Rules proposed on temporary holding of disputed funds

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) has issued a draft circular outlining proposed regulations for the temporary holding of funds involved in disputed transactions, as part of its efforts to combat financial fraud and cybercrime.

The draft rules seek to implement provisions of Republic Act 12010, or the Anti-Financial Account Scamming Act (AFASA), by requiring banks and financial institutions to temporarily hold disputed funds while a verification process is conducted.

Disputed funds are defined as funds or equivalent amounts subject to a disputed transaction, or funds that have moved through various Receiving Financial Institutions, subsequent-RFIs and financial accounts.

On the other hand, disputed transaction refers to an electronic fund transfer, where a BSI has reasonable grounds to believe, based on a complaint, that the transaction is unusual, without clear economic purpose, from an unknown or illegal source or facilitated through social engineering schemes.

The proposed regulations will amend relevant provisions of the Manual of Regulations for Banks, the Manual of Regulations for Non-Bank Financial Institutions and the Manual of Regulations for Payment Systems.

The BSP is currently soliciting feedback from industry stakeholders on the proposed regulations before finalizing the circular. Market players have until Feb. 10 to submit their feedback.

Under the draft rules, BSP-supervised institutions (BSIs), Automated Clearing House participants and Clearing Switch Operators involved in electronic fund transfers will be required to hold disputed funds for a maximum of 20 days. The holding period may be extended only by a court order.

“Once the disputed funds in the beneficiary accounts have been held, the equivalent amount shall be considered credited but may not be withdrawn during the holding period,” the central bank said.

Alongside the temporary holding of funds, financial institutions will be required to establish a coordinated verification process to validate disputed transactions.

The industry-wide protocol will include defined roles and responsibilities for financial institutions in handling disputed funds, a real-time system for tracing disputed transactions, prompt notifications to affected account holders and a shared accountability framework for resolving disputes.

The BSP is proposing that the industry protocol be fully operational within six months of the circular’s implementation.

“These regulations shall apply to all complaints filed after the adoption of the industry protocol, provided that the cause or causes of action of the complainant accrued after the effectivity of AFASA,” it added.