
Actions to Consider
Companies that are looking to establish digital banks in the Philippines or plan to convert to digital banks should consider the guidelines and requirements under the Circular.
1 These are defined as individuals related to each other within the fourth degree of consanguinity or affinity, whether legitimate, illegitimate or common-law.
