Quasi-banks may now engage in derivatives activities

MANILA, Philippines - Quasi-banks and their trust departments may now engage in derivatives activities without the need for prior approval by the Bangko Sentral ng Pilipinas (BSP), according to the latest amendments approved by the policy-making Monetary Board (MB).

The BSP announced yesterday that the MB approved the amendments to BSP’s regulations governing derivatives activities of non-bank financial institutions with quasi-banking authority.

Derivatives are financial assets that “derive” their value from other assets. For example, an option to buy a share is derived from the share itself.

 “The amendments seek to support the development of the Philippine financial market by providing quasi-banks (QBs) and their clients with expanded opportunities for financial risk management and investment diversification through the prudent use of derivatives,” the BSP said.

Under the revised guidelines, all quasi-banks and their trust departments are allowed to engage in financial derivatives for hedging purposes with BSP authorized dealers and brokers without need of prior BSP approval.

However, this should be subject to Philippine Accounting Standards (PAS) 39.

Under previous regulations, quasi-banks, their subsidiaries and affiliates are only allowed to engage in derivatives activities only upon prior approval of the BSP.

The general derivatives authority granted to quasi-banks is similar to that allowed for thrift, rural and cooperative banks.

The BSP said that for derivatives activities other than hedging, quasi-banks may apply for additional derivatives authority, taking into consideration the role performed in a derivatives transaction and the level of sophistication of derivatives activities.

According to the approved amendments, banks will be given different licenses, depending on their needs.

However, the BSP said the Type 1 license which is an expanded dealer authority is only made available for universal banks and commercial banks.

The BSP said quasi-banks and their trust departments may apply for additional derivatives authority, depending on their requirements. A Type 2- Limited Dealer license allows a quasi-bank to operate as a dealer in specific types of derivative products.

A Type 3 – limited user license, meanwhile, allows a quasi-bank or its trust department to transact as end-user in specific types of derivatives.

The Type 4 – special broker authority allows a quasi-bank to facilitate a derivatives transaction between a BSP-authorized dealer and end-user clients.