Manual of Regulations for Non-Bank Financial Institutions

2004 MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS FOREWORD Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the Monetary Board recognized the need to revise and regularly update the Manual of Regulations for Banks and Other Financial Intermediaries to enable the industry to better keep pace with the anticipated rapid regulatory changes that are unavoidable in a dynamic economic environment. A revised Manual would also be able to appropriately take into account the strengthened supervisory and regulatory arrangements set out in the BSP's new charter. This Manual of Regulations for Non-Bank Financial Institutions is one of the products of that effort. It benefits from the inputs of many concerned departments of the BSP as well as the various industry associations of non-bank financial institutions. We are hopeful that this new Manual and its subsequent updates will be able to more effectively disseminate the regulatory issuances of the BSP on a timely basis and provide appropriate guidance to non-bank financial institutions. 2006cda We also believe that it will be a especially useful tool at this time when the BSP has come up with many regulations and issuances in response to the unprecedented challenges posed by the Asian financial crisis. Nevertheless, we recognize that there will always be room for improvement. Our task is therefore a continuing one of constant search for a better product to provide more responsive services to the public. GABRIEL C. SINGSON Governor PREFACE The Manual of Regulations for Non-Bank Financial Institutions (the "New Manual") is not only an updated edition but also a revision of the present Manual of Regulations for Banks and Other Financial Intermediaries, Book IV (the "Old Manual"). Its adoption was impelled by certain considerations, namely: (1) that the Central Bank of the Philippines as the administrative agency of the monetary, banking and credit system which promulgated the Old Manual has been replaced by the Bangko Sentral Ng Pilipinas (BSP) as the central monetary authority and (2) that the Old Manual was last updated as of December 31, 1989 and since that time, significant developments in the statutory law and the financial system of the country have rendered many of its provisions obsolete or irrelevant. To accomplish the work of proposing revisions to the Old Manual, the Monetary Board of the BSP, in its Resolution No. 1203 dated December 7, 1994, directed the creation of a multi-departmental Ad Hoc Review Committee. This committee was officially constituted under Office Order No. 2, Series of 1995 and consisted of Deputy General Counsel Melpin A. Gonzaga (Office of the General Counsel and Legal Services, as chairman; Deputy Director Ma. Dolores B. Yuvienco 1 (Supervisory Reports and Studies Office); Deputy Director Rolando A. Q. Agustin (Department of Commercial Banks I); Deputy Director Danilo A. Monasterio 2 (Department of Rural Banks); Deputy Director Erlinda S. J. Marzan 3 (Department of Thrift Banks and Non-Bank Financial Institutions), as members; and Managing Director Fe B. Barin (Office of the Monetary Board), as adviser. The technical staff of the Ad Hoc Committee was composed of Atty. Magdalena D. Imperio, Bank Attorney III, as head; and Mr. Fernando B. Caballa, Manager II; Mr. Lauro C. Abuzo, Bank Officer III, Atty. Policarpo G. Barcarse, Manager II; Mr. Nicanor F. Rillera, Manager II; and Mr. Aristides R. Wylengco, Manager II, as members. Deputy Governor Armando L. Suratos, the BSP General Counsel, acted as committee consultant. Under the aforesaid office order, the Ad Hoc Committee was instructed to examine, evaluate and review the provisions of the Old Manual for purposes of (1) deleting therefrom provisions which are obsolete, redundant, irrelevant, superfluous or inconsistent with law, (2) amending provisions so as to make them consistent with each other or to harmonize them with existing statutes, executive issuances and official policies, and (3) reformulating provisions to make them more responsive to the needs and concerns of the banking and financial intermediation industry. In discharging its mandated tasks, the Ad Hoc Review Committee sought the comments of certain departments of the BSP, particularly, Treasury, Foreign Exchange, Economic Research, Cash, Accounting, and Loans and Credit, on the proposed changes to provisions of the Old Manual relevant to their operations. Likewise consulted were the various associations in the non-bank financial intermediary industries. Their valuable suggestions contributed much to the accomplishment of this project. CHIaTc The New Manual comprises substantially the regulatory issuances of the BSP, as well as those of its predecessor agency, the Central Bank of the Philippines, as they were amended or revised through the years, up to December 31, 1996. It shall serve as the principal source of all substantive regulations for non-bank financial institutions issued by the Monetary Board and the Governor of the BSP and shall be cited as the authority for enjoining compliance with the rules and regulations embodied therein. It is fervently hoped that the publication of this long-awaited new code of regulations for non-bank financial institution will measure up to the expectations of these institutions. The Bangko Sentral ng Pilipinas INSTRUCTIONS TO USERS The Manual of Regulations for Non-Bank Financial Institutions (the "Manual") is the comprehensive authority on the specific subjects covered therein. New rules and amendments to the rules shall immediately form part of the affected section or subsection of the Manual while repealed rules shall be deleted so that the user shall no longer refer to a separate issuance, i.e., circular or memorandum, but shall instead cite the particular section or subsection of the Manual. Non-bank financial institutions (NBFIs) governed by the Manual shall comply with the provisions thereof and any violation thereof shall be punishable under the specific and/or general provisions on sanctions. The Manual contains the rules and regulations on NBFIs subject to supervision by the Bangko Sentral ng Pilipinas (BSP) under the law. Specifically, these institutions are as follows: NBFIs performing quasi-banking functions, or quasi-banks, which are subject to BSP supervision under R.A. No. 7653, The New Central Bank Act; NBFIs performing trust and other fiduciary activities and building and loan associations (BLAs), under R.A. No. 337, as amended; non-stock savings and loans association (NSSLAs), under R.A. 3779; and pawnshops, under P.D. No. 114. The regulations addressed to these institutions are grouped as follows: the Q Regulations, which are addressed to quasi-banks; the S Regulations, which are addressed to NSSLAs; the P Regulations, which are addressed to pawnshops; the B Regulations, which are addressed to BLAs; and N Regulations, which are addressed to other NBFIs subject to BSP supervision. As a code of regulations, the Manual contains the basic features of division into Parts, further subdivided into major topic headings which introduce the corresponding sections and subsections making up the provisions governing a major operation of the institutions subject to the regulations. Parts and major topic headings as well as coded section numbers and headings are made uniform for all the groups of regulations. Coding of sections utilizes six (6) digits; i.e., 4123Q.44. The first digit (4 in the example) refers to the type of financial institution (i.e., non-bank financial institutions as distinguished from banks or banking institutions, the regulations addressed to which institutions are contained in another Manual) to which the regulation is applicable; the second digit (1 in the example), to the Part number, and the third and fourth digits (23 in the example), to the section number. The other two (2) digits after the decimal point (44 in the example) refers to the subsection number. The letters Q, S, B, P and N are appended to the pertinent code numbers of the sections to indicate the particular category of NBFIs the regulations are addressed to, namely: quasi-banks, NSSLAs, BLAs, pawnshops and other NBFIs subject to BSP supervision, respectively. For example, Sections 4161Q, 4161S, 4161B and 4161P refer to provisions of reporting requirements of quasi-banks, NSSLAs, BLAs and pawnshops, in that order. To illustrate, the code numbers 4161Q.2 indicates: The paging is by Parts, each Part beginning with page 1, and so on, corresponding to the number of pages of the particular Part. For example, Part I, consisting of six (6) pages will start with a first page indicated as "Part I Page 1", and "Part I Page 6" as its last page. The pages for updates will follow the same pagination, with letters added to indicate inserted pages, in the event amendatory regulations require additional pages. Paging is further identified as to the group of regulations the particular page belong; for example, Q Regulations. To facilitate reference, running section headings consisting of the coded numbers of the sections/subsections whose provisions are contained in a particular page are indicated at either the upper right- or left-hand corner of the page preceded by the symbols or . * The cut-off date is indicated immediately below the running section heads, as: 96.12.31. Thereafter, the date of the pages affected by subsequent new issuances or amendments/repeals will be changed to the end of the semestral period during the semestral updating which shall reflect the changes that shall have occurred. * Appears as Subsection () or Subsections () in the inclusive paragraphs of the database . MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS Q REGULATIONS (Regulations Governing Non-Bank Financial Institutions Performing Quasi-Banking Functions) TABLE OF CONTENTS PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101Q. Quasi-Banking Functions 4101Q.1 Financial intermediaries 4101Q.2 Guidelines on lender count 4101Q.3 Transactions not considered quasi-banking 4101Q.4 Delivery of securities 4101Q.5 Securities custodianship operations SECTION 4102Q. Preconditions for the Exercise of Quasi-Banking Functions SECTION 4103Q. Certificate of Authority from the Bangko Sentral SECTION 4104Q. Bangko Sentral Certificate of Authority SECTION 4105Q. Licensing of an Investment House B. Capitalization SECTION 4106Q. Minimum Capitalization SECTION 4107Q. Minimum Capital of Investment House SECTION 4108Q. Sanctions SECTIONS 4109Q 4110Q (Reserved) C. Merger/Consolidation SECTION 4111Q. Merger/Consolidation Involving Quasi-Banks SECTION 4112Q. Merger/Consolidation Incentives SECTIONS 4113Q 4115Q (Reserved) D. Risk-Based Capital Adequacy Ratio SECTION 4116Q. Minimum Ratio 4116Q.1 Qualifying capital 4116Q.2 Risk-weighted assets 4116Q.3 Definitions 4116Q.4 Required reports 4116Q.5 Sanctions 4116Q.6 Temporary relief SECTION 4117Q. Treatment of Equity Investment with Reciprocal Stockholdings SECTION 4118Q. Sanctions on Net Worth Deficiency SECTIONS 4119Q 4120Q (Reserved) E. ( Reserved ) SECTIONS 4121Q 4125Q (Reserved) F. Stock, Stockholders and Dividends SECTION 4126Q. Dividends 4126Q.1 Definition of terms 4126Q.2 Requirements on the declaration of dividends/net amount available for dividends 4126Q.3 Reporting and verification 4126Q.4 Recording of dividends 4126Q.5 Rules on declaration of stock dividends SECTIONS 4127Q 4140Q (Reserved) G. Directors, Officers and Employees SECTION 4141Q. Definition; Qualifications; Powers; Responsibilities and Duties of Board of Directors and Directors 4141Q.1 Limits on the number of the members of the board of directors 4141Q.2 Qualifications of a director 4141Q.3 Powers/responsibilities and duties of board of directors and directors 4141Q.4 Confirmation of the election/appointment of directors and officers 4141Q.5-4141Q.8 (Reserved) 4141Q.9 Reports required 4141Q.10 Sanctions SECTION 4142Q. Definition and Qualifications of Officers SECTION 4143Q. Disqualification of Directors and Officers 4143Q.1 Persons disqualified to become directors 4143Q.2 Persons disqualified to become officers 4143Q.3 Effect of non-possession of qualifications or possession of disqualifications 4143Q.4 Disqualification procedures 4143Q.5 Watchlisting 4143Q.6 Prohibition against foreign officers/employees of financing companies SECTION 4144Q. Interlocking Directorships and/or Officerships 4144Q.1 Representatives of government SECTION 4145Q. Profit Sharing of Directors, Officers and Employees SECTION 4146Q. Monetary Board Confirmation of Directors and Senior Officers SECTION 4147Q. Compensation and Other Benefits of Directors and Officers SECTION 4148Q. (Reserved) SECTION 4149Q. Conducting Business in an Unsafe/Unsound Manner 4149Q.1 4149Q.8 (Reserved) 4149Q.9 Sanctions SECTION 4150Q. Reserved H. Branches and Other Offices SECTION 4151Q. Establishment 4151Q.1 Evaluation guideposts 4151Q.2 Additional capital, if required 4151Q.3 Other requirements/factors to be considered 4151Q.4 Conditions precluding processing of applications 4151Q.5 Documentary requirements 4151Q.6 Filing of applications 4151Q.7 Period within which to submit complete requirements 4151Q.8 Prohibition against operating without SEC license SECTIONS 4152Q 4155Q (Reserved) I. ( Reserved ) SECTIONS 4156Q 4160Q (Reserved) J. Records and Reports SECTION 4161Q. Records 4161Q.1 Uniform system of accounts 4161Q.2 Adoption of statements of financial accounting standards SECTION 4162Q. Reports 4162Q.1 Categories and signatories of reports 4162Q.2 Manner of filing 4162Q.3 Sanctions in case of willful delay in the submission of reports/refusal to permit examination SECTIONS 4163Q 4170Q (Reserved) K. Internal Control SECTION 4171Q. Internal Control Systems SECTION 4172Q. Financial Audit 4172Q.1 Posting of audited financial statements 4172Q.2 Disclosure of external auditor's adverse findings to the Bangko Sentral; sanction 4172Q.3 Disclosure requirement in the notes to the audited financial statements 4172Q.4 Disclosure requirements in the annual report 4172Q.5 Posting and submission of annual report SECTIONS 4173Q 4179Q (Reserved) SECTION 4180Q. Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity L. Miscellaneous Provisions SECTION 4181Q. Publication Requirements SECTION 4182Q. Management Contracts SECTIONS 4183Q 4190Q (Reserved) SECTION 4191Q. Compliance System; Compliance Officer 4191Q.1 Compliance system 4191Q.2 Compliance officer 4191Q.3 Compliance risk 4191Q.4 Responsibilities of the board of directors and senior management on compliance 4191Q.5 Status 4191Q.6 Independence 4191Q.7 Role and responsibilities of the compliance function 4191Q.8 Cross-border issues 4191Q.9 Outsourcing SECTIONS 4192Q 4198Q (Reserved) SECTION 4199Q. General Provision on Sanctions PART TWO Deposit and Borrowing Operations A.-D. ( Reserved ) SECTIONS 4201Q 4210Q (Reserved) E. Deposit Substitute Operations SECTION 4211Q. Deposit Substitute Instruments 4211Q.1 Prohibition against use of certain instruments as deposit substitutes 4211Q.2 Negotiations of promissory notes 4211Q.3 Minimum features 4211Q.4 Delivery of Securities 4211Q.5 Regulation on additional stipulation 4211Q.6 Substitution of underlying securities 4211Q.7 Call slips/tickets for 24-hour loans 4211Q.8 Requirement to state nature of underlying securities 4211Q.9 Compliance with SEC rules SECTION 4212Q. Recording; Payment; Maturity; Renewal SECTION 4213Q. Minimum Trading Lot SECTION 4214Q. Interbank Borrowings SECTION 4215Q. Borrowings from Trust Departments or Managed Funds of Banks or Investment Houses SECTION 4216Q. Money Market Placements of Rural Banks 4216Q.1 Definition of terms 4216Q.2 Conditions required on accepted placements 4216Q.3 Sanctions SECTION 4217Q. Bond Issues of NBQBs 4217Q.1 Definition of terms 4217Q.2 Underwriting of bonds 4217Q.3 Compliance with SEC rules 4217Q.4 Notice to Bangko Sentral 4217Q.5 Minimum features 4217Q.6 Reserve requirement 4217Q.7 Inapplicability of certain regulations SECTIONS 4218Q 4230Q (Reserved) F. ( Reserved ) SECTIONS 4231Q 4235Q (Reserved) G. Interest SECTION 4236Q. Yield/Interest Rates SECTIONS 4237Q 4245Q (Reserved) H. Reserves SECTION 4246Q. Reserves Against Deposit Substitutes 4246Q.1 Composition of reserves 4246Q.2 Computation of reserve position 4246Q.3 Reserve deficiencies; sanctions 4246Q.4 Exemptions 4246Q.5 Matured and unclaimed deposit substitutes 4246Q.6 Book entry method for reserve securities 4246Q.7 Interest income on reserve deposit with Bangko Sentral 4246Q.8 Guidelines in calculating and reporting to the BSP the required reserves on deposit substitutes evidenced by repurchase agreements covering government securities SECTIONS 4247Q 4255Q (Reserved) I. ( Reserved ) SECTIONS 4256Q 4275Q (Reserved) J. Borrowings from the Bangko Sentral SECTION 4276Q. Repurchase Agreements with the Bangko Sentral SECTIONS 4277Q 4280Q (Reserved) K. Other Borrowings SECTION 4281Q. Borrowings from the Government 4281Q.1 Definition of terms SECTIONS 4282Q 4298Q (Reserved) SECTION 4299Q. General Provision on Sanctions PART THREE Loans, Investments and Special Credits SECTION 4301Q. Management of Risk Assets/Minimum Guidelines on Lending Operations 4301Q.1 4301Q.5 (Reserved) 4301Q.6 Large exposures and credit risk concentrations SECTION 4302Q. Loan Portfolio and Other Risk Assets Review System 4302Q.1 Provisions for losses; booking 4302Q.2 Sanctions SECTIONS 4303Q 4305Q (Reserved) A. Loans in General SECTION 4306Q. Loan Limit to a Single Borrower 4306Q.1 Exclusions from loan limit 4306Q.2 Contingent liabilities included in loan limit 4306Q.3 Sanctions SECTION 4307Q. Interest and Other Charges 4307Q.1 Rate ceilings 4307Q.2 Floating rates of interest 4307Q.3 Effect of prepayment 4307Q.4 Loan prepayment 4307Q.5 Escalation clause; when allowable 4307Q.6 Rate of interest in the absence of stipulation 4307Q.7 Accrual of interest earned on loans SECTION 4308Q. Past Due Accounts 4308Q.1 Accounts considered past due 4308Q.2 Renewal/extension 4308Q.3 Restructured loans 4308Q.4 Demand loans 4308Q.5 Write-off of loans as bad debts SECTION 4309Q. "Truth in Lending Act" Disclosure Requirement 4309Q.1 Definition of terms 4309Q.2 Information to be disclosed 4309Q.3 Inspection of contracts covering credit transactions 4309Q.4 Posters SECTION 4310Q. (Reserved) SECTION 4311Q. Non-Performing Loans 4311Q.1 Accounts considered non-performing; definitions 4311Q.2 Accrual of interest earned on loans 4311Q.3 Allowance for uncollected interest on loans 4311Q.4 Reporting requirement SECTIONS 4312Q 4320Q (Reserved) B. ( Reserved ) SECTIONS 4321Q 4335Q (Reserved) C. Unsecured Loans SECTION 4336Q. Loans Against Personal Security 4336Q.1 General guidelines 4336Q.2 Proof of financial capacity of borrower 4336Q.3 Signatories 4336Q.4 Sanctions SECTION 4337Q. Credit Card Operations; General Policy 4337Q.1 Definition of terms 4337Q.2 Risk management system 4337Q.3 Minimum requirements 4337Q.4 Information to be disclosed 4337Q.5 Accrual of interest earned 4337Q.6 Finance charges 4337Q.7 Deferral charges 4337Q.8 Late payment/penalty fees 4337Q.9 Confidentiality of information 4337Q.10 Suspension, termination of effectivity and reactivation 4337Q.11 Inspection of records covering credit card transactions 4337Q.12 Offsets 4337Q.13 Handling of complaints 4337Q.14 Unfair collection practices 4337Q.15 Sanctions SECTIONS 4338Q 4350Q (Reserved) D. Restructured Loans SECTION 4351Q. Restructured Loans; General Policy 4351Q.1 Definition; when to consider performing/non-performing 4351Q.2 Procedural requirements 4351Q.3 Classification SECTIONS 4352Q 4355Q (Reserved) E. Loans/Credit Accommodations to Directors, Officers, Stockholders and their Related Interests SECTION 4356Q. General Policy 4356Q.1 Definitions SECTION 4357Q. Transactions Covered SECTION 4358Q. Transactions Not Covered 4358Q.1 Applicability to credit card operations SECTION 4359Q. Direct or Indirect Borrowings SECTION 4360Q. Individual Ceiling; Single-Borrower Limit SECTION 4361Q. Aggregate Ceiling; Ceiling On Unsecured Loans SECTION 4362Q. Exclusions from Aggregate Ceiling SECTION 4363Q. Credit Accommodations Under Officers' Fringe Benefit Plans SECTION 4364Q. Procedural Requirements SECTION 4365Q. Sanctions SECTIONS 4366Q 4370Q (Reserved) F. ( Reserved ) SECTIONS 4371Q 4375Q (Reserved) G. Special Types of Loans SECTION 4376Q. Interbank Loans 4376Q.1 Systems and procedures for interbank call loan transactions 4376Q.2 Accounting procedures 4376Q.3 Transfer of excess funds 4376Q.4 Settlement procedures SECTIONS 4377Q 4380Q (Reserved) H. Equity Investments SECTION 4381Q. Investment in Non-Allied Undertakings SECTION 4382Q. Investments Abroad SECTION 4383Q. Underwriting Exempted SECTIONS 4384Q 4385Q (Reserved) I. ( Reserved ) SECTIONS 4386Q 4390Q (Reserved) J. Other Operations SECTION 4391Q. Purchase of Receivables and Other Obligations 4391Q.1 Yield on purchase of receivables 4391Q.2 Purchase of commercial paper 4391Q.3 Investments in debt and marketable equity securities SECTION 4392Q. Reverse Repurchase Agreements with the Bangko Sentral SECTION 4393Q. (Reserved) SECTION 4394Q. Acquired Assets in Settlement of Loans 4394Q.1 Booking 4394Q.2 Sales contract receivable SECTION 4395Q. (Reserved) K. Miscellaneous Provisions SECTION 4396Q. Transfer/sale of non-performing assets to a special purpose vehicle or to an individual SECTIONS 4397Q 4398Q (Reserved) SECTION 4399Q. General Provision on Sanctions PART FOUR Trust, Other Fiduciary Business and Investment Management Activities SECTION 4401Q. Statement of Principles SECTION 4402Q. Scope of Regulations SECTION 4403Q. Definitions A. Trust and Other Fiduciary Business SECTION 4404Q. Authority to Perform Trust and Other Fiduciary Business 4404Q.1 Prerequisites for engaging in trust and other fiduciary business 4404Q.2 Pre-operating requirements SECTION 4405Q. Security for the Faithful Performance of Trust and Other Fiduciary Business 4405Q.1 Basic security deposit 4405Q.2 Eligible securities 4405Q.3 Valuation of securities and basis of computation of the basic security deposit requirement 4405Q.4 Compliance period; sanctions 4405Q.5 Reserves against peso-denominated Common Trust Funds (CTFs) and Trust and Other Fiduciary Accounts (TOFA) Others 4405Q.6 Composition of reserves 4405Q.7 Computation of reserve position 4405Q.8 Reserve deficiencies; sanctions 4405Q.9 Report of compliance SECTION 4406Q. Organization and Management 4406Q.1 Organization 4406Q.2 Composition of trust committee 4406Q.3 Qualifications of committee members, officers and staff 4406Q.4 Responsibilities of administration SECTION 4407Q. Non-Trust, Non-Fiduciary and/or Non-Investment Management Activities SECTION 4408Q. Unsafe and Unsound Practices 4408Q.1-4408Q.8 (Reserved) 4408Q.9 Sanctions SECTION 4409Q. Trust and Other Fiduciary Business 4409Q.1 Minimum documentary requirements 4409Q.2 Lending and investment disposition 4409Q.3 Transactions requiring prior authority 4409Q.4 Ceilings on loans 4409Q.5 Funds awaiting investment or distribution 4409Q.6 Other applicable regulations on loans and investments 4409Q.7 Operating and accounting methodology 4409Q.8-4409Q.15 (Reserved) 4409Q.16 Qualification and accreditation of quasi-banks acting as trustee on any mortgage or bond issuance by any municipality, government-owned or controlled corporation, or any body politic SECTION 4410Q. Unit Investment Trust Funds/Common Trust Funds 4410Q.1 Definition 4410Q.2 Establishment of a unit investment trust fund 4410Q.3 Administration of a unit investment trust fund 4410Q.4 Relationship of trustee with unit investment trust fund 4410Q.5 Operating and accounting methodology 4410Q.6 Plan rules 4410Q.7 Minimum disclosure requirements 4410Q.8 Exposure limit to single person/entity 4410Q.9 Allowable investments and valuation 4410Q.10 Other related guidelines on valuation of allowable investments 4410Q.11 Unit investment trust fund administration support 4410Q.12 Counterparties 4410Q.13 Foreign currency-denominated unit investment trust funds 4410Q.14 Exemptions from statutory and liquidity reserves, single borrowers limit, DOSRI SECTION 4411Q. Investment Management Activities 4411Q.1 Minimum documentary requirements 4411Q.2 Minimum size of each investment management account 4411Q.3 Commingling of funds 4411Q.4 Lending and investment disposition 4411Q.5 Transactions requiring prior authority 4411Q.6 Title to securities and other properties 4411Q.7 Ceilings on loans 4411Q.8 Operating and accounting methodology SECTION 4412Q. (Reserved) SECTION 4413Q. Required Retained Earnings Appropriation B. Investment Management Activities SECTION 4414Q. Authority to Perform Investment Management 4414Q.1 Prerequisites for engaging in investment management activities 4414Q.2 Pre-operating requirements SECTION 4415Q. Security for the Faithful Performance of Investment Management Activities 4415Q.1 Basic security deposit 4415Q.2 Eligible securities 4415Q.3 Valuation of securities and basis of computation of the basic security deposit requirement 4415Q.4 Compliance period; sanctions SECTION 4416Q. Organization and Management SECTION 4417Q. Non-Investment Management Activities SECTION 4418Q. Unsound Practices SECTION 4419Q. Conduct of Investment Management Activities SECTION 4420Q. Required Retained Earnings Appropriation C. General Provisions SECTION 4421Q. Books and Records SECTION 4422Q. Custody of Assets SECTION 4423Q. Fees and Commissions SECTION 4424Q. Taxes SECTION 4425Q. Reports Required 4425Q.1 To trustor, beneficiary, principal 4425Q.2 To the Bangko Sentral SECTION 4426Q. Audits 4426Q.1 Internal audit 4426Q.2 External audit 4426Q.3 Board action SECTION 4427Q. Authority Resulting from Merger or Consolidation SECTION 4428Q. Receivership SECTION 4429Q. Surrender of Trust or Investment Management License SECTIONS 4430Q 4440Q (Reserved) SECTION 4441Q. Securities Custodianship and Securities Registry Operations 4441Q.1 Statement of policy 4441Q.2 Applicability of this regulation 4441Q.3 Prior Bangko Sentral 4441Q.4 Application for authority 4441Q.5 Pre-qualification requirements for a securities custodian/registry 4441Q.6 Functions and responsibilities of a securities custodian 4441Q.7 Functions and responsibilities of a securities registry 4441Q.8 Protection of securities of the customer 4441Q.9 Independence of the registry and custodian 4441Q.10 Registry of scripless securities of the Bureau of the Treasury 4441Q.11 Confidentiality 4441Q.12 Compliance with anti-money laundering laws/regulations 4441Q.13 Basic security deposit 4441Q.14 Reportorial requirements 4441Q.15-4441Q.28 (Reserved) 4441Q.29 Sanctions SECTIONS 4442Q 4498Q (Reserved) SECTION 4499Q. Sanctions PART FIVE Foreign Exchange Operations SECTION 4501Q. Authority; Coverage SECTION 4502Q. Specific Foreign Exchange Activities SECTION 4503Q. Separate Department SECTION 4504Q. Applicability of Pertinent Bangko Sentral Rules SECTION 4505Q. Aggregate Ceiling on Issuance of Guarantees SECTIONS 4506Q 4598Q (Reserved) SECTION 4599Q. General Provision on Sanctions PART SIX Miscellaneous A. Other Operations SECTION 4601Q. Open Market Operations 4601Q.1 Settlement procedures SECTION 4602Q. Repurchase Agreements with the Bangko Sentral 4602Q.1 Reverse repurchase agreements with Bangko Sentral SECTION 4603Q. Derivatives 4603Q.1 Scope and pre-qualification requirements 4603Q.2 Transactions between parent and subsidiary 4603Q.3 Renewals 4603Q.4 Risk management guidelines 4603Q.5 Accounting guidelines 4603Q.6 Reporting requirements 4603Q.7 Sanctions 4603Q.8 4603Q.13 (Reserved) 4603Q.14 Forward and swap transactions 4603Q.15 Definition of terms 4603Q.16 Documentation 4603Q.17 Tenor/maturity of FX forward or swap 4603Q.18 Cancellations, roll-overs or non-delivery of FX forward contracts 4603Q.19 Non-deliverable forward contracts with non-residents 4603Q.20 Compliance with Anti-Money Laundering rules 4603Q.21 Reporting requirements 4603Q.22 4603Q.25 (Reserved) 4603Q.26 Sanctions SECTION 4604Q. Underwriting by Investment Houses SECTIONS 4605Q 4625Q (Reserved) SECTION 4626Q. Asset-Backed Securities 4626Q.1 Definition of terms 4626Q.2 Authority 4626Q.3 Management oversight 4626Q.4 Minimum documents required 4626Q.5 Minimum features of ABS 4626Q.6 Disclosures 4626Q.7 Conveyance of assets 4626Q.8 Representations and warranties 4626Q.9 Third party review 4626Q.10 Originator and seller 4626Q.11 Trustee and issuer 4626Q.12 Servicer 4626Q.13 Underwriter 4626Q.14 Guarantor 4626Q.15 Credit enhancement 4626Q.16 Clean-up call 4626Q.17 Prohibited activities 4626Q.18 Amendment 4626Q.19 Miscellaneous provision 4626Q.20 Report to Bangko Sentral SECTIONS 4627Q 4650Q (Reserved) B. Sundry Provisions SECTION 4651Q. NBQB Premises and Other Fixed Assets 4651Q.1 Appreciation or increase in book value of NBQB premises and other fixed assets 4651Q.2 (Reserved) 4651Q.3 Reclassification of real and other properties owned or acquired as NBQB premises 4651Q.4-4651Q.8 (Reserved) 4651Q.9 Batas Pambansa Blg. 344 An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments And Public Utilities To Install Facilities And Other Devices SECTION 4652Q. Annual Fees on Quasi-Banks SECTION 4653Q. Payment of Fines and Other Charges 4653Q.1 Payment of fines 4653Q.2 Check/demand draft payments to the Bangko Sentral SECTION 4654Q. Examination by the Bangko Sentral 4654Q.1 Definitions SECTION 4655Q. Applicability of Expanded Commercial Banking Rules on NBQBs SECTION 4656Q. Basic Laws Governing Investment Houses and Financing Companies SECTION 4657Q. Recognition and Derecognition of Domestic Credit Rating Agencies for Bank Supervisory Purposes 4657Q.1 Statement of policy 4657Q.2 Minimum eligibility criteria 4657Q.3 Pre-qualification requirements 4657Q.4 Inclusion in BSP list 4657Q.5 Derecognition of credit rating agencies 4657Q.6 Recognition of PhilRatings as domestic credit rating agency for bank supervisory purposes SECTIONS 4658Q 4660Q (Reserved) SECTION 4661Q. Examination by the BSP SECTIONS 4662Q 4690Q (Reserved) SECTION 4691Q. Anti-Money Laundering Regulations 4691Q.1 4691Q.8 (Reserved) 4691Q.9 Sanctions and Penalties SECTIONS 4692Q 4698Q (Reserved) SECTION 4699Q. General Provision on Sanctions LIST OF APPENDICES No. Subject Matter Q-1 Guidelines to Evaluate Investment Houses Q-2 Determination of Amount of Additional Capital the Entity Must Put Up Q-3 List of Reports Required from NBQBs Annex Q-3-a Information on One-Year Borrowing-Investment Program to be Submitted by NBQBs Annex Q-3-b Guidelines Governing the Consolidation of Financial Statements of Financial Intermediaries and their Allied Undertakings/Subsidiaries/Affiliates Annex Q-3-c Reporting Guidelines on Crimes/Losses Annex Q-3-d Documentary Requirements on Directors/Officers/Major Individual Stockholders Annex Q-3-e Documents/Information on Organizational Structure and Operational Policies Annex Q-3-f Guidelines on Calculating Additional Information Required in Published statement of Condition Q-4 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex Q-4-a Format of Resolution for Signatories of Category A-1 Reports Annex Q-4-b Format of Resolution for Signatories of Category A-2 Reports Annex Q-4-c Format of Resolution for Signatories of Categories A-3 and B Reports Q-5 Minimum Internal Control Standards for NBQBs Q-6 Standardized Deposit Substitute Instruments Q-7 New Rules on Registration of Short-Term Commercial Papers Q-8 New Rules on Registration of Long-Term Commercial Papers Q-9 List of Reserve Eligible and Non-Eligible Securities Q-10 Guidelines in Identifying and Monitoring Problem Loans and Other Risk Assets and Setting Up of Allowance for Probable Losses Q-11 Format-Disclosure Statement of Loan/Credit Transaction Q-12 Abstract of "Truth in Lending Act" (Republic Act No. 3765) Q-13 Agreement for the Enhanced Interbank Call Loan Funds Transfer System App. Q-13-a Settlement Procedures for Interbank Loan Transactions and Purchase and Sale of Government Securities under Repurchase Agreements with the Bangko Sentral App. Q-13-b Intraday Liquidity Facility for the Implementation of App. Q-13-a on the Improved Interbank Call Loan Funds Transfer System (MIPS 2) Q-14 Sample Investment Management Agreement Q-15 Risk Management Guidelines for Derivatives Q-16 Risk Disclosure Statement for Derivatives Activities Q-17 Accounting Guidelines for Derivatives Q-18 SEC Basic Rules and Regulations to Implement the Provisions of Presidential Decree No. 129, Otherwise Known as "The Investment Houses Law" Q-19 New Rules and Regulations to Implement the Provisions of Republic Act No. 5980 (The Financing Company Act), As Amended Q-20 Classification, Accounting Procedures, Valuation and Sales and Transfers of Investments in Debt Securities and Marketable Equity Securities App. Q-20-a Establishing the Market Benchmarks/Reference Prices and Computation Method Used to Mark-to-Market Debt and Marketable Equity Securities Q-21 Guidelines on the Use of Scripless (RoSS) Securities as Security Deposit for the Faithful Performance of Trust Duties Q-22 Proforma Payment Form Q-23 Anti-Money Laundering Regulations Annex Q-23-a Certification of Compliance with Anti-Money Laundering Regulations Annex Q-23-b Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions Annex Q-23-c Customer Due Diligence for Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions (NBQBs) Annex Q-23-c-1 General Identification Requirements Annex Q-23-d General Guide to Account Opening and Customer Identification Q-24 Activities Which May Be Considered Unsafe and Unsound Practices Q-25 Revised Implementing Rules and Regulations R.A. No. 9160, as Amended by R.A. No. 9194 Q-26 Investment Houses and Financing Companies (IH/FC) with Quasi-Banking Functions Reverse Repurchase Agreements with BSP Pro-forma Accounting Entries Q-27 Details on the Computation of Quarterly Interest Payments Credited to the Demand Deposit Accounts (DDAs) of Quasi-Banks' Legal Reserve Deposits with BSP Q-28 Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle or to an Individual App. Q-28-a Accounting Guidelines on the Sale of Non-Performing Assets to Special Purpose Vehicles and to Qualified Individuals for Housing Under "The Special Purpose Vehicle (SPV) Act of 2002" Annex Q-28-a-1 Illustrative Accounting Entries to Record Sale of NPAs to SPV under the SPV Law of 2002 Annex Q-28-a-2 Pro-Forma Disclosure Requirement Q-29 Guidelines and Minimum Documentary Requirements for Foreign Exchange (FX) Forward and Swap Transactions Q-30 Guidelines to Govern the Selection, Appointment and the Reporting Requirement for External Auditors of Quasi-Banks Q-31 Qualifications Requirements for a Bank/NBFI Applying for Accreditation to Act as Trustee on any Mortgage or Bond Issued by any Municipality, Government-Owned or Controlled Corporation, or any Body Politic Q-32 Rules and Regulations on Common Trust Funds Q-33 Checklist of BSP Requirements in the Submission of Audited Financial Statements and Annual Report App. Q-33-a Comparison of Audited Financial Statements and Submitted Consolidated Statement of Condition and Income and Expenses Q-34 Quarterly Investment Disclosure Statement PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101Q. Quasi-Banking Functions . Quasi-banking functions consist of the following: a. Borrowing funds for the borrower's own account; b. Twenty (20) or more lenders at any one time; DACcIH c. Methods of borrowing: issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as: (1) acceptances; (2) promissory notes; (3) participations; (4) certificates of assignment or similar instruments with recourse; (5) trust certificates; (6) repurchase agreements; and (7) such other instruments as the Monetary Board may determine; and d. Purpose: (1) relending; or (2) purchasing receivables or other obligations. As used in the definition of quasi-banking functions , the following terms and phrases shall be understood, as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in c and d above, whether the borrower's liability thereby is treated as real or contingent. For the borrower's own account shall refer to the assumption of liability in one's own capacity and not in representation, or as an agent or trustee, of another. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money, including interbank borrowings or borrowings between financial institutions, or of securities, of any amount and maturity, from domestic or foreign sources. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed in the absence of express stipulation, when the institution is regularly engaged in lending. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, i.e., continuous or consistent lending as distinguished from isolated lending transactions. SUBSECTION 4101Q.1 Financial intermediaries . Financial intermediaries shall mean persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them either for their own account or for the account of others. Principal shall mean chief, main, most considerable or important, of first importance, leading, primary, foremost, dominant or preponderant, as distinguished from secondary or incidental. Functions shall mean actions, activities or operations of a person or entity by which his/its business or purpose is fulfilled or carried out. The business or purpose of a person or entity may be determined from the purpose clause in its articles of incorporation/partnership, and from the nature of the business indicated in his/its application for registration of business filed with the appropriate government agency. To be considered a financial intermediary, a person or entity must perform any of the following functions on a regular and recurring, not on an isolated basis: a. Receive funds from one (1) group of persons, irrespective of number, through traditional deposits, or issuance of debt or equity securities; and make available/lend these funds to another person or entity, and in the process acquire debt or equity securities; b. Use principally the funds received for acquiring various types of debt or equity securities; c. Borrow against, or lend on, or buy or sell debt or equity securities; d. Hold assets consisting principally of debt or equity securities such as promissory notes, bills of exchange, mortgages, stocks, bonds, and commercial papers; e. Realize regular income in the nature of, but need not be limited to, interest, discounts, capital gains, underwriting fees, guarantees, fees, commissions, and service fees, principally from transactions in debt or equity securities or by being an intermediary between suppliers and users of funds. Non-banking financial intermediaries shall include the following: (1) A person or entity licensed and/or registered with any government regulatory body as a non-bank financial intermediary, such as investment house, investment company, financing company, securities dealer/broker, lending investor, pawnshop, money broker, fund manager, cooperative, insurance company, non-stock savings and loan association and building and loan association. (2) A person or entity which holds itself out as a non-banking financial intermediary, such as by the use of a business name, which includes the term financing, finance, investment, lending and/or any word/phrase of similar import which connotes financial intermediation, or an entity which advertises itself as a financial intermediary and is engaged in the function(s) where financial intermediation is implied. (3) A person or entity performing any of the functions enumerated in Items a to e of this Subsection. SUBSECTION 4101Q.2 Guidelines on lender count . The following guidelines shall govern lender count on borrowings or funds mobilized by non-bank financial intermediaries: a. For purposes of ascertaining the number of lenders/placers to determine whether or not a non-bank financial intermediary is engaged in quasi-banking functions, the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. In such case the actual/real lenders/placers as appearing in such proof, shall be the basis for counting the number of lenders/placers. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement, the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided, however , That a debt instrument issued in the name of a husband and wife followed by the word spouses, whether under an and , and/or or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement, shall be counted as one (1) borrowing/placement. b. Each debt instrument payable to bearer shall be counted as one (1) lender/placer except when the non-bank financial intermediary can prove that there is only one (1) owner for several debt instruments so payable. c. Two (2) or more debt instruments issued to the same payee, irrespective of the date and amount shall be counted as one (1) borrowing or placement. d. Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm, standby or best efforts basis shall be counted on the basis of the number of purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided, however , That in case of unsold debt instruments in a firm commitment underwriting, the underwriter shall be counted as a lender. e. Each buyer, assignee, and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale, assignment, and/or indorsement of securities, or receivables on a without recourse basis, whenever the terms and/or attendant documentation, practice, or circumstances indicate that the sale, assignment, and/or indorsement thereof legally obligates the non-bank financial intermediary to repurchase or reacquire the securities/receivables sold, assigned, indorsed or to pay the buyer, assignee, or indorsee at some subsequent time. SITCEA f. Funds obtained by way of advances from stockholders, directors, officers, regardless of nature, shall be considered borrowed funds or funds mobilized and such stockholders, directors or officers shall be counted in determining the number of lenders/placers. SUBSECTION 4101Q.3 Transactions not considered quasi-banking . The following shall not constitute quasi-banking: a. Borrowing by commercial, industrial and other non-financial companies, through the means listed in Sec. 4101Q for the limited purpose of financing their own needs or the needs of their agents or dealers; and b. The mere buying and selling without recourse of instruments mentioned in Sec. 4101Q: Provided , That: (1) The institution selling without recourse shall indicate or stamp in conspicuous print on the instrument/s, as well as on the confirmation of sale, the phrase without recourse or sans recourse and the following statement: (Name of non-bank) assumes no liability for the payment, directly or indirectly, of this instrument . (2) In the absence of the phrase without recourse or sans recourse and the above-required accompanying statement, the instrument so issued, endorsed or accepted shall automatically be considered as falling within the purview of the rules on quasi-banking. Provided, further , That any of the following practices or practices similar and/or tantamount thereto in connection with a without recourse transaction renders such transaction as with recourse and within the purview of the rules on quasi-banking. i. Issuance of postdated checks by a financial intermediary, whether for its own account or as an agent of the debt instrument issuer, in payment of the debt instrument sold, assigned or transferred without recourse; ii. Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignment of debt instruments without recourse; or iii. Payment with the funds of the financial intermediary which assigned, sold or transferred the debt instrument without recourse, unless the financial intermediary can show that the issuer has with the said financial intermediary funds corresponding to the amount of the obligation. Any investment house violating the provisions of this Subsection shall be subject to the sanctions provided in Sections 12 and 16 of P.D. No. 129, as amended. SUBSECTION 4101Q.4 Delivery of securities 1 . a. Securities sold on a without recourse basis allowed under Subsec. 4101Q.3(b) shall be delivered physically to the purchaser, or to his designated custodian duly accredited by the BSP, if certificated, or by means of book-entry transfer to the appropriate securities account of the purchaser or his designated BSP accredited custodian in a registry for said securities, if immobilized or dematerialized, while the confirmation of sale or document of conveyance by the seller shall be physically delivered to the purchaser. The custodian shall hold the securities in the name of the buyer: Provided , That an NBQB/other entity authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said NBFI, its subsidiaries or affiliates, or of securities in bearer form. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by the authorized officer of the custodian and delivered to the purchaser. b. Sanctions . Violation of any provision of this Subsection shall be subject to the following sanctions/penalties: (1) Monetary penalties First offense Fine of P10,000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. Subsequent offenses Fine of P20,000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. (2) Other sanctions First offense Reprimand for the directors/officers responsible for the violation. Subsequent offense (a) Suspension for ninety (90) days without pay of directors/officers responsible for the violation; (b) Suspension or revocation of the accreditation to perform custodianship function; (c) Suspension or revocation of the authority to engage in quasi-banking function; and/or (d) Suspension or revocation of the authority to engage in trust and other fiduciary business. SUBSECTION 4101Q.5 Securities custodianship operations . a. Securities sold on a without recourse basis shall be delivered to the purchaser, or to his designated custodian duly accredited by the BSP: Provided , That a bank/other entity authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said NBQB/entity, its subsidiaries or affiliates, or of securities in bearer form. Existing securities being held under custodianship by NBQBs/other entities under BSP supervision, which are not in accordance with said regulation, must therefore, be delivered to a BSP accredited third party custodian. However, banks and other financial institutions under BSP supervision may maintain custody of existing securities of their clients who are unable or unwilling to take delivery pursuant to the provisions of this Subsection but who declined to deliver their existing securities to a BSP accredited third party custodian subject to the following conditions: (1) the custody arrangements with clients have been in existence prior to 05 November 2004 (effectivity date of Circular 457 dated 14 October 2004); (2) the dealing bank/NBFI under BSP supervision had been informed in writing by the client that he is not willing to have his existing securities delivered to a third party custodian; (3) any BSP regulated institution shall not enter into securities transactions with a client who has outstanding securities not delivered to a BSP accredited third party custodian; and (4) it shall be the responsibility of any BSP regulated institution to satisfy itself that the person purchasing securities from it has no outstanding securities holdings which were not delivered to a BSP accredited third party custodian. b. Sanctions . Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37, respectively, of the R.A. No. 7653, violation of any provision of this Subsection shall be subject to the following sanctions/penalties: (1) First Offense (a) Fine of up to P10,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (b) Reprimand for the directors/officers responsible for the violation. (2) Second Offense (a) Fine of up to P20,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (b) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. (3) Subsequent Offenses (a) Fine of up to P30,000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected; (b) Suspension or revocation of the authority to act as securities custodian and/or registry; and (c) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. SECTION 4102Q. Preconditions for the Exercise of Quasi-Banking Functions . No person or entity shall engage in quasi-banking functions without authority from the BSP. Only a duly incorporated non-bank financial institution (NBFI) organized as stock corporation may undertake or perform quasi-banking functions as defined in Sec. 4101Q. An NBFI securing BSP authority to engage in quasi-banking functions must meet the following requirements: a. It must have complied with the minimum adjusted capital accounts of at least P650 million or such amounts as may be required by the Monetary Board in the future; b. It has generally complied with applicable laws, rules and regulations, orders or instructions of appropriate authority, including the Monetary Board and/or BSP Management where applicable; c. Its accounting records, systems and procedures as well as internal control systems are satisfactorily maintained; d. It does not have float items outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/Branches/Offices" accounts exceeding one percent (1%) of the total resources as of end of preceding month; e. It has no past due obligation with any financial institution as of date of application; f. The officers who will be in-charge of the QB operations have actual experience of at least two (2) years in a bank or quasi-bank as in-charge (or at least as assistant in-charge). The directors of the NBFI, officer-in-charge of the QB operations and the managerial staff must comply with the fit and proper rule prescribed under existing law/rules and regulations; g. The NBFI has elected at least two (2) independent directors and all its directors have attended the required seminar for directors of banks/quasi-banks conducted or accredited by the BSP. h. It has not engaged in unsafe and unsound practices during the past six (6) months immediately preceding the date of application where applicable; i. It must have in place a comprehensive risk management system approved by its board of directors appropriate to its operations characterized by a clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal control and complete, timely and efficient risk reporting systems. In this connection, a manual of operations and other related documents embodying the risk management system must be submitted to the appropriate supervising and examining department of the BSP at the time of application for authority and within thirty (30) days from updates. SECTION 4103Q. Certificate of Authority from the Bangko Sentral . An NBFI securing BSP's Certificate of Authority to engage in quasi-banking functions shall file an application with the appropriate supervising and examining department of the BSP. The application shall be signed by the NBFI president or officer of equivalent rank and shall be accompanied by the following documents: 1. Certified true copy of the resolution of the NBFI's board of directors authorizing the application. a. A certification signed by the president or the officer of equivalent rank that the institution has complied with all conditions/prerequisites for the grant of authority to engage in quasi-banking functions; b. An information sheet; c. Bio-data signed under oath, of the members of the managerial staff who will undertake quasi-banking operations; and d. Borrowing-investment program for one (1) year which should include at the minimum: (1) planned distribution of portfolios to (a) underwriting; (b) commercial paper markets; (c) stocks and bonds; (d) government securities; (e) receivables financing, discounting and factoring; (f) leasing; and (g) direct loans; (2) expected sources of funds to support investment program classified as to (a) maturity: short, medium and long-term; (b) interest rates; and (c) domestic or foreign sources whether institutional or personal. NBFI's authorized to engage and are actually performing quasi-banking functions but do not meet the new capital requirement are hereby given a period of two (2) years reckoned from 11 November 2004 within which to comply with the minimum capital requirement in Sec. 4102Q(a): Provided , That this may be substituted by a capital build-up program for a period of not more than five (5) years and which must be approved by the Monetary Board. Such capital build-up program shall be in equal annual or diminishing amounts and shall be submitted to the appropriate supervising and examining department within three (3) months from 11 November 2004. NBFIs which fail to comply with the required capitalization upon expiration of said two (2) year period given them or those which fail to comply with approved capital build-up program shall liquidate their quasi-banking operations within one (1) year and shall be considered revoked/cancelled. SECTION 4104Q. Bangko Sentral Certificate of Authority . The BSP shall issue a Certificate of Authority upon proof that the applicant has complied with the requirements of Secs. 4102Q and 4103Q and of pertinent laws and regulations. In the case of a merger or consolidation of two (2) or more NBQBs, the authority shall continue to have full force and effect. For documentation purposes, in the case of a merger, the Certificate of Authority of the absorbing corporation shall be maintained; and with respect to consolidation, a new certificate shall be issued to the new corporation. The Certificate of Authority of the absorbed corporation in a merger and the certificates of the consolidated corporations in a consolidation shall be surrendered to the appropriate department of the BSP. SECTION 4105Q. Licensing of an Investment House . Applications for license as an investment house referred to the BSP by the Securities and Exchange Commission (SEC) pursuant to P.D. No. 129 shall be evaluated in accordance with the Guidelines to Evaluate Investment Houses prescribed in Appendix Q-1 . B. Capitalization SECTION 4106Q. Minimum Capitalization . An NBQB shall have a minimum combined capital accounts of P50 million. Combined capital accounts shall mean the total of capital stock, retained earnings and profit and loss summary, net of (a) such unbooked valuation reserves and other capital adjustments as may be required by the BSP and (b) total outstanding unsecured credit accommodations, both direct and indirect, to directors, officers, all stockholders and their related interests (DOSRI). With respect to Item (b) hereof, the provisions of Sec. 4356Q shall apply except that in the definition of stockholders in said Section, the qualification that his stockholdings, individually and/or together with his related interests in the lending NBQB, amount to ten percent (10%) or more of the total subscribed capital stock of the NBQB, shall not apply for purposes of this Item. Any appraisal surplus or appreciation credit as a result of appreciation or an increase in book value of the assets of the NBQB shall be excluded, except in the case of merger and consolidation, where the appraisal increment resulting from the revaluation shall form part of capital for purposes of determining single borrower's limit and capital-to-risk assets ratio. aHADTC Any foreign equity shall be registered with and approved by the Board of Investments and the appropriate department of the BSP. SECTION 4107Q. Minimum Capital of Investment House . The minimum paid-in capital requirement for an investment house shall be P300 million pursuant to R.A. No. 129, as amended by R.A. No. 8366. SECTION 4108Q. Sanctions . Any or all of the following sanctions may be imposed on any NBQB which fails to maintain at least the applicable minimum capital under Secs. 4106Q and 4107Q: (1) Suspension of authority to engage in quasi-banking functions; (2) Suspension of authority to engage in trust/investment management activities (in the case of an investment house); (3) Cease-and-desist order (in the case of an investment house); (4) No new/renewal/extension of credit accommodations to DOSRI; (5) Prohibition against declaration of cash dividends; (6) Suspension of the privilege to establish and/or open approved branches, agencies, offices, etc.; and (7) Other sanctions as may be imposed by the Monetary Board. SECTIONS 4109Q 4110Q (Reserved) C. Merger/Consolidation SECTION 4111Q. Merger/Consolidation Involving Quasi-Banks . The merger/consolidation of NBQBs is encouraged to meet minimum capital requirements and to develop larger and stronger financial institutions. NBQBs which are investment houses are likewise encouraged to merge with banks to obtain authority to perform expanded commercial banking functions. Mergers/consolidations involving NBQBs shall comply with the provisions of applicable law and shall be subject to approval by the BSP. For purposes of merger and consolidation of NBQBs, the following definitions shall apply: a. Merger is the absorption of one (1) or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises, and properties, and assumes all the liabilities and obligations of the absorbed corporation(s) in the same manner as if it had itself incurred such liabilities or obligations. The absorbing corporation continues its existence while the life or lives of the other corporation(s) is/are terminated. b. Consolidation is the union of two (2) or more corporations into a single new corporation, called the consolidated corporation, all the constituent corporations thereby ceasing to exist as separate entities. The consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities, franchises and properties, and assume all the liabilities and obligations of each of the constituent corporations in the same manner as if it had itself incurred such liabilities or obligations. SECTION 4112Q. Merger/Consolidation Incentives . In pursuance of the policy to promote mergers and consolidations among banks and other financial intermediaries as a means to develop larger and stronger financial institutions, constituent entities may, subject to BSP approval, avail themselves of any or all of the following incentives: a. Revaluation of premises, improvements and equipment of the institutions: Provided , That such revaluation shall be based on fair valuation of the property conducted by a reputable appraisal company which shall be subject to review and approval by the BSP; The following rules shall govern the revaluation of assets: (1) The revaluation of the NBQB's premises, improvements and equipment shall be allowed only to all institutions participating in a merger/consolidation if all of them belong to the same category, or at least two (2) of them belong to the highest category among the merging/consolidating institutions. (2) In case the merging/consolidating institutions do not belong to the same category or only one (1) of them falls under the highest category, all of them may be allowed to revalue their premises, improvements and equipment: Provided , That the amount of appraisal increment resulting from such revaluation shall be limited to the amount of the total resources of the institution belonging to the lower category or categories. (3) The appraisal increment resulting from the revaluation shall form part of capital for purposes of determining the single borrower's limit and capital-to-risk assets ratio. The use of appraisal increment for cash dividend shall be governed by the provisions of the Corporation Code. (4) The revaluation of premises, improvements, and equipment of the institution as well as the recognition of goodwill as an incentive to mergers/consolidations shall only be allowed if the following conditions are met: (i) The surviving or consolidated entity will meet the existing capital requirements after all adjustments are taken up in the books of accounts of the merging/consolidating entities but before considering appraisal increments and goodwill, or there will be infusion of fresh capital to meet said existing capital requirements; and (ii) The merger/consolidation will result in a more viable financial institution as a result of cost savings and improve competitive position. In case of purchase or acquisition of the majority or all of the outstanding shares of stock of an NBQB, the same conditions must be satisfied. b. Unbooked valuation reserves based upon BSP examination and other capital adjustments resulting from the merger/consolidation may be booked on staggered basis over a maximum period of five (5) years. The following guidelines shall govern the staggered booking of valuation reserves: (1) The booking on staggered basis over a maximum period of five (5) years of unbooked valuation reserves based upon examination by the BSP may be allowed to all institutions participating in a merger/consolidation if all of them belong to the same category, or at least two (2) of them belong to the highest category among the merging/consolidating institutions. (2) In case the merging/consolidating institutions do not belong to the same category or only one (1) of them falls under the highest category, all of them may be allowed to book the required valuation reserves based upon examination by the BSP on a staggered basis over a maximum period of five (5) years: Provided , That the aggregate amount of the required valuation reserves shall be limited to the amount of the total resources of the institution belonging to the lower category or categories. c. If by reason of merger/consolidation, the resulting NBQB is unable to comply fully with the prescribed net worth-to-risk assets ratio, the Monetary Board may, at its discretion, temporarily relieve the NBQB from full compliance with this requirement under such conditions as it may prescribe; In the case of purchase or acquisition of majority or all of the outstanding shares of an NBQB by a bank/another NBQB, the revaluation of assets and the booking of the required valuation reserves based upon examination by the BSP over a period of five (5) years shall be allowed only if such purchase or acquisition is for the purpose of rehabilitating the former NBQB: Provided , That the revaluation of assets and staggered booking of reserves shall be allowed in full only if the purchaser is another NBQB and both the NBQBs belong to the same category. Otherwise, only the NBQB being acquired/rehabilitated shall be allowed to recognize in full the appraisal increment resulting from revaluation of assets and to book valuation reserves on a staggered basis, while in the case of the acquiring bank/NBQB, the appraisal increment resulting from revaluation of assets and the privilege of staggered booking of valuation reserves shall each be limited to the amount of the total resources of the NBQB being acquired/rehabilitated. d. Conversion or upgrading of the existing head offices, branches and/or other offices of the merged/absorbed institutions into branches of the new or surviving financial institution; e. Amortization of goodwill up to a maximum period of forty (40) years if there are compelling reasons to extend for this long, otherwise the amortization shall not be longer than ten (10) years; IDTcHa The recognition of goodwill as an incentive to mergers/consolidations shall only be allowed subject to the conditions in Item " a(4) ". f. Relocation of branches/offices may be allowed within one (1) year from date of merger/consolidation in cases where the merger/consolidation resulted in duplication of branches/offices in a service area, or in such other cases/circumstances as the Monetary Board may prescribe; g. Outstanding penalties in legal reserve deficiencies and interest on overdrafts with the BSP as of the date of merger/consolidation may be paid in installments over a period of one (1) year; h. Restructuring/plan of payment of past due obligations of the proponents with the BSP as of the date of merger/consolidation over a period not exceeding ten (10) years; i. Subject to approval of the Monetary Board, concurrent officerships between a merged/consolidated bank/financial institution and another bank/financial institution may be allowed; and j. Any right or privilege granted a merging bank under a rehabilitation program previously approved by the Monetary Board or under any special authority previously granted by the Monetary Board shall continue to be in effect. The revaluation of assets and staggered booking of valuation reserves shall be available for a period of two (2) years from February 19, 1999 while the rest of the incentives enumerated under Sec. 4112Q shall be available for a period of three (3) years from August 31, 1998. The foregoing incentives may also be granted in cases of purchases or acquisitions of majority or all of the outstanding shares of stock of an NBQB. SECTIONS 4113Q 4115Q (Reserved) D. Risk-Based Capital Adequacy Ratio SECTION 4116Q. Minimum Ratio . The risk-based capital ratio of a quasi-bank, expressed as a percentage of qualifying capital to risk-weighted assets, shall not be less than ten percent (10%) for both solo basis (head office plus branches) and consolidated basis (parent quasi-bank plus subsidiary financial allied undertakings, but excluding insurance companies). The ratio shall be maintained daily. This shall be effective January 1, 2004. SUBSECTION 4116Q.1 Qualifying capital . The qualifying capital shall be the sum of a. Tier 1 (core) capital (1) Paid-up common stock; (2) Paid-up perpetual and non-cumulative preferred stock; (3) Common stock dividends distributable; (4) Perpetual and non-cumulative preferred stock dividends distributable; (5) Surplus; (6) Surplus reserves; (7) Undivided profits; and (8) Minority interest in the equity of subsidiary financial allied undertakings which are less than wholly-owned: Provided , That a quasi-bank shall not use minority interests in the equity accounts of consolidated subsidiaries as avenue for introducing into its capital structure elements that might not otherwise qualify as Tier 1 capital or that would, in effect, result in an excessive reliance on preferred stock within Tier 1: Provided, further , That the following items shall be deducted from the total of Tier 1 capital: (a) Common stock treasury shares; (b) Perpetual and non-cumulative preferred stock treasury shares; (c) Net unrealized losses on underwritten listed equity securities purchased (for IH); (d) Unbooked valuation reserves and other capital adjustments based on the latest report of examination as approved by the Monetary Board; (e) Total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI; (f) Deferred income tax; and (g) Goodwill; and b. Tier 2 (supplementary) capital which shall be the sum of (1) Upper Tier 2 capital (a) Paid-up perpetual and cumulative preferred stock; (b) Perpetual and cumulative preferred stock dividends distributable; (c) Appraisal increment reserve quasi-bank premises, as authorized by the Monetary Board; (d) Net unrealized gains on underwritten listed equity securities purchased: Provided , That the amount thereof that may be included in upper Tier 2 capital shall be subject to a fifty-five percent (55%) discount (for IH); (e) General loan loss provision: Provided , That the amount thereof that may be included in upper Tier 2 capital shall be limited to a maximum of one and twenty-five hundredths percent (1.25%) of gross risk-weighted assets, and any amount in excess thereof shall be deducted from the total risk-weighted assets in computing the denominator of the risk-based capital ratio; (f) With prior BSP approval, unsecured subordinated debt with a minimum original maturity of at least ten (10) years, subject to the following conditions: i. It must not be secured nor covered by a guarantee of the issuer or related party; ii. It must be subordinated in the right of payment of principal and interest to all creditors of the quasi-bank, except those creditors expressed to rank equally with, or behind holders of the debt. Subordinated creditors must waive their right to set off any amounts they owe the quasi-bank against subordinated amounts owed to them by the quasi-bank. The issue documentation must clearly state that the debt is subordinated; iii. It must be fully paid-up. Only the net proceeds actually received from debt issues can be included as capital. If the debt is issued at a premium, the premium cannot be counted as part of capital; iv. It must not be redeemable at the initiative of the holder; v. It must not contain any clause which requires acceleration of payment of principal, except in the event of insolvency; vi. It must not be repayable prior to maturity without the prior consent of the BSP: Provided , That repayment may be allowed in connection with call option only after a minimum of five (5) years from issue date and only if (1) the quasi-bank's capital ratio is at least equal to the required minimum capital ratio; and (2) the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue; vii. It may allow a moderate step-up in the interest rate in conjunction with a call option, only if the step-up occurs at a minimum of ten (10) years after the issue date and if it results in an increase over the initial rate that is not more than 100 basis points: Provided , That only one (1) rate step up shall be allowed over the life of the instrument; AaSHED viii. It must provide for possible conversion into common shares or preferred shares or possible deferral of payment of principal and interest if the quasi-bank's capital ratio becomes less than the required minimum capital ratio; ix. It must provide for the principal and interest on the debt to absorb losses where the quasi-bank would not otherwise be solvent; x. It must allow deferment of interest payment on the debt in the event of, and at the same time as, the elimination of dividends on all outstanding common or preferred stock of the issuer. It is acceptable for the deferred interest to bear interest, but the interest rate payable on deferred interest should not exceed market rates; xi. It must be underwritten by a third party not related to the issuer quasi-bank nor acting in reciprocity for and in behalf of the issuer quasi-bank; xii. It must be issued in minimum denominations of at least P500,000 or its equivalent; and xiii. It must clearly state on its face that it is not a deposit and is not insured by the Philippine Deposit Insurance Corporation (PDIC): Provided , That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.e., twenty percent (20%) if the remaining life is four (4) years to less than five (5) years, forty percent (40%) if the remaining life is three (3) years to less than four (4) years, etc.]: Provided, further, That where it is denominated in a foreign currency, it shall be revalued periodically (at least monthly) in Philippine peso at prevailing exchange rate using the same exchange rate used for revaluation of foreign currency-denominated assets, liabilities and forward contracts under existing regulations: Provided, furthermore , That, for purposes of reserve requirement regulation, it shall not be treated as a deposit substitute liability or other forms of borrowings; (g) Deposit for common stock subscription; and (h) Deposit for perpetual and noncumulative preferred stock subscription: Provided , That the following items shall be deducted from the total of upper Tier 2 capital: i. Perpetual and cumulative preferred stock treasury shares; (2) Lower Tier 2 capital (a) Paid-up limited life redeemable preferred stock: Provided , That these shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.e., twenty percent (20%) if the remaining life is four (4) years to less than five (5) years, forty percent (40%) if the remaining life is three (3) years to less than four (4) years, etc.]; (b) Limited life redeemable preferred stock dividends distributable; (c) With prior BSP approval, unsecured subordinated debt with a minimum original maturity of at least five (5) years, subject to the following conditions: i. It must not be secured nor covered by a guarantee of the issuer or related party; ii. It must be subordinated in the right of payment of principal and interest to all creditors of the quasi-bank, except those creditors expressed to rank equally with, or behind holders of the debt. Subordinated creditors must waive their right to set off any amounts they owe the quasi-bank against subordinated amounts owed to them by the quasi-bank. The issue documentation must clearly state that the debt is subordinated; iii. It must be fully paid-up. Only the net proceeds actually received from debt issues can be included as capital. If the debt is issued at a premium, the premium cannot be counted as part of capital; iv. It must not be redeemable at the initiative of the holder; v. It must not contain any clause which requires acceleration of payment of principal, except in the event of insolvency; vi. It must not be repayable prior to maturity without the prior consent of the BSP: Provided , That repayment may be allowed in connection with call option only after a minimum of five (5) years from issue date and only if (1) the quasi-bank's capital ratio is at least equal to the required minimum capital ratio; and (2) the debt is simultaneously replaced with issues of new capital which is neither smaller in size nor of lower quality than the original issue; vii. It may allow a moderate step-up in the interest rate in conjunction with a call option, only if the step-up occurs at a minimum of five (5) years after the issue date and if it results in an increase over the initial rate that is not more than 100 basis points or fifty percent (50%) of the initial credit spread, at the option of the bank: Provided , That only one (1) rate step up shall be allowed over the life of the instrument; viii. It must be underwritten by a third party not related to the issuer quasi-bank nor acting in reciprocity for and in behalf of the issuer quasi-bank; ix. It must be issued in minimum denominations of at least P500,000 or its equivalent; and x. It must clearly state on its face that it is not a deposit and is not insured by the PDIC: Provided , That it shall be subject to a cumulative discount factor of twenty percent (20%) per year during the last five (5) years to maturity [i.e., twenty percent (20%) if the remaining life is four (4) years to less than five (5) years, forty percent (40%) if the remaining life is three (3) years to less than four (4) years, etc.]: Provided, further , That where it is denominated in a foreign currency, it shall be revalued periodically (at least monthly) in Philippine peso using the same exchange rate used for revaluation of foreign currency-denominated assets, liabilities and forward contracts under existing regulations: Provided, finally , That, for purposes of reserve requirement regulation, it shall not be treated as equivalent to a deposit substitute liability or other forms of borrowings; and (d) Deposit for perpetual and cumulative preferred stock subscription; Provided , That the following items shall be deducted from the total of Lower Tier 2 capital: (1) Limited life redeemable preferred stock treasury shares; and (2) Sinking fund for redemption of limited life redeemable preferred stock: Provided , That the amount to be deducted shall be limited to the balance of redeemable preferred stock after applying the cumulative discount factor: Provided, further , That the total amount of lower Tier 2 capital that may be included in the Tier 2 capital shall be a maximum of fifty percent (50%) of total Tier 1 capital (net of deductions therefrom): Provided, furthermore , That the total amount of upper and lower Tier 2 capital that may be included in the qualifying capital shall be a maximum of 100% of total Tier 1 capital (net of deductions therefrom); EaIDAT c. Less deductions from the total of Tier 1 and Tier 2 capital, as follows : (1) Investments in equity of unconsolidated subsidiary banks and other subsidiary financial allied undertakings, but excluding insurance companies (for solo basis); (2) Investments in debt capital instruments of unconsolidated subsidiary banks (for solo basis); (3) Investments in equity of subsidiary insurance companies and subsidiary nonfinancial allied undertakings; (4) Reciprocal investments in equity of other banks/enterprises; and (5) Reciprocal investments in unsecured subordinated term debt instruments of other banks/quasi-banks in excess of the lower of (i) an aggregate ceiling of five percent (5%) of total Tier 1 capital of the quasi-bank; or (ii) ten percent (10%) of the total outstanding unsecured subordinated term debt issuance of the other bank/quasi-bank: Provided , That any asset deducted from the qualifying capital in computing the numerator of the risk-based capital ratio shall not be included in the risk-weighted assets in computing the denominator of the ratio. SUBSECTION 4116Q.2 Risk-weighted assets . The risk-weighted assets shall be determined by assigning risk weights to amounts of on-balance sheet assets and to credit equivalent amounts of off-balance sheet items (inclusive of derivative contracts): Provided , That the following shall be deducted from the total risk-weighted assets: (1) general loan loss provision (in excess of the amount permitted to be included in upper Tier 2 capital); and (2) unbooked valuation reserves and other capital adjustments affecting asset accounts based on the latest report of examination as approved by the Monetary Board. a. On-balance sheet assets . The risk-weighted amount shall be the product of the book value of the asset multiplied by the risk weight associated with that asset, as follows: (1) Zero percent (0%) risk weight (a) Cash on hand; (b) Claims on or portions of claims guaranteed by or collateralized by securities issued by i. Philippine national government and BSP; and ii. Central governments and central banks of foreign countries with the highest credit quality as defined in Subsec. 4116Q.3; (c) Loans to the extent covered by holdout on, or assignment of deposit substitutes maintained with the lending quasi-bank; (d) Portions of loans covered by Industrial Guarantee and Loan Fund (IGLF) guarantee; (e) Real estate mortgage loans to the extent guaranteed by the Home Guaranty Corporation (HGC); (f) Loans to the extent guaranteed by the Trade and Investment Development Corporation of the Philippines (TIDCORP); (g) Residual value of leased equipment to the extent covered by deposits on lease contracts (for FCs); (h) Lease contract receivables to the extent covered by the excess of deposits on lease contracts over residual value of leased equipment (for FCs); and (i) Foreign currency notes and coins on hand acceptable as international reserves; (2) Twenty percent (20%) risk weight (a) Checks and other cash items (COCIs); (b) Claims on or portions of claims guaranteed by or collateralized by securities issued by non-central government public sector entities of foreign countries with the highest credit quality as defined in Subsec. 4116Q.3; (c) Claims on or portions of claims guaranteed by Philippine incorporated banks/quasi-banks with the highest credit quality as defined in Subsec. 4116Q.3; (d) Claims on or portions of claims guaranteed by foreign incorporated banks with the highest credit quality as defined in Subsec. 4116Q.3; (e) Claims on or portions of claims guaranteed by or collateralized by securities issued by multilateral development banks; (f) Loans to exporters to the extent guaranteed by Small Business Guarantee and Finance Corporation (SBGFC); and (g) Foreign currency checks and other cash items denominated in currencies acceptable as international reserves; (3) Fifty percent (50%) risk weight (a) Loans for housing purpose, fully secured by first mortgage on residential property that is or will be occupied or leased out by the borrower; and (b) Local government unit (LGU) bonds which are covered by deed of assignment of Internal Revenue Allotment of the LGU and guaranteed by the LGU Guarantee Corporation; (4) One hundred percent (100%) risk weight All other assets including, among others, the following: (a) Claims on central governments and central banks of foreign countries other than those with the highest credit quality; (b) Claims on Philippine local government units; (c) Claims on non-central government public sector entities of foreign countries other than those with the highest credit quality; (d) Claims on government-owned or controlled commercial corporations; (e) Claims on Philippine incorporated banks/quasi-banks other than those with the highest credit quality; (f) Claims on foreign incorporated banks other than those with the highest credit quality; (g) Loans to companies engaged in speculative residential building or property development; (h) Claims on the private sector (except those deducted from capital); (i) Equity investments (except those deducted from capital); (j) Equipment and other real estate for lease (for FCs); (k) Real estate for sale/lease; (l) Quasi-bank premises, furniture, fixtures and equipment (net); (m) Appraisal increment Quasi-bank premises, furniture, fixtures and equipment (net); (n) Real and other properties owned or acquired (net); (o) Foreign currency notes and coins on hand not acceptable as international reserves; and (p) Foreign currency checks and other cash items not denominated in foreign currencies acceptable as international reserves, except those which are deducted from capital, as follows: (i) Unsecured credit accommodations, both direct and indirect, to DOSRI; (ii) Deferred income tax; HICSaD (iii) Goodwill; (iv) Sinking fund for redemption of limited life redeemable preferred stock; (v) Equity investments in unconsolidated subsidiary banks and other subsidiary financial allied undertakings, but excluding insurance companies; (vi) Investments in debt capital instruments of unconsolidated subsidiary banks; (vii) Equity investments in subsidiary insurance companies and subsidiary nonfinancial allied undertakings, (viii) Reciprocal investments in equity of other banks/enterprises; and (ix) Reciprocal investments in unsecured subordinated term debt instruments of other banks/quasi-banks, in excess of the lower of (i) an aggregate ceiling of five percent (5%) of total Tier 1 capital of the quasi-bank; or (ii) ten percent (10%) of the total outstanding unsecured subordinated term debt issuance of the other bank/quasi-bank; b. Off-balance sheet items . The risk-weighted amount shall be calculated using a two (2)-step process. First , the credit equivalent amount of an off-balance sheet item shall be determined by multiplying its notional principal amount by the appropriate credit conversion factor, as follows: (1) One hundred percent (100%) credit conversion factor This shall apply to direct credit substitutes, e.g. general guarantees of indebtedness and acceptances (including endorsements with the character of acceptances), and shall include (a) Outstanding guarantees issued This shall also apply to sale and repurchase agreements and asset sales with recourse where the credit risk remains with the quasi-bank (to the extent not included in the balance sheet), as well as to forward asset purchases, and partly-paid shares and securities, which represent commitments with certain drawdown: Provided , That these items shall be weighted according to the type of asset and not according to the type of counterparty with whom the transaction has been entered into. (2) Fifty percent (50%) credit conversion factor This shall apply to (a) Note issuance facilities and revolving underwriting facilities (for IHs); and (b) Other commitments, e.g., formal standby facilities and credit lines with an original maturity of more than one (1) year. This shall include (i) Underwritten accounts unsold (for IHs). (3) Zero percent (0%) credit conversion factor This shall apply to commitments with an original maturity of up to one (1) year. This shall also apply to those not involving credit risk, and shall include (a) Items held for safekeeping/custodianship; (b) Trust department accounts; (c) Items held as collaterals; etc. Second , the credit equivalent amount shall be treated like any on-balance sheet asset and shall be assigned the appropriate risk weight, i.e., according to the obligor, or if relevant, the qualified guarantor or the nature of collateral. c. Derivative contracts . The credit equivalent amount shall be the sum of the current credit exposure (or replacement cost) and an estimate of the potential future credit exposure (or add-on): Provided , That the following shall not be included in the computation: (1) Instruments which are traded on exchange where they are subject to daily receipt and payment of cash variation margin; and (2) Exchange rate contracts with original maturity of fourteen (14) calendar days or less. The current credit exposure shall be the positive mark-to-market value of the contract (or zero if the mark-to-market value is zero or negative). The potential future credit exposure shall be the product of the notional principal amount of the contract multiplied by the appropriate potential future credit conversion factor, as indicated below: Residual Interest Exchange Maturity Rate Rate Contract Contract One (1) year or less 0.0% 1.0% Over one (1) year to five (5) years 0.5% 5.0% Over five (5) years 1.5% 7.5% Provided , That for contracts with multiple exchanges of principal, the factors are to be multiplied by the number of remaining payments in the contract: Provided, further , That for contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set equal to the time until the next reset date, and in the case of interest rate contracts with remaining maturities of more than one (1) year that meet these criteria, the potential future credit conversion factor is subject to a floor of five tenths percent (0.5%): Provided, furthermore , That no potential future credit exposure shall be calculated for single currency floating/floating interest rate swaps, i.e., the credit exposure on these contracts would be evaluated solely on the basis of their mark-to-market value. The credit equivalent amount shall be treated like any on-balance sheet asset, and shall be assigned the appropriate risk weight, i.e., according to the obligor, or if relevant, the qualified guarantor or the nature of collateral: Provided , That a fifty percent (50%) risk weight shall be applied in respect of obligors which would otherwise attract a 100% risk weight. The extent to which a claim is guaranteed/collateralized shall be determined by the amount of guarantee coverage/current market value of securities pledged, in comparison with the book value of the on-balance sheet asset or the notional principal amount of the off-balance sheet exposure, except for derivative contracts for which determination is generally made in relation to credit equivalent amount. SUBSECTION 4116Q.3 Definitions . a. Amount due from the BSP . This refers to all deposits of the reporting quasi-bank with the BSP. b. Appraisal increment reserve . This shall form part of capital only if authorized by the Monetary Board. c. Quasi-bank premises, furniture, fixtures and equipment net of depreciation . This refers to the cost of land and improvements used as the quasi-bank premises, and furniture, fixtures and equipment owned by the quasi-bank. d. Cash on hand . This refers to total cash held by the quasi-bank consisting of both notes and coins in Philippine currency. e. Central government of a foreign country . This refers to the central government which is regarded as such by a recognized banking supervisory authority in that country. f. Claims . This refers to loans or debt obligations of the entity on whom the claim is held, and shall include, but shall not be limited to, the following accounts, inclusive of accumulated market gains/(losses) and accumulated bond discount/(premium amortization), and net of specific allowance for probable losses: (1) Due from BSP; (2) Due from other banks; (3) Interbank loans receivable; (4) Loans and discounts, including lease contract receivables, net of advance leasing income received and receivables financed (for FCs); (5) Restructured loans; CHcESa (6) Trading account securities loans; (7) Underwriting accounts debt securities (for IHs); (8) Underwriting accounts equity securities (for IHs); (9) Trading account securities debt securities; (10) Trading account securities equity securities (for IHs); (11) Available for sale securities; (12) Investments in bonds and other debt instruments; and (13) Others, e.g., accounts receivable and accrued interest receivable. Accruals on a claim shall be classified and risk weighted in the same way as the claim. g. Consolidated basis . This refers to combined statement of condition of parent quasi-bank and subsidiary financial allied undertakings, but excluding insurance companies. h. Debt capital instruments . This refers to unsecured subordinated term debt instruments qualifying as capital of banks. i. Equity investments . This refers to investments in capital stock of companies, firms or enterprises, made for purposes of control, affiliation or other continuing business advantage. j. Exchange rate contracts . This includes cross-currency interest rate swaps, forward foreign exchange contracts, currency futures, currency options purchased and similar instruments. k. Financial allied undertakings . This refers to enterprises or firms with homogenous or similar activities/business/functions with the financial intermediary and may include but not limited to leasing companies, banks, IHs, FCs, credit card companies, FIs catering to small and medium scale industries (including venture capital corporations), companies engaged in stock brokerage/securities dealership, companies engaged in foreign exchange dealership/brokerage, holding companies, and such other similar activities as the Monetary Board may declare as appropriate from time to time, but excluding insurance companies. l. Foreign country/foreign incorporated bank and Philippine incorporated bank/quasi-bank with the highest credit quality . This refers to a foreign country/foreign incorporated bank and Philippine incorporated bank/quasi-bank given the highest credit rating of any two (2) of the following internationally accepted rating agencies: Rating Agency Highest Rating (1) Moody's "Aa3" and above (2) Standard and "AA-" and above Poor's (3) Fitch IBCA "AA-" and above (4) Others as may be approved by the Monetary Board m. Forward asset purchases . This refers to a commitment to purchase a loan, security or other asset at a specified future date, usually on pre-arranged terms. n. Goodwill . This refers to an intangible asset that represents the excess of the purchase price over the fair market value of identifiable assets acquired less liabilities assumed in acquisitions accounted for under the purchase method of accounting. o. Interest rate contracts . This includes single-currency interest rate swaps, basis swaps, forward rate agreements, interest rate futures, interest rate options purchased and similar instruments. p. Loans for housing purpose, fully secured by first mortgage on residential property that is or will be occupied or leased out by the borrower . This shall not include loans to companies engaged in speculative residential building or property development. q. Loans to the extent covered by hold-out on, or assignment of deposit substitutes maintained in the lending quasi-bank . A loan shall be considered as secured by a hold-out on, or assignment of deposit substitute only if such deposit substitute account is covered by a hold-out agreement or deed of assignment signed by the investor/placer in favor of the quasi-bank. This shall not include loans transferred to/carried by the quasi-bank's trust department secured by deposit substitute hold-out/assignment. r. Multilateral development banks . This refers to International Bank for Reconstruction and Development (IBRD), Inter-American Development Bank, Asian Development Bank (ADB), African Development Bank, European Investment Bank and European Bank for Reconstruction and Development. s. Non-central government public sector entity of a foreign country . This refers to entities which are regarded as such by a recognized banking supervisory authority in the country in which they are incorporated. t. Note issuance facilities and revolving underwriting facilities . This refers to an arrangement whereby a borrower may draw down funds up to a prescribed limit over an extended period by repeated issues to the market of promissory notes which the quasi-bank committed to underwrite. u. Other commitments . This includes undrawn portion of any binding arrangements which obligate the quasi-bank to provide funds at some future date. v. Other commitments with an original maturity of up to one (1) year . This includes any revolving or undated open-ended commitments, e.g., unused credit lines: Provided , That these can be unconditionally cancelled at any time and are subject to credit revision at least annually. w. Partly-paid shares and securities . This arises where only a part of the issue price or nominal face value of a security purchased has been subscribed and the issuer may call for the outstanding balance (or a further installment), either on a date predetermined at the time of issue, or at an unspecified future date. x. Perpetual preferred stock . This refers to preferred stock that does not have a maturity date, that cannot be redeemed at the option of the holder of the instrument, and that has no provision that will require future redemption of the issue. Consistent with these provisions, any perpetual preferred stock with a feature permitting redemption at the option of the issuer may qualify as capital only if the redemption is subject to prior approval of the BSP. y. Philippine local government units . This refers to the Philippine government units below the level of national government, such as city, provincial, and municipal governments. z. Philippine national government . This shall refer to the Philippine national government and their agencies such as departments, bureaus, offices, and instrumentalities, but excluding government-owned and controlled commercial corporations. aa. Private sector . This refers to entities other than banks, quasi-banks and governments. This shall also include commercial companies owned by the public sector, such as government-owned or controlled commercial corporations. bb. Redeemable preferred stock . This refers to preferred stock which may be redeemed at the specific dates or periods fixed for redemption. cc. Sale and repurchase agreements and asset sales with recourse . This refers to arrangements whereby a quasi-bank sells a loan, security or fixed asset to a third party with a commitment to repurchase the asset after a certain time, or in the event of a certain contingency. dd. Solo basis . This refers to combined statement of condition of head office and branches. ee. Subsidiary . This refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with the power to vote by a quasi-bank. HSCAIT ff. Treasury shares . This refers to the quasi-bank's own shares of stock that have been issued and fully paid for, subsequently re-acquired through purchase or donations and have not been cancelled or reissued. This also refers to shares of a parent quasi-bank held by a subsidiary financial allied undertaking in a consolidated statement of condition. SUBSECTION 4116Q.4 Required reports . Quasi-banks shall submit a report of their risk-based capital adequacy ratio on a solo basis (head office plus branches) and on a consolidated basis (parent quasi-bank plus subsidiary financial allied undertakings, but excluding insurance companies) quarterly to the appropriate supervising and examining department of the BSP in the prescribed forms within the deadlines, i.e., fifteen (15) business days and thirty (30) business days after the end of reference quarter, respectively. Only quasi-banks with subsidiary financial allied undertakings (excluding insurance companies) which under existing regulations are required to prepare consolidated statements of condition on a line-by-line basis shall be required to submit report on consolidated basis. The above-mentioned reports shall be classified as Category A-2 reports . SUBSECTION 4116Q.5 Sanctions . Whenever the capital accounts of a quasi-bank are deficient with respect to the prescribed capital adequacy ratio, the Monetary Board after considering a report of the appropriate supervising and examining department of the BSP on the state of solvency of the institution concerned, shall limit or prohibit the distribution of the net profits and shall require that part or all of net profits be used to increase the capital accounts of the quasi-bank until the minimum requirement has been met. The Monetary Board may restrict or prohibit the making of new investments of any sort by the quasi-bank, with the exception of purchases of readily marketable evidences of indebtedness issued by the Philippine national government and BSP included in Item " a(1)(b)i " of Subsec. 4116Q.2, until the minimum required capital ratio has been restored. SUBSECTION 4116Q.6 Temporary relief. In case of quasi-bank merger or consolidation, or when a quasi-bank is under rehabilitation under a program approved by the BSP, the Monetary Board may temporarily relieve the surviving quasi-bank, consolidated quasi-bank, or constituent quasi-bank or corporations under rehabilitation from full compliance with the required capital ratio for a maximum period of one (1) year. SECTION 4117Q. Treatment of Equity Investment with Reciprocal Stockholdings . For purposes of computing the prescribed ratio of net worth (or combined capital accounts) to risk assets, equity investments of an NBQB in another NBQB shall be deducted from its net worth if the investee NBQB has a reciprocal equity investment in the investing NBQB, in which case the investment of the NBQB or the reciprocal investment of the other NBQB, whichever is lower, shall be deducted from the net worth of the NBQBs. SECTION 4118Q. Sanctions on Net Worth Deficiency . a. Any NBQB which is deficient in the capital requirement under Sec. 4116Q shall be liable to the following sanctions: (1) In case of capital deficiency for five (5) or more times within a reporting period: (a) For the first offense a fine of P3,000. (b) For the second consecutive offense prohibition from extending new loans or making new investments for a period of thirty (30) calendar days. New loans and new investments shall refer to any loan or investment involving disbursement of funds, except government securities. (c) For the third consecutive offense extension of the penalty under the preceding paragraph for another thirty (30) calendar days. (d) For the fourth consecutive offense suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days. The suspension shall be automatically be lifted if in the final reporting period of the period of suspension, the entity maintains the minimum capital required under Sec. 4116Q for every day of such reporting period. (2) In case of continuous capital deficiency: (a) For two (2) consecutive reporting periods suspension of the Certificate of Authority to engage in quasi-banking functions for a period of thirty (30) calendar days. (b) For every consecutive reporting period, the suspension shall extend for another thirty (30) calendar days. (c) The suspension shall be automatically lifted if on the final reporting period of the period of suspension, the entity maintains the minimum capital required under Sec. 4116Q for every day of such reporting period. (3) In all of the cases above-mentioned, establishment of branches, agencies, extension offices, etc., shall be suspended. b. For improperly accomplished report, NBQBs shall pay P600 per business day for every business day the report is not corrected, counted as of the date the error is brought to its attention until the corrected report is submitted. c. For willfully making false statements in the report or submitting a false report, the Certificate of Authority for quasi-banking functions shall be suspended/revoked. d. The Monetary Board may impose additional sanctions on the entity engaged in quasi-banking functions by: (1) Revoking the Certificate of Authority to engage in quasi-banking functions; and (2) Such other sanctions as the BSP may deem necessary. SECTIONS 4119Q 4120Q (Reserved) E. ( Reserved ) SECTIONS 4121Q 4125Q (Reserved) F. Stock, Stockholders and Dividends SECTION 4126Q. Dividends . Pursuant to Section 57 of R.A. No. 8791, no quasi-bank shall declare dividends greater than its accumulated net profits then on hand, deducting therefrom its losses and bad debts. Neither shall the quasi-bank declare dividends if, at the time of declaration, it has not complied with the provisions of Subsec. 4126Q.2. SUBSECTION 4126Q.1 Definition of terms . For purposes of this Section, the following definitions shall apply: a. Bad debts shall include any debt on which interest is past due for a period of six (6) months, unless it is well secured and in process of collection. A loan payable in installment with an automatic acceleration clause shall be considered a bad debt within the contemplation of this Section where installments or amortizations have become past due for a period of six (6) months, unless the loan is well secured and in process of collection. For a loan payable in installments without an acceleration clause, only the installments or amortizations that have become past due for a period of six (6) months and which are not well secured and in the process of collection shall be considered bad debts within the contemplation of this Section. b. Well secured A debt shall be considered well secured (or fully secured) if it is covered by collateral in the form of a duly constituted mortgage, pledge, or lien on real or personal properties, including securities. The outstanding debt, accrued interest and other pertinent fees and expenses thereon shall not be in excess of seventy percent (70%) of the appraised value of real estate, or fifty percent (50%) of the other personal properties offered as lien. c. In process of collection A debt due to an NBQB shall be considered in process of collection when it is the subject of continuing extrajudicial or judicial proceedings aimed towards its full settlement or liquidation, or otherwise to place it in current status. The extrajudicial proceedings, such as the writing of collection or demand letters, must have been initiated by the NBQB and/or its lawyers before the interest or installments or amortizations on the debt become past due and unpaid for a period of six (6) months. caHASI The debt shall continue to be considered in process of collection for a period of six (6) months counted from date of the first collection or demand letter and if, within this period, the debtor fails to make a payment of at least twenty percent (20%) of the outstanding balance of the principal on his account, plus all interests which may have accrued thereon, the same shall automatically be classified as bad debt unless judicial proceedings are instituted. The debt shall continue to be considered in process of collection during the pendency of the judicial proceedings. When judgment against the debtor has been obtained, the NBQB must be active in enforcing the judgment for the debt to continue to be considered in process of collection. SUBSECTION 4126Q.2 Requirements on the declaration of dividends/net amount available for dividends . a. Requirements on the declaration of dividends . At the time of declaration, quasi-banks shall have complied with the following: (1) Clearing account with the BSP is not overdrawn; (2) Liquidity floor requirement for government funds; (3) Minimum capitalization requirement and risk-based capital ratio; (4) Statutory and liquidity reserves requirement; and (5) No major violations as may be determined by the BSP. For purposes of this Subsection, the prescribed duration of compliance shall be reckoned from the last eight (8) weeks immediately preceding the date of the dividend declaration up to the record date of said dividends. b. Amount available . The net amount available for dividends shall be the amount of unrestricted or free retained earnings less: (1) Bad debts against which valuation reserves are not required by the BSP to be set up; (2) Unbooked valuation reserves, and other unbooked capital adjustments required by the BSP, whether or not allowed to be set up on a staggered basis; (3) Deferred income tax as defined under Item " i " of Subsection 4116Q.1; (4) Accumulated profits not yet received but already recorded by the quasi-bank representing its share in profits of its subsidiaries under the equity method of accounting. Said accumulated profits shall likewise be deducted for purposes of computing the amount available for stock dividends; (5) Accrued interest as required to be excluded pursuant to Item " d " of Subsec. 4307Q.7, net of booked valuation reserves on accrued interest receivable or allowance for uncollectible interest on loans; and (6) Foreign exchange profit arising from revaluation of foreign exchange denominated accounts. SUBSECTION 4126Q.3 Reporting and verification . Declaration of cash dividend shall be reported by the NBQB concerned to the appropriate supervising and examining department of the BSP within ten (10) business days from date of approval of the declaration by the NBQB's board of directors, in the prescribed form. Pending verification of above-mentioned report by the appropriate supervising and examining department of the BSP, the NBQB concerned shall not make any announcement or communication on the declaration of cash dividends nor shall any payment be made thereon. In any case, the declaration may be announced and the dividends paid, if, after thirty (30) business days from the date the report required herein shall have been received by the BSP, no advice against such declaration has been received by the NBQB concerned, subject to the condition that the record date for such dividends cannot be set earlier than thirty (30) business days after declaration. NBQBs whose shares are listed with any domestic stock exchange may give notice of cash dividend declaration in accordance with pertinent rules of the SEC: Provided , That no record date is fixed for such cash dividend, pending verification of the report on such declaration by the appropriate supervising and examining department of the BSP. SUBSECTION 4126Q.4 Recording of dividends . The liability for cash dividends declared shall be taken up in the books upon receipt of BSP approval thereof, or if no such approval is received, after thirty (30) business days from the date required report on cash dividend declaration was received by the appropriate supervising and examining department of the BSP, whichever comes earlier. A memorandum entry may be made to record the dividend declaration on the date of approval by the board of directors and for full disclosure purposes. The cash dividends may be disclosed in the financial statements by means of a footnote which should include a statement to the effect that the dividend declaration is subject to review by the BSP. Dividends of all kinds, whether on common or on preferred shares of stock, shall not be treated as interest expense, considering that as a general policy only irredeemable stock may be issued by NBQBs. SUBSECTION 4126Q.5 Rules on declaration of stock dividends . The declaration of stock dividends shall be subject to the preceding regulations on declaration of cash dividends. Additional paid-in capital may be included in the amount available for stock dividends. SECTIONS 4127Q 4140Q (Reserved) G. Directors, Officers and Employees SECTION 4141Q. Definition; Qualifications; Powers; Responsibilities and Duties of Board of Directors and Directors . The following shall be the definition, qualifications, powers, responsibilities and duties of the board of directors and directors. SUBSECTION 4141Q.1 Limits on the number of the members of the board of directors . Pursuant to Sections 15 and 17 of R.A. No. 8791, there shall be at least five (5), and a maximum of fifteen (15) members of the board of directors of a quasi-bank/trust entity two (2) of whom shall be independent directors: Provided , That in case of a quasi-bank/trust entity merger or consolidation, the number of directors may be increased up to twenty-one (21). An independent director shall mean a person who (1) Is not or has not been an officer or employee of the quasi-bank/trust entity, its subsidiaries or affiliates or related interests during the past three (3) years counted from the date of his election; (2) Is not a director or officer of the related companies of the institution's majority stockholder; (3) Is not a majority stockholder of the institution, any of its related companies, or of its majority shareholders; (4) Is not a relative within the fourth degree of consanguinity or affinity, legitimate or common-law of any director, officer or majority shareholder of the quasi-bank/trust entity or any of its related companies; (5) Is not acting as a nominee or representative of any director or substantial shareholder of the quasi-bank/trust entity, any of its related companies or any of its substantial shareholders; and (6) Is not retained as professional adviser, consultant, agent or counsel of the institution, any of its related companies or any of its substantial shareholders, either in his personal capacity or through his firm; is independent of management and free from any business or other relationship, has not engaged and does not engage in any transaction with the institution or with any of its related companies or with any of its substantial shareholders, whether by himself or with other persons or through a firm of which he is a partner or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arms length and could not materially interfere with or influence the exercise of his judgment. An independent director of a quasi-bank/trust entity can be elected as an independent director of its: (a) parent or holding company; (b) subsidiary or affiliate; (c) substantial shareholder; or (d) other related companies, or vice-versa: Provided , That he is not a substantial shareholder of the quasi-bank/trust entity or any of the said concerned entities. The terms and phrases used in Items "( 1 )" to "( 6 )" shall have the following meaning: (a) Parent is a corporation which has control over another corporation directly or indirectly through one (1) or more intermediaries. cITCAa (b) Subsidiary means a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly through one (1) or more intermediaries by a quasi-bank/trust entity. (c) Affiliate is a juridical person that directly or indirectly, through one (1) or more intermediaries, is controlled by, or is under common control with the quasi-bank/trust entity or its affiliates. (d) Related interests as defined under Sections 12 and 13 of R.A. No. 8791 shall mean individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common law, and two (2) or more corporations owned or controlled by a single individual or by the same family group or the same group of persons. (e) Control exists when the parent owns directly or indirectly through subsidiaries more than one-half of the voting power of an enterprise unless, in exceptional circumstance, it can be clearly demonstrated that such ownership does not constitute control. Control may also exist even when ownership is one-half or less of the voting power of an enterprise when there is: i. power over more than one-half of the voting rights by virtue of an agreement with other stockholders; or ii. power to govern the financial and operating policies of the enterprise under a statute or an agreement; or iii. power to appoint or remove the majority of the members of the board of directors or equivalent governing body; or iv. power to cast the majority votes at meetings of the board of directors or equivalent governing body; or v. any other arrangement similar to any of the above. (f) Related company means another company which is: (a) its parent or holding company; (b) its subsidiary or affiliate; or (c) a corporation where a quasi-bank/trust entity or its majority stockholder own such number of shares that will allow/enable him to elect at least one (1) member of the board of directors or a partnership where such majority stockholder is a partner. (g) Substantial or major shareholder shall mean a person, whether natural or juridical, owning such number of shares that will allow him to elect at least one (1) member of the board of directors of a quasi-bank/trust entity or who is directly or indirectly the registered or beneficial owner of more than ten percent (10%) of any class of its equity security. (h) Majority stockholder or majority shareholder means a person, whether natural or juridical, owning more than fifty percent (50%) of the voting stock of a quasi-bank/trust entity. Non-Filipino citizens may become members of the board of directors of a quasi-bank/trust entity to the extent of the foreign participation in the equity of said quasi-bank/trust entity: Provided , That pursuant to Section 23 of the Corporation Code of the Philippines (BP Blg. 68), a majority of the directors must be residents of the Philippines. The meetings of the board of directors may be conducted through modern technologies such as, but not limited to, teleconferencing and videoconferencing as long as the director who is taking part in said meetings can actively participate in the deliberations on matters taken up therein: Provided , That every member of the board shall participate in at least fifty percent (50%) and shall physically attend at least twenty-five percent (25%) of all board meetings every year: Provided further , That in the case of a director who is unable to physically attend or participate in board meetings via teleconferencing or videoconferencing, the corporate secretary shall execute a notarized certification attesting that said director was given the agenda materials prior to the meeting and that his/her comments/decisions thereon were submitted for deliberation/discussion and were taken up in the actual board meeting, and that the submission of said certification shall be considered compliance with the required fifty percent (50%) minimum attendance in board meetings. SUBSECTION 4141Q.2 Qualifications of a director . A director shall have the following minimum qualifications: a. He shall be at least twenty-five (25) years of age at the time of his election or appointment; b. He shall be at least a college graduate or have at least five (5) years experience in business; c. He must have attended a special seminar for board of directors conducted or accredited by the BSP: Provided , That incumbent directors as well as those elected after September 17, 2001 must attend said seminar on or before December 31, 2002 or within a period of six (6) months from date of election for those elected after December 31, 2002, as the case may be; and d. He must be fit and proper for the position of a director of the NBQB/trust entity. In determining whether a person is fit and proper for the position of a director, the following matters must be considered: integrity/probity, competence, education, diligence and experience/training. The foregoing qualifications for directors shall be in addition to those required or prescribed under R.A. No. 8791 and other existing applicable laws and regulations. SUBSECTION 4141Q.3 Powers/responsibilities and duties of board of directors and directors . a. Powers of the board of directors . The corporate powers of an NBQB/trust entity shall be exercised, its business conducted and all its property shall be controlled and held by its board of directors. The powers of the board of directors as conferred by law are original and cannot be revoked by the stockholders. The directors hold their office charged with the duty to act for the NBQB/trust entity in accordance with their best judgment. b. General responsibility of the board of directors . The position of an NBQB/trust entity director is a position of trust. A director assumes certain responsibilities to different constituencies or stakeholders, i.e., the NBQB/trust entity itself, its stockholders, its clients and other creditors, its management and employees, and the public at large. These constituencies or stakeholders have the right to expect that the institution is being run in a prudent and sound manner. The board of directors is primarily responsible for the corporate governance of the NBQB/trust entity. To ensure good governance of the NBQB/trust entity, the board of directors should establish strategic objectives, policies and procedures that will guide and direct the activities of the NBQB/trust entity and the means to attain the same as well as the mechanism for monitoring management's performance. While the management of the day-to-day affairs of the institution is the responsibility of the management team, the board of directors is, however, responsible for monitoring and overseeing management action. c. Specific duties and responsibilities of the board of directors (1) To select and appoint officers who are qualified to administer the NBQB's/trust entity's affairs effectively and soundly and to establish adequate selection process for all personnel . It is the primary responsibility of the board of directors to appoint competent management team at all times. The board of directors should apply fit and proper standards on key personnel. Integrity, technical expertise and experience in the institution's business, either current or planned, should be the key considerations in the selection process. And because mutual trust and a close working relationship are important, the board's choice should share its general operating philosophy and vision for the institution. The board of directors shall establish an appropriate compensation package for all personnel which shall be consistent with the interest of all stakeholders. (2) To establish objectives and draw up a business strategy for achieving them . Consistent with the institution's objectives, business plans should be established to direct its on-going activities. The board should ensure that performance against plan is regularly reviewed, with corrective action taken as needed. (3) To conduct the affairs of the institution with high degree of integrity . Since reputation is a very valuable asset, it is in the institution's best interest that in dealings with the public, it observes a high standard of integrity. The board of directors should prescribe corporate values, codes of conduct and other standards of appropriate behaviour for itself, the senior management and other employees. Among others, activities and transactions that could result or potentially result in conflict of interest, personal gain at the expense of the institution, or unethical conduct shall be strictly prohibited. It should provide policies that will prevent the use of the facilities of the NBQB/trust entity in furtherance of criminal and other illegal activities. ETAICc (4) To establish and ensure compliance with sound written policies . The board should adopt written policies on all major business activities, i.e., investments, loans, asset and liability management, business planning and budgeting. A mechanism to ensure compliance with said policies shall also be provided. (5) To prescribe a clear assignment of responsibilities and decision-making authorities, incorporating a hierarchy of required approvals from individuals to the board of directors . The board should establish in writing the limits of the discretionary powers of each officer, committee, sub-committee and such other group for the purpose of lending, investing or committing the NBQB/trust entity to any financial undertaking or exposure to risk at any time. The board should have a schedule of matters and authorities reserved to it for decision, such as: major capital expenditures, equity investments and divestments. (6) To effectively supervise the NBQB's/trust entity's affairs . As NBQBs/trust entities are entrusted with the handling and investment of public funds, the supervision required from the board involves a higher degree of wisdom, prudence, good business judgment and competence than that of directors of ordinary companies. Although directors may delegate certain authority to senior officers, it is their responsibility to supervise and be responsible for the institution's sound management, as well as its problems. The board of directors should establish a system of checks and balances which applies in the first instance to the board itself. Among the members of the board, an effective system of checks and balances must exist. The system should also provide a mechanism for effective check and control by the board over the chief executive officer and key managers and by the latter over the line officers of the NBQB/trust entity. (7) To monitor, assess and control the performance of management . The board shall put in place an appropriate reporting system so that it is provided with relevant and timely information to be able to effectively assess the performance of management. For this purpose, it may constitute a governance committee. (8) To adopt and maintain adequate risk management policy . The board of directors shall be responsible for the formulation and maintenance of written policies and procedures relating to the management of risks throughout the institution. The risk management policy shall include: (a) a comprehensive risk management approach; (b) a detailed structure of limits, guidelines and other parameters used to govern risk-taking; (c) a clear delineation of lines of responsibilities for managing risk; (d) an adequate system for measuring risk; and (e) effective internal controls and a comprehensive risk-reporting process. The board may constitute a committee for this purpose. (9) To constitute the following committees : 1 (a) Audit committee . The audit committee shall be composed of members of the board of directors, at least two (2) of whom shall be independent directors, including the chairman, preferably with accounting, auditing, or related financial management expertise or experience. The audit committee provides oversight of the institution's financial reporting and control and internal and external audit functions. It shall be responsible for the setting up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor who shall both report directly to the audit committee. It shall monitor and evaluate the adequacy and effectiveness of the internal control system. Upon setting up the audit committee, the board of directors shall draw up a written charter or terms of reference which clearly sets out the audit committee's authority and duties, as well as the reporting relationship with the board of directors. This charter shall be approved by the board of directors and reviewed and updated periodically. The audit committee shall have explicit authority to investigate any matter within its terms of reference, full access to and cooperation by management and full discretion to invite any director or executive officer to attend its meetings, and adequate resources to enable it to effectively discharge its functions. The audit committee shall ensure that a review of the effectiveness of the institution's internal controls, including financial, operational and compliance controls, and risk management, is conducted at least annually. (b) Corporate governance committee . The corporate governance committee shall assist the board of directors in fulfilling its corporate governance responsibilities. It shall review and evaluate the qualifications of all persons nominated to the board as well as those nominated to other positions requiring appointment by the board of directors. The committee shall be composed of at least three (3) members of the board of directors, two (2) of whom shall be independent directors. The corporate governance committee shall have a written charter that describes the duties and responsibilities of its members. This charter shall be approved by the board of directors and reviewed and updated at least annually. The committee shall be responsible for ensuring the board's effectiveness and due observance of corporate governance principles and guidelines. It shall oversee the periodic performance evaluation of the board and its committees and executive management; and shall also conduct an annual self-evaluation of its performance. The committee shall also decide whether or not a director is able to and has been adequately carrying out his/her duties as director bearing in mind the director's contribution and performance (e.g., competence, candor, attendance, preparedness and participation). Internal guidelines shall be adopted that address the competing time commitments that are faced when directors serve on multiple boards. The committee shall make recommendations to the board regarding the continuing education of directors, assignment to board committees, succession plan for the board members and senior officers, and their remuneration commensurate with corporate and individual performance. The corporate governance committee shall decide the manner by which the board's performance may be evaluated and propose an objective performance criteria approved by the board. Such performance indicators shall address how the board has enhanced long term shareholders' value. (c) Risk management committee . The risk management committee shall be responsible for the development and oversight of the institution's risk management program. The committee shall be composed of at least three (3) members of the board of directors who shall possess a range of expertise as well as adequate knowledge of the institution's risk exposures to be able to develop appropriate strategies for preventing losses and minimizing the impact of losses when they occur. It shall oversee the system of limits to discretionary authority that the board delegates to management, ensure that the system remains effective, that the limits are observed and that immediate corrective actions are taken whenever limits are breached. The risk management committee shall have a written charter that defines the duties and responsibilities of its members. The charter shall be approved by the board of directors and reviewed and refined periodically. The core responsibility of the risk management committee are: (1) Identify and evaluate exposures . The committee shall assess the probability of each risk becoming reality and shall estimate its possible effect and cost. Priority areas of concern are those risks that are the most likely to occur and are costly when they happen. (2) Develop risk management strategies . The risk management committee shall develop a written plan defining the strategies for managing and controlling the major risks. It shall identify practical strategies to reduce the chance of harm and failure or minimize losses if the risk becomes real. (3) Implement the risk management plan . The risk management committee shall communicate the risk management plan and loss control procedures to affected parties. The committee shall conduct regular discussions on the institution's current risk exposure based on regular management reports and direct concerned units or offices on how to reduce these risks. (4) Review and revise the plan as needed . The committee shall evaluate the risk management plan to ensure its continued relevancy, comprehensiveness, and effectiveness. It shall revisit strategies, look for emerging or changing exposures, and stay abreast of developments that affect the likelihood of harm or loss. The committee shall report regularly to the board of directors the entity's over-all risk exposure, actions taken to reduce the risks, and recommend further action or plans as necessary. (d) Nomination committee . The nomination committee shall be composed of at least three (3) members of the board of directors, preferably all independent members. It shall review and evaluate the qualifications of all persons nominated to the board as well as those nominated to other positions requiring appointment by the board of directors. (10) To meet regularly . To properly discharge its function, the board of directors shall meet regularly. Independent views in board meetings shall be given full consideration and all such meetings shall be duly minuted. The meetings of the board of directors may be conducted through modern technologies such as, but not limited to, teleconferencing and video-conferencing as long as the director who is taking part in said meetings can actively participate in the deliberations on matters taken up therein: Provided , That every member of the board shall be physically present in at least fifty percent (50%) of all board meetings in every year. (11) To keep the individual members of the board and the shareholders informed . It is the duty of the board to present to all its members and to the shareholders a balanced and understandable assessment of the NBQB's/trust entity's performance and financial condition. It should also provide appropriate information that flows internally and to the public. All members of the board shall have reasonable access to any information about the institution. acIHDA (12) To ensure that the NBQB/trust entity has beneficial influence on the economy . The board has a continuing responsibility to provide those services and facilities which will be supportive of the national economy. (13) To assess at least annually its performance and effectiveness as a body, as well as its various committees, the chief executive officer and the NBQB/trust entity itself. The composition of the board shall also be reviewed regularly with the end in view of having a balanced membership. Towards this end, a system and procedure for evaluation shall be adopted which may include, but not limited to, the setting of benchmark and peer group analysis. (14) To keep their authority within the powers of the institution as prescribed in the articles of incorporation, charter, by-laws and in existing laws, rules and regulations . To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws, rules and regulations, the board shall appoint a compliance officer who shall be responsible for coordinating, monitoring and facilitating compliance with existing laws, rules and regulations. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. It may also constitute a compliance committee. If the directors carry the institution into a transaction outside the scope of the business agreed upon in the articles, with resulting loss to the institution, they may be called upon to reimburse the institution for that loss. If directors willfully do an act, which they know or ought to know to be unauthorized, they are clearly liable to the institution for resulting damages. d. Specific duties and responsibilities of a director (1) To conduct fair business transactions with the NBQB/trust entity and to ensure that personal interest does not bias board decisions . A director should, whenever possible, avoid situations that would give rise to a conflict of interest. If transactions with the institution cannot be avoided, it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. The basic principle to be observed is that a director should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. He should avoid situations that would compromise his impartiality. (2) To act honestly and in good faith, with loyalty and in the best interest of the institution, its stockholders, regardless of the amount of their stockholdings, and other stakeholders such as its investors, borrowers, other clients and the general public . A director must always act in good faith, with the care which an ordinarily prudent man would exercise under similar circumstances. While a director should always strive to promote the interest of all stockholders, he should also give due regard to the rights and interests of other stakeholders. (3) To devote time and attention necessary to properly discharge his duties and responsibilities . A director should devote sufficient time to familiarize himself with the institution's business. He must be constantly aware of the institution's condition and be knowledgeable enough to contribute meaningfully to the board's work. He must attend and actively participate in board and committee meetings, request and review meeting materials, ask questions, and request explanations and be familiar with audits and supervisory communications. If a person cannot give sufficient time and attention to the affairs of the institution, he should neither accept his nomination nor run for election as member of the board. (4) To act judiciously . Before deciding on any matter brought before the board of directors, every director should thoroughly evaluate the issues, ask questions and seek clarifications when necessary. (5) To exercise independent judgment . A director should view each problem/situation objectively. When a disagreement with others occurs, he should carefully evaluate the situation and state his position. He should not be afraid to take a position even though it might be unpopular. Corollarily, he should support plans and ideas that he thinks will be beneficial to the institution. (6) To be generally informed of both the NBQB's/trust entity's business environment and legal and regulatory framework controlling its activities . A director should have a working knowledge of the statutory and regulatory requirements affecting the institution, including the content of its articles of incorporation and by-laws, the requirements of the BSP and where applicable, the requirements of other regulatory agencies and must exercise care to see that these are not violated. He should also keep himself informed of the industry developments and business trends in order to safeguard the institution's competitiveness. (7) To observe confidentiality . A director must observe the confidentiality of non-public information acquired by reason of his position as director. He may not disclose said information to any other person without the authority of the board. SUBSECTION 4141Q.4 Confirmation of the election/appointment of directors and officers . The election/appointment of directors and officers of quasi-banks/trust entities shall be subject to confirmation by the: Confirming Position Level Authority a. Monetary Board Director, President, Chief Executive Officer, Chief Operating Officer, Senior Vice President or equivalent rank of quasi- banks/trust entities with total assets of at least P1 billion. b. A Committee Director, Senior Vice to be composed President and above or of: equivalent rank of quasi- The Deputy banks/trust entities Governor SES whose election/ Managing Directors appointment is not of SE I and II subject to confirmation Directors of the by the Monetary Board concerned supervising and examining department of SES The election/appointment of all incumbent directors and officers of quasi-banks/trust entities as of September 17, 2001 not previously approved/confirmed by the Monetary Board shall be submitted to the BSP through the appropriate supervising and examining departments for confirmation. SUBSECTIONS 4141Q.5 4141Q.8 (Reserved) SUBSECTION 4141Q.9 Reports required . NBQBs/trust entities shall furnish all of their directors with a copy of the specific duties and responsibilities of the board of directors prescribed under Items " b " and " c " of Subsec. 4141Q.3 within thirty (30) business days from May 17, 2001 in cases of incumbent directors and at the time of election in cases of directors elected after such date. The directors concerned shall each be required to acknowledge receipt of the copies of such specific duties and responsibilities and shall certify that they fully understand the same. Copies of the acknowledgment and certification herein required shall be submitted in accordance with Appendix Q-3 . SUBSECTION 4141Q.10 Sanctions . Without prejudice to the other sanctions prescribed under Section 37 of R.A. No. 7653 and to the provisions of Section 16 of R.A. No. 8791, any director of an NBQB/trust entity who violates or fails to observe and/or perform any of the above responsibilities and duties shall for each violation or offense, be penalized for P15,000. TcaAID SECTION 4142Q. Definition and Qualifications of Officers . Officers shall include the President, Vice-President, General Manager, Treasurer, Secretary, and others mentioned as officers of the NBQB, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the NBQB (or any of its branches and offices other than the head office) either through announcement, representation, publication or any kind of communication made by the financial intermediary: Provided , That a person holding the position of Chairman or Vice-Chairman of the Board or another position in the board shall not be considered as an officer unless the duties of his position in the board include functions of management such as those ordinarily performed by regular officers: Provided, further , That members of a group or committee, including sub-groups or subcommittees, whose duties include functions of management such as those ordinarily performed by regular officers, and are not purely recommendatory or advisory, shall likewise be considered as officers. An officer shall have the following minimum qualifications: a. He shall be at least twenty-one (21) years of age; b. He shall be at least a college graduate, or have at least five (5) years creditable experience or training in financial management or related activities, or in a field related to his position and responsibilities; and c. He must be fit and proper for the position he is being proposed/appointed to. In determining whether a person is fit and proper for a particular position, the following matters must be considered: integrity/probity, competence, education, diligence and experience/training. The foregoing qualifications for officers shall be in addition to those required or prescribed under R.A. No. 8791 and other existing applicable laws and regulations. SECTION 4143Q. Disqualification of Directors and Officers . The following regulations shall govern the disqualification of NBQB/trust entity directors and officers. SUBSECTION 4143Q.1 Persons disqualified to become directors . Without prejudice to specific provisions of law prescribing disqualifications for directors, the following are disqualified from becoming directors: a. Permanently disqualified Directors/officers/employees permanently disqualified by the Monetary Board from holding a director position: (1) Persons who have been convicted by final judgment of the court for offenses involving dishonesty or breach of trust such as estafa, embezzlement, extortion, forgery, malversation, swindling and theft; (2) Persons who have been convicted by final judgment of the court for violation of banking laws; (3) Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract; or (4) Directors, officers or employees of closed NBQBs/trust entities who were responsible for such institutions' closure as determined by the Monetary Board. b. Temporarily disqualified Directors/officers/employees disqualified by the Monetary Board from holding a director position for a specific/indefinite period of time. Included are: (1) Persons who refuse to fully disclose the extent of their business interest to the appropriate supervising and examining department when required pursuant to a provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as the refusal persists; (2) Directors who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings, both regular and special, of the board of directors during their incumbency, or any twelve (12) month period during said incumbency and directors who failed to physically attend for whatever reasons in at least twenty-five percent (25%) of all board meetings in any year, except that when a notarized certification executed by the Corporate Secretary has been submitted attesting that said directors were given the agenda materials prior to the meeting and that their comments/decisions thereon were submitted for deliberation/discussion and were taken up in the actual board meeting, said directors shall be considered present in the board meeting. (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with an NBQB/trust entity where he is a director or officer, or at least two (2) obligations with other NBQBs/trust entities/financial institutions, under different credit lines or loan contracts, are past due pursuant to Secs. X306, 4308Q, 4306S and 4303P; (b) Obligations shall include all borrowings from an NBQB/trust entity/financial institution obtained by: (i) A director or officer for his own account or as the representative or agent of others or where he acts as a guarantor, indorser or surety for loans from such financial institutions; (ii) The spouse or child under parental authority of the director or officer; (iii) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of, a director or officer; (iv) A partnership of which a director or officer, or his spouse is the managing partner or a general partner owning a controlling interest in the partnership; and (v) A corporation, association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items "( i )", "( ii )" and "( iv )"; This disqualification shall be in effect as long as the delinquency persists. (4) Persons convicted for offenses involving dishonesty, breach of trust or violation of banking laws but whose conviction has not yet become final and executory; (5) Directors and officers of closed NBQBs/trust entities pending their clearance by the Monetary Board; (6) Directors disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate supervising and examining department of such directors' election/re-election; (7) Directors who failed to attend the special seminar for board of directors required under Item "c" of Subsec. 4141Q.2. This disqualification applies until the director concerned had attended such seminar; (8) Persons dismissed/terminated from employment for cause. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity; (9) Those under preventive suspension; and (10) Persons with derogatory records with the NBI, court, police, interpol and monetary authority (central bank) of other countries (for foreign directors and officers) involving violation of any law, rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of a bank/NBQB/trust entity director/officer. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity. SUBSECTION 4143Q.2 Persons disqualified to become officers . a. The disqualifications for directors mentioned in Subsec. 4143Q.1 shall likewise apply to officers, except those stated in Items " b(2) " and " b(7) ". b. Except as may be authorized by the Monetary Board or the Governor, the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of Chairman, President, Executive Vice President or any position of equivalent rank, General Manager, Treasurer, Chief Cashier or Chief Accountant is disqualified from holding or being elected or appointed to any of said positions in the same NBQB/trust entity; and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of Manager, Cashier, or Accountant of a branch or office of an NBQB/trust entity is disqualified from holding or being appointed to any of said positions in the same branch or office. SUBSECTION 4143Q.3 Effect of non-possession of qualifications or possession of disqualifications . Directors/officers elected or appointed without possessing the qualifications mentioned under Subsec. 4141Q.2 and the last paragraph of Sec. 4142Q shall not be confirmed by the confirming authority provided under Subsec. 4141Q.4 and may be removed from office even if he/she has assumed the position to which he/she was elected or appointed. Directors/officers possessing any of the disqualifications as enumerated herein shall be subject to the disqualification procedures provided under Subsec. 4143Q.4. SUBSECTION 4143Q.4 Disqualification procedures . a. The board of directors and management of every institution shall be responsible for determining the existence of the ground for disqualification of the institution's director/officer or employee and for reporting the same to the BSP. While the concerned institution may conduct its own investigation and impose appropriate sanction/s as are allowable, this shall be without prejudice to the authority of the Monetary Board to disqualify a director/officer/employee from being elected/appointed as director/officer in any financial institution under the supervision of the BSP. Grounds for disqualification made known to the institution, shall be reported to the appropriate supervising and examining department of the BSP within seventy-two (72) hours from knowledge thereof. CSIcTa b. On the basis of knowledge and evidence on the existence of any of the grounds for disqualification mentioned in Subsecs. 4143Q.1 and 4143Q.2, the director or officer concerned shall be notified through registered mail with registry return receipt card at his/her last known address by the appropriate supervising and examining department of the BSP of the existence of the ground for his/her disqualification and shall be allowed to submit within fifteen (15) days from receipt of such notice an explanation on why he/she should not be disqualified and included in the watchlisted file. The head of said department may allow an extension on meritorious ground. c. The director/officer concerned shall thus be afforded the opportunity to defend/clear himself/herself and to submit evidence in support of his/her position to the appropriate supervising and examining department which shall then evaluate the case and submit the recommendations to the Monetary Board. d. Failure of the director/officer concerned to reply within the prescribed period shall be considered a waiver and the supervising and examining department shall proceed to evaluate the case and submit recommendations to the Monetary Board. e. If the ground for disqualification is delinquency in the payment of obligation, the concerned director or officer shall be given a period of thirty (30) days within which to settle said obligation or, restore it to its current status or, to explain why he/she should not be disqualified and included in the watchlisted file, before the evaluation on his disqualification and watchlisting is elevated to the Monetary Board. f. If the disqualification is based on any of the grounds for permanent disqualification enumerated under Items " (1) " to " (4) " of Subsec. 4143Q.1(a), the disqualification and watchlisting of the concerned director/officer shall be elevated to the Monetary Board for approval subject to the same procedures provided in Items " a ", " b " and " c " above. g. Upon approval by the Monetary Board, the concerned director/officer shall be informed by the appropriate supervising and examining department through registered mail with registry return receipt card, at his/her last known address of his/her disqualification from being elected/appointed as director/officer in any financial institution under the supervision of BSP and/or of his/her inclusion in the master list of watchlisted persons so disqualified. h. The board of directors of the concerned institution shall be immediately informed of cases of disqualification approved by the Monetary Board and shall be directed to act thereon not later than the following board meeting. Within seventy-two (72) hours thereafter, the corporate secretary shall report to the Governor of the BSP through the appropriate supervising and examining department the action taken by the board on the director/officer involved. i. Persons who are elected or appointed as director or officer in any of the BSP-supervised institutions for the first time but are subject to any of the grounds for disqualification provided for under Subsecs. 4143Q.1 and 4143Q.2 shall be afforded the procedural due process prescribed above. j. Whenever a director/officer is cleared in the process mentioned under Item " c " above or, when the ground for disqualification ceases to exist, he/she would be eligible to become director or officer of any bank, quasi-bank, trust entity or any institution under the supervision of the BSP only upon prior approval by the Monetary Board. It shall be the responsibility of the concerned supervising and examining department of the BSP to elevate to the Monetary Board the lifting of the disqualification of the concerned director/officer and his/her delisting from the master list of watchlisted persons. SUBSECTION 4143Q.5 Watchlisting . To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as director or officer of a bank, quasi-bank or trust entity, the SES shall maintain a watchlist of persons disqualified to be a director or officer of such entities under its supervision under the following procedures: a. Watchlist categories . Watchlisting shall be categorized as follows: (1) Disqualification File "A" (Permanent) Directors/officers/employees permanently disqualified by the Monetary Board from holding a director/officer position. (2) Disqualification File "B" (Temporary) Directors/officers/employees temporarily disqualified by the Monetary Board from holding a director/officer position. b. Inclusion of directors/officers/employees in the watchlist . Directors/officers/employees disqualified under Subsec. 4143Q.4 included in the watchlist disqualification files "A" or "B". c. Confidentiality . Watchlist files shall be for internal use only of the BSP and may not be accessed or queried upon by outside parties including banks, quasi-banks and trust entities except with the authority of the person concerned and with the approval of the Deputy Governor, SES or the Governor or the Monetary Board. d. Delisting . All delistings shall be approved by the Monetary Board upon recommendation of the operating departments of SES except in cases of persons known to be dead where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist Disqualification File "B" (Temporary) (a) After the lapse of the specific period of disqualification; (b) When the conviction by the court for crimes involving dishonesty, breach of trust and/or violation of banking law becomes final and executory, in which case the director/officer/employee is relisted to Watchlist Disqualification File "A" (Permanent); and (c) Upon favorable decision or clearance by the appropriate body, i.e., court, NBI, BSP, bank, quasi-bank, trust entity or such other agency/body where the concerned individual had derogatory record. Directors/officers/employees delisted from the Watchlist Disqualification File "B" other than those upgraded to Watchlist Disqualification File "A" shall be eligible for re-employment with any bank, quasi-bank or trust entity. SUBSECTION 4143Q.6 Prohibition against foreign officers/employees of financing companies . Except in the case of technical personnel whose employment may be specifically authorized by the Secretary of Justice, foreigners cannot be officers or employees of financing companies. SECTION 4144Q. Interlocking directorships and/or officerships . In order to safeguard against the exercise by the same person or group of persons of undue influence over the policy-making and/or management functions of similar financial institutions that could have an adverse effect on competition or which could result in conflict of interest situations to the detriment of others, the following regulations shall govern interlocking directorships and/or officerships within the financial system. a. Interlocking directorships (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder, there shall be no concurrent directorships between NBQBs or between an NBQB and a bank performing quasi-banking functions; and (2) Without the need for prior approval of the Monetary Board, concurrent directorships between entities not involving an investment house shall be allowed in the following cases: (a) a bank not performing quasi-banking functions and an NBQB; and (b) a bank and its subsidiary NBQBs. For purposes of the foregoing, a husband and his wife shall be considered as one (1) person. b. Interlocking directorships and officerships (1) Except as may be authorized by the Monetary Board or as otherwise provided hereunder, there shall be no concurrent directorship and officership between NBQBs or an NBQB and a bank. (2) Without need for prior approval of the Monetary Board, concurrent directorship and officership in a bank and a subsidiary NBQB, other than an investment house, shall be allowed. c. Interlocking officerships As a general rule, there shall be no concurrent officerships between quasi-banks or between a quasi-bank and non-bank financial intermediary, whether or not performing quasi-banking functions, except as follows: (1) With prior approval of the Monetary Board, concurrent officerships may be allowed: (a) Between a quasi-bank and not more than two (2) of its subsidiary financial institutions; or (b) Between two (2) quasi-banks and one (1) of their subsidiary non-bank financial intermediaries. (2) With prior approval of the Monetary Board, concurrent officerships may also be allowed between quasi-banks, between a bank and a non-bank financial intermediary other than an investment house, or between a quasi-bank and a non-bank financial intermediary: Provided , That at least twenty percent (20%) but less than majority of the equity of each of the quasi-banks and non-bank financial intermediaries is owned by a holding company or a quasi-bank and the interlocking arrangement is necessary for the holding company or the bank to provide technical expertise or managerial assistance to its affiliates. Aforementioned concurrent officerships may be allowed, subject to the following conditions: (a) that the positions do not involve any functional conflict of interests; (b) that the positions of president, chief executive officer, chief operating officer and chief financial officer or their equivalent may not be held concurrently; (c) that the officer involved, or his spouse or any of his relatives within the first degree of consanguinity or affinity or by legal adoption, or a corporation, association or firm wholly- or majority-owned or controlled by such officer or his relatives enumerated above, does not own in his/its own capacity more than twenty percent (20%) of the subscribed capital of the entities in which the bank has equity investments; and (d) that where any of the positions involved is held on full-time basis, adequate justification shall be submitted to the Monetary Board. Transitory provision . Officers concurrently holding the positions of president, chief executive officer, chief operating officer and chief financial officer or their equivalent in two (2) or more financial institutions under BSP supervision shall be given one (1) year from 02 April 2004 within which to comply with the aforementioned regulation. For purposes of this Section, members of a group or committee, including sub-groups or sub-committees, whose duties include functions of management such as those ordinarily performed by regular officers, shall likewise be considered as officers. SUBSECTION 4144Q.1 Representatives of government . The provisions of this Section shall not apply to persons appointed to such positions as representatives of the government or government-owned or -controlled entities. SECTION 4145Q. Profit sharing of directors, officers and employees . Profit sharing programs adopted in favor of directors, officers and employees shall be reflected in the by-laws of NBQBs, subject to the following guidelines: a. The base in any profit sharing program shall be the net income for the year of the NBQB, as shown in its Consolidated Statement of Income and Expenses for the year, net of the following: (1) All cumulative dividends accruing to preferred stock to the extent not covered by earned surplus; (2) Accrued interest receivable credited to income but not yet collected, net of reserves already set up for uncollected interest on loans; (3) Unbooked valuation reserves on loans or an amount required to update valuation reserves in accordance with the schedule approved by the Monetary Board, as well as all amortizations due on deferred charges; (4) Provisions for the current year's taxes; (5) Income tax deferred for the year: Provided, however , That in case of reversal of deferred income taxes excluded from net income in previous years' profit sharings, the deferred income tax reversed to expense shall be added back to net income to arrive at the basis for profit sharing for the year during which the reversal is made; (6) Accumulated profits not yet received but already recorded by an NBQB representing its share in profits of its subsidiaries under the equity method of accounting; and (7) ( Deleted by Cir. 321 dated 2.19.02 ). b. The NBQB may provide in its by-laws for other priorities in the computation of net profits for purposes of profit sharing: Provided , That in no case shall profit sharing take precedence over any of the items in the preceding paragraph. SECTION 4146Q. Monetary Board Confirmation of Directors and Senior Officers . The election/appointment of directors and officers with the rank of Senior Vice-President and up shall require confirmation by the Monetary Board. The election/appointment of the directors and such officers shall be deemed to have been confirmed by the Monetary Board if after sixty (60) business days from receipt of the reports required in Appendix Q-3 by the BSP, no advice against said election/appointment has been received by the NBQB concerned. If the Monetary Board finds grounds for disqualification, the director/officer so elected/appointed may be removed from office even if he/she has assumed the position to which he/she was elected/appointed pursuant to Section 9-A of R.A. No. 337, as amended. SECTION 4147Q. Compensation and Other Benefits of Directors and Officers . To protect the funds of creditors, the Monetary Board may regulate/restrict the payment by the NBQB/trust entity of compensation, allowances, fees, bonuses, stock options, profit sharing and fringe benefits to its directors and officers in exceptional cases and when the circumstances warrant, such as, but not limited to, the following: a. When the NBQB/trust entity is under controllership, conservatorship or when it has outstanding emergency loans and advances and such other forms of credit accommodation from the BSP which are intended to provide it with liquidity in times of need; b. When the institution is found by the Monetary Board to be conducting business in an unsafe or unsound manner; and c. When it is found by the Monetary Board to be in an unsatisfactory financial condition such as, but not limited to, the following cases: (1) Its capital is impaired; (2) It has suffered continuous losses from operations for the past three (3) years; (3) Its composite CAMEL(S) rating in the latest examination is below "3"; and (4) It is under rehabilitation by the BSP/PDIC which rehabilitation may include debt-to-equity conversion, etc. In the presence of any one (1) or more of the circumstances mentioned above, the Monetary Board may impose the following restrictions in the compensation and other benefits of directors and officers: a. In the case of profit sharing, the provision of Sec. 4145Q shall be observed except that for purposes of this Section, the total amount of unbooked valuation reserves and deferred charges shall be deducted from the net income. b. Except for the financial assistance to meet expenses for the medical, maternity, education and other emergency needs of the directors or officers or their immediate family, the other forms of financial assistance may be suspended. c. When the total compensation package including salaries, allowances, fees and bonuses of directors and officers are significantly excessive as compared with peer group averages, the Monetary Board may order their reduction to reasonable levels: Provided , That even if an NBQB/trust entity is in financial trouble, it may nevertheless be allowed to grant relatively higher salary packages in order to attract competent officers and quality staff as part of its rehabilitation program. The foregoing provisions founded on Section 18 of R.A. No. 8791 shall be deemed part of the benefits and compensation programs of NBQBs/trust entities. SECTION 4148Q. (Reserved) SECTION 4149Q. Conducting Business in an Unsafe/Unsound Manner . Whether a particular activity may be considered as conducting business in an unsafe or unsound manner, all relevant facts must be considered. An analysis of the impact thereof on the NBQB's/trust entity's operations and financial conditions must be undertaken, including evaluation of capital position, asset condition, management, earnings posture and liquidity position. In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting NBQBs/trust entities, may be deemed as conducting business in an unsafe or unsound manner, the Monetary Board, upon report of the head of the supervising or examining department based on findings in an examination or a complaint, shall consider any of the following circumstances: a. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; b. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institutions, creditors, investors, stockholders, or to the BSP, or to the public in general; c. The act or omission has caused any undue injury, or has given unwarranted benefits, advantage or preference to the NBQB/trust entity or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or d. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the NBQB/trust entity, whether or not the director or officer profited or will profit thereby. The list of activities which may be considered unsafe and unsound is shown in Appendix Q-24 . SUBSECTIONS 4149Q.1 4149Q.8 (Reserved) SUBSECTION 4149Q.9 Sanctions . The Monetary Board may, at its discretion and based on the seriousness and materiality of the acts or omissions, impose any or all of the following sanctions provided under Section 37 of R.A. No. 7653 and Section 56 of R.A. No. 8791, whenever an NBQB/trust entity conducts business in an unsafe and unsound manner: CcHDaA a. Issue an order requiring the quasi-bank/trust entity to cease and desist from conducting business in an unsafe and unsound manner and may further order that immediate action be taken to correct the conditions resulting from such unsafe or unsound practice; b. Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed P30,000 a day on a per transaction basis taking into consideration the attendant circumstances, such as the gravity of the act or omission and the size of the quasi-bank/trust entity, to be imposed on the quasi-bank/trust entity, their directors and/or responsible officers; c. Suspension of lending or foreign exchange operations or authority to accept new deposit substitutes and/or new trust accounts or to make new investments; d. Suspension of responsible directors and/or officers; e. Revocation of quasi-banking license and/or trust authority; and/or f. Receivership and liquidation under Section 30 of R.A. No. 7653. All other provisions of Sections 30 and 37 of R.A. No. 7653, whenever appropriate, shall also be applicable on the conduct of business in an unsafe or unsound manner. The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34, 35 and 36 of R.A. No. 7653. SECTION 4150Q. (Reserved) H. Branches and Other Offices SECTION 4151Q. Establishment . Prior BSP authority shall be obtained before operating a branch, extension office or agency, including any arrangement whereby another person or entity is authorized to act as an agent for solicitation, issuance or servicing of deposit substitutes for the NBQB. Agency arrangements shall refer to all or any type of services to be performed by another party as an agent other than collection agency for loans payable in installments/amortization, and paying agency under a definite and specific period for purposes of redeeming long-term notes and/or bonds. SUBSECTION 4151Q.1 Evaluation guideposts . The rate at which branches, agencies, extension offices, etc. are to be established shall depend upon the ability of the company to conduct operations from the head office, as well as correspondent/banking arrangements. SUBSECTION 4151Q.2 Additional capital, if required . An applicant NBQB may be required to put up additional capital in an amount to be determined by the appropriate supervising and examining department of the BSP, based on criteria which consider expected growth of risk assets and capital accounts and for this purpose, the methods of computing such additional capital, as shown in Appendix Q-2 , shall be used. SUBSECTION 4151Q.3 Other requirements/factors to be considered . Other requirements/factors to be considered are the applicant NBQB's general compliance with laws, rules, and regulations, and policies of the BSP, such as: a. Capital adequacy and solvency; b. Profitability and capacity to absorb losses; and c. Reserve and liquidity position. SUBSECTION 4151Q.4 Conditions precluding processing of applications . The existence of any of the following conditions shall preclude/suspend the processing of the application: a. The applicant has not complied with the ceilings on credit accommodations to DOSRI during the last sixty (60) days immediately preceding the date of application; b. The net worth of the applicant is found to be deficient during the last sixty (60) days immediately preceding the date of application; and c. The applicant has incurred net deficiencies in reserves against deposit substitute liabilities during the last eight (8) weeks immediately preceding the date of application. SUBSECTION 4151Q.5 Documentary requirements . All applications shall be supported by the following documents: aTEHCc a. Ability to conduct operations from the head office as not to be a cause for delayed submission of reports to the BSP and/or recording of transactions in the head office; b. Correspondent banking and audit arrangements between the branch and the head office to ensure effective and efficient cash/money transactions; c. Certified true copy of the board resolution authorizing the establishment of a branch; d. Services to be offered, as well as any extension offices, etc. to be opened; e. Days and hours to be observed; f. Areas to be served; g. Bio-data of the proposed branch manager and organizational chart; h. Business and/or economic justifications (including data) for the establishment of the branch; and i. Number of financial institutions in the area (banks, investment houses, finance companies and pawnshops). SUBSECTION 4151Q.6 Filing of applications . Applications for a certificate of authority to operate a branch, an extension office or an agency shall be filed with the SEC, which office shall refer the same to the appropriate supervising and examining department of the BSP for comments and recommendations. A copy of the application filed with the SEC, with the pertinent documents, shall simultaneously be furnished the appropriate supervising and examining department of the BSP for advance verification of the NBQB's compliance with the requirements under the provisions of Sec. 4151Q. SUBSECTION 4151Q.7 Period within which to submit complete requirements . The applicant NBQB shall have one (1) month from notice of the receipt of the SEC referral by the appropriate supervising and examining department of the BSP within which to submit/complete the requirements under this Section, after which the non-submission of complete documents shall cause the return of the application for the NBQB's lack of interest to pursue the same. SUBSECTION 4151Q.8 Prohibition against operating without SEC license . No branch, extension office or agency shall start operations unless the appropriate SEC license, which likewise serves as authorization for the branch/extension office/agency to perform quasi-banking functions, has been issued. SECTIONS 4152Q 4155Q (Reserved) I. (Reserved) SECTIONS 4156Q 4160Q (Reserved) J. Records and Reports SECTION 4161Q. Records . NBQBs shall have a true and accurate account, record or statement of their daily transactions. The making of any false entry or the willful omission of entries relevant to any transaction is a ground for the imposition of administrative sanctions under Section 37 of R.A. No. 7653, without prejudice to the criminal liability of the director or officer responsible therefor under Sections 35 and 36 of R.A. No. 7653 and/or the applicable provisions of the Revised Penal Code. Records shall be up-to-date and shall contain sufficient detail so that an audit trail is established. SUBSECTION 4161Q.1 Uniform System of Accounts . NBQBs shall strictly adopt/implement the Uniform System of Accounts prescribed for NBQBs in the recording of daily transactions including reportorial and publication requirements. SUBSECTION 4161Q.2 Adoption of Statements of Financial Accounting Standards . NBQBs shall adopt the Statements of Financial Accounting Standards (SFAS) in their financial statements and reports to the BSP. However, in cases where there are differences between BSP regulations and SFAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the SFAS, the option or limit prescribed by BSP regulations shall be adopted by NBQBs. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). SECTION 4162Q. Reports . NBQBs shall submit to the appropriate supervising and examining department of the BSP the reports listed in Appendix Q-3 in the forms as may be prescribed by the Deputy Governor, Supervision and Examination Sector, BSP. Any change in, or amendment to, the articles of incorporation, by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation, by-laws, or material documents to the appropriate supervising and examining department of the BSP within fifteen (15) days following such change. SUBSECTION 4162Q.1 Categories and signatories of reports . Reports required to be submitted to the BSP are classified into Categories A-1, A-2, A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix Q-3 . Appendix Q-4 prescribes the signatories for each report category and the requirements on signatory authorization. Reports submitted by NBQBs in computer media shall be subject to the same requirements. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having been submitted. SUBSECTION 4162Q.2 Manner of filing . The submission of the reports shall be effected by filing them personally with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices/Units, or by sending them by registered mail or special delivery through private couriers unless otherwise specified in the circular or memorandum of the BSP. Where the reports are prescribed by the BSP to be submitted through electronic mail, the original notarized affidavit/last page of each report, hard copy of the covering control prooflist, or any other related documents required to be submitted shall be filed in the manner prescribed in the preceding paragraph. In line with the policy direction of R.A. No. 8792 (E-Commerce Act), the BSP is strongly encouraging NBQBs to submit their regular reports to the BSP in electronic form. However, the BSP cannot presently guarantee the security/confidentiality of data in the course of transmitting electronic reports to BSP. BSP recommends that sensitive or confidential information be provided by ordinary post or courier. The BSP will accept no responsibility for electronic messages/reports/information that may be hacked or cracked, intercepted, copied or disclosed outside BSP's information system. SUBSECTION 4162Q.3 Sanctions in case of willful delay in the submission of reports/refusal to permit examination . a. Definition of terms . For purposes of this Subsection, the following definitions shall apply: (1) Report shall refer to any report or statement required of an NBQB to be submitted to the BSP periodically or within a specified period. (2) Willful delay in the submission of reports shall refer to the failure of an NBQB to submit a report on time. Failure to submit a report on time due to fortuitous events, such as fire and other natural calamities and public disorders, including strike or lockout affecting an NBQB as defined in the Labor Code or national emergency affecting operations of NBQBs, shall not be considered as willful delay. SEHaDI (3) Examination shall include, but need not be limited to, the verification, review, audit, investigation and inspection of the books and records, business affairs, administration and financial condition of any NBQB including the reproduction of its records, as well as the taking possession of the books and records and keeping them under the BSP's custody after giving proper receipt therefor. It shall also include the interview of the directors and personnel of the NBQB including its Electronic Data Processing (EDP) servicer. Books and records shall include, but not limited to, data and information stored in magnetic tapes, disks, printouts, logbooks and manuals kept and maintained by the NBQB or the EDP servicer, necessary and incidental to the use of EDP systems by the NBQB. (4) Refusal to permit examination shall mean any act or omission which impedes, delays, or obstructs the duly authorized BSP officer/examiner/employee from conducting an examination, including the act of refusing to accept or honor a letter of authority to examine presented by any officer/examiner/employee of the BSP. b. Fines for willful delay in submission of reports . NBQBs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-1, A-2 and A-3 reports Per business day of default until the report is filed P600 II. For Category B reports Per business day of default until the report is filed P120 Delay or default shall start to run on the day following the last day required for the submission of reports. However, should the last day of filing fall on a non-working day in the locality where the reporting financial institution is situated, delay or default shall start to run on the day following the next working day. The due date/deadline for submission of reports to BSP as prescribed under Section 4162Q governing the frequency and deadlines indicated in Appendix Q-3 shall be automatically moved to the next business day whenever a half-day suspension of business operations in government offices is declared due to an emergency such as typhoon, floods, etc. For purposes of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted, the date of mailing postmarked on the envelope/the date of registry/special delivery receipt, as the case may be, or the date of the acknowledgment receipt issued by the appropriate office of the BSP if the reports were submitted through electronic mail, shall be considered as the date of filing by the NBQB. Delayed schedules/attachments and amendments shall be considered late reporting subject to the above penalties. c. Fines for refusal to permit examination (1) Amount of fine Any NBQB which shall willfully refuse to permit examination shall pay a fine of P3,000 daily from the day of refusal and for as long as such refusal lasts. (2) Procedures in imposing the fine (a) The BSP officer/examiner/employee shall report the refusal of the NBQB to permit examination to the head of the appropriate supervising and examining department, who shall forthwith make a written demand upon the NBQB concerned for such examination. If the NBQB continues to refuse said examination without any satisfactory explanation therefor, the BSP officer/examiner/employee concerned shall submit a report to that effect to the said department head. (b) The fine shall be imposed starting on the day following the receipt by the said department of the written report submitted by the BSP officer/examiner/employee concerned regarding the continued refusal of the NBQB to permit the desired examination. d. Manner of payment or collection of fines The regulations embodied in Sec. 4653Q shall be observed in the collection of the fines from NBQBs. e. Other penalties The imposition of the foregoing penalties shall be without prejudice to the imposition of the other administrative sanctions and to the filing of a criminal case as provided for in other provisions of law. f. Appeal to the Monetary Board Any aggrieved NBQB may appeal to the Monetary Board a ruling of the appropriate supervising and examining department of the BSP imposing a fine. SECTIONS 4163Q 4170Q. (Reserved) K. Internal Control SECTION 4171Q. Internal Control Systems . The minimum internal control standards established in Appendix Q-5 shall guide all NBQBs. The following records/data shall be compiled and made available for the inspection of BSP examiners. a. Records showing compliance with independent balancing procedures. These records should indicate the accounts and the periodic balancing procedures performed. b. Statements of actual duties of persons assigned to handle cash and securities. c. All internal control audit reports or their equivalent. d. Information/data on the direct and/or indirect equity holdings and/or connection with any firm, partnership or corporation organized for profit, of all the institution's directors, officers, and major stockholders, as defined under Secs. 4141Q and 4142Q. e. Information/data pertaining to electronic data processing (EDP) department or service bureau of the NBQB particularly on organization, input control, processing control, output control, software, program and documentation standards, logs on the operations of mainframes and peripherals, hardware control and such other EDP control standards prescribed by the BSP in separate rules and regulations. SECTION 4172Q. Financial Audit . NBQBs shall cause an annual financial audit to be conducted not later than thirty (30) days after the close of the calendar year or the fiscal year adopted by the NBQBs. Reports of such audits shall be made and submitted to the board of directors and the appropriate supervising and examining department of the BSP not later than ninety (90) days after the start of such audit. The board of directors, in a regular or special meeting, shall consider and act on the financial audit report and shall submit, within thirty (30) days after receipt of the report, a copy of its resolution together with a copy of the auditor's letter of comments/findings and recommendations to the appropriate supervising and examining department of the BSP. The resolution shall show, among other things, the name of the directors present and absent, and the action(s) taken on the findings and recommendations. In consonance with the aforementioned regulations, quasi-banks are to be guided with the checklist of BSP requirements in the submission of AFS and Annual Report as shown in Appendix Q-33 . Delayed submission of certification of the external auditor, schedules/attachments and amendments in the required reports shall be considered late reporting, subject to the penalties under Subsec. 4162Q.3bII. SUBSECTION 4172Q.1. Posting of audited financial statements . The audited financial statements of the NBQB shall be posted in a conspicuous place in the premises of the NBQB and in its branches/other offices. Specifically, the NBQB shall post in its premises the (a) audited statement of condition; (b) audited statement of income and expenses; (c) notes to financial statements, which shall include, among others, disclosure of the volume of past due loans as well as loan-loss provisions; and (d) auditor's certificate. SUBSECTION 4172Q.2 Disclosure of external auditor's adverse findings to the Bangko Sentral; sanction . a. Findings to be disclosed . NBQBs shall require their external auditors to report to the BSP any matter adversely affecting the condition or soundness of the bank, such as, but not limited to: (1) Any serious irregularity, including those involving fraud or dishonesty, that may jeopardize the interest of creditors; (2) Losses incurred which substantially reduce the capital funds of the NBQB; and (3) Inability of the auditor to confirm that the claims of creditors are still covered by the NBQB's assets. The disclosure of information by the external auditor to the BSP shall not be a ground for civil, criminal or disciplinary proceedings against the former. NBQB management shall be present during discussions or at least be informed of the adverse findings in order to preserve the concerns of the supervisory authority and external auditors regarding the confidentiality of information. b. Sanction . The auditing firm(s) shall be blacklisted by the Monetary Board for a period as the Board may deem appropriate for their failure to perform their duty of reporting to the BSP any matter adversely affecting the condition or soundness of the NBQB. NBQBs shall not be allowed to engage the services of the blacklisted auditing firm. SUBSECTION 4172Q.3 Disclosure requirement in the notes to the audited financial statements . NBQBs shall require their external auditors to include the following additional information in the notes to financial statements: a. Basic quantitative indicators of financial performance such as return on average equity, return on average assets and net interest margin; b. Capital-to-risk assets ratio under Sec. 4116Q; c. Concentration of credit as to industry/economic sector where concentration is said to exist when total loan exposures to a particular industry/economic sector exceeds thirty percent (30%) of total loan portfolio; d. Breakdown of total loans as to secured and unsecured and breakdown of secured loans as to type of security; e. Total outstanding loans to NBQB's DOSRI, percent of DOSRI loans to total loan portfolio, percent of unsecured DOSRI loans to total DOSRI loans, percent of past due DOSRI loans to total DOSRI loans and percent of non-performing DOSRI loans to total DOSRI loans; f. Nature and amount of contingencies and commitments arising from off-balance sheet items [include direct credit substitutes (e.g., export LCs confirmed, underwritten accounts unsold), transaction-related contingencies (e.g., performance bonds, bid bonds, standby LCs), short-term self-liquidating trade-related contingencies arising from the movement of goods (e.g., sight/usance domestic LCs, sight/usance import LCs), sale and repurchase agreements not recognized in the balance sheet; interest and foreign exchange rate related items; and other commitments]; g. Provisions and allowances for losses and how these are determined; h. Aggregate amount of secured liabilities and assets pledged as security; and i. Accounting policies which shall include, but shall not be limited to, general accounting principles, changes in accounting policies/practices, principles of consolidation, policies and methods for determining when assets are impaired, recognizing income on impaired assets and losses on non-performing credits, income recognition, valuation policies and accounting policies on securitizations, foreign currency translations, loan fees, premiums and discounts, repurchase agreements, premises/fixed assets, income taxes, derivatives, etc. For purposes of computing the indicators in Item " a " above, the following formulas shall be used: a. Return on Average = Net Income (or Loss) after Equity (%) Income Tax x 100 Average Total Capital Accounts Where: Average Total = Sum of Total Capital Accounts as of Capital Accounts the 12 month-ends in the calendar/ fiscal year adopted by the NBQB 12 b. Return on Average = Net Income (or Loss) after Assets (%) Income Tax x 100 Average Total Assets Where: Average Total = Sum of Total Assets as of the 12 month- Assets ends in the calendar/fiscal year adopted by the NBQB 12 c. Net Interest = Net Interest Income x 100 Margin (%) Average Interest Earning Assets Where: Net Interest Income = Total Interest Income Total Interest Expense Average Interest = Sum of Total Interest Earning Assets as Earning Assets of the 12 month-ends in the calendar/ fiscal year adopted by the NBQB 12 SUBSECTION 4172Q.4 Disclosure requirements in the annual report . NBQBs shall prepare an annual report which shall include, in addition to the audited financial statements and other usual information contained therein, a discussion and/or analysis of the following information: HaTAEc a. Financial performance; b. Financial position and changes therein; c. Overall risk management philosophy (a general statement of the risk management policy adopted by the NBQB's board of directors which serves as the basis for the establishment of its risk management system), risk management system and structure; d. Qualitative and quantitative information on risk exposures (credit, market, liquidity, operational, legal and other risks); and e. Basic business management and corporate governance information such as the NBQB's organizational structure, incentive structure including its remuneration policies, nature and extent of transactions with affiliates and related parties. SUBSECTION 4172Q.5 Posting and submission of annual report . A copy of the latest annual report shall be posted by the NBQB in a conspicuous place in its head office, all its branches and other offices. The deadline for the submission of the annual report to the appropriate supervising and examining department of the Bangko Sentral is 180 calendar days after the close of the calendar or fiscal year adopted by the NBQB. SECTIONS 4173Q 4179Q. (Reserved) SECTION 4180Q. Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity . Under Section 58, R.A. No. 8791, the Monetary Board may require a quasi-bank and/or trust entity to engage the services of an independent auditor to be chosen by the quasi-banks and/or trust entities concerned from a list of certified public accountants acceptable to the Monetary Board. It is the policy of the BSP to promote high ethical and professional standards in public accounting practice and to encourage coordination and sharing of information between external auditors and regulatory authorities of banks, quasi-banks, trust entities and/or NSSLAs to ensure effective audit and supervision of these institutions and to avoid unnecessary duplication of efforts. In furtherance of this policy and to ensure that reliance by regulatory authorities and the public on the opinion of external auditors is well placed, the BSP hereby prescribes the rules and regulations that shall govern the selection, appointment, reporting requirements and delisting for external auditors of banks, quasi-banks, trust entities and/or NSSLAs, their subsidiaries and affiliates engaged in allied activities and other financial institutions which under special laws are subject to BSP supervision. The selection of external auditors shall be valid for a period of three (3) years. BSP selected external auditors shall apply for the renewal of their selection every three (3) years. The provisions of Items " A " and " B " of Appendix Q-30 shall likewise apply for each application for renewal. The Supervision and Examination Sector (SES) shall make an annual assessment of the performance of external auditors and will recommend deletion from the list even prior to the three (3)-year renewal period, if based on assessment, the external auditors' report did not comply with BSP requirements. External auditors who meet the requirements specified in this Section shall be included in the list of BSP selected external auditors. In case of partnership, inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. The BSP will circularize to all banks, quasi banks, trust entities and NSSLAs the list of selected external auditors once a year. The BSP, however, shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks, quasi-banks, trust entities or NSSLAs for regular audit or special engagements. a. Rules and regulations . The rules and regulations to govern the selection and delisting by the BSP of external auditors of quasi-banks and/or trust entities, their subsidiaries and affiliates engaged in allied activities are shown in Appendix Q-3 0. b. Sanctions . The applicable sanctions/penalties prescribed under Sections 36 and 37 of R. A. No. 7653 to the extent applicable shall be imposed on the quasi-bank or trust entity, its audit committee and the directors approving the hiring of external auditors who are not in the BSP list of selected auditors for banks, quasi-banks, trust entities and NSSLAs or for hiring, and/or retaining the services of the external auditor in violation of any of the provisions of this Section and for non-compliance with the Monetary Board directive under Item " I " in Appendix Q-30 . Erring external auditors may also be reported by the BSP to the PRC for appropriate disciplinary action. L. Miscellaneous Provisions SECTION 4181Q. Publication Requirements . The quarterly consolidated statement of condition of an NBQB/trust entity and its subsidiaries and affiliates shall be published side-by-side with the statement of condition of its head office and its branches/other offices as of such dates as the BSP may require, within twenty (20) working days from receipt of call letter, in any newspaper of general circulation in the country in the prescribed format. a. The following information shall be disclosed in the Statements of Condition: (1) Non-performing loans and ratio to total loan portfolio; (2) Classified loans and other risk assets; (3) General loan loss reserve; (4) Specific loan loss reserve; (5) Return on equity (ROE); (6) DOSRI loans/advances and ratio to total loan portfolio; and (7) Past due DOSRI loans/advances and ratio to total loan portfolio. For uniform calculation of the additional information required, the guidelines in Annex Q-3-f of Appendix Q-3 shall be observed. b. The names and positions/designations of: (1) Members of the Board of Directors; and (2) President and Executive Vice-Presidents (Senior Vice-Presidents, if there are no Executive Vice-Presidents) or equivalent positions shall be presented in the right side column of the published statement of condition as of June of every year. SECTION 4182Q. Management Contracts . Subject to existing laws, all agreements whereby the affairs or operations of an NBQB will be carried out by another corporation, person or group of persons, shall be subject to prior approval by the BSP. The agreements referred to in the preceding paragraph shall not be entered into for a period longer than five (5) years. Existing agreements shall be allowed up to the termination date thereof: Provided, however , That any renewal or extension upon termination date shall be subject to approval by the BSP. SECTIONS 4183Q 4190Q (Reserved) SECTION 4191Q. Compliance System; Compliance Officer . NBQBs shall develop and implement a compliance system and appoint/designate a compliance officer to oversee its implementation. SUBSECTION 4191Q.1 Compliance system . The compliance system shall have the following basic elements. a. A written compliance program approved by the Board of Directors: (1) The compliance program shall enable the NBQB to identify the relevant Philippine laws and regulations, analyze the corresponding risks of non-compliance, and prioritize the compliance risks (e.g., low, medium, high). (2) The program shall provide for periodic compliance testing with applicable legal and regulatory requirements. Testing frequency shall be commensurate with identified risk levels (e.g., annual testing for low-risk, quarterly testing for medium-risk, monthly testing for high-risk). It shall also provide for the reporting of compliance findings noted to appropriate levels of management. (3) The program shall establish the responsibilities and duties of the compliance officer and other personnel (if any) involved in the compliance function. (4) A copy of the compliance program and the written approval of the Board of Directors shall be submitted to the appropriate supervising and examining department of the BSP within twenty (20) business days from date of approval. (5) The program shall be updated at least annually to incorporate changes in laws and regulations. Any changes in the program shall likewise be approved by the NBQB's Board of Directors and submitted to BSP within twenty (20) business days from the date of approval. b. A constructive working relationship with regulatory agencies. The NBQB, through its compliance officer, may consult the regulatory agencies for additional clarification on specific provisions of laws and regulations and/or discuss compliance findings with the regulatory authorities. A dialogue may also be initiated with respect to borderline issues. c. A clear and open communication process within the NBQB to educate and address compliance matters. Officers and staff shall be trained on the regulatory requirements through regular meetings, distribution of manuals and dissemination of regulatory issuance. d. Continuous monitoring and assessment of the compliance program. The program shall provide for the periodic review of the compliance function to measure its effectiveness. The review may be carried out by the internal audit department of the NBQB. The compliance program may operate parallel to or as part of an NBQB's internal control and auditing program. SUBSECTION 4191Q.2 Compliance officer . a. The principal function of the compliance officer is to oversee and coordinate the implementation of the compliance system. His responsibility shall include the identification, monitoring and controlling of compliance risk. b. The appointment/designation of a compliance officer shall require prior approval of the Monetary Board. The bio-data of the proposed compliance officer shall be submitted to the appropriate supervising and examining department of the BSP. c. The compliance officer shall have the skills and expertise to provide appropriate guidance and direction to the bank on the development, implementation and maintenance of the compliance program. d. An independent full-time compliance officer, who shall have a rank of at least a Vice President, shall be appointed. However, they are allowed on a case-to-case basis, upon recommendation of the supervising and examining department concerned, to designate an incumbent officer (including the Internal Auditor) as the NBQB's compliance officer: Provided , That such will not give rise to any conflict of interest situation, that the main function of the officer shall be that of a compliance officer and that he is considered a senior officer in the organizational set-up of the NBQB. SUBSECTION 4191Q.3 Compliance risk . Compliance risk is the risk of legal or regulatory sanctions, financial loss, or loss to reputation a quasi-bank may suffer as a result of its failure to comply with all applicable laws, regulations, codes of conduct and standards of good practice. SUBSECTION 4191Q.4 Responsibilities of the board of directors and senior management on compliance . Aside from the duties and responsibilities of the board of directors mentioned under Subsec. 4141Q.3, the board should oversee the implementation of the compliance policy and ensure that compliance issues are resolved expeditiously. Senior management should be responsible for establishing a compliance policy, ensuring that it is observed, reporting to the board of directors on its ongoing implementation and assessing its effectiveness and appropriateness. Senior management should, at least once a year, report to the board of directors or a committee of the board on matters relevant to the compliance policy and its implementation, recommending any required changes to the policy. The report should assist the board members in making an informed assessment as to whether the institution is managing its compliance risk effectively. However, any material breaches of laws, rules and standards shall be reported promptly. SUBSECTION 4191Q.5 Status . The compliance function should have a formal status within the organization established by a charter or other formal document approved by the board of directors that defines the compliance function's standing, authority and independence, and addresses the following issues: (1) measures to ensure the independence of the compliance function from the business activities of the quasi-bank; (2) its role and responsibilities; (3) its relationship with other functions or units within the organization; (4) its right to obtain access to information necessary to carry out its responsibilities; (5) its right to conduct investigations of possible breaches of the compliance policy; (6) its formal reporting relationships to senior management and the board of directors; and (7) its right of direct access to the board of directors or an appropriate committee of the board. The compliance charter or other formal document defining the status of the compliance function shall be communicated throughout the organization. SUBSECTION 4191Q.6 Independence . The compliance function should be independent from the business activities of the institution. It should be able to carry out its responsibilities on its own initiative in all units or departments where compliance risk exists and must be provided with sufficient resources to carry out its responsibilities effectively. It must be free to report to senior management and the board or a committee of the board on any irregularities or breaches of laws, rules and standards discovered, without fear of retaliation or disfavor from management or other affected parties. The compliance function should have access to all operational areas as well as any records or files necessary to enable it to carry out its duties and responsibilities. SUBSECTION 4191Q.7 Role and responsibilities of the compliance function . The role and responsibilities of the compliance function should be clearly defined. If there is a division of duties and responsibilities between different functions such as legal, compliance, internal audit or risk management, the allocation of duties and responsibilities to each function should be properly delineated. There should likewise be formal arrangements for cooperation between each function and for the exchange of relevant information. SUBSECTION 4191Q.8 Cross-border issues . The compliance function for institutions that conduct business in other jurisdictions should be structured to ensure that local compliance concerns are satisfactorily addressed within the framework of the compliance policy for the organization as a whole. As there are significant differences in legislative and regulatory frameworks across countries or from jurisdiction to jurisdiction, compliance issues specific to each jurisdiction should be coordinated within the structure of the institution's group-wide compliance policy. The organization and structure of the compliance function and its responsibilities should be in accordance with local legal and regulatory requirements. SUBSECTION 4191Q.9 Outsourcing . Quasi-banks should establish policies for managing the risks associated with outsourcing activities. Outsourcing of services/activities can reduce the institution's risk profile by transferring activities to others with the necessary expertise to manage the risks associated with specialized business activities. However, the use of third parties does not diminish the responsibility of the board of directors and senior management to ensure that the outsourced activity is conducted in a safe and sound manner and in compliance with applicable laws and regulations. Compliance risk assessment and testing may be outsourced, subject to appropriate oversight by the compliance officer: Provided , That a copy of the outsourcing agreement stating the duties and responsibilities as well as rights and obligations of the contracting parties, which agreement shall be approved by the board of directors of the institution concerned, must be submitted to the appropriate supervising and examining department of the BSP at least thirty (30) days prior to its execution to enable review of its compliance with existing regulations on outsourcing of quasi-banking functions. The service level agreement shall ensure a clear allocation of responsibilities between the external service providers and the quasi-bank. Furthermore , the outsourcing quasi-bank should manage residual risks associated with outsourcing arrangements, including default, operational failures, and possible disruption of services. SECTIONS 4192Q 4198Q (Reserved) SECTION 4199Q. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART TWO Deposit and Borrowing Operations A. - D. (RESERVED) SECTIONS 4201Q 4210Q (Reserved) E. Deposit Substitute Operations SECTION 4211Q. Deposit Substitute Instruments . Only the following types of instruments may be issued by NBQBs as evidence of deposit substitute liabilities: CacTSI a. Promissory notes; b. Repurchase agreements; and c. Certificates of assignment/participation with recourse. SUBSECTION 4211Q.1 Prohibition against use of certain instruments as deposit substitutes . Acceptances, bills of exchange and trust certificates shall not be used as evidence of deposit substitute liabilities. This prohibition shall not apply to the acceptance or negotiation of bills of exchange in connection with trade transactions, or to the issuance of trust certificates creating trust relationship. SUBSECTION 4211Q.2 Negotiations of promissory notes . Negotiable promissory notes acquired by NBQBs shall not be negotiated by mere indorsement and/or delivery, if they do not conform with the minimum features prescribed under Subsec. 4211Q.3. If these notes do not contain the features in said Subsection, their negotiation shall be covered by any of the appropriate deposit substitute instruments mentioned in Sec. 4211Q. SUBSECTION 4211Q.3 Minimum features . Deposit substitute instruments issued by NBQBs shall have the following minimum features. a. The present value and maturity value and/or the principal amount and interest rate and such other information as may be necessary to enable the parties to determine the cost or yield of the borrowing or placement shall be specified. b. The date of issuance shall be indicated at the upper right corner of the instrument, and directly below which shall be the maturity period or the word "demand", if it is a demand instrument. c. The payee may be identified by his trust account/deposit account number in both negotiable and non-negotiable instruments. d. Securities which are the subject of a repurchase agreement or a certificate of assignment/participation with recourse, shall be particularly described on the face of said instruments or on a separate instrument attached and specifically referred to therein and made an integral part thereof as to the maker, value, maturity, serial number, and such other particulars as shall clearly identify the securities. e. The instrument shall provide for the payment of liquidated damages, in addition to stipulated interest, in case of default by the maker/issuer, as well as attorney's fees and cost of collection in case of suit. f. A conspicuous notice at the lower center margin of the face of the instrument that the transaction is not insured by the Philippine Deposit Insurance Corporation. g. The corporate name of the issuer shall be printed at the upper center margin of the instrument and directly below which shall be a designation of the instrument, such as, "Promissory Note" or "Repurchase Agreement". h. The words "duly authorized officer" shall be placed directly below the signature of the person signing for the maker/issuer. i. Each instrument shall be serially prenumbered. j. The copy delivered to the payee shall bear the word "Original" and the copies retained by the issuer shall be identified as "Duplicate," "File Copy" or words of similar import. k. Only security paper with adequate safeguards against alteration or falsification shall be used. Deposit substitute instruments shall conform to the language prescribed by the BSP. Any substantial deviation therefrom or any additional stipulation therein shall be referred to the BSP for prior approval. The size and appearance of these instruments shall not be similar to the size and appearance of checks. Formats of standardized instruments in Appendices Q-6 to Q-6-k shall be followed. Rubber stamping, typewriting and handwriting some provision shall not be considered compliance with said regulations. Borrowings of NBQBs from the loans and discounts window of banks or NBQBs shall be exempted from the documentation requirements of this Section: Provided , That the exemption from the documentation requirements shall not be construed or interpreted as exemption of said borrowings from the other rules on borrowings by NBQBs and from other BSP regulations on deposit substitutes. SUBSECTION 4211Q.4 Delivery of securities . 1 a. Securities, warehouse receipts, quedans and other documents of title which are the subject of quasi-banking functions, such as repurchase agreements, shall be physically delivered, if certificated, to a BSP accredited custodian that is mutually acceptable to the lender/purchaser and borrower/seller, or by means of book-entry transfer to the appropriate securities account of the BSP accredited custodian in a registry for said securities, if immobilized or dematerialized while the overlying principal borrowing instrument shall be physically delivered to the lender/purchaser. The custodian shall hold the securities in the name of the borrower/seller, but shall keep said securities segregated from the regular securities account of the borrower/seller if the borrower/seller has an existing securities account with the custodian. Provided , That a financial institution (NBFI) authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or owned by said institution, its subsidiaries or affiliates, or of securities in bearer form. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by authorized officers of the custodian and delivered to both the lender/purchaser and seller/borrower. b. Sanctions . Violation of any provision of this Subsection shall be subject to the following sanctions/penalties: (1) Monetary penalties First Offense Fine of P10,000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. Subsequent offenses Fine of P20,000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. (2) Other sanctions First offense Reprimand for the directors/officers responsible for the violation. Subsequent offense (a) Suspension for ninety (90) days without pay of directors/officers responsible for the violation; (b) Suspension or revocation of the accreditation to perform custodianship function; (c) Suspension or revocation of the authority to engage in quasi-banking function; and/or (d) Suspension or revocation of the authority to engage in trust and other fiduciary business. SUBSECTION 4211Q.5 Regulation on additional stipulation . Stipulations between the maker/issuer and the payee which are embodied in separate instruments shall be specifically referred to in the deposit substitute instruments and made an integral part thereof. SUBSECTION 4211Q.6 Substitution of underlying securities . Any agreement allowing the issuer/maker to substitute the underlying securities shall further provide that the actual substitution shall be with the prior written consent of the payee. SUBSECTION 4211Q.7 Call slips/tickets for 24-hour loans . Call slips or tickets may be used to evidence call loan transactions of not more than twenty-four (24) hours maturity or to cover reserve deficiencies. In all other cases, call loan transactions shall be evidenced by a promissory note containing the minimum features prescribed in Subsec. 4211Q.3. SUBSECTION 4211Q.8 Requirement to state nature of underlying securities . In case of repurchase agreements and certificates of assignment/participation with recourse, the stipulation shall clearly state either (a) that the underlying securities are being delivered to the buyer or assignee as collaterals or (b) that the ownership thereof is being transferred to the buyer or assignee. SUBSECTION 4211Q.9 Compliance with SEC rules . NBQBs shall comply with the new rules on the registration of short-term and long-term commercial papers appended hereto as Appendices Q-7 and Q-8 . SECTION 4212Q. Recording; Payment; Maturity; Renewal . a. Deposit substitutes shall be recorded in the books at their respective principal amounts, and reported accordingly, regardless of whether the interest thereon has been paid in advance or not. b. If there is any stipulation that payment of the deposit substitute shall be chargeable against a particular deposit account, it shall further provide that the liability of the maker/issuer of the instrument shall not be limited to the outstanding balance of said amount. c. The minimum maturity of any single deposit substitute transaction shall be fifteen (15) days. Interbank borrowings shall not be subject to the limitations in this Section. d. Automatic renewal from maturity of the instrument may be effected only under terms and conditions previously stipulated by the parties. SECTION 4213Q. Minimum Trading Lot . The minimum size of any single deposit substitute transaction shall be P50,000. In connection with the minimum trading lot rule above stated, no NBQB shall issue deposit substitute instruments in the name of two (2) or more persons or accounts except those falling under the following relationships in which cases, commingling may be allowed: (a) husband and wife; (b) persons related to each other within the second degree of consanguinity; and (c) in trust for (ITF) arrangements. SECTION 4214Q. Interbank Borrowings . The regulations on interbank loan transactions prescribed in Sec. 4376Q shall also apply to interbank borrowings. SECTION 4215Q. Borrowings from Trust Departments or Managed Funds of Banks or Investment Houses . Funds borrowed by NBQBs from trust departments or managed funds of banks or investment houses are not considered as interbank borrowings and, therefore, are subject to the: a. reserve requirement on deposit substitutes; b. minimum fifteen (15)-day maturity period; and c. minimum trading lot rule. SECTION 4216Q. Money Market Placements of Rural Banks . NBQBs shall not accept money market placements from any rural bank unless the latter presents a certification under oath stating: (a) that it has no overdue special time deposits; (b) that it has no past due obligations with the BSP or other government financial institutions; (c) the amount of its current obligations, if any, with said government financial institutions; and (d) the amount of its total outstanding money market placements. However, in no case shall such NBQBs sell receivables to rural banks without recourse. SUBSECTION 4216Q.1 Definition of terms . As used in this Section, the following terms shall have the following meanings: Money market placements shall include investments in debt instruments, including purchases of receivables with recourse to the lending institution, except purchases of government securities on an outright basis. Government securities shall include evidences of indebtedness of the Republic of the Philippines and the BSP and other evidences of indebtedness or obligations of government entities, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. SUBSECTION 4216Q.2 Conditions required on accepted placements . Placements accepted must comply with the following conditions: a. That the total money market placements of a rural bank, as stated in the certification, including the placement being accepted by the entity concerned, shall not exceed the rural bank's combined capital accounts or net worth less current obligations with the BSP or other government financial institutions; b. The maturity of the money market placement shall not exceed sixty (60) days; and c. That placements shall be evidenced in all cases by promissory notes of accepting entities/repurchase agreements and/or certificates of participation/assignment with recourse and that underlying instruments shall be government securities the servicing and repayment of which are guaranteed by the Republic of the Philippines. SUBSECTION 4216Q.3 Sanctions . Violations of the provisions of this Section shall be subject to the following sanctions/penalties: a. Fines First Offense Fines of P3,000 a day, reckoned from the date placement started up to the date when said placement was withdrawn, for each violation shall be assessed on the bank. Subsequent Offenses Fines of P5,000 a day, reckoned from the date placement started up to the date placement was withdrawn, for each violation shall be assessed on the bank. b. Other Sanctions First Offense Reprimand for the directors/officers who approved the acceptance/placement with a warning that subsequent violations will be subject to more severe sanctions. Subsequent Offenses (1) Suspension for ninety (90) days without pay for directors/officers who approved the placement. (2) Suspension or revocation of the authority to engage in quasi-banking functions. SECTION 4217Q. Bond Issues of NBQBs . The following guidelines shall govern the bond issues of NBQBs. SUBSECTION 4217Q.1 Definition of terms . For purposes of this Section, the following terms shall mean: a. Government securities shall refer to the evidences of indebtedness of the Republic of the Philippines or its instrumentalities, or of the BSP, and must be freely negotiable and regularly serviced. b. Net book value shall refer to the acquisition cost of property or accounts, plus additions and improvements thereon, less valuation reserves, if any. c. Current market value shall refer to the value of the property as established by a duly licensed and independent appraiser. d. Affiliate shall refer to an entity linked directly or indirectly to an NBQB by means of: (1) Ownership, control or power to vote, of ten percent (10%) or more of the outstanding voting stocks of the entity, or vice-versa; (2) Interlocking directorships or officerships; (3) Common stockholders owning ten percent (10%) or more of the outstanding voting securities; (4) Management contract or any arrangement granting power to direct or cause the direction of management and policies; (5) Voting trustee holding ten percent (10%) or more of the outstanding voting securities; (6) Permanent proxy or voting trust constituting ten percent (10%) or more of the outstanding voting securities. e. Subsidiary shall refer to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled, or held with power to vote by another. SUBSECTION 4217Q.2 Underwriting of bonds . Bond issues may be underwritten by entities including those which are affiliates or subsidiaries of the issuer. The investment of affiliates or subsidiaries in said bond issue shall be subject to: (a) individual and aggregate ceilings of ten percent (10%) and thirty percent (30%), respectively, of the bond issue; and (b) the condition that the investing affiliate or subsidiary does not have any outstanding loan from the issuer or that it shall not incur any indebtedness from the issuer during the period that the investment remains outstanding. SUBSECTION 4217Q.3 Compliance with SEC rules . NBQBs issuing or intending to issue bonds shall comply with the new rules on the registration of long-term commercial papers ( Appendix Q-8 ). SUBSECTION 4217Q.4 Notice to Bangko Sentral . Within three (3) days from approval by the SEC of its bond issue, an NBQB shall notify the appropriate department of the BSP of the approval, attaching documents required by the SEC for the issuance and registration of the bond issue. SUBSECTION 4217Q.5 Minimum features . Bond issues by NBQBs shall have the following minimum features: a. Form; issue price; denomination . The trust indenture and the name of the indenture trustee shall be indicated on the face of the bond certificate. The SEC-assigned bond registration number and expiry date, if any, shall likewise be indicated, stamped on the face of each bond certificate issued. Bonds may be issued at face value, at a discount, or at a premium. Minimum denomination shall be P20,000. b. Term . The minimum maturity of the bonds shall be four (4) years. No optional redemption before the fourth year shall be allowed. c. Interest; manner; form of payment The bonds shall not be subject to interest rate ceilings prescribed by the Monetary Board or Act No. 2655, as amended. Interest paid in advance shall not exceed the interest for one (1) year: Provided , That interest shall not be paid in kind. d. Trust indenture; collaterals; sinking fund . A trust indenture shall be executed between the issuer and a qualified trust corporation as trustee, which shall neither be an affiliate nor a subsidiary of the issuer. The following shall be deemed as eligible collateral and shall be maintained at respective values indicated in relation to the face value of the bond issue: (1) Government securities Aggregate current market value of 100% (2) High-grade private Aggregate current securities listed in market value of 150% the big board of stock exchanges (3) Real estate Net book value of 100% (4) Unmatured receivables Net book value acquired with recourse; of 150% lease contracts receivable (5) Unmatured receivables Net book value acquired without of 200% recourse Government and private securities, certificates of title and documents evidencing receivables offered as security shall be physically delivered to the indenture trustee. Substitution of collaterals shall be allowed: Provided , That in no case shall the collateral fall below the herein-required ratios. The issuer may, at his option, provide for the retirement at maturity of the bond issue through a sinking fund to be deposited with and managed by the indenture trustee. e. Bond registry . The bonds shall be fully registered as to principal and interest. The issuer, its trustee, agent or underwriter must maintain a bond registry duly approved by the SEC for recording, in initial and subsequent transfers, the names of transferees, date of transfer, purchase price and serial numbers of bonds transferred. SUBSECTION 4217Q.6 Reserve requirement . A five percent (5%) reserve shall be maintained against all bond issues of NBQBs. The form/composition of reserves for bond issues shall be in accordance with the applicable rules on reserve against deposit substitute liabilities and borrowings. SUBSECTION 4217Q.7 Inapplicability of certain regulations . Secs. 4211Q and 4213Q shall not apply to bonds issued under these guidelines. SECTIONS 4218Q 4230Q (Reserved) F. (Reserved) SECTIONS 4231Q 4235Q (Reserved) G. Interest SECTION 4236Q. Yield/Interest Rates . a. Deposit substitutes of NBQBs shall not be subject to yield or interest rate ceilings. b. A matured and an unclaimed deposit substitute shall be payable on demand and shall earn interest or yield from maturity to actual withdrawal or renewal at a rate applicable to a deposit substitute with a maturity of fifteen (15) days. SECTIONS 4237Q 4245Q (Reserved) H. Reserves SECTION 4246Q. Reserves Against Deposit Substitutes . NBQBs shall maintain a nine percent (9%) regular reserves against deposit substitute liabilities as defined in Section 95 of R.A. No. 7653, regardless of maturities except: (a) borrowings from the BSP through the sale of government securities under repurchase agreements made in connection with the provisions of Sec. 4601Q; (b) deposit substitutes arising from special financing programs of the Government and/or international financial institutions; (c) interbank call loan transactions under Sec. 4376Q; and (d) bonds under Sec. 4217Q for which the reserve requirement shall be five percent (5%). On top of the regular reserve requirements, an additional ten percent (10%) 3 liquidity reserves against deposit substitute liabilities (except Items " a " to " d " above) of quasi-banks shall be imposed which may be maintained in the form prescribed in Item " a " of Subsec. 4246Q.1. Any deficiency shall be in the form prescribed in Item " b " of Subsec. 4246Q.1. Provided , That deposit substitutes evidenced by repurchase agreements (REPOs) covering government securities up to the amount equivalent to the adjusted Tier 1 capital of the quasi-bank shall be subject to the statutory reserve of two percent (2%): Provided, further , That such rate shall apply only to REPOs, the documentation of which conforms with, and were delivered to a BSP accredited third party custodian as required under existing BSP regulations. SUBSECTION 4246Q.1 Composition of reserves . The composition of the reserves shall be as follows: a. Not more than seven percent (7%) 1 of the deposit substitute liabilities of NBQBs under Sec. 4246Q may be maintained in the form of: (1) short-term market-yielding government securities purchased directly from the BSP-Treasury Department; and (2) NDC Agri-Agra ERAP Bonds, regardless of maturity; and (3) Poverty Eradication and Alleviation Certificates (PEACe) bonds only to the extent of the original gross issue proceeds determined at the time of the auction, plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds; and b. The balance shall be as follows: (1) At least ten percent (10%) in the form of deposit balances with the BSP; (2) A maximum of seventy-five percent (75%) in the form of government securities; and (3) The balance in the form of demand deposit accounts with banks which are not restricted as to withdrawal or use for current operations but not with financial institutions which have been closed and are under receivership or liquidation. For purposes of this Subsection, government securities eligible as reserves against deposit substitute liabilities of NBQBs as referred to in Item " b(2) " above shall be limited to bonds or other evidences of indebtedness representing direct obligations of the government of the Republic of the Philippines having the following minimum features/conditions: (i) The securities must bear an interest rate of not more than four percent (4%) per annum, must be non-negotiable and shall carry BSP support; and (ii) The instrument must expressly state in its face the amount, maturity date and interest rate of the obligation. A list of reserves-eligible and non-eligible securities may be found in Appendix Q-9 . Other government securities being used for reserve purposes shall continue to be eligible as such: Provided , That whenever said securities shall have matured, they shall be replaced by securities carrying the above features. Securities held as reserves shall be valued at cost of acquisition, and the NBQB may freely alter its composition: Provided , That any substitution or acquisition satisfies the eligibility requirements prescribed above: Provided, further , That the NBQB notifies the BSP of any such change not later than the reporting day following the change. Securities counted as reserves which are hypothecated or encumbered in any way or earmarked for any other purpose shall automatically lose their eligibility as reserves. Only the buying/lending NBQB in a resale agreement covering eligible government securities may use such securities as reserves against deposit substitute liabilities. Conversely, the selling/borrowing NBQB in a repurchase agreement covering eligible government securities may not use such securities as reserves against deposit substitute liabilities. The reserve eligibility of government securities under the reverse repurchase operations of the BSP shall be suspended during the term of the repurchase agreement. The phrase non-reserve eligible shall be stamped on the face of the custodian receipt being issued by the BSP to buyer financial institutions. SUBSECTION 4246Q.2 Computation of reserve position . The reserve position of any NBQB and the penalty on reserve deficiency shall be computed based on a seven (7)-day week, starting Friday and ending Thursday, including Saturdays, Sundays, public special/legal holidays, non-business days, unexpected declared non-business days or declared half-day holidays and days when there is no clearing: Provided , That with reference to public special/legal holidays, non-business unexpected declared non-business days, declared half-day holidays and days when there is no clearing, the reserve position as calculated at the close of the business day immediately preceding such public special/legal holidays, non-business days and unexpected declared non-business day/s and declared half-day holidays and days when there is no clearing, shall apply thereon. For this purpose, the principal office in the Philippines and all other offices located therein shall be treated as a single unit. TaDAIS The required reserves in the current period (reference reserve week) shall be computed based on the corresponding levels of deposit substitute liabilities of the prior week. SUBSECTION 4246Q.3 Reserve deficiencies; sanctions . a. Whenever the reserve position of any NBQB computed in the manner specified in Subsec. 4246Q.2 is below the required minimum, the NBQB concerned shall pay the BSP one-tenth of one percent (1/10 of 1%) per day on the amount of the deficiency or the prevailing ninety-one (91)-day Treasury Bill rate plus three (3) percentage points, whichever is higher: Provided, however , That the NBQB shall be permitted to offset any reserve deficiency occurring one (1) or more days of the week covered by the report against excess reserves which it may hold on other days of the same week, and shall be required to pay the penalty only on the average daily net deficiency during the week. In case of abuse, the NBQB shall automatically lose the privilege of offsetting reserve deficiency in the aforesaid manner until such time that it maintains its daily reserve position at the required minimum for at least two (2) consecutive weeks. As used in this Subsection, abuse in the privilege of offsetting reserve deficiencies against excess reserves shall mean having reserve deficiencies occurring four (4) or more times during any given week for two (2) consecutive weeks, whether or not resulting in net weekly deficiencies. b. In cases where the NBQB has chronic reserve deficiency on deposit substitute liabilities, the Monetary Board may (1) limit or prohibit the making of new loans or investments by the NBQB concerned; (2) prohibit the declaration of cash dividends; and/or (3) impose such other sanctions, as it may deem necessary. The board of directors of such NBQB shall be notified of such chronic reserve deficiency and the penalties therefor, and shall be required to immediately correct the reserve position of the NBQB. As used in this Subsection, the following terms shall have the following meanings: Chronic reserve deficiency shall mean having net reserve deficiency for two (2) consecutive weeks. New loan and new investment shall refer to any loan and any investment involving disbursement of funds. c. Fines on legal reserve deficiencies on deposit substitute liabilities shall be paid by the NBQB in accordance with Sec. 4653Q: Provided , That where the credit balance of the NBQB's demand deposit account with the BSP is insufficient and it fails to settle the assessment within fifteen (15) days from receipt, the Monetary Board may limit or prohibit the making of new loans or investments by the NBQB. SUBSECTION 4246Q.4 Exemptions . Certificates of assignment issued with recourse by NBQBs under the IGLF Program are not covered by the reserve requirements. SUBSECTION 4246Q.5 Matured and unclaimed deposit substitutes . Matured and unclaimed deposit substitutes shall continue to be subject to reserves. SUBSECTION 4246Q.6 Book entry method for reserve securities . Transactions concerning reserve-eligible securities shall be entered in the respective securities account of each NBQB with the BSP and shall be evidenced by securities account debit or credit advices to be promptly furnished the institution/s concerned. No certificates shall be issued for any purpose. Transactions with third parties other than the BSP shall not be recognized. SUBSECTION 4246Q.7 Interest income on reserve deposit with Bangko Sentral . Deposits maintained by NBQBs with the BSP up to forty percent (40%) of their reserve requirement (excluding the percentage of liquidity reserves required on deposit substitute liabilities of NBQBs under Sec. 4246Q) shall be paid interest at four percent (4%) per annum based on the average daily balance of said deposits to be credited quarterly. The computation of quarterly interest payments credited to the quasi-banks' demand deposit accounts (DDAs) with BSP are shown in Appendix Q-27 . Effective July 1, 2003, published interest rates that will be applied on BSP's Regular DDAs of quasi-banks shall be inclusive of the ten percent (10%) Value Added Tax (VAT). SUBSECTION 4246Q.8 Guidelines in calculating and reporting to the BSP the required reserves on deposit substitutes evidenced by repurchase agreements covering government securities . a. The Supervisory Data Center (SDC) shall determine the maximum allowable amount of REPOs covering government securities that will qualify for the reduced statutory reserve requirements of two percent (2%). It shall be based on the amount reported by quasi-banks in their weekly Consolidated Daily Report of Condition. The adjusted Tier 1 capital reported daily should approximate the quarterly adjusted Tier 1 capital as submitted by banks in compliance with the provisions of Sec. 4116Q. b. Any material differences that may be noted by the SDC between the daily and the quarterly report shall be considered as erroneous reporting and shall be subject to the penalties under existing regulations. The SDC shall also make a re-run of its computation of the quasi-bank's reserve position and in the event that the reserve position resulted to a reserve deficiency/ies, the corresponding penalties on reserve deficiencies shall also apply. c. The lagged system in the measurement of a quasi-bank's reserve requirement, as provided in Subsec. 4246Q.2, shall also be adopted in the calculation of the two percent (2%) statutory reserve requirements for REPOs covering government securities. d. Deposit substitutes evidenced by repurchase agreements covering government securities in excess of the adjusted Tier 1 capital shall be treated as regular deposit substitutes and shall be subject to the regular statutory and liquidity reserve requirements under existing regulations. SECTIONS 4247Q 4255Q (Reserved) I. (Reserved) SECTIONS 4256Q 4275Q (Reserved) J. Borrowings from the Bangko Sentral SECTION 4276Q. Repurchase Agreements with the Bangko Sentral . Repurchase agreements with the BSP under its open market operations shall be governed by the provisions of Sec. 4602Q. SECTIONS 4277Q 4280Q (Reserved) K. Other Borrowings SECTION 4281Q. Borrowings from the Government . NBQBs shall not borrow any fund or money from the Government and government entities, through the issuance or sale of its acceptances, notes or other evidence of debt, except as may be authorized by existing statutes. SUBSECTION 4281Q.1 Definition of terms . For purposes of this Section, the following terms shall have the meaning indicated unless the context clearly indicates otherwise: a. Fund or money from the Government and government entities includes public moneys of every sort, whether pertaining to the National Government, province, city, municipality, or other branch or agency of the Government, including government-owned or controlled corporations as defined herein, and shall comprise "revenue funds", "trust funds", and "depository funds" as these terms are defined in the Revised Administrative Code of 1987, and deposits of, borrowings from, and all other liabilities to, the Government and government entities. b. Government-owned or controlled corporations shall refer to government-owned or controlled corporations which are created by special laws. It shall exclude government financial institutions such as the Development Bank of the Philippines, Land Bank of the Philippines and Al-Amanah Islamic Investment Bank of the Philippines, corporations which are organized as subsidiaries of government-owned or controlled corporations under the provisions of the Corporation Law (Act No. 1459, as amended) or the Corporation Code (BP Blg. 68) and private corporations which are taken over by government-owned or controlled corporations. SECTIONS 4282Q 4298Q (Reserved) SECTION 4299Q. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART THREE Loans, Investments and Special Credits SECTION 4301Q. Management of Risk Assets/Minimum Guidelines on Lending Operations . It shall be the responsibility of the board of directors of an NBQB to formulate written policies on the extension of credit and risk diversification and to set the guidelines for evaluation of risk assets. Well-defined lending policies and sound lending practices are essential if an NBQB is to perform its credit-extension function effectively and minimize the risk inherent in any extension of credit. The responsibility should be approached in a way that will provide assurance to the public, the stockholders and supervisory authorities that timely and adequate action will be taken to maintain the quality of the loan portfolio and other risk assets. a. Requirement of lending policies NBQBs shall have well-defined lending policies which shall ensure that lending shall be upon terms which are in the best interest of the institution and in accordance with existing policy, rules and regulations of the Monetary Board. Such policies shall be in writing to form part of the institution's permanent records and shall be made available for inspection by the Bangko Sentral. b. Lending operations, definition Lending operations refer to any credit accommodation and purchase of receivables and commercial papers, including purchase of commercial papers in the secondary market. c. Creditworthiness of borrowers Before extending credit in any form, the NBQB must exercise proper caution to ascertain that the debtors, co-makers, indorsers, sureties and/or guarantors are capable of fulfilling their commitments. For this purpose, credit investigations must be conducted and appropriate statements of assets and liabilities and of income and expenditures shall be required of credit applicants. d. Amounts, purpose and terms of credit accommodations . Loans/credit accommodations shall be granted only in amounts and for periods necessary for the completion of the operations to be financed, and for purposes which are attuned to government economic policies. The amount and period of the loan shall be justified by the financial statements submitted or by specific feasibility/project studies for a particular operation to be financed by the loan applied for. e. Documentation of loans . All loans/credit extensions shall be supported by evidences of indebtedness and/or loan agreements which shall contain, among other things, a statement of the purpose of the loan and a program of repayment of the obligation. f. Credit files . Adequate credit files of borrowers shall be maintained which shall contain documents such as credit investigation reports, balance sheets, statements of assets and liabilities, income and expense statements, income tax returns, bank and trade checkings, and other documents/papers showing information which form the bases for the credit extension. g. Periodic review . A periodic review of the loan portfolio and the credit standing of borrowers shall be made. h. Arm's length transactions . An NBQB shall not relend to or purchase receivables or other obligations of other corporations, majority of the voting stock of which is owned by subject corporation, unless the terms of the transactions are not more favorable than those of other similar transactions. SUBSECTIONS 4301Q.1 4301Q.5 (Reserved) SUBSECTION 4301Q.6 Large exposures and credit risk concentrations . The following guidelines shall govern managing large exposures and credit risk concentrations in line with the objective of strengthening risk management in the quasi-banking system. a. General principles (1) A quasi-bank can be exposed to various forms of credit risk concentration which if not properly managed may cause significant losses that could threaten its financial strength and undermine public confidence in the quasi-bank. (2) Credit risk concentrations may arise from excessive exposures to individual counterparties, groups of related counterparties and groups of counterparties with similar characteristics (e.g. counterparties in specific geographical locations, economic or industry sectors). (3) Diversification of risk is essential in quasi-banking. Many past quasi-bank failures have been due to credit risk concentrations of some kind. It is essential for quasi-banks to prevent undue credit risk concentrations from excessive exposures to particular counterparties, industries, economic sectors, regions or countries. (4) While concentration of credit risks are inherent in quasi-banking and cannot be totally eliminated, they can be limited and reduced by adopting proper risk control and diversification strategies. Safeguarding against credit risk concentrations should form an important component of a quasi-bank's risk management system. (5) The board of directors of a quasi-bank shall be responsible for establishing and monitoring compliance with policies governing large exposures and credit risk concentrations of the quasi-bank. The board should review these policies regularly (at least annually) to ensure that they remain adequate and appropriate for the quasi-bank. Subsequent changes to the established policies must be approved by the board. (6) The policy on large exposures and credit risk concentrations shall, at a minimum, cover the following: ADEaHT (a) Exposure limits that are reasonable in relation to capital and resources for i. Various types of borrowers/counterparties (e.g. government, banks and other financial institutions, corporate and individual borrowers); ii. A group of related borrowers/counterparties; iii. Individual industry sectors; iv. Individual countries; and v. Various types of investments. (b) The circumstances in which the above limits can be exceeded and the party authorized to approve such excesses, e.g. the quasi-bank's board of directors or credit committee with delegated authority from the board; (c) The delegation of credit authority within the quasi-bank for approving large exposures; (d) The procedures for identifying, reviewing, managing and reporting large exposures of the quasi-bank; (e) The definition of exposure. Quasi-banks should take into account the nature of their business and the complexity of their products. In any case, a quasi-bank's exposures to a counterparty should include its on and off-balance sheet exposures and indirect exposures; and (f) The criteria to be used for identifying a group of related persons; (7) The board and senior management of a quasi-bank should ensure that: (a) Adequate systems and controls are in place to identify, measure, monitor and report large exposures and credit risk concentrations of the quasi-bank in a timely manner; and (b) Large exposures of the quasi-bank are kept under regular review. " Large exposures " shall refer to exposures to a counterparty or a group of related counterparties equal or greater than five percent (5%) of quasi-bank's qualifying capital as defined under Section 4116Q. (8) A quasi-bank should, where appropriate, conduct stress testing and scenario analysis of its large exposures to assess the impact of changes in market conditions or key risk factors (e.g. economic cycles, interest rate, liquidity conditions or other market movements) on its profile and earnings. (9) It is expected that quasi-banks would generally observe a lower internal single borrower's limit than the prescribed limit of twenty-five percent (25%) as a matter of sound practice. b. Monitoring of large exposures/credit risk concentrations (1) Quasi-banks should have a central liability record (preferably based on automated system) for each loan exposure. Quasi-banks should be able to monitor such exposures against prescribed and internal limits on a daily basis. (2) Every quasi-bank should have adequate management information and reporting systems that enable management to identify credit risk concentrations within the asset portfolio of the quasi-bank or of the group (including subsidiaries and overseas branches) on a timely basis. If a concentration does exist, quasi-banks should reduce it in accordance with their prescribed policies. Large exposures shall be subject to more intensive monitoring. (3) Quasi-banks should ensure that their internal or external auditors conduct at least an annual review of the quality of large exposures and controls to safeguard against credit risk concentrations. Their review should ascertain whether: (a) The quasi-bank's relevant policies, limits and procedures are complied with; and (b) The existing policies and controls remain adequate and appropriate for the quasi-bank's business. (4) Management should take prompt corrective action to address concerns and exceptions raised. (5) There should also be an independent compliance function to ensure that all relevant internal and prescribed requirements and limits are complied with. Breaches of prescribed requirements and deviations from established policies and limits should be reported to senior management in a timely manner. c. Unsafe and unsound practice Non-observance of the principles and the requirements of Items " a " and " b " above may be a ground for a finding of unsafe and unsound practice under Section 56 of the General Banking Law of 2000 ( Appendix Q-24 ) and may be subject to appropriate sanction as may be determined by the Monetary Board. d. Notification requirements A quasi-bank must inform BSP immediately where it has concerns that its large exposures or credit risk concentrations have the potential to impact materially upon its capital adequacy, along with proposed measures to address these concerns. e. Reporting Quasi-bank's records on monitoring of large exposures shall be made available to the BSP examiners for verification at any given time. When warranted, the BSP may impose additional reporting requirements on quasi-bank in relation to its large exposures and credit risk concentrations. f. Sanction Any failure or delay in complying with the requirements under Items " d " and " e " of this Subsection shall be subject to penalty applicable to those involving major reports. SECTION 4302Q. Loan Portfolio and Other Risk Assets Review System . To ensure that timely and adequate management action is taken to maintain the quality of the loan portfolio and other risk assets and that adequate loss reserves are set up and maintained at a level sufficient to absorb the loss inherent in the loan portfolio and other risk assets, NBQBs shall establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating credit policies vis-a-vis prevailing circumstances and emerging portfolio trends. Management must also recognize that loss reserve is a stabilizing factor and that failure to account appropriately for losses or make adequate provisions for estimated future losses may result in misrepresentation of the NBQB's financial condition. The system of identifying and monitoring problem loans and other risk assets and setting up of allowance for probable losses shall include, but is not limited to, the guidelines in Appendix Q-10 . SUBSECTION 4302Q.1 Provisions for losses; booking . The board of directors of quasi-banks are responsible for ensuring that their institutions have controls in place to determine the allowance for probable losses on loans, other credit accommodations, advances and other assets consistent with the institutions' stated policies and procedures, generally accepted accounting principles (GAAP), the BSP rules and regulations and the safe and sound banking practices. The board of directors, in fulfilling this responsibility, shall require management to develop and maintain an appropriate, systematic and uniformly applied process consistent and in compliance with existing BSP rules and regulations to determine the amount of reserves for bad debts or doubtful accounts or other contingencies. The specific allowance for probable losses for classified loans and other risk assets and the general loan loss provision as required in Appendix Q-10 shall be set up immediately. SUBSECTION 4302Q.2 Sanctions . Non-compliance with the requirement to book the valuation reserves required under the preceding Subsection shall be a ground for the imposition of any or all of the following sanctions: a. Denial of requests for authority to establish branches/offices; and b. Fine of P5,000 a day, counted as follows: (1) from the date the NBQB was informed that the recommendation of the appropriate supervising and examining department of the BSP was confirmed by the Monetary Board up to the date that said recommended valuation reserves were actually booked, in case of the allowance for probable losses for loans and other risk assets classified as Substandard ( Unsecured ), Doubtful and Loss as required by the BSP; and (2) from the dates prescribed under the preceding Subsection up to the date of the actual booking in cases of the two percent (2%) general provision for probable loan losses, the twenty-five percent (25%) allowance for probable losses on secured loans classified as Substandard , and the five percent (5%) allowance for probable losses on Loans Especially Mentioned . SECTIONS 4303Q 4305Q (Reserved) A. Loans in General SECTION 4306Q. Loan Limit to a Single Borrower . The total liabilities of any person, company, corporation or firm, to a quasi-bank for money borrowed, excluding (a) loans secured by obligations of the BSP or of the Philippine Government; (b) loans fully guaranteed by the government as to the payment of principal and interest; (c) loans fully secured by US Treasury Notes and other securities issued by central governments and central banks of foreign countries with the highest credit quality given by any two (2) internationally accepted rating agencies; (d) loans to the extent covered by the hold-out on or assignment of, deposits maintained in the lending quasi-bank and held in the Philippines; (e) loans and acceptances under letters of credit to the extent covered by margin deposits; and (f) other loans or credits which the Monetary Board may, from time to time, specify as non-risk assets, shall at no time exceed twenty-five percent (25%) of the combined capital accounts as defined in Sec. 4106Q. The total liabilities of any borrower may amount to a further fifteen percent (15%) of the combined capital accounts of such NBQB: Provided , That the additional liabilities are adequately secured by real estate mortgage, assignment or pledge of readily marketable bonds and other high-grade debt securities, except those issued by the lending entity. For purposes of this Section, the term liabilities shall mean the direct liability of the maker or acceptor of paper discounted with or sold to such NBQB and the liability of the indorser, drawer or guarantor who obtains a loan from or discounts paper with or sells papers under his guaranty to such NBQB and shall include in the case of liabilities of a co-partnership or association, the liabilities of the several members thereof and shall include, in the case of liabilities of a corporation, all liabilities of its subsidiaries: Provided , That even in cases where the parent corporation, co-partnership or association has no liability to the NBQB, the liabilities of subsidiary corporations or members of the co-partnership or association shall be combined for purposes of the single borrower's limit (SBL). ACTaDH SUBSECTION 4306Q.1 Exclusions from loan limit . In addition to those enumerated in Sec. 4306Q, the total liabilities of a commercial paper issuer for commercial papers held by an NBQB as a firm underwriter shall not be counted in determining compliance with the SBL within a period of 180 days from the acquisition of the commercial paper by an NBQB: Provided , That in no case shall such liabilities exceed five percent (5%) of the net worth of the selling agent beyond the normal applicable SBL. SUBSECTION 4306Q.2 Contingent liabilities included in loan limit . Outstanding foreign and domestic standby and deferred letters of credit less margin deposits, and outstanding guarantees, the nature of which requires the guarantor to assume the liabilities/obligations of third parties in case of their inability to pay, shall be included in determining the SBL except those fully secured by cash, hold-out on deposit substitutes, or government securities. SUBSECTION 4306Q.3 Sanctions . Violations of the provisions of the foregoing rules shall be subject to the following sanctions/penalties: a. Fines . Fines of one-tenth of one percent (1/10 of 1%) of the excess but not to exceed P30,000 a day for each violation, reckoned from the date the excess started up to the date when such excess was eliminated, shall be assessed on the NBQB. b. Other Sanctions First Offense . Reprimand for the directors/officers who approved the credit line or availment which resulted in the excess with a warning that subsequent violations will be subject to more severe sanctions. Subsequent Offenses (1) For the duration of each violation, imposition of a fine of P500 a day for each of the directors/officers who approved the credit line or availment which resulted in an excess. (2) Suspension of the NBQB from branching privileges until the excess is eliminated. SECTION 4307Q. Interest and Other Charges . The following rules shall govern the rates of interest on loans by NBQBs. SUBSECTION 4307Q.1 Rate ceilings . The rate of interest, including commissions, premiums, fees and other charges on loan transactions, regardless of maturity and whether secured or unsecured, shall not be subject to any ceiling. SUBSECTION 4307Q.2 Floating rates of interest . The rate of interest on a floating rate loan during each interest period shall be stated based on the Manila Reference Rate (MRR), Treasury Bill Rate (TBR) or other market-based reference rates, plus a margin as may be agreed upon by the parties. The MRRs for various interest periods shall be determined and announced by the BSP every week and shall be based on the weighted average of the interest rates paid during the immediately preceding week by the ten (10) commercial banks with the highest combined levels of outstanding deposit substitutes and time deposits, in promissory notes issued and time deposits received by such banks, of P100,000 and over per transaction account, with maturities corresponding to the interest periods for which such MRRs are being determined. Such rates and the composition of the sample commercial banks shall be reviewed and determined at the beginning of every calendar semester on the basis of the banks' combined levels of outstanding deposit substitutes and time deposits as of May 31 or November 30, as the case may be. The rate of interest on floating rate loans existing and outstanding as of December 23, 1995 shall continue to be determined on the basis of the MRRs obtained in accordance with the provisions of the rules existing as of January 1, 1989: Provided, however , That the parties to such existing floating rate loan agreement are not precluded from amending or modifying their loan agreements by adopting a floating rate of interest determined on the basis of TBR or other market-based reference rates. Where the loan agreement provides for a floating interest rate, the interest period, which shall be such period of time for which the rate of interest is fixed, shall be such period as may be agreed upon by the parties. SUBSECTION 4307Q.3 Effect of prepayment . If there is no agreement on the rebate of interest in the event of prepayment of the loan, the NBQB is not under any legal obligation to return the interest corresponding to the period from date of prepayment to the stipulated maturity date of the loan. Any prepayment made by the debtor should not, therefore, affect computation of the effective rate stipulated in the loan contract. SUBSECTION 4307Q.4 Loan prepayment . The borrower of an NBQB shall not be prohibited from prepaying a loan. A stipulation requiring the consent of the lending NBQB to such prepayment shall be contrary to this provision. In case of prepayment in the loan contract, such prepayment shall not be subject to penalty in the absence of any stipulation as to penalty. However, the parties may stipulate that prepayment shall be subject to penalty: Provided , That the penalty is not excessive or unconscionable. SUBSECTION 4307Q.5 Escalation clause; when allowable . Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board: Provided , That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided, further , That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. SUBSECTION 4307Q.6 Rate of interest in the absence of stipulation . The rate of interest for the loan or forbearance of any money, goods or credit and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve percent (12%) per annum. SUBSECTION 4307Q.7 Accrual of interest earned on loans . NBQBs are allowed to accrue interest earned on loans, subject to the following guidelines and/or procedures. a. No accrual of interest income is allowed if a loan has become non-performing as defined in Sec. 4311Q. Likewise, interest income shall not be accrued for unmatured loans/receivables with indications that collectibility thereof has become doubtful. These indications include declaration of bankruptcy, insolvency, cessation of operations, or such other conditions of financial difficulties or inability to meet financial obligations as they mature. Separate appropriate records shall be maintained for these non-accruing unmatured loans. Interest on non-performing loan accounts shall be taken up as income only when actual payments thereon are received. b. Interest earned on an extended or renewed loans may be accrued: Provided , That there is no previously accrued but uncollected interest thereon. Interest income on restructured loans (principal plus capitalized interest thereon) may be accrued: Provided , That these are: (1) In current status; and (2) Fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon, and such other first class collaterals as may be deemed appropriate by the Monetary Board. c. Accrued interest earned but not yet collected/received shall not be considered as profits and/or earnings eligible for dividend declaration and/or profit sharing. d. A contra account to be designated Allowance for Uncollected Interest on Loans shall be set up in accordance with Appendix 10 if accrued interest receivable on loans or loan installments is still uncollected after three (3) months from the date such loans and loan installments have matured or have become non-performing. e. The amount representing Allowance for Uncollected Interest on Loans may be chargeable against the excess of outstanding valuation reserves for loans and other risk assets as appearing in the NBQB's books over those recommended by the appropriate supervising and examining department of the BSP. The balance thereof, if any, shall be chargeable against operations. f. For all purposes, the Allowance for Uncollected Interest on Loans shall be considered a valuation reserve/allowance against the Accrued Interest Receivable account. SECTION 4308Q. Past Due Accounts . Past due accounts of an NBQB shall, as a general rule, refer to all accounts in its loan portfolio, all receivable components of trading account securities and other receivables, as defined in the manual of accounts for non-bank financial institutions, which are not paid at maturity. SUBSECTION 4308Q.1 Accounts considered past due . The following shall be considered as past due: a. Loans or receivables payable on demand if not paid on the date indicated on the demand letter, or within three (3) months from date of grant, whichever comes earlier; b. Bills discounted and time loans, whether or not representing availments against a credit line if not paid on the respective maturity dates of the promissory notes; c. Customers' liability on drafts under letters of credit/trust receipts : (1) Sight Bills if dishonored upon presentment for payment or not paid within thirty (30) days from date of original entry, whichever comes earlier; (2) Usance Bills if dishonored upon presentment for acceptance or not paid on due date, whichever comes earlier; and (3) Trust Receipts if not paid on due date. d. Bills and other negotiable instruments purchased if dishonored upon presentment for acceptance/payment or not paid on maturity date, whichever comes earlier: Provided, however , That an out-of-town check and a foreign check shall be considered as past due if outstanding for thirty (30) days and forty-five (45) days, respectively, unless earlier dishonored; e. Loans/receivables payable in installments the total outstanding balance thereof shall be considered past due in accordance with the following schedule: Minimum Number of Installments Mode of Payment in Arrears Monthly 3 Quarterly 1 Semestral 1 Annual 1 Provided, however , That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the loan/receivable, the total outstanding balance of the loan/receivable shall be considered as past due, regardless of the number of installments in arrears: Provided, further , That for modes of payment other than those listed above (e.g. daily, weekly or semi-monthly), the entire outstanding balance of the loan/receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total loan/receivable balance; For this purpose, the term " installments " shall refer to principal and/or interest amortizations that are due on several dates as indicated/specified in the loan documents. f. Credit card receivables if the amount due is not paid within ten (10) days from the deadline indicated in the billing statement; and g. ( Deleted by Circular No. 202 dated 5.27.99. ) For the purpose of determining delinquency in the payment of obligations as defined in Subsec. 4143Q.1(e), any due and unpaid loan installment or portion thereof, from the time the obligor defaults, shall be considered as past due. SUBSECTION 4308Q.2 Renewal/extension . No loan shall be renewed nor its maturity date extended unless the corresponding accrued interest receivable shall have been paid. SUBSECTION 4308Q.3 Restructured loans . A restructured loan shall be immediately classified past due in case of default of any principal or interest payment. SUBSECTION 4308Q.4 Demand loans . NBQBs shall, in case of non-payment of a demand loan, make a written demand within three (3) months following the grant of such loan. The demand shall indicate a period of payment which shall not be later than three (3) months from the date of said demand. SUBSECTION 4308Q.5 Write-off of loans as bad debts . a. Quasi-banks, upon approval by their board of directors, may write-off loans, other credit accommodations, advances and other assets against allowance for probable losses (valuation reserves) or current operations as soon as they are satisfied that such loans, other credit accommodations, advances and other assets are worthless as follows: (1) In the case of secured loans, quasi-banks may write-off loans, other credit accommodations and other assets in an amount corresponding to the booked valuation reserves: Provided , That the balance of the secured loans, other credit accommodations, advances and other assets shall remain in the books. (2) In the case of unsecured loans, other credit accommodations, advances and other assets, quasi-banks shall write-off said loans, other credit accommodations, advances and other assets in full amount outstanding. However, write-off of loans, other credit accommodations, advances and other assets considered transactions with DOSRI shall be with prior approval of the Monetary Board. b. Definitions . For purposes of this Section, the following terms are hereby defined as follows: (1) Loans . The term loans shall refer to all the accounts under the loan portfolio of a quasi-bank as enumerated in the Manual of Accounts for Quasi-Banks. (2) Other credit accommodations . The term other credit accommodations shall refer to exposures of quasi-banks other than loans such as sales contract receivables, accounts receivables, accrued interest receivables, lease receivables, and rental receivables. (3) Advances . The term advances shall refer to any advance by means of an incidental or temporary overdraft, cash "vale", any advance by means of DAUD and any advances of unearned salary or unearned compensation. (4) Other assets . The term other assets shall refer to investments, placements, ROPOAs and all other asset accounts that will not fall under loans and other credit accommodations. (5) Bad debts . The term bad debts shall refer to the definition under Subsec. 4126Q.1. c. Reporting requirements . Notice of write-off of loans, other credit accommodations, advances and other assets shall be submitted in the prescribed form to the supervising and examining department concerned at least twenty five (25) banking days prior to the intended date of write-off. The income tax expense deferred corresponding to the amount of loan, other credit accommodation, advances and other asset written-off considered deductible for income tax purposes shall be recognized and reversed in quasi-bank's books. SECTION 4309Q. "Truth in Lending Act" Disclosure Requirement . NBQBs are required to strictly adhere to the provisions of R.A. No. 3765, otherwise known as the "Truth in Lending Act", and shall make the true and effective cost of borrowing an integral part of every loan contract. The following regulations shall apply to all NBQBs engaged in the following types of credit transactions: a. Any loan, mortgage, deed of trust, advance and discount; b. Any conditional sales contract, any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; c. Any rental-purchase contract; d. Any contract or arrangement for the hire, bailment, or leasing of property; e. Any option, demand, lien, pledge, or other claim against, or for delivery of property or money; f. Any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any of the foregoing; and g. Any transaction or series of transactions having a similar purpose or effect. The following categories of credit transactions are outside the scope of these regulations: (1) Credit transactions which do not involve the payment of any finance charge by the debtor; and (2) Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds, etc. SUBSECTION 4309Q.1 Definition of terms . a. Person means any individual, partnership, corporation, association, or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof, or any other government, or any of its political subdivisions, or any agency of the foregoing. b. Cash price or delivered price , in case of trade transactions, is the amount of money which would constitute full payment upon delivery of the property (except money) or service purchased at the NBQB's place of business. In the case of financial transactions, cash price represents the amount of money received by the debtor upon consummation of the credit transaction, net of finance charges collected at the time the credit is extended, if any. c. Down payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased. d. Trade-in represents the value of an asset agreed upon by the NBQB and debtor, given at the time of the transaction as partial payment for the property or service purchased. e. Non-finance charges correspond to the amounts advanced by the NBQB for items normally associated with the ownership of the property or the availment of the service purchased which are not incidental to the extension of credit. For example, in the case of the purchase of an automobile on credit, the NBQB may advance the insurance premium as well as the registration fee for the account of the debtor. f. Amount to be financed consists of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in. g. Finance charge represents the amount to be paid by the debtor incidental to the extension of credit such as interest or discount, collection fee, credit investigation fee, attorney's fee and other service charges. The total finance charge represents the difference between (i) the aggregate consideration (down payment plus installments) on the part of the debtor, and (ii) the sum of the cash price and non-finance charges. h. Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and amount to be financed. In the case of single payment upon maturity, the simple annual rate (R) in percent is determined by the following method: DaScAI R = finance charge x 12 x 100 amount to be maturity period financed in months In the case of the normal installment type of credit of at least one (1) year in duration, where installment payments of equal amount are made in regular time periods spaced not more than one (1) year apart, the R in percent is computed by the following method: number of payments R = 2 x finance charge x in a year x 100 amount to be total number financed of payments plus one In cases where the credit matures in less than one (1) year (e.g., installment payments are required every month for six (6) months), the same formula will apply except that number of payments in a year would refer to the number of installment periods, as defined in the credit contract, as if the credit matures in one (1) year. For example, number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction. 1 In cases where credit terms provide for premium or penalty charges depending on, for instance, the timeliness of the debtor's payments, the annual rate to be disclosed in writing shall be the rate for regular payments, i.e., the premium and penalty need not be taken into account in the determination of the annual rate. Such premium or penalty charges shall, however, be indicated in the credit contract. SUBSECTION 4309Q.2 Information to be disclosed . NBQBs shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information: a. The cash price or delivered price of the property or service to be acquired; b. The amounts, if any, to be credited as down payment and/or trade-in; c. The difference between the amounts set forth under Items " a " and " b "; d. The charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; e. The total amount to be financed; f. The finance charges expressed in terms of pesos and centavos; and g. The percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. The contract covering the credit transaction, or any other document to be acknowledged and signed by the debtor, shall indicate the above seven (7) items of information. In addition, the contract or document shall specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the debtor. In case the seven (7) items of information mentioned are not disclosed in the contract covering the credit transaction, all of the seven (7) items, to the extent applicable, shall be disclosed in another document in the form ( Appendix Q-11 ) prescribed by the Monetary Board, to be signed by the debtor and appended to the main contract. A copy of such disclosure statement shall be furnished the borrower. SUBSECTION 4309Q.3 Inspection of contracts covering credit transactions . NBQBs shall keep in their office or place of business copies of contracts which involve the extension of credit and the payment of finance charges therefor. Such copies shall be available for inspection or examination by the appropriate supervising and examining department of the BSP. SUBSECTION 4309Q.4 Posters . An abstract of R.A. No. 3765 ( Appendix Q-12 ) shall be reproduced in a format sixty (60) cm. wide and seventy-five (75) cm. long and posted on a conspicuous place in the NBQB's place(s) of business. SECTION 4310Q. (Reserved) SECTION 4311Q. Non-Performing Loans SUBSECTION 4311Q.1 Accounts considered non-performing; definitions . a. Non-performing loans shall, as a general rule, refer to loan accounts whose principal and/or interest is unpaid for thirty (30) days or more after due date or after they have become past due in accordance with existing rules and regulations. This shall apply to loans payable in lump sum and loans payable in quarterly, semi-annual or annual installments, in which case, the total outstanding balance thereof shall be considered non-performing. b. In the case of loans payable in monthly installments, the total outstanding balance thereof shall be considered non-performing when three (3) or more installments are in arrears. c. In the case of loans payable in daily, weekly or semi-monthly installments, the total outstanding balance thereof shall be considered non-performing at the same time that they become past due in accordance with Sec. 4308Q, i.e., the entire outstanding balance of the loan/receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total loan/receivable balance. d. Restructured loans shall be considered non-performing in accordance with existing rules and regulations. e. All items in litigation as defined in the Manual of Accounts shall be considered non-performing loans. SUBSECTION 4311Q.2 Accrual of interest earned on loans . No accrual of interest income is allowed if a loan has become non-performing as defined under Sec. 4351Q.1. Interest on non-performing loans shall be taken up as income only when actual payment thereon is received. SUBSECTION 4311Q.3 Allowance for uncollected interest on loans . A contra account to be designated Allowance for Uncollected Interest on Loans shall be set up in accordance with Appendix Q-10 if accrued interest receivable on loans and loan installments is still uncollected after three (3) months from the date such loans have become non-performing. SUBSECTION 4311Q.4 Reporting requirement . NBQBs shall report the following data at the end of each month as additional information in the monthly Consolidated Statement of Condition starting with their report as of May 31, 1999. Total non-performing loans xxx Non-performing regular loans xxx Non-performing restructured loans xxx SECTIONS 4312Q 4320Q (Reserved) B. (Reserved) SECTIONS 4321Q 4335Q (Reserved) C. Unsecured Loans SECTION 4336Q. Loans Against Personal Security . The following guidelines shall be observed by NBQBs in the grant, renewal or extension of unsecured loans. SUBSECTION 4336Q.1 General guidelines . Before granting credit accommodations against personal security, NBQBs must exercise proper caution by ascertaining that the borrowers, co-makers, indorsers, sureties and/or guarantors possess good credit standing and are financially capable of fulfilling their commitments to the NBQB. For this purpose, NBQBs shall keep records containing information on the credit standing and financial capacity of credit applicants. SUBSECTION 4336Q.2 Proof of financial capacity of borrower . In addition to the usual personal information sheet about the borrower, NBQBs shall require that an application for a credit accommodation against personal security be accompanied by: a. A copy of the latest income tax returns of the borrower and his co-maker duly stamped as received by the Bureau of Internal Revenue; and b. If the credit accommodation exceeds P500,000, a copy of the borrower's balance sheet duly certified by an independent Certified Public Accountant (CPA) and, in case he is engaged in business, also a copy of the profit and loss statement duly certified by a CPA. The above documents shall be required to be submitted annually for as long as the credit accommodation is outstanding. SUBSECTION 4336Q.3 Signatories . NBQBs shall require that credit accommodations against personal security be made under the signature of the principal borrower and at least one (1) co-maker, except in the case of a principal borrower whose responsibility and financial capacity are unquestionable in which case the signature of the borrower shall suffice. SUBSECTION 4336Q.4 Sanctions . NBQBs violating the provisions of this Section may be prohibited from extending additional credit accommodations against personal security. SECTION 4337Q. Credit Card Operations; General Policy . The BSP shall foster the development of consumer credit through innovative products such as credit cards under conditions of fair and sound consumer credit practices. The BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair dealings with customers. Towards this end, the following rules and regulations shall govern the credit card operations of quasi-banks and subsidiary/affiliate credit card companies, aligned with global best practices. SUBSECTION 4337Q.1 Definition of terms . a. Credit card . Means any card, plate, coupon book or other credit device existing for the purpose of obtaining money, property, labor or services on credit. b. Credit card receivables . Represents the total outstanding balance of credit cardholders arising from purchases of goods and services, cash advances, annual membership/renewal fees as well as interest, penalties, insurance fees, processing/service fees and other charges. c. Minimum amount due or minimum payment required . Means the minimum amount that the credit cardholder needs to pay on or before the payment due date for a particular billing period/cycle as defined under the terms and conditions or reminders stated in the statement of account/billing statement which may include: (1) total outstanding balance multiplied by the required payment percentage or a fixed amount whichever is higher; (2) any amount which is part of any fixed monthly installment that is charged to the card; (3) any amount in excess of the credit line; and (4) all past due amounts, if any. d. Default or delinquency . Shall mean non-payment of, or payment of any amount less than, the " Minimum Amount Due " or " Minimum Payment Required " within two (2) cycle dates, in which case, the " Total Amount Due " for the particular billing period as reflected in the monthly statement of account may be considered in default or delinquent. e. Acceleration clause . Shall mean any provision in the contract between the quasi-bank and the cardholder that gives the quasi-bank the right to demand the obligation in full in case of default or non-payment of any amount due or for whatever valid reason. f. Subsidiary refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with the power to vote by a quasi-bank or other financial institution. g. Affiliate refers to an entity linked directly or indirectly to a quasi-bank or other financial institution through any one or a combination of any of the following: (1) Ownership, control or power to vote, whether by permanent or temporary proxy or voting trust, or other similar contracts, by a quasi-bank or other financial institution of at least ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa; (2) Interlocking directorship or officership, except in cases involving independent directors as defined under existing regulations; (3) Common stockholders owning at least ten percent (10%) of the outstanding voting stock of each financial institution and the entity; or (4) Management contract or any arrangement granting power to the quasi-bank or other financial institution to direct or cause the direction of management and policies of the entity, or vice-versa. SUBSECTION 4337Q.2 Risk management system . To safeguard their interests, quasi-banks and subsidiary/affiliate credit card companies are required to establish an appropriate system for managing risk exposures from credit card operations which shall be documented in a complete and concise manner. The risk management system shall cover the organizational set-up, records and reports, accounting, policies and procedures and internal control. Written policies, procedures and internal control guidelines shall be established on the following aspects of credit card operations: a. Requirements for application; b. Solicitation and application processing; c. Determination and approval of credit limits; d. Pre-approved cards; e. Issuance, distribution and activation of cards; f. Supplementary or extension cards; g. Cash advances; h. Billing and payments; i. Deferred payment program or special installment plans; j. Collection of past due accounts; k. Handling of accounts for write-off; l. Suspension, cancellation and withdrawal or termination of card; m. Renewal of cards, upgrade or downgrade of credit limit; n. Lost or stolen cards and their replacement; o. Accounts of DOSRI and employees; p. Disposition of errors and/or questions about the billing statement/statement of account and other customers' complaints; and q. Dealings with marketing agents/collection agents. SUBSECTION 4337Q.3 Minimum requirements . Before issuing credit cards, quasi-banks and/or their subsidiary/affiliate credit card companies must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments. The net take home pay of applicants who are employed, the net monthly receipts of those engaged in trade or business, or the net worth or cash flow inferred from deposits of those who are neither employed nor engaged in trade or business or the credit behavior exhibited by the applicant from his other existing credit cards, or other lifestyle indicators such as but not limited to club memberships, ownership and location of residence and motor vehicle ownership shall be determined and used as basis for setting credit limits. The gross monthly income may also be used provided reasonable deductions are estimated for income taxes, premium contributions, loan amortizations and other deductions. All credit card applications, especially those solicited by third party representatives/agents, shall undergo a strict credit risk assessment process and the information stated thereon validated and verified by persons other than those handling marketing. SUBSECTION 4337Q.4 Information to be disclosed . Quasi-banks or their subsidiary/affiliate credit card companies shall disclose to each person to whom the credit card privilege is extended in the agreement, contract or any equivalent document governing the issuance or use of the credit card or any amendment thereto or in such other statement furnished the cardholder from time to time, prior to the imposition of the charges and to the extent applicable, the following information: a. non-finance charges, individually itemized, which are paid or to be paid by the cardholder in connection with the transaction but which are not incident to the extension of credit; b. the percentage that the interest bears to the total amount to be financed expressed as a simple monthly or annual rate, as the case may be, on the outstanding balance of the obligation; c. the effective interest rate per annum; d. for installment loans, the number of installments, amount and due dates or periods of payment schedules to repay the indebtedness; e. the default, late payment/penalty fees or similar delinquency-related charges payable in the event of late payments; f. the conditions under which interest may be imposed, including the time period, within which any credit extended may be repaid without interest; g. the method of determining the balance upon which interest and/or delinquency charges may be imposed; h. the method of determining the amount of interest and/or delinquency charges, including any minimum or fixed amount imposed as interest and/or delinquency charge; i. where one (1) or more periodic rates may be used to compute interest, each such rate, the range of balances to which it is applicable, and the corresponding simple annual rate; j. other fees, such as membership/renewal fees, processing fees, collection fees, credit investigation fees and attorney's fees; and k. for transactions made in foreign currencies and/or outside the Philippines, for dual currency accounts (peso and dollar billings), as well as payments made by credit cardholders in any currency other than the billing currency: the application of payments; the manner of conversion from the transaction currency and payment currency to Philippine pesos or billing currency; definition or general description of verifiable blended exchange/conversion rates (e.g., MASTERCARD and/or VISA International rates on the day the item was processed/posted to the billing statement, plus mark-up, if any) including conversion commission; and/or other currency conversion charges and costs arising from the purchase by the card company of foreign currency to settle the customer's transactions shall also be disclosed. SUBSECTION 4337Q.5 Accrual of interest earned . Interest accrued and/or booked shall be reversed and no accrual of interest shall be allowed ninety (90) days after the credit card receivable has become past due as defined in Subsec. 4308Q.1. SUBSECTION 4337Q.6 Finance charges . The amount of finance charges in connection with any credit card transaction shall refer to interest charged to the cardholder. DAETcC SUBSECTION 4337Q.7 Deferral charges . The quasi-bank and the cardholder may, prior to the consummation of the transaction, agree in writing to a deferral of all or part of one (1) or more unpaid installments and the quasi-bank may collect a deferral charge which shall not exceed the rate previously disclosed pursuant to the provisions on disclosure. SUBSECTION 4337Q.8 Late payment/penalty fees . No late payment or penalty fee shall be collected from cardholders unless the collection thereof is fully disclosed in the contract between the issuer and the cardholder: Provided , That late payment or penalty fees shall be based on the unpaid minimum amount due or a prescribed minimum fixed amount: Provided, further , That said late payment or penalty fees may be based on the total outstanding balance of the credit card obligation, including amounts payable under installment terms or deferred payment schemes, if the contract between the issuer and the cardholder contains an " acceleration clause " and the total outstanding balance of the credit card is classified and reported as past due. SUBSECTION 4337Q.9 Confidentiality of information . Quasi-banks and subsidiary/affiliate credit card companies shall keep strictly confidential the data on the cardholder or consumer, except under the following circumstances: a. disclosure of information is with the consent of the cardholder or consumer; b. release, submission or exchange of customer information with other financial institutions, credit information bureaus, credit card issuers, their subsidiaries and affiliates; c. upon orders of court of competent jurisdiction or any government office or agency authorized by law, or under such conditions as may be prescribed by the Monetary Board; d. disclosure to collection agencies, counsels and other agents of the quasi-bank or card company to enforce its rights against the cardholder; e. disclosure to third party service providers solely for the purpose of assisting or rendering services to the quasi-bank or card company in the administration of its credit card business; and f. disclosure to third parties such as insurance companies, solely for the purpose of insuring the quasi-bank from cardholder default or other credit loss, and the cardholder from fraud or unauthorized charges. SUBSECTION 4337Q.10 Suspension, termination of effectivity and reactivation . Quasi-banks or their subsidiary/affiliate credit card companies shall formulate criteria or parameters for suspension, revocation and reactivation of the right to use the card and shall include in their contract with cardholders a provision authorizing the issuer to suspend or terminate its effectivity, if circumstances warrant. SUBSECTION 4337Q.11 Inspection of records covering credit card transactions . Quasi-banks or their subsidiary/affiliate credit card companies shall make available for inspection or examination by the appropriate supervising and examining department of the BSP complete and accurate files on card applicant/cardholder to support the consideration for approval of the application and determination of the credit limit which shall be in accordance with the verified debt repayment ability and/or net worth of the card applicant/cardholder. SUBSECTION 4337Q.12 Offsets . For purposes of transparency and adequate disclosure, the credit card issuer shall inform/notify the credit cardholder in the agreement, contract or any equivalent document governing the issuance or use of the credit card that, pursuant to the provisions of Articles 1278 to 1290 of the New Civil Code of the Philippines, as amended the use of his credit card will subject his deposit/s with the quasi-bank to offset against any amount/s due and payable on his credit card which have not been paid in accordance with the terms of the agreement/contract. SUBSECTION 4337Q.13 Handling of complaints . Quasi-banks or subsidiary/affiliate credit card companies shall give cardholders at least twenty (20) calendar days from statement date to examine charges posted in his/her statement of account and inform the quasi-bank/subsidiary credit card companies in writing of any billing error or discrepancy. Within ten (10) calendar days from receipt of such written notice, the quasi-bank/subsidiary credit card company shall send a written acknowledgement to the cardholder unless the action required is taken within such ten (10)-day period. Not later than two (2) billing cycles or two (2) months which in no case shall exceed ninety (90) days after receipt of the notice and prior to taking any action to collect the contested amount, or any part thereof, quasi-banks/subsidiary credit card companies shall make appropriate corrections in their records and/or send a written explanation or clarification to the cardholder after conducting an investigation. Nothing in this Subsection shall be construed to prohibit any action by the quasi-bank/subsidiary credit card company to collect any amount which has not been indicated by the cardholder to contain a billing error or apply against the credit limit of the cardholder the amount indicated to be in error. SUBSECTION 4337Q.14 Unfair collection practices . Quasi-banks, subsidiary/affiliate credit card companies, collection agencies, counsels and other agents may resort to all reasonable and legally permissible means to collect amounts due them under the credit card agreement: Provided , That in the exercise of their rights and performance of duties, they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous or untoward acts. Without limiting the general application of the foregoing, the following conduct is a violation of this Subsection: a. the use or threat of violence or other criminal means to harm the physical person, reputation, or property of any person; b. the use of obscenities, insults, or profane language which amount to a criminal act or offense under applicable laws; c. disclosure of the names of credit cardholders who allegedly refuse to pay debts, except as allowed under Subsec. 4337Q.9; d. threat to take any action that cannot legally be taken; e. communicating or threat to communicate to any person credit information which is known to be false, including failure to communicate that a debt is being disputed; f. any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a cardholder; and g. making contact at unreasonable/inconvenient times or hours which shall be defined as contact before 6:00 A.M. or after 10:00 P.M., unless the account is past due for more than sixty (60) days or the cardholder has given express permission or said times are the only reasonable or convenient opportunities for contact. SUBSECTION 4337Q.15 Sanctions . Violations of the provisions of this Section shall be subject to any or all of the following sanctions depending upon their severity: a. Disqualification of the quasi-bank concerned from the credit facilities of the BSP except as may be allowed under Section 84 of R.A. No. 7653; b. Prohibition of the quasi-bank concerned from the extension of additional credit accommodation against personal security; and c. Penalties and sanctions provided under Sections 36 and 37 of R.A. No. 7653. SECTIONS 4338Q 4350Q (Reserved) D. Restructured Loans SECTION 4351Q. Restructured Loans; General Policy . NBQBs shall have full discretion in the restructuring of loans in order to provide flexibility in arranging the repayment of such loans without impairing or endangering the lending NBQB's financial interest, except in special cases approved by the Monetary Board such as loans funded partly or wholly by foreign currency obligations. However, the restructuring of loans granted to DOSRI shall be upon terms not less favorable to the NBQB than those offered to others. While agreements on loan restructuring should be considered as management tools to maintain or improve the soundness of the NBQB's lending operations, these should be drawn mainly to assist borrowers towards the settlement of their loan obligations, taking into account their capacity to pay. SUBSECTION 4351Q.1 Definition; when to consider performing/non-performing . Restructured loans are loans the principal terms and conditions of which have been modified in accordance with a restructuring agreement setting forth a new plan of payment or a schedule of payment on a periodic basis. The modification may include, but is not limited to, change in maturity, interest rate, collateral or increase in the face amount of the debt resulting from the capitalization of accrued interest/accumulated charges. Items in litigation and loans subject of judicially-approved compromise, as well as those covered by petitions for suspension or for new plans of payment approved by the court or the SEC, shall not be classified as restructured loans. A loan which is restructured shall be considered non-performing except: (1) When the loan is current and performing (i.e., with updated principal and interest payments) on the date of restructuring, in which case, the loan shall retain its performing status; and (2) Fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon, and such other first class collaterals as may be deemed appropriate by the Monetary Board: Provided , That a restructured loan, with or without capitalized interest, must be yielding a rate of interest equal to or greater than the quasi-bank's average cost of funds at the date of restructuring, otherwise, it shall be considered non-performing. The restoration to a performing loan shall only be effective after a satisfactory track record of payments of the required amortizations of principal and/or interest has been established. For this purpose, a satisfactory track record of payments of principal and/or interest shall mean three (3) consecutive payments of the required amortizations of principal and/or interest have been made. However, in the case of a restructured loan with capitalized interest but not fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon or other first class collaterals, six (6) consecutive payments of the required amortizations of principal and/or interest must have been made. A restructured loan which has been restored to a performing loan status shall be immediately considered non-performing in case of default of any principal or interest payment in accordance with Sec. 4308Q. SUBSECTION 4351Q.2 Procedural requirements . a. A loan may be restructured subject to the approval of the NBQB's board of directors in a resolution which shall embody, among other things: (1) the basis of or justification for the approval; (2) determination of the borrower's capacity to pay, such as viability of the business; and (3) the nature and extent of protection of the NBQB's exposure. The authority to approve the restructuring of loans may be delegated by the NBQB's board of directors to a committee or officer(s): Provided , That there are board-prescribed guidelines specifically on restructuring of loans: Provided, further , That said guidelines shall be submitted to the appropriate supervising and examining department of the BSP within thirty (30) days following the date of approval thereof. However, loans previously approved by the executive committee as well as those granted to DOSRI shall be subject to approval by the board as provided under existing rules and regulations. Loans restructured other than those approved by the board shall be reported to it for confirmation. b. A second restructuring of a loan shall be allowed only if there are reasonable justifications: Provided , That it shall be considered a non-performing loan and classified, at least, "Substandard". The restoration to a performing loan status and/or the upgrading of loan classification, e.g., from "Substandard" to "Loans Especially Mentioned", if circumstances warrant an upgrading in accordance with the criteria under Appendix Q-10 , shall only be allowed after a satisfactory track record of at least six (6) consecutive payments of the required amortization of principal and/or interest has been established. c. In the restructuring process, the NBQB shall encourage the borrower to improve the quality of the loan either by strengthening financial capacity or providing additional collateral. The real estate security and/or other first class collaterals offered shall be appraised at the time of restructuring to ensure that current market values are being used. Real estate security shall be appraised by an independent appraisal company acceptable to the BSP and shall be reappraised every year thereafter. The term "first class collaterals" refers to assets and securities which have relatively stable and clearly definable value and/or greater liquidity and are free from lien/encumbrance, such as: (1) Real estate; (2) Evidences of indebtedness of the Republic of the Philippines and of the BSP, and other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; (3) Hold-out on and/or assignment of deposit substitutes maintained in the lending institutions; (4) "Blue chip" shares of stocks, except those issued by the lending entity or by its parent company which owns more than fifty percent (50%) of its outstanding shares of stocks. For this purpose, the issuer corporation must be a listed corporation with a net worth of at least P1 billion and with annual net earnings during the immediately preceding five (5) years; and (5) Such other collaterals that the Monetary Board may declare as first class collaterals from time to time. It is understood that the loan value to be assigned the collateral shall be as prescribed under existing regulations. SUBSECTION 4351Q.3 Classification . The classification of a loan prior to restructuring, e.g., "Loans Especially Mentioned", "Substandard" or "Doubtful" shall be retained: Provided , That a loan that is not classified but which is non-performing prior to restructuring shall be classified, at least, "Loans Especially Mentioned": Provided, further , That restructured loans with capitalized interest shall be classified, at least, "Substandard" and the required valuation reserves shall be set up accordingly: Provided, finally , That a more adverse classification may be given, i.e., "Substandard", "Doubtful" or "Loss", if the circumstances warrant it as provided under Appendix Q-10 . The upgrading of loan classification, e.g., from "Substandard" to "Loans Especially Mentioned", if circumstances warrant an upgrading in accordance with the criteria in Appendix Q-10 , shall only be effective after a satisfactory track record of payments of the required amortizations of principal and/or interest has been established. For this purpose, a satisfactory track record of payments of principal and/or interest shall mean three (3) consecutive payments of the required amortizations of principal and/or interest have been made. However, in the case of a restructured loan with capitalized interest but not fully secured by real estate with loan value of up to sixty percent (60%) of the appraised value of the real estate security and the insured improvements thereon or other first class collaterals, six (6) consecutive payments of the required amortizations of principal and/or interest must have been made. SECTIONS 4352Q 4355Q (Reserved) E. Loans/Credit Accommodations to Directors, Officers, Stockholders and their Related Interests SECTION 4356Q. General Policy . Dealings of a quasi-bank with any of its DOSRI shall be in the regular course of business and upon terms not less favorable to the quasi-bank than those offered to others. No NBQB shall grant, renew or extend any credit accommodation to its DOSRI whenever its combined capital accounts is deficient relative to risk assets held under Sec. 4116Q, or whenever its paid-in capital is deficient relative to the required minimum capitalization. Neither shall it grant, renew or extend any credit accommodation to any of its DOSRI who has past due credit accommodations with the NBQB. SUBSECTION 4356Q.1 Definitions . For purposes of these regulations, the following definitions shall apply. a. Directors shall refer to quasi-bank directors as defined in Sec. 4141Q. b. Officers shall refer to quasi-bank officers as defined in Sec. 4142Q. c. Stockholders shall refer to (i) any stockholder of record in the books of the quasi-bank, acting personally, or through an attorney-in-fact, executor, administrator or guardian of a minor, incompetent and/or deceased stockholder or through a trustee designated by one (1) or more stockholders pursuant to a voting trust agreement, whose stockholdings in the lending quasi-bank, individually and/or together with his spouse or relative within the first degree of consanguinity or affinity or relative by legal adoption; (ii) a partnership in which the stockholder or his spouse or any of his relatives mentioned above is a general partner; and (iii) a co-owner with the stockholder or the stockholder's spouse or relative mentioned above of a property/right/interest referred to in Sec. 4359Q(b)(3) amounting to ten percent (10%) or more of the total subscribed capital stock of the quasi-bank. d. Outstanding loans to and placements with the quasi-bank shall refer to loans to and deposit substitutes of the quasi-bank which are not subject of an assignment or hold-out agreement. e. Book value of the paid-in capital contribution shall mean the proportional amount of the quasi-bank's total capital accounts (net of such unbooked valuation reserves and other capital adjustments as may be required by the BSP) as the corresponding paid-in capital contribution of each director, officer or stockholder concerned bears to the total paid-in capital of the quasi-bank: Provided , That as a basis for determining the individual ceiling referred to in Sec. 4360Q, corresponding book value of the shares of stock of such director, officer or stockholder which are the subject of pledge, assignment or any other encumbrance shall be deducted therefrom. f. Secured loan, borrowing, or credit accommodation shall refer to any loan, discount, credit or advance, or portion thereof referred to in Sec. 4357Q which is secured by real estate mortgage, chattel mortgage on tangible assets, standby letters of credit issued by foreign banks, assignments of or hold-out on deposit substitutes issued by the lending entity, cash margin deposits, assignment or pledge of government securities or readily marketable bonds and other high-grade debt securities except those issued by the lending entity, or by its parent company which owns more than fifty percent (50%) of its outstanding shares of stocks, or receivables arising from financial leases to the extent of the guaranty deposit plus sixty percent (60%) of the remaining value of the leased equipment. For this purpose, the remaining value of the equipment under lease shall be determined by dividing the acquisition cost by the original term of the lease and multiplying the resulting ratio by the unexpired portion of the term. For investment houses with quasi-banking functions, a secured loan, borrowing or credit accommodation shall likewise include: (1) Customer's liability under import bills outstanding for not more than thirty (30) days from date of original entry; (2) Sales contract receivable arising out of sale of real property on credit wherein title to the property is retained by the NBQB; and (3) Customer's liability-import bills under trust receipts outstanding for not more than thirty (30) days from date of booking: Provided , That the booking under trust receipts shall have been made not later than the thirty-first (31st) day from the date of original entry referred to in Sub-item (1) above. g. Unsecured loan, borrowing or credit accommodation shall refer to any loan, discount, credit or advance, or portion thereof referred to in Sec. 4357Q which is not secured in accordance with Item "f" above. SECTION 4357Q. Transactions Covered . The terms loan, borrow, money borrowed and credit accommodations as used herein shall refer to transactions which involve the grant, renewal, extension or increase of any loan, discount, credit or advance in any form whatsoever, and shall include: a. Outstanding availments under an established credit line; b. Drawings against an existing letter of credit; c. The acquisition by discount, purchase, exchange or otherwise of any note, draft, bill of exchange or other evidence of indebtedness upon which a director, officer or stockholder may be liable as a maker, drawer, acceptor, indorser, guarantor, or surety; d. Any advance of unearned salary or unearned compensation for periods in excess of thirty (30) days; e. Loans or other credit accommodations granted by another financial institution to such director, officer or stockholder from funds of the NBQB invested in the other institution's trust or other department when there is a clear relationship between the transactions; f. The increase of an existing indebtedness, as well as additional availments under a credit line or additional drawings against a letter of credit; g. The sale of assets, such as shares of stock, on credit; h. Leasing transactions under R.A. No. 5980, as amended; and i. Any other transaction as a result of which a director, officer or stockholder becomes obligated or may become obligated to the lending NBQB, directly or indirectly, by any means whatsoever to pay money or its equivalent. SECTION 4358Q. Transactions Not Covered . The terms loan, borrow, money borrowed or credit accommodation as used herein shall not refer to the following transactions: a. Advances against accrued compensation, or for the purpose of providing payment of authorized travel, legitimate expenses or other transactions for the account of the NBQB or for utilization of maternity and other leave credits; b. The increase in the amount of outstanding credit accommodation as a result of additional charges or advances made by the NBQB to protect its interests such as taxes, insurance, etc.; c. The discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, including, but not limited to, the acquisition of export bills from any of its DOSRI which are drawn in accordance with the terms and conditions of the covering letters of credit: Provided , That the transaction shall automatically be subject to the ceiling as herein provided once the DOSRI who is a party to the transaction becomes directly liable to the NBQB; d. Transactions with a foreign bank or other financial institution which has stockholding in the NBQB where the foreign bank or other financial institution acts as guarantor through the issuance of letters of credit, guarantee letters or assignment of a deposit in a currency eligible as part of the international reserves and held in a bank in the Philippines to secure credit accommodations granted to another person or entity: Provided , That the foreign bank stockholder shall automatically be subject to the ceilings as herein provided in the event that its contingent liability as guarantor becomes a real liability; and e. Deposits of an NBQB with a bank, whether domestic or foreign, which has stockholdings in the NBQB. SaETCI SUBSECTION 4358Q.1 Applicability to Credit Card Operations . The credit card operations of NBQBs shall not be subject to these regulations where the credit cardholder is a director, officer or stockholder of the NBQB or their related interests (DOSRI): Provided , That (a) the privilege of becoming a credit cardholder is open to all qualified persons on the basis of selective criteria which are applied by the NBQB to all applicants thereof; and (b) the director, officer or stockholder/related interest concerned reimburses/pays the NBQB for the billed amount in full on or before the payment due date in the billing or statement of account, as set by the NBQB for all other qualified credit cardholders on availments made for the same period on their credit cards. However, the transaction shall be subject to applicable DOSRI regulations if the director, officer, or stockholder/related interest concerned: i. fails to reimburse/pay the NBQB within the period mentioned herein; or ii. on the outset, opts for deferred payment scheme, and the availment is booked by the NBQB. SECTION 4359Q. Direct or Indirect Borrowings. For purposes of this Section, a credit accommodation shall be considered a direct or indirect borrowing in accordance with the following criteria. CAIHaE a. Direct borrowing If the director, officer or stockholder of the lending NBQB is a party to any of the transactions enumerated in Sec. 4357Q for himself or as a representative or agent of others, or if he acts as a guarantor, indorser or surety for loans from the NBQB, or if the loan or credit accommodation to another party is secured by a property interest or right of the director, officer or stockholder. b. Indirect borrowing If in any of the transactions in Sec. 4357Q the borrower, guarantor, indorser, or surety is a: (1) Spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption of a director, officer or stockholder of the NBQB; (2) Partnership of which a director, officer, or stockholder or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, is a general partner; (3) Co-owner with the director, officer, stockholder or his spouse or relative within the first degree of consanguinity or affinity, or relative by legal adoption, of the property or interest or right mortgaged, pledged or assigned to secure the loans or credit accommodations, except when the mortgage, pledge or assignment covers only said co-owner's undivided interest; (4) Corporation, association, or firm of which a director or officer of the NBQB, or his spouse is also a director or officer of such corporation, association or firm, except (i) where the securities of such corporation, association or firm are listed and traded in the domestic stock exchange and less than fifty percent (50%) of the voting stock thereof is owned by any one (1) person or by persons related to each other within the third degree of consanguinity or affinity; or (ii) where the director, officer or stockholder of the lending NBQB sits as a representative of the NBQB in the board of directors of such corporation: Provided , That the NBQB representative shall not have any equity interest in the borrower corporation except for the minimum shares required by law, rules and regulations, or by the by-laws of the corporation, to qualify a person as director of the corporation: Provided, further , That the borrowing corporation under (i) or (ii) is not among those mentioned in Items " b(5) " and " b(6) " of this Section; (5) Corporation, association or firm of which any or a group of directors, officers, stockholders of the lending NBQB and/or their spouses or relatives within the first degree of consanguinity or affinity or relative by legal adoption, hold/own more than twenty percent (20%) of the subscribed capital of such corporation, or of the equity of such association or firm; or (6) Corporation, association or firm wholly or majority-owned or controlled by any or a group of related entities mentioned in Items " b(2) ", " b(4) " and " b(5) " of this Section. Other cases of direct/indirect borrowing shall be resolved on a case-to-case basis. It shall be the responsibility of the NBQB concerned to ascertain whether the borrower, guarantor, representative, indorser or surety is related to persons mentioned in Item " b(1) " of this Section or connected with any of the directors, officers or stockholders of the NBQB in any of the capacities mentioned in Items " b(2) ", " b(3) ", " b(4) ", " b(5) " and " b(6) " of this Section. In determining indirect borrowings as enumerated above, only those cases involving living relatives shall be considered. SECTION 4360Q. Individual Ceiling; Single-Borrower Limit . The total outstanding direct credit accommodations to each of the NBQB's directors, officers or stockholders, excluding those granted under officers' fringe benefit plans, shall not exceed, at any time, an amount equivalent to the unencumbered portion of his loans to, and placements with, the NBQB and the book value of his paid-in capital contribution in the lending NBQB: Provided , That unsecured credit accommodations to each of the NBQB's directors, officers or stockholders shall not exceed thirty percent (30%) of his total credit accommodations. Notwithstanding the provisions of this Section, credit accommodations of an NBQB to any one of its directors, officers, stockholders or their related interests shall not exceed the SBL prescribed for NBQBs. SECTION 4361Q. Aggregate Ceiling; Ceiling On Unsecured Loans . Except with prior approval of the Monetary Board, the total outstanding borrowings of directors, officers, or stockholders, whether direct or indirect, shall not exceed 100% of combined capital accounts, net of deferred income tax as defined in Item "i" of Subsec. 4116Q.1 and such unbooked valuation reserves and other capital adjustments as may be required by the BSP: Provided , That in no case shall the total unsecured direct and indirect borrowings of directors, officers, and stockholders exceed thirty percent (30%) of the aggregate ceiling or the outstanding direct/indirect loans thereto, whichever is lower. For the purpose of determining compliance with the ceiling on unsecured loans, NBQBs shall be allowed to average their ceiling on unsecured loans and their outstanding unsecured loans every week. In evaluating requests for extension of loans in excess of the aggregate ceiling, the BSP shall consider the credit standing of the borrower, viability of the projects financed by such loans in relation to national objectives, collateral or security and other pertinent considerations. SECTION 4362Q. Exclusions from Aggregate Ceiling . The following credit accommodations shall be excluded in determining compliance with the aggregate ceiling: a. Credit accommodations to the extent covered by a hold-out on, or assignment of, deposit substitutes in the lending NBQB, or covered by cash margin deposits or secured by evidences of indebtedness of the Republic of the Philippines or of the Bangko Sentral, or by other evidences of indebtedness or obligations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; b. Credit accommodations to a corporate stockholder which meets all the following conditions: (1) The corporation is a non-financial institution; (2) Its shares are listed and traded in the domestic stock exchanges; (3) Its stockholdings in the lending NBQB do not exceed thirty percent (30%) of the voting stock of the NBQB; and (4) No person or group of persons related within the first degree of consanguinity or affinity holds/owns more than twenty percent (20%) of the subscribed capital of the corporation; and c. Credit accommodations granted under officers' fringe benefit plans. SECTION 4363Q. Credit Accommodations Under Officers' Fringe Benefit Plans . The aggregate outstanding liabilities to an NBQB of its officers, extended under officers' fringe benefit plans for the purpose of house, car, and appliance financing, and meeting educational, medical, hospital, and other similar expenses, shall not exceed thirty percent (30%) of the combined capital accounts of the lending entity: Provided , That NBQBs shall submit, for record purposes, copies of their officers' fringe benefit plans to the appropriate department of the BSP. SECTION 4364Q. Procedural Requirements . The following provisions shall apply if a director or officer is a party, directly or indirectly, to, or acts as the representative or agent of, others in any of the transactions under Sec. 4357Q. a. Approval of the board of directors; when to obtain . Except with the prior written approval of the majority of the directors, excluding the director concerned, no loan or other credit accommodation shall be granted nor any of the transactions under Sec. 4357Q be entered into. b. Approval by the board; how manifested . The approval shall be manifested in a resolution passed by the board of directors duly assembled during a regular or special meeting for the purpose and made of record. cIECTH c. Majority of the directors; computation of. The computation of the majority of the directors, excluding the director concerned, shall be based on the total number of directors of the NBQB, as provided in its articles of incorporation and by-laws. d. Contents of the resolution . The resolution of the board of directors shall contain the following information: (1) Name of the director or officer concerned and his relationship as regards the credit accommodation, such as principal, indorser, spouse of borrower, etc.; (2) Nature of the loan or other credit accommodation, purpose, amount, credit basis for such loan or credit accommodation, security and appraisal thereof, maturity, interest rate, schedule of repayment, and other terms of the loan or credit accommodation; (3) Date of the resolution; (4) Names of the directors who were present and who participated in the deliberations of the meeting; (5) Names in print and signatures of the directors approving the resolution: Provided , That the corporate secretary may sign, under a power-of-attorney, in behalf of a director who was present in the board meeting and who approved such resolution, in instances where such signature is necessary, to indicate that such resolution was approved by a majority of the directors; and (6) Such other information as may be required by the appropriate supervising and examining department of the BSP. e. Transmittal of copy of board of directors' approval; contents thereof. A copy of the written approval of the board of directors, as herein required, shall be submitted to the appropriate department of the BSP within twenty (20) business days from the date of approval. The copy may be a duplicate of the original, or a reproduction copy showing clearly the signatures of the approving directors: Provided , That if a reproduction copy is to be submitted, it shall contain, on its face or reverse side, a signed certification by the secretary that it is a reproduction of the original written approval. SECTION 4365Q. Sanctions . Any violation of the provisions of the foregoing rules shall be subject to any or all of the following sanctions: a. Restriction or prohibition on the NBQB from declaring dividends until the outstanding loans and other credit accommodations have been reduced to within the herein prescribed ceilings; b. Disqualification of the directors voting for the approval of the loan or credit in excess of any of the ceilings prescribed in Secs. 4360Q and 4361Q from participating in the approval of loans or credit to officers, directors, and stockholders of the NBQB: Provided, however , That the disqualification may be lifted by the BSP, as the circumstances warrant; c. Application of (1) the borrowing director's or officer's share in the NBQB's profit sharing program and (2) the share of the director voting for the approval of the loan or credit accommodation against the excess of such loan or credit accommodation over any of the herein prescribed ceilings for such period of time as may be approved by the Monetary Board; and d. For the duration of each violation, imposition of a fine of one-tenth of one percent (1/10 of 1%) of the excess over the ceilings per day but not to exceed P30,000 a day on (1) the lending NBQB and the director, officer, or stockholder whose borrowing exceeds his individual ceiling and (2) each of the directors voting for the approval of the loan or credit accommodation in excess of any of the ceilings prescribed in Secs. 4360Q and 4361Q. The penalty for exceeding the individual ceiling, aggregate ceiling and ceiling on unsecured loans shall be computed on the average amount of loans in excess of said ceilings during the same week. SECTIONS 4366Q 4370Q (Reserved) F. (RESERVED) SECTIONS 4371Q 4375Q (Reserved) G. Special Types Of Loans SECTION 4376Q. Interbank Loans . Interbank loan transactions shall include, among other things, (a) interbank call loan (IBCL) transactions; (b) borrowings evidenced by deposit substitute instruments; and (c) purchases of receivables with recourse: Provided, however , That only IBCL transactions which are evidenced by interbank loan advices or repayment transfer tickets the settlement of which is effected by the BSP in the NBQBs' respective demand deposit accounts with the BSP shall be eligible to one percent (1%) reserve: Provided, further , That funds borrowed by NBQBs from trust departments of banks/investment houses shall be excluded from the herein definition of interbank loan transactions. aAcHCT Interbank loan transactions not evidenced by interbank loan advice or repayment transfer tickets and submitted to the BSP Comptrollership Department shall be reported to the BSP in the prescribed form. SUBSECTION 4376Q.1 Systems and procedures for interbank call loan transactions . IBCL transactions of NBQBs shall be governed by the Agreement for an Interbank Call Loans Funds Transfer System and the Supplemental Memorandum of Agreement executed among the BSP, the Bankers Association of the Philippines and the Philippine Clearing House Corporation ( Appendix Q-13 and Q-13-b ). NBQBs shall generate hard copies of the formats of the loan and repayment instructions in the form presented in Annexes A, B, C and D of the aforesaid agreement to be kept as documentary evidence of their matched and processed IBCL transactions. SUBSECTION 4376Q.2 Accounting procedures. a. NBQBs shall immediately pass the corresponding entries in their books and, upon receipt of a copy of the transfer instruction reported as matched in the expanded Multi-Transaction Interbank Payment System (MIPS2 Plus), the borrowing NBQB shall attach the same to the corresponding ticket debitings its Due from BSP account in its books and, in the case of the lending NBQB, to the same ticket passed in its books on the day payment is made. b. IBCL transactions shall be recorded by the borrowing NBQB as Bills Payable-Interbank Call Loans . c. NBQBs shall reconcile their demand deposit accounts with the BSP against monthly statements of account to be furnished by the BSP Comptrollership Department. AcSEHT SUBSECTION 4376Q.3 Transfer of excess funds. The prescribed "Authority to Debit Slip" shall be used by NBQBs in the transfer of their excess funds which are not otherwise lent out in the interbank loan market from their BSP reserve accounts to their operating accounts with their depository banks. The "Authority to Debit Slip" shall have a standard size of 4 3/4" x 8 1/2" and shall be orange in color. It shall contain the minimum data or information as required and shall be accomplished and submitted to the BSP Comptrollership Department in duplicate after having been duly signed and/or authenticated by authorized officers of the NBQB. SUBSECTION 4376Q.4 Settlement Procedures. Interbank loan transactions (call and term) among banks and NBQBs shall be settled in accordance with the procedures in Appendix Q-13-a . SECTIONS 4377Q 4380Q (Reserved) H. Equity Investments SECTION 4381Q. Investment in Non-Allied Undertakings . In order to avoid undue concentration of economic power, the total equity investments in any single non-allied enterprise or industry of NBQBs, expanded commercial banks and their subsidiaries, whether or not the parent financial intermediaries have equity investments in the enterprise, shall, in any case, remain a minority in that enterprise, except as may be otherwise approved by the President of the Philippines. Non-allied enterprises are those allowed for expanded commercial banks in the Manual of Regulations for Banks. Equity investments as of April 1, 1980, which exceed the limitation under this Section, may be retained but shall not be increased percentage-wise, and whenever reduced, shall not thereafter be increased beyond the prescribed limitation. ESTDIA SECTION 4382Q. Investments Abroad . Except as may be authorized by the Monetary Board, the total equity investments in and/or loans to any single enterprise abroad by any NBQB shall not at any time exceed fifteen percent (15%) of the net worth of the investing NBQB. SECTION 4383Q. Underwriting Exempted. The limitations on equity investments under Sec. 4381Q shall not apply to inventories of equity securities arising out of firm underwriting commitments of investment houses: Provided, That such equity holding shall be disposed of within two (2) years from acquisition by the investment house. SECTIONS 4384Q 4385Q (Reserved) I. (RESERVED) SECTIONS 4386Q 4390Q (Reserved) J. Other Operations SECTION 4391Q. Purchase of Receivables and Other Obligations . The following rules shall govern the purchase of receivables and other obligations. SUBSECTION 4391Q.1 Yield on Purchase of Receivables . The rate of yield, including commissions, premiums, fees and other charges from the purchase of receivables and other obligations, regardless of maturity, that may be charged or received by NBQBs shall not be subject to any regulatory ceiling. Receivables and other obligations shall include claims collectible in money of any amount and maturity from domestic and foreign sources. The Monetary Board shall determine in doubtful cases whether a particular claim is included within said phrase. SUBSECTION 4391Q.2 Purchase of commercial paper . Before purchasing registered commercial paper, NBQBs shall: a. Require the issuing entity to submit a duly certified true copy of its Certificate of Registration and Authority to Issue Commercial Paper; and b. Ascertain that the registration number and expiry date indicated in the commercial paper are the same as those in the Certificate of Registration submitted. No NBQB shall sell, discount, assign, negotiate, in whole or in part such as thru syndications, participations and other similar arrangements, any note, receivable, loan, debt instrument and any type of financial asset or claim, except government securities, on a without recourse basis, or be a party in any capacity in any such transactions on a without recourse basis, unless such receivable, note, loan, debt instrument and financial asset or claim is registered with the SEC. This prohibition includes transactions between an investment house and its trust department. Unregistered commercial papers may be sold, discounted, assigned or negotiated by NBQBs to other financial intermediaries with quasi-banking functions. Any violation of the above rules and regulations shall be subject to any or all of the following sanctions: a. Suspension of quasi-banking authority for a period of six (6) months; and b. Monetary penalty of P500 per day per transaction for each and every officer of the NBQB involved in any capacity in any transaction violative of these regulations. SUB-SECTION 4391Q.3 Investments in debt and marketable equity securities . The classification, accounting procedures, valuation, sales and transfers of investments in debt securities and marketable equity securities shall be in accordance with the guidelines in Appendices Q-20 and Q-20-a . Delay or non-submission of the Operations Manual as required under Appendix Q-20 shall be subject to a penalty of P500 per business day. SECTION 4392Q. Reverse Repurchase Agreements with the Bangko Sentral. Reverse repurchase agreements may be effected with the BSP under its open market operations, subject to the terms and conditions in Subsec. 4602Q.1. SECTION 4393Q. (Reserved) SECTION 4394Q. Acquired Assets in Settlement of Loans . The following rules shall govern assets acquired in settlement of loans. SUBSECTION 4394Q.1 Booking . The property acquired in settlement of loans through foreclosure or dation in payment shall be recorded at the balance of the loan (principal plus booked accrued interest receivable for time loans, or principal less unamortized income for bills discounted) or bid/purchase price, whichever is lower: Provided , That where the booked amount of the Real and Other Properties Owned or Acquired (ROPOA). Exceeds the appraised value of the acquired property, an allowance for probable losses equivalent to the excess of the amount booked over the appraised value shall be set up. Non-refundable capital gains tax and documentary stamp tax paid in connection with foreclosure/purchase of the acquired real estate property may be included in the book value of the acquired real estate: Provided , That the total book value does not exceed the appraised value of the acquired real estate: Provided, further , That if the amount to be booked as ROPOA exceeds P5 million, the appraisal of the foreclosed/purchased asset shall be conducted by an independent appraiser acceptable to the BSP. Any excess of loan balance over the amount booked shall be debited to " Miscellaneous Income/Loss " account. Claims arising from deficiency judgments rendered in connection with the foreclosure of mortgaged properties shall be lodged under the real account " Deficiency Judgment Receivable ". While probable claims against the borrower-debtor arising from the foreclosure of mortgaged properties shall be lodged under the contingent account " Deficiency Claims Receivable ". ICTacD a. Booked valuation reserves while the account is in the non-performing portfolio . The amount of allowance for probable losses already booked while the account is still in the non-performing portfolio shall be used to cover required valuation reserves for other accounts, if there are any, and if there is none, it may, subject to approval by the appropriate supervising and examining department of the BSP, be credited to income: Provided , That the appraised value of the acquired property is not lower than the amount booked as ROPOA. b. Appraisal of properties to be foreclosed or acquired . Before foreclosing or acquiring any property in settlement of loans and other advances, it must be properly appraised to determine its true economic value. If the total amount to be booked as ROPOA exceeds P5 million, the appraisal must be conducted by an independent appraiser acceptable to the BSP. An in-house appraisal of such property shall be made at least every other year: Provided , That immediate re-appraisal shall be conducted on ROPOAs which materially decline in value. c. Non-cash payment for interest . Quasi-banks which accept non-cash payments for interest on their borrowers' loans shall defer recognition of income by virtue of such payments until such time that the property is sold. The ROPOA account shall be debited for the non-cash payment received subject to the rules governing the booking of ROPOA. The accrued interest already booked shall be reversed but there shall be no reversal of corresponding valuation reserves, if there are any. Pending the creation of a more appropriate account in the Manual of Accounts for Non-Banks, the account " Other Deferred Credits " may be credited for non-cash payment corresponding to interest not yet accrued in the books. SUBSECTION 4394Q.2 Sales contract receivable. This represents the balance of the selling price of assets owned and/or acquired under a plan of settlement, whereby the title to said assets is transferred only to the buyer upon full payment of the agreed selling price. Sales contract receivables which meet all the requirements/conditions enumerated below are hereby considered performing assets and therefore, not subject to classification: a. That there has been a down-payment of at least twenty percent (20%) of the agreed selling price or in the absence thereof, the installment payments on the principal had already amounted to at least twenty percent (20%) of the agreed selling price; b. That payment of the principal must be in equal installments or in diminishing amounts and with maximum intervals of one (1) year; c. That any grace period in the payment of principal shall not be more than two (2) years; and d. That there is no installment payment in arrear either on principal or interest. Provided , That a " Sales Contract Receivable " account shall be automatically classified " Substandard " and considered non-performing in case of non-payment of any amortization due: Provided, further , That a " Sales Contract Receivable " which has been classified " Substandard " and considered non-performing due to non-payment of any amortization due may only be upgraded/ restored to unclassified and/or performing status after a satisfactory track record of at least three (3) consecutive payments of the required amortization of principal and/or interest has been established. TAIDHa SECTION 4395Q. (Reserved) K. Miscellaneous Provisions SECTION 4396Q. Transfer/Sale of Non-Performing Assets to A Special Purpose Vehicle or to An Individual . The procedures governing the transfer/sale of non-performing assets (NPAs) to a Special Purpose Vehicle (SPV) or to an individual that involves a single family residential unit, or transactions involving dacion en pago by the borrower or third party of a non-performing loan (NPL), for the purpose of obtaining the Certificate of Eligibility (COE) which is required to avail of the incentives provided under R.A. No. 9182 are presented in Appendix Q-28 . The accounting guidelines on the sale of NPAs to SPVs and to qualified individuals for housing under the SPV Act of 2002 are presented in Appendix Q-28-a . SECTIONS 4397Q 4398Q (Reserved) SECTION 4399Q. General Provision on Sanctions. Unless otherwise provided for, any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART FOUR Trust, Other Fiduciary Business and Investment Management Activities SECTION 4401Q. Statement of Principles. The cardinal principle common to all trust and other fiduciary relationships is fidelity. Policies predicated upon this principle are directed towards confidentiality, scrupulous care, safety and prudent management of property including reasonable probability of income with proper accounting and appropriate reporting thereon. Practices are designed to promote efficiency in administration and operation; to adhere and conform with the terms of the instrument or contract; and to maintain absolute separation of property free from any intrusion of conflict of interest. An institution incorporated or authorized to engage in trust and fiduciary business is under no obligation, either legal or moral, to accept any such business being offered nor has it the right to accept if the same is contrary to law, rules, regulations, public order and public policy. It shall advertise its services in a dignified manner and enter such business only when demand for such service is evident, when specially equipped to render such service and upon full appreciation of the responsibilities involved. It shall be ready and willing to give full disclosure of the services being offered and shall conduct its dealing with transparency. Harmonious relationship shall likewise be pursued with other professions to achieve the common goal of mutual service to the public and protection of its interest. SECTION 4402Q. Scope of Regulations . These regulations shall govern the grant of authority to and the management, administration and conduct of trust, other fiduciary business and investment management activities (as these terms are defined in Sec. 4403Q) of non-bank financial institutions (e.g., investment houses and trust corporations) allowed by law to perform such operations. The regulations are divided into three (3) Sub-Parts where: A. Trust and Other Fiduciary Business shall apply to institutions authorized to engage in trust and other fiduciary business including investment management activities; B. Investment Management Activities shall apply to institutions without trust authority but engaged in investment management activities; and C. General Provisions shall apply to both. SECTION 4403Q. Definitions . For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated. EADCHS a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called beneficiaries. b. Other fiduciary business shall refer to any activity of trust-licensed institutions resulting from a contract or agreement whereby the institution binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership and other similar services which do not create or result in a trusteeship. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of such institution. Investment management activities, which are considered as among other fiduciary business, shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business. c. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the institution (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial or managing agent, adviser, consultant or administrator of financial or investment management, advisory, consultancy or any similar arrangement which does not create or result in a trusteeship. d. Trust is a relationship or an arrangement whereby a person called a trustee is appointed by a person called a trustor to administer, hold and manage funds and/or property of the trustor for the benefit of a beneficiary. e. Trust agreement is an instrument in writing covering the terms and conditions of the trust. f. Trustee is any person who holds legal title to the funds and/or property of a trust. g. Trustor is any person who creates a trust. h. Beneficiary is any person for whose benefit a trust is created. i. Fiduciary shall refer to any person or entity engaged in any of the other fiduciary business as herein defined where no trustor-trustee relation exists. j. Agency shall refer to a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. k. Principal shall refer to the person who grants authority to another person called an agent, under a contract to enter into transactions in his behalf. l. Agent shall refer to a person who acts in representation or on behalf of another person with the latter's authority. m. Trust Department shall refer to the department, office, unit, group, division or any aggrupation which carries out the trust and other fiduciary business of an institution. n. Trust Officer shall refer to the designated head or officer-in-charge of the trust department. o. Trust account shall refer to an account where transactions arising from a trusteeship are kept and recorded. p. Common Trust Fund (CTF) shall refer to a fund maintained by an institution authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participations in the plan received by it in its capacity as the trustee. q. Fiduciary account shall refer to an account where transactions arising from any of the other fiduciary businesses are kept and recorded. r. Investment Manager shall refer to any person or entity engaged in investment management activities as herein defined. s. Investment Management Department shall refer to the department, unit, group, division or any aggrupation which carries out the investment management activities of an institution that does not have an authority to engage in trust and other fiduciary business. cCSDTI t. Investment Management Officer shall refer to the designated head or officer-in-charge of the investment management department of an institution which does not have the authority to engage in trust and other fiduciary business. u. Investment management account shall refer to an account where transactions arising from investment management activities are kept and recorded. A. Trust And Other Fiduciary Business SECTION 4404Q. Authority to Perform Trust and Other Fiduciary Business . With prior approval of the Monetary Board, trust corporations and investment houses may engage in trust and other fiduciary business under Chapter IX of R.A. No. 8791, as amended and Section 7 of P.D. No. 129, as amended. Entities whose articles of incorporation or any amendments thereto, include the purpose or power to engage in trust and other fiduciary business, shall secure the prior favorable recommendation of the Monetary Board pursuant to Section 17 of the Corporation Code. If an entity is found to be engaged in unauthorized trust and other fiduciary business and/or investment management activities, whether as its primary, secondary or incidental business, the Monetary Board may impose administrative sanctions against such entity or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any trust and other fiduciary and/or investment management account to duly incorporated and licensed entities of the choice of the trustor, beneficiary or client, as the case may be. No entity shall advertise or represent itself as being engaged in trust and other fiduciary business or in investment management activities or represent itself as trustee or investment manager or use words of similar import and/or use in connection with its business title, the words trust, trust corporation, trust company, trust plan or words of similar import, without having obtained the required authority to do so. ADaSEH Starting year 2001, investment houses authorized to engage in trust and other fiduciary business shall renew their existing licenses yearly, subject to the implementing guidelines to be issued thereon. SUBSECTION 4404Q.1 Prerequisites for engaging in trust and other fiduciary business . An institution, before it may engage in trust and other fiduciary business, shall comply with the following requirements: a. The applicant has combined capital accounts of not less than P250 million or such amount as may be required by the Monetary Board or other regulatory agency. For this purpose, combined capital accounts shall have the same meaning as in Sec. 4106Q; b. The applicant has been duly licensed or incorporated as a financial institution by the appropriate government agency or created by special law or charter; c. The articles of incorporation or charter of the institution shall include among its powers or purposes, acting as trustee or administering any trust or holding property in trust or on deposit for the use, or in behoof of others; d. The by-laws of the institution shall include, among other things, provisions on the following: (1) The organization plan or structure of the department, office, or unit which shall conduct the trust and other fiduciary business; (2) The creation of a trust committee, the appointment of a trust officer and subordinate officers of the trust department; and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers and staff within the organization. e. Where the applicant is authorized to engage in quasi-banking functions, it shall also meet the following additional requirements: (1) Its operations during the year immediately preceding the filing of the application have been profitable, i.e., its rate of return on equity is at least ten percent (10%); (2) It has continuously complied with its net worth-to-risk assets ratio, liquidity floor and ceilings on DOSRI loans during the last six (6) months immediately preceding the date of application; (3) It has not incurred net weekly reserve deficiency against deposit substitutes during the last six (6) months immediately preceding the date of application; (4) The ratio of its total non-performing loans to its gross loan portfolio as of the date of filing of application does not exceed the industry average as of the end of the quarter immediately preceding the date of application; (5) It does not have any past due obligation with the BSP or with any government or non-government financial institution; (6) It has not engaged in unsafe and unsound practice/s during the year immediately preceding the date of application; (7) It has corrected as of the date of application the violations noted in its latest examination related to the single borrower's loan limit and all other ceilings prescribed by the BSP; (8) It does not have float items outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/Branches" accounts and the "Due from Bangko Sentral" account exceeding one percent (1%) of its total resources as of the end of the month immediately preceding the date of application; and (9) It has shown substantial compliance with other pertinent laws, rules and regulations, policies and instructions of the BSP and it has not been cited for serious violations or exceptions affecting its solvency, liquidity and profitability. Where the applicant is not authorized to engage in quasi-banking functions: (i) The adoption of a formula or criteria for NBQBs in the determination of compliance with the capital-to-risk assets ratio and ceilings on loans to DOSRI; and (ii) The substitution of the reserve and liquidity floor requirements with the cash ratio, as follows: (a) Primary reserves to Bills Payable; and (b) Primary and secondary reserves to Bills Payable; where primary reserves consist of cash on hand, cash in vault, checks and other cash items, due from the BSP and due from banks; and where secondary reserves consist of BSP-supported government securities, treasury bills and other government securities. Compliance with the foregoing, as well as with other requirements under existing regulations, shall be maintained up to the time the trust license is granted. An applicant that fails in this respect shall be required to show compliance for another test period of the same duration. SUBSECTION 4404Q.2 Pre-operating requirements. An institution authorized to engage in trust and other fiduciary business shall, before engaging in actual operations, submit to the BSP the following: a. Government securities acceptable to the BSP amounting to P500,000 as minimum basic security deposit for the faithful performance of trust and other fiduciary duties required under Subsec. 4405Q.1; b. Organization chart of the trust department which shall carry out the trust and other fiduciary business of the institution; and c. Names and positions of individuals designated as chairman and members of the trust committee, trust officer and other subordinate officers of the trust department with their respective bio-data and statement of duties and responsibilities. SECTION 4405Q. Security for the Faithful Performance of Trust and Other Fiduciary Business. SUBSECTION 4405Q.1 Basic security deposit . An institution authorized to engage in trust and other fiduciary business shall deposit with the BSP eligible government securities as security for the faithful performance of its trust and other fiduciary duties equivalent to at least one percent (1%) of the book value of the total volume of trust, other fiduciary and investment management assets: Provided , That at no time shall such deposit be less than P500,000. THEcAS Scripless securities under Registry of Scripless Securities (RoSS) system of the Bureau of Treasury (BTr) may be used as basic security deposit for trust duties using the guidelines in Appendix Q-21. SUBSECTION 4405Q.2 Eligible securities. Government securities which shall be deposited in compliance with the above basic security deposit shall consist of: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; and such other kinds of securities which may be declared eligible by the Monetary Board: Provided , That such securities shall be free, unencumbered, and not utilized for any other purpose: Provided, further , That such securities shall have remaining maturities of not more than three (3) years from the date of deposit with the BSP; b. NDC Agri-Agra ERAP Bonds, regardless of remaining maturities; c. Five (5)- and Ten (10)-year Special Purpose Treasury Bonds (SPTBs) provided such bonds shall not be hypothecated in any way or earmarked for any other purpose and they meet the three (3)-year remaining maturity requirement to ensure that such bonds are liquid; d. Securities backed by the unreleased Internal Revenue Allotments (IRA) of local government units (issued by a Special Purpose Trust administered by the DBP under the IRA Monetization Program of the Union of Local Authorities of the Philippines) the release of which IRA on scheduled date of payment has been certified by the DBM as not being subject to any conditionalities: Provided , That such securities shall be eligible only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date): Provided, further , That for reserve for trust and other fiduciary duties, the remaining maturities of the securities shall not exceed three (3) years; and e. Zero Coupon Bond Issue by the HGC of up to P7.0 billion five (5)-year regular series and up to P3.0 billion seven (7)-year special series to finance its guaranty servicing of socialized and low-cost housing projects: Provided , That they meet the three (3)-year remaining maturity requirement to ensure that such bonds are liquid: Provided, further , That such bonds shall qualify as eligible reserve for trust and other fiduciary duties only to the extent of the present value of the bond computed using the original yield to maturity (as of auction/issue date). f. Tobacco Excise Tax Receivable Monetization Program Investment Certificates (TEXTR Certificates) backed by receivables representing the unreleased portion of the obligation of the National Government to its LGUs for their share of the Tobacco Excise Taxes under R.A. No. 7171 amounting to P1.85 billion and covering the years 2001 and 2002: Provided , That such securities shall be eligible only to the extent of the present value of the securities computed using the original yield to maturity as of auction/issue date. SUBSECTION 4405Q.3 Valuation of securities and basis of computation of the basic security deposit requirement . For purposes of determining compliance with the basic security deposit under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of total trust, investment management and other fiduciary assets of the immediately preceding calendar quarter. SUBSECTION 4405Q.4 Compliance period; sanctions . The trustee or fiduciary shall have thirty (30) business days after the end of every calendar quarter within which to deposit with the BSP securities required under this Section. In case an institution fails to comply with the basic security deposit, the Monetary Board may require the institution to desist from accepting new trust and other fiduciary accounts and from renewing expiring trust and other fiduciary contracts. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of trust and other fiduciary business: a. On the institution: (1) First offense Penalty of P5,000 per business day to be reckoned from thirty (30) business days after the end of the reference quarter; and (2) Second and subsequent offenses Suspension of trust license. b. On the Head of the Trust and Fund Management Department: (1) First offense Reprimand with a stern warning that subsequent violations will be subjected to more severe sanctions; and (2) Subsequent offenses Suspension for ninety (90) days without pay. SUBSECTION 4405Q.5 Reserves against peso-denominated Common Trust Funds (CTFs) and Trust and Other Fiduciary Accounts (TOFA) Others a. Reserves against peso-denominated CTFs . In addition to the basic security deposit, an institution authorized to engage in trust and other fiduciary business shall maintain reserves on (1) peso-denominated CTF; and (2) such other managed peso funds which partake the nature of collective investment of a peso-denominated CTF as may be indicated by the presence of the following features: (a) The funds are composed of contributions from two (2) or more investors; (b) The funds are managed/administered as a vehicle for collective investment and reinvestment; (c) The trustee/administrator/agent has the exclusive management and control over the funds and the sole right at any time to sell, convert, invest, exchange, transfer or otherwise change or dispose of the assets comprising the funds; and (d) Investments/contributions to, or withdrawals from, the funds are being allowed at anytime or as of a fixed date in the future, and/or the income, net of all expenses incurred in the management of the fund plus the fee of the trustee/administrator/agent, are being distributed among the participants of the funds, without the need to liquidate all assets of the funds. The reserves to be maintained shall be as follows: (i) Regular reserves 6% (ii) Liquidity reserves 10% 1 The liquidity reserves may be held in the form of: (i) Short-term market-yielding government securities purchased directly from the BSP-Treasury Department; (ii) NDC Agri-Agra ERAP Bonds, regardless of maturity; and (iii) Poverty Eradication and Alleviation Certificates (PEACe) bonds only to the extent of the original gross issue proceeds determined at the time of the auction, plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds. The reserves on peso-denominated CTFs and such other managed peso funds shall be provided by the institution out of said funds. b. Reserves against TOFA-Others . In addition to the basic security deposit, an institution authorized to engage in trust and other fiduciary business shall maintain reserves on TOFA-Others, except accounts held under (1) Administratorship ; (2) Bond Issues/Other Obligations Under Deed of Trust or Mortgage ; (3) Custodianship and Safekeeping ; (4) Depository and Reorganization ; (5) Employee Benefit Plans Under Trust ; (6) Escrow ; (7) Personal Trust (testamentary and living trust); (8) Executorship ; (9) Guardianship ; (10) Life Insurance Trust ; and (11) Pre-need Plans (institutional/individual). The reserves to be maintained shall be as follows: (i) Regular reserves 6% (ii) Liquidity reserves 10% 1 The liquidity reserves may be held in the form of: (i) Short-term market-yielding government securities purchased directly from the BSP-Treasury Department; (ii) NDC Agri-Agra ERAP Bonds, regardless of maturity; and (iii) PEACe bonds only to the extent of the original gross issue proceeds determined at the time of the auction, plus capitalized interest on the underlying zero-coupon Treasury Notes as and when the corresponding interest is earned over the life of the bonds. The reserves on TOFA-Others shall be provided by the institution out of said funds. SUBSECTION 4405Q.6 Composition of reserves . a. The provisions of Subsec. 4246Q.1 shall govern the composition of reserves against peso-denominated CTFs and such other managed peso funds as well as TOFA-Others of institutions authorized to engage in trust and other fiduciary business. For purposes of this Subsection, a special deposit account shall be maintained by the institutions with the BSP exclusively for trust reserves which deposits up to forty percent (40%) of the required reserves against peso-denominated CTFs and such other managed peso funds (less the percentage allowed to be maintained in the form of short-term market-yielding government securities), as well as the required reserves against TOFA-Others (less the percentage allowed to be maintained in the form of short-term market-yielding government securities), shall be paid interest at four percent (4%) per annum , based on the average daily balance of said deposits to be credited quarterly. Likewise, institutions may also maintain a special demand deposit account with local banks exclusively for trust duties. Effective July 1, 2003, published interest rates that will be applied on BSP's Special Deposit Accounts of quasi-banks shall be inclusive of the ten percent (10%) Value Added Tax (VAT). b. The portion of reserves that may be maintained in the form of short-term market-yielding government securities refers to government securities shall be purchased directly from the BSP Treasury Department at one-half percent (1/2%) below the prevailing market rate for an equivalent term and volume and subject to BSP's firm commitment to buy back at any time at prevailing market rates. Such reserves in the form of short-term market-yielding government securities shall be in addition to other forms of eligible reserves such as cash in vault or on deposit with the BSP. All purchases of said government securities shall be under the RoSS system of the BTr. Transactions covering said securities shall be recorded in accordance with the guidelines in Appendix Q-21. SUBSECTION 4405Q.7 Computation of reserve position . An institution authorized to engage in trust and other fiduciary business shall calculate daily the required and available reserves on the value per books of its peso-denominated CTFs and such other managed peso funds, as well as on TOFA-Others, based on the seven-day week, starting Friday and ending Thursday including Saturdays, Sundays, holidays, non-business days and days when there is no clearing: Provided , That with reference to holidays, non-business days and days where there is no clearing, the reserve position at the close of business day immediately preceding such holidays, non-business days and days where there is no clearing, shall apply thereon. For the purpose of computing reserve position, the principal office in the Philippines and all branches and agencies located therein shall be treated as a single unit. aTIEcA The required reserves in the current period (reference reserve week) shall be computed based on the corresponding levels of peso-denominated CTFs and such other managed peso funds, as well as TOFA-Others of the prior week. SUBSECTION 4405Q.8 Reserve deficiencies; sanctions . The provisions of Subsec. 4246Q.3 shall govern the computation of reserve deficiencies for peso-denominated CTFs and such other managed peso funds, as well as for TOFA-Others, of institutions authorized to engage in trust and other fiduciary business, including the sanctions provided in said Subsection. SUBSECTION 4405Q.9 Report of compliance. Every institution shall make a weekly report to the BSP of its daily required and available reserves on peso-denominated CTFs and such other managed peso funds, as well as on TOFA-Others, to be submitted not later than the close of the third business day following the reference week. SECTION 4406Q. Organization and Management. SUBSECTION 4406Q.1 Organization . An institution authorized to engage in trust and other fiduciary business shall, pursuant to Subsec. 4404Q.1, include in its by-laws, provisions on the organization plan or structure of the department, office or unit which shall conduct such business. The by-laws shall also include provisions on the creation of a trust committee, the appointment of a trust officer and other subordinate officers and a clear definition of their duties and responsibilities as well as their line and staff functional relationships within the organization which shall be in accordance with the following guidelines. a. Trust and other fiduciary business of an institution shall be carried out through a trust department which shall be organizationally, operationally, administratively and functionally separate and distinct from the other departments and/or businesses of the institution. An institution which is also engaged in investment management activities shall conduct the same only through its trust department and the responsibilities of the board of directors, trust committee and trust officer shall be construed to include the proper administration and management of investment management activities. No institution shall undertake any of the trust and other fiduciary business and, whenever applicable, investment management activities outside the direct control, authority and management of the trust department or through any department or office which is involved in the other businesses of the institution, such as the Treasury, Funds Management or any similar department; otherwise, any such business shall be considered part of the institution's real liabilities. The institution proper and the trust department may share the following activities: (1) electronic data processing; (2) credit investigation; (3) collateral appraisal; and (4) messengerial, janitorial and security services. b. The trust department, trust officer and other subordinate officers of the trust department shall only be directly responsible to the institution's trust committee which shall, in turn, be only directly responsible to the institution's board of directors. No director, officer or employee taking part in the management of trust and other fiduciary accounts shall perform duties in other departments or the audit committee of the institution and vice versa. However, branch managers duly authorized by the board of directors may, for or on behalf of the officer, sign predrawn trust instruments such as CTFs. c. The organization structure and definition of duties and responsibilities of the trust committee, officers and employees of the trust department shall reflect adherence to the minimum internal control standards prescribed by the BSP. d. Provisions shall be made by the institution to have legal assistance readily available in the review of proposed and/or existing trust and fiduciary agreements and documents and in the handling of legal and tax matters related thereto. SUBSECTION 4406Q.2 Composition of trust committee . The trust committee shall be composed of at least five (5) members including the president, the trust officer and directors who are appointed by the board of directors on a regular rotation basis and who are not officers of the institution proper. No member of the audit committee, if the institution has any, shall be concurrently designated as a member of the trust committee: Provided , That in the case of a trust committee composed of more than five (5) members, the appointment therein of an operating officer may be allowed only if the required balance in the membership of at least three (3) members of the board for every operating officer shall be maintained. For purposes of this Subsection, the term officer shall include the president, executive vice president, general manager, corporate secretary, treasurer and others mentioned as officers of the institution, or those whose duties as such are defined in the by-laws, or are generally known to be officers of the institution (or any of its branches and offices other than the Head Office) either through announcement, representation, publication or any kind of communication made by the institution. The board of directors shall duly note in the minutes the committee members and designate the chairman who shall be one of the directors referred to above. SUBSECTION 4406Q.3 Qualifications of committee members, officers and staff. The institution's trust department shall be staffed by persons of competence, integrity and honesty. Directors, committee members and officers charged with the administration of trust and other fiduciary activities shall, in addition to meeting the qualification standards prescribed for directors and officers of financial institutions, possess the necessary technical expertise in such business: Provided , That trust officers who shall be appointed shall have at least two (2) years of actual experience or training in trust operations. TaCDAH SUBSECTION 4406Q.4 Responsibilities of administration . a. Board of Directors . The board of directors is responsible for the proper administration and management of trust and other fiduciary business. Funds and properties held in trust or in any fiduciary capacity shall be administered with the skill, care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting in like capacity and familiar with such matters, would exercise in the conduct of an enterprise of like character and with similar aims. The responsibilities of the board of directors shall include, but need not be limited to, the following: (1) It shall determine and formulate general policies and guidelines on the: (a) acceptance, termination, or closure of trust and other fiduciary accounts; (b) proper administration and management of each trust and other fiduciary accounts; and (c) investment, reinvestment and disposition of funds or property held in its capacity as trustee or fiduciary; (2) It shall direct and review the actions of the trust committee and all officers and employees designated to manage the trust and other fiduciary accounts, especially accounts without specific agreements on investments or discretionary accounts; (3) It shall approve or confirm the acceptance, termination or closure of all trust and other fiduciary accounts and shall record such in its minutes; (4) Upon the acceptance of an account, it shall immediately review all non-cash assets received for management. Likewise, it shall make a review of the trust and/or fiduciary assets at least once every twelve (12) months to determine the advisability of retaining or disposing of such assets; (5) It shall be responsible for taking appropriate action on the examination reports of supervisory agencies, internal and/or external auditors on the institution's trust and other fiduciary business and recording such actions thereon in the minutes; (6) It shall designate the members of the trust committee, the trust officer and subordinate officers of the trust department and shall be responsible for requiring reports from said committee and officers and recording its actions thereon in the minutes; and (7) It shall establish an appropriate staffing pattern and adopt operating budgets that shall enable the trust department to effectively carry out its functions. It shall likewise be responsible for providing the officers and staff of the institution with appropriate training programs in the administration and operation of all phases of trust and other fiduciary business. The board of directors may, by action duly entered in the minutes, delegate its authority for the acceptance, termination, closure or management of trust and other fiduciary accounts to the trust committee or to the trust officer, subject to certain guidelines approved by the board. b. Trust Committee . The trust committee duly constituted and authorized by the board of directors shall act within the sphere of authority which may be provided in the by-laws and/or as may be delegated by the board, such as, but not limited to, the following: (1) The acceptance and closing of trust and other fiduciary accounts; (2) The initial review of assets placed under the trustee's or fiduciary's custody; (3) The investment, reinvestment and disposition of funds or property; (4) The review and approval of transactions between trust and/or fiduciary accounts; and (5) The review of trust and other fiduciary accounts at least once every twelve (12) months to determine the advisability of retaining or disposing of the trust or fiduciary assets, and/or whether the account is being managed in accordance with the instrument creating the trust or other fiduciary relationship. For this purpose, the trust committee shall meet whenever necessary and keep minutes of its actions and make periodic reports thereon to the board. c. Trust Officer . The trust officer designated by the board of directors as head of the Trust Department shall act and represent the institution in all trust and other fiduciary matters within the sphere of his authority as may be provided in the by-laws or as may be delegated by the board. His responsibilities shall include, but need not be limited to, the following: (1) The administration of trust and other fiduciary accounts; (2) The implementation of policies and instructions of the board of directors and the trust committee; (3) The submission of reports on matters which require the attention of the trust committee and the board of directors; (4) The maintenance of adequate books, records and files for each trust or other fiduciary account; and (5) The maintenance of necessary controls and measures to protect assets under his custody and held in trust or other fiduciary capacity. SECTION 4407Q. Non-Trust, Non-Fiduciary and/or Non-Investment Management Activities. The basic characteristic of trust, other fiduciary and investment management relationship is the absolute non-existence of a debtor-creditor relationship, thus, there is no obligation on the part of the trustee, fiduciary or investment manager to guarantee returns on the funds or properties regardless of the results of the investment. The trustee, fiduciary or investment manager is entitled to fees/commissions which shall be stipulated and fixed in the contract or indenture and the trustor or principal is entitled to all the funds or properties and earnings less fees/commissions, losses and other charges. Any agreement/arrangement that does not conform to these shall not be considered as trust, other fiduciary or investment management relationship. The following shall not constitute a trust, other fiduciary and/or investment management relationship: a. When there is a preponderance of purpose or of intent that the arrangement creates or establishes a relationship other than a trust, fiduciary and/or investment management; b. When the agreement or contract is itself used as a certificate of indebtedness in exchange for money placement from clients and/or as the medium for confirming placements and investment thereof; c. When the agreement or contract of an account is accepted under the signature(s) of those other than the trust officer or subordinate officer of the trust department or those authorized by the board of directors to represent the trust officer; d. Where there is a fixed rate or guaranty of interest, income or return in favor of its client or beneficiary: Provided, however , That where funds are placed in fixed income-generating investments, a quotation of income expectation or like terms, shall neither be considered as arrangements with a fixed rate nor a guaranty of interest, income or return when the agreement or indenture categorically states in bold letters that the quoted income expectation or like terms is neither assured nor guaranteed by the trustee or fiduciary and it does not, therefore, entitle the client to a fixed interest or return on his investments: Provided, further , That any of the following practices or practices similar and/or tantamount thereto shall be construed as fixing or guaranteeing the rate of interest, income or return: (1) Issuance of certificates, side agreements, letters of undertaking, or other similar documents providing for fixed rates or guaranteeing interest, income or return; (2) Paying trust earnings based on indicated or expected yield regardless of the actual investment results; (3) Increasing or reducing fees in order to meet a quoted or expected yield; and (4) Entering into any arrangement, scheme or practice which results in the payment of fixed rates or yield on trust investments or in the payment of the indicated or expected yield regardless of the actual investment results; and e. Where the risk or responsibility is exclusively with the trustee, fiduciary or investment manager in case of loss in the investment of trust, fiduciary or investment management funds, when such loss is not due to the failure of the trustee or fiduciary to exercise the skill, care, prudence and diligence required by law. Trust, other fiduciary and investment management activities involving any of the foregoing which are accepted, renewed or extended after October 16,1990 shall be reported as deposit substitutes and shall be subject to the reserve requirement for deposit substitutes from the time of inception, without prejudice to the imposition of the applicable sanctions provided for in Sections 36 and 37 of R.A. No. 7653, and Sections 12 and 16 of P.D. No. 129, as amended. SHCaEA SECTION 4408Q. Unsafe and Unsound Practices. Whether a particular activity may be considered as conducting business in an unsafe or unsound manner, all relevant facts must be considered. An analysis of the impact thereof on the NBQB's/trust entity's operations and financial conditions must be undertaken, including evaluation of capital position, asset condition, management, earnings posture and liquidity position. In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting NBQBs/trust entities, may be deemed as conducting business in an unsafe or unsound manner, the Monetary Board, upon report of the head of the supervising or examining department based on findings in an examination or a complaint, shall consider any of the following circumstances: a. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; b. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors, investors, stockholders, or to the BSP, or to the public in general; c. The act or omission has caused any undue injury, or has given unwarranted benefits, advantage or preference to the NBQB/trust entity or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or d. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the NBQB/ trust entity, whether or not the director or officer profited or will profit thereby. The list of activities which may be considered unsafe and unsound is shown in Appendix Q-24. In line with the statement of principles governing trust and other fiduciary business under Sec. 4401Q, the trustee, fiduciary or investment manager shall desist from the following unsound practices: a. Entering in an arrangement whereby the client is at the same time the borrower of his own fund placement, or whereby the trustor or principal is a borrower of other trust, fiduciary or investment management funds belonging to the same family or business group of such trustor or principal; b. Granting loans or accommodations to any trust committee member, officer and employee of the trust department except where such loans are obtained by said persons as members of an employee benefit fund of the trustee's own institution; c. Borrowing from, or selling trust, other fiduciary and/or investment management assets to, the trust corporation or investment house proper to cover portfolio losses and/or to guarantee the return of principal or income; d. Granting new loans to any borrower who has a past due and/or classified loan account with the institution itself or its trust department; and e. Requiring clients to sign documents in blank. SUBSECTIONS 4408Q.1 4408Q.8 (Reserved) SUBSECTION 4408Q.9 Sanctions . The Monetary Board may, at its discretion and based on the seriousness and materiality of the acts or omissions, impose any or all of the following sanctions provided under Section 37 of R.A. No. 7653 and Section 56 of R.A. No. 8791, whenever an NBQB/trust entity conducts business in an unsafe and unsound manner: a. Issue an order requiring the quasi-bank/trust entity to cease and desist from conducting business in an unsafe and unsound manner and may further order that immediate action be taken to correct the conditions resulting from such unsafe or unsound practice; b. Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed P30,000 a day on a per transaction basis taking into consideration the attendant circumstances, such as the gravity of the act or omission and the size of the quasi-bank/trust entity, to be imposed on the quasi-bank/trust entity, their directors and/or responsible officers; c. Suspension of lending or foreign exchange operations or authority to accept new deposit substitutes and/or new trust accounts or to make new investments; d. Suspension of responsible directors and/or officers; e. Revocation of quasi-banking license and/or trust authority; and/or f. Receivership and liquidation under Section 30 of R.A. No. 7653. All other provisions of Sections 30 and 37 of R.A. No. 7653, whenever appropriate, shall also be applicable on the conduct of business in an unsafe or unsound manner. The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34, 35 and 36 of R.A. No. 7653. SECTION 4409Q. Trust and Other Fiduciary Business . The conduct of trust and other fiduciary business shall be subject to the following regulations. SUBSECTION 4409Q.1 Minimum documentary requirements . Each trust or fiduciary account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by an order of the court or other competent authority, the written order of said court or authority. b. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of, and designating the signatories to, the trust or other fiduciary account. c. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or indenture shall include the following minimum provisions: (1) Title or nature of contractual agreement in noticeable print; (2) Legal capacities, in noticeable print, of parties sought to be covered; (3) Purposes and objectives; (4) Funds and/or properties subject of the arrangement; (5) Distribution of the funds and/or properties; (6) Duties and powers of trustee or fiduciary; (7) Liabilities of the trustee or fiduciary; (8) Reports to the client; (9) Termination of contractual arrangement and, in appropriate cases, provision for successor-trustee or fiduciary; (10) The amount or rate of the compensation of trustee or fiduciary; (11) A statement in noticeable print to the effect that trust and other fiduciary business are not covered by the PDIC and that losses, if any, shall be for the account of the client; and (12) Disclosure requirements for transactions requiring prior authority and/or specific written investment directive from the client, court of competent jurisdiction or other competent authority. SUBSECTION 4409Q.2 Lending and investment disposition . Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust or other fiduciary relationship. When a trustee or fiduciary is granted discretionary powers in the investment disposition of trust or other fiduciary funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, court of competent jurisdiction or other competent authority, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposit substitutes of the institution or deposits with other banks, or mortgage and chattel mortgage bonds issued by the trustee or fiduciary; and d. Loans fully secured by real estate or chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into; (2) The borrower's name; (3) Amount involved; and (4) Collateral security(ies), if any. SUBSECTION 4409Q.3 Transactions requiring prior authority . A trustee or fiduciary shall not undertake any of the following transactions for the account of a client, unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client, beneficiary, other party-in-interest, court of competent jurisdiction or other competent authority: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or to any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not a trustee nor in a representative capacity; b. Purchase or acquire property or the first degree of consanguinity or debt instruments from any of the affinity, or the related interest of such departments, directors, officers, directors, officers and stockholders; or stockholders, or employees of the from any corporation where the trustee trustee or fiduciary, or relatives within or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of, or in securities underwritten by, the trustee or fiduciary or a corporation in which the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; and d. Sell, transfer, assign, or lend money or property from one trust or fiduciary account to another trust or fiduciary account except where the investment is in any of those enumerated in Items a to d of Subsec. 4409Q.2. Directors, officers, stockholders, and their related interest covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI in Part III - E of this Manual. The procedural and reportorial requirements in said regulations shall also apply. The disclosure required under this Subsection shall consist of the following minimum information: (1) The transactions to be entered into; (2) Identities of the parties involved in the transactions and their relationships (shall not apply to Item d of this Subsection); (3) Amount involved; and (4) Collateral security(ies), if any. The above information shall be made known to clients in a separate instrument or in the very instrument creating the trust or fiduciary relationship. SUBSECTION 4409Q.4 Ceilings on loans . Loans funded by trust accounts shall be subject to the single borrower's loan limit and DOSRI ceilings imposed on NBQBs under Part III - A and - E of this Manual. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the institution and its trust department to the same person, firm or corporation shall be combined. AECacS SUBSECTION 4409Q.5 Funds awaiting investment or distribution . Funds held by the trustee or fiduciary awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account. aDcTHE SUBSECTION 4409Q.6 Other applicable regulations on loans and investments . The loans and investments of trust and other fiduciary accounts shall be subject to pertinent laws, rules and regulations for banks and NBQBs that shall include, but need not be limited to, the following: a. Requirements of Sections 76 and 77 of R.A. No. 337, as amended; b. Provisions of Section 4(e) of the New Rules on Registration of Short-Term Commercial Papers and Section 7(f) of the New Rules on the Registration of Long-Term Commercial Papers issued by the SEC (Appendices Q-7 and Q-8). c. Criteria for past due accounts; and d. Qualitative appraisal of loans, investments and other assets that may require provisions for probable losses in accordance with the criteria set in Appendix Q-10; and the corresponding allowance for probable losses booked in accordance with the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities. SUBSECTION 4409Q.7 Operating and accounting methodology . Trust and other fiduciary accounts shall be operated and accounted for in accordance with the following: a. The trustee or fiduciary shall administer, hold or manage the fund or property in accordance with the instrument creating the trust or other fiduciary relationship; and b. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting . SUBSECTIONS 4409Q.8 4409Q.15 (Reserved) SUBSECTION 4409Q.16 Qualification and accreditation of quasi-banks acting as trustee on any mortgage or bond issuance by any municipality, government-owned or controlled corporation, or any body politic a. Applicability . Quasi-banks duly accredited by the BSP may act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic. b. Application for accreditation . A quasi-bank desiring to act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic shall file an application for accreditation with the appropriate supervising and examining department of SES. The application shall be signed by the president or officer of equivalent rank of the quasi-bank and shall be accompanied by the following documents: (1) certified true copy of the resolution of the institution's board of directors authorizing the application; (2) a certification signed by the president or officer of equivalent rank that the institution has complied with all the qualification requirements for accreditation. c. Qualification requirements . A quasi-bank applying for accreditation to act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic must comply with the requirements in Appendix Q-31. d. Independence of the trustee . A quasi-bank is prohibited from acting as trustee of a mortgage or bond issuance if any elective or appointive official of the LGU, government-owned or controlled corporation, or body politic which issued said mortgage or bond and/or his related interests own such number of shares of the quasi-bank that will allow him or his related interests to elect at least one (1) member of the board of directors of such quasi-bank or is directly or indirectly the registered or beneficial owner of more than ten percent (10%) of any class of its equity security. e. Investment and management of the funds . A domestic quasi-bank designated as trustee of a mortgage or bond issuance may hold and manage, in accordance with the provisions of the trust indenture or agreement, the proceeds of the mortgage or bond issuance and such assets and funds of the issuing municipality, corporation, or body politic as may be required to be delivered to the trustee under the Trust indenture/agreement, subject to the following conditions/restrictions: (1) Pending the utilization of such funds pursuant to the provisions of the trust indenture/agreement, the same shall only be (i) deposited in a bank authorized to accept deposits from the Government or government entities: Provided , That the depository bank is not a subsidiary or affiliate of the trustee quasi-bank, or (ii) invested in peso-denominated treasury bills acquired/purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate. (2) Investments of funds constituting or forming part of the sinking fund created as the primary source for the payment of the principal and interests due the mortgage or bonds shall also be limited to deposits in any bank authorized to accept deposits from the Government or government entities and investments in government securities that are consistent with such purpose which must be acquired/purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate. f. Waiver of confidentiality . A quasi-bank designated as trustee of any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic shall submit to the appropriate supervising and examining department of SES a waiver of the confidentiality of information under Sections 2 and 3 of R.A. No. 1405, as amended, duly executed by the issuer of the mortgage or bond in favor of the BSP. g. Reportorial requirements . A quasi-bank authorized by the BSP to act as trustee of the proceeds of mortgage or bond issuance of a municipality, government-owned or controlled corporation, or body politic shall comply with reportorial requirements that may be prescribed by the BSP. h. Applicability of the rules and regulations on Trust, Other Fiduciary Business and Investment Management Activities . The provisions of the Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities not inconsistent with the provisions of this Subsection shall form part of these rules. i. Sanctions . Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37, respectively, of the R.A. No. 7653, violation of any provision of this Subsection shall be subject to the following sanctions/penalties depending on the gravity of the offense: (1) First offense (a) Fine of up to P10,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (b) Reprimand for the directors/officers responsible for the violation. (2) Second offense (a) Fine of up to P20,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; (b) Suspension for ninety (90) days without pay for directors/officers responsible for the violation; and (c) Revocation of the authority to act as trustees on any mortgage or bond issuance by any municipality, government-owned or controlled corporations, or body politic. (3) Subsequent offense (a) Fine of up to P30,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; (b) Suspension or revocation of the trust license; (c) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. SECTION 4410Q. Unit Investment Trust Funds/Common Trust Funds 2 . The following rules and regulations shall govern the creation, administration and investment/s of Unit Investment Trust (UIT) Funds. The rules and regulations on Common Trust Funds (CTFs) are in Appendix Q-32. SUBSECTION 4410Q.1 Definition. a. Unit Investment Trust Funds . Unit Investment Trust Funds are open-ended pooled trust funds denominated in pesos or any acceptable currency, which are operated and administered by a trust entity and made available by participation. The term Unit Investment Trust Fund is synonymous to CTFs. As an open-ended fund, participation or redemption is allowed as often as stated in its plan rules. b. Trust entity . Any bank, investment house or a stock corporation duly authorized by the Monetary Board to engage in trust, investment management and fiduciary business. c. Board of directors . For this purpose, the term shall include a trust entity's duly constituted board of directors or its functional oversight equivalent which shall include the country head in the case of foreign institutions. SUBSECTION 4410Q.2 Establishment of a Unit Investment Trust Fund . Any trust entity authorized to perform trust functions may establish, administer and maintain one (1) or more UIT Funds subject to applicable provisions under this Section. SUBSECTION 4410Q.3 Administration of a Unit Investment Trust Fund . The trustee shall have exclusive management and control of each UIT Fund under its administration, and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund: Provided , That no participant in a UIT Fund shall have or be deemed to have any ownership or interest in any particular account or investment in the UIT Fund but shall have only its proportionate beneficial interest in the fund as a whole. IATHaS SUBSECTION 4410Q.4 Relationship of trustee with Unit Investment Trust Fund . A trustee administering a UIT Fund shall not have any other relationship with such fund other than its capacity as trustee of the UIT Fund: Provided, however , That a trustee which simultaneously administers other trust, fiduciary or investment management funds may invest such funds in the trustee's UIT Fund, if allowed under a policy approved by the board of directors. SUBSECTION 4410Q.5 Operating and accounting methodology . A UIT Fund shall be operated and accounted for in accordance with the following: a. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as pooled-fund accounting method. b. Contributions to each fund by clients shall always be through participation in units of the fund and each unit shall have uniform rights or privileges, as any other unit. c. All such participations shall be pooled and invested as one (1) account (referred to as collective investments). d. The beneficial interest of each participation unit shall be determined under a unitized net asset value per unit (NAVPu) valuation methodology defined in the written plan of the UIT Fund, and no participation shall be admitted to, or redeemed from, the fund except on the basis of such valuation. To arrive at a fund's NAVPu, the fund's total Net Assets is divided by the total outstanding units. Total Net Assets is a summation of the market value of each investment less fees, taxes, and other qualified expenses, as defined under the plan rules. SUBSECTION 4410Q.6 Plan rules . Each UIT Fund shall be established, administered and maintained in accordance with a written trust agreement drawn by the trustee, referred to as the "plan" which shall be approved by the board of directors of the trustee and a copy of which shall be submitted to the BSP for approval prior to its implementation. The plan shall contain the following minimum elements: a. Title of the plan . This shall correspond to the product/brand name by which the UIT Fund is proposed to be known and made available to its clients. b. Manner in which the fund is to be operated . A statement of the fund's investment objectives and policies including limitations, if any. c. Investment powers of the trustee with respect to the fund, including the character and kind of investments, which may be purchased, by the fund . There must be an unequivocal statement of the full discretionary powers of the trustee as far as the fund's investments are concerned. These powers shall be limited only by the duly stated investment objective and policies of the fund. d. The unitized NAVPu valuation methodology as prescribed under Subsec. 4410Q.5.d shall be employed. e. Terms and conditions governing the admission or redemption of units of participation in the fund . If the frequency of admission or redemption is other than daily; that is, any business day, the same should be explicitly stated in the Plan rules: Provided , That the admission and redemption prices shall be based on the prevailing market value of underlying investments at that time. f. Aside from the regular audit requirement applicable to all trust accounts, an external audit of each UIT Fund shall be conducted annually by an independent auditor acceptable to the BSP and the results thereof made available to participants . The external audit shall be conducted by the same external auditor engaged for the audit of the trust entity. g. Basis upon which the fund may be terminated . The Plan shall state the rights of participants in case of termination of the fund. Termination of the fund shall be duly approved by the trustee's Board of Directors and a copy of the resolution submitted to the appropriate department of the BSP. h. Liability clause of the trustee . There must be clear and prominent statement adjacent to where a client is required to sign that contract is not a deposit account but a trust agreement and that any loss/income is for the account of the participant; that the trustee is not liable for losses unless upon willful default; and that the fund is not insured by the PDIC; i. Amount of fees/commission and other charges to be deducted from the fund. The amount of fees that shall be charged to a fund shall cover the fund's fair and equitable share of the routine administrative expenses of the trustee such as salaries and wages, stationery and supplies, credit investigation, collateral appraisal, security, messengerial and janitorial services, EDP expenses, BSP supervision fees and internal audit fees. However, the trustee may charge a UIT Fund for special expenses if such is necessary to preserve or enhance the value of the Fund. Such special expense shall be payable to a third party covered by a separate contract and disclosed to participants. No other fees shall be charged to the fund. Marketing or other promotional related expenses shall be for the account of the trustee and shall be presumed covered by the trust fee. j. Such other matters as may be necessary or proper to define clearly the rights of participants in the UIT Fund. The provisions of the plan shall govern participation in the fund including the rights and benefits of persons having interest in such participation, as beneficiaries or otherwise. The Plan may be amended by a resolution of the Board of Directors of the trustee: Provided, however , That participants in the fund shall be immediately notified of such amendments and shall be allowed to withdraw their participations within a reasonable time but in no case less than thirty (30) calendar days after the amendments are approved, if they are not in conformity with the amendments made thereto: Provided further , That amendments to the plan shall be submitted to the BSP within ten (10) business days from approval of the amendments by the Board of Directors. The amendments shall be deemed approved after thirty (30) business days from date of completion of requirements. A copy of the Plan shall be available at the principal office of the trustee during regular office hours, for inspection by any person having an interest in the fund or by his authorized representative. Upon request, a copy of the plan shall be furnished such interested person. SUBSECTION 4410Q.7 Minimum disclosure requirements. a. Disclosure of UIT Fund investments . A list of prospective and outstanding investment outlets shall be made available by the trustee for the review of all UIT Fund clients. Such disclosure shall be substantially in the form as shown in Appendix Q-34 . The list of investment outlets shall be updated quarterly. b. Distribution of investment units. The trustee may issue such conditions or rules, as may affect the distribution of investment units subject to the minimum conditions enumerated hereunder. (1) Marketing materials . All printed marketing materials related to the sale of a UIT Fund shall clearly state: (a) The designated name of the fund and the fund's trustee. (b) The participation is not a " deposit account " but a trust product; and that any loss/income is for the account of the participant; that the Bank is not liable for losses unless proven to be negligent. (c) The participation does not carry any guaranteed rate of return and it is not insured by the PDIC. (d) Minimum information regarding: (i) The general investment policy and applicable risk profile. (ii) Particulars or administrative and marketing details like pricing and cut-off time. (iii) All charges made/to be made against the fund, including trust fees, other related charges. (iv) The availability of the plan rules governing the Fund, upon the client's request. (v) Customer and product suitability standards. (2) Evidence of participation . Every UIT Fund participant shall be given (a) A participating trust agreement. Such agreement shall clearly indicate that the trust product does not have any guaranteed rate of return and it is not insured with the PDIC. (b) A confirmation of participation and redemption made to/from the Fund that shall contain the following information: (i) NAVPu of the fund on day of purchase/redemption; (ii) Number of units purchased/redeemed; and (iii) Absolute peso or foreign currency value No indicative rates of return shall be provided in the trust participating agreement. Marketing materials may present relevant historical performance purely for reference and with clear indication that past results do not guarantee similar future results. (3) A participating trust agreement or confirmation of contribution/re-demption need not be manually signed by the trustee or his authorized representative if the same is in the form of an electronic document that conforms with the implementing rules and regulations of R.A. No. 8792, otherwise known as the Electronic Commerce Act. c. Regular publication/computation/availability of the fund's NAVPu. Trust entities managing a UIT Fund shall cause at least the weekly publication of the NAVPu of such fund in one (1) or more newspaper of national circulation: Provided , That a pooled weekly publication of such NAVPu shall be considered as substantial compliance with this requirement. The said publication, at the minimum, shall clearly state the name of the fund, its general classification, the fund's NAVPu and the moving return on investment (ROI) of the fund on a year-to-date (YTD) and year-on-year (YOY) basis. NAVPu shall be computed daily and shall be made available to participants and prospective participants upon request. d. Marketing personnel . To ensure the competence and integrity of all duly designated UIT marketing personnel, all personnel involved in the sales of these funds shall be required to undergo standardized training program in accordance with the guidelines of this Subsection. This training program may be conducted by their respective trust entities in accordance with the minimum training program guidelines provided by the Trust Officers Association of the Philippines (TOAP). Such training program shall however be regularly validated by TOAP. SUBSECTION 4410Q.8 Exposure limit to single person/entity . The combined exposure of the UIT Fund to any entity and its related parties shall not exceed fifteen percent (15%) of the market value of the UIT Fund: Provided , That, this limitation shall not apply to non-risk assets as defined by the BSP. In case the limit is breached due to the marking-to-market of certain investment/s or any extraordinary circumstances, e.g. abnormal redemptions which are beyond the control of the trustee, the trustee shall be given thirty (30) days from the time the limit is breached to correct the same. SUBSECTION 4410Q.9 Allowable investments and valuation . UIT Fund investments shall be limited to bank deposits and the following financial instruments: (a) Securities issued by or guaranteed by the Philippine government, or the BSP; (b) Tradable securities issued by the government of a foreign country, any political subdivision of a foreign country or any supranational entity; (c) Exchange-listed securities, (d) Marketable instruments that are traded in an organized exchange; (e) Loans traded in an organized market; and (f) such other tradable investments outlets/categories as the BSP may allow: Provided, That a financial instrument is regarded as tradable if quoted two-way prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. aEHASI The UIT Fund may avail itself of financial derivatives instruments solely for the purpose of hedging risk exposures of the existing investments of the Fund, provided these are accounted for in accordance with existing BSP hedging guidelines as well as the trust entity's risk management and hedging policies duly approved by the Trust Committee and disclosed to participants. The use of hedging instruments shall also be disclosed in the "Plan" as provided in Item " c " of Subsec. 4410Q.6 and specified in the quarterly "list of investment outlets" as provided in Item " a " of Subsec. 4410Q.7. SUBSECTION 4410Q.10 Other related guidelines on valuation of allowable investments. a. In pricing debt securities, interpolated yields shall be used for securities with odd or off-the-run tenors using the straight-line basis and generally accepted market convention. b. In case outstanding UIT Fund investments may deteriorate in quality, i.e., no longer tradable as defined under Subsec. 4410Q.9, the trustee shall immediately provision to reflect fair value in accordance with generally accepted accounting principles or as may be prescribed by the BSP. If no fair value is available, the instrument shall be assumed to be of no market value. SUBSECTION 4410Q.11 Unit Investment Trust Fund administration support. a. Backroom operations . Administrative rules on backroom under Sec. 4421Q shall be applicable to UIT Fund. Adequate systems to support the daily marking-to-market of the fund's financial instruments shall be in place at all times. In this respect, a daily reconcilement of the fund's resultant marked-to-market value with the unrealized market losses and gains (respective contra asset balance) versus the book value of the fund for investments in financial instruments shall be done and all differences resolved within the day. b. Custody of securities . Investments in securities of a UIT Fund shall be held for safekeeping by BSP accredited third party custodians which shall perform independent marking-to-market of such securities. SUBSECTION 4410Q.12 Counterparties . a. Dealings with related interests/NBQB proper/holding company/ subsidiaries/affiliates and related companies . A trustee of a UIT Fund shall be transparent at all times and maintain an audit trail for all transactions with related parties or entities. The trustee shall observe the principle of best execution and no purchase/sale shall be made with related counterparties without considering at least two (2) competitive quotes from other sources. b. Accreditation of counterparties . The Fund shall only invest with approved counterparties qualified in accordance with the policy duly approved by the Trust Committee. Counterparties shall be subject to appropriate limits in accordance with sound risk management principles. SUBSECTION 4410Q.13 Foreign currency-denominated Unit Investment Trust Funds UIT Fund denominated in any acceptable foreign currency provided under existing BSP rules and regulations may be established. Such fund may only be invested in allowable investments denominated in pesos or any acceptable foreign currency as expressly allowed under the fund's Plan rules and properly disclosed to fund participants. SUBSECTION 4410Q.14 Exemptions from statutory and liquidity reserves, single borrowers limit, DOSRI . The provisions on reserves, single borrower's limit and DOSRI ceilings under Secs. 4360Q and 4361Q, respectively, applicable to trust funds in general shall not be made applicable to UIT Funds. SECTION 4411Q. Investment Management Activities . The conduct of investment management activities shall be subject to the following regulations. SUBSECTION 4411Q.1 Minimum documentary requirements . An investment management account shall be covered by a written document establishing such account, as follows: a. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by the parties, accompanied by a copy of the board resolution or other evidence authorizing the establishment of, and designating the signatories, to the investment management account. b. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by the parties. The voluntary written agreement or contract shall include the following minimum provisions: (1) Prenumbered contractual agreement form; (2) Title or nature of contractual agreement in noticeable print; (3) Legal capacities, in noticeable print, of parties sought to be covered; (4) Purposes and objectives; (5) The initial amount of funds and/or value of securities subject of the arrangement delivered to the investment manager; (6) Statement in underlined noticeable print that: (a) The agreement is an agency and not a trust agreement. As such, the client shall at all times retain legal title to funds and properties subject of the arrangement; (b) The arrangement does not guaranty a yield, return or income by the investment manager. As such, past performance of the account is not a guaranty of future performance and the income of investments can fall as well as rise depending on prevailing market conditions; and (c) The investment management agreement is not covered by the PDIC and that losses, if any, shall be for the account of the client; (7) Duties and powers of the investment manager; (8) Liabilities of the investment manager; (9) Reports to the client; (10) The amount or rate of the compensation of the investment manager; (11) Terms and conditions governing withdrawals from the account; (12) Termination of contractual arrangement; and (13) Disclosure requirements for transactions requiring prior authority and/or specific written investment directives from the client. A sample investment management agreement which conforms to the foregoing requirements is shown as Appendix Q-14. SUBSECTION 4411Q.2 Minimum size of each investment management account . No investment management account shall be accepted or maintained for an amount less than P1 million. An investment management account reduced to less than P1 million due to investment losses shall be exempt from this requirement. SUBSECTION 4411Q.3 Commingling of funds . Two (2) or more individual investment management accounts shall not be commingled except for the purpose of investing in government securities or in duly registered commercial papers: Provided , That the participation of each of the aforementioned accounts in the commingled account shall not be less than P1 million: Provided, further , That such commingling has been fully disclosed and specifically agreed in writing by the clients. SUBSECTION 4411Q.4 Lending and investment disposition . Assets received in investment management capacity shall be administered in accordance with the terms of the instrument creating the investment management relationship. HTSAEa When an investment manager is granted discretionary powers in the investment disposition of investment management funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposit substitutes maintained with the institution or deposits with banks, or mortgage and chattel mortgage bonds issued by the investment manager; and d. Loans fully secured by real estate or chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following information: (1) The transaction to be entered into; (2) Borrower's name; (3) Amount involved; and (4) Collateral security(ies), if any. SUBSECTION 4411Q.5 Transactions requiring prior authority . An investment manager shall not undertake any of the following transactions for the account of a client, unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders, or employees of the investment manager, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or to any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders, or employees of the investment manager, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or from any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of or in securities underwritten by the investment manager or a corporation in which the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee, nor in a representative capacity; and d. Sell, transfer, assign or lend money or property from one trust fiduciary or investment management account to another trust, fiduciary or investment management account except where the investment is in any of those enumerated in Items a to d of Subsec. 4411Q.4. Directors, officers, stockholders and their related interest covered by this Subsection shall be those considered as such under existing regulations on loans to DOSRI under Part III - E of this Manual. The procedural and reportorial requirements in said regulations shall also apply. The disclosure required under this Subsection shall consist of the following minimum information: (1) The transactions to be entered into; (2) Identities of the parties involved in the transaction and their relationships (shall not apply to Item d of this Subsection); (3) Amount involved; and (4) Collateral security(ies), if any. The above information shall be made known to clients in a separate instrument or in the very instrument creating the investment management relationship. SUBSECTION 4411Q.6 Title to securities and other properties . Securities such as promissory notes, shares of stocks, bonds and other properties of the portfolio shall be issued or registered in the name of the principal or of the investment manager: Provided , That in case of the latter, the instrument shall indicate that the investment manager is acting in a representative capacity and that the principal's name is disclosed thereat. SUBSECTION 4411Q.7 Ceilings on loans . Loans funded by investment management accounts shall be subject to the DOSRI ceilings imposed on NBQBs in Part III - E of this Manual. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the institution and its trust department to the same person, firm or corporation shall be combined. SUBSECTION 4411Q.8 Operating and accounting methodology . Investment management accounts shall be operated and accounted for in accordance with the following: a. The investment manager shall administer, hold or manage the fund or property in accordance with the instrument creating the investment management relationship; and b. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as individual account accounting. SECTION 4412Q. (Reserved) SECTION 4413Q. Required Retained Earnings Appropriation . An institution authorized to engage in trust and other fiduciary business shall, before the declaration of dividends, carry to retained earnings appropriated for trust business at least ten percent (10%) of its net profits realized out of its trust, investment management and other fiduciary business since the last preceding dividend declaration until the retained earnings shall amount to twenty percent (20%) of its authorized capital stock and no part of such retained earnings shall at any time be paid out in dividends but losses accruing in the course of its business may be charged against surplus. B. Investment Management Activities SECTION 4414Q. Authority to Perform Investment Management . An investment house may act as financial consultant, investment adviser or portfolio manager under Section 7 of P.D. No. 129, as amended. However, this shall not be construed as authority to engage in trust and other fiduciary business. Entities whose articles of incorporation or any amendments thereto, include the purpose or power to act as financial consultant, investment adviser or portfolio manager shall secure the prior favorable recommendation of the Monetary Board before the filing of said articles of incorporation or amendments thereto with the SEC. If an entity is found to be engaged in unauthorized investment management activities, whether as its primary, secondary or incidental business, the Monetary Board may impose administrative sanctions against such entity or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any investment management account to duly incorporated and licensed entities of the choice of the client. cACTaI An entity not authorized to engage in investment management activities shall not advertise or represent itself as being engaged in investment management activities or represent itself as investment manager or use words of similar import. Starting year 2001, investment houses authorized to engage in investment management activities shall renew their existing licenses yearly, subject to the implementing guidelines to be issued thereon. SUBSECTION 4414Q.1 Prerequisites for engaging in investment management activities . An entity before it may engage in investment management activities shall comply with the following requirements: a. It has been duly licensed by the appropriate government agency or created by special law or charter. b. The articles of incorporation or charter of the institution shall include among its powers or purposes the authority to engage in investment management activities. c. The by-laws of the institution shall include, among other things: (1) The organization plan or structure of the department, office or unit which shall conduct the investment management activities of the institution; (2) The creation of an investment management committee, the appointment of an investment management officer and subordinate officers of the investment management department; and (3) A clear definition of the duties and responsibilities, as well as the line and staff functional relationships, of the various units, officers and staff within the organization. d. Where the applicant is authorized to engage in quasi-banking functions, the applicant shall also meet the following additional requirements: (1) It has continuously complied with the capital-to-risk assets ratio, reserve requirements against deposit substitutes, liquidity floor, and ceilings on DOSRI loans for the last sixty (60) days immediately preceding the date of application; (2) It has not incurred net weekly reserve deficiencies against deposit substitutes during the last eight (8) weeks immediately preceding the date of application; and (3) It has shown substantial compliance with other pertinent laws, rules and regulations, policies and instructions of the BSP and has not been cited for serious/major violations or exceptions affecting its solvency, liquidity and profitability. Where the applicant is not authorized to engage in quasi-banking functions: (i) The adoption of a formula/criteria for NBQBs in the determination of compliance with the capital-to-risk assets ratio and ceilings on loans to DOSRI; and (ii) The substitution of the reserve and liquidity floor requirements with the cash ratio, as follows: (a) Primary reserves to Bills Payable; and (b) Primary and secondary reserve to Bills Payable: where primary reserves consist of cash on hand, cash in vault, checks and other cash items, due from the BSP and due from banks; and where secondary reserves consist of BSP-supported government securities, treasury bills and other government securities. Compliance with the foregoing, as well as with other requirements under existing regulations, shall be maintained up to the time the authority is granted. An applicant that fails in this respect shall be required to show compliance for another test period of the same duration. SUBSECTION 4414Q.2 Pre-operating requirements. An institution authorized to engage in investment management activities shall, before engaging in actual operations, submit to the BSP the following: a. Government securities acceptable to the BSP amounting to P500,000 as minimum basic security deposit for the faithful performance of investment management duties required under Subsec. 4415Q.1; b. Organization chart of the investment management department which shall carry out the investment management activities of the institution; and c. Names and positions of individuals designated as chairman and members of the investment management committee, investment management officer and other subordinate officers of the investment management department. SECTION 4415Q. Security for the Faithful Performance of Investment Management Activities. SUBSECTION 4415Q.1 Basic security deposit . An institution authorized to engage in investment management activities shall deposit with the BSP eligible government securities as security for the faithful performance of its investment management activities equivalent to at least one percent (1%) of the book value of the total volume of investment management assets: Provided , That at no time shall such deposit be less than P500,000. Scripless securities under the RoSS system of the BTr may be used as basic security deposit for the faithful performance of investment management activities using the guidelines in Appendix Q-21 . SUBSECTION 4415Q.2 Eligible securities . Securities enumerated in Subsec. 4405Q.2 shall be eligible as security deposit for faithful performance of investment management activities. SUBSECTION 4415Q.3 Valuation of securities and basis of computation of the basic security deposit requirement . For purposes of determining compliance with the basic security deposit under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of the total assets of investment management funds of the immediately preceding calendar quarter. SUBSECTION 4415Q.4 Compliance period; sanctions . The investment manager shall have thirty (30) business days after the end of every calendar quarter within which to deposit with the BSP securities required under this Section. In case an institution fails to comply with the basic security deposit, the Monetary Board may require the institution to desist from accepting new investment management accounts and from renewing expiring investment management contracts. The following sanctions shall be imposed for any deficiency in the basic security deposit for the faithful performance of investment management activity: a. On the institution: (1) First offense Penalty of P5,000 per business day to be reckoned from thirty (30) business days after the end of the reference quarter; and (2) Second and subsequent offenses Suspension of investment management license. b. On the Head of the Fund Management Department: (1) First Offense Reprimand with a stern warning that subsequent violations will be subjected to more severe sanctions; and (2) Subsequent offenses Suspension for ninety (90) days without pay. SECTION 4416Q. Organization and Management . The provisions under Sec. 4406Q up to Subsec. 4406Q.4 shall govern the organization and management of institutions without trust license which are engaged in investment management activities only. The following terms shall, however, be used: a. Investment management activities in lieu of trust and other fiduciary business; b. Investment management accounts in lieu of trust and other fiduciary accounts; c. Investment management committee in lieu of trust committee; d. Investment management officer in lieu of trust officer; and e. Investment management department in lieu of trust department. SECTION 4417Q. Non-Investment Management Activities . The provisions of Sec. 4407Q shall apply in determining non-investment management activities except that the terms trust, other fiduciary, trustee and fiduciary shall be disregarded. SECTION 4418Q. Unsound Practices . The provisions of Sec. 4408Q shall govern the unsound practices for investment management accounts. SECTION 4419Q. Conduct of Investment Management Activities . The provisions of Sec. 4411Q shall govern the conduct of investment management activities of an institution without trust license that is engaged in investment management activities. SECTION 4420Q. Required Retained Earnings Appropriation . An institution authorized to engage in investment management activities shall, before the declaration of dividends, carry to retained earnings appropriated for trust business at least ten percent (10%) of its net profits realized out of its investment management activities since the last preceding dividend declaration until the retained earnings shall amount to twenty percent (20%) of its authorized capital stock and no part of such retained earnings shall at any time be paid out in dividends, but losses accruing in the course of its business may be charged against retained earnings. C. General Provisions SECTION 4421Q. Books and Records . The institution's trust department or investment management department shall keep books and records on trust, other fiduciary and investment management accounts separate and distinct from the books and records of its other businesses and shall follow the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities prescribed by the BSP. Each trust, other fiduciary or investment management account shall have a record separate from all other accounts except only in the case of CTFs where the trustee can maintain common records utilizing pooled fund accounting method for each fund: Provided , That the trustee shall clearly indicate in the records the trustors owning participation in the CTF and the extent of the interest of such trustors. Books and records shall contain full information relative to each trust, other fiduciary or investment management account and shall be supported by duplicate signed copies of related documents. Said records and duplicate signed copies or related documents shall be compiled and kept as to allow inspection by BSP examiners and submission of information or reports as may be required by competent authorities. SECTION 4422Q. Custody of Assets . All monies, properties or securities received by an institution in its capacity as trustee, fiduciary, or investment manager shall be kept physically separate and distinct from the assets of its other businesses and shall be under the joint custody of at least two (2) persons, one of whom shall be an officer of the trust or investment management department, designated for that purpose by the board of directors. The investment of each trust, other fiduciary or investment management account shall be kept physically separated from those of other trust, other fiduciary or investment management accounts, and adequately identified as the assets or property of the relevant account. SECTION 4423Q. Fees and Commissions . An institution acting as trustee, fiduciary or investment manager shall be entitled to reasonable fees and commissions which shall be determined on the basis of the cost of services rendered and the responsibilities assumed: Provided , That where the trustee, fiduciary or investment manager is acting as such under appointment by a court, the compensation shall be that allowed or approved by the court: Provided, further , That in the case of CTFs, the fee which a trustee may charge each participant shall be fully disclosed by the trustee in the CTF plan, prospectus, flyers, posters and all forms of advertising materials to market the fund and in the documents given to clients as proof of participation in the fund. In no case shall such fees and commissions be based on the excess of the income of the trust, other fiduciary or investment management funds over a certain amount or percentage. No trustee, fiduciary or investment manager shall solicit or receive rebates on commissions, fees and other payments for the services rendered to the trust, other fiduciary or investment management account or beneficiaries of the trust, other fiduciary or investment management account by stockbrokers, real estate brokers, insurance agents and similar persons or entities unless the rebates, fees and other payments shall accrue to the benefit of the trust, other fiduciary or investment management account or the beneficiaries thereof. Officers and employees of the trust department or investment management department of institutions, while serving as such, shall be prohibited from retaining any compensation for acting as co-trustee or fiduciary in the administration of a trust, other fiduciary or investment management account. SECTION 4424Q. Taxes . The terms and conditions of trust, other fiduciary or investment management agreements, including CTF plans, shall contain provisions regarding the applicability of regulations governing taxation on the income of trust, other fiduciary or investment management accounts. For this purpose, the trustee, fiduciary or investment manager shall maintain adequate records and shall include information such as the amount of final income tax withheld at source and the amount withheld by the trustee, fiduciary or investment manager in the periodic reports submitted to trustors, beneficiaries, principals and other parties in interest. SECTION 4425Q. Reports Required. SUBSECTION 4425Q.1 To trustor, beneficiary, principal . Every institution acting as trustee, fiduciary or investment manager shall render reports on the trust, other fiduciary or investment management accounts to the trustor, beneficiary, principal or other party in interest or the court concerned or any party duly designated by the court order, as the case may be, under the following guidelines: a. The reports shall be in such forms as to apprise the party concerned of the significant developments in the administration of the account and shall consist of: (1) A balance sheet; (2) An income statement; (3) A schedule of earning assets of the account; and (4) An investment activity report; b. Items (3) and (4) above shall include at least the following: (1) Name of issuer or borrower; (2) Type of instrument; (3) Collateral, if any; (4) Amount invested; (5) Earning rate or yield; (6) Amount of earnings; (7) Transaction date; and (8) Maturity date; c. The reports shall be prepared in such frequency as required under the agreement but shall not in any case be longer than once every quarter; and d. The reports shall be made available to clients not later than twenty (20) calendar days from the end of the reference date/period in Item c above. SUBSECTION 4425Q.2 To the Bangko Sentral. An institution acting as trustee, fiduciary or investment manager shall submit periodic reports prescribed by the appropriate supervising and examining department of the BSP on the institution's trust and other fiduciary business and investment management activities within the deadline indicated in Appendix Q-3 . SECTION 4426Q. Audits. SUBSECTION 4426Q.1 Internal Audit . The institution's internal auditor shall include among his functions, the conduct of periodic audits of the trust department or investment management department at least once every twelve (12) months. The board of directors, in a resolution entered in its minutes, may also require the internal auditor to adopt a suitable continuous audit system to supplement and/or to replace the periodic audit. In any case, the audit shall ascertain whether the institution's trust and other fiduciary business and investment management activities have been administered in accordance with laws, BSP rules and regulations, and sound trust or fiduciary principles. SUBSECTION 4426Q.2 External Audit . The trust and other fiduciary business and investment management activities of an institution shall be included in the annual financial audit by independent external auditors required under Sec. 4172Q. The audit of the assets and accountabilities of the trust department/investment management department of an NBFI authorized to engage in trust and other fiduciary business/investment management activities, which shall cover at the minimum a review of the trust/investment management operations, practices and policies, including audit and internal control system, shall be subject to auditing standards to the extent necessary to express an opinion on the financial statements. The audit of the trust/investment management department of an institution authorized to engage in trust and other fiduciary business/investment management activities shall be covered by a separate supplemental audit report to be submitted to the institution's board of directors and to the BSP within the prescribed period containing, among other things, the statements of condition of trust funds and managed funds and the related statements of earnings of both funds presented separately, as well as the auditor's letter of comments/findings and recommendations. SUBSECTION 4426Q.3 Board Action . A report of the foregoing audits, together with the actions thereon, shall be noted in the minutes of the board of directors of the institution. SECTION 4427Q. Authority Resulting from Merger or Consolidation . In merger of financial institutions, the authority to engage in trust and other fiduciary business and in investment management activities shall continue to be in effect if the surviving institution has such authority and the same has not been withdrawn by the BSP. In case the surviving institution does not have previous authority but desires to engage in trust and other fiduciary business and in investment management activities, it shall secure the prior approval of the Monetary Board to engage in such business as part of its application for merger to enable it to incorporate such among its powers or purpose clause in its articles of incorporation, articles of merger, by-laws and such other pertinent documents. In the consolidation of financial institutions where the resulting entity is an entirely new one, it shall secure from the Monetary Board an authority to engage in trust and other fiduciary business or in investment management activities before it may engage in such business. SECTION 4428Q. Receivership . Whenever a receiver is appointed by the Monetary Board for an institution that is authorized to engage in trust and other fiduciary business or in investment management activities, the receiver shall, pursuant to the instructions of the Monetary Board, proceed to close the trust, other fiduciary and investment management accounts promptly and/or transfer all other accounts to substitute trustees, fiduciaries or investment managers acceptable to the trustors, beneficiaries, principals or other parties in interest: Provided , That where the trustee, fiduciary or investment manager is acting as such under appointment by a court, the receiver shall proceed pursuant to the instructions of said court. SECTION 4429Q. Surrender of Trust or Investment Management License . Any NBFI which has been authorized to engage in trust and other fiduciary business or in investment management activities and which intends to surrender said authority shall file with the BSP a certified copy of the resolution of its board of directors manifesting such intention. The appropriate supervising and examining department of the BSP shall then conduct an examination of the institution's trust, other fiduciary business and investment management activities. If the institution is found to have satisfactorily discharged its duties and responsibilities as trustee, fiduciary or investment manager, and has provided for the orderly closure or transfer of its trust, fiduciary or investment management accounts, the Monetary Board, on the basis of the recommendation of the examining department, shall order the withdrawal of the institution's authority to engage in trust and other fiduciary management activities. SECTIONS 4430Q 4440Q (Reserved) SECTION 4441Q. Securities Custodianship and Securities Registry Operations . The following rules and regulations shall govern securities custodianship and securities registry operations of quasi-banks/trust entities. SUBSECTION 4441Q.1 Statement of Policy . It is the policy of the BSP to promote the protection of investors in order to gain their confidence and encourage their participation in the development of the domestic capital market. Therefore, the following rules and regulations are promulgated to enhance transparency of securities transactions with the end in view of protecting investors. SUBSECTION 4441Q.2 Applicability of this Regulation . This regulation shall govern securities custodianship and securities registry operations of banks and NBFIs under BSP supervision. It shall cover all their transactions in securities as defined in Section 3 of the Securities Regulation Code (SRC), whether exempt or required to be registered with the Securities and Exchange Commission (SEC), that are sold, borrowed, purchased, traded, held under custody or otherwise transacted in the Philippines where at least one (1) of the parties is a bank or an NBFI under BSP supervision. However, this regulation shall not cover the operations of stock and transfer agents duly registered with the SEC pursuant to the provisions of SRC Rule 36-4.1 and whose only function is to maintain the stock and transfer book for shares of stock. SUBSECTION 4441Q.3 Prior Bangko Sentral approval . Quasi-banks/trust entities may act as securities custodian and/or registry only upon prior Monetary Board approval. SUBSECTION 4441Q.4 Application for Authority . A quasi-bank/trust entity desiring to act as securities custodian and/or registry shall file an application with the appropriate supervising and examining department of the BSP. The application shall be signed by the highest ranking officer of the institution and shall be accompanied by a certified true copy of the resolution of its board of directors authorizing the institution to engage in securities custodianship and/or registry. SUBSECTION 4441Q.5 Pre-qualification requirements for a securities custodian/registry a. It must be a quasi-bank or a trust entity; b. It must have complied with the minimum capital accounts required under existing regulations not lower than an adjusted capital of P300 million or such amounts as may be required by the Monetary Board in the future; c. It must have a CAMELS composite rating of at least "4" (as rounded off) in the last regular examination; d. It must have in place a comprehensive risk management system approved by its board of directors appropriate to its operations characterized by a clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal control and complete, timely and efficient risk reporting systems. In this connection, a manual of operations (which includes custody and/or registry operations) and other related documents embodying the risk management system must be submitted to the appropriate supervising and examining department at the time of application for authority and within thirty (30) days from updates; e. It must have adequate technological capabilities and the necessary technical expertise to ensure the protection, safety and integrity of client assets, such as: (1) It can maintain an electronic registry dedicated to recording of accountabilities to its clients; and (2) It has an updated and comprehensive computer security system covering system, network and telecommunication facilities that will: (a) limit access only to authorized users; (b) preserve data integrity; and (c) provide for audit trail of transactions. f. It has complied, during the period immediately preceding the date of application, with the following: (1) ceilings on credit accommodation to DOSRI; and (2) single borrower's limit. g. It has no reserve deficiencies during the eight (8) weeks immediately preceding the date of application; h. It has set up the prescribed allowances for probable losses, both general and specific, as of date of application; i. It has not been found engaging in unsafe and unsound practices during the last six (6) months preceding the date of application; j. It has generally complied with laws, rules and regulations, orders or instructions of the Monetary Board and/or BSP Management; k. It has submitted additional documents/information which may be requested by the appropriate supervision and examination department, such as, but not limited to: (1) Standard custody/registry agreement and other standard documents; (2) Organizational structure of the custody/registry business; (3) Transaction flow; and (4) For those already in the custody or registry business, a historical background for the past three (3) years; l. It shall be conducted in a separate unit headed by a qualified person with at least two (2) years experience in custody/registry operations; and m. It can interface with the clearing and settlement system of any recognized exchange in the country capable of achieving a real time gross settlement of trades. SUBSECTION 4441Q.6 Functions and responsibilities of a securities custodian . A securities custodian shall have the following basic functions and responsibilities: a. Safekeeps the securities of the client; b. Holds title to the securities in a nominee capacity; c. Executes purchase, sale and other instructions; d. Performs at least a monthly reconciliation to ensure that all positions are properly recorded and accounted for; e. Confirms tax withheld; f. Represents clients in corporate actions in accordance with the direction provided by the securities owner; g. Conducts mark-to-market valuation and statement rendition; h. Does earmarking of encumbrances or liens such as, but not limited to, Deeds of Assignment and court orders; and In addition to the above basic functions, it may perform the following value-added service to clients: i. Acts as a collecting and paying agent: Provided , That the management of funds that may be collected shall be clearly defined in the custody contract or in a separate document or agreement attached thereto: Provided, further , That the custodian shall immediately make known to the securities owner all payments made and collections received with respect to the securities under custody; j. Securities borrowing and lending operations as agent. SUBSECTION 4441Q.7 Functions and responsibilities of a securities registry. a. Maintains an electronic registry book; b. Delivers confirmation of transactions and other documents within agreed trading periods; c. Issues registry confirmations for transfers of ownership as it occurs; d. Prepares regular statement of securities balances at such frequency as may be required by the owner on record but not less frequent than every quarter; and e. Follows appropriate legal documentation to govern its relationship with the Issuer. SUBSECTION 4441Q.8 Protection of securities of the customer . A custodian must incorporate the following procedures in the discharge of its functions in order to protect the securities of the customer: a. Accounting and recording for securities . Custodians must employ accounting and safekeeping procedures that fully protect customer securities. It is essential that custodians segregate customer securities from one another and from its proprietary holdings to protect the same from the claims of its general creditors. All securities held under custodianship shall be recorded in the books of the custodian at the face value of said securities in a separate subsidiary ledger account " Securities Held Under Custodianship " if booked in the Bank Proper or the subsidiary ledger account " Safekeeping and Custodianship Securities Held Under Custodianship ", if booked in the Trust Department: Provided , That securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be booked in the Trust Department. b. Documentation . The appropriate documentation for custodianship shall be made and it shall clearly define, among others, the authority, role, responsibilities, fees and provision for succession in the event the custodian can no longer discharge its functions. It shall be accepted in writing by the counterparties. The governing custodianship agreement shall be pre-numbered and this number shall be referred to in all amendments and supplements thereto. c. Confirmation of Custody . The custodian shall issue a custody confirmation to the purchaser or borrower of securities to evidence receipt or transfer of securities as they occur. It shall contain, as a minimum, the following information on the securities under custody: (1) Owner of securities; (2) Issuer; (3) Securities type; (4) Identification or serial numbers; (5) Quantity; (6) Face value; and (7) Other information, which may be requested by the parties. d. Periodic reporting . The custodian shall prepare at least quarterly (or as frequent as the owner of securities will require) securities statements delivered to the registered owner's address on record. Said statement shall present detailed information such as, but not limited to, inventory of securities, outstanding balances, and market values. SUBSECTION 4441Q.9 Independence of the registry and custodian . A BSP-accredited securities registry must be a third party with no subsidiary/affiliate relationship with the issuer of securities while a BSP-accredited custodian must be a third party with no subsidiary/affiliate relationship with the issuer or seller of securities. A quasi-bank/trust entity accredited by BSP as securities custodian may, however, continue holding securities it sold under the following cases: a. where the purchaser is a related entity acting in its own behalf and not as agent or representative of another; b. where the purchaser is a non-resident with existing global custody agreement governed by foreign laws and conventions wherein the institution is designated as custodian or sub-custodian; and c. upon approval by the BSP, where the purchaser is an insurance company whose custody arrangement is either governed by a global custody agreement where the quasi-bank/trust entity is designated as custodian or sub-custodian or by a direct custody agreement with features at par with the standards set under this Subsection drawn or prepared by the parent company owning more than fifty percent (50%) of the capital stock of the purchaser and executed by the purchaser itself and its custodian. Purchases by non-residents and insurance companies that are exempted from the independence requirement of this Section shall, however, be subject to all other provisions of this Subsection. SUBSECTION 4441Q.10 Registry of scripless securities of the Bureau of the Treasury . The Registry of Scripless Securities (RoSS), operated by the Bureau of the Treasury, which is acting as a registry for government securities is deemed to be automatically accredited for purposes of this Section and is likewise exempted from the independence requirement under Subsec. 4441Q.9. However, securities registered under the RoSS shall only be considered delivered if said securities were transferred by means of book entry to the appropriate securities account of the purchaser or his designated custodian. Book entry transfer to a sub-account for clients under the primary account of the seller shall not constitute delivery for purposes of this Section and of Subsec. 4211Q.4. SUBSECTION 4441Q.11 Confidentiality . A BSP-accredited securities custodian/registry shall not disclose to any unauthorized person any information relative to the securities under its custodianship/registry. The management shall likewise ensure the confidentiality of client accounts of the custody or registry unit from other units within the same organization. SUBSECTION 4441Q.12 Compliance with anti-money laundering laws/regulations . For purposes of compliance with the requirements of R.A. No. 9160, otherwise known as the "Anti-Money Laundering Act of 2001," as amended, particularly the provisions regarding customer identification, record keeping and reporting of suspicious transactions, a BSP-accredited custodian may rely on referral by the seller/issuer of securities: Provided , That it maintains a record of such referral together with the minimum identification, information/documents required under the law and its implementing rules and regulations. A BSP accredited custodian must maintain accounts only in the true and full name of the owners of the security. However, said securities owners may be identified by number or code in reports and correspondences to keep his identity confidential. Securities subject of pledge and/or deed of assignment as of 14 October 2004 (date of Circular 457), may be held by a lending quasi-bank up to the original maturity of the loan or full payment thereof, whichever comes earlier. SUBSECTION 4441Q.13 Basic security deposit. Securities held under custodianship whether booked in the Trust Department or carried in the regular books of the quasi-bank/trust entity shall be subject to a security deposit for faithful performance of duties at the rate of 1/25 of one percent (1%) of the total face value or P500,000 whichever is higher. However, securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be subject to a higher basic security deposit of one percent (1%) of the total face value. For this purpose, the following subsidiary ledger account shall be created in the Trust Department Books: " Safekeeping and Custodianship Securities Held Under Custodianship with Securities Borrowing and Lending As Agent " Compliance shall be in the form of government securities deposited with the BSP eligible pursuant to existing regulations governing security for the faithful performance of trust and other fiduciary business. SUBSECTION 4441Q.14 Reportorial requirements. An accredited securities custodian shall comply with reportorial requirements that may be prescribed by the BSP, which shall include as a minimum, the face and market value of securities held under custodianship. SUBSECTIONS 4441Q.15 4441Q.28 (Reserved) SUBSECTION 4441Q.29 Sanctions . Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37, respectively, of the R.A. No. 7653, violation of any provision of this Section shall be subject to the following sanctions/penalties: a. First offense (1) Fine of up to P10,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (2) Reprimand for the directors/officers responsible for the violation. b. Second offense (1) Fine of up to P20,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (2) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. c. Subsequent offenses (1) Fine of up to P30,000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected; (2) Suspension or revocation of the authority to act as securities custodian and/or registry; and (3) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. SECTIONS 4442Q 4498Q (Reserved) SECTION 4499Q. Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653, without prejudice to the imposition of other sanctions as the Monetary Board may consider warranted under the circumstances that may include the suspension or revocation of an institution's authority to engage in trust and other fiduciary business or in investment management activities, and such other sanctions as may be provided by law. PART FIVE Foreign Exchange Operations SECTION 4501Q. Authority; Coverage . With prior approval of the Monetary Board, and subject to the provisions of Article III, Chapter IV of R.A. No. 7653 and Section 7(13) of P.D. No. 129, as amended, an investment house may engage in foreign exchange operations which shall be limited to the servicing of project or program requirements of the following enterprises: a. BSP-certified export-oriented firms; b. Board of Investments-registered export-oriented firms; and c. Construction or service firms with overseas contracts approved by the Department of Labor and Employment. SECTION 4502Q. Specific Foreign Exchange Activities . The specific foreign exchange operations which investment houses may undertake in connection with the preceding Section are: a. Arranging or contracting of foreign loans for the account of the client firm, or contracting of foreign loans for the account of the investment house for relending to the client firm, subject to pertinent BSP rules and regulations; b. Providing import- and export-related services to said firms such as letters of credit and other acceptable modes of payment, and the discounting of export drafts: Provided , That the total amount of foreign exchange transactions investment houses may deal in shall not exceed the amount of the financing arranged or provided by the investment house which involves the importation and exportation of related goods and services: Provided, further , That the amount of letters of credit outstanding of an investment house shall not exceed, at any given time, twice its net worth, except as may otherwise be specifically authorized by the Monetary Board; c. Holding foreign currency balances with foreign correspondents in connection with export-related services but in no case for speculative purposes; d. Entering into forward foreign exchange contracts with the BSP in connection with the foregoing activities; and/or e. Such other related foreign exchange activities as may be approved by the Monetary Board. SECTION 4503Q. Separate Department . Any investment house that may be authorized to engage in foreign exchange operations shall set up a separate department/unit to handle such operations. HcaDTE SECTION 4504Q. Applicability of Pertinent Bangko Sentral Rules . The foreign exchange operations of an investment house are subject to all applicable BSP rules and regulations on foreign exchange operations, including modifications thereof, considering the special nature of investment house operations, and the sanctions in connection therewith. SECTION 4505Q. Aggregate Ceiling on Issuance of Guarantees . Total standby letters of credit, foreign and domestic, including guarantees, the nature of which requires the guarantor to assume the liabilities/obligations of third parties in case of their inability to pay, that may be issued by NBQBs and outstanding at any given time, shall not exceed fifty percent (50%) of the NBQB's net worth, except those fully secured by cash, hold-out on deposits/deposit substitutes on government securities. SECTION 4506Q-4598Q. (Reserved) SECTION 4599Q. General Provision on Sanctions. Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART SIX Miscellaneous A. Other Operations SECTION 4601Q. Open Market Operations. The following rules and regulations shall govern the buying and selling of government securities in the open market pursuant to Section 91 of R.A. No. 7653: a. The BSP may buy and sell in the open market for its own account: (1) Evidences of indebtedness issued directly by the Government of the Philippines or by its political subdivisions; and (2) Evidences of indebtedness issued by government instrumentalities and fully guaranteed by the Government. The above evidences of indebtedness must be freely negotiable and regularly serviced and must be available to the general public through banks, NBQBs and accredited government securities dealers. b. Outright purchases and sales of government securities shall be effected on the basis of the lowest price offered or the highest price bid. c. Repurchase agreements shall be open to banks (except rural banks), NBQBs and accredited government securities dealers and shall be made under the terms provided for in Sec. 4602Q and the following: (1) The repurchase agreement may be paid at any time before maturity at the option of the issuer of the repurchase agreement; (2) In the event the securities covered by the repurchase agreement are not repurchased by the issuer of such agreement, they may be sold in the open market or transferred to the BSP Portfolio; and (3) Should an issuer of a repurchase agreement become no longer qualified as such, its outstanding repurchase agreement shall immediately become due and payable. If settlement of the amount due is not made within three (3) days from the date of its disqualification, the BSP shall proceed to collect said amount in accordance with the preceding paragraph. d. Reverse repurchase agreements covering the sale of portion of the security holdings of the BSP portfolio may be made under the terms provided for in Subsec. 4602Q.1. SUBSECTION 4601Q.1 Settlement procedures. Purchase and sale of government securities under repurchase agreements (GS/RP) between and among banks and NBQBs and BSP in connection with the latter's open market operations shall be settled in accordance with the procedures in Appendix Q-13-a and - b . ICHDca SECTION 4602Q. Repurchase Agreements with the Bangko Sentral . Repurchase agreements may be effected with the BSP subject to the following terms and conditions: a. Rate . The rates on the repurchase facility shall be set by the Treasury Department, with the concurrence of the Governor, taking into account prevailing liquidity/market conditions. b. Term . At the option of the Treasury Department, availments may be for a minimum of one (1) day (overnight) and a maximum of ninety-one (91) days. c. Security . Only obligations of the National Government and its instrumentalities and political subdivisions, which are fully guaranteed by the Government, with a remaining maturity of not more than ten (10) years and which are freely negotiable and regularly serviced, shall be eligible as underlying instruments for repurchase agreements, subject to the collateral requirement prescribed by the BSP. d. Delivery . Delivery of the underlying instruments shall be made to the BSP at the prescribed time. For overnight repurchase agreements, delivery of the underlying instruments shall be made not later than 12:00 noon of the date of transaction. Government securities which are held by the issuer of the repurchase agreement under the book-entry system with the BSP may be used as underlying instruments only with the conformity of the BSP. e. Upon termination of the repurchase agreement, the issuer of such agreement shall claim and take delivery of the underlying instruments at the Treasury Department, BSP. Failure to claim and take delivery of the underlying instruments immediately upon such termination shall relieve the BSP of any liability or responsibility for the loss or misplacement of said instruments. SUBSECTION 4602Q.1 Reverse repurchase agreements with Bangko Sentral . Reverse repurchase agreements may be effected with the BSP subject to the following terms and conditions: a. Rate . The rates shall be set by the Treasury Department, with the concurrence of the Governor, taking into account the prevailing liquidity/market conditions. b. Term . At the option of the Treasury Department, availments may be for a minimum of one (1) day (overnight) and a maximum of 364 days. c. Security . The collateral shall consist of obligations of the National Government and other freely negotiable securities in the BSP portfolio valued at 100%. d. Delivery . No delivery of the collateral shall be made, but a custody receipt shall be issued instead. e. Reservation . Prepayment may be made by the BSP at its option anytime before maturity. To properly monitor transactions involving reverse repurchase agreements with the BSP, all investment houses and financing companies with quasi-banking functions (IH/FC with QB) shall record properly its Reverse Repurchase Agreements (REPO) with the BSP sold to clients. When an IH/FC sells an outstanding reverse REPO agreement with the BSP to a client, the securities under REPO support two (2) loan transactions the IH/FC's claim on the BSP under the original REPO and the client's claim on the IH/FC under the new REPO. The IH/FC's claim on the BSP arising from the reverse REPO should not be offset against its loan payable to clients in the subsequent sale of the REPO because the counterparties to the two (2) transactions are different. Thus, the IH/FC's reverse REPO transaction with the BSP shall remain to be recorded as " Government Securities Purchased under Reverse Repurchase Agreements with BSP " under " Trading Account Securities Loans ". The IH/FC's payable to clients arising from the subsequent sale of the reverse REPO shall be recorded as " Reverse Repurchase Agreements with BSP Sold to Clients " under Bills Payable Others ". The subsequent sale of the reverse REPO agreements is not subject to reserve requirements. The pro-forma accounting entries are in Appendix Q-26 . Effective July 1, 2003, published interest rates that will be applied on BSP's Reverse R/P agreements of quasi-banks shall be inclusive of the ten percent (10%) Value Added Tax (VAT). SECTION 4603Q. Derivatives . NBQBs and/or their subsidiaries/affiliates may engage in financial derivatives activities upon prior approval of the BSP. SUBSECTION 4603Q.1 Scope and pre-qualification requirements . The following provisions shall govern the scope and pre-qualification requirements for the grant of authority to engage in derivatives activities. a. For regular derivatives authority (1) Scope . Financial institutions (FIs) supervised by the BSP may apply for a regular derivatives license. A licensed FI may sell derivatives products to its customers: Provided , That the FI shall hedge such derivatives: Provided, further , That the risk being hedged is already existing with the FI itself. (2) Pre-qualification requirements . An application to engage in a regular derivatives activities may be granted upon determination by the BSP that the applicant possesses: (a) The ability to account for its currency exposures on a per currency basis through its Multi-Currency Subsidiary Ledger; (b) The ability to account for swaps and forwards either through the accrual or net present value basis. Swaps and forwards designated as hedge only at inception may be accounted for using the accrual method. Forwards designated as trading shall be marked-to-market daily using the net present value methodology; (c) The ability to manage and monitor price risks for the whole derivatives portfolio to ensure continuous assessment of the effectiveness of the hedge. While the ideal method of measuring these risks is through "value-at-risk" methodology, alternative systems are acceptable: Provided , That these are: (i) Capable of measuring and aggregating risks across trading and non-trading activities; (ii) Approved by the FI's board of directors; (iii) Consistent with board-approved risk appetite; (iv) Consistent with the level and complexity of the institution's trading activities; and (v) Fully documented and independently validated. (d) The ability to monitor counterparty risks on outstanding contracts through a methodology that reflects changes in credit exposure as market rates change; (e) The technical competence of key officers/traders responsible for the derivatives products; and (f) The procedures for evaluating client suitability. (3) Other requirements . BSP shall evaluate quasi-bank's and other BSP supervised FI's financial soundness and track record of compliance with major prudential requirements, such as, but not limited to: (a) CAMELS composite rating of at least "3" in the last regular examination; (b) Minimum applicable capital adequacy ratio; (c) Minimum reserves against deposit liabilities/deposit substitutes, CTFs, and TOFA-Others; and (d) Maximum allowable open foreign exchange position. b. For engaging in derivatives transactions as end-users (1) Scope . FIs may engage in derivatives transactions purely as end-users and do not need a license for such activities. (2) Requirements . The FIs shall show proof of approval by their board of directors to use derivatives. Such approval must clearly specify the following as minimum guidelines: (a) Derivatives products to be used and the type of transactions to be hedged shall be specified; (b) Transactions shall be limited to hedging purpose only; there shall be no speculative activity; (c) Dealings shall only be with licensed/authorized counterparties; and (d) Transactions shall be reported regularly to the board of directors. SUBSECTION 4603Q.2 Transactions between parent and subsidiary . All derivatives transactions between parent NBQB and subsidiary (e.g., Forex Corporation) shall be with prior BSP approval. SUBSECTION 4603Q.3 Renewals . The license to engage in derivatives activities shall be for a period of one (1) year. a. The following guidelines shall be observed for the annual renewal of derivatives licenses of NBQBs: (1) For derivatives granted before September 17, 2001, the licenses are operative only until September 17, 2002. Said licenses shall be renewed on or before said date. Subsequently, the licenses shall be renewed on or before September 17 of each year; (2) For derivatives granted after September 17, 2001, the licenses are operative for a period of one (1) year reckoned from the date of approval. The licenses therefore, shall be renewed on or before the end of the one (1)-year period; and (3) NBQBs shall submit a written request to renew their derivatives licenses at least forty-five (45) calendar days before the expiration of the existing licenses. The NBQBs will be notified of the BSP action on their request. Until such notice is received, NBQBs can continue to enter into new derivatives contracts as allowed under their previously approved licenses. Failure to submit said written request within the prescribed period shall be presumed not renewing said licenses. b. The license may be renewed subject to compliance with the following: (1) BSP standard of financial soundness and track record of compliance with major prudential regulations; (2) Adequate risk management systems; and (3) Adequate internal control system and procedures including record keeping for derivatives activities. SUBSECTION 4603Q.4 Risk Management Guidelines. NBQBs and/or their subsidiaries/affiliates authorized to engage in derivatives activities shall adopt a policy manual that contains the minimum features and principles embodied in the Risk Management Guidelines for Derivatives ( Appendix Q-15 ). Risk disclosure statements, which should at least contain the disclosure statements in Appendix Q-16 , shall be provided to the clients/customers of NBQBs and/or their subsidiaries/affiliates in order to advise the former of the risks involved in derivatives activities. A detailed statement on the position of the clients/customers must be sent to them periodically. SUBSECTION 4603Q.5 Accounting Guidelines . In recording derivatives activities in the books, NBQBs and/or their subsidiaries/affiliates shall observe the guidelines enumerated in Appendix Q-17 . CSIDEc SUBSECTION 4603Q.6 Reporting requirements. Aside from the daily/monthly FX position reports, a monthly report on transactions/outstanding derivatives transactions shall also be required for NBQBs which enter into derivatives contracts as end-user. SUBSECTION 4603Q.7 Sanctions . Monetary penalties prescribed under Sections 35, 36 and 37 of R.A. No. 7653 and/or suspension of foreign exchange operations, shall be imposed on any NBQB, its subsidiaries/affiliates (including directors or officers) that engage in derivatives activities without prior BSP approval. If the NBQB submits an erroneous written representation or certification, a cease and desist order shall be imposed, in addition to a monetary penalty of P10,000 per transaction. The NBQB's derivatives operations may only be resumed after the appropriate supervising and examining department has made a thorough validation of the NBQB's compliance with requirements. SUBSECTIONS 4603Q.8 4603Q.13 (Reserved) SUBSECTION 4603Q.14 Forward and swap transactions . Quasi-banks and their customers may hedge through financial derivatives products their foreign exchange obligations and/or exposures eligible for servicing by the banking system under Circular No. 1389 dated April 13, 1993, as amended. As a rule, quasi-banks and their subsidiaries/affiliates duly authorized to engage in derivatives transactions under Subsec. 4603Q.1 may only enter into derivatives contracts with their customers where either party to the transaction is hedging eligible actual FX obligations or existing FX exposures. To ensure that such financial derivatives products are not used for activities that destabilize the FX market, the following guidelines as well as minimum documentary requirements for FX forwards and swaps shall be strictly adhered to. SUBSECTION 4603Q.15 Definition of terms . a. Foreign exchange obligation shall refer to an actual FX commitment to a non-resident or any Authorized Agent Bank (AAB) where the amount, payment tenor and party have been determined. b. Foreign exchange exposure shall refer to an FX risk arising from an existing commitment to or from a non-resident or AAB which leads to payment of an FX obligation or receipt of an FX asset based on verifiable documents on deal date. c. Resident shall refer to (1) An individual citizen of the Philippines residing therein; or (2) An individual who is not a citizen of the Philippines but is permanently residing therein; or (3) A corporation or other juridical person organized under the laws of the Philippines; or (4) A branch, subsidiary, affiliate, extension office or any other unit of corporations or juridical persons which are organized under the laws of any country and operating in the Philippines, except Offshore Banking Units (OBUs). d. Non-resident shall refer to an individual, a corporation or other juridical person not included in the definition of resident. e. Foreign exchange swap refers to a transaction involving the actual exchange of two (2) currencies (principal amount only) on a specific date at a rate agreed on deal date (the first leg), and a reverse exchange of the same two (2) currencies at a date further in the future (the second leg) at a rate (different from the rate applied to the first leg) agreed on deal date. f. Foreign exchange forward refers to a transaction involving the exchange of two (2) currencies at a rate agreed on deal date for value or delivery (cash settlement) at some time in the future (more than two (2) business days later). g. Non-deliverable forward (NDF) refers to the forward FX contract where only the net difference between the contracted forward rate and the market rate shall be settled at maturity. SUBSECTION 4603Q.16 Documentation. Minimum documentary requirements for FX forward and swap transactions in Appendix Q-29 shall be presented on or before deal date to the banks, and their subsidiaries/affiliates. Unless otherwise indicated, documents shall be stamped " deliverable/FX hedged " or " non-deliverable/FX hedged " upon presentation/submission indicating the date and amount hedged and signed by authorized officer of the banks and their subsidiaries/affiliates. Copies of all duly marked supporting documents shall be retained by the quasi-banks and/or their subsidiaries/affiliates and shall be made available to the BSP for verification. Said copies shall be marked "documents presented as required" and signed by the servicing entity's authorized signatory. IcSEAH No double hedging shall be allowed covering the same underlying FX obligation/exposure. SUBSECTION 4603Q.17 Tenor/maturity of FX forward or swap . a. FX forwards (whether deliverable or non-deliverable) and swaps (sale of FX at first leg and purchase of FX at second leg) The tenor/maturity shall not be longer than: (i) the maturity of the underlying FX obligation; or (ii) the approximate due date or settlement of the FX exposure. However, for foreign currency loans, the tenor of the deliverable FX forward shall be co-terminus with the maturity of the underlying obligation. This shall not preclude pretermination of the contract due to prepayment provided prior BSP approval is obtained. The FX proceeds of deliverable FX forward contracts shall be immediately remitted or paid to the non-resident supplier/beneficiary or AAB except for foreign investments where said FX proceeds are reconverted to Philippine pesos and re-invested in eligible peso instruments such as those listed in Item A.2.2 of Appendix Q-29 . b. Swaps (purchase of FX at first leg and sale of FX at second leg) The tenor/maturity of swap contracts shall not be less than thirty (30) calendar days but not longer than: (i) the maturity of the underlying FX obligation; or (ii) the approximate due date of settlement of the FX exposure. In case of prepayments of foreign currency loans covered by swaps, banks shall ensure that such prepayments are allowed under the covering loan agreement. SUBSECTION 4603Q.18 Cancellations, roll-overs or non-delivery of FX forward contracts . All cancellations, roll-overs or non-delivery of FX forward contracts, whether purchases or sales, shall be subject to the following guidelines to determine the validity thereof: a. Eligibility test . Forward contracts must be supported by documents listed in Appendix Q-29 hereof. b. Frequency test . The reasonableness of the cancellation, roll-over or non-delivery shall be based on the results of the evaluation of the justification/explanation submitted by banks as evidenced by appropriate documents. c. Counterparty test . The cancellation or roll-over of forward contracts must be duly acknowledged by the counterparty to the contract as shown in documents submitted by banks, e.g., there should be conforme of counterparty as evidenced by the counterparty signature on pertinent documents. d. Mark-to-market test . The booking or recording in the books of accounts of the profit or loss on contracted forward contracts and cash flows/settlement to counterparties must be fully supported by appropriate documents such as authenticated copy of debit/credit tickets, schedules showing among others, mark-to-market valuation computation, etc. SUBSECTION 4603Q.19 Non-deliverable forward contracts with non-residents . Only banks with expanded derivatives license may enter into NDF contracts to sell FX to non-residents. SUBSECTION 4603Q.20 Compliance with Anti-Money Laundering rules . All transactions under Subsecs. 4603Q.14 to 4603Q.21 shall comply with the regulations on anti-money laundering under Sec. 4691Q. SUBSECTION 4603Q.21 Reporting requirements . Quasi-banks and their subsidiaries/affiliates duly authorized to engage in derivatives transactions shall continue to be covered by the BSP's existing reporting requirements on financial derivatives. Cancellations, roll-overs or non-delivery of deliverable forward contracts shall be reported electronically in excel format to the BSP not later than two (2) business days after reference week as indicated in Appendix Q-3 . Swap contracts with non-bank resident counterparties involving purchase of FX at the initial leg by said quasi-banks and their subsidiaries/affiliates from non-bank counterparties shall likewise be reported electronically in excel format to the BSP not later than two (2) business days after reference week as indicated in Appendix Q-3 . Above-cited reports shall be transmitted to e-mail address [emailprotected]. SUBSECTIONS 4603Q.22 4603Q.25 (Reserved) SUBSECTION 4603Q.26 Sanctions . Violations of Subsecs. 4603Q.14 to 4603Q.21 shall be subject to the penalty provisions under R.A. No. 7653 (The New Central Bank Act) and other existing banking laws and regulations. Failure to comply with Subsec. 4603Q.18 shall result in the exclusion of the forward contracts in the computation of the quasi-bank's consolidated daily position starting from day one (1), i.e., when the individual contracts were entered into. Violations of the prescribed FX position limits shall be subject to the following sanctions provided under Circular Letter dated March 13, 1998: a. Monetary Penalties Per Calendar Month Daily Penalty 1st business day P10,000 2nd business day 20,000 3rd business day of violation, 30,000 and onwards, or if the excess FX position is 30% or more of the allowable limits in any business day, regardless of whether a quasi-bank is in the first, second, third or more days of violation b. In addition, the following nonmonetary sanctions shall be imposed on the quasi-bank committing violations considered as: (1) " chronic ", i.e., when the violation continues beyond three (3) business days within a calendar month, but the excess position is less than thirty percent (30%) of the allowable limit; and (2) "abusive", i.e., when the violation continues beyond three (3) business days within a calendar month and excess position is thirty percent (30%) or more of the allowable limit. "Chronic" violation Suspension of the quasi-bank's cash dividend declaration and branching privileges until the violation is corrected but in no case shall such suspension be less than thirty (30) calendar days. "Abusive" violation Suspension of the quasi-bank's cash dividend declaration and branching privileges until the violation is corrected but in no case shall such suspension be less than sixty (60) calendar days. c. The Monetary Board may impose other non-monetary sanctions on a quasi-bank for violations determined by BSP as "chronic" or "abusive" on a case-to-case basis, pursuant to Section 37 of R.A. No. 7653. d. Quasi-banks shall be duly advised by the BSP of their violations and the corresponding sanctions imposed for such violations. e. A monetary penalty imposed on a quasi-bank shall be paid to the BSP Cash Department, within three (3) business days from the receipt of advice of said penalty imposition. Furthermore, reports required under Subsec. 4603Q.21 are considered as Category A report for purposes of imposing sanctions on delayed, erroneous or amendatory reports as prescribed under Sec. 4162Q. Counterparties that habitually cancel deliverable forwards without proper justification may be subject of a BSP watchlist. SECTION 4604Q. Underwriting by Investment Houses . Underwriting commitments and fees of investment houses shall be subject to the rules issued by the SEC to implement the provisions of P.D. No. 129, as amended ( Appendix Q-18 ). SECTIONS 4605Q 4625Q (Reserved) SECTION 4626Q. Asset-Backed Securities . The following regulations shall govern the origination, issuance, sale, servicing and administration of asset-backed securities (ABS) by any NBQB including its subsidiaries and affiliates engaged in allied activities, which are domiciled in the Philippines. SUBSECTION 4626Q.1 Definition of terms . a. Assets shall mean loans or receivables existing in the books of the originator prior to securitization. Such assets are generated in the ordinary course of business of the originator and may include mortgage loans, consumption loans, trade receivables, lease receivables, credit card receivables and other similar financial assets. b. Asset-backed securities shall refer to the certificates issued by a special purpose trust (SPT) representing undivided ownership interest in the asset pool. c. Asset pool shall mean a group of identified, self-amortizing assets that is conveyed to the SPT issuing the ABS and such other assets acquired as a consequence of the securitization. d. Clean-up call shall refer to an option granted to the seller to purchase the remaining assets in the asset pool. e. Credit enhancement shall refer to any legally enforceable scheme that is intended to enhance the marketability of the ABS and increase the probability that investors receive payment of amounts due them. f. Guarantor shall refer to an entity that guarantees the repayment of principal and interests on loans or receivables included in the asset pool in the event of default by the borrower. g. Investible funds shall refer to the proceeds of collection of loans or receivables included in the asset pool which are not yet due for distribution to investors. h. Issuer shall refer to the SPT that issues the ABS. i. Originator shall refer to an NBQB and/or its subsidiary or affiliate engaged in allied activities that grants or purchases loans or receivables and assembles them into a pool for securitization. j. Residual certificates shall refer to certificates issued representing claims on the remaining value of the asset pool after all ABS holders are paid. k. Seller shall refer to the entity which conveys to the SPT the assets that constitute the asset pool. l. Servicer shall refer to the entity designated by the issuer primarily to collect and record payments received on the assets, to remit such collections to the issuer and perform such other services as may be specifically required by the issuer excluding asset management or administration. m. Special purpose trust shall refer to a trust administered by a trustee and created solely for the purpose of issuing and administering an ABS. n. Trustee shall refer to the entity designated to administer the SPT. o. Underwriter shall refer to the entity engaged in the act or process of distributing and selling of the ABS either on guaranteed or best-efforts basis. SUBSECTION 4626Q.2 Authority . Any NBQB including its subsidiaries and affiliates engaged in allied activities, may securitize its assets upon prior approval of the BSP. SUBSECTION 4626Q.3 Management oversight . The originator/seller shall have the securitization program approved by its board of directors. The originator/seller shall integrate such securitization program into its corporate strategic plan. The board of directors shall ensure that the securitization of assets is consistent with such program. SUBSECTION 4626Q.4 Minimum documents required . The application to securitize must be accompanied by the following documents as a minimum requirement: a. Trust indenture evidencing the conveyance of the assets from the seller to the issuer or SPT, the features of which shall include the following: (1) Title or nature of the contract in noticeable print; (2) The parties involved, indicating in noticeable print, their respective legal capacities, responsibilities and functions; (3) Features and amount of ABS; (4) Purposes and objectives; (5) Description and amount of assets comprising the asset pool; (6) Representation and warranties; (7) Credit enhancements; (8) Distribution of funds; (9) Authorized investment of investible funds; (10) Rights of the investor; (11) Reports to investors; and (12) Termination and final settlement. The trust indenture shall include as annexes the servicing agreement between the trustee and the servicer and the underwriting agreement between the seller and the underwriter. b. Prospectus . As a minimum requirement, it shall contain the following: (1) Summary of the contents of the prospectus; (2) Description of each class of certificates, including such matters as probable yields, payment dates and priority of payments; (3) Description of the assets comprising the asset pool as well as the representations and warranties set forth by the originator and/or seller; (4) Assumptions underlying the cash flow projections for each class of certificate; (5) Description of any credit enhancement; (6) Identity of the servicer; and (7) Disclosure statements as required under Subsec. 4626Q.6. c. Specimen of application to purchase ABS . It shall include the terms and conditions of the purchase and the disclosures required under Subsec. 4626Q.6. d. Specimen of certificate . It shall indicate the features of the ABS and the disclosures required under Subsec. 4626Q.6. SUBSECTION 4626Q.5 Minimum features of ABS . The ABS shall be pre-numbered and printed on security paper. The ABS shall be signed and authenticated by the trustee. They are transferable by endorsement of the certificate. The transfer shall be recorded in the books of the trustee, indicating the names of the parties to the transaction, the date of the transfer and the number of the certificate transferred. The minimum denomination of any ABS shall be P10,000. SUBSECTION 4626Q.6 Disclosures . The following disclosures must be provided in a conspicuous manner in any document inviting investment, application to purchase ABS and in the certificate itself: a. The ABS do not represent deposit substitutes or liabilities of the originator, servicer or trustee and that they are not insured with PDIC; b. The investor has investment risks; c. The trustee does not guarantee the capital value of the ABS or the collectibility of the asset pool; and d. The rights of an investor. The investors shall be required to sign an acknowledgment indicating that they have read and understood the disclosures. SUBSECTION 4626Q.7 Conveyance of assets . a. The conveyance of the assets comprising the asset pool shall be done within the context of a true sale and, for this purpose, the seller may not retain in its books the ABS, except the residual certificate, if any. b. The seller shall have no obligation to repurchase or substitute an asset or any part of the asset pool at any time, except in cases of a breach of representation or warranty, or under a revolving structure, to replace performing assets which have been paid out in part or in full. c. The seller shall be under no obligation to provide additional assets to the SPT to maintain a coverage ratio of collateral to outstanding ABS. A breach of this requirement will be considered a credit enhancement and should be charged against capital. However, this will not apply to an asset pool conveyed under a revolving structure such as the securitization of credit card receivables. d. Securitized assets shall be considered the subject of a true sale between the seller and the SPT. Sold assets shall be taken off the books of the seller and shall be transferred to the books of the SPT. For accounting purposes, the transfer shall only be considered a true sale if the following three (3) conditions have been satisfied: (1) the transferred assets have been isolated and put beyond the reach of the seller and its creditor; (2) the SPT has the right to pledge or exchange its interest in the assets; and (3) the seller does not effectively maintain control over the transferred assets by any concurrent agreement. e. All expenses incidental to underwriting, conveyance of the asset pool including expenses for credit enhancement may be paid by the originator/seller: Provided , That no further expenses shall be borne by the originator/seller after the asset pool has been conveyed to the SPT. SUBSECTION 4626Q.8 Representations and warranties . a. Standard representations and warranties refer to an existing state of facts that the originator, seller or servicer can either control or verify with reasonable due diligence at the time the assets are sold. Any breach of representation or warranty may give rise to legal recourse. b. The representations or warranties shall be clear and explicit and, in particular, shall not relate to the future creditworthiness of the assets in the asset pool or the performance of the SPT or the securities issued. c. Any agreement to pay damages as a result of breach of warranties and representations shall hold only where: (1) there is a well-documented negotiation of the agreement in good faith; (2) the burden of proof for a breach of representation or warranty rests with the other party; (3) damages are limited to the loss incurred as a result of the breach; and (4) there is a written notice of claim specifying the basis for the claim. The BSP shall be notified of any instance where an NBQB or its subsidiaries/affiliates has agreed to pay damages arising out of any breach of representation or warranty. SUBSECTION 4626Q.9 Third party review . A due diligence review by an independent entity mutually agreed upon by the seller and the issuer shall be done before the assets are sold. SUBSECTION 4626Q.10 Originator and seller . a. The seller may itself be the originator, and may likewise be designated as the servicer. b. The seller or originator shall deliver to the trustee all original documents or instruments with respect to each asset sold. SUBSECTION 4626Q.11 Trustee and issuer . a. The trustee shall be the trust department of a bank licensed to do business in the Philippines. b. The trustee shall have the right to manage or administer the asset pool. The trustee shall see to it that necessary measures are taken to protect the asset pool. c. The trustee shall undertake a performance review of the asset pool at least quarterly and shall prepare a report to investors indicating, among others, collections, fees and other expenses as well as defaults, which report shall be made available to the investors at anytime after thirty (30) days from end of the reference quarter. d. The trustee shall initiate all civil actions including foreclosure of mortgaged properties to effect collection of receivables in the asset pool. The servicer or any other party may be designated by the trustee to perform such function on a case-by-case basis. e. The trustee may invest the investible funds only in obligations issued and/or fully guaranteed by the government of the Republic of the Philippines or by the BSP and such other high-grade readily marketable debt securities as the BSP may approve. f. The trustee shall designate a replacement of the servicer if the latter fails to satisfactorily perform its duties and responsibilities according to the terms and conditions of the servicing agreement. SUBSECTION 4626Q.12 Servicer . a. The servicer shall perform its duties according to the terms and conditions of the servicing agreement and such other written instructions as the trustee may issue on a case-by-case basis. Collections made by the servicer shall be remitted promptly to the trustee or as may be agreed upon by the parties in the servicing agreement, but in no case shall the remittance period be longer than one (1) month. b. The servicer shall prepare periodic reports as may be required by the trustee. c. The servicer shall report to the trustee within thirty (30) days any borrower which fails to pay its debt at maturity date or any adverse development that may affect the collectibility of any loan account or receivable comprising the asset pool. d. The servicer shall have no authority to waive penalties and charges except with a written authority from the trustee. SUBSECTION 4626Q.13 Underwriter . a. An expanded commercial bank (EKB) or investment house (IH) shall have written policies and procedures on underwriting of ABS. b. The underwriter shall perform its functions according to the terms and conditions of the underwriting agreement. c. An underwriter may deal in ABS, except those administered by its trust department, the trust departments of its subsidiaries/affiliates, the trust department of its parent bank or the trust department of its parent bank's subsidiaries/affiliates. d. An EKB/IH may act as underwriter, on a firm basis, of ABS except those administered by its trust department, the trust departments of its subsidiaries/affiliates, the trust department of its parent bank or the trust department of its parent bank's subsidiaries/affiliates. e. The underwriter may not extend credit for the purpose of purchasing the ABS which such EKB/IH underwrites or that which is underwritten by its subsidiaries/affiliates, its parent bank or its parent bank's subsidiaries/affiliates. SUBSECTION 4626Q.14 Guarantor . a. Only an entity the regular business of which includes the issuance of guarantees or similar undertaking may act as guarantor. b. The guarantor must have the financial capacity to perform its responsibilities in accordance with the terms and conditions of the guarantee agreement. It shall submit to the trustee at least once in every six (6) months such financial reports as the trustee may require. c. The originator or seller may not issue a counter-guarantee in favor of the guarantor. SUBSECTION 4626Q.15 Credit enhancement . Credit enhancement may be provided in any of the following manner: a. Standby letter of credit issued by an EKB/KB other than the originator's/seller's subsidiary/affiliate, parent bank or the parent bank's subsidiary/affiliate, and trustee or its subsidiary/affiliate. b. Surety bond issued by any insurance company other than the originator's/seller's subsidiary or affiliate, the subsidiary or affiliate of the originator's/seller's parent bank and the trustee or its subsidiary/affiliate. c. Guarantee issued by any entity other than the originator/seller or its subsidiary/affiliate, its parent bank or the parent bank's subsidiary/affiliate, and trustee or its subsidiary/affiliate. d. Over collateralization provided by the originator/seller wherein the assets conveyed to the SPT exceed the amount of securities to be issued. Losses arising from over collateralization shall be recognized by the originator/seller upfront. Such losses shall be treated as capital charges. e. Spread account wherein the income from the underlying pool of receivables is made available to cover any shortfall in the repayment of ABS. The spread account shall be handled by the trustee which shall account for it separately. If not needed, this "spread" generally reverts to the holder of the residual certificate. f. Subordinated securities that are lower ranking, or junior to other obligations and are paid after claims to holders of senior securities are satisfied. g. Other credit enhancements as may be approved by the Monetary Board. To be consistent with the concept of a true sale, subordinated securities shall be sold to third party investors other than the originator's/seller's parent company or its subsidiary/affiliate and the trustee or its subsidiary/affiliate or, if held by the seller, capital charges should be booked upfront. Otherwise, the subordinated securities shall be treated as deposit substitute subject to legal reserves. SUBSECTION 4626Q.16 Clean-up call . A clean-up call may be exercised by the seller once the outstanding principal balance of the receivable component of the asset pool falls to ten percent (10%) or less of the original principal balance of the asset pool. Where the asset pool includes foreclosed and other assets, such assets shall be included in the clean-up call and the consideration thereof shall be at current market value. Such a clean-up call shall not be considered recourse or in violation of Subsec. 4626Q.7 on conveyance of assets. SUBSECTION 4626Q.17 Prohibited activities . a. The seller may not, under any circumstance, designate its trust department, the trust department of its subsidiaries/affiliates, the trust department of its parent bank or the trust department of its parent bank's subsidiaries/affiliates as trustee. b. Any director, officer or employee of the originator, seller or servicer may not serve as a member of the board of directors or trust committee of the trustee or vice versa for the duration of the securitization. c. The trust indenture shall not contain any stipulation whereby the seller, its subsidiaries/affiliates, its parent bank or the parent bank's subsidiaries/affiliates shall commit to extend any credit facility to the issuer and/or trustee. d. The ABS shall not be eligible as collateral for a loan extended by an NBQB which originated/sold the underlying assets of such ABS. e. The trust department of a bank that has discretion in the management of any trust or investment management account may not purchase for said trust/investment management account ABS administered by the trust department of the same bank, the trust department of such trustee's subsidiaries/affiliates, the trust department of such trustee's parent bank and the trust department of the parent bank's subsidiaries/affiliates. The trustee may not designate its subsidiary/affiliate, its parent or the parent's subsidiaries/affiliates as servicer or vice versa. SUBSECTION 4626Q.18 Amendment . Any amendment to the trust indenture shall require the prior approval of the BSP. SUBSECTION 4626Q.19 Miscellaneous provision . Without prior approval of the BSP, any entity supervised by the BSP authorized to engage in trust and fiduciary business may act as trustee or servicer in a securitization scheme originated by an entity not supervised by the BSP: Provided , That the assets which are the subject of such securitization are existing in the books of the entity prior to securitization: Provided, further , That such entity acting as trustee or servicer is not a subsidiary/affiliate of the originator/seller, its parent bank or the parent bank's subsidiaries/affiliates or vice versa: Provided, finally , That such entity acting as trustee may not designate its subsidiaries/affiliates, its parent or the parent's subsidiaries/affiliates as servicer or vice versa. SUBSECTION 4626Q.20 Report to Bangko Sentral . The trustee shall submit a report of every securitization scheme in formats to be prescribed by the BSP. The report shall be submitted to the appropriate supervising and examining department of BSP, within fifteen (15) business days after the end of every reference quarter. Such report shall be considered a Category A report for purposes of implementing fines in the submission of required reports pursuant to existing regulations. SECTIONS 4627Q 4650Q (Reserved) B. Sundry Provisions SECTION 4651Q. NBQB Premises and Other Fixed Assets . The following rules shall govern the premises and other fixed assets of NBQBs. SUBSECTION 4651Q.1 Appreciation or increase in book value of NBQB premises and other fixed assets . As a general rule, appreciation or increase in book value of NBQB premises and other fixed assets is not allowed. However, in cases where the market value of the property has greatly increased since the original purchase, appreciation may be allowed: Provided , That the appropriate supervising and examining department of the BSP shall be notified in advance of the proposed increase in value: Provided, further , That the corresponding appreciation credit shall not form part of the combined capital accounts of NBQBs but lodged under a Revaluation Reserve account. SUBSECTION 4651Q.2 (Reserved) SUBSECTION 4651Q.3 Reclassification of real and other properties owned or acquired as NBQB premises . Real and other properties owned or acquired (ROPOA) reclassified either as Real Property-Land or Real Property-Building shall be booked at their ROPOA balance, net of any valuation reserve: Provided , That only such acquired asset or a portion thereof that will be immediately used or earmarked for future use may be reclassified and booked as Real Property-Land/Building. NBQBs, prior to the reclassification of their ROPOA accounts to Real Property-Land/Building, shall first secure prior BSP approval before effecting the reclassification and shall submit, in case of future use, justification and plans for expansion/use. SUBSECTIONS 4651Q.4 4651Q.8 (Reserved) SUBSECTION 4651Q.9 Batas Pambansa Blg. 344 An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments And Public Utilities To Install Facilities And Other Devices . In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they live and the enjoyment of the opportunities available to other citizens, no license or permit for the construction, repair or renovation of public and private buildings for public use, educational institutions, airports, sports and recreation centers and complexes, shopping centers or establishments, public parking places, workplaces, public utilities, shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building, establishment or public utility, such architectural facilities or structural features as shall reasonably enhance the mobility of disabled persons such as sidewalks, ramps, railings and the like. If feasible, all such existing buildings, institutions, establishments, or public utilities may be renovated or altered to enable the disabled persons to have access to them. SECTION 4652Q. Annual Fees on Quasi-Banks . NBQBs shall contribute to the BSP an annual fee to help defray the cost of maintaining the appropriate supervising and examining department. For purposes of computing the annual fees chargeable against NBQBs, the term Total Assessable Assets shall be the amount referred to as the total assets under Section 28 of R.A. No. 7653 (end-of-quarter total assets per balance sheet, after deducting cash on hand and amounts due from banks, including the BSP and banks abroad) plus Trust Department accounts. Average Assessable Assets shall be the summation of end-of-quarter total assessable assets divided by the number of quarters in operation during the particular assessment period. The annual fees for quasi-banks for the assessable years 2000, 2001 and 2002 shall be one twenty-eighth (1/28) of one percent (1%) multiplied by their AAAs for 2000, 2001 and 2002 respectively. Annual fees to be collected from NBQBs shall be debited from their respective deposits with the BSP by the BSP Accounting Department upon receipt of the notice of the assessment from the appropriate supervising and examining department of the BSP. Where the deposit account is insufficient to cover the assessment fee, the BSP shall bill the NBQB for the full amount of the annual fee or for the balance thereof not covered by its deposit account, as the case may be. Within thirty (30) calendar days from receipt of the bill, the NBQB shall make the corresponding remittance to the BSP. Failure to pay the bill within the prescribed period shall subject the NBQB to administrative sanctions. SECTION 4653Q Payment of Fines and Other Charges . The following regulations shall govern the payment of fines and other charges by NBQBs. SUBSECTION 4653Q.1 Payment of fines . NBQBs shall, within fifteen (15) calendar days from receipt of the statement of account from the BSP, pay the fines for reserve deficiency, reportorial delay/deficiency, refusal to permit examination, or failure to comply with, or violation of, any law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor. For NBQBs which maintain demand deposit accounts with the BSP, fines which are unpaid after the lapse of the fifteen (15)-day period shall be automatically debited against the corresponding demand deposit account of the NBQB concerned: Provided , That if the balance of the entity's account is insufficient to cover the fines due, such fines shall be paid not later than the following business day . For the purpose of this Section, business day means a day on which the BSP head office and the head office of the NBQB are open for business. SUBSECTION 4653Q.2 Check/demand draft payments to the Bangko Sentral . NBQBs shall make all check and demand draft payments for legal reserve, supervisory fees, fines or penalties and collections or repayments of notes used as collateral for loans, payable either to the Cash Department, Bangko Sentral ng Pilipinas, Mabini St., Malate, Manila or directly to the BSP Regional Cash Units. Such payments shall be accompanied by the appropriate form as shown in Appendix Q-22 . Payments not accompanied by the required payment forms shall be presumed to be additions to reserves and shall be credited to the demand deposit account of the paying NBQB. Check payments shall be value-dated when the check is cleared. SECTION 4654Q. Examination by the Bangko Sentral . The BSP shall have supervision over, and conduct periodic or special examinations of NBQBs, including their subsidiaries and affiliates in allied activities. The head and examiners of the appropriate supervising and examining department of the BSP are authorized to administer oaths to any director, officer, or employee of NBQBs, including their subsidiaries and affiliates engaged in allied activities, and to compel the presentation of all books, documents, papers or records necessary in their judgment to ascertain the facts relative to the true condition of the institution as well as the books and records of persons and entities relative to or in connection with the operations, activities or transactions of the institution under examination, subject to the provision of existing laws protecting or safeguarding the secrecy or confidentiality of investments of private persons, natural or juridical, in debt instruments issued by the Government. SUBSECTION 4654Q.1 Definitions . a. Subsidiary is a corporation more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled, or held with power to vote by an NBQB. b. Affiliate is an entity linked directly or indirectly to an NBQB by means of: (1) Ownership, control or power to vote, of ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa; (2) Interlocking directorship or officership; (3) Common stockholders owning ten percent (10%) or more of the outstanding voting stock of each of the financial intermediary and the entity; (4) Management contract or any arrangement granting power to the financial intermediary to direct or cause the direction of management and policies of the entity, or vice-versa; or (5) Permanent proxy or voting trust in favor of the financial intermediary constituting ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa. c. Financial allied undertakings refer to enterprises or firms with homogeneous or similar activities/business/functions with the financial intermediary and may include, but not limited to, leasing companies, banks, investment houses, financing companies, credit card operations, financial institutions addressed/catering to small and medium scale industries, and such other similar activities as the Monetary Board may declare as appropriate from time to time. d. Non-financial allied undertakings may include, but not limited to, warehousing companies, storage companies, safe deposit box companies, companies engaged in the management of mutual funds but not in the mutual funds themselves, management corporations engaged or to be engaged in activities similar to the management of mutual funds, insurance agencies, companies engaged in home building and home development and companies providing drying and/or including facilities for agricultural crops such as rice and corn and such other similar activities as the Monetary Board may declare as appropriate from time to time. SECTION 4655Q. Applicability of Expanded Commercial Banking Rules on NBQBs . In case of conflict between rules applicable to banks with expanded commercial banking authority and those applicable to NBQBs in activities where they perform the same functions, the rules governing banks with expanded commercial banking authority shall prevail. SECTION 4656Q. Basic Laws Governing Investment Houses and Financing Companies . The following are the basic laws governing investment houses and financing companies: a. Investment houses . P.D. No. 129, as amended, known as The Investment Houses Law , governs the establishment, operation and regulation of investment houses. To effectively carry out the provisions of this Decree, the SEC, pursuant to the powers vested in it by said Decree, promulgated basic rules and regulations (Appendix Q-18) to implement the provisions of the Decree. b. Financing companies . R.A. No. 8556, known as The Financing Company Act of 1998 , regulates the organization and operation of financing companies. To effectively carry out the provisions of this Act, the SEC, pursuant to the powers vested in it under said Act, promulgated basic rules and regulations to implement the provisions of the Act (Appendix Q-19). SECTION 4657Q. Recognition and Derecognition of Domestic Credit Rating Agencies for Bank Supervisory Purposes . The following regulations shall govern the recognition and derecognition of domestic credit rating agencies (CRAs) for bank supervisory purposes. SUBSECTION 4657Q.1 Statement of policy . The introduction in the financial market of new and innovative products create increasing demand for and reliance on CRAs by the industry players and regulators as well. As a matter of policy, the BSP wants to ensure that the reliance on credit ratings is not misplaced. The following rules and regulations that shall govern the recognition/derecognition of domestic CRAs for quasi-bank supervisory purposes. SUBSECTION 4657Q.2 Minimum eligibility criteria . Only ratings issued by CRAs recognized by the BSP shall be considered for BSP quasi-bank supervisory purposes. The BSP, through the Monetary Board, may officially recognize a credit rating agency upon satisfaction of the following requirements: a. Organizational structure (1) A domestic CRA must be a duly registered company under the Securities and Exchange Commission (SEC); and (2) A domestic CRA must have at least five (5) years track record in the issuance of reliable and credible ratings. In the case of new entrants, a probationary status may be granted: Provided , That the CRA employs professional analytical staff with experience in the credit rating business. b. Resources (1) Human Resources (a) The size and quality of the CRA's professional analytical staff must have the capability to thoroughly and competently evaluate the assessed/rated entity's creditworthiness; (b) The size of the CRA's professional analytical staff must be sufficient to allow substantial on-going contact with senior management and operational levels of assessed/rated entities as a routine component of the surveillance process; (c) The CRA shall establish a Rating Committee composed of adequately qualified and knowledgeable individuals in the rating business, majority of whom must have at least five (5) years experience in credit rating business; (d) The directors of the CRA must possess a high degree of competency equipped with the appropriate education and relevant experience in the rating business; (e) The directors, officers, members of the rating committee and professional analytical staff of the CRA have not at any time been convicted of any offense involving moral turpitude or violation of the Securities Regulation Code; and (f) The directors, officers, members of the rating committee and professional analytical staff of the CRA are not currently involved as a defendant in any litigation connected with violations of the Securities Regulation Code nor included in the BSP watchlist. (2) Financial resources (a) The CRA must have the financial capability to invest in the necessary technological infrastructure to ensure speedy acquisition and processing of data/information and timely release of reliable and credible ratings; and (b) The CRA must have financial independence that will allow it to operate free from economic and political pressures. c. Objectivity (1) The CRA must use a rigorous and systematic assessment methodology that has been established for at least one (1) year; however, a three (3)-year period is preferable; (2) The assessment methodology of the CRA must be based both on qualitative and quantitative approaches; and (3) The CRA must use an assessment methodology that is subject to on-going review and is responsive to changes in the operations of assessed/rated entities. d. Independence (1) The CRA must be free from control of and undue influence by the entities it assesses/rates; (2) The assessment process must be free from ownership pressures to allow management to exercise independent professional judgement; (3) Persons directly involved in the assessment process of the CRA are free from conflicts of interest with assessed/rated entities, and (4) The CRA does not assess/rate an associate entity. e. Transparency (1) A general statement of the assessment methodology used by the CRA should be publicly available; (2) The CRA shall disseminate to the public thru a well-circularized publication, all assigned ratings disclosing whether the rating issued is solicited or unsolicited; (3) The rationale of ratings issued and risk factors considered in the assessment should be made available to the public; (4) The ratings issued by the CRA should be available both to domestic and foreign institutions with legitimate interest; and (5) Publication of changes in ratings together with the basis for the change should be done on a timely basis. f. Disclosure requirements (1) Qualitative disclosures (a) Definition of ratings along with corresponding symbols; (b) Definition of what constitutes a default, time horizon within which a default is considered and measure of loss given a default; (c) Material changes within the CRA (i.e., changes in management or organizational structure, rating personnel, modifications of rating practices, financial deterioration) that may affect its ability to provide reliable and credible ratings. (2) Quantitative disclosures (a) Actual default rates experienced in each rating category; and (b) Rating transitions of assessed/rated entities over time (i.e., likelihood of an AAA credit rating transiting to AA etc. over time). g. Credibility (1) The CRA must have a general reputation of high standards of integrity and fairness in dealing with its clients and conducts its business in an ethical manner; (2) The CRA is generally accepted by predominant users in the market (i.e., issuers, investors, bankers, financial institutions, securities traders); and (3) The CRA must carry out its rating activities with due diligence to ensure ratings are fair and appropriate. For purposes of this Section, a subsidiary refers to a corporation, more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly by the CRA while an affiliate refers to a corporation, not more than fifty percent (50%) but not less than ten percent (10%) of the voting stock of which is owned or controlled directly or indirectly by the CRA. " Control " exists when the parent owns directly or indirectly through subsidiaries more than one-half of the voting power of an enterprise unless, in exceptional circumstance, it can be clearly demonstrated that such ownership does not constitute control. Control may also exist even when ownership is one-half or less of the voting power of an enterprise when there is: (a) power over more than one-half of the voting rights by virtue of an agreement with other stockholders; (b) power to govern the financial and operating policies of the enterprise under a statute or an agreement; (c) power to appoint or remove the majority of the members of the board of directors or equivalent governing body; (d) power to cast the majority votes at meetings of the board of directors or equivalent governing body; or (e) any other arrangement similar to any of the above. h. Internal compliance procedures (1) The CRA must have the necessary internal procedures to prevent misuse or unauthorized disclosure of confidential/non-public information; and (2) The CRA must have rules and regulations that prevent insider trading and other conflict of interest situations. SUBSECTION 4657Q.3 Pre-qualification requirements . The application of a domestic CRA for BSP recognition shall be submitted to the appropriate supervising and examining department of the BSP together with the following information/documents: a. An undertaking (1) That the CRA shall comply with regulations, directives and instructions which the BSP or other regulatory agency/body may issue from time to time; and (2) That the CRA shall notify the BSP in writing of any material changes within the organization (i.e., changes in management or organizational structure, rating personnel, modifications of its rating practices, financial deterioration) that may affect its ability to provide reliable and credible ratings. b. Other documents/information : (1) Brief history of the CRA, major rating activities handled including information on the name of the client, type of instruments rated, size and year of issue; (2) Audited financial statements for the past three (3) years and such other information as the Monetary Board may consider necessary for selection purposes; (3) For new entrants, employment of professional analytical staff with experience in the credit rating business; (4) List of major stockholders/partners (owning at least ten percent (10%) of the voting stocks of the CRA directly or along with relatives within the 1st degree of consanguinity or affinity); (5) List of directors, officers, members of the rating committee and professional analytical staff of the CRA; including their qualifications, experience related to rating activities, directorship and shareholdings in the CRA and in other companies, if any; (6) List of subsidiaries and affiliates including their line of business and the nature of interest of the CRA in these companies; (7) Details of the denial of a previous request for recognition, if any (i.e., application date, date of denial, reason for denial etc.); and (8) Details of all settled and pending litigations connected with the securities market against the CRA, its directors, officers, stockholders, members of the rating committee and professional analytical staff, if any. SUBSECTION 4657Q.4 Inclusion in BSP list . The BSP will regularly circularize to all banks and non-bank financial institutions an updated list of recognized CRAs. The BSP, however, shall not be liable for any damage or loss that may arise from its recognition of CRAs to be engaged by users. SUBSECTION 4657Q.5 Derecognition of credit rating agencies . a. Grounds for derecognition . Credit rating agencies may be derecognized from the list of BSP recognized CRAs under the following circumstances: (1) Failure to maintain compliance with the requirements under Subsec. 4657Q.2 or any willful misrepresentation in the information/documents required under Subsec. 4657Q.3; (2) Involvement in illegal activities such as ratings blackmail; creation of a false market or insider trading; divulging any confidential information about a client without prior consent to a third party without legitimate interest; indulging in unfair competition (i.e., luring clients of another rating agency by assuring higher ratings etc.); and (3) Any violations of applicable laws, rules and regulations. b. Procedure for derecognition . A CRA shall only be derecognized upon prior notice and after being given the opportunity to defend itself. SUBSECTION 4657Q.6 Recognition of PhilRatings as domestic credit rating agency for bank supervisory purposes . Credit ratings assigned by Philippine Rating Services Corporation (PhilRatings) may be used, among others, for determining appropriate risk weights in ascertaining compliance with existing rules and regulations on risk-based capital requirements. SECTIONS 4658Q 4660Q (Reserved) SECTION 4661Q. Examination by the BSP . The term " examination " shall, henceforth, refer to an investigation of an institution under the supervisory authority of the BSP to determine compliance with laws and regulations. It shall include determination that the institution is conducting its business on a safe and sound basis. Examination requires full and comprehensive looking into the operations and books of institutions, and shall include, but need not be limited to, the following: a. Determination of the NBQB's solvency and liquidity position; b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans and other risk assets; c. Review of all aspects of NBQB operations; d. Assessment of risk management system, including the evaluation of the effectiveness of the NBQB management's oversight functions, policies, procedures, internal control and audit; e. Appraisal of overall management of the NBQB; f. Review of compliance with applicable laws, rules and regulations; and g. Any other activities relevant to the above. Regular or periodic examination shall be done once a year, with an interval of twelve (12) months from the last date thereof. Special examination may be conducted earlier, or at a shorter interval, when authorized by the Monetary Board by an affirmative vote of five (5) members. In the full exercise of the supervisory powers of the BSP, examination by the BSP of institutions shall be complemented by overseeing thereof. In this regard, the term " overseeing " shall refer to a limited investigation of an institution, or any investigation/s that is limited in scope, conducted to inquire into a particular area/aspect of an institution's operations, for the purpose of overseeing that laws and regulations are complied with, inquiring into the solvency and liquidity of the institution, enforcing prompt corrective action, or such other matters requiring immediate investigation: Provided , That (i) specific authorizations be issued by the Deputy Governor, Supervision and Examination Sector, and (ii) periodic summary reports on overseeings made be submitted to the Monetary Board. SECTIONS 4662Q 4690Q (Reserved) SECTION 4691Q. Anti-Money Laundering Regulations . Banks, offshore banking units (OBUs), quasi-banks (QBs), trust entities, non-stock savings and loan associations (NSSLAs), pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the BSP, otherwise known as "covered institutions" shall comply with the provisions of R.A. No. 9160, as amended, otherwise known as the "Anti-Money Laundering Act of 2001," and its Implementing Rules and Regulations (IRRs) in Appendix Q-25 and those in Appendix Q-23 . SUBSECTIONS 4691Q.1 4691Q.8 (Reserved) SUBSECTION 4691Q.9 Sanctions and Penalties . a. Whenever a covered institution violates the provisions of Section 9 of R.A. No. 9160 or of this Section, the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50,000 nor more than P200,000 or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court pursuant to Section 36 of R.A. No. 7653, otherwise known as "The New Central Bank Act". b. Without prejudice to the criminal sanctions prescribed above against the culpable persons, the Monetary Board may, at its discretion, impose upon any covered institution, its directors and/or officers for any violation of Section 9 of R.A. No. 9160, the administrative sanctions provided under Section 37 of R.A. No. 7653. SECTIONS 4692Q 4698Q (Reserved) SECTION 4699Q. General Provision on Sanctions . Unless otherwise provided, any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. Appendix Q-1 GUIDELINES TO EVALUATE INVESTMENT HOUSES ( Appendix to Sec. 4105Q ) 1. Capital The requirement is a minimum paid-in capital of P200 million for an investment house to be established in Metro-Manila and P100 million for all others. Foreign equity, if any, shall be registered with and approved by the Board of Investments and the Bangko Sentral. 2. Citizenship Majority (51%) of the voting stock shall be owned by Filipinos. 3. Directorship/Officership Majority of the board members shall be Filipinos. Resident foreign directors and technicians shall register with the Bureau of Immigration and Deportation. Compliance with the prohibition on interlocking directorship/officership between banks and investment houses and between NBQBs shall be observed. 4. Promotion of Public Interest and Economic Growth a. Submission of a one (1)-year investment program indicating: (1) Underwriting and distribution activities . These shall show in details the various stages leading to the completion of an agreement. Target dates for each stage in the underwriting process shall be indicated which should serve as reference points in the event that an investment house is unable to bring the program and its components to fruition. Target volume of underwriting would be set initially at twenty-five percent (25%) of paid-in capital. (2) Fund mobilization . Emphasis shall be on maturities beyond one (1) year. Domestic and foreign sources shall be indicated and the latter shall be evaluated in terms of pertinent Bangko Sentral regulations. (3) Fund usage . Support of priority investment areas of the Government and other projects which may be determined by the Bangko Sentral shall be emphasized. Funds placed on maturities beyond one (1) year shall be preferred. (4) Planned distribution of portfolio. Activities indicating money-market services and investment in subsidiaries and affiliates, while necessary to sustain the investment house, shall be subordinated to the preferred activities above-indicated. Other activities as financial management, counseling, distribution of equity and debentures for "public" ownership, etc., shall be considered. b. The one (1)-year investment program of the investment house shall be related to the government development plan by indicating the portion of the investment and savings targets in the plan which would be supported by the investment house industry. c. A one (1)-year projected income statement showing major sources of income and expense items. d. Operational agreement with other financial institutions. e. A statement justifying the operation of the investment house as not in conflict with public interest and economic growth, taking into account the existing number of investment houses, indicating: (1) record of underwriting; (2) evidence of medium and long-term loans; (3) evidence of obtaining funds with maturity beyond one (1) year; and (4) equity investments which were subsequently distributed to the public. (5) Organization, Direction and Administration The organizational/functional chart should match the organization framework with operational objectives. The management of the company, board of directors and the managerial staff, must be firmly designated before it can be granted a license to operate as an investment house. 6. Integrity, Experience and Expertise of Board and Management Staff a. Formal training, academic or others; b. Experience along financial management, securities dealing, fund management, project evaluation and feasibility studies; c. Absence of administrative or criminal conviction; and d. Affiliation with professional organizations. 7. Branching The rate at which branch offices are to be established shall depend upon the ability of the company to conduct operations from headquarters/head offices as well as on correspondent (banking) arrangements. Other factors to be considered are the following: a. Reserve and liquidity position; and b. Profitability and capacity to absorb losses. Appendix Q-2 DETERMINATION OF AMOUNT OF ADDITIONAL CAPITAL THE ENTITY MUST PUT UP (PROJECTION BASE LATEST AVAILABLE REPORT) (IN THOUSAND PESOS) ( Appendix to Subsec. 4151Q.2 ) __________________________ (Name of Entity) A. 1. Estimated Amount of Risk Assets of Present Office for the Next 12 Months a. Actual Risk Assets P xxx b. Add: xx% of (a) xxx Risk Assets (Base Period) P xxx Risk Assets (Previous Year) xxx Increase P xxx Rate of Increase = increase = xx% actual risk assets c. Total of (a) and (b) P xxx ==== 2. Maximum Possible Level of Risk Assets Based on the Base Period Figures: a. Net worth Less 30% of Paid-in Capital (Pxxx - xxx) P xxx b. 100% of Borrowings (Bills Payable) xxx c. 80% of Unutilized Acceptances or Credit Line with Foreign Bank(s) xxx P xxx ==== B. Estimated Risk Assets for the First 12 Months of Operation: 1. Branch Approved but not yet Opened: P xxx 2. Branch Being Applied for: xxx Add: Lower of A.1 or A.2 xxx C. Total Estimated Risk Assets for 12 Months P xxx ==== D. 10% of C (Minimum Paid-in Capital Required) P xxx ==== E. Less: Present Combined Capital Accounts P xxx (Base Period Figures) Add: xx% of above xxx xxx Capital Accounts - (Base Period) P xxx Capital Accounts - (Previous Year) xxx Increase P xxx * Rate of Increase = Increase = xx% Capital Accounts of Previous Year F. Estimated Excess of Capital over Minimum Capital Required or Additional Amount of Capital Applicant Must Put Up, as the case may be P xxx * The computation to arrive at the "rate of increase" in capital accounts shall only be considered if there is sufficient indication or evidence that the NBQB will continue to follow the same amount of increase in capital accounts for the succeeding year. If no evidence is found that the NBQB will continue to increase its capital accounts for the same amount for the succeeding year, then computations should consider only the amount of net profits (after dividends) plowed into the business for the year immediately preceding the date of application plus the amount of capital that the NBQB promised to put up per its schedule or program submitted to the Bangko Sentral. If no such schedule or program was submitted, then only the amount of net profits (after dividends) for the year immediately preceding the date of application should be considered. LIST OF REPORTS REQUIRED FROM NON-BANK FINANCIAL INTERMEDIARIES ENGAGED IN QUASI-BANKING FUNCTIONS (Appendix to Sec. 4162Q) Report Submission Submission Category BSP Form No. Report Title Frequency Deadline Procedure B BSP 7-26-01 Information Sheet Annually January 31 Appropriate BSP SED B BSP-7-26-01.1 Biographical Data of Directors/Officers Annually January 31 or 15th In case of changes in and as calendar day following educational attainment and changes the creation or filling experience in financial occur up of a vacancy in the management and related Board of Directors and fields, only additional and the managerial qualifications that will staff enhance the director's or officer's competence or will qualify him to his present position shall be reported. B Unnumbered Notice of Election/Appointment of Members As change 10th day from election/ Original Appropriate of Board of Directors and Committees occurs assumption of office BSP SED B Unnumbered Change of List of Directors/Officers/ As change Immediately after Original Appropriate (no prescribed Employees occurs change BSP SED form) A-2 Unnumbered Acknowledgment receipt of copies of Annually or as 15th business day Appropriate BSP SED (no prescribed specific duties and responsibilities of the directors are after date of election form) board of directors and of a director and elected certification that they fully understand the same B Unnumbered Report on Disqualification of Director/ As qualification Within 72 hours from Appropriate BSP SED (no prescribed Officer occurs receipt of report by form) board of directors A-2 Unnumbered Computation of the Risk-Based Capital Quarterly Original Appropriate Adequacy Ratio Covering Credit Risks BSP SED (for NBQBs only) - solo basis (Head Office and branches) 15th business day after end of reference quarter - consolidated basis (Parent QB plus 30th business day after subsidiary financial allied undertaking end of reference quarter excluding insurance companies) A-2 BSP-7-26-02-A/B Consolidated Statement of Condition Monthly 15th business day after Separate report for Head end of reference month Office and each Branch; and a Consolidated Re-port for Head office and Branches; to be submitted via electronic mail Schedules: A-2 BSP-7-26-02-A Loans/Receivables, Trading Account Schedule 1 Securities (TAS) Loans Underwritten (IHs only) Debt Securities A-2 BSP-7-26-02-B Loans/Receivables and Trading Account Schedule I Securities (TAS)-Loans (FCs only) A-2 BSP 7-26-02-A Bills Payable and Bonds Payable Schedule 5 (For IHs) A-2 BSP 7-26-02-B Bills Payable and Bonds Payable Schedule 5 (For FCs) A-2 BSP-7-26-02-A/B Remaining Maturities of Selected Accounts Schedule 4 Interest Rate and Maturity Matching A-2 BSP-7-26-02-A/B Interest Rate and Maturity Matching Schedule 3 A-2 BSP-7-26-02-A Underwritten Securities, Trading Account Schedule 2 Securities Investments, Available for (For IHs) Sale Securities and Investments in Bonds & Other Debt Instruments A-2 BSP-7-26-02-B Trading Account Securities Investments, Schedule 2 Available for Sale Securities and Investments (For FCs) in Bonds & Other Debt Instruments A-2 BSP-7-26-02-A Underwritten Securities, Trading Account Schedule 2.1 Securities Investments, Available for Sale (For IHs) Securities and Investments in Bonds & Other Debt Instruments (Government Issue Local Government Units) A-2 BSP-7-26-02-B Trading Account Securities Investments, Schedule 2.1 Available for Sale Securities and Investments (For FCs) in Bonds & Other Debt Instruments (Government Issue Local Government Units) A-2 BSP-7-26-02-A Loans/Receivables, Trading Account Schedule 1 Securities Loans and Underwritten Debt (For IHs) Securities A-2 BSP-7-26-02-B Loans/Receivables and Trading Account Schedule 1 Securities Loans (For FCs) A-2 BSP-7-26-02-A Loans/Receivables, Trading Account Schedule 1.1 Securities Loans and Underwritten Debt (For IHs) Securities (Borrowings of Local Government Units) A-2 BSP-7-26-02-B Loans/Receivables and Trading Account Schedule 1.1 Securities Loans (Borrowings of Local (For FCs) Government Units) A-2 BSP-7-26-02-B Data on Firm's Businesses Schedule 6 (FCs only) A-2 BSP-7-26-03-A/B Consolidated Statement of Income and Monthly 15th business day Separate report for Head Expenses following end of Office and each branch; and reference month a Consolidated Report for Head Office and Branches; to be submitted via electronic mail A-2 BSP-7-26-05 Consolidated Report of Required and Weekly 4th business day -do- Available Reserves Against Deposit following end of reference Substitutes and Special Financing week A-2 BSP-7-26-05.1 Components of Deposit Substitutes With -do- -do- -do- Original Maturities of 730 Days or Less A-2 BSB-7-26-05.3 Eligible Philippine Government Securities Weekly 4th business day -do- Utilized as Reserves Against Deposit following end of reference Substitutes week A-2 BSP-7-26-06 Statement of Capital Required and Capital Semi-Monthly 7th business day after E-mail to SRSO: Accounts 15th and end of month [emailprotected] Control Prooflist duly signed by the Fax to SRSO@523-3461 authorized officer of the institution B BSP-7-26-10 Information Sheet and "Truth in Lending As needed - Original Appropriate Act" Creditor's Certification BSP SED B BSP-7-26-13 Past Due Receivables, Loans and/or Quarterly 15th calendar day after Original Appropriate Commercial Papers/Private Securities end of reference quarter BSP SED B BSP-7-26-14 Rolled-Over Loans and/or Commercial -do- -do- -do- Papers (Above P100,000) B BSP-7-26-15 Report on Underwriting Activities Quarterly End of month Original Appropriate (IH only) following each quarter BSP SED A-3 BSP-7-26-18 Consolidated Monthly Report on Credit Monthly 15th calendar day -do- Accommodations to Directors, Officers, from end of reference Stockholders and Their Related Interests month A-3 BSP-7-26-18.1 Credit Accommodations to Directors, -do- -do- -do- Officers, Stockholders, and Their Related Interests B BSP-7-26-20 Report on Equity Investments in Non-Allied Semestrally 15th business day -do- Undertakings following end of reference semester B BSP-7-26-21 Borrowing-Investment Program Annually 1st working day of March See Annex Q-3-a for of reference year details of the report B BSP-7-26-22 Annual Underwriting Program Annually 1st working day of March Original Appropriate (IH only) of reference year BSP SED A-2 BSP-7-26-23TR Report on Trust and Other Fiduciary Quarterly 10th business day Original Appropriate (IH with Trust only) Business and Investment Management after end of reference BSP SED (Revised per CL Activities with prescribed schedules quarter Duplicate SRSO dated 1.27.03) Schedules: Investment in Other Securities and Debt Instruments (Item 1.A.2) Loans and Discounts (Item 1.A.4) Investment in Common Trust Funds (Item 1.A.5) Deposits in Banks (Item 1.A.13) CTF Revaluation Account (Item 1.A.20) Allowance for Probable Losses (Item 1.A.21) Accumulated Market Gains/(Losses) (Item 1.A.23) Exposures to Directors, Officers, Stockholders and Their Related Interest Government Funds Held in Trust Tax-Exempt Accountabilities (Items 1.B.1, 1.B.2 and 1.B.3) B BSP-7-26-23IM Report on Investment Management Quarterly 10th business day after Original Appropriate (IH with IMA only) Activities with prescribed schedules end of reference quarter BSP SED Schedules : Investment in Other Securities and Debt Instruments (Item 1.A.2) Loans and Discounts (Item 1.A.4) Investment in Common Trust Funds (Item 1.A.5) Deposits in Banks (Item 1.A.12) Allowance for Probable Losses (Item 1.A.17 Accumulated Market Gains/(Losses) (Item 1.A.19) Exposures to Directors, Officers, Stockholders and Their Related Interest Tax-Exempt Accountabilities (Item 1.B.1) A-2 BSP-7-26-24 Credit and Equity Exposures to Quarterly 15th business day from Electronic submission/ (Revised August Individuals/Companies/Groups end of reference quarter diskette SRSO 2003 per CL Aggregating P1Million and Above dated 8.6.03) Notarized Control Prooflist Fax to SRSO B BSP-7-26-25 Dividends Declared As dividends are 10th business day from - declared approval of declaration by the Board of Directors B BSP-7-26-26 Statement of Condition for Publication Quarterly 20th business day from See Sec. 4181Q for receipt of call requirement on publication of names of directors/officers Control Prooflist duly signed by the E-mail to SRSO: authorized officer of the institution [emailprotected] Fax to SRSO@523-3461 A-1 Copy of Published Statement of Quarterly 5th business day from Original Appropriate Condition with Publisher's Certificate publication date BSP SED B Unnumbered Daily Report on Interbank Borrowings Not Daily (only when Noon of business day Original Appropriate Effected Through Clearing Account with there are following date of report BSP SED Bangko Sentral transactions covered) B Unnumbered Securities Brokering Without Recourse Weekly 4th business day after -do- (IH only) Transactions for P50,000 and Above end of reference week For institution authorized to engage in derivatives activities: A-3 Unnumbered Outstanding Derivatives Contracts Monthly 5th business day from -do- end of reference month A-3 Unnumbered Report on Trading Gains/Losses on -do- -do- -do- Derivatives Transactions A-3 Unnumbered Outstanding Peso Derivatives Contracts -do- -do- -do- A-3 Unnumbered Copy of Written Approval of Board of As 20th business day - Directors on Credit Accommodations to Approved from date of approval Directors, Officers, Stockholders, and Their Related Interests B Unnumbered Consolidated Annual Financial Statements Annually 120th calendar day See Annex Q-3-b for the of Financial Intermediaries and Their after end of reference guidelines Allied Undertakings/Affiliates/Subsidiaries year supported by Individual Annual Financial Statements of the Allied Undertakings/ Affiliates/Subsidiaries and their audited financial statements B Unnumbered (no Quarterly Report on Operations (signed by Quarterly 30th day after end of Original Appropriate prescribed form) the President) reference quarter BSP SED B Unnumbered (no 3 copies of Annual Report of Management Annually As soon as available Original Appropriate prescribed form) to Stockholders Covering Results of BSP SED Operations for the Previous Year B Unnumbered (no 3 copies of Audited Financial Statements Annually 90th day after the start -do- prescribed form) for Previous Year Prepared by the External of audit Auditor and the Corresponding Auditor's Letter of Comments B Unnumbered (no Report on Crimes/Losses for Head As crime or 48th hour from See Annex Q-3-d for prescribed form) Office/Branches incident occurs knowledge of crime/ list of documentary incident requirements Original Appropriate BSP SED B Unnumbered Report on Outstanding Loans Secured by Monthly 10th business day Original Appropriate Shares of Stocks of Other Banks/NBQBs after end of reference BSP SED month B Unnumbered Certification under oath for "No transaction" Quarterly 5th business day from -do (no interbank borrowings) dates during end of reference quarter calendar quarter B Unnumbered (no Amendments to Articles of Incorporation/ As changes 15th calendar day -do- prescribed form) By-Laws/material documents required to occur following change/ be submitted to the Bangko Sentral approval of change by proper authorities B Unnumbered Board resolution on NBQB's signatories of As authorized 3rd day from date of -do- report submitted to Bangko Sentral resolution B Unnumbered Documentary requirements on directors/ Continuing - See Annex-Q-3-e for officers/major individual stockholders owning requirements documentary requirements/ 10% or more of the outstanding voting for any new information required securities director/officer elected/appointed Original Appropriate for the first time BSP SED in NBQB unless such information is on file with the Bangko Sentral for not more than 5 years B Unnumbered Documentary requirements/information on Upon submission - -do- organizational structure and operational of application to policies engage in QBF As changes 15th calendar day from -do- occurs change/issuance B Unnumbered (no Corporate Secretary's Certification under As change in Immediately after -do- prescribed form) oath on list of stockholders and/or groups composition of change of stockholders stockholders occurs B Unnumbered (no Certification under oath that it has not In case of chronic 4th business day -do- prescribed form) granted any new loan or made any new reserve deficiency following end of investment during the period covered by reference week the suspension A-2 Unnumbered (no Notice to BSP on SEC's approval of bond As approved 3rd business day from Original Appropriate prescribed form) issue together with the documents required approval by SEC BSP SED by the SEC for the creation and registration B Unnumbered (no Report on Required and Available Reserves Weekly 3rd business day To be submitted by prescribed form) on Peso-Denominated CTFs, Such Other following reference institutions with trust Managed Peso Funds and TOFA-Others week operations Original Appropriate BSP SED Control Prooflist duly signed by the authorized E-mail to SRSO: [emailprotected] Fax to SRSO@523-3461 Reconciliation statement on demand deposit Monthly 7th business day from Original to be submitted to with BSP receipt of BSP statement BSP Comptrollership of account Department; one copy to appropriate BSP SED A-2 Unnumbered Report on Suspicious Transactions As transaction 5th business day from To be submitted to the occurs date of transaction/ Anti-Money Laundering knowledge Council A-2 Unnumbered Report on Covered Transactions -do- -do- -do- A-2 Unnumbered (no Certification of compliance with existing Annually 20th business day after To be submitted to the prescribed form) anti-money laundering regulations date of election appropriate BSP SED B Unnumbered Plan of Action to comply with Anti-Money - 30th business day from To be submitted to the Laundering requirements July 31, 2000 or from appropriate BSP SED opening of the institution B Unnumbered (no Report on Transactions/Outstanding Monthly - -do- prescribed form) Derivatives Transactions as End-User B Unnumbered Report on Foreign Exchange Swaps with Weekly 2nd banking day after IOD @ e-mail: Non-Banks where 1st Leg is a Purchase of end of reference week [emailprotected] Foreign Exchange Against Pesos (For NBQBs with derivatives license) B Unnumbered Report on Cancellations, Roll-overs and Weekly 2nd banking day from IOD @ e-mail: Non-Delivery of Foreign Exchange Forwards end of reference week [emailprotected] Purchase Sales Contracts (For NBQBs with derivatives license) Unnumbered (no Audit Engagement Contract As contract is 15th calendar day from Appropriate BSP SED prescribed form) signed date of signing of contract B SES Form 6H Notice/Application for Write-off of Loans, As write-off 25th business day prior Original and duplicate (CBP-7-16-21), Other Credit Accommodations, Advances occurs to the intended date of Appropriate BSP SED revised and Other Assets write-off Waiver of the Confidentiality of Information As transaction under Sections 2 and 3 of R.A. No. 1405, as occurs amended ANNEX Q-3-a INFORMATION ON ONE-YEAR BORROWING-INVESTMENT PROGRAM TO BE SUBMITTED BY NBQBs ( Annex to Appendix Q-3 ) 1. Investment areas indicating industry direction of the corporation engaged in quasi-banking, indicating as a minimum, the following: (a) money market operations; (b) investments in stocks and bonds; (c) investments in government securities; (d) receivables financing; (e) leasing activities; and (f) direct loaning operations. Likewise to be disclosed are the other preferred areas of investment, e.g., real estate, condominium, and those related to the government programs and other projects which may be determined by the Bangko Sentral. For investment houses with quasi-banking functions, the proposed underwriting program, as well as the previous year's activities, shall also be submitted identifying debt and equity issues. 2. Borrowing operations to support the investment program indicating among others: (a) Maturity short-term: less than a year medium-term: one (1) year to five (5) years long-term: more than five (5) years (b) Interest rate per annum for the above three types of borrowings (more indicatory than fixed). Individual or institutional source of funds; whether domestic or foreign, governmental or private, financial or non-financial. 3. Preference shall be given to fund usage and mobilization at terms beyond one (1) year. ANNEX Q-3-b GUIDELINES GOVERNING THE CONSOLIDATION OF FINANCIAL STATEMENTS OF FINANCIAL INTERMEDIARIES AND THEIR ALLIED UNDERTAKINGS/SUBSIDIARIES/AFFILIATES ( Annex to Appendix Q-3 ) I. Definitions . The following definitions of terms are hereby adopted: a. Consolidated Financial Statements shall refer to the combined statement of condition/balance sheet and statement of income and expenses of two or more corporate entities as they would appear if they were one organization, after eliminating the effects of inter-company transactions. b. Financial Allied Undertakings refer to enterprises or firms with homogenous or similar activities/business/functions with the financial intermediary and may include but not limited to leasing companies, banks, investment houses, financing companies, credit card operations, financial institutions addressed/catering to small and medium scale industries, and such other similar activities as the Monetary Board may declare as appropriate from time to time. Non-financial allied undertakings may include but not limited to warehousing companies, storage companies, safe deposit box companies, companies engaged in the management of mutual funds but not in the mutual funds themselves, management corporations engaged or to be engaged in activities similar to the management of mutual funds, insurance agencies, companies engaged in home building and home development and companies providing drying and/or including facilities for agricultural crops such as rice and corn and such other similar activities as the Monetary Board may declare as appropriate from time to time. c. Equity Investments refer to investments in the capital stock of companies, firms or enterprises, made for purposes of control, affiliation or other continuing business advantage. d. Subsidiary and affiliates refer to a corporation, firm or entity as defined in Subsection 4654.1.a and b. e. Cost Method refers to the accounting method of recording at cost, and continuously carrying at cost, equity investment, regardless of increases or decreases in the underlying value of the investments resulting from earnings or losses of the allied undertaking/affiliate/subsidiary. f. Equity Method refers to the accounting method of recording equity investments at cost and adjusting the balance of the account to reflect increases or decreases in the underlying value of the investments resulting from earnings or losses of the allied undertakings/affiliate/subsidiary. II. Consolidation Requirements . a. The financial statements of allied undertakings shall be consolidated with those of the investing financial intermediary only when the allied undertaking is a subsidiary and a financial allied undertaking as defined herein. b. In the case of non-financial allied undertakings and affiliates, consolidation may be required on a case-to-case basis as may be determined by the appropriate supervising and examining department of the Bangko Sentral. c. Financial statements of all domestic and foreign subsidiaries shall be consolidated with those of the investing financial intermediary (domestic parent), except (1) subsidiaries about to be disposed of; (2) subsidiaries where control is being exercised on a temporary basis; (3) subsidiaries whose financial statements bear a closing date different from that of the investing financial intermediary's financial statements and/or (a) the difference in closing dates exceeds three months or more; (b) the closing dates of all the statements are not expressly indicated; (c) the necessity of the difference to closing date is not explained; and (d) changes in accounting periods of the affiliate/constituent companies are not disclosed, together with their financial statements. (4) subsidiaries whose business activities are dissimilar from those of the investing financial intermediary that the presentation of separate financial statement would provide better information; and (5) foreign subsidiaries located in places where (a) there are foreign exchange restrictions; (b) the rates of exchange fluctuate widely; (c) there are unfavorable legislations in force; and (d) the foreign government concerned is undergoing a process of change. III. Consolidation Procedures . a. Consolidation of the financial statements shall involve the following procedures: (1) Consolidation shall be on a line-by-line basis; i.e., accounts of the investing financial intermediary and its subsidiaries to be consolidated are combined by adding together like item of assets, liabilities, revenue and expenses, except in the case of foreign currency of the host country where the allied undertaking/subsidiary/affiliate is located which shall be shown under "Other Assets"; (2) The following are eliminated in consolidation: (a) All intercompany transactions; for instance, rental income of a subsidiary from its premises should be netted against rent expenses incurred by the investing financial intermediary for occupying said premises. (b) All intercompany accounts/transactions that reflect the existence of a debtor-creditor relationship between the investing financial intermediary and its subsidiaries and/or between subsidiaries. (c) All asset accounts of the investing financial intermediary which represent ownership of investments in subsidiaries against the capital accounts of the consolidated subsidiaries. (3) All income and expense accounts shall be closed to the capital accounts of each subsidiary. (4) All the remaining assets and liabilities of the subsidiaries shall be transferred to appropriate accounts of the investing financial intermediary. (5) For not wholly-owned subsidiaries, segregate the share of minority stockholders/interest in the capital stock and retained earnings of such subsidiaries and lodge the same under "Minority Interest in Subsidiary" account which shall be shown as a separate section between the Liabilities and Stockholders' Equity sections of the Consolidated Statement of Condition. (6) Other generally accepted consolidation principles/procedures not inconsistent herewith may be adopted. (7) Consolidating adjustments and eliminations shall appear only on working papers and shall not be recorded in the books of the individual entities concerned. b. For consolidated statement/report purposes, the following accounts shall be used for the differences, between cost and book value of equity investments on date of acquisition: (1) "Excess of Cost Over Book Value of Equity Investments" For excess of cost of equity investment over its book value (2) "Excess of Book Value Over Cost of Equity Investments" For the excess of book value of equity investments over its cost The first account shall be shown under Other Assets caption while the second account shall be shown under the caption Unearned Income And Other Deferred Credits in the Consolidated Statement of Condition. c. The investments (which are recorded at the cost method) of the investing financial intermediary in allied undertakings/subsidiaries/affiliates whose financial statements are not consolidated shall be adjusted for their share in the earnings or losses of such entities, with the use of the equity method as defined in Item I above. However, these adjustments shall appear only in working papers and shall not be recorded in the books of the individual entities concerned. IV. Disclosures . The following schedules/disclosures shall be attached to/made in the consolidated financial statements: a. An appropriate list/schedule of the allied undertakings/subsidiaries/affiliates showing the following information: (1) Name and nature of business; (2) Original cost of the investment; outstanding balance, book value and difference, if any; and accounting treatment of the difference; (3) Percentage of ownership/equity investment; (4) Differences in reporting dates from that of the reporting financial intermediary; (5) Whether or not their financial statements have been consolidated; and (6) Reasons for not consolidating in the case of the unconsolidated entities. b. Where the unconsolidated subsidiaries are, in the aggregate, material in relation to the consolidated financial position or operating results, summarized information as to their assets, liabilities and operating statements should be presented/indicated, shown in footnotes, or separate financial statements should be presented for such subsidiaries, either individually or in groups, where appropriate. c. Any information on: (1) Exposure to exceptional risks of operating in other countries, including the risk of foreign currency exchange rate fluctuations. (2) The extent to which there are statutory or contractual restrictions on the distribution of the accumulated retained income of the group. ANNEX Q-3-c REPORTING GUIDELINES ON CRIMES/LOSSES ( Annex to Appendix Q-3 ) 1. NBQBs shall report on the following matters through the appropriate supervising and examining department: a. Crimes whether consummated, frustrated or attempted against property/facilities (such as robbery, theft, swindling or estafa, forgery and other deceits) and other crimes involving loss/destruction of property of the NBQB when the amount involved in each crime is P20,000 or more. Crimes involving NBQB personnel, regardless of whether or not such crimes involve the loss/destruction of property of the NBQB, even if the amount involved is less than those above specified, shall likewise be reported to the BSP. b. Incidents involving material loss, destruction or damage to the institution's properties/facilities, other than arising from a crime, when the amount involved per incident is P100,000 or more. 2. The following guidelines shall be observed in the preparation and submission of the report. a. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident, the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator, thru the Director, Security Investigation and Transport Department. b. Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the five (5)-business day deadline may be accepted: Provided , That a complete report is submitted not later than fifteen (15) business days from termination of investigation. ANNEX Q-3-d DOCUMENTARY REQUIREMENTS ON DIRECTORS/OFFICERS/ MAJOR INDIVIDUAL STOCKHOLDERS ( Annex to Appendix Q-3 ) I. Directors and/or major individual stockholders owning 10% or more of the outstanding voting securities : (a) Statement of financial condition as of latest date under oath or certified by an independent CPA. Appropriate disclosures shall be made when necessary, specifically on encumbered assets and names of creditors; (b) Income tax return for the preceding year; (c) Tax clearance for business purposes; (d) Information on integrity, credit standing and business experience from banking institutions in Manila/locality where firm operates and in places of residences or birth; and (e) Affidavit of two (2) persons of good standing other than the present employer or relatives within the third degree of affinity or consanguinity. For stockholders, information on credit standing is sufficient. II. Directors/Officers : (a) Bio-data sheet in the prescribed form accomplished under oath; (b) Clearances from the Criminal Investigation Services of the Philippine Constabulary, the National Intelligence and Security Authority, and such other relevant investigating agency as might be determined by the appropriate supervising and examining department; and (c) Certification under oath by each director/officer to the effect that he/she is not disqualified under Sec. 4143Q. III. Non-resident foreign directors shall be exempted from the documentary requirements enumerated above, except for the following: (a) Bio-data sheet in the prescribed form accomplished under oath; (b) Clearance from the National Bureau of Investigation (NBI) or the Department of Foreign Affairs; and (c) Certification under oath that the foreign director is not disqualified under Sec. 4143Q. ANNEX Q-3-e DOCUMENTS/INFORMATION ON ORGANIZATIONAL STRUCTURE AND OPERATIONAL POLICIES ( Annex to Appendix Q-3 ) I. Documents on organizational structure and operational policies 1. Chart of the firm's organizational structure or any substitute therefor; 2. Name of departments/units/offices with their respective duties and responsibilities; 3. Designations of positions in each department/unit/office with the respective duties and responsibilities; 4. Manual of Instructions or the like embodying the operating policies/procedures of each department/unit/office, covering such areas as: (a) Signing/delegated authority; (b) Procedure/flow of paper work; and (c) Other matters. 5. Memoranda-Circulars or the like issued covering organizational and operational and operation policies; 6. Sample copies of each of the forms/reports used by each office/unit/department other than those submitted to the Bangko Sentral; and 7. Such other documents/information which may be required from time to time. II. Other Data 1. Name of Institution 2. Address 3. P.O. Box number 4. Cable address or cable code 5. Board of Directors including Corporate Secretary: (a) Names of Chairman, Vice-Chairman and Directors (b) Number of directors per By-laws (c) Number of vacancies in the Board (d) Names of corporations where they serve as Chairman of the Board or as President and names of other business enterprises of which they are proprietors or partners (e) For the Corporate Secretary, indicate if he is also a Director (f) Date of annual election of directors per By-Laws 6. Executive officers including Auditor: (a) Names and titles (b) Telephone number of each officer (office) (c) For the Executive Vice-President, state the names of corporations where he serves as Chairman of the Board and names of other business enterprises which he is proprietor or partner (d) For Vice-Presidents and other officers with non-descriptive titles, indicate area of responsibility, e.g. Vice-President for Operations or Vice-President, International Department (e) Include officers from President to Vice-President 7. Branches, agencies and extension offices: (a) Name of branch, agency or extension office, e.g. Quiapo Branch or Makati Agency (b) Address (c) Names and telephone number of: (1) Manager (2) Cashier (3) Accountant (d) For agencies and extension offices, indicate name of mother branch. ANNEX Q-3-f GUIDELINES ON CALCULATING ADDITIONAL INFORMATION REQUIRED IN PUBLISHED STATEMENT OF CONDITION ( Annex to Appendix Q-3 ) In calculating the additional information required to be disclosed in the Statement of Condition for publication, the following guidelines shall be observed: 1. All amounts and ratios to be reported shall be as of the same call date. However, the basis for computing the Return on Average Equity shall be the latest quarter immediately preceding the call date. 2. Return on Average Equity shall be computed as follows: Return on Average Net Income/(Loss) After Equity (%) = x 100 Income Tax Average Total Capital Accounts Where Net Income After Tax and Average Total Capital Accounts shall be: Average Total Capital Net Income After Tax Accounts March Quarter End Net Income Sum of end-month Capital After Tax Multiplied by 4 Accounts (December- March) divided by 4. June Semester End Net Income Sum of end-month Capital After Tax Multiplied by 2 Accounts (December-June) divided by 7. September Nine (9) months Ended Sum of end-month Capital Net Income After Tax Accounts (December- multiplied by 1.333333 September) divided by 10. December Year Ended Net Income Sum of end-month Capital After Tax Accounts (December-December) divided by 13. Appendix Q-4 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION ( Appendix to Subsec. 4162Q.1 ) Category A-1 reports shall be signed by the chief executive officer, or in his absence, by the executive vice president, and by the comptroller, or in his absence, by the chief accountant, or by officers holding equivalent positions. The designated signatories in this category, including their specimen signatures, shall be contained in a resolution approved by the board of directors in the format prescribed in Annex Q-4-a. Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex Q-4-b. Categories A-3 and B reports shall be signed by officers or their alternates, who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex Q-4-c. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) days from the date of resolution. ANNEX Q-4-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS ( Annex to Appendix Q-4 ) Resolution No. ____ Whereas, it is required under Subsec. 4162Q.1 that Category A-1 reports be signed by the chief executive officer, or in his absence, by the executive vice-president, and by the comptroller, or in his absence, by the chief accountant, or by officers holding equivalent positions. Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ___________________ (Name of Institution), are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's Chief Executive Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be, and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: 1. Mr. _______________ President _________________ Specimen Signature or Executive 2. Mr. _______________ Vice President _________________ Specimen Signature and 3. Mr. _______________ Comptroller _________________ Specimen Signature or 4. Mr. ________________ Chief Accountant _________________ Specimen Signature are hereby authorized to sign Category A-1 reports of _______________. (Name of Institution) Done in the City of _____________ Philippines, this ______ day of ___________, 19 _____. ___________________________ CHAIRMAN OF THE BOARD ________________ ________________ DIRECTOR DIRECTOR ________________ ________________ DIRECTOR DIRECTOR ________________ ________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY ANNEX Q-4-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS ( Annex to Appendix Q-4 ) Resolution No. _____ Whereas, it is required under Subsec. 4162Q.1 that Category A-2 reports of head offices be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ______________ (Name of Institution), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and __________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No. are hereby authorized to sign the Category A-2 reports of _______________. (Name of Institution) Done in the City of ________________, Philippines, this ________ day of _______, 19____. ___________________________ CHAIRMAN OF THE BOARD ________________ ________________ DIRECTOR DIRECTOR ________________ ________________ DIRECTOR DIRECTOR ________________ ________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY ANNEX Q-4-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS ( Annex to Appendix Q-4 ) Resolution No. _____ Whereas, it is required under Subsec. 4162Q.1 that Categories A-3 and B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we the members of the Board of Directors of __________________ (Name of Institution) are conscious that, in designating the officials who would sign said Categories A-3 and B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ___________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Signatory/ Specimen Position Report Alternate Signature Title No. 1. Authorized (Alternate) 2. Authorized (Alternate) etc. are hereby authorized to sign the Categories A-3 and B reports of ________________ (Name of Institution) Done in the City of ___________________, Philippines, this _____ day of ______, 19____. ___________________________ CHAIRMAN OF THE BOARD ________________ ________________ DIRECTOR DIRECTOR ________________ ________________ DIRECTOR DIRECTOR ________________ ________________ DIRECTOR DIRECTOR ATTESTED BY: _________________________ CORPORATE SECRETARY Appendix Q-5 MINIMUM INTERNAL CONTROL STANDARDS FOR NBQBs ( Appendix to Sec. 4171Q ) I. Proper Accounting Records 1. NBQBs should maintain proper and adequate accounting records. 2. These records should be kept currently posted and should contain sufficient detail so that an audit trail is established. 3. All entries should bear official approval and should be initialed by the person originating and another person checking them. II. Independent Balancing 1. Independent balancing shall mean that records posted by a person or cash held by a cashier shall be balanced or counted by another person. 2. The minimum independent balancing procedures which should be adopted are the following: a. Monthly reconcilement of general ledger balances against their respective subsidiary and supporting records and documentations by someone other than the bookkeeper, the person handling the records, or the person directly connected with processing the transactions. b. Irregular and unannounced count of cashier's cash and checks and other cash items at least twice a month by the auditor/control officer or by an officer not connected with the treasurer's/cashier's office or its equivalent. c. Monthly reconcilement of cash in banks accounts (domestic and foreign) and due from/to head office/branches by someone other than the check custodian, the person posting the general ledger entries or the authorized signatory of the bank account. d. Periodic verification of securities and collaterals by someone other than their custodians. Verification should include both the physical inventory of securities and the record checking. e. Periodic verification of the accuracy of the interest credits and payments to deposit substitute liabilities accounts. 3. All exceptions in the reconciliation/verification should be followed up immediately until satisfactorily corrected. III. Division of Duties and Responsibilities 1. The duties of all the officers and employees should be segregated, clearly defined, understood, documented and manualized if possible. No individual shall have complete authority and responsibility for handling all phases of any transaction from beginning to end. 2. The physical handling of a transaction should be separated from its recording and supervision as follows: a. A person handling cash should not be permitted to post the ledger records nor should posting of the general ledger be performed by an employee who posts the investor's/creditor's subsidiary ledgers; b. A loaning officer should never be allowed to disburse proceeds of notes, accept note payment nor process loan ledgers; c. The functions of issuing, recording and signing of checks should be separated; d. The receipt of statements from depository bank should be assigned to an employee other than the one connected with the preparation, recording and signing of checks; e. Custodians of securities should not be allowed to handle security transactions; f. Collateral appraisals should be done by an employee/officer other than the ones approving the loans; g. Incoming checks and other cash items should be recorded chronologically in a register by an employee other than the bookkeeper; h. Credit reports should be obtained by someone other than lending officers; i. Mailing of client's statements and delinquent notices should be done by an employee other than the one who granted the loan or the one handling the records; and j. Paid checks/drafts should be controlled and maintained by an officer/employee other than the authorized signatory or the cashier. 3. Extensive background checking of persons intended to be assigned to handle cash and securities should be conducted. Frequent follow-up checking after their employment should also be made. IV. Joint Custody 1. Joint custody shall mean the processing of transactions in the presence of and under the direct observation of a second person. Both persons shall be equally accountable for the physical protection of the items and records involved. 2. Physical protection should be deemed established through the use of two (2) locks or combinations on a file chest or vault compartment. 3. Two (2) or more persons should be assigned to each half of the control so that operating efficiency is not impaired if one person is not immediately available. 4. Persons who are related to each other within the third degree of consanguinity or affinity should not be made joint custodians. 5. The following should be under joint custody: a. Cash on hand or in vault b. All accountable forms c. Collaterals d. Securities e. Documents of title and/or ownership of properties or fixed assets f. Safekeeping items g. Vault doors and safe combinations. V. Signing Authorities 1. Signing authorities for the different levels of officers to sign for and in behalf of the institutions should be approved by the board of directors and the extent of each level of authority should be clearly defined. These signing authorities should include but need not be limited to the following: a. Lending; b. Borrowing; c. Investments; d. Approval of expenses; e. Various supervisory reports; and f. Checks. VI. Dual Control 1. Dual control shall mean the work of one (1) person is to be verified by a second person to determine (a) that proper authority has been given to handle the transaction, (b) that the transaction is properly recorded, and (c) that proper settlement of the transaction is made. TCcIaA 2. The routine of each transaction should be designed so that at least two (2) or more individuals are involved in the completion of every transaction. 3. The following accounts/transactions should be under dual control: a. Checks The signature of at least two (2) officers should be required in the issuance of checks. b. Borrowing The signature of at least two (2) authorized officers should be required. c. All transactions giving rise to "due to" or "due from" account and all instruments of remittances evidencing these transactions particularly those involving substantial amounts, should be approved by two (2) authorized officers. VII. Number Control 1. Sequence number controls should be incorporated in the accounting systems and should be used in registering notes, in issuing official checks and in other similar situations. Number control should be policed by a person designated by senior management who should be detached from the particular operations involved. 2. The following are the forms, instruments and accounts that should be number-controlled: a. Checks; b. Promissory notes and other commercial papers; c. Official and provisional receipts; d. Certificate of stocks; e. Loan accounts; and f. Expense vouchers. VIII. Rotation of Duties 1. The duties of personnel handling cash, securities and bookkeeping records should be rotated. 2. Rotation assignment should be irregular, unannounced and long enough to permit disclosure of any irregularities or manipulations. IX. Independence of the Internal Auditor 1. The position of internal auditor should be provided for in the by-laws together with the duties and responsibilities, scope and objectives of internal auditing. 2. The internal auditor should report directly to the Audit Committee. 3. The internal auditor should not install nor develop procedures, prepare records or engage in other activities which he normally reviews or appraises. X. Direct Verification 1. Direct verification shall mean the confirmation of account or records by direct correspondence/visits with the institution's customers. 2. The following accounts, among others, should be subject to direct verification by the internal auditing staff at least once a year: a. Balances of loans and credit accommodations of borrowers; b. Outstanding balances of borrowings and other liabilities; c. Outstanding balances of receivables/payables; d. Collaterals securing said accounts. XI. Other Internal Control Standards 1. Investments a. Investment limits and a list of accredited companies as approved by the Board of Directors or by its Credit Committee should be established as a guide for investing in any financial institution engaged in money market trading. b. Investments should be secured by assets approved by the Board of Directors or by its Credit Committee. c. Checks representing placements of investments should be released only upon receipt of either the deposit substitute instrument or the underlying securities or documents of title. 2. Miscellaneous a. Loan applications and related documents should be spot-checked to insure their authenticity, including verification of name, residence, employment and current reputation of the borrowers. b. No employee should be permitted to process transaction affecting his own account. c. Cashiers and other employees having contact with customers should be prohibited from preparing deposit substitute tickets or other records for the customers. d. NBQBs should have a sound recruitment policy since internal control begins from point of hiring. e. NBQBs should secure adequate insurance coverages, fidelity and other indemnity protection, viz: (1) Insurance coverage for losses arising from calamities and theft/robberies. (2) Fidelity bonds for losses arising from dishonest, fraudulent and criminal acts of accountable officers/employees. ETIHCa Appendix Q-6 STANDARDIZED DEPOSIT SUBSTITUTE INSTRUMENTS ( Appendix to Subsec. 4211Q.3 ) Serial No. _________ ________________________ (Name of NBQB) PROMISSORY NOTE Issue Date : ________, 19____ Maturity Date : ________, 19____ FOR PESOS ____________________________________ (p_____________) (Present Value/Principal) RECEIVED, _______________________________________ promises to pay (Name of Issuer/Maker) ________________________________________________ or order, the sum (Name/Account Number of Payee) of PESOS ______________________________________ (P_____________) (Maturity Value/Principal & Interest) subject to the terms and conditions on the reverse side hereof. __________________________ (Duly Authorized Officer) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF A PROMISSORY NOTE 1. Computation of Yield Interest is hereby stipulated/computed at ____% per annum, compounded ( ) monthly ( ) quarterly ( ) semi-annually ( ) others. 2. No Pretermination This promissory note shall not be honored or paid by the issuer/maker before the maturity date indicated on the face hereof. 3. Liquidated Damages In case of default, issuer/maker shall pay, in addition to stipulated interest, liquidated damages of ________ (Amount or %), plus attorney's fees of ___________ (Amount or %) and costs of collection in case of suit. 4. Renewal ( ) No automatic renewal. ( ) Automatic renewal under the following terms: ________________________________________________________________________________________________________________________________ 5. Collateral/Delivery ( ) No collateral ( ) Collateral/secured by _______________________ (describe collateral) ( ) Physically delivered to Payee ( ) Evidenced by Custodian Receipt No. __________________ dated _________________ issued ________________________ by ____________________ ( ) Collateralized/secured by ________________________________ (fraction or %) share of ____________________________________ (describe collateral) as evidenced by Custodian Receipt No. ________________ dated _____________________________________ issued by ________________________. 6. Substitution of Securities ( ) Not acceptable to Payee ( ) Acceptable to Payee, however, actual substitution shall be with prior written consent of payee. 7. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ___________ (describe document) dated ____________ executed by _____________ (name of party/ies) and made an integral part hereof. Appendix Q-6 Serial No. ______________ ______________________ (Name of NBQB) REPURCHASE AGREEMENT Issue Date : ________, 19____ Repurchase Date : ________, 19____ FOR AND IN CONSIDERATION OF PESOS ______________ (P _______) Vendor, _________________ (name of NBQB) hereby sells, transfers and conveys in favor of Vendee, ________________ (name of Vendee) the security(ies) described below, it being mutually agreed upon that the same shall be resold by Vendee and repurchased by Vendor on the repurchase date indicated above at the price of PESOS __________________ (P __________), subject to the terms and conditions stated on the reverse side hereof. (Description of Securities) Issuer Serial Number/s Maturity Date/s Face Value Interest/Yield P P TOTAL P P CONFORME: __________________________ (Duly Authorized Officer) _______________________ (Signature of Vendee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT 1. Computation of Yield Yield is hereby stipulated/computed at ___% per annum, compounded ( ) monthly ( ) quarterly ( ) semi-annually ( ) others. 2. No Pretermination Vendor shall not repurchase subject security/ies before the repurchase date stipulated on the face of this document. 3. Liquidated Damages In case of default, the Vendor shall be liable, in addition to stipulated yield, for liquidated damages of ___________ (Amount or %), plus attorney's fees of _______________ (Amount or %), and costs of collection in case of suit. 4. Renewal ( ) No automatic renewal ( ) Automatic renewal under the following terms: ________________________________________________________________________________________________________________________________ 5. Delivery/Custody of Securities ( ) Physically delivered to Payee ( ) Evidenced by Custodian Receipt No. _____________ dated, _______________ issued by __________________________________ 6. Substitution of Securities ( ) Not acceptable to Payee ( ) Acceptable to Payee, however, actual substitution shall be with prior written consent of payee. 7. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of _________________ (describe document) dated _________ executed by __________________ (name of Party/ies) and made an integral part hereof. Serial No. _________ _________________________ (Name of NBQB) CERTIFICATE OF ASSIGNMENT WITH RECOURSE Issue Date: _______, 19 ____ FOR AND IN CONSIDERATION OF PESOS _______________ (P ______) ___________________ (name of Assignor) hereby assigns, conveys, and transfers with recourse to _________________ (name of Assignee) the debt of ________________ (name of Principal Debtor) to the Assignor, specifically described as follows: (Description of Debt Securities) Principal debtor Serial Number/s Maturity Date/s Face Value Interest/Yield P P TOTAL P P and Assignor hereby undertakes to pay, jointly and severally with the Principal Debtor, the face value of, and the interest/yield on, said debt securities. The assignment shall be subject to the terms and conditions on the reverse side hereof. CONFORME: ____________________________ (Duly Authorized Officer) _______________________ (Signature of Assignee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE 1. No Pretermination Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof. 2. Liquidated Damages In case of default, Assignor shall be liable, in addition to interest, for liquidated damages of __________ (Amount or %) plus attorney's fees of _____________ (Amount or %), and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Assignee ( ) Evidenced by Custodian Receipt No. ______________ dated __________, issued by 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ________________, dated _______________ executed by ___________ (name of Party/ies) and made an integral part hereof. Serial No. _________ ____________________ (Name of NBQB) CERTIFICATE OF ASSIGNMENT WITH RECOURSE Issue Date: ________, 19 ____ FOR AND IN CONSIDERATION OF PESOS ________________ (Present Value/Principal) (P ______), ________________ (name of Assignor) hereby assigns, conveys, and transfers with recourse to ______________ (name of Assignee) the debt of _______________ (name of Principal Debtor) to the Assignor, specifically described as follows: Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield P P TOTAL P P and hereby undertakes that in case of default of the Principal Debtor, Assignor shall pay the face value of, and the interest/yield on, said debt securities, subject to the terms and conditions on the reverse side hereof. CONFORME: _________________________ (Duly Authorized Officer) _______________________ (Signature of Assignee) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE 1. No Pretermination Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof. 2. Liquidated Damages In case of default, Assignor shall be liable, in addition to interest, for liquidated damages of ______________ (Amount or %) plus attorney's fees of _______________ (Amount or %), and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Assignee ( ) Evidenced by Custodian Receipt No. __________________ dated _____________, issued by __________________ 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of _____________, dated ______________ executed by _______________ (name of Party/ies) and made an integral part hereof. Serial No: ________ ___________________ (Name of NBQB) CERTIFICATE OF PARTICIPATION WITH RECOURSE Issue Date: _______, 19 ____ FOR AND IN CONSIDERATION OF PESOS ___________________ (P ___________), this certificate of participation is hereby issued to evidence the ______________ (Fraction or %) share of _________________ (name of Participant) in the loan/s of ________________ granted by/assigned to the herein Issuer, specifically described as follows: (Description of Debt Securities) Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield P P TOTAL P P The issuer shall pay, jointly and severally with the Principal Debtor, ____________ (Fraction or %) share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms and conditions on the reverse side hereof. CONFORME: _________________________ (Duly Authorized Officer) ________________________ (Signature of Participant) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE 1. No Pretermination Issuer shall not pay nor repurchase the participation before the maturity date of subject security(ies). 2. Liquidated Damages In case of default, the Issuer of this instrument shall be liable, in addition to interest, for liquidated damages of ___________ (Amount or %), plus attorney's fees of _______________ (Amount or %), and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Participant ( ) Evidenced by Custodian Receipt No. _________ dated ________________, issued by 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ____________________ (describe document), dated ___________________ executed by _______________ (name of Party/ies) and made an integral part hereof. Serial No: ________ ___________________ (Name of NBQB) CERTIFICATE OF PARTICIPATION WITH RECOURSE Issue Date: ________, 19 _____ FOR AND IN CONSIDERATION OF PESOS _________________, (P _______) this certificate of participation is hereby issued to evidence the ____________ (Fraction or %) share of _____________ (Participant) in the loan/s of __________________ granted by/assigned to the herein Issuer, specifically described as follows: (Description of Debt Securities) Principal Debtor Serial Number/s Maturity Date/s Face Value Interest/Yield P P TOTAL P P In case of default of the Principal Debtor, the Issuer shall pay the _____________ (Fraction or %) share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms and conditions on the reverse side hereof. CONFORME: ________________________ (Duly Authorized Officer) _________________________ (Signature of Participant) NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) TERMS AND CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE 1. No Pretermination Issuer shall not pay nor repurchase the participation before the maturity date of subject security(ies). 2. Liquidated Damages In case of default, the Issuer of this instrument shall be liable, in addition to interest, for liquidated damages of ___________ (Amount or %), plus attorney's fees of _____________ (Amount or %), and costs of collection in case of suit. 3. Delivery/Custody of Securities ( ) Physically delivered to Participant ( ) Evidenced by Custodian Receipt No. ______ dated __________, issued by _______________________. 4. Separate Stipulations ( ) This Agreement is subject to the terms and conditions of ______________ (describe document) dated _______________ executed by __________________ (name of Party/ies) and made an integral part hereof. Appendix Q-7 NEW RULES ON REGISTRATION OF SHORT-TERM COMMERCIAL PAPERS ( Appendix to Subsec. 4211Q.9 ) Pursuant to Presidential Decree No. 678, as amended by Presidential Decree No. 1798, and other existing applicable laws, the Securities and Exchange Commission hereby promulgates the following new Rules and Regulations governing short-term commercial papers, in the interest of full disclosure and protection of investors and lenders, in accordance with the monetary and credit policies of the Bangko Sentral. SECTION 1. Scope . These Rules and Regulations shall apply to short-term commercial papers issued by corporations. SECTION 2. Definition . For the purpose of these Rules, the following definitions shall apply: (a) Commercial paper is an evidence of indebtedness of any corporation to any person or entity with a maturity of 365 days or less. (b) Interbank loan transactions shall refer to borrowings between and among banks and non-bank financial intermediaries duly authorized to perform quasi-banking functions. (c) Issue means creation of a commercial paper and its actual or constructive delivery to the payee. SECTION 3. Registration of Commercial Papers . Any corporation desiring to issue commercial paper shall apply for registration with, and submit to, the Commission the following: (a) Ordinary Registration; (1) Sworn Registration Statement in the prescribed form; (2) Board resolution signed by majority of its members (a) authorizing the issue of commercial paper, (b) indicating the aggregate amount to be applied for, (c) providing that the registration statement shall be signed by the principal executive officer, the principal operating officer, the principal financial officer, the comptroller, or principal accounting officer, or persons performing similar functions, and (d) designating at least two senior officers with a rank of vice-president or higher, or their equivalent, to sign the commercial paper instrument to be issued; (3) The latest audited financial statements; and should the same be as of a date more than three (3) months prior to the filing of the registration statement, an unaudited financial statement as of the end of the immediately preceding month: Provided, however , That such unaudited financial statement shall be certified under oath by the accountant and the senior financial officer of the applicant, duly authorized for the purpose, and substituted with an audited financial statement within 120 days after the end of the applicant's fiscal year. (4) Schedules A to L, based on subsection (3) above, in the form attached as Annex "A"; (5) A committed credit line agreement with a bank, or any financial institution which may be qualified subsequently by the Bangko Sentral, earmarked specifically for repayment of aggregate outstanding commercial paper issues on a pro-rata basis, with the following features: (i) A firm, irrevocable commitment to make available funds to cover at least 20% of the aggregate commercial papers outstanding at any time: Provided , That if the commitment is extended by a group, there shall be a lead bank or any financial institution which may be qualified subsequently by the Bangko Sentral acting for the group; (ii) The commitment shall be effective for as long as the issues are outstanding and may be renewed by the bank or any financial institution which may be qualified subsequently by the Bangko Sentral; (iii) The request for drawdown shall be addressed to the bank or any financial institution which may be qualified subsequently by the Bangko Sentral, which request shall be duly signed by a member of the board of directors and a senior financial officer of the commercial paper issuer, duly authorized for the purpose by an appropriate board resolution, which shall also provide for the designation of the alternate signatories (likewise a member of the board of directors and a senior financial officer); (iv) A provision that availments shall be allowed only for repayment of commercial papers which are due and payable in accordance with the terms of the commercial paper; (v) Notwithstanding the foregoing requirements for a committed credit line with a bank, or any financial institution which may be qualified subsequently by the Bangko Sentral ng Pilipinas, any corporation desiring to issue commercial papers may be exempted from compliance therewith by the Securities and Exchange Commission, should it meet all of the following financial ratios based on consolidated audited financial statements for the immediate past three (3) years: 1) Average current ratio shall be at least 1.2:1 computed as follows: Current ratio = Current Assets Current Liabilities OR Average acid-test ratios shall be at least 0.5:1 computed as follows: Cash, receivables, and Acid-test ratio = marketable securities Current Liabilities 2) Average solvency position shall be one whereby total assets must not be less than total liabilities; 3) Average net profit margin shall be at least 3% computed as follows: Net income after income tax, corporate development taxes, and other Net profit margin = non-cash charges Net sales or revenues OR Average annual return on equity shall be at least 8% computed as follows: Net income after income tax, corporate development Return on equity = taxes, and other non-cash Total stockholders' equity 4) Average interest service coverage ratio shall be at least 1.2:1 computed as follows: Net income-before-interest expense, income tax, corporate development taxes, and other non-cash Interest service = charges coverage ratio Interest expense 5) Debt-to-equity ratio shall not exceed 2.5:1. The Securities and Exchange Commission may, in its discretion, consult with industry organization(s) such as Investment Houses Association of the Philippines (IHAP) and Bankers Association of the Philippines (BAP) and/or the Credit Information Bureau, Inc. 6) A selling agreement for the commercial paper issues with an expanded commercial bank or an investment house, or any financial institution which may be qualified subsequently by the Bangko Sentral, with minimum conditions that the selling agent, among others, shall be responsible for ensuring that the issuer observes the provisions of these rules pertaining to the use of proceeds of the committed credit line and, with the issuer, shall be jointly responsible for complying with all reportorial requirements of the Commission and the Bangko Sentral in connection with the commercial paper issue, it being understood that the primary responsibility for the submission of the report to said regulatory agencies is upon the selling agent: Provided, however , That if the commercial paper issuer is unable to provide the information necessary to meet such reportorial requirements, the selling agent shall, not later than two (2) working days prior to the date when the report is due, notify the Commission of such inability on the part of the issuer: Provided, finally , That if the selling agreement is with a group, composed of expanded commercial banks and/or investment houses or any financial institutions which may be qualified subsequently by the Bangko Sentral, there shall be a syndicate manager acting and responsible for the group. (7) Income statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided, That, if the applicant has been in operation for less than three years, it shall submit income statements for such number of years that it has been in operation. (8) A printed copy of a preliminary prospectus approved by the applicant's Board of Directors which, among others, shall contain the following: (i) A statement printed in red on the left-hand margin of the front page of the following tenor: "A registration statement relating to these short-term commercial papers has been filed with, but has not yet been approved by, the Securities and Exchange Commission. Information contained herein is subject to completion or amendment. These short-term commercial papers may not be sold nor may offer to buy be accepted prior to the time the registration statement is approved. This preliminary prospectus shall not constitute an offer to buy nor shall there be any sale of these commercial papers in the Philippines as such offer, solicitation, or sale is prohibited prior to registration under the Securities Act, as amended by P.D. No. 678 and P.D. No. 1798." (ii) Aggregate maximum amount applied for, stated on the front page of the prospectus; (iii) Description and nature of the applicant's business; (iv) Intended use of proceeds; (v) The nature of the firm, irrevocable, and committed credit line, the amount of the line which shall be at least 20% of the aggregate outstanding commercial paper issues, proceeds of which shall be allocated on a pro-rata basis to the aggregate outstanding commercial paper issue (regardless of the order of their maturities), and the manner of availments, as stipulated in the credit line agreement between the bank and the issuer; (vi) The provision in the selling agreement naming the selling agent and the responsibilities of the selling agent in connection with, among others, the use by the issuer of the proceeds of the bank committed credit line and the reportorial requirements under these rules; (vii) Other obligations of the commercial issuer classified by maturities (maturing within six (6) months; from six (6) months to one (1) year; over one (1) year; and past-due amounts); (viii) Encumbered assets; (ix) Directors, officers, and stockholders owning 2% or more of the total subscribed stock of the corporation, indicating any advance to said directors, officers, and stockholders; (x) List of entities where it owns more than 33-1/3% of the total equity, as well as borrowings and advances to said entities; (xi) Financial statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided , That if the applicant has been in operation for less than three (3) years, it shall submit financial statements for such number of years that it has been in operation. (b) Special Registration In the case of special registration provided for under Section 10 hereof, the following shall, in addition to the immediately preceding requirements, be prepared and submitted by the selling agent on behalf of the applicant: (1) Projected annual cash flow statement as of the date of filing, presented on a quarterly basis, supported by schedules on actual maturity patterns of existing receivables and liabilities (under six (6) months, six (6) months to one (1) year, over one (1) year, and past-due amounts) and inventory turnover as of the end of the month prior to the filing of the registration statement; and (2) Complementary financial ratios for each of the immediate past three (3) fiscal years: (i) Ratio of (a) the total of cash on hand, marketable securities, current receivables to (b) the total of current liabilities; (ii) debt-to-equity ratio, with debt referring to all kinds of indebtedness, including guarantees; (iii) Ratio of (a) net income after taxes to (b) net worth; (iv) Net profits-to-sales ratio; and (v) Such other financial indicators as may be prescribed by the Commission. These additional data shall likewise be incorporated in the prospectus. (c) The Commission may, whenever it deems necessary impose other requirements in addition to those enumerated in subsections (a) and/or (b) above. SECTION 4. Commercial Papers Exempt Per Se . The following specific debt instruments are exempt per se from the provisions of these Rules: (a) Evidence of indebtedness arising from interbank loan transactions; (b) Evidence of indebtedness issued by the national and local governments; (c) Evidence of indebtedness issued to the Bangko Sentral under its open market and/or rediscounting operations; (d) Evidence of indebtedness issued by the Bangko Sentral ng Pilipinas, Philippine National Bank, Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System, and the Social Security System; (e) Evidence of indebtedness issued to the following primary institutional lenders: banks, including their trust accounts, trust companies, non-bank financial intermediaries authorized to engage in quasi-banking functions, investment houses, including their trust accounts, financing companies, investment companies, non-stock savings and loan associations, building and loan associations, venture capital corporations, special purpose corporations referred to in Central Bank Monetary Board Res. No. 1051 dated June 19, 1981, insurance companies, government financial institutions, pawnshops, pension and retirement funds approved by the Bureau of Internal Revenue, educational assistance funds established by the national government; and other entities that may be classified as primary institutional lenders by the Bangko Sentral, in consultation with the Securities and Exchange Commission: Provided , That all such evidences of indebtedness shall be held on to maturity and shall neither be negotiated nor assigned to any one other than the Bangko Sentral and the Development Bank of the Philippines, with respect to private development banks in connection with their rediscounting privilege, and financial intermediaries with quasi-banking functions; (f) Evidence of indebtedness the total outstanding amount of which does not exceed P5,000,000 and issued to not more than ten (10) primary lenders other than those mentioned in subsection (e) above, which evidence of indebtedness shall be payable to a specific person and not to bearer and shall neither be negotiated nor assigned but held on to maturity; (g) Evidence of indebtedness denominated in foreign currencies; and (h) Evidence of indebtedness arising from bonafide sale of goods or property. SECTION 5. Other Commercial Papers Exempt from Registration . Commercial papers issued by any financial intermediary authorized by the Bangko Sentral to engage in quasi-banking functions shall be exempt from registration under Section 3, but shall be subject to payment of the exemption fee, as provided under Section 15, and to the reportorial requirements under Section 17, all under these Rules. SECTION 6. Prohibition . No commercial paper, except of a class exempt under Sections 4 and 5 hereof, shall be issued unless such commercial paper shall have been registered under these Rules: Provided, That no registered commercial paper issuer may issue commercial paper exempt per se under Section 4 (f) hereof. SECTION 7. Compliance with Bangko Sentral Quasi-Banking Requirements . Nothing in these Rules shall be construed as an exemption from or a waiver of the applicable Bangko Sentral rules/regulations or circulars governing the performance of quasi-banking functions or financial intermediaries duly authorized to engage in quasi-banking activities. Any violation of said Bangko Sentral rules/regulations or circulars shall be considered a violation of these rules and regulations. SECTION 8. Action on Application for Registration . (a) Within sixty (60) days after receipt of the complete application for registration, the Commission shall act upon the application and shall, in the appropriate case, grant the applicant a Certificate of Registration and Authority to Issue Commercial Papers. (b) The Commission shall return any application for registration, in cases where the requirement of applicable laws and regulations governing the issuance of commercial papers have not been complied with, or for reasons which shall be so stated. SECTION 9. Ordinary Registration . If the value of commercial papers applied for, when added to the total outstanding liabilities of the applicant, does not exceed three hundred percent (300%) of networth based on the financial statements referred to under Section 3(a) (3), the commercial papers shall be registered upon compliance with the requirements specified in Section 3(a) hereof. The same principle shall apply in the case of renewal of the Authority to Issue Commercial Paper. SECTION 10. Special Registration . If the value of commercial paper applied for exceeds three hundred per cent (300%) of networth, as contemplated in the preceding section, it shall be subject to compliance with the requirement under Section 3(b) hereof. SECTION 11. Validity Period of the Authority to Issue Commercial Paper . The authority to issue commercial papers shall be valid for a period of three hundred sixty-five (365) days which shall be indicated in the Authority to Issue Commercial Paper, provided that renewal thereof, upon application filed at least forty five (45) days prior to its expiry date, may be for a period shorter than three hundred sixty-five (365) days. SECTION 12. Conditions of the Authority to Issue Commercial Paper. (a) In the event that the commercial paper issuer fails to pay in full any commercial paper upon demand at stated maturity date, the Authority to Issue Commercial Paper is automatically suspended. The selling agent shall, within the next working day, notify the Commission thereof, and the Commission shall forthwith issue a formal Cease-and-Desist Order, enjoining both the issuer and the selling agent from further issuing or selling Commercial papers. (b) Whenever necessary to implement the monetary and credit policies promulgated from time to time by the Monetary Board of the Bangko Sentral, the Commission may suspend the Authority to Issue Commercial Paper, or reduce the authorized amount thereunder, or schedule the maturities of the registered commercial paper to be issued. SECTION 13. Basic Features of Registered Commercial Papers . (a) All registered commercial paper instruments shall have a standard format, serially pre-numbered, and denominated. The instrument shall state, among others, the debt ceiling of the registrant and a notice that information about the registrant submitted in connection with the registration and other reportorial requirements from the issuer is available at the Commission and open to public inspection and that the issuer is not authorized by the Bangko Sentral to perform quasi-banking functions. (b) A specimen of the proposed commercial paper instrument shall be submitted to the Commission for approval of the text thereof. (c) The approved instrument shall be printed by the Bangko Sentral Security Printing Plant pursuant to a prior authorization from the Commission, and shall be released by the Commission to the issuer. SECTION 14. Minimum Maturity Value . The maturity value of each registered commercial paper instrument shall not be lower than P300,000. SECTION 15. Fees . Every registrant shall pay the following fees: (a) Upon application for registration, and for renewals thereof, a filing fee of not more than 1/50th of 1% based on the total commercial paper proposed to be issued. (b) For issuers of commercial paper exempt under Section 5 hereof, an annual exemption fee of P10,000. SECTION 16. Notice of Availment . Whenever the credit line is drawn upon, the selling agent and/or issuer shall, within two (2) working days immediately following the date of drawdown, notify the Commission of such event, indicating the amount availed of and the total availment as of that given time. SECTION 17. Periodic Reports . (a) Issuers of registered commercial papers and those exempt under Section 5 hereof shall submit to the Commission and the Bangko Sentral the following reports in the prescribed form: (1) Monthly reports on commercial papers outstanding as at the end of each month, to be submitted within ten (10) working days following the end of the reference month; (2) Quarterly reports on commercial paper transactions, accompanied by an interim quarterly financial statement, to be submitted within thirty (30) calendar days following the end of the reference quarter; and (3) For issuers whose application for registration was under Section 10 hereof, the projected quarterly cash flow statements with the corresponding quarter's actual figure, to be submitted within ten (10) working days following the end of the reference quarter; (b) These periodic reports shall be signed under oath by the corporate officers authorized pursuant to a board resolution previously filed with the Commission; (c) Issuers whose offices are located in the provinces may submit their reports to the nearest extension offices of the Commission. SECTION 18. Administrative Sanctions . If the Commission finds that there is a violation of any of these Rules and Regulations and implementing circulars or that any issuer, in a registration statement and its supporting papers, as well as in the periodic reports required to be filled with the Commission and the Bangko Sentral, has made any untrue statement of a material fact, or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion, impose any or all of the following sanctions: (a) Suspension or revocation, after proper notice and hearing, of the Certificate of Registration and Authority to Issue Commercial Paper; (b) A fine in accordance with the guidelines that the Commission shall issue from time to time: Provided, however , That such fine shall in no case be less than P200 or more than P50,000 for each violation, plus not more than P500 for each day of continuing violation. Annex "B" hereof shall initially be the guideline on the scale of fines; (c) Other penalties within the power of the Commission under existing laws; and (d) The filing of criminal charges against the individuals responsible for the violation. SECTION 19. Cease-and-Desist Order . The Commission may, on its own motion or upon verified complaint by an aggrieved party, issue a Cease-and-Desist Order ex-parte if the violation(s) mentioned in Section 18 may cause great or irreparable injury to the investing public, or may amount to palpable fraud, or violation of the disclosure requirements of the Securities Act and of these Rules and Regulations. The issuance of such Cease-and-Desist Order automatically suspends the Authority to Issue Commercial Paper. Such Cease-and-Desist Order shall be confidential in nature until after the imposition of the sanctions mentioned in Section 18 shall have become final and executory. Immediately upon the issuance of an ex-parte Cease-and-Desist Order, the Commission shall notify the parties involved, and schedule a hearing on whether to lift such order, or to impose the administrative sanctions provided for in Section 18 not later than fifteen (15) days after receipt of notice. SECTION 20. Repealing Clause . These Rules and Regulations supersede the Rules on Registration of Commercial Papers dated December 10, 1975, and all the amendments to said Rules. All other rules, regulations, orders, and memoranda circular of the Commission which are inconsistent herewith are likewise hereby repealed or modified accordingly. SECTION 21. Transitory Provision . Any authority to Issue Commercial Paper, valid and subsisting as of the date of the effectivity of these Rules and Regulations, shall remain valid and upon its expiration may, at the discretion of the Commission and subject to such conditions as it may impose, be renewed on the basis of the Rules of Registration of Commercial Papers dated December 10, 1975 for an aggregate period not exceeding fifteen (15) months from its expiry date. SECTION 22. Effectivity . These Rules and Regulations shall take effect on December 11, 1981. (Editors Note: Annexes "A" and "B" are not reproduced in this Appendix.) Appendix Q-8 NEW RULES ON THE REGISTRATION OF LONG-TERM COMMERCIAL PAPERS ( Appendix to Subsecs. 4211Q.9 and 4217Q.3 ) Pursuant to Section 4(b) of the Revised Securities Act and other existing applicable laws, the Securities and Exchange Commission (SEC) hereby promulgates the following New Rules and Regulations governing long-term commercial papers, in the interest of full disclosure and protection of investors and lenders, in accordance with the monetary and credit policies of the BSP: SECTION 1. Scope . These Rules shall apply to long-term commercial papers issued by corporations. SECTION 2. Definitions . For purposes of these Rules, the following definitions shall apply: a. Long-term commercial papers shall refer to evidence of indebtedness of any corporation to any person or entity with maturity period of more than 365 days. b. Interbank loan transactions shall refer to borrowings between and among banks and non-bank financial intermediaries duly authorized to perform quasi-banking functions. c. Issue shall refer to the creation of commercial paper and its actual or constructive delivery to the payee. d. Appraised value shall refer to the value of chattel and real property, as established by a duly licensed and independent appraiser. e. Current market value shall refer to the value of the securities at current prices, as quoted at the stock exchanges. f. Recomputed debt-to-equity ratio shall refer to the proportion of total outstanding liabilities, including the amount of long-term commercial papers applied for, and any unissued authorized commercial papers to net worth. g. Specific person shall refer to a duly named juridical or natural person as an investor for its or his own account, a trustee for one or more trustors, an agent or fund manager for a principal under a fund management agreement, and does not include numbered accounts. h. Net worth shall refer to the excess of total assets over total liabilities, net of appraisal surplus. i. Subsidiary shall refer to a company more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled, or held with power to vote by another company. j. Affiliate shall refer to a concern linked, directly or indirectly, to another by means of: 1) Ownership control and power to vote of 10%, but not more than 50%, of the outstanding voting stock. 2) Common major stockholders; i. e., owning 10%, but not more than 50%, of the outstanding voting stock. 3) Management contract or any arrangement granting power to direct or cause the direction of management and policies. 4) Voting trustee holding 10%, but not more than 50%, of the outstanding voting stock. 5) Permanent proxy constituting 10%, but not more than 50%, of the outstanding voting stock. k) Underwriting shall refer to the act or process of distributing and selling of any kind of original issues of long-term commercial papers of a corporation other than those of the underwriter itself, either on guaranteed or best-effort basis. l) Trust accounts shall refer to those accounts with a financial institution authorized by the BSP to engage in trust functions, wherein there is a trustor-trustee relationship under a trust agreement. SECTION 3. Conditions for Registration . Long-term commercial papers shall be registered under any of the following conditions: a. Collateral The amount of long-term commercial papers applied for is covered by the following collaterals which are not encumbered, restricted, or earmarked for any other purpose and which shall be maintained at their respective values at all times, indicated in relation to the face value of the long-term commercial paper issue; 1) Securities listed in Current market the stock exchanges value of 200% 2) Registered real estate Appraised value mortgage of 150% 3) Registered chattel mortgage Appraised value on heavy equipment, of 200% machinery, and similar assets acceptable to the Commission and registrable with the appropriate government agency b. Financial Ratios A registrant who meets such standard, as may be prescribed by the Commission, based on the following complementary financial ratios for each of the immediate past three (3) fiscal years: 1) Ratio of (a) the total cash, marketable securities, current receivables to (b) the total of current liabilities; 2) Debt-to-equity ratio, with debt referring to all kinds of indebtedness, including guarantees; 3) Ratio of (a) net income after taxes to (b) net worth; 4) Net profits to sales ratio; and 5) Such other financial indicators, as may be required by the Commission. c. Debt to equity The recomputed debt-to-equity to ratio of the applicant based on the financial statements required under Sec. 4.c. hereof shall not exceed 4:1: Provided , That the authorized short-term commercial papers do not exceed three hundred percent (300%) of net worth and upon compliance with the registration requirements specified in Sec. 4 hereof. The conditions under which the commercial papers of a registrant were registered shall be strictly maintained during the validity of the Certificate of Registration. SECTION 4. Registration Requirements . Any corporation desiring to issue long-term commercial papers shall apply for registration with, and submit to, the Commission the following: a. Sworn Registration Statement in the form prescribed by the Commission; b. Board resolution signed by a majority of its members 1) authorizing the issue of long-term commercial papers; 2) indicating the aggregate amount to be applied for; 3) stating purpose or usage of proceeds thereof; 4) providing that the registration statement shall be signed by any of the following: the principal executive officer, the principal operating officer, the principal financial officer, the comptroller or principal accounting officer, or persons performing similar functions; and 5) designating at least two senior officers with a rank of vice-president, or higher of their equivalent, to sign the commercial paper instruments to be issued. c. The latest audited financial statements and should the same be as of a date more than three (3) months prior to the filing of the registration statements, an unaudited financial statement as of the end of the immediately preceding month; Provided, however , That such unaudited financial statement shall be certified under oath by the accountant and the senior financial officer of the applicant duly authorized for the purpose and substituted with an audited financial statement within 105 days after the end of the applicant's fiscal year; d. Schedules A to L based on subsection c above, in the form attached as Annex "A"; e. Income statements for the immediate past three (3) fiscal years audited by an independent certified public accountant: Provided , That if the applicant has been in operation for less than three (3) years, it shall submit income statements for such number of years that it has been in operation; f. An underwriting agreement for the long-term commercial paper issues with an expanded commercial bank or an investment house, or any other financial institution which may be qualified subsequently by the BSP with minimum condition, among others, that the underwriter and the issuer shall be jointly responsible for complying with all reportorial requirements of the Commission and the BSP in connection with the long-term commercial paper issue, it being understood that the primary responsibility for the submission of the report to these regulatory agencies is upon the underwriting agreement and thereafter, the responsibility shall devolve upon this issuer: Provided, however , That if the issuer is unable to provide the information necessary to meet such reportorial requirements, the underwriter shall, not later than two (2) working days prior to the date when the report is due, notify the Commission of such inability on the part of the issuer: Provided, further , That if the underwriting agreement is with a group composed of expanded commercial banks and/or investment houses or any financial institutions which may be qualified subsequently by the BSP, there shall be a syndicate manager acting and responsible for the group: Provided, finally , That the underwriter may be changed subject to prior approval by the Commission; g. A typewritten copy of a preliminary prospectus approved by the applicant's Board of Directors which, among others, shall contain the following: 1) A statement printed in red on the left-hand margin of the front page, to wit: "A registration statement relating to these long-term commercial papers has been filed with, but has not yet been approved by, the Securities and Exchange Commission. Information contained herein is subject to completion or amendment. These long-term commercial papers may not be sold nor may offers to buy be accepted prior to the approval of the registration statement. This preliminary prospectus shall not constitute an offer to buy nor shall there be any sale of these long-term commercial papers in the Philippines as such offer, solicitation, or sale is prohibited prior to registration under the Revised Securities Act." 2) Aggregate maximum amount applied for, stated on the front page of the prospectus; 3) Description and nature of the applicant's business; 4) Intended use of proceeds; 5) Provisions in the underwriting agreement, naming the underwriter and its responsibilities in connection with, among others, the reportorial requirements under these Rules; 6) Other obligations of the applicant classified by maturities maturing within six (6) months; from six (6) months to one (1) year; and one (1) year and past-due amounts; 7) List of assets which are encumbered, restricted, or earmarked for any other purposes; 8) List of directors, officers, and stockholders owning two percent (2%) or more of the total outstanding voting stock of the corporation, indicating any advance to said directors, officers, and stockholders; 9) List of entities where it owns more than 33-1/3% of the total outstanding voting stock, as well as borrowings from, and advances to, said entities. h. Projected annual cash flow statement presented on a quarterly basis as of the approximate date of issuance for a period co-terminus with the life time of the issue, indicating the basic assumptions thereto and supported by schedules on actual maturity patterns of outstanding receivables and liabilities (under six (6) months, six (6) months to one (1) year, over one (1) year, and past-due accounts) and inventory turnover; i. Data on financial indicators, as may be prescribed by the Commission, for each of the immediate past three (3) fiscal years, such as on solvency, liquidity, and profitability. The Commission may, whenever it deems necessary, impose other requirements in addition to those enumerated above. SECTION 5. Action on Application for Registration . a. Within sixty (60) days after receipt of the complete application for registration, the Commission shall act upon the application and shall, in the appropriate case, grant the applicant a Certificate of Registration and Authority to Issue Long-Term Commercial Papers valid for one (1) year, which may be renewed annually with respect to the unissued balance of the authorized amount, upon showing that the registrant has strictly complied with the provisions of these Rules and the terms and conditions of the Certificate of Registration. b. The Commission shall return any application for registration, in cases where the requirements of applicable laws and regulations governing the issuance of long-term commercial papers have not been complied with, or for reasons which shall be so stated. SECTION 6. Close-end Registration . Registration of long-term commercial papers under these Rules shall be a close-end process, whereby the portion of the authorized amount already issued shall be deducted from the authorized amount and may no longer be reissued even if reacquired in any manner, pursuant to the terms and conditions of issue. SECTION 7. Long-Term Commercial Papers Exempt Per Se . The following specific long-term debt instruments are exempt per se from the provisions of these Rules: a. Evidence of indebtedness arising from interbank loan transactions; b. Evidence of indebtedness issued by the national and local governments; c. Evidence of indebtedness issued by government instrumentalities, the repayment and servicing of which are fully guaranteed by the National Government; d. Evidence of indebtedness issued to the BSP under its open market and/or rediscounting operations; e. Evidence of indebtedness issued by the BSP, Philippine National Bank, Development Bank of the Philippines, and Land Bank of the Philippines; f. Evidence of indebtedness issued to the following primary institutional lenders: banks, including their trust accounts, trust companies, non-bank financial intermediaries authorized to engage in quasi-banking functions, investment houses, including their trust accounts, financing companies, investment companies, non-stock savings and loan associations, building and loan associations, venture capital corporations, special purpose corporations referred to in Central Bank Monetary Board Resolution No. 1051 dated June 19, 1981, insurance companies, government financial institutions, pawnshops, pension and retirement funds approved by the Bureau of Internal Revenue, educational assistance funds established by the national government, and other entities that may be classified as primary institutional lenders by the BSP, in consultation with the Commission: Provided , That all such evidences of indebtedness shall be held on to maturity and shall neither be negotiated nor assigned to any one other than the BSP, and the Development Bank of the Philippines, with respect to private development banks in connection with their rediscounting privileges, and financial intermediaries with quasi-banking functions; g. Evidence of indebtedness, the total outstanding amount of which does not exceed Fifteen Million Pesos (P15,000,000) and issued to not more than fifteen (15) primary lenders other than those mentioned in subsection (f) above, which evidence of indebtedness shall be payable to specific persons, and not to bearers, and shall neither be negotiated nor assigned but held on to maturity: Provided, That the aggregate amount of P15,000,000 shall include outstanding short-term commercial papers: Provided, further , That in reckoning compliance with the number of primary lenders under this Section, holders of such papers exempt under Sec. 4(f) of the Rules on Registration of Short-Term Commercial Papers, as amended, shall be counted: Provided, furthermore , That such issuer shall: 1) File (1) a disclosure statement prior to the issuance of any evidence of indebtedness; and (2) a quarterly report on such borrowings in the forms prescribed by the Commission; and 2) Indicate in bold letters on the face of the instrument the words "NON-NEGOTIABLE, NON-ASSIGNABLE": and Provided, finally , That any issuer, in accordance with the Rules on Registration of Long-Term Commercial Papers and Bonds dated October 15, 1976 and with outstanding long-term commercial papers falling under this subsection as of the effectivity date hereof, shall likewise file the prescribed disclosure statement and the quarterly report on such borrowings; h. Evidence of indebtedness denominated in foreign currencies; and i. Evidence of indebtedness arising from bonafide sale of goods or property. SECTION 8. Other Long-Term Commercial Papers Exempt from Registration . The following long-term commercial papers shall be exempt from registration under Secs. 3 and 4 hereof, but shall be subject to the payment of the exemption fee, as prescribed under Section 14, and to the reportorial requirements under Section 15 of these Rules: a. Long-term commercial papers issued by a financial intermediary authorized by the BSP to engage in quasi-banking functions; b. Long-term commercial papers fully secured by debt instruments of the National Government and the BSP and physically delivered to the trustee in the Trust Indenture. SECTION 9. Prohibitions. a. No long-term commercial papers shall be issued, or negotiated or assigned unless the requirements of these Rules shall have been complied with: Provided, That no registered long-term commercial paper issuer may issue long-term commercial paper exempt per se under Section 7(g) hereof. b. There shall be no pretermination of long-term commercial papers either by the issuer or the lender within 730 days from issue date. Pretermination shall include optional redemption, partial installments, and amortization payments; however, installment and amortization payments may be allowed, if so stipulated in the loan agreement. SECTION 10. Compliance with Bangko Sentral Quasi-Banking Requirements . Nothing in these Rules shall be construed as an exemption from, or a waiver of, the applicable BSP rules and regulations governing the performance of quasi-banking functions. Any violation of said BSP rules and regulations shall be considered a violation of these Rules. SECTION 11. Conditions of the Authority to Issue Long-Term Commercial Papers . a. During the effectivity of the underwriting agreement, should the issuer fail to pay in full any interest due on or principal of long-term commercial paper upon demand at stated maturity date, the Authority to Issue Long-Term Commercial Papers shall be automatically suspended. The underwriter shall, within the next working day, notify the Commission thereof, and the Commission shall forthwith issue a formal Cease-and-Desist Order enjoining both the issuer and the underwriter from further issuing or underwriting long-term commercial papers. b. Upon the expiration of the underwriting agreement, it shall be the responsibility of the issuer to notify the Commission that it failed to pay in full any interest due on, or principal of, long-term commercial paper upon demand at stated maturity date and has accordingly automatically suspended the issuance of its long-term commercial papers. Within the next working day, the Commission shall forthwith issue a formal Cease-and-Desist Order enjoining the issuer from further issuing long-term commercial papers. c. Whenever necessary to implement the monetary and credit policies promulgated from time to time by the Monetary Board of the BSP, the Commission may suspend the authority to issue long-term commercial paper, or reduce the authorized amount thereunder, or schedule the maturities of the registered long-term commercial paper to be issued. SECTION 12. Basic Features of Registered Commercial Papers . a. All registered commercial paper instruments shall have a standard format, serially pre-numbered, and denominated. The instrument shall state, among others, the debt ceiling of the registrant and a notice that information about the registrant submitted in connection with the registration, and other reportorial requirements from the issuer is available at the Commission and open to public inspection, and that the issuer is not authorized by the BSP to perform quasi-banking functions. b. A specimen of the proposed commercial paper instrument shall be submitted to the Commission for approval of the text thereof. c. The instrument approved by the Commission shall be printed by an entity authorized by the Commission and shall be released by the Commission to the issuer. SECTION 13. Minimum Principal Amount . The minimum principal amount of each registered long-term commercial paper instrument shall not be lower than the amounts indicated in the following schedule: a. Up to two years P100,000 b. Over two years but less than four years 50,000 c. Four years or more 20,000 SECTION 14. Fees . Every registrant shall pay the following fees: a. Upon application for registration, a filing fee of 1/20 of 1% based on total commercial paper proposed to be issued, but not to exceed P75,000. b. For issuers of commercial papers exempt under Section 8 hereof, an annual exemption fee of P10,000. SECTION 15. Periodic Reports. a. Issuers of registered long-term commercial papers, through their underwriters and those exempt under Section 8 hereof, shall submit the following reports in the form prescribed by the Commission: 1) Monthly reports on long-term commercial papers outstanding as at the end of each month, to be submitted within ten (10) working days following the end of the reference month; 2) Quarterly reports on long-term commercial paper transactions, accompanied by an interim quarterly financial statement to be submitted within thirty (30) calendar days following the end of the reference quarter; and 3) Actual quarterly cash flow statement, to be submitted within ten (10) working days following the end of the reference quarter. b. These periodic reports shall be signed under oath by the corporate officers authorized, pursuant to a board resolution previously filed with the Commission. c. Issuers whose offices are located in the provinces may, through their underwriters, submit their reports to the nearest extension office of the Commission. SECTION 16. Administrative Sanctions . If the Commission finds that there is a violation of any of these Rules and Regulations and implementing circulars, or that any issuer, in a registration statement and its supporting papers, as well as in the periodic reports required to be filed with the Commission and the BSP, has made any untrue statement of a material fact, or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion, impose any or all of the following sanctions: a. Suspension or revocation, after proper notice and hearing, of the Certificate of Registration and Authority to Issue Commercial Paper; b. A fine in accordance with the guidelines that the Commission shall issue from time to time: Provided, however, That such fine shall in no case be less than P200 nor more than P50,000 for each violation, plus not more than P500 for each day of continuing violation. Annex "B" hereof shall initially be the guidelines on the scale of fines; c. Other penalties within the power of the Commission under existing laws; and d. The filing of criminal charges against the individuals responsible for the violation. SECTION 17. Cease-and-Desist Order. a. The Commission may, on its own motion or upon verified complaint by an aggrieved party, issue a Cease-and-Desist Order ex-parte, if the violation(s) mentioned in Section 16 hereof may cause great or irreparable injury to the investing public, or will amount to palpable fraud or violation of the disclosure requirements of the Revised Securities Act and of these Rules and Regulations. b. The issuance of such Cease-and-Desist Order automatically suspends the Authority to Issue Long-Term Commercial Paper. c. Such Cease-and-Desist Order shall be confidential in nature, until after the imposition of the sanctions mentioned in Section 16 hereof shall have become final and executory. d. Immediately upon the issuance of an ex-parte Cease-and-Desist Order, the Commission shall notify the parties involved, and schedule a hearing on whether to lift such order, or to impose the administrative sanctions provided for in Section 16 not later than fifteen (15) days after receipt of notice. SECTION 18. Repealing Clause . These Rules and Regulations supersede the Rules on Registration of Long-Term Commercial Paper and Bonds dated October 15, 1976 and all the amendments to said Rules except as provided in Section 19 hereof. All other rules, regulations, orders, memoranda circular of the Commission, which are inconsistent herewith, are likewise hereby repealed or modified accordingly. SECTION 19. Transitory Provision . a. Any authority or Certificate of Exemption to Issue Long-Term Commercial Papers, granted under the Rules on Registration of Long-Term Commercial Papers dated October 15, 1976, valid and subsisting as of the date of the effectivity of these Rules, shall remain valid with respect only to all outstanding issue until such issues are retired or redeemed. b. The Commission may, at its discretion and subject to such conditions it may impose, authorize issuance of any unissued portion of the issuer's approved long-term debt ceiling solely for refinancing of maturing long-term commercial paper issue for a period not beyond fifteen (15) months from the effectivity date of these Rules. SECTION 20. Effectivity . These Rules and Regulations shall take effect fifteen (15) days after publication in two newspapers of general circulation in the Philippines. (Ed. Note: Annexes "A" and "B" are not reproduced in this Appendix.) Appendix Q-9 LIST OF RESERVE ELIGIBLE AND NON-ELIGIBLE SECURITIES ( Appendix to Subsec. 4246Q.1 ) A. Government securities ELIGIBLE as reserves 1. Direct obligations of the Government of the Republic of the Philippines eligible as reserve against peso deposit liabilities and deposit substitute liabilities: a. 4% PWED Bonds all outstanding series b. 4% NPC Bonds (26th 50th Series except 39th Ser. which bear 6% obligation assumed by the National Government) c. 4% Treasury Bonds (30th S; 57th S; 59th-71st S; 78th-93rd S) Treasury Bonds with less than 4% per annum interest considered eligible by reason of expressed BSP limited support to original purchaser: 2% T/Bond L of 1973/2003 1st Series (1st & 2nd Release) 3% T/Bond L of 1978/2008 55th Series (1st Release) 4% T/Bond L of 1979/2009 55th Series (2nd Release) 3-1/4% T/Bond L of 1974/1999 6th Series (1st-2nd Release) 3-1/4% T/Bond L of 1978/2003 54th Series (1st-3rd Release) d. 4% Treasury Notes L of 1980/1995 115th Series e. Bonds made specifically eligible to its holders only: 4% Treasury Capital Bonds DBP only 2% Capital Treasury Bonds PNB only 2. Bonds and other evidences of indebtedness bearing interest rate of four percent (4%) per annum, issued by government-owned or controlled corporations, political subdivisions and instrumentalities likewise eligible as reserves against peso deposit liabilities and deposit substitute liabilities: 4% NAWASA Bonds (1st to 9th & 13th Series) 3. The following government securities bearing more than four percent (4%) per annum interest, whether Bangko Sentral supported or not, if BEING USED BY BANKS/NBQBs as reserve against deposit substitute liabilities as of January 17, 1977 shall continue to be eligible as such: Provided, That whenever said securities shall have matured, they shall be replaced by securities carrying the features/conditions enumerated under Circular No. 638, dated November 8, 1978, as amended: 6% PWED Bonds All outstanding issues 6% NPC Bonds -do- 7% NPC Bonds -do- 8-1/2% NPC Bonds 13th 22nd Series 7% MWSS Capital All outstanding Bonds issues 6% NIA Bonds -do- 4 1/2% Treasury Bonds -do- 4 7/10% Treasury Bonds 7th Series 5% Treasury Bonds 9th Series 6% Treasury Bonds 8th Series 7% Treasury Bonds All outstanding issues except 15th Series 10-3/4% Treasury Bonds All outstanding issues 9% Treasury Notes 60th-65th Series 10-1/2% Treasury Notes 101st Series (1st & 2nd Release) 10-3/4% Treasury Notes 56th and 61st Series 11-1/4% Treasury Notes 59th Series 6% NAWASA Bonds 11th, 12th and 1st Series 10% EPZA Bonds 9th-11th Series 10-3/4% EPZA Bonds 3rd-8th Series B. The following government securities are NOT ELIGIBLE whatsoever for reserve purposes: Negotiable Land Certificate (NLC) Cultural Center of the Philippines (CCP) Bonds Philippine Charity Sweepstakes Office (PCSO) Bonds Public Estate Authority (PEA) Bonds National Development Company (NDC) Bonds National Housing Authority (NHA) Bonds National Food Authority (NFA) Bonds NHMFC Bahayan Certificates Light Rail Transit Authority (LRTA) Notes CBCIs (Auctioned/discounted) 24th-29th Series CBCIs (Negotiated) A to D-1 Series and 5th to 7th Series (18 months) CBCIs 10-1/2% Special Series 1st 32nd Series Central Bank Bills (Negotiated/discounted) Treasury Bills (Negotiated/discounted) Treasury Notes and Treasury Bonds bearing less than four percent (4%) per annum, but not given BSP support as follows: Treasury Bonds 2% T/Bond L of 1973/2003 4th Series 2-3/4% T/Bond L of 1974/1986 7-A & 7-B Series 3% T/Bond L of 1976/2001 26th, 27th, 31st-34th, 46th & 47th Series 3% T/Bond L of 1977/2002 49th Series 3-1/4% T/Bond L of 1974/1999 6th Series 3rd & 4th Release 3-1/4% T/Bond L of 1977/2002 6th Series 5th Release 3-1/4% T/Bond L of 1975/2000 21st Series 1st Release 3-1/4% T/Bond L of 1977/2002 21st Series 2nd Release 3-1/4% T/Bond L of 1977/2002 51st Series 1st & 2nd Release 3-1/4% T/Bond L of 1978/2003 54th Series 1st & 34th Release 3-1/4% T/Bond L of 1980/2005 58th Series 3-3/4% T/Bond L of 1973/2003 2nd Series Treasury Notes 2% T/Notes L of 1976/1991 79th Series 3% T/Notes L of 1982/1997 128th Series 3% T/Notes L of 1981/1986 120th Series & 125th Series 3-1/2% T/Notes L of 1982/1997 Special Series 1st-24th Release Appendix Q-10 GUIDELINES IN IDENTIFYING AND MONITORING PROBLEM LOANS AND OTHER RISK ASSETS AND SETTING UP OF ALLOWANCE FOR PROBABLE LOSSES ( Appendix to Sec. 4302Q ) I. Classification of loans . In addition to classifying loans as either current or past due, the same should be qualitatively appraised and grouped as Unclassified or Classified. A. Unclassified loans . These are loans that do not have a greater-than-normal risk and do not possess the characteristics of classified loans as defined below. The borrower has the apparent ability to satisfy his obligations in full and therefore no loss in ultimate collection is anticipated. The following loans, among others, shall not be subject to classification: 1. Loans or portions thereof secured by hold-outs on deposit substitutes maintained in the lending institutions, margin deposits, or government-supported securities; 2. Loans with technical defects and deficiencies in documentation and/or collateral requirements. These deficiencies are isolated cases where the exceptions involved are not material nor is the NBQB's chance to be repaid or the borrower's ability to liquidate the loan in an orderly manner undermined. These exceptions should be brought to management's attention for corrective action during the examination and those not corrected shall be included in the Report of Examination under " Miscellaneous Exceptions Loans ". Moreover, deficiencies which remained uncorrected in the following examination shall be classified as " Loans Especially Mentioned ". The following are examples of loans to be cited under " Miscellaneous Exceptions Loans ": a. Loans with unregistered mortgage instrument which is not in compliance with the loan approval; b. Loans with improperly executed supporting deed of assignment/pledge agreement/chattel mortgage/real estate mortgage; c. Loans with unnotarized mortgage instruments/agreements; d. Loans with collaterals not covered by appraisal reports or appraisal reports not updated; e. Loan availments against expired credit line; availments in excess of credit line; availments against credit line without prior approval by appropriate authority; f. Loans with collaterals not insured or with inadequate/expired insurance policies or the insurance policy is not endorsed in favor of the NBQB; g. Loans granted beyond the limits of approving authority; h. Loans granted without compliance with conditions stated in the approval; and i. Loans secured by property the title to which bears an uncancelled annotation or lien or encumbrance. B. Classified loans . These are loans which possess the characteristics outlined hereunder. Classified loans are subdivided into (1) loans especially mentioned ; (2) substandard; (3) doubtful ; and (4) loss . 1. Loans especially mentioned. These are loans that have potential weaknesses that deserve management's close attention. These potential weaknesses, if left uncorrected, may affect the repayment of the loan and thus increase credit risk to the NBQB. Their basic characteristics are as follows: a. Loans with unlocated collateral folders and documents including, but not limited to, title papers, mortgage instruments and promissory notes; b. Loans to firms not supported by board resolutions authorizing the borrowings; c. Loans without credit investigation report; d. Loans with no latest income tax returns and/or latest audited financial statements, except consumer and small and medium enterprises (SME) loans which are current, have not been restructured and are supported by latest income tax returns and/or latest audited financial statements at the time they were granted. For this purpose, consumer loans is defined to include housing loans not exceeding P5 million, loans for purchase of car, household appliance(s), furniture and fixtures, loans for payment of educational and hospital bills, salary loans and loans for personal consumption; e. Loans the repayment of which may be endangered by economic or market conditions that in the future may affect the borrower's ability to meet scheduled repayments as evidenced by a declining trend in operations, illiquidity, or increasing leverage trend in the borrower's financial statements; f. Loans to borrowers whose properties securing the loan (previously well secured by collaterals) have declined in value or with other adverse information; g. Loans past due for more than thirty (30) days up to ninety (90) days; and h. Loans previously cited as Miscellaneous Exceptions still uncorrected in the current BSP examination. 2. Substandard. These are loans or portions thereof which appear to involve a substantial and unreasonable degree of risk to the institution because of unfavorable record or unsatisfactory characteristics. There exists in such loans the possibility of future loss to the institution unless given closer supervision. Those classified as " Substandard " must have a well-defined weakness or weaknesses that jeopardize their liquidation. Such well-defined weaknesses may include adverse trends or development of financial, managerial, economic or political nature, or a significant weakness in collateral. Their basic characteristics are as follows: a. Secured loans (1) Past due and circumstances are such that there is an imminent possibility of foreclosure or acquisition of the collateral because of failure of all collection efforts; (2) Past due loans to borrowers whose properties securing the loan have declined in value materially or have been found with defects as to ownership or other adverse information; and (3) Current loans to borrowers whose audited financial statements show impaired/negative net worth except for start-up firms which should be evaluated on a case-to-case basis. b. Unsecured loans (1) Renewed/extended loans of borrowers with declining trend in operations, illiquidity, or increasing leverage trend in the borrower's financial statements without at least twenty percent (20%) repayment of the principal before renewal or extension; and (2) Current loans to borrowers with unfavorable results of operations for two (2) consecutive years or with impaired/negative net worth except for start-up firms which should be evaluated on a case-to-case basis. c. Loans under litigation; d. Loans past due for more than ninety (90) days; e. Loans granted without requiring submission of the latest audited financial statements (AFS)/income tax returns and/or statements of assets and liabilities to determine paying capacity of the borrower; f. Loans with unsigned promissory notes or signed by unauthorized officers of the borrowing firm; and g. Loans classified as " Loans Especially Mentioned " in the last BSP examination which remained uncorrected in the current examination. 3. Doubtful . These are loans or portions thereof which have the weaknesses inherent in those classified as " Substandard ", with the added characteristics that existing facts, conditions, and values make collection or liquidation in full highly improbable and in which substantial loss is probable. Their basic characteristics are as follows: a. Past due clean loans classified as " Substandard " in the last BSP examination without at least twenty percent (20%) repayment of principal during the succeeding twelve (12) months or with current unfavorable credit information; b. Past due loans secured by collaterals which have declined in value materially such as, inventories, receivables, equipment, and other chattels without the borrower offering additional collateral for the loans and previously classified " Substandard " in the last BSP examination; c. Past due loans secured by real estate mortgage, the title to which is subject to an adverse claim rendering settlement of the loan through foreclosure doubtful; and d. Loans wherein the possibility of loss is extremely high but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until a more exact status is determined. 4. Loss . These are loans or portions thereof which are considered uncollectible or worthless and of such little value that their continuance as bankable assets is not warranted although the loans may have some recovery or salvage value. The amount of loss is difficult to measure and it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be obtained in the future. Their basic characteristics are as follows: a. Past due clean loans the interest of which is unpaid for a period of six (6) months; b. Loans payable in installments where amortization applicable to interest is past due for a period of six (6) months, unless the loan is well secured; c. When the borrower's whereabouts is unknown, or he is insolvent, or his earning power is permanently impaired and his co-makers or guarantors are insolvent or that their guaranty is not financially supported; d. Where the collaterals securing the loans are considered worthless and the borrower and/or his co-makers are insolvent; e. Loans considered as absolutely uncollectible; and f. Loans classified as " Doubtful " in the last BSP examination and without any payment of interest or substantial reduction of principals during the succeeding twelve (12) months, or have current unfavorable credit information which renders collection of the loans highly improbable. C. Credit card receivables Credit card receivables shall be classified in accordance with age as follows: No. of days past due Classification 91 - 120 Substandard 121 - 180 Doubtful 181 or more Loss The foregoing is the minimum classification requirement. Management may therefore formulate additional specific guidelines. II. Investments and Other Risk Assets A. Investment in debt securities and marketable equity securities 1. Investment in Bonds and Other Debt Instruments (IBODI) shall be valued at cost adjusted for discount or premium through periodic amortization charges or credits to income. When the decline in fair market value below the amortized cost is other than temporary, i.e., full collection of principal and interest is not expected on a debt security, the amortized cost basis of the particular debt security shall be adequately provided with allowance for probable losses. The amount of investment loss provision shall be accounted for as a realized loss and charged to reported current income. 2. Trading Account Securities (TAS) shall initially be booked at cost and subsequently valued at fair market values. Unrealized gains and losses are recognized and booked against "Trading Gain/Loss" account. 3. Available for Sale Securities (ASS) shall initially be booked at cost and subsequently valued at fair market values. Unrealized gains or losses are excluded from reported income and reported as a separate component of stockholders' equity [Net Unrealized Gains/(Losses) on Securities Available for Sale] until realized. 4. Underwriting Accounts (UA) shall initially be booked at cost and subsequently valued at fair market values. Unrealized gains and losses are excluded from reported income and reported as a separate component of stockholders' equity [Net Unrealized Gains/(Losses) on Securities Available for Sale] until realized. UA account is applicable only to UBs. B. Equity investment in affiliates shall be booked at cost or book value whichever is lower on the date of acquisition. If cost is greater than book value, the excess shall be charged in full to operations or booked as deferred charges and amortized as expense over a period not exceeding five (5) years. Subsequent to acquisition, if there is an impairment in the recorded value, the impairment should adequately be provided with allowance for probable losses. C. Other property owned or acquired 1. The basic characteristics of real estate property acquired subject to " Substandard " classification are as follows: a. Acquired for less than five (5) years unless worthless. b. Converted into a Sales Contract Receivable. c. Sold subject to a firm purchase commitment from a third party before the close of the examination. 2. The basic characteristics of real estate property acquired subject to " loss " classification are as follows: a. Foreclosure expenses and other charges included in the book value of the property, excluding the amount of non-refundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase which meet the criteria for inclusion in the book value of the acquired property. b. The excess of the book value over the appraised value. c. Property whose title is definitely lost to a third party or is being contested in court. d. Property wherein the exercise of the right of usufruct is not practicable or possible as when it is eroded by a river or is under any like circumstances. Real estate property acquired are not sound assets. Because of their nature, that is, non-liquid and non-productive, their immediate disposal through sale is highly recommended. If such is not possible, they should be charged-off by annually providing a valuation reserve in accordance with the following schedule starting at the expiration of the statutory redemption period. End of Year After Expiry of Redemption Annual Period or Provision Perfection of to Cost of Accumulated Contract Acquisition Reserve 6th Year 10% 10% 7th Year 10% 20% 8th Year 10% 30% 9th Year 10% 40% 10th Year 10% 50% D. Acquired or repossessed personal property 1. All personal property owned or acquired held for three (3) years or less from date of acquisition shall be classified as Substandard assets. 2. The basic characteristics of acquired or repossessed personal property classified as Loss are as follows: a. Property not sold for more than three (3) years from date of acquisition; b. Property which is worthless or not salable; c. Property whose title is lost or is being contested in court; d. Foreclosure expenses and other charges included in the book value of the property; and e. The excess of the book value of the property over its appraised or realizable value. Valuation reserves shall also be provided for foreclosed personal property in accordance with the following schedule, reckoned from the date of foreclosure or from the perfection of the contract, if acquired through dation in payment. End of Year After Expiry of Redemption Annual Period or Provision Perfection of to Cost of Accumulated Contract Acquisition Reserve 1st Year 50% 50% 2nd Year 30% 80% 3rd Year 20% 100% E. Accounts Receivable 1. Accounts receivable arising from loan and investment accounts still uncollected after six (6) months from the date such loans or loan installments have matured or have become past due shall be provided with a 100% allowance for uncollected accounts receivable. 2. All other accounts receivable should be classified in accordance with age as follows, unless there is good reason for non-classification: No. of Days Outstanding Classification 61 - 180 Substandard 181 - 360 Doubtful 361 or more Loss The classification according to age of accounts receivable should be used in classifying other risk assets not covered above. However, their classification should be tempered by favorable information gathered in the review. F. Accrued Interest Receivable 1. Accrued interest receivable on loans or loan installments still uncollected after three (3) months from the date such loans or loan installments have matured or have become non-performing shall be provided with a 100% allowance for uncollected interest on loans. 2. All other accrued interest receivable on loans or loan installments shall be classified similar to the classification of their respective loan accounts. III. Allowance for probable losses . An allowance for probable losses on the loan accounts should be set up as follows: A. Specific allowance Allowance Classification (Percent) 1. Unclassified 0 2 Loans Especially Mentioned 5 3 Substandard (a) Secured 10 (b) Unsecured 25 4. Doubtful 50 5. Loss 100 B. General allowance . In addition to the allowance for probable losses required under Item " A ", a general provision for loan losses shall also be set up as follows: 1. Five percent (5%) of the outstanding balance of unclassified restructured loans less the outstanding balance of restructured loans which are considered non-risk under existing laws, rules and regulations; and 2. One percent (1%) of the outstanding balance of unclassified loans other than restructured loans less loans which are considered non-risk under existing laws, rules and regulations. The general loan loss provision shall be computed as follows: For Loans Not Restructured Gross Loan Portfolio (Excluding Restructured Loans) Pxxx Less: Classified Loans (based on latest BSP examination) Loans especially mentioned Pxxx Substandard Secured xxx Unsecured xxx Doubtful xxx Loss xxx xxx Unclassified Loans Pxxx Less: Loans considered non-risk under existing regulations xxx Loan Portfolio, net of exclusions Pxxx General Loan Loss Provision (1% of net loan portfolio) Pxxx For Restructured Loans Restructured Loans (Gross) Pxxx Less: Classified Loans (based on latest BSP examination) Loans especially mentioned Pxxx Substandard Secured xxx Unsecured xxx Doubtful xxx Loss xxx xxx Unclassified Restructured Loans Pxxx Less: Loans considered non-risk under existing regulations xxx Restructured Loans, net of exclusions Pxxx General Loan Loss Provision (5% of net restructured loans) Pxxx The excess of the booked general loan loss provisions over the amount required as a result of the reduction of the amount required to be set up to one percent (1%) shall first be applied to unbooked specific valuation reserves, whether or not authorized to be booked on a staggered basis and only the remainder can be considered as income. The specific and general allowances for probable losses shall be adjusted accordingly for additional allowance required by the BSP: Provided, That in cases of partially secured loans, only ten percent (10%) allowance shall be required for the portion thereof which are covered by the appraised value of the collateral: Provided, further , That said collateral is re-appraised at least annually. Management is, however, encouraged to provide additional allowance as it deems prudent and to formulate additional specific guidelines within the context of the herein-described system. Appendix Q-11 FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION ( Appendix to Subsec. 4309Q.2 ) ___________________________ (Business Name of Creditor) DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT OR INSTALLMENT PLAN) (As required under R.A. 3765, Truth in Lending Act) Name of Borrower _______________________________________________ Address ________________________________________________________ 1. Cash/Purchase Price ____________ (Item Purchased) or Net Proceeds of Loan P __________________ 2. LESS: Downpayment and/or Trade-in Value (Not applicable for ___________________ loan transaction) 3. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan _____________________ 4. Non-Finance Charges [Advanced by Seller/Creditor]: a. Insurance Premium P ___________ b. Taxes ___________ c. Registration Fees ___________ d. Documentary/Science Stamps ___________ e. Notarial Fees ___________ f. Others: ___________ ___________ ___________ ___________ ___________ ___________ ___________ Total Non-Finance Charges ___________ 5. Amount to be Financed (Items 3 + 4) P ========== 6. Finance Charges * a. Interest _____% p.a. P ____________ from ____________ to ___________ [ ] Simple [ ] Monthly [ ] Compound [ ] Quarterly [ ] Semi-Annual [ ] Annual b. Discounts ___________ c. Service/Handling Charges ___________ d. Collection Charges ___________ e. Credit Investigation Fees ___________ f. Appraisal Fees ___________ g. Attorney's/Legal Fees ___________ h. Other charges incidental to the extension of credit (specify): ___________ ___________ ___________ ___________ ___________ ___________ Total Finance Charges P ========== 7. Percentage of Finance Charges to Total Amount Financed (Computed in accordance with Subsec. 4309Q.1) ____% 8. Effective Interest Rate (Method of computation attached) ____% 9. Payment a. Single Payment due _________ (Date) P ========== b. Total Installment Payments (Payable in ______ weeks/months @ P ______) P ========== 10. Additional charges in case certain stipulations in the contract are not met by the debtor: Nature Rate Amount _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ CERTIFIED CORRECT: _______________________ (Signature of Creditor/ Authorized Representative Over Printed Name) ___________________ Position I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF. __________________________ (Signature of Buyer/Borrower Over Printed Name) DATE ____________________ NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. Appendix Q-12 ABSTRACT OF "TRUTH IN LENDING ACT" ( Republic Act No. 3765 ) ( Appendix to Subsec. 4309Q.4 ) SECTION 1. This Act shall be known as the "Truth in Lending Act." SECTION 2. Declaration of Policy . It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. xxx xxx xxx SECTION 3. As used in this Act, the term xxx xxx xxx (3) "Finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit as the Board may by regulation prescribe. xxx xxx xxx SECTION 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) the cash price or delivered price of the property or service to be acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in; (3) the difference between the amounts set forth under clauses (1) and (2); (4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; (5) the total amount to be financed; (6) the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. xxx xxx xxx SECTION 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. xxx xxx xxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,000 nor more than P5,000 or imprisonment for not less than 6 months nor more than one year or both. xxx xxx xxx (d) Any final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto. SECTION 7. This Act shall become effective upon approval. Approved, June 22, 1963. Appendix Q-13 AGREEMENT FOR THE ENHANCED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM ( Appendix to Subsecs. 4376Q.1 and 4601Q.1 ) KNOW ALL MEN BY THESE PRESENTS: This Agreement for an enhanced Interbank Call Loan Funds Transfer System (the "Agreement") entered into by and among the following: The BANGKO SENTRAL NG PILIPINAS, a public corporation duly organized and existing under the laws of the Republic of the Philippines, with principal address at the BSP Building, Roxas Boulevard, Manila (hereinafter known as the "BSP"); The BANKERS ASSOCIATION OF THE PHILIPPINES, an organization of duly licensed universal/commercial banks in the Philippines, with principal offices at the 11th floor, Sagittarius Building, H. V. dela Costa Street, Salcedo Village, Makati City (hereinafter referred to as the "BAP"); and The PHILIPPINE CLEARING HOUSE CORPORATION, an organization duly incorporated under the laws of the Republic of the Philippines, with principal offices at the Ground Floor, 5-Storey Building, Bangko Sentral ng Pilipinas, Manila (hereinafter referred to as the "PCHC"); WITNESSETH THAT: WHEREAS, presently, Interbank Call Loans (IBCLs) are transmitted to the BSP using the Multitransaction Interbank Payment System (MIPS) under an arrangement governed by the Memorandum of Agreement for Interbank Call Loan Funds Transfer System dated October 4, 1995; WHEREAS, the BSP and the BAP would like to improve the efficiency of the system by allowing a more direct interface to the BSP's own computer and accounting systems and achieve settlement finality through the gross settlement of IBCLs and thereby reduce systemic risk; WHEREAS, the BSP and the BAP would like to set up the foundation for a Real Time Gross Settlement (RTGS) system for the Philippine economy for all other high value payments; and WHEREAS, the BSP, the BAP, and the PCHC would like to lay down the parameters and the terms and conditions of a new and improved electronic funds transfer system; NOW THEREFORE, premises considered, the BSP, the BAP, and the PCHC mutually agree as follows: 1.0 APPOINTMENT The PCHC is hereby designated as the exclusive service provider for the front-end software, data communications facility, MIPS server system, and the BSP gateway interface program for the new electronic IBCL Funds Transfer System (the "System") for all banks/financial institutions (the "Participants") participating in the said System. The BSP is hereby designated as the settlement bank for the settlement of all IBCL transactions transmitted through the System. Further, the BSP shall be the exclusive systems provider and operator for the BSP Gateway Server and Financial Accounting System (FAS) where the electronic settlement of IBCL transactions are processed, computed, and stored for the System. 2.0 DESCRIPTION OF THE SYSTEM 2.1 The System shall be composed of the following components: 2.1.1 Front-end software The front-end software shall be deployed at each Participant's offices. This software shall be developed and maintained by PCHC. The front-end software shall allow each Participant to enter its IBCL transactions (the "Electronic Transfer Instructions") and transmit these electronically to the BSP through the PCHC server in a secure manner. 2.1.2 The PCHC Server The PCHC Server shall receive the Electronic Transfer Instructions from the Participants through PCHC's telecommunications network, validate and authenticate each electronic transfer instruction, and immediately relay these to the BSP's FAS through the BSP Gateway. 2.1.3 The BSP Gateway Server The BSP Gateway Server shall act as a transit point for the Electronic Transfer Instructions and status files being transferred between the PCHC Server and the BSP's FAS. 2.1.4 The BSP's FAS The FAS of the BSP is the general ledger system of the BSP wherein all accounting entries to the BSP's books as well as the Participants' Demand Deposit Accounts (DDA's) are recorded electronically. The FAS also generates the statements of account for the DDA's which are sent electronically through the BSP cc:Mail System to the Participants on a regular basis. 2.1.5 The BSP's cc:Mail System The BSP's cc:Mail system shall be used as the main delivery facility for sending official DDA statements and for communicating messages to the Participants. 2.2 The System shall have the following security features: 2.2.1 Log-in ID's and passwords To ensure that only authorized personnel are able to enter and authorize transactions through the System; 2.2.2 Maker/Checker Functions To ensure that at least two (2) authorized personnel of each Participant are involved in the inputting, approval, and transmission of Electronic Transfer Instructions into the System; 2.2.3 Test Keys Authentication against PCHC and BSP To ensure that the Electronic Transfer Instructions received are coming from authorized sources; and 2.2.4 Firewalls To prevent unauthorized access to the BSP's internal systems. 3.0 MARKET CONVENTIONS The following market conventions shall be followed in the IBCL market: 3.1 IBCL Settlement Timeframe Transactions shall be concluded by and among Participants during the settlement timeframe prescribed by BSP Circular 266 series of 2000 dated November 7, 2000. The timelines for IBCL transactions shall be as follows: 7:30 A.M. 7:45 A.M. AM Returned Cash and Other Clearing Items (COCI) receiving window 7:46 A.M. 8:45 AM PCHC processing window 8:46 A.M. 9:00 A.M. PCHC sends results to BSP; results ready for download by affected participants at 9:00 AM. 9:01 A.M. 9:45 A.M. Morning IBCL window to cover returned COCI items (back-valued to previous day i.e. the same date as the date of original presentation of the returned COCI) 9:46 A.M. 10:00 A.M. BSP update of ledgers in FAS 10:01 A.M. 4:00 P.M. Regular IBCL window for trading of same-day funds. 4:01 P.M. PCHC Peso Netting cutoff System is temporarily closed to IBCL transactions 4:16 P.M. PCHC sends Peso Netting results to BSP 4:30 P.M. PCHC Electronic check clearing cutoff 5:00 P.M. PCHC sends check clearing to BSP 5:01 P.M. 5:30 P.M. BSP update and transmission of DDA statements which already includes all transactions for the day 5:31 P.M. 6:30 P.M. System is reopened to allow same-day value IBCL trading to cover funding/reserve shortfalls due to clearing results 3.1.1 From 7:30 to 7:45 A.M., the morning returned COCI receiving window shall be open for banks who are affected by returned COCI items where adjustments are made to the DDA's for value the previous day. In this case, it shall be necessary for the affected banks to either borrow or lend funds for value the previous day in order for their DDA's to be in compliance with the necessary reserve levels. This backvalue window shall be open from 9:01 A.M. and 9:45 A.M. 3.1.2 The regular trading window shall be from 10:01 A.M. to 4:00 P.M. for the trading and settlement of same-day value IBCL transactions. There shall be a temporary closure of the System at 4:01 P.M. to allow the BSP to post the results of the PCHC Peso Netting and Electronic Check clearing operations to the respective DDA's of individual Participants. The regular window shall be then reopened from 5:31 P.M. to 6:30 P.M. to allow IBCL trading for same-day funds to cover funding or reserve shortfalls resulting from check clearing results. 3.2 Confirmation Process The following procedures shall be used by Participants for confirming IBCL transactions: 3.2.1 IBCL transactions concluded during any of the trading windows shall be confirmed by telephone prior to settlement to ensure that all transaction details are in order. Responsibility for initiating the phone confirmation shall lie with the borrowing party. 3.2.2 Written confirmations shall also be sent by both parties for proper control and documentation. For SWIFT member institutions, it is strongly suggested that such confirmations be sent electronically through the SWIFT network using the SWIFT MT 320 format. 3.2.3 Discrepancies, if any, shall be resolved by both parties on mutually acceptable basis. Voice logs, if available, shall be resorted to in aid of resolution of the discrepancy. Any discrepancies not resolved shall be subjected to the process in Section 8.0 below entitled "Settlement of Disputes Among Participants". 3.3 Settlement Instructions Settlement instructions for IBCL transactions shall be initiated as follows: 3.3.1 For new IBCL transactions, the Lender shall be responsible for sending the proper Electronic Transfer Instructions on the given transaction date. The Electronic Transfer Instructions shall be sent through the System and shall consist of an instruction to the BSP to debit the Lender's DDA account and credit the Borrower's DDA account. For transactions in the morning IBCL window that covers returned COCI items, the value date of the debit/credit shall be for the previous day, as defined in section 3.1. For transactions during the regular IBCL window, the value date shall be the same as the transaction date. 3.3.2 For maturing IBCL transactions, the Borrower shall be responsible for sending the proper Electronic Transfer Instructions on the maturity date of the transaction. The Electronic Transfer Instructions shall be sent through the System and shall consist of an instruction to the BSP to debit the Borrower's DDA account and to credit the Lender's DDA account for the maturity value of the transaction. 3.3.3 Transactions with the BSP Participant's transactions with the BSP shall be handled as follows: Reverse Repurchase Agreements (RRP's) For RRP's, the lending Participant shall be responsible for sending the proper Electronic Transfer Instructions on the transaction date. The Electronic Transfer Instructions shall be sent through the System and shall consist of an instruction to the BSP to debit the Lender's DDA account for the fund placement. On maturity date of the RRP, the BSP shall be responsible for crediting the DDA of the lender during the first hour that the System is up. Credit shall be performed using the BSP's FAS. Repurchase Agreements (RP's) For RP's, the BSP shall be responsible for crediting directly the borrower's DDA using the BSP's FAS. On maturity date, the BSP shall debit the borrower's DDA for principal plus interest using the BSP's FAS. Debits and credits to DDA of Participants resulting from RRP and RP transactions with the BSP shall be part of the statements of account broadcast by the BSP on an hourly basis under Section 3.6 below. 3.4 Transaction Status Verification Participants shall be able to verify the status of their Electronic Transfer Instructions as follows: 3.4.1 Using the front-end software, the BSP Update Status Report may be downloaded by Participants to print the status of transactions. These transactions may have one of five (5) status: (R) Rejected Transaction has been rejected because it has failed BSP authentication; (C) Cancelled Transaction has been cancelled by the BSP because of insufficient funds by cutoff time; (P) Pending Transaction has been received at the BSP but has not yet been settled, temporarily queued; (S) Settled Transaction has been received at the BSP and corresponding debit and credit entries have already been posted on the respective DDA's. Blank Electronic Transfer Instruction has been sent to the BSP Gateway Server but has not yet been transferred to the FAS for processing. 3.4.2 Both the sending and receiving parties can view the status of their transactions. 3.4.3 It is recommended that Participants view their transaction status on an hourly basis. 3.4.4 Final and official DDA settlement reports shall be available from the BSP's cc:Mail server on an hourly basis. 3.5 Settlement of IBCL transactions The following rules shall govern the settlement of IBCL transactions at the BSP. 3.5.1 Upon receipt of the Electronic Transfer Instructions through the System, settlement of IBCL transactions shall be performed with finality (i.e. cannot be reversed) by the BSP through the Participants' respective DDA's. These accounting entries shall be passed using the BSP's FAS. 3.5.2 Debit instructions shall be settled by the BSP on a gross, transaction-by-transaction, First-In-First-Out basis. The FAS timestamp shall be used for FIFO processing and settlement of the Electronic Transfer Instructions. The PCHC MIPS server timestamp shall be used as the official time of receipt of the Electronic Transfer Instructions into the System and shall be used to control the cutoff times. 3.5.3 It is understood that the BSP shall only post debit instructions if the sending Participant's DDA is adequately funded. Otherwise, the transaction shall not be posted and shall be held in queue. 3.5.4 If a transaction is held in queue due to inadequate DDA balances, other succeeding transactions which are of lower value and which are within the available DDA balances shall be posted ahead of the transaction which was held in queue. 3.5.5 Transactions held in queue shall remain there until adequate funds are received by the DDA to allow posting. 3.5.6 Transactions that remain in queue until the IBCL window closes shall be cancelled from the System. For the back-value IBCL window, the cut-off shall be 9:45 A.M. For the regular same-day IBCL window, there shall be two cut-offs, one at 4:01 P.M. and the final cutoff at 6:30 P.M. 3.5.7 The BSP reserves the right to withhold all or part of a Participant's DDA balances from settlement of IBCL transactions, subject to the Monetary Board's instructions. 3.5.8 Where applicable, the BSP's transactions with the Participants shall be posted in the BSP's FAS before the System opens for the regular IBCL window from 10:01 A.M. to 4:00 P.M. These transactions shall include tax payments, maturing rediscount loans, maturing repurchase agreements, maturing reverse repurchase agreements, and other transactions of Participants with the BSP. 3.5.9 Participants shall endeavor to transmit all repayment instructions for maturing IBCL borrowings during the first hour of operation of the System in order to improve liquidity in the System. 3.6 BSP Hourly Broadcast of DDA Statements: 3.6.1 BSP shall broadcast, on an hourly basis, each Participant's running DDA transactions and balances for the day using the cc:Mail system. 3.6.2 IBCL transactions reflected in the DDA statement retrieved from cc:Mail shall be considered as final and irrevocable. No unwinding of transactions shall be allowed except check clearing results which are reversed using the returned COCI window. 3.6.3 Participants shall be responsible for designating authorized personnel who shall have access to their DDA balance information from the BSP. The BSP shall open cc:Mail accounts for each of these designated personnel at the BSP's mail server. 3.6.4 Participants shall be responsible for reconciling their transactions against the DDA statements received from the BSP. Any discrepancies shall immediately be advised in writing or through cc Mail message to the BSP for correction/rectification. 4.0 AVAILABILITY OF SERVICES The services outlined in this Agreement shall be available at the PCHC as well as the BSP at a fixed hour on all banking days, including local holidays. For purposes of this Agreement, banking days refer to the days when the BSP is open for business and settlement of transactions contemplated herein. 4.1 The PCHC and the BSP shall endeavor to develop, test, and communicate to all Participants a Continuity of Business (COB) plan aimed at providing continuous operation of the System. This COB plan shall incorporate various scenarios that may occur such as but not limited to hardware failure, fire, power outage, telecommunications outage, typhoon, earthquake, flood, civil disturbances, or other events at either the BSP site or the PCHC site. 4.2 Each Participant shall be responsible for developing and testing its own COB plan and ensuring that back-up machines, backup files, telephone lines, and other necessary equipment are available at their site or back-up site to allow continuous operations under the various scenarios above. 4.3 The PCHC shall also make available a desktop PC as an input facility for the use of any Participant who is unable to enter data through its own facilities. 5.0 TRANSACTION FEES 5.1 PCHC shall charge the amount of P100.00 for each electronic funds transfer instruction sent by the remitting Participant. The transaction fee shall be subject to regular review by the PCHC for adjustment as may be deemed necessary. 5.2 BSP shall charge the amount of P20.00 for each Electronic Transfer Instruction received. 5.3 Both PCHC and BSP charges shall be debited from the Participants' DDA's on a monthly basis, based on the PCHC's monthly report of transactions. 5.4 The BSP shall not be subject to any fees or charges under this section. 6.0 PARTICIPATION AGREEMENT 6.1 Participating banks who are members of the BAP can avail themselves of the services provided by the System by executing the Participation Agreement which is attached hereto as Annex "A" and made an integral part hereof. Participating banks who formally join the System shall be considered bound by the terms and conditions hereof, and any amendments thereto, as if they had executed this Agreement. 6.2 Financial institutions who are non-BAP members may avail themselves of the services of the System by filing a Participation Agreement addressed to the PCHC, the BAP, and the BSP subject to the terms and conditions under the section Annex "A". Such financial institutions shall be considered bound by the terms and conditions herein after written notification of the approval of the PCHC, the BAP, and the BSP, respectively. Non-BAP members shall be required to pay an admission fee in such sum or sums as the BAP and/or the PCHC shall impose before being formally admitted into the System. Participating banks financial institutions who were previously Participants in MIPS shall be exempt from paying the admission fees. 7.0 RIGHTS AND OBLIGATIONS OF THE PARTIES AND PARTICIPATING BANKS/FINANCIAL INSTITUTIONS: 7.1 The PCHC shall be responsible for the development, testing, and maintenance of the software for both the Participants' front-end software, the PCHC MIPS server, and the interface software with the BSP's FAS. The PCHC shall provide updates to the software as may be required by the Participants and shall charge applicable one-time development fees accordingly. 7.2 The PCHC shall be responsible for providing, maintaining, and upgrading the PCHC MIPS server, including the necessary data telecommunications facility to access the server, and ensure that adequate COB plans are in place for uninterrupted operations. 7.3 The PCHC shall be responsible for exchanging authentication test keys with all Participants and implementing regular changes thereto. 7.4 The BSP shall be responsible for ensuring that the BSP Gateway Server is operative and that adequate backup facilities are made available to have continuous and efficient operation of the System. The BSP shall also be responsible for ensuring the integrity and continued operation of its FAS which is an integral part of the system. 7.5 The BSP shall be responsible for exchanging authentication test keys with all Participants and implementing regular changes thereto. 7.6 The BSP shall be responsible for settlement of IBCL transactions sent through the System. The settlement process involves receiving and authenticating the Electronic Transfer Instructions from the remitting bank through the System, checking if the remitting bank has sufficient DDA balances, and posting the debit entry in the remitting bank's DDA and the credit entry in the beneficiary bank's DDA through the BSP's FAS. For this purpose, the Participant hereby authorizes the BSP to execute said debit and credit instructions based on Electronic Transfer Instructions received through the System. 7.7 The BSP shall be responsible for providing all Participants hourly updates of their respective DDA balances through account statements sent out via cc:Mail. In this connection, the BSP shall be responsible for maintaining the cc:Mail server and in granting access to this server to duly authorized personnel as identified by each participating institution. 7.8 Each Participant shall be solely responsible for ensuring the confidentiality, safety, and security of its log-in IDs, passwords, and authentication keys for activating the system and initiating IBCL transactions. If it has reason to believe that the confidentiality or security of its log-in IDs, passwords, and authentication keys have been compromised, the Participant shall take immediate steps to have these disabled and changed to new passwords/keys. 7.9 Each Participant shall be legally bound by its Electronic Transfer Instructions which it sent through the System without need of any other manually prepared confirmation, paper, or instrument, provided that the same has been authenticated by the BSP and provided further that they comply with the terms and conditions set forth herein. 7.10 Each Participant shall be responsible for promptly checking the correctness and completeness of the debit/credit entries of the BSP under the System and to promptly notify the BSP of any errors discovered. 7.11 Each Participant shall be responsible for reclaiming funds erroneously sent by it through the System. The BSP and the PCHC shall not be responsible for undertaking the reclaim of funds. Participants who are recipients of funds erroneously sent shall endeavor to promptly return such funds upon notice by the sending institution and upon verification that the funds were indeed erroneously sent. In cases where the recipient of funds was not able to remit the funds back on the same value date as the erroneous remittance, due compensation shall be paid by the recipient for the use of funds for the applicable period. Interest rate applicable shall be the average interbank call loan rate for the period as published. Such erroneous receipt of funds shall in any case be subject to the provisions of Art. 22 of the Civil Code of the Philippines. 7.12. The BAP, being a mere negotiating and signing agent for participating banks, shall not be made a party to any dispute nor be held answerable for any liability by any transacting parties to IBCL transactions. Its role is to be a catalyst in framing and structuring this Agreement which aims to improve the current electronic means of processing IBCL transactions. The PCHC and all participating banks/financial institutions who formally join the System and avail themselves of the services provided herein shall have no cause of action or right of relief whatsoever against the BAP in connection with, arising out of or in relation to, any transactions covered by the Agreement. The PCHC shall not be held responsible for any loss, liability or damage caused by errors and mistakes of Participants and shall be held free and harmless from claims, suits, costs, and damages attributing thereto. The BSP, as Settlement Bank, shall not be made a party to any dispute nor be held answerable for any liability by any transacting party to IBCL transactions. The BSP, when acting in accordance with the provisions of this Agreement, shall be kept free and harmless by all participating banks and financial institutions for executing and/or effecting settlement/payment instructions, or, as may be proper, making and implementing reclaiming transactions under par. 7.11 above. 8.0 SETTLEMENT OF DISPUTES AMONG PARTICIPANTS 8.1 Due compensation for errors committed by one or both parties shall be as stipulated in Section VII of the MART trading guidelines for Interbank Call Loan Transactions. Unresolved disputes involving participating institutions shall be referred to Voluntary Arbitration. Each party shall propose a Voluntary Arbitration Committee by listing five (5) names of reputable persons well-versed in the issue in dispute. Thereafter, the proponent to Voluntary Arbitration shall strike out one name and the respondent another and so on until only three names are left who shall comprise the Voluntary Arbitration Committee. 8.2 The decision of the Voluntary Arbitration Committee shall be final and executory in accordance with law. There shall be no appeal unless the decision is tainted with fraud and/or with apparent bias in favor of one party. 8.3 The Voluntary Arbitration Law shall apply in a suppletory character. 9.0 REVISIONS TO THE AGREEMENT 9.1 Terms and conditions contained in this Agreement shall be subject to the regulations of the BSP and the provisions of existing laws of the Republic of the Philippines. 9.2 Procedures, forms, automation programs, hardware specifications, and deadlines referred to herein may be changed or enhanced subject to mutual agreement in writing among the BSP, the PCHC, and the BAP. Such changes and enhancements, when executed by the BAP, shall be binding on all Participants whether BAP member banks or non-member financial institutions. 9.3 Without prejudice to the immediate implementation of this Agreement, the parties herein may establish such further rules and regulations that may be subsequently be needed to augment, implement, interpret and govern this Agreement. 10.0 CONTRACTUAL EFFECTIVITY This Agreement shall remain valid until terminated by mutual consent of the parties. 11.0 CONFIDENTIALITY The PCHC and the BSP agree to maintain strict confidentiality of all transactions, data, and/or information provided by, or pertaining to, each Participant under the System. Violation thereof shall subject the person or persons responsible therefor to the penalty provisions of Sec. 36 of RA 7653. IN WITNESS WHEREOF, the parties have hereunto set their hands this 5th day of July, 2001 at the City of Manila, Philippines. BANGKO SENTRAL BANKERS ASSOCIATION NG PILIPINAS OF THE PHILIPPINES By: __________________ By: __________________ PHILIPPINE CLEARING HOUSE CORPORATION By: _____________________ WITNESSES: __________________ __________________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S. S. BEFORE ME, a Notary Public for and in the City of Manila, Philippines, personally appeared: Name Community Tax Cert. No. Date & Place Issued known to me and to me known to be the same person who executed the foregoing Agreement for the Enhanced Interbank Call Loan Funds Transfer System and who acknowledged to me that the same is his free and voluntary act and deed and that of the institution he represents. This instrument consists of _____ ( ) pages including this page whereon the acknowledgment is written, is duly signed by the parties and their respective instrumental witnesses on each and every page thereof. WITNESS MY HAND AND SEAL this 5th day of July in the City of Manila, Philippines. NOTARY PUBLIC Doc. No. ___; Page No. ___; Book No. ___; Appendix Q-13 SUPPLEMENTAL AGREEMENT FOR THE ENHANCED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM ( Appendix to Subsecs. 4376Q.1 and 4601Q.1 ) KNOW ALL MEN BY THESE PRESENTS: This Supplemental Agreement entered into by and among the following: The BANGKO SENTRAL NG PILIPINAS, a government corporation created under Republic Act No. 7653, otherwise known as the New Central Bank Act, with principal address at the BSP Building, Central Bank Complex, Roxas Boulevard, Manila (hereinafter known as the "BSP"); The BANKERS ASSOCIATION OF THE PHILIPPINES, an industry association of duly licensed universal and commercial banks in the Philippines, duly authorised by its member-banks to represent and bind them in this Supplemental Agreement, with principal offices at the 11th floor, Sagittarius Building, H. V. dela Costa Street, Salcedo Village, Makati, City (hereinafter referred to as the "BAP"); and The PHILIPPINE CLEARING HOUSE CORPORATION, a corporation duly organised and existing under the laws of the Republic of the Philippines, with principal offices at the Ground Floor, 3-Storey Building, Central Bank Complex, Roxas Boulevard, Manila (hereinafter referred to as the "PCHC"); WITNESSETH THAT: WHEREAS, presently, Interbank Call Loans (IBCL's) are settled on a gross settlement basis at the BSP through the Enhanced Multitransaction Interbank Payment System (hereinafter referred to as "MIPS2") under an arrangement governed by the Agreement for the Enhanced Interbank Call Loan Funds Transfer System dated July 05, 2001 (the "MIPS2 Agreement"); WHEREAS, the BSP and the BAP would like to utilize MIPS2 to effect other types of interbank fund transfers such as settlement of FX transactions, settlement of securities transactions and other inter-bank payments and thereby reduce systemic risk by providing a means of making final and irrevocable payments among banks; NOW THEREFORE, premises considered, the BSP, the BAP, and the PCHC have mutually agreed to execute this Supplemental Agreement and add the following provisions as part of the MIPS2 Agreement: OPERATING HOURS AND SETTLEMENT CONVENTIONS 1. The MIPS2 System shall be open for operation from 10:00 A.M. to 4:00 P.M. for other types of interbank fund transfer transactions. Remitting/Paying banks shall enter orders through the Funds Transfer Screen of MIPS2. Each transaction shall be properly identified as to the type of interbank transaction being settled (e.g. FX Settlement, Securities Settlement). 2. Upon receipt of the electronic transfer instructions through the System, these shall be settled with finality by the BSP through the Participants' (as the term is defined in the MIPS2 Agreement) respective Demand Deposit Account (DDA). These accounting entries shall be passed using the BSP 's Financial Accounting System (FAS). 3. Debit instructions shall be settled by the BSP on a gross, transaction by transaction, first-in-first out basis. The FAS timestamp shall be used for FIFO processing and settlement of the electronic transfer instructions. The PCHC MIPS server timestamp shall be used as the official time of receipt of the Electronic Transfer Instructions into the System and shall be used to control the cut-off times. 4. It is understood that the BSP shall only post debit instructions if the sending participant's DDA is adequately funded. Otherwise, the transaction shall not be posted and shall be held in queue. 5. If a transaction is held in queue due to inadequate DDA balances, other succeeding transactions which are of lower value and which are within the available DDA balances shall be posted ahead of the transaction which was held in queue. 6. Transactions held in queue shall remain there until adequate funds are received by the DDA to allow posting. 7. All electronic fund transfer transactions that remain in queue until 4:00 P.M. shall be automatically cancelled from the System. 8. In order to ensure that there is sufficient liquidity in the system and that system gridlock does not occur, Participants shall submit their transactions at the early hours of operation of the system and not deliberately hold back payments. For payment of FX transactions, Participants shall transmit at least 70% of their obligations (based on total value) before 12 noon. For payment of securities transactions, Participants shall transmit at least 50% of their obligations before 2:00 p.m. 9. The BAP shall monitor these transmission times and shall exert every effort to ensure that these guidelines are complied with. In this regard, the PCHC shall provide to the BAP daily reports on the performance of all banks with regards to these rules. Such statistics shall show the proportion of payment orders (by value) sent in before the relevant times (12 noon for FX settlements and 2 p.m. for securities settlements). 10. Compensation charges for errors in processing/settlement instructions resulting in delayed payment settlement of transactions shall be for the account of the party in error and shall be based upon the existing schedule for computing compensation charges for GS and FX settlements. 11. In the case of transactions with the BSP , for outright purchase/sale of government securities whether for investment or liquidity reserves as well as purchase and sale of foreign exchange, the BSP shall be responsible for crediting directly (in case of sale of securities/foreign exchange to the BSP )/debiting directly (in case of purchase of securities/foreign exchange from the BSP ) the Participant's demand deposit account (DDA) using the BSP 's FAS. Debits and credits to DDA of Participants resulting from outright purchase and sale of securities/foreign exchange transactions with the BSP shall be part of the statements of account broadcast by the BSP on an hourly basis under Section 3.6 of the MIPS 2 Agreement. All other terms and conditions of the MIPS2 Agreement (hereto attached as Annex) which are not inconsistent with the provisions of this Supplemental Agreement and not otherwise modified or superseded thereby shall continue in full force and effect. IN WITNESS WHEREOF, the parties have hereunto set their hands this 13th day of November 2001 at the City of Manila, Philippines. BANGKO SENTRAL NG BANKERS ASSOCIATION OF PILIPINAS THE PHILIPPINES By: ____________________ By: _____________________ PHILIPPINE CLEARING HOUSE CORPORATION By: ____________________________ WITNESSES: ______________ ______________ ______________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) CITY OF MANILA ) S. S. BEFORE ME, a Notary Public for and in the City of Manila, Philippines, personally appeared: Name Community Tax Cert. No. Date & Place Issued known to me and to me known to be the same person who executed the foregoing Supplemental Agreement and who acknowledged to me that the same is his free and voluntary act and deed and that of the institution he represents. This instrument consists of ( ) pages including this page whereon the acknowledgment is written, is duly signed by the parties and their respective instrumental witnesses on each and every page thereof. WITNESS MY HAND AND SEAL this ______ day of ________ in the City of _____________, Philippines. NOTARY PUBLIC Doc. No. ___; Page No. ___; Book No. ___; Series of 2001 ANNEX 1 PARTICIPATION AGREEMENT MIPS2 PLUS (for BAP Members) ___________________ Bankers Association of the Philippines 11/F Sagittarius Building H.V. de la Costa St. Salcedo Village, Makati City Gentlemen: Please be advised that we agree to participate in the Interbank Call Loan Funds Transfer System (the "System") which is covered by the Agreement dated ____, 2001 (the "Agreement") among yourselves, the BSP and the PCHC and its subsequent amendments or revisions as may be agreed upon by the parties thereto from time to time. We agree to be bound by all the terms and conditions of the Agreement and adopt it as an integral part of this Participation Agreement, including the authority of the BSP to execute our credit and debit Electronic Transfer Instructions. Further, we agree to comply with all our obligations as a participating bank as provided in the Agreement. Lastly, we agree to keep yourselves, the BSP and the PCHC free and harmless form any claim or liability arising from, or in connection with, our transactions transmitted through the System in accordance with the provisions of the Agreement. This participation will become effective upon our conformity hereto and your notification of the same to us, to the PCHC and the BSP. Very truly yours, _____________________________ Participating Bank/Financial Institution APPROVED: Bankers Association of the Philippines By: ___________________________ ___________________________ ANNEX 2 PARTICIPATION AGREEMENT MIPS2 PLUS (for non-BAP Members) ___________________ Bankers Association of the Philippines 11/F Sagittarius Building H.V. de la Costa St. Salcedo Village, Makati City Philippine Clearing House Corporation Ground Floor, 5 Storey Bldg. Bangko Sentral ng Pilipinas Manila Gentlemen: Please be advised that we agree to participate in the Interbank Call Loan Funds Transfer System (the "System") which is covered by the Agreement dated ______, 2001 (the "Agreement") among yourselves, the BSP and the PCHC and its subsequent amendments or revisions as may be agreed upon by the parties thereto from time to time. We agree to be bound by all the terms and conditions of the Agreement and adopt it as an integral part of this Participation Agreement, including the authority of the BSP to execute our credit and debit Electronic Transfer Instructions. Further, we agree to comply with all our obligations as a participating bank/financial institution as provided in the Agreement. Lastly, we agree to keep yourselves, and the BSP free and harmless form any claim or liability arising from, or in connection with, our transactions transmitted through the System in accordance with the provisions of the Agreement. This participation will become effective upon our conformity hereto and your notification of the same to us, and the BSP. Very truly yours, _____________________________ Participating Bank/Financial Institution APPROVED: Bankers Association of the Philippines Philippine Clearing House Corporation By: _______________________ By: ________________________ Appendix Q-13a SETTLEMENT PROCEDURES FOR INTERBANK LOAN TRANSACTIONS AND PURCHASE AND SALE OF GOVERNMENT SECURITIES UNDER REPURCHASE AGREEMENTS WITH THE BANGKO SENTRAL (Appendix to Subsecs. 4376Q.4 and 4601Q.1) Interbank loan transactions (call and term) among banks and NBQBs and purchase and sale of government securities under repurchase agreements (GS/RP) between and among banks and NBQBs and BSP in connection with the latter's open market operations shall be settled gross, on a trade-for-trade basis and with finality subject to the availability of balances in the deposit reserves maintained by NBQBs in the BSP in accordance with the following procedures: 1 The lender, in the case of lending/borrowing and purchaser in GS/RP transaction, and the borrower, in the case of collection/payment and repurchaser in a GS/RP transaction, should transmit an IBCL-MIPS (System) Fund Transfer Instructions (Instruction) to the PCHC which shall forward the transaction electronically to BSP. Each transacting party shall use its confidential ID and password to activate the System and initiate/authorize its transaction. The electronic debit instruction shall undergo System authentication by the PCHC and BSP. Authentication confirms that the Instruction contains the proper approvals from authorized officers of the originating institution. 2 BSP shall settle in the deposit reserves maintained by banks and NBQBs in the BSP the individual interbank loan and GS/RP transaction within the following settlement time frame: From 9:00 AM to 9:45 AM Only lending/borrowing to cover shortfall in deposit reserves with BSP arising from the results of the AM Returned COCIs Clearing conducted under Sec. X203 of the Manual of Regulations for Banks, valued on the same date as the date of the original presentation of the COCI to PCHC and BSP regional clearing centers (RCCs). From 10:00 AM to 4:00 PM All interbank loan transactions and GS/RP transactions to be given value on the date of the loan grant/repayment and GS purchase/repurchase. From 5:30 PM to 6:30 PM Only lendings/borrowings to cover the shortfall in reserve deposits with BSP arising from losses arising from the regular afternoon check clearing to be given value on the date of the loan grant/repayment and GS purchase/repurchase. 3. BSP is not obliged to effect the transfer of funds in the deposit reserves maintained by banks and NBQBs in the BSP if there is no sufficient balance in said deposit reserves of the transacting party whose account shall be debited in the BSP books. Appendix Q-13b INTRADAY LIQUIDITY FACILITY FOR THE IMPLEMENTATION OF APP. Q-13-a ON THE IMPROVED INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM (MIPS 2) (Appendix to Subsecs. 4376Q.1 and 4601Q.1) The Intraday Liquidity Facility (ILF) shall be established to support the implementation of the settlement of transactions involving interbank loans and government securities (GS) under repurchase agreements (RPs) with the BSP in connection with its Open Market Operations (OMO). EDHTAI BSP recognizes that there are interbank transactions, other than check clearing, that are still settled on net basis. These interbank transactions include primary auction of government securities, secondary trading of GS, peso-netting arising from $-Peso swaps and lendings/borrowings among banks. The ILF provides the smoothening mechanism in the settlement of these interbank transactions which are not covered by App. Q-13-a but could cause a failure of settlement of transactions under MIPS2. The operations of the ILF are considered part of the BSP's OMO. The basic features of ILF are described below. The timeline and procedures are shown in Annex "A". 1 Establishment of BSP ILF Sub-Account with BTR-RoSS To establish the ILF, each bank/NBQB shall instruct the Bureau of Treasury (BTr) to move from their accounts with BTr-RoSS to the BSP ILF sub-account the pool of peso-denominated GS to be pledged as collaterals covered by a "Contract to Pledge/Sell under R/P". This sub-account is unique to ILF. 2 Access to the facility The ILF shall be accessed only within the 10:00 AM to 4:00 PM trading window of App. Q-13-a. Whenever the reserve deposits of banks/NBQBs are not sufficient to cover the amount of eligible interbank transaction to be settled, the Financial Accounting System (FAS) of BSP shall automatically access the unutilized balance of ILF and move the funds to the Demand Deposit account (DDA) of the bank/NBQB, up to the amount not exceeding its intraday bank limit. 3 Eligible interbank transactions Only the following interbank transactions shall be eligible for settlement thru ILF: (a) Primary auction of GS (b) Secondary trading of GS (c) Peso netting from $-Peso swap (d) Lendings/borrowings and their collections/repayments 4. Intraday bank limit Banks/NBQBs shall set their individual ILF limits based on the amount of GS to be delivered to the pool and to be pledged. 5. Eligible collateral Similar to BSP's guidelines for RPs, peso-denominated issues of the National Government, with maturities of up to ten (10) years, are eligible. As such, these GS shall be free or unencumbered and dedicated for this specific purpose. The government securities to be pledged should be part of "I nvestments in Bonds and Other Debt Instruments " (IBODI) in the bank's books. 6 Valuation of collateral The GS shall be valued based on the 11:15 AM fixing rates on Friday of the week when pledged documents are submitted to BSP Treasury (from applicable Bloomberg's MART pages). 7. Margins Margins shall be applied based on the remaining life of the security and on existing procedures of BSP Treasury. 8. Changes in collateral Banks/NBQBs may increase or decrease their intraday facility limit by adjusting the amount of GS delivered to the pool no later than 10:00 AM each Thursday. BSP Treasury shall value the securities on Fridays, for use the following week, i.e., starting Monday. 9. Transaction fee In lieu of interest, BSP shall collect a transaction fee of P2,500 per ILF access to be debited to the DDA account of banks/NBQBs at the close of the transaction date. 10. Repayments of intraday availments a. The unsettled ILF utilization, after BSP Accounting has settled the check clearing results and the interbank lendings/borrowings among banks/NBQBs at 6:15 PM, shall be automatically converted into an overnight (O/N) RP at 600 basis points over the BSP's overnight lending rate for the day. b. Collaterals for the O/N RP shall be selected from the ILF pool based on the following criteria: i. Shortest remaining life ii. Value less than par and closest to par c. ILF utilizations that are converted into O/N RPs may be repaid the following banking day through the unutilized balance in the facility should there be a shortfall in the DDA balance. d. Unsettled O/N RP arising from ILF utilization due to insufficient DDA balance with BSP shall be converted automatically into an outright sale/purchase of the pledged collateral. e. Unsettled ILF utilization shall not be eligible for funding from the regular R/P window of BSP. 11. System for earmarking/unearmarking collaterals BSP Accounting shall maintain an ILF collateral file which shall function in tandem with the FAS system. The ILF collateral file shall be maintained for movement of collaterals from the ILF to O/N RPs and for unearmarking of government securities which are transferred to the BSP main account with BTR-RoSS on account of an absolute sale evidenced by the issue of Confirmation of Sale (COS) by the bank/NBQB and the Confirmation of Purchase (COP) by the BSP Treasury. HAICTD 12. Availability of the facility The ILF shall be available in its fully automated form after completion of the user acceptance testing by market participants, BSP and the BTr. Prior to full automation, there shall be physical delivery of pledge documents to the BSP Treasury for GS to be utilized as collaterals for the ILF. AGREEMENT TO PLEDGE/SELL GOVERNMENT SECURITIES UNDER BANGKO SENTRAL NG PILIPINAS R/P WINDOW ___________________________ (Date) TO: The BUREAU OF TREASURY In consideration for the establishment by the Bangko Sentral ng Pilipinas (BSP) Treasury Department of an Intraday Liquidity Facility in its favor, the _________________________ (Transferee) hereby assigns, conveys and transfers all its right, titles and interest in the government securities registered in its account with the BTR-RoSS and described hereinbelow, free from encumbrance and liens whatsoever, to the BSP to be credited to BSP's ILF sub-account with the BTR-RoSS. For this purpose, the Transferee hereby authorizes you to effect such transfers from/to the accounts mentioned. It is mutually agreed upon that said securities shall serve and constitute as collaterals for whatever availments obtained by the Transferee from the Intraday Liquidity Facility and granted by the BSP Treasury Department subject to the appropriate documentations covering the same. DETAILS OF THE SECURITIES DESCRIPTION FACE AMOUNT _____________________ _____________________ Conforme: Name(s) of Transferee's Authorized Name(s) of BSP's Authorized Officer/Position Title Officer/Position Title _____________________ _____________________ _____________________ _____________________ Terms and Conditions: -CUSTODY OF SECURITIES Held in custody by the Bureau of Treasury under the RoSS -OTHER STIPULATIONS a. Interest due or accruing on the aforesaid bonds/certificates of indebtedness is included in this Agreement b. The transferee will pay the taxes relevant to the transfer and availments. c. The transferee waives its right to the Secrecy of Deposits Law in regard to this transaction d. The transfer of securities and the availments of the Intraday Liquidity Facility are subject to the provisions of App. Q-13, App Q-13-a and its implementing guidelines as they exist and as may be amended. ANNEX A TIMELINE, POLICIES AND PROCEDURES FOR IMPLEMENTATION OF INTRADAY LIQUIDITY FACILITY (ILF) TO SUPPORT MIPS 2 Date Time Participating Banks/FIs BSP Treasury Bureau of Treasury BSP Accounting Establish collateral Pool -Including Subsequent Amendments One week Not later Instructs BTr to move to BSP ILF Instructs BTr to open sub-account Implementing Instructions of before than sub-account to be pledged as for ILF participating banks/NBQBs effectivity 10:00am collateral to a "Contract to 1. Unique to ILF each Pledge/Sell under RP" 2. Securities are FREE or Thursday UNENCUMBERED 3. Marked as non-tradeable 4. Remaining life not more than ten (10) years 5. Booked as IBODI in bank's books Transmit Electronic file to BSP Accounting 12:00 Using API of Bloomberg, Calls valuation program noon downloads latest prices and send Sets up Intraday Facility each extracted prices file to BSP File for following week's Friday Accounting; should show: settlement operations 1. Par value 2. Remaining Life Total collateral value- 3. Mark to Market value Individual bank/NBQB ILF limit Utilization of Intraday Liquidity Day 1 10:00 am Transact ILF eligible interbank Settles interbank to 4:00 pm transactions other than check transactions using clearing available DDA funds. In 1. Primary auction of GS case of NSF conditions, 2. Secondary trading of GS move funds from ILF 3. Peso netting form $-P swap 4. Lending/borrowing and Prints transaction register Settles ILF cumulative collection repayments availment thru DDA funds remaining at close of 10 to 4 window Date Time Participating Banks/FIs BSP Treasury Bureau of Treasury BSP Accounting 11:30 am Using API of Bloomberg, downloads latest prices and send collateral file to BSP Accounting; should show: 1. Par value 2. Remaining Life 3. Mark to Market value 4:00 to Prints register of unsettled ILF 4:30 pm utilization 4:45 to Updates DDA for 5:00 pm previous hours' transactions of BSP internal departments, including regional clearing results Updates DDA for PCHC 5:00 pm clearing results 5:30 to Updates DDA for IBCL 6:15 pm third trading window Settles outstanding ILF utilization thru DDA 6:15 pm Prints register of unsettled Recognizes O/N RP ILF utilization using the price fixed at 11:15am Recognize O/N RP Selects securities based on following criteria and updates collateral file (mark) Prints transaction register 1 shortest remaining life 2 value less than and closest to par Day 2 10:00 am Sends maturing O/N RP to BSP Settles matured O/N to 4:00pm Accounting RP thru DDA balances at the start of day, if sufficient 11:00 am Prints transactions register If DDA balance not sufficient, and there is an unutilized ILF, access the amount required. If settled, updates collateral file (unmark) If not settled, unmark and delist from collateral file Prints list of unsettled O/N RP 11:00 am Converts unsettled O/N RP to Implements transfer from Effects transfer to 12:00 nn absolute sale of GS using Confirma- BSP ILF sub-account to from RP to sale of tion of Sale (COS)/Confirmation of BSP main account GS at realizable Purchase (COP) provision in the proceeds standby contract Appendix Q-14 SAMPLE INVESTMENT MANAGEMENT AGREEMENT (Appendix to Subsec. 4411Q.1) IMA No. (Prenumbered) INVESTMENT MANAGEMENT AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT, made and executed this _____ day of _________ at _____________________________, Philippines by and between: ___________________________________ (Hereinafter referred to as the "PRINCIPAL") and _________________, an institution authorized to perform trust functions, organized and existing under and by virtue of the laws of the Philippines, with principal office and place of business at ____________________, ________________________, Philippines. (Hereinafter referred to as the "INVESTMENT MANAGER") WITNESSETH: THAT WHEREAS, the Principal desires to avail of the services of the Investment Manager relative to the management and investment of Principal's investible funds. WHEREAS, the Investment Manager is willing to render the services required by the Principal relative to the management and investment of Principal's investible funds, subject to the terms and conditions hereinafter stipulated; NOW, THEREFORE, for and in consideration of the foregoing and of the mutual conditions stipulated hereunder, the parties hereto hereby agree and bind themselves to the following terms and conditions: Investment Portfolio 1. Delivery of the Fund Upon execution of this Agreement, the Principal shall deliver to the Investment Manager the amount of PHILIPPINE PESOS: ___________________________________ (P_____________). 2. Composition The cash which the Principal has delivered to the Investment Manager as well as such securities in which said sums are invested, the proceeds, interest, dividends and income or profits realized from the management, investment and reinvestment thereof, shall constitute the managed funds and shall hereafter be designated and referred to as the Portfolio . For purposes of this Agreement, the term securities shall be deemed to include commercial papers, shares of stock and other financial instruments. 3. Delivery of Additional Funds At any time hereafter and from time to time at the discretion of the Principal, the latter may deliver additional funds to the Investment Manager which shall form part of the Portfolio and shall be subject to the same terms and conditions of this Agreement. No formalities other than a letter from the Principal and physical delivery to the Investment Manager of cash will be required for any addition to the Portfolio. 4. Nature of Agreement THIS AGREEMENT IS AN AGENCY AND NOT A TRUST AGREEMENT. AS SUCH, THE CLIENT SHALL AT ALL TIMES RETAIN LEGAL TITLE TO FUNDS AND PROPERTIES SUBJECT OF THIS ARRANGEMENT. THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET CONDITIONS. IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. Powers 5. Powers of the Investment Manager The Investment Manager is hereby conferred the following powers: a. To invest or reinvest the Portfolio in (1) Evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral ng Pilipinas, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; (2) Loans fully guaranteed by the government as to the payment of principal and interest; substitutes, or mortgage and chattel mortgage bonds; (4) Loans fully secured by real estate and chattels in accordance with Sec. 78 of R.A. No. 337, as amended, and subject to the requirements of Secs. 75, 76 and 77 of R.A. No. 337, as amended; and (5) Such other investments or loans as may be directed or authorized by the Principal in a separate written instrument which shall form part of this Agreement: Provided , That said written instrument shall contain the following minimum information: (a) The transaction to be entered into; (b) The amount involved; and (c) The name of the issuer, in case of securities and/or the name of the borrower and nature of security, in the case of loans; b. To endorse, sign or execute any and all securities, documents or contracts necessary for or connected with the exercise of the powers hereby conferred or the performance of the acts hereby authorized; c. To cause any property of the Portfolio to be issued, held, or registered in the name of the Principal or of the Investment Manager: Provided , That in case of the latter, the instrument shall indicate that the Investment Manager is acting in a representative capacity and that the Principal's name is disclosed thereat; d. To open and maintain savings and/or checking accounts as may be considered necessary from time to time in the performance of the agency and the authority herein conferred upon the Investment Manager; e. To collect and receive matured securities, dividends, profits, interest and all other sums accruing to or due to the Portfolio; f. To pay such taxes as may by due in respect of or on account of the Portfolio or in respect of any profit, income or gains derived from the sale or disposition of securities or other properties constituting part of the Portfolio; g. To pay out of the Portfolio all costs, charges and expenses incurred in connection with the investments or the administration and management of the Portfolio including the compensation of the Investment Manager for its services relative to the Portfolio; and h. To perform such other acts or make, execute and deliver all instruments necessary or proper for the exercise of any of the powers conferred herein, or to accomplish any of the purposes hereof. TCSEcI Liability Of Investment Manager 6. Exemption from Liability In the absence of fraud, bad faith, or gross or willful negligence on the part of the Investment Manager or any person acting in its behalf, the Investment Manager shall not be liable for any loss or damage to the Portfolio arising out of or in connection with any act done or performed or caused to be done or performed by the Investment Manager pursuant to the terms and conditions herein agreed, to carry out the powers, duties and purposes for which this Agreement is executed. 7. Advice of Counsel The Investment Manager may seek the advice of lawyers. Any action taken or suffered in good faith by the Investment Manager as a consequence of the opinion of the said lawyers shall be conclusive and binding upon the Principal, and the Investment Manager shall be fully protected from any liability suffered or caused to be suffered by the Principal by virtue hereof. Accounting And Reporting 8. The Investment Manager shall keep and maintain books of accounts and other accounting records as required by law. The Principal or the authorized representative of the Principal shall have access to and may inspect such books of accounts and all other records related to the Portfolio, including the securities held in custody by the Investment Manager for the Portfolio. 9. Reporting Requirements The Investment Manager shall prepare and submit to the Principal the following reports within ______________________________: (a) Balance Sheet; (b) Income Statement; (c) Schedule of Earning Assets; (d) Investment Activity Report; and (e) (such other reports as may be required by the Principal). Investment Manager's Fee 10. Investment Fee The Investment Manager, in addition to the reimbursement of its expenses and disbursements in the administration and management of the Portfolio including counsel fees, shall be entitled to receive as compensation for its services a management fee of (Specify amount or rate). Withdrawals From The Portfolio 11. Withdrawal of Income/Principal Subject to availability of funds and the non-diminution of the Portfolio below P1 million, the Principal may withdraw the income/principal of the Portfolio or portion thereof upon written instruction or order given to the Investment Manager. The Investment Manager shall not be required to see as to the application of the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment. 12. Non-alienation of Encumbrance of the Portfolio or Income During the effectivity of this Agreement, the Principal shall not assign or encumber the Portfolio or its income or any portion thereof in any manner whatsoever to any person without the prior written consent of the Investment Manager. Effectivity And Termination 13. Term This Agreement shall take effect from the date of signing hereof and shall be in full force and effect until terminated by either party by giving written notice thereof to the other at least _______(__) days prior to the termination date. 14. Powers upon Liquidation The powers, duties and discretion conferred upon the Investment Manager by virtue of this Agreement shall continue for the purpose of liquidation and return of the Portfolio, after the notice of termination of this Agreement has been served in writing, until final delivery of the Portfolio to the Principal. 15. Accounting of Transaction Within _____ (__) days after the termination of this Agreement, the Investment Manager shall submit to the Principal an accounting of all transactions effected by it since the last report up to the date of termination. Upon the expiration of the ________(__) days from the date of submission, the Investment Manager shall forever be released and discharged from all liability and accountability to anyone with respect to the Portfolio or to the propriety of its acts and transactions shown in such accounting, except with respect to those objected to in writing by the Principal within the __________(__) day period. 16. Remittance of Net Assets of the Portfolio Upon termination of the Agreement, the Investment Manager shall turn over all assets of the Portfolio which may or may not be in cash to the Principal less the payment of the fees provided in this Agreement in carrying out its functions or in the exercise of its powers and authorities. This Agreement or any specific amendments hereto constitute the entire agreement between the parties, and the Investment Manager shall not be bound by any representation, agreement, stipulations or promise, written or otherwise, not contained in this Agreement or incorporated herein by reference, except pertinent laws, circulars or regulations approved by the Government or its agencies. No amendment, novation, modification or supplement of this Agreement shall be valid or binding unless in writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties have hereunto set their hands on the date and at the place first above set forth. ____________ _________________________ (PRINCIPAL) (INVESTMENT MANAGER) By: SIGNED IN THE PRESENCE OF: ________________________ ________________________ Appendix Q-15 RISK MANAGEMENT GUIDELINES FOR DERIVATIVES (Appendix to Subsec. 4603Q.3) I. Foreword These guidelines, which are based on the "Risk Management Guidelines For Derivatives" issued by the Basle Committee on Banking Supervision in July 1994, are expected to facilitate the further development of a prudent approach to the risk management of derivatives. The Bangko Sentral recognizes that sound internal risk management is essential to the prudent operations of financial institutions and that supervisory tools, such as capital requirements, are not by themselves sufficient. Sound internal risk management is also essential to promoting stability in the financial system as a whole. While the precise applicability of these guidelines will depend on the size and complexity of an institution's derivatives activities, we believe that the application of the basic principles embodied therein are very relevant even for risks inherent in more traditional activities. II. Introduction and Basic Principles 1. Derivatives instruments have become increasingly important to the overall risk profile and profitability of banking organizations throughout the world. Broadly defined, a derivatives instrument is a financial contract whose value depends on the values of one or more underlying assets or indices. Derivatives activities include a wide assortment of financial contracts, including forwards, futures, swaps and options. In addition, other traded instruments incorporate derivatives characteristics, such as those with embedded options. While some derivatives instruments may have very complex structures, all of them can be divided into the basic building blocks of options, swaps, futures and forwards or some combination thereof. The use of these basic building blocks in structuring derivatives instruments allows the transfer of various financial risk to parties who are more willing, or better suited, to take or manage them. 2. Derivatives are used by banking organizations both as risk management tools and a source of revenue. From a risk management perspective, they allow financial institutions and other participants to identify, isolate and manage separately the market risks in financial instruments and commodities. When used prudently, derivatives can offer managers efficient and effective methods for reducing certain risks through hedging. Derivatives may also be used to reduce financing costs and to increase the yield of certain assets. For a growing number of banking organizations, derivatives activities are becoming a direct source of revenue through "market-making" functions and "position-taking": "MARKET-MAKING" functions involve entering into derivatives activities with customers and with other market-makers while maintaining a generally balanced portfolio with the expectation of earning fees generated by a bid/offer spread; and "POSITION-TAKING", on the other hand, represents efforts to profit by accepting the risk that stems from taking outright positions in anticipation of price movements. SaIACT 3. Participants in the derivatives markets are generally grouped into two categories based primarily on their motivations for entering into derivatives contracts. End-users typically enter into derivatives activities to achieve specified objectives related to hedging, financing or position-taking on the normal course of their business operations. A wide variety of business enterprises are end-users. They include, but are not limited to, a broad range of financial institutions such as banks, securities firms and insurance companies; funds and specialized investment partnerships; and corporations, local and state governments, government agencies and international agencies. 4. Intermediaries, which are sometimes referred to as "Dealers", cater to the needs of end-users by "making markets" in over-the-counter derivatives instruments. In doing so, they expect to generate income from transaction fees, bid/offer spreads and their own trading positions. Important intermediaries, or derivatives dealers, include major banks and securities firms. As intermediaries, banks have traditionally offered foreign exchange and interest rate risk management products to their customers and generally view derivatives products as a financial risk management service. 5. The basic risks associated with derivatives activities are not new to banking organizations. In general, these risks are credit risk, market risk, liquidity risk, operations risk and legal risk. Because they facilitate the specific identification and management of these risks, derivatives have the potential to enhance the safety and soundness of financial institutions and to produce a more efficient allocation of financial risks. However, since derivatives also have these basic risks in combinations that can be quite complex, they can also threaten the safety and soundness of institutions if they are not clearly understood and properly managed. 6. Recognizing the importance of sound risk management to the effective use of derivatives instruments, the following guidelines are intended to highlight the key elements and basic principles of sound management practice for both dealers and end-users of derivatives instruments. These basic principles include: a. appropriate oversight by Boards of Directors and/or Management Committee and Senior Management; b. adequate risk management process that integrates prudent risk limits, sound measurement procedures and information systems, continuous risk monitoring and frequent management reporting; and c. comprehensive internal controls and audit procedures. III. Oversight of the Risk Management Process Written policies and procedures on derivatives activities must be set forth and documented in a policy manual duly approved by its Board of Directors. The manual should include the following minimum features: 1. Scope of derivatives activities and types of services and products offered to clients; 2. Authorities and Responsibilities of: a. Board of Directors b. Management Committees c. Chief Executive Officer d. Other Senior Officers e. Department Managers f. Trading or Dealing Officers/Staff 3. Policies and procedures to govern trading, including trading, exposure and gap limits, and documentation of transactions; 4. Policies and procedures for controlling and measuring risk; 5. Accounting policies and procedures; 6. Internal control system; 7. Internal audit policies; 8. Policy review; 9. Reporting requirements; 10. Job description of key position and minimum qualification standards; and 11. Client-oriented safety nets. A. Oversight by Board of Directors and/or Management Committee 1. The Board of Directors or appropriate Management Committee should approve all significant policies relating to the management of risks throughout the institution. These policies, which should include those related to derivatives activities, should be consistent with the organization's broader business strategies, capital strength, management expertise and overall willingness to take risk. 2. The Board of Directors or appropriate management committee shall structure a compensation package for risk management officers and staff in such a way that the said package is sufficiently independent of the performance of trading activities. B. Oversight by Senior Management 1. Senior management should be responsible for ensuring that there are adequate policies and procedures for conducting derivatives operations on both a long-range and day-to-day basis. This responsibility includes: a) ensuring that there are clear delineations of lines of responsibility for managing risk, adequate systems for measuring risk, appropriately structured limits on risk taking, effective internal controls and a comprehensive risk-reporting process; b) ensuring that all appropriate approvals are obtained and that adequate operational procedures and risk control systems are in place. 2. Any significant changes in any derivatives activities or any new derivatives activities should be approved by the Board of Directors or an appropriate level of senior management as designated by the Board of Directors. 3. Senior management should regularly evaluate the procedures in place to manage risk to ensure that those procedures are appropriate and sound. C. Independent Risk Management Functions 1. An independent body shall manage the measurement, monitoring and control of risks consistent with established policies and procedures. It shall directly report to the Board of Directors or to the appropriate management committee. 2. The personnel performing independent risk management functions should have a complete understanding of the risks associated with all of the bank's derivatives activities. Accordingly, compensation policies for these individuals should be adequate to attract and retain personnel qualified to assess these risks. IV. The Risk Management Process 1. The primary components of a sound risk management process are: comprehensive risk measurement approach; detailed structure of limits, guidelines and other parameters used to govern risk-taking; and strong management information system for controlling, monitoring and reporting risks. 2. To enable an institution to manage its risk exposure more effectively, its risk management process for derivatives activities should be integrated into its overall risk management system using a conceptual framework common to its other activities. 3. The risk exposures in derivatives activities should be fully supported by an adequate capital position. A. Risk Measurement 1. Risk should be measured and aggregated across trading and non-trading activities on an institution-wide basis to the fullest extent possible. In derivatives activities, assessment of the following risks should be included: credit risk, market risk, liquidity risk, operations risk and legal risk (Section VI of these Guidelines). 2. Risk measurement procedures should be understood by all relevant personnel from individual traders to the Board of Directors. 3. Mark-to-Market valuation of derivatives positions is fundamental to measuring and reporting exposures accurately and on a timely basis. A daily report to management indicating the gain or loss on derivatives activities should be submitted. Monitoring of credit exposures, trading positions and market improvements should be done at least daily. 4. Sound risk measurement practices include analysis of stress situations and identification of changes in market behavior that could have unfavorable effects on the institution and assessment of the ability of the institution to withstand them. B. Limiting Risks 1. A sound system of integrated institution-wide limits should set boundaries for organizational risk-taking and should ensure that position which exceeds pre-determined levels receive prompt management attention. Such a system should define, among others, the following limits: a. Earnings or capital-at-risk limits This defines the limit on potential loss which could be expressed as a percentage of projected earnings or capital; and b. Exposure limits This defines maximum exposure to the various derivatives products. 2. Should pre-determined limits be exceeded, a report to senior management must be made for information and appropriate action. C. Reporting An accurate, informative, and timely reporting system to the appropriate level of management is essential to the prudent operation of derivatives activities. Top management should be provided with adequate and timely information, on a regular basis, to judge the changing nature of the institution's risk profile. D. Management Evaluation and Review 1. Risk management guidelines should be evaluated and reviewed regularly since any change in either the institution's activities or the market environment may have created exposure that requires additional attention. 2. The review should include assessment of the methodologies, models and assumptions used in measuring risk. Limit structures should be altered whenever necessary to reflect the institution's past performance and current position. These reviews should be made at least annually, or more often as market conditions dictate, to ensure that they are appropriate and consistent. HcSaTI 3. Before being involved in new products, all relevant personnel (including those in risk management, internal control, legal, accounting and auditing) should understand the product and should be able to integrate it into the institution's risk measurement and control systems. V. Internal Controls and Audit 1. A sound system of internal controls should promote effective and efficient operations, reliable financial and regulatory reporting, and compliance with relevant laws, regulations and policies of the institution. In determining whether internal controls meet those objectives, the institution should consider the overall control environment of the organization; the process of identifying, analyzing and managing risk; the adequacy of management information systems; and adherence to control activities such as approvals, confirmations and reconciliations. Reconciliation control is particularly important where there are differences in the valuation methodologies or systems used by the front and back offices. 2. Internal auditors should audit and test the risk management process and internal controls on a periodic basis, with the frequency based on a careful risk assessment. The depth and frequency of internal audits should be increased if weaknesses and significant issues are discovered, or if significant changes have been made to product lines, modeling methodologies, the risk oversight process, internal controls or the over-all risk profile of the institution. To facilitate the development of adequate controls, internal auditors should be brought into the product development process at the earliest possible stage. 3. The institution should develop internal controls for key activities which should include the following features: a. A chart of subsidiary accounts adequately describing each account and designed to complement the Manual of Accounts prescribed by the BSP; and b. Written policies/procedures for handling/ recording confirmation and settlement of transactions; segregation of duties between the front office and back room personnel; revaluation of positions indicating sources of revaluation rates; documentation of review and approval of limits and sub-limits; and evaluation and reporting to the Board of Directors/Senior Management of audit findings/exceptions; and such other key activities the institution is engaged in. 4. Internal auditors are expected to continuously evaluate the independence and overall effectiveness of the institution's risk management functions. They should be involved in the periodic review and evaluation of all bank policies, limits, internal controls and procedures developed for the institution's key activities. 5. Bank management should ensure that a mechanism exists whereby financial derivatives contract documentation is confirmed, maintained, and safeguarded. Documentation exceptions should be properly monitored and resolved. Controls must be in place to ensure that the appropriate contract documentation is timely and properly executed and maintained. The bank should establish a process through which documentation exceptions are monitored and appropriately reviewed by senior management and legal counsel. Banks with more active derivatives businesses may consider establishing a separate documentation unit to control financial derivatives contracts and supporting documents. Such a unit may be a part of a broader documentation unit of the legal department. VI. Sound Risk Management Practices for Each Type of Risk A. Credit Risk is the risk that a counterparty will fail to perform on an obligation to the institution. Credit risk management should parallel the prudent controls expected in traditional lending activities. Policies and procedures should be formalized to address concerns such as significant counterparty exposures, concentration of credit, risk ratings, non-performing contracts, and allowance allocations. An institution should include in its credit risk policy, the credit exposures to an individual counter-party. Internal limits that are prudent in the light of its financial condition and management expertise should be established. Policies and procedures should reflect the Board of Director's risk tolerance for concentration of credit. Policies addressing credit management functions, such as risk ratings, non-performing contracts, and allowance allocations should be consistent. Credit Approval Function 1. Management should make sure that credit authorizations are provided by personnel independent of the trading unit to ensure safe and sound management of derivatives credit risk exposure. Credit officers and approving officers should be: familiar with credit risk; able to analyze the impact of proposed derivatives activities on the financial condition of the customer; responsible for establishing and changing financial derivatives credit lines; and able to understand the applicability of financial derivatives instruments to the risks the bank customer is attempting to manage. 2. Credit analysis should be documented and necessary information should be provided to customer/s. Pre-settlement Risk 1. The system to be used to quantify the pre-settlement credit risk exposure should: a) take into account current exposure ("mark-to-market") as well as potential credit risk due to possible future changes in applicable market rates or prices ("add-on"); b) use a reliable source for determining the credit risk factor used to calculate the credit risk add-on; and c) produce a number representing a reasonable approximation of loan equivalency, that is, the amount of credit exposure inherent in a comparable extension of credit. The mark-to-market calculation should incorporate the same controls as the mark-to-market calculation used to identify profits and losses. Prices should be obtained independently from qualified sources on a periodic basis. The traders should not be used as the source of market valuations. 2. The sophistication of credit risk measurement system should be consistent with the level of activity and degree of risk assumed in derivatives activities. An internal control system to determine potential credit risk should be in place. Settlement Risk This is the risk that an institution faces when it has performed its obligations under a contract, but has not yet received value from its counterparty. Management should establish limits and monitoring procedures for settlement risk exposures. Settlement risk limits should be established separately from pre-settlement credit limits and should consider capital adequacy, operations efficiency and credit analysis expertise. Monitoring reports should provide sufficient detail to identify credit risk arising from settlement versus pre-settlement exposure. Credit Risk Monitoring 1. Credit risk monitoring should be independent of the units that create financial derivatives exposures. The risk monitoring unit should be responsible for producing and distributing timely and accurate information about credit exposures, such as concentration of credit, credit quality, limit exceptions, and significant counterparty exposures. 2. This methodology adopted to measure and monitor credit risk should be controlled by personnel independent of the trading unit. B. Market Risk is the risk that adverse movements in the level or volatility of market prices will affect the institution's financial condition. Dealers and Active Position-Takers 1. There should be a risk measurement system that can quantify risk exposures arising from changes in market factors. This system should be structured to enable management to initiate prompt remedial action, facilitate stress testing, and assess the potential impact of various changes in market factors on earnings and capital. At a minimum, all risk measurement applications and models should be reviewed and validated annually, and management should maintain adequate documentation to support the reliability of the validation process. 2. Statistical analyses should be used to characterize market scenarios and price behavior. Before they are used, and whenever market conditions change significantly, the analyses should be validated by a source independent of the trading desk or risk assumption unit. Limited End-Users The senior management should ensure that all significant risks arising from their derivatives activities can be quantified, monitored, and controlled. At a minimum, risk management systems should evaluate the possible impact of derivatives activities on earnings and capital which may result from adverse changes in interest rates and other market conditions that are relevant to risk exposure and the effectiveness of financial derivatives activities. ISEHTa C. Liquidity Risk is the risk that an institution will not be able to, or cannot easily, exit or unwind its position at a desired market price (market/product liquidity risk); or to meet its cash flow obligations as they fall due or upon margin calls (cash flow/funding liquidity risk). 1. Management should evaluate these risks in the broader context of the institution's overall liquidity because neither type of liquidity risk is necessarily unique to derivatives activities. 2. In developing guidelines for controlling liquidity risks, an institution should consider the possibility that it could lose access to one or more markets, either because of concerns about the institution's own credit worthiness, the credit worthiness of a major counterparty or because of generally stressful market conditions. At such times, the institution may have less flexibility in managing its market, credit and liquidity risk exposures. An institution that makes markets in over-the-counter derivatives or that dynamically hedges 1 its positions requires constant access to financial markets and that need may increase in times of market stress. The institution's liquidity plan should reflect its ability to turn to alternative markets, such as futures or cash markets, or to provide sufficient collateral or other credit enhancements in order to continue trading under a broad range of scenarios. 3. An institution that participates in over-the-counter derivatives markets should assess the potential liquidity risks associated with the early termination of derivatives contracts. Many forms of standardized contracts for derivatives activities allow counterparties to request collateral or to terminate their contracts early if the institution experiences an adverse credit event or a deterioration in its financial condition. In addition, under conditions of market stress, customers may ask for the early termination of some contracts within the context of the dealer's market making activities. In such situations, an institution that owes money on derivatives activities may be required to deliver collateral or settle a contract early and possibly at a time when it may face other funding and liquidity pressures. Early terminations may also open up additional, unintended, market positions. Management and directors should be aware of these potential liquidity risks and should address them in the institution liquidity plan and in the broader context of the institution's liquidity management process. D. Operations Risk is the risk that an institution will suffer an unexpected loss due to deficiencies in information systems or internal controls. 1. The Board of Directors/Management Committee and senior management should ensure the proper dedication of resources to support operations and systems development and maintenance. The operation unit should report to an independent unit and should be managed independently of the business unit. The sophistication of the systems support and operational capacity should be commensurate with the size and complexity of the derivatives business activity. 2. Systems support and operational capacity should be adequate to accommodate the types of derivatives activities in which the institution engages. This includes the ability to efficiently process and settle the volume transacted through the business unit, to provide support for the complexity of the transactions booked and to provide accurate and timely input. Support systems and the systems developed to interface with the official databases should generate accurate information sufficient to allow business unit management and senior management to promptly monitor risk exposures. 3. Segregation of operational duties, exposure reporting and risk monitoring from the business unit is critical to proper internal control. 4. Management should ensure that a mechanism exists whereby derivatives contract documentation is confirmed, maintained and safeguarded. An institution should establish a process through which documentation exceptions are monitored and resolved and appropriately reviewed by senior management and legal counsel. 1. Dynamic hedging refers generally to the continuous process of buying and selling of instruments to offset exposures as market conditions change (e.g., an option writer selling an underlying asset as its price falls.) The institution should also have approved policies that specify documentation requirements for derivatives activities and formal procedures for savings and safeguarding important documents that are consistent with legal requirements and internal policies. E. Legal Risk is the risk that contracts are not legally enforceable or correctly documented. 1. Before engaging in derivatives activities, an institution, in consultation with its legal counsel, should be satisfied that its counterparties have the legal authority to engage in such activities. 2. The terms of any contract governing derivatives activities should be legally sound. 3. The institution should use the International Swap Dealers Association, Inc. (ISDA) Master Agreement insofar as the same is not inconsistent with existing laws, rules and regulations. Appendix Q-16 RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES (Appendix to Subsec. 4603Q.3) Similar to other financial transactions, derivatives activities may provide significant benefits and involve a variety of significant risks. Before entering into any derivatives activity, you should carefully consider whether the transaction is appropriate for you in light of your objectives, experience, financial and operational resources, and other relevant circumstances. You should ensure that you fully understand the nature and extent of your exposure to risk of loss, which may significantly exceed the amount of any initial payment by or to you. In general, all derivatives activities involve risks, which include, among others, the risk of adverse or unanticipated market, financial or political developments, risk of counterparty or issuer default and other credit and enforcement risks, and risk of illiquidity and related risks. In addition, you may be subject to operational risks in the event that you do not have in place appropriate internal systems and controls to monitor the various risks, funding and other requirements to which you may be subject by virtue of your activities in derivatives and other financial markets. As in any financial transaction, you should ensure that you understand the requirements applicable to you that are established by your regulators or by your board of directors or other governing body. You should also consider the legal, tax and accounting implications of entering into any derivatives activity. In entering into any derivatives activity with, or arranged by, us or any of our subsidiaries/ affiliates, you should also understand that ____________________ is acting solely in the capacity of an arm's length contractual counterparty and not in the capacity of your financial adviser or fiduciary unless _____________________ has so agreed in writing and then only to the extent so provided. Whether or not you and ________________ have established a written financial advisory or fiduciary relationship, ___________________ may, from time to time, have substantial long or short positions in, and may make a market in or otherwise buy or sell instruments identical or economically related to, the derivatives activity entered into with you; _______________________ may also have an investment banking, corporate advisory, or other commercial relationship with the issuer of any security or financial instrument underlying the derivatives activity entered into with you. THIS BRIEF STATEMENT DOES NOT PURPORT TO DISCLOSE ALL OF THE RISKS OR OTHER RELEVANT CONSIDERATIONS OF ENTERING INTO DERIVATIVES ACTIVITIES. YOU SHOULD REFRAIN FROM ENTERING INTO ANY SUCH ACTIVITY UNLESS YOU FULLY UNDERSTAND ALL SUCH RISKS AND HAVE INDEPENDENTLY DETERMINED THAT THE ACTIVITY IS APPROPRIATE FOR YOU. Appendix Q-17 ACCOUNTING GUIDELINES FOR DERIVATIVES (Appendix to Subsec. 4603Q.4) The following guidelines shall be observed by any NBQB and/or its subsidiaries/affiliates authorized to engage in derivatives activities: a. Derivatives contracts shall be recorded in the books of accounts as contingent items using the accounts prescribed in the Revised Manual of Accounts, whenever applicable. The amounts to be recorded shall either be notional or actual, depending on the nature of the contract. The purpose of the contract shall be specifically stated, i.e., for trading or for hedging. At maturity of the contract the recorded entries shall be reversed. b. Recognition of gains or losses shall be as follows: 1. For derivatives contracts entered into for trading purposes, gains and losses shall be recognized/recorded in the books at the end of every month. 2. For derivatives contracts entered into for hedging purposes: (a) During the life of the underlying contract/transaction, unrealized gains and losses resulting from marking-to-market shall be recorded under "Deferred Hedging Gain/Loss" account, and shall serve as an adjustment to the gain/loss of the underlying contract/ transaction. Upon maturity of the underlying contract/transaction, the deferred gain/loss shall be realized, and shall then be recorded as trading gain/loss. (b) After the life of the underlying contract/transaction, gains and losses shall be recorded directly as trading gain/loss. A contract should be accounted for as a hedge when the following conditions are met: (1) The underlying contract/transaction exposes the institution to risk/s (e.g., interest rate risks, exchange rate risks, market risks). (2) The institution designates the product as a hedge. (3) The derivatives contract entered into is effective as a hedge, meaning that there must be a high correlation between the gains or losses on the derivatives contract and the gains or losses caused by the change of interest rates or exchange rates on the underlying contract/transaction. CcSEIH For a derivatives contract to qualify as a hedge of an anticipated transaction, the following two (2) additional criteria must be met: i) Significant characteristics and expected terms of the anticipated transaction must be identified; and ii) The occurrence of the anticipated transaction must be probable. 3. For derivatives contracts entered into as agent/broker, the notional amount shall be recorded as a contingent item. Income therefrom shall be in the form of fees, commissions or spreads only. c. Any NBQB and/or its subsidiaries/affiliates shall disclose, by way of footnotes to its audited financial statements, the following: 1. Accounting policy on derivatives; 2. Mark-to-market policy; and 3. Notional amount of outstanding contracts. Appendix Q-18 SEC BASIC RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF PRESIDENTIAL DECREE NO. 129, OTHERWISE KNOWN AS "THE INVESTMENT HOUSE LAW" (Appendix to Secs. 4604Q and 4656Q) To effectively carry out the provisions of Presidential Decree No. 129, otherwise known as "The Investment Houses Law", the Commission, pursuant to the powers vested in it by said Decree, and by Republic Act Nos. 1143 and 5050, hereby promulgates the following rules and regulations for the information and guidance of the public: SECTION 1. Scope of Applicability . These rules and regulations shall apply to any enterprise which engages or purports to engage in the underwriting of securities. SECTION 2. Definitions . The following terms as used in Presidential Decree No. 129 and these rules shall be understood to mean as follows: a) Investment House is any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. b) Underwriting of securities is the act or process of guaranteeing the distribution and sale within the Philippines of securities issued by another person or enterprise, including securities of the Government or its instrumentalities. The distribution and sale may be on a public or private placement basis. c) Securities are written evidences of ownership, interest or participation, in any enterprise, or written evidences of indebtedness of a person or enterprise. It includes, but is not limited to, the instruments enumerated in Section 2 of the Securities Act. d) Guarantee is any commitment and/or undertaking made by a person, firm or entity to an issuer or holder of securities to raise funds for said issuer or holder, by the distribution of such securities for sale, resale, or subscription, either through an outright purchase or through a corresponding commitment to purchase the balance not subscribed or sold. e) Private placement refers to the underwritten sale of securities to less than 20 persons or enterprises. f) Public distribution refers to the underwritten sale of securities to at least 20 persons or enterprises. g) Voting stock is that portion of the authorized capital stock of an investment house, as are subscribed and entitled to vote. h) Paid-in capital are all payments on subscriptions to the authorized capital of an investment house, including premiums paid in excess of par. i) Officer shall be understood to mean a senior officer of an Investment House or bank, which includes the President, Executive Vice-President, General Manager, Vice-President, Assistant Vice-President, Corporate Secretary, Head of an Operating Department and Branch Manager and such other officers as the Commission, in consultation with the BSP, shall determine. j) Organizers are persons who undertake to form an Investment House, among themselves and others, and who are indicated in the Articles of Incorporation as the incorporators and the incorporating directors. k) Managerial staff are the officers of an Investment House. Where an Investment House is under a management contract the terms shall be understood to include the officers of the management firm. l) Unimpaired capital and surplus means the total of the unimpaired paid-in capital, surplus, and undivided profits net of such valuation reserves as may be required by the Commission provided that the Commission may include such other items as it may deem appropriate. m) Quasi-banking functions shall refer to the functions defined as such by law and appropriate implementing rules and regulations. n) Commission shall mean the Securities and Exchange Commission. SECTION 3. Organization and Registration. A. Investment Houses shall be organized in the form of stock corporations in accordance with the provisions of the Corporation Law, subject to the following requirements: 1) At least a majority of the voting stock of the corporation shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned voting stocks in an Investment House, the basis of the computation shall be the citizenship of each stockholder, and, with respect to corporate owners of voting stock, the citizenship of the individual owners of voting stock in the corporation holding shares in the Investment House; 2) The majority of the members of the Board shall be citizens of the Philippines; 3) Foreign equity participation shall be registered or reported with the Board of Investments in accordance with the rules and regulations of that Office, prior to or simultaneous with the registration with the Commission; 4) The corporation shall have a minimum initial paid-in capital of P20,000,000 at the time of incorporation; 5) Resident foreign directors or technicians of an Investment House, if any, shall register with the Bureau of Immigration and Deportation; 6) In no event shall an officer of an Investment House be at the same time an officer of a bank, as defined in Section 2 of R.A. 337, as amended; 7) No director or officer of an Investment House shall at the same time be a director of a bank, and no director of an Investment House shall at the same time be an officer of a bank, except as may be authorized as an exception by the Monetary Board of the BSP. B. Procedure The organizers shall file with the Commission, a sworn application for registration in accordance with the prescribed form, together with the following documents: (1) All documents required for registration as a stock corporation; (2) An information sheet of the registrant corporation; [SEC Form 129-2] (3) A statement under oath by the organizers and the proposed managerial staff, of their educational background and work experience, as well as information on any position currently held by them in banking and other financial institutions, if any (SEC Form 129-3); (4) A one-year projected statement of assets and liabilities of the proposed Investment House; (5) A tentative program of operation for one year, including its investment direction and volume, its expected sources and intended uses of funds and its quasi-banking functions, if any. CAHTIS C. Hearing on Application The Securities and Exchange Commission shall conduct a hearing to determine whether the establishment of the proposed Investment House will promote public interest and economic growth. The BSP shall be officially notified. The SEC Commissioner shall not register any articles of incorporation unless his Office shall have consulted the BSP and is satisfied on the basis of the evidence submitted that: (1) All the requirements of Presidential Decree No. 129 and of existing laws relative to the organization of an Investment House have been complied with; (2) Public interest and economic growth are promoted; (3) The amount of capital, the proposed organization, direction and administration, as well as the integrity, experience and expertise of the organizers and the proposed managerial staff, provide reasonable assurance that the enterprise will be conducted with financial prudence. D. Issuance of Certificate of Incorporation Upon compliance with all the requirements of law and implementing rules, and the Commission is satisfied that the formation of the Investment House will promote public interest and economic growth, a Certificate of Incorporation will be issued to it. A license to operate shall also be granted after it shall have adopted its by-laws, elected its directors and appointed its officers. E. Annual Fees On or before the fifteenth day of January of each year, and for as long as its license to operate remains in effect, each Investment House shall pay a fee of P200. At the time of payment, the Commission may require the licensee to appear and inform the Commission of the results of its operations. AaITCH F. Branch Operations No Investment House shall open, maintain or operate a branch or agency without first securing from the Commission a license to operate a branch in a particular locality. All applications for a license to operate a branch shall be acted upon by the Commission within ninety (90) days after submission of such documents as may be required by the Commission in support of such application. G. Use of the Term "Investment House" No person, association, partnership or corporation other than those duly licensed as an Investment House in accordance with these rules and regulations, shall advertise or hold itself out as being engaged in the business of an Investment House. SECTION 4. Underwriting Requirements. Underwriting agreements entered into by an Investment House, with respect to public distribution of securities, including the fees to be charged in connection therewith, shall be subject to the approval of the Commission, it being understood that no public distribution of securities shall be made without such approval. The Commission may impose such terms and conditions as may be necessary in the public interest and for the protection of investors; and it may require the submission of such documents as may be necessary to ascertain compliance with such standards of operation as it may establish. Transactions which constitute quasi-banking functions shall be subject to BSP regulation. As a gesture of faith in the issue, an Investment House may take for its own account a portion of the securities it underwrites but shall sell such securities to the public. SECTION 5. Management of Funds . The Commission, by circular, shall provide limitations on investments of discretionary accounts under the management of an Investment House. Should the Investment House engage in the management of funds, it must at all times adhere to the prudent man's rule. The Investment House shall ensure that the interest of the funds managed is promoted and that the operation of the funds is undertaken on an arms' length basis. The Commission may require such documents and reports as may be necessary, in order to determine if prudence and safety of the principal have been paramount in the decision of the Investment House. SECTION 6. Underwriting Fees . Except in highly meritorious cases, as approved by the Commission, an Investment House shall not collect underwriting fees in excess of five percent (5%) of the amount generated by the underwriter for the issuer. SECTION 7. Contingency Reserves . An Investment House shall provide annually a reserve for contingencies in such reasonable amount as may be required by the Commission. SECTION 8. Prohibitions (1) No Investment House shall undertake underwriting commitments for its own account in an aggregate outstanding amount exceeding twenty (20) times its unimpaired capital and surplus. (2) An Investment House shall not at any time allow its unimpaired capital and surplus to fall below twenty million (P20,000,000) pesos; otherwise, it shall be prohibited from underwriting securities for so long as such deficiency remains. (3) Whenever an Investment House is engaged in the management of funds, its officers and other personnel directly involved in the management of funds are prohibited from simultaneously or concurrently buying or selling the shares of stock of the same firm that the funds are buying or selling. (4) No advance to directors, officers and stockholders owning at least 10% of the outstanding capital of an Investment House shall be allowed, unless sufficiently collateralized. SECTION 9. Reporting Requirements . Every registered Investment House shall file with the Commission the following periodic reports in triplicate: A. Progress Reports a quarterly report of the results of its underwriting operations and activities of funds managed on all commitments entered into in such form as may be provided for the purpose, within fifteen (15) days from the end of each quarter. B. Semi-Annual Financial Statement signed under oath by its chief accountant and verified by the president, within a period of sixty (60) days after the end of each semester containing such data, and in such form as the Commission shall require. A copy shall be filed with the BSP. C. Annual Report concerning its operational activities for the year just ended, signed by its president (SEC Form 129-1) within the month of March of each year. A copy shall be filed with the BSP. D. A Report on the composition of the board of directors or any resignation, dismissal, suspension, or filling of vacancies therein, or of any officers or managerial staff, signed under oath by the secretary, within fifteen days after occurrence of the event. Every registered Investment House shall maintain and preserve such records and documents as the Commission may prescribe by way of circulars. Such circulars shall provide for a reasonable degree of uniformity in accounting policies and principles to be followed by Investment Houses in maintaining their accounting records and in preparing statements as required by these rules. SECTION 10. Transitory Provisions A. All existing enterprises which have been operating as Investment Houses, prior to February 15, 1973, shall: (1) Within six (6) months from February 15, 1973 file an information sheet with the Commission in such form and containing such data as may be required, pay the required fee under Sec. 3-E of these rules, and the Commission in consultation with the Monetary Board, after determining compliance with the requirements of Presidential Decree No. 129 and of these Rules, shall issue a License to Operate an Investment House. (2) Within one (1) Year from February 15, 1973 comply with the requirement of a minimum paid-in capital of Twenty Million Pesos (P20,000,000), citizenship requirements, and the prohibition on interlocking directorate or officership. SECTION 11. Stockbrokerage or Dealership Functions If an Investment House engages in the business of a stockbroker or dealer pursuant to Presidential Decree No. 129, it shall comply with the provisions of C.A. No. 83, otherwise known as the Securities Act, and the rules and regulations of the Commission promulgated pursuant thereto: Provided, however, that an Investment House need not obtain a separate license under Section 14 of the Securities Act. SECTION 12. Bangko Sentral Rules Investment Houses shall also be subject to the rules and regulations promulgated by the BSP for non-bank financial intermediaries as provided by law. SECTION 13. Visitorial Power The Commission may, at its discretion, make such investigations as it deems necessary to determine whether or not an Investment House is complying with any of the provisions of Presidential Decree No. 129 or of any applicable laws, rules and regulations. It shall determine all the facts and circumstances concerning the matter to be investigated for the imposition of sanctions/penalties or remedial or preventive measures. SECTION 14. General Exemption Power The Commission may, upon proper petition and payment of a fee of P100, grant an exemption from compliance with any requirements of these rules as may be consistent with public interest and the protection of investors. SECTION 15. Penalties Any violation of Presidential Decree No. 129 or of these rules and regulations, shall be penalized by suspension or revocation of the License to Operate, after proper notice and hearing. In appropriate cases, a fine not exceeding P200 per day for every day during which such violation continues, shall be imposed upon the Investment House and the officer or director who ordered or authorized the violation, without prejudice to the criminal liabilities provided in the second paragraph of Section 16 of Presidential Decree No. 129. In the exercise of its regulatory powers under Section 12 of Presidential Decree No. 129, the Monetary Board may issue a cease-and-desist order upon an Investment House which is not complying with BSP rules and regulations pertaining to non-bank financial intermediaries or, in appropriate cases, rules governing quasi-banking functions of Investment Houses. Failure to comply with the cease-and-desist order shall subject an Investment House to a fine to be imposed by the Monetary Board. SECTION 16. Effectivity These rules shall take effect immediately. They shall be published in a newspaper of general circulation in the Philippines and in the Official Gazette. DICSaH Manila, Philippines, July 9, 1973. (SGD.) ARCADIO E. YABYABIN Securities and Exchange Commissioner APPROVED: (SGD.) TROADIO T. QUIAZON, JR. Acting Secretary of Trade Date: July 13, 1973 Appendix Q-19 NEW RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF REPUBLIC ACT NO. 5980 (THE FINANCING COMPANY ACT), AS AMENDED (Appendix to Sec. 4656Q) To effectively carry out the provisions of Republic Act No. 5980 (The Financing Company Act), as amended, the Securities and Exchange Commission, pursuant to the powers vested in it under said Act, Republic No. 1143 and Presidential Decree No. 902-A, as amended, hereby promulgates the following rules and regulations: SECTION 1. Definition of Terms . The following definition of terms shall apply for purposes of these Rules: a. FINANCING COMPANIES are corporations or partnerships, except those supervised by the Central Bank of the Philippines, Office of the Insurance Commissioner and the Bureau of Cooperatives Development, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises: by discounting or factoring commercial papers or accounts receivable; by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property. b. PRIMARILY ORGANIZED shall mean organized for the primary purpose of operating as a financing company and that more than 50% of its funds shall be used or invested in financing company activities, Provided, That in the computation thereof direct loans and temporary investments in government securities shall be taken into account. c. FUNDS as used herein shall mean total assets inclusive of allowance for doubtful accounts and deferred income less investment in real estate, shares of stock in a real estate development corporation and real estate based projects which shall not exceed 25% of networth of the investing company, leasehold rights and improvements, fixed assets inclusive of appraisal surplus, foreclosed properties and prepayments. d. COMMISSION shall mean the Securities and Exchange Commission. e. CREDIT shall mean any loan, mortgage, deed of trust, advance or discount, any conditional sales contract, any contract to sell, or sale or contract of sale of property or service, either for present or future delivery, under which, part or all of the price is payable subsequent to the making of such sale or contract, any rental-purchase contract, any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money, any purchase, or other acquisition of or any credit upon the security of any obligation or claim arising out of the foregoing; and any transactions having a similar purpose or effect. f. PURCHASE DISCOUNT is the difference between the value of the receivables purchased or credit assigned, and the net amount paid by the finance company for such purchase or assignment, exclusive of fees, service charges, interest and other charges incident to the extension of credit. g. RECEIVABLES FINANCING is a mode of extending credit through the purchase by, or assignment to, a financing company of evidences of indebtedness or open accounts by the discounting or factoring. h. DISCOUNTING is a type of receivables financing whereby evidences of indebtedness of a third party, such as installments contracts, promissory notes, and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value. i. FACTORING is a type of receivables financing whereby open accounts, not evidenced by a written promise to pay supported by documents such as but not limited to invoices of manufacturers and suppliers, delivery receipts and similar documents, are purchased by, or assigned to, a financing company in an amount or for a consideration less than the outstanding balance of the open accounts. j. LEASING shall refer to the financial leasing which is a mode of extending credit through a non-cancellable contract under which the lessor purchases or acquires at the instance of the lessee heavy equipment, motor vehicles, industrial machinery, appliances, business and office machines, and other movable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least 70% of the purchase price or acquisition cost, including any incidental expenses and a margin of profit, over the lease period. The contract shall extend over an obligatory period during which the lessee has the right to hold and use the leased property and shall bear the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option to the part of the lessee to purchase the leased property at the end of the lease contract. HcDSaT k. PAID-UP CAPITAL refers to the amount paid for the subscription of stock in a corporation including the amount paid in excess of par value, while CAPITAL CONTRIBUTION refers to the total contributions of the partners in a partnership. l. NETWORTH is the excess of assets over liabilities, net of appraisal surplus, and booked valuation reserves, capital adjustments, overstatement of assets and unrecorded liabilities. SECTION 2. Form of Organization . Financing companies shall be organized in the form of: stock corporations in accordance with the provisions of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) or general partnerships pursuant to the provisions of the New Civil Code of the Philippines and subject to the following: a. At least sixty percentum (60%) of the outstanding capital stock of the corporation, and in case of a partnership, at least sixty percentum (60%) of the total capital contributions of the partners, shall be owned by citizens of the Philippines. b. A minimum paid-up capital, in case of corporations, and capital contribution in case of partnerships, that shall maintain their principal offices in the areas hereunder specified, shall be made in cash or in property of at least: 1) P10,000,000 Metro Manila Area 2) 5,000,000 First Class Cities outside Metro Manila 3) 2,500,000 Second Class Cities and First Class Municipalities 4) 1,000,000 Third Class Cities and Second Class Municipalities 5) 500,000 Fourth Class Cities, Third Class Municipalities and below In case the area where the principal office of a financing company is located has been upgraded, the corresponding increase in capitalization requirement shall be undertaken within such period as the Commission shall fix. Unless otherwise authorized by the Commission, all financing companies with a paid-up capital or capital contribution less than that mentioned above shall be given five (5) years within which to build up their capital requirement according to the following schedule: 3rd Class 1st Class 2nd Class Cities & Metro Cities Out Cities & 1st 2nd Class Manila side Metro Class Muni- Munici- Area Manila cipalities palities 6-30-92 2,000,000 1,000,000 500,000 500,000 6-30-93 4,000,000 2,000,000 1,000,000 625,000 6-30-94 6,000,000 3,000,000 1,500,000 750,000 6-30-95 8,000,000 4,000,000 2,000,000 875,000 6-30-96 10,000,000 5,000,000 2,500,000 1,000,000 Any existing and/or new branch, agency, extension office or unit may operate subject to the provision of Section 5 thereof. c. At least two-thirds of all the members of the board of directors in the case of a corporation and all the managing partners in case of a partnership shall be citizens and residents of the Philippines. STaIHc Any change in the membership in, or composition of, the board of directors, officers from the rank of VP and up or their equivalent, branch manager, cashier and administrative officer, or in the managing partners, as the case may be, shall be reported to the Commission within seven (7) working days thereafter, and the requirement prescribed under Section 3.a.4 and 7 and Section 5.a.3. and 4 hereof, shall be submitted within thirty (30) working days from date of the aforesaid change. d. The corporate/partnership name of financing companies shall contain the term "financing company", "finance company", or "finance and investment company" or other title or word(s) descriptive of its operations and activities as a financing company. SECTION 3. Requirements for Registration a. Registration papers to be submitted to the Commission Any corporation or partnership may be registered as a financing company by filing with the Commission in five (5) copies an application to operate as a financing company under R.A. No. 5980, as amended, signed under oath by its President/ Managing Partner, together with the following documents in the prescribed forms: 1) All documents required for registration as a corporation or partnership; 2) By-laws; 3) Information Sheet of registrant company; 4) Personal Information Sheet of each of the directors, officers with the rank of Vice-President and up or their equivalent or managing partners; 5) Answers to the questionnaire of the Commission; 6) Projected balance sheet, income statement and cash flow statement for three (3) years, together with a schedule of discounting, factoring, leasing and other financing activities and all related income therefrom. 7) Documents required of each director, officer to be appointed from the rank of Vice-President and up or their equivalent, or managing partner such as the following: a) Police clearance from local police of the city or municipality of which he is a resident; b) NBI clearance; c) Certificate of good moral character to be executed under oath by at least two (2) reputable and disinterested persons in the community; d) Bank credit information to be issued by his depository or creditor bank(s), if any; and 8) Such other documents as may be required by the Commission whenever it deems necessary. b. Publication and Posting of Notice and Order for Registration Upon receipt of the above registration papers of a proposed financing company, the Commission shall cause the notice and order to be published by the applicant company at its expense in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks, and the notice shall simultaneously be posted in a public and conspicuous place where the principal office of the company will be located and in the Office of the Commission for the same period. TIEHSA The notice shall state, among others, the name of the proposed financing company, the capital structure in case of a corporation or the total capital contribution in case of a partnership, and the names and residences of its directors or managing partners. c. Opposition to Registration, if any Any interested party may oppose the registration of a financing company in writing, personally or through counsel, within fifteen (15) days after the last date of the publication of the notice. If after the hearing, the Commission finds that the requirements of R. A. No. 5980, as amended, its implementing rules and regulations and other pertinent laws have been complied with and that no valid reason exists for the disapproval of the application, the Commission shall take appropriate action on said application. SECTION 4. Issuance of Certificate of Filing of Articles of Incorporation and By-Laws; Certificate of Authority; Conditions for Commencement of Operations a. The Commission, in consultation with the Central Bank, shall register the articles of incorporation and by-laws or articles of partnership of, and issue the Certificate of Authority to Operate to, any proposed financing company if it is satisfied that the establishment of such company will promote public interest and convenience, and on the basis of the documents and/or evidences submitted, that; 1) All the requirements of R. A. No. 5980, as amended, other existing laws, and applicable rules and regulations to engage in the business for which the applicant is proposed to be incorporated, or organized, have been complied with; 2) The organization, direction and administration of the applicant, as well as the integrity and responsibility of the organizers and administrators, presumably assure the protection of the interest of the general public; and 3) Proof of the publication and posting of the notice and order for registration is in accordance with Sec. 3.b. hereof. b. A corporation or partnership which has been duly registered, and granted a Certificate of Authority to Operate as a financing company in accordance with the law and these Rules, shall commence operations within ninety (90) days from date of grant of such certificate. Failure to operate within the prescribed ninety (90) days period shall subject the financing company to a fine of not less than One Thousand (P1,000.00) Pesos unless its non-operation is reasonably justified, as determined by the Commission. c. The financing company may be granted a grace period of another ninety (90) days from the expiry date of the first ninety (90) days within which to commence operations notwithstanding its failure to operate as aforestated. Failure to operate within the extended period shall empower the Commission, after notice and hearing, to revoke its Certificate of Authority. SECTION 5. Branches, Agencies, Extension Offices or Units a. Certificate of Authority - No financing company shall establish or operate a branch, agency, extension office or unit without a prior certificate of authority to be issued by the Commission. The application for authority filed under this section shall be accompanied by the following documents: 1) Information Sheet of the proposed branch; 2) Answer to SEC questionnaire; 3) Police clearance of the manager, cashier, and administrative officer of the proposed branch; 4) NBI clearance of the branch manager, cashier and administrative officer of the proposed branch; 5) Copy of the proposed personnel chart; and 6) Such other documents as may be required by the Commission whenever it deems necessary. The above application shall be published in accordance with the provisions of Sec. 3.b. of these Rules. However, the Notice and Order shall be posted in a public and conspicuous place where the aforesaid branch, agency, extension office or unit shall be established. b. Evaluation Guideposts The number of branches, agencies, extension offices or units to be established shall depend upon the capacity of the company to conduct expanded operations and/or upon the capacity of the area wherein the proposed branch, extension office, agency or unit will be established, to absorb new entities engaged in financing, as may be determined by the Commission. c. Additional Capital Requirement A financing company may be required to put up additional capital for branches, agencies, extension offices or units in an amount to be determined by the Commission. d. Prescribed Period to Operate Such branch, agency, extension office or unit shall operate within ninety (90) days from the issuance of the certificate of authority and failure to operate within such period shall subject said branch, agency, extension office or unit to a fine of not less than One Thousand (P1,000) Pesos or revocation of the certificate of authority, after due hearing at the discretion of the Commission, unless its non-operation is reasonably justified as determined by the Commission. TEcCHD e. Term of Authority to Operate The certificate of authority to operate a branch, agency, extension office or unit shall be co-terminous with that of the head office. SECTION 6. Applicability of Central Bank Regulations Financing companies duly licensed to operate as such, their branches, agencies, extension offices or units shall also be subject to applicable Central Bank regulations. SECTION 7. Licensing Fees A fee of 1/10 of 1% of the minimum paid-up capital or capital contribution required under Section 2.b. shall be charged for the issuance of the Certificate of Authority to Operate as a financing company. A fee of 1/10 of 1% of the additional required capital under Sec. 5.c., but in no case less than P250.00 shall be charged likewise for the issuance of original Certificate of Authority of each branch, agency, extension office or unit of such financing company. SECTION 8. Loans and Investments a. Financing companies may engage in direct lending if authorized by the secondary purposes in its articles of incorporation and in accordance with Section 42 of the Corporation Code of the Philippines (B.P. 68). b. Unless otherwise authorized by the Commission, the total investment in real estate and in shares of stock in a real estate development corporation and other real estate based projects shall not at any time exceed twenty-five (25%) per cent of the net worth of the investing financing company. SECTION 9. Conveyance of Evidences of Indebtedness and Financed Receivables a. The negotiation, sale or assignment by financing companies of evidences of indebtedness shall be in accordance with the rules of the Commission on registration of commercial papers. b. Accounts which have been factored or discounted by, the lease receivables of, and other evidences of indebtedness (not covered in item a. Above) issued or negotiated to, a financing company shall not be sold, assigned or transferred in any manner except to banks including their trust accounts, trust companies, non-bank financial intermediaries authorized to engage in quasi-banking functions, investment houses including their trust accounts, financing companies, investment companies, non-stock savings and loan associations, insurance companies, government financial institutions, pension and retirement funds approved by the Bureau of Internal Revenue, educational assistance funds established by the National Government; Provided, That the negotiation of evidence of indebtedness to pension funds or educational assistance funds shall be on a recourse basis. SECTION 10. Other Activities a. Financing companies not duly authorized to perform quasi-banking functions shall not act as dealers in commercial papers but may act as dealers in other securities provided they are duly licensed by the Commission as such. b. Financing companies shall not act as dealers of certificates of time deposit. c. Except in cases of issuances to primary institutional lenders, financing companies without quasi-banking license shall not issue instruments other than promissory notes, to cover placements with, or borrowing by, them. SECTION 11. Purchase Discount/Fees/Service and Other Charges The purchase discounts, fees, service and other charges of financing companies on assignments of credit, purchases of installment papers, accounts receivable or other evidences of indebtedness, factoring of accounts receivable or other evidences of indebtedness, or leasing transactions shall be in accordance with the rules prescribed by the Monetary Board, in consultation with the Commission, pursuant to the provisions of Section 5 of R.A. 5980, as amended by P.D. No. 1454. SECTION 12. Networth for Operating Financing Companies The company's networth shall be maintained at an amount not less than that required under Sections 2.b. and 5.c. hereof. SECTION 13. Prohibitions a. No corporation shall be allowed to include financing activities as herein defined as one of its secondary purposes. b. No person, association, partnership or corporation shall do or hold itself out as doing business as a financing company or finance and investment company or under any other title or name tending to give the public the impression that it is a financing company unless so authorized under R. A. 5980, as amended. SECTION 14. Periodic Reports Every financing company shall file with the Commission the following quarterly reports: a) Statement of Condition and Statement of Income and Expenses, together with the schedule of aging of receivables (indicating the maturity pattern of the aforesaid receivables under due within 1 year, due over 1 year to be applicable to long term receivables only, past due accounts to subdivided further to past due accounts within 1 year, over 1 year and litigation items), payable (indicating likewise the same maturing pattern of within 1 year and over 1 year) and off-balance sheet items; Provided, however, That respective collateral/s (if any) for past due accounts over 1 year and litigation items shall be adequately disclosed in the aforementioned Schedules and b) list of officers, directors, and stockholders. These reports shall be signed under oath by the company's principal executive officer and principal financial officer and shall be submitted within thirty (30) calendar days after the end of each quarter. They shall, likewise, file four (4) copies of their audited financial statements within one hundred twenty (120) days after the end of their fiscal years and such other reports as may be required by the Commission. AcTDaH SECTION 15. Administrative Sanctions If the Commission finds that there is a violation of these Rules and Regulations and their implementing circulars or any of the terms and conditions of the Certificate of Authority to operate as a financing company, or any Commission order, decision or ruling, or refuses to have its books of accounts audited, or continuously fail to comply with SEC requirements, the Commission shall, in its discretion, impose any or all of the following sanctions: a. Suspension or revocation of the certificate of authority to operate as a financing company after proper notice and hearing; b. A fine in accordance with the guidelines that the Commission shall issue from time to time; c. Other sanctions within the power of the Commission and the Central Bank under existing laws. The imposition of the foregoing administrative sanctions shall not preclude the institution of appropriate action against the officers and directors of the financing company or any person who might have participated therein, directly or indirectly, in violation of R. A. No. 5980, as amended, and these Rules and Regulations. SECTION 16. Cease and Desist Order The Commission may, on its own motion or upon verified complaint of any aggrieved party, issue a Cease and Desist Order ex-parte, if the violation(s) mentioned in the preceding sections may cause grave or irreparable injury to the public or may amount to culpable fraud or violation of these Rules and Regulations, implementing circulars, certificates of authority issued by the Commission, or of any order, decision or ruling thereof. The issuance of such Cease and Desist Order automatically suspends the authority to operate as a financing company. Immediately upon the issuance of an ex-parte Cease and Desist Order, the Commission shall notify the parties involved and schedule a hearing on whether to lift such order or to impose administrative sanctions provided for in Section 16 not later than fifteen (15) days after service of notice. SECTION 17. Transitory Provision Any corporation/partnership at the time of the effectivity of these Rules has been registered and licensed by the Commission to operate as a financing company, shall be considered as registered and licensed under the provisions of these Rules, subject to the terms and conditions of the license, and shall be governed by the provisions hereof; Provided, however, That financing companies with existing certificate of authority shall surrender the same to the Commission upon payment of the annual fee pursuant to Section 7 hereof to be replaced by new certificate of authority and, Provided, That where such corporation/ partnership is affected by the new provisions hereof, said corporation/partnership shall, unless otherwise herein provided, be given a period of not more than one (1) year from the effectivity of these Rules within which to comply with the same. SECTION 18. Effectivity These Rules and Regulations shall take effect fifteen (15) days after publication in two (2) newspapers of general circulation in the Philippines. Mandaluyong, Metro Manila, Philippines October 16, 1991. (SGD.) ROSARIO N. LOPEZ Chairman Securities and Exchange Commission Appendix Q-20 CLASSIFICATION, ACCOUNTING PROCEDURES, VALUATION AND SALES AND TRANSFERS OF INVESTMENTS IN DEBT SECURITIES AND MARKETABLE EQUITY SECURITIES (Appendix to Subsec. 4391Q.3) SECTION 1. Classification and Accounting Investments in debt securities and marketable equity securities shall be classified into one of four categories and accounted for as follows: a. Investments in Bonds and Other Debt Instruments (IBODI) These are debt securities where the NBQB has the intention and ability to hold these securities to maturity. Such investments shall be measured at amortized cost where any realized gains or losses shall be included in reported current income. However, if a decline in fair market value below the amortized cost is other than temporary, i.e., full collection of principal and interest is not expected on a debt security, the amortized cost basis of the particular debt security shall be adequately provided with allowance for probable losses. The amount of investment loss provision shall be accounted for as a realized loss and charged to reported current income. The ability to hold to maturity is evidenced by the funding structure of such securities wherein IBODI shall not exceed fifty percent (50%) of adjusted net worth plus forty percent (40%) of total deposit substitute liabilities. Sales of debt securities that meet either of the following two (2) conditions may be considered as maturities for purposes of the classification of securities under IBODI: (1) The sale of a debt security occurs near enough to its maturity date (or call date if exercise of the call is probable) that interest rate risk is substantially eliminated as a pricing factor. That is, the date of sale is so near the maturity or call date [for example, within three (3) months] that changes in market interest rates would not have a significant effect on the security's fair market value. (2) The sale of a debt security occurs after the financial institution has already collected at least eighty-five percent (85%) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on a debt security payable in installments (both principal and interest) over its term. b. Trading Account Securities (TAS) These are debt securities and equity securities (TAS equity securities applicable only to non-bank financial institutions with quasi-banking functions) purchased and held principally with the intention of selling them in the near term. TAS must have readily determinable fair market values and by their very nature daily mark-to-market where unrealized and realized gains and losses are recognized and booked against "Trading Gain/(Loss)" account. c. Available for Sale Securities (ASS) These are debt securities purchased and held indefinitely, i.e., neither held to maturity nor for trading purposes, where the financial institution anticipates that the securities will be available to be sold in response to liquidity needs and/or to reduction in legal reserves, liquidity reserves, liquidity floor, security deposits and/or allowable alternative investments. The daily valuations for these securities are, like TAS, at fair market values to account for both upward and downward market movements. However, unrealized gains or losses shall be excluded from reported earnings and reported as a separate component of stockholders' equity until realized. d. Underwriting Accounts (UA) These are available for sale underwritten debt securities and equity securities purchased and held principally with the intention of selling them within a defined short-term period. The daily valuations for these securities are, like ASS, at fair market values with unrealized gains or losses excluded from reported earnings and reported as a separate component of stockholders' equity until realized. UA is applicable only to investment houses. For TAS, ASS and UA, a financial institution may opt to book the mark-to-market valuation every end of the month: Provided, That an adequate mechanism is in place to determine the daily fair market values of securities. SECTION 2. Valuation . The valuation for the mark-to-market of TAS, ASS and UA shall be based on the prices/rates supplied by independent sources such as the PHISIX, T-bills, T-bonds, Reuters, Telerate or Bloomberg. The estimated fair market value of each security is then compared to the book value to measure unrealized profit or loss. The recording of investments, gains and losses shall be in accordance with the guidelines in Appendix 10 . A control officer, who is independent of trading and sales functions and their direct supervision, shall be responsible for reviewing the prices/rates. SECTION 3. Profit and Loss Reconcilement . A daily reconcilement of profit and loss between the trading function and the independent accounting records for investments in all debt securities and marketable equity securities must be done and all differences must be followed up. SECTION 4. Sales and Transfers Between Categories a. The following circumstances may cause the financial institution to change its intention to hold a certain IBODI to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of an IBODI security due to one of the following changes in circumstances shall not be considered to be inconsistent with its original classification: (1) Evidence of a significant deterioration in the issuer's creditworthiness (2) A change in tax law that eliminates or reduces the tax-exempt status of interest on the debt security (but not a change in tax law that revises the marginal tax rates applicable to interest income) (3) A major business combination or major disposition (such as sale of a segment) that necessitates the sale or transfer of IBODI securities to maintain the financial institution's existing interest rate risk position or credit risk policy (4) A change in statutory or regulatory requirements significantly modifying either what constitutes a permissible investment or the maximum level of investment in certain kinds of securities, thereby causing the financial institution to dispose of an IBODI security (5) Unusual and unforeseen liquidity needs including occasional changes in the IBODI duration in consideration of projected liquidity and/or price risk In addition to the foregoing changes in circumstances, other events that are isolated, nonrecurring, and unusual for the reporting financial institution that could not have been reasonably anticipated may cause the financial institution to sell or transfer an IBODI security without necessarily calling into question its intent to hold the debt securities to maturity. b. The transfer of a security between categories of investments shall be accounted for at fair market value. At the date of the transfer, the security's unrealized holding gain or loss shall be accounted for as follows: (1) For a security transferred from TAS, the unrealized holding gain or loss at the date of the transfer will have already been recognized in earnings and shall not be reversed. (2) For a security transferred into TAS, the unrealized holding gain or loss at the date of the transfer shall be recognized in earnings immediately. (3) For a debt security transferred into ASS from IBODI, the unrealized holding gain or loss at the date of transfer shall be excluded from reported earnings and reported as a separate component of stockholders' equity until realized. (4) For a debt security transferred into IBODI from ASS and UA, the unrealized holding gain or loss at the date of the transfer shall continue to be reported as a separate component of stockholders' equity but shall be amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. The amortization of an unrealized holding gain or loss reported in equity will offset or mitigate the effect on interest income of the amortization of the premium or discount for that security. c. The transfer of the same type of securities between categories shall be rare and shall in no case be made within a period of six (6) months reckoned from the original transaction date or last transfer date. SECTION 5. Operations Manual a. Where applicable, the financial institution shall maintain an operations manual for booking and valuation of IBODI, TAS, ASS and UA with the following minimum contents: (1) Criteria for lodging purchased securities to IBODI, TAS, ASS and UA (2) Valuation procedures (a) Independent sources of prices/rates (b) Sample computations and booking (3) Sales procedures Sample computations and booking (4) Transfers between categories (a) Criteria (b) Recognition of unrealized gain or loss in income (c) Sample computations and booking b. A copy of the operations manual shall be submitted to the appropriate supervising and examining department of the BSP within thirty (30) business days from September 30, 1998. Subsequent amendments thereto shall be submitted within fifteen (15) business days prior to its implementation. A penalty of P500.00 per business day shall be imposed for delay or non-submission. Appendix Q-20a ESTABLISHING THE MARKET BENCHMARKS/REFERENCE PRICES AND COMPUTATION METHOD USED TO MARK-TO-MARKET DEBT AND MARKETABLE EQUITY SECURITIES (Appendix to Subsec. 4391Q.3) General Principle As a general rule, to the extent a credible market pricing mechanism as determined by the Bangko Sentral ng Pilipinas (BSP) exists for a given security, that market price shall be the basis of mark-to-market. However, in the absence of a market price, a calculated price shall be used as prescribed herein. A financial institution may also be allowed, subject to the approval of the Deputy Governor, Supervision and Examination Sector, BSP, to use its own system for marking-to-market its securities holdings: Provided, That this can be shown to be sufficiently transparent, objective, reliable and consistent. The system should be approved by the financial institution's board of directors (or equivalent management committee in the case of foreign bank branches). The model should be vetted by the financial institution's risk management group, internal audit group and systems group, properly documented and such documentation available for re-view by external auditors and the BSP. Mark-to-Market Guidelines To ensure consistency, the following shall be used as bases in marking-to-market debt and equity securities: Type of Security Market Price Basis A. Equity Securities Listed in the Stock Exchange 1. Traded in the Philippines Same day closing price as quoted at the Philippine Stock Exchange. In case of halt trading/suspension or holidays, use the last available closing price. 2. Traded Abroad Latest available closing price from the exchange where the securities are traded. B. Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems (Bloomberg, Reuters, Bridge) 1. US Treasuries Price as of end of day, Manila time. Type of Security Market Price Basis 2. US Agency papers such as Latest available price for the Fannie Maes, Freddie Macs, day, Manila time. In the Ginnie Maes, Municipal papers absence of a price, use average quotes of at least three (3) regular brokers/market makers.* 3. Brady Bonds Same as B.2. 4. For all US$-denominated Same as B.2. government and corporate securities 5. Other foreign-currency Same as B.2. securities C. Peso-Denominated Government Securities 1. Short-term Domestic Price as of end of day. Use the Government Securities following sources as discount rate/yield to maturity: a) Weighted average dealt rate for the day. b) In the absence of a same day dealt rate, use end of day indicative mid rate between best bid and best offer. c) In the absence of a same day indicative mid rate, use end of day best bid rate. 2. Long-term Domestic Same as C.1. Government Securities * Based on done rates if available. If done rates are not available, use the mid rate between bid and offer. If no mid rates are available, use the bid rate. D. Peso-Denominated Private Debt Securities 1. Short-term securities Prices computed using the corresponding government security benchmark + short-term risk premium 2. Long-term Fixed Rate Prices computed using the Securities corresponding government security benchmark + long-term risk premium 3. Long-Term Securities Prices computed using the Floaters corresponding government security benchmark based on the reset period + risk premium. (Please refer to Technical Annex for pricing formula.) All the risk premia mentioned under Section D shall be recommended by a Risk Assessment Committee (RAC) and updated regularly. The RAC shall be convened by the Bankers Association of the Philippines (BAP) and composed of representatives from the BAP, Investment House Association of the Philippines (IHAP), Money Market Association of the Philip-pines (MART), rating agencies and the BSP. Other Guidelines In pricing debt securities, interpolated yields shall be used for securities with odd tenors. The mark-to-market rules prescribed for securities from Sections A to C (Equity Securities Listed in the Stock Exchange, Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems and Peso-Denominated Government Securities) shall take effect on April 1, 2001. The effectivity date of the mark-to-market rules prescribed for securities covered under Section D (Peso-Denominated Private Debt Securities) shall be announced later. Technical Annex: Valuation of Floaters Formula: Where: C1 = MV x Cpn x (1-Wht) x E/360 E = No. of days in a coupon period A = No. of accrued days DSC = No. of days from valuation date to next coupon date (DSC = E-A) F = No. of payments per year N = No. of coupon periods between valuation date and maturity date C = (Use the prevailing rate of the floating rate index + spread) x (1-Wht) x MV x E/360 MV = Par value Cpn = Current Coupon Rate Yld = Corresponding government security benchmark based on reset or repricing + long-term risk premium (gross) Wht = Withholding tax Appendix Q-21 GUIDELINES ON THE USE OF SCRIPLESS (RoSS) SECURITIES AS SECURITY DEPOSIT FOR THE FAITHFUL PERFORMANCE OF TRUST DUTIES (Appendix to Sec. 4405Q and Sec. 4415Q) Definition of Terms and Acronyms Scripless securities and RoSS securities refers to uncertificated securities issued by the Bureau of Treasury (BTr) that are under the BTr's Registry of Scripless Securities Trust institution refers to an entity that is authorized to engage in trust business BTr Bureau of Treasury RoSS Registry of Scripless Securities BSP Bangko Sentral ng Pilipinas BSP-SES Supervision and Examination Sector of BSP SRSO Supervisory Reports and Studies Office of BSP-SES BSP-Accounting Accounting Department of BSP GSED Government Securities Eligible Dealer of the BTr DDA refers to the regular demand deposit account of a bank/NBQB with BSP-Accounting MOR Manual of Regulations for Non-Bank Financial Institutions Appropriate supervising and examining department or responsible supervising and examining department refers to the Department of Thrift Banks and Non-Bank Financial Institutions A. Basic Requirements 1. The BSP-SES shall file with BTr an application to open a RoSS Principal Securities Account where RoSS securities of trust institutions used as security deposit for trust duties shall be held. BSP-SES shall use Annex 1 for this purpose. TcDIEH 2. Using Annex 1-A, BSP-SES shall also apply for a Client Securities Account (sub-account) for each trust institution under its RoSS Principal Securities Account to enable BSP-SES to keep track of the security deposit. BTr shall maintain Client Securities Accounts for P1,000 each month per account. 3. A trust institution which has a DDA with BSP-Accounting shall act as its own settlement bank. A trust institution which does not have a DDA with the BSP-Accounting shall designate a settlement bank which will act as conduit for transferring securities for trust duties to the BSP-SES account and for paying interest, interest coupons and redemption proceeds. The trust institution shall inform the appropriate supervising and examining department of the BSP of the designation of a settlement bank. 4. Each trust institution shall accomplish an "Autodebit/Autocredit Authorization" for its client securities account under the BSP-SES RoSS account. The document will authorize the BTr and the BSP to credit the DDA of the trust institution with BSP-Accounting for coupons/interest payments on securities in the BSP-SES RoSS accounts and to debit the DDA for the monthly fees payable to BTr for maintaining its client securities accounts with BSP-SES. It will also authorize the BTR and BSP to credit the deposit account of BSP-SES with BSP-Accounting for the redemption proceeds of securities that mature while in the BSP-SES RoSS account. A trust institution with a DDA with BSP-Accounting shall use Annex 2-A while a trust institution with a settlement arrangement shall use Annex 2-B. 5. BSP-SES shall open a deposit account with BSP-Accounting where the redemption value of securities shall be credited, in the event such securities mature while lodged in the RoSS account of BSP-SES. 6. SRSO shall be responsible for keeping track of the deposit and withdrawal of securities held under the BSP-SES Principal Securities Account and the Client Securities Accounts of the trust institutions. SRSO shall instruct BTr to transfer securities out of the BSP-SES account and the corresponding client securities accounts of trust institutions only after receiving authorization from the Director (or in his absence, the designated alternate officer) of the appropriate supervising and examining department of SES. SRSO shall also be responsible for keeping track of the BSP-SES deposit account with the BSP-Accounting representing credits for the redemption value of security deposit of trust institutions that have matured while in the RoSS account of BSP-SES. SRSO shall maintain sub-accounts for each trust institution for the purpose. SRSO shall instruct BSP-Accounting to transfer balances out of the deposit account and the corresponding sub-account of the trust institution only after receiving authorization from the Director (or in his absence, the designated alternate officer) of the appropriate supervising and examining department of SES. 7. BSP-SES shall subscribe to the Telerate electronic trading system which is linked to BTr's RoSS and cause the installation of a Telerate terminal at SRSO. Trust institutions may be required to reimburse BSP-SES for whatever expenses that may be incurred in connection with the subscription. 8. Every trust institution must ensure that it has adequate security deposit for trust duties pursuant to the provisions of Subsecs. 4405Q.1, 4405Q.2, 4405Q.3 and 4405Q.4 of the MOR. 9. BTr shall provide BSP-SES with the end-of-day transaction report whenever a transaction in any client securities account is made. BTr shall also provide BSP-SES a monthly report of balances of each client securities account. 10. Every quarter, the responsible supervising and examining department of BSP-SES shall determine, based on the Report of Trust and Other Fiduciary Business and Investment Management Activities (BSP 7-26-23) submitted by the trust institution, whether or not the trust institution's security deposit for trust duties is sufficient pursuant to the provisions of the MOR mentioned above. In case of deficiency, the department shall recommend the imposition of sanctions and/ or any other appropriate action to higher authorities. aHTCIc B. Procedures for Assigning RoSS Securities as Security Deposit for Trust Duties 1. The trust institution shall advise the appropriate BSP-SES department that it will transfer RoSS securities to BSP-SES. The advice should be received by the BSP-SES at least two (2) business days before the date of transfer using the prescribed form (Annex 3) and checking Box "b" of said form. (Box "a" shall be checked by a new trust institution that is making an initial security deposit pursuant to Subsec. 4404Q.2 of the MOR.) The advice should be sent by cc mail or by fax to be followed by an official letter duly signed by an authorized trust officer. 2. The trust institution shall electronically instruct BTr to transfer securities from its own RoSS accounts to the BSP-SES RoSS and its corresponding Client Securities Account on the specified date. In the case of a trust institution with a settlement arrangement, the instruction shall be coursed through the settlement bank and the securities shall come from the RoSS account of the same bank. 3. BTr shall effect the transfer upon verification of RoSS balances. At the end of the day, BTr shall transmit a transaction report to SRSO containing the transfer. 4. SRSO shall provide the appropriate BSP-SES department a copy of the report. 5. The BSP-SES department concerned shall check from the report whether BTr effected the transfer indicated in the advice (Annex 3) sent earlier by the trust institution. C. Procedures for Replacing RoSS Securities 1. The trust institution shall advise the appropriate supervising and examining department of BSP-SES that it will replace existing RoSS securities assigned as security deposit. The advice should be received by the BSP-SES at least two (2) business days before the date of replacement using the prescribed form (Annex 3). The trust institution shall check Box "c" of the form and indicate the details of the securities to be withdrawn. The advice should be sent by cc mail or by fax to be followed by an official letter duly signed by an authorized trust officer. 2. The responsible BSP-SES department shall verify whether the securities to be replaced are in the RoSS account of BSP-SES and the sub-account of the trust institution and whether the book value of the securities to be deposited is equal to or greater than those to be withdrawn. The department concerned shall immediately communicate with the trust institution in case of a discrepancy. 3. The trust institution shall electronically instruct BTr to transfer securities from its own RoSS account to the BSP-SES RoSS accounts and its corresponding Client Securities Account on the specified date. In the case of a trust institution with a settlement arrangement, the instruction shall be coursed through the settlement bank and the securities shall come from the RoSS account of the same bank. 4. BTr shall effect the transfer upon verification of RoSS balances. At the end of the day, BTr shall transmit a transaction report to SRSO containing the transfer. 5. SRSO shall immediately provide the appropriate BSP-SES department a copy of the report. 6. The BSP-SES department concerned shall immediately check from the report whether the securities transferred to the BSP-SES account are the same securities described in the advice (Annex 3) sent earlier. If in order, the Director (or in his absence, the designated alternate officer) of the department concerned shall authorize SRSO to instruct BTr to transfer the securities specified to be withdrawn from the BSP-SES account to the trust institution's (or the settlement bank's) RoSS account. The Department concerned shall use Annex 5 and check Boxes "a" and "d". Should there be any discrepancy, the department shall inform the trust institution immediately. The authority to allow the withdrawal should be transmitted to SRSO not later than the day after the replacement securities were transferred to the BSP-SES account. The BSP-SES department concerned shall also advise the trust institution that it has approved the replacement of security deposit by using Annex 6 and checking Boxes "a" and "d" and the appropriate box under "d" depending on whether or not the trust institution has a settlement arrangement. 7. On the same day, SRSO shall instruct BTr to transfer the securities specified to be withdrawn from the BSP-SES account to the RoSS account of the trust institution (or its settlement bank). 8. BTr shall effect the transfer/withdrawal. At the end of the day, BTr shall send a report to SRSO containing the transfer/ withdrawal. 9. SRSO shall provide the appropriate BSP-SES department a copy of the report. 10. The responsible BSP-SES department shall check from the report whether BTr effected the transfer/withdrawal. D. Procedures for Withdrawing RoSS Securities 1. The trust institution shall advise the appropriate BSP-SES department that it will withdraw existing RoSS securities assigned as security deposit. The advice should be received by the BSP-SES at least two (2) banking days before the date of withdrawal using the prescribed form (Annex 4) and indicating therein details of the securities to be withdrawn. The advice should be sent by cc mail or by fax to be followed by an official letter duly signed by an authorized trust officer. 2. The responsible BSP-SES department shall verify whether the securities to be withdrawn are in the RoSS account of BSP-SES and the Client Securities Account of the trust institution. The department shall also determine whether the amount of remaining security deposit will still be adequate in spite of the proposed withdrawal. If in order, the Director (or in his absence, the designated alternate officer) of the department concerned shall authorize SRSO to instruct BTr to transfer the securities specified to be with-drawn from the BSP-SES account to the trust institution's own RoSS account (or its settlement bank). The Department concerned shall use Annex 5 and check Boxes "b" and "d". Should there be any discrepancy, the department shall inform the trust institution immediately. The authority to allow the withdrawal should be transmitted to SRSO not later than the date of the withdrawal indicated in the advice (Annex 4) sent earlier by the trust institution. The BSP-SES department concerned shall also advise the trust institution that it has approved the withdrawal of security deposit by using Annex 6 and checking Boxes "b" and "d" and the appropriate box under "d" depending on whether or not the trust institution has a settlement arrangement. DHEcCT 3. On the same date, SRSO shall instruct BTr to transfer the securities specified to be withdrawn from the BSP-SES account to the RoSS account of the trust institution (or its settlement bank). 4. BTr shall effect the transfer/ withdrawal. At the end of the day, BTr shall send to SRSO a report which contains the transfer/withdrawal. 5. SRSO shall provide the appropriate BSP-SES department a copy of the report. 6. The BSP-SES department concerned shall check from the report whether BTr effected the withdrawal stated in the advice (Annex 4) sent earlier by the trust institution. E. Procedures for Crediting Interest Coupon Payments On coupon or interest payment date, BTr shall instruct BSP-Accounting to credit the DDA of trust institutions or their designated settlement banks for coupon/interest payment of securities held under the RoSS account of BSP-SES. F. Procedures for Crediting and Withdrawing the Redemption Value of Matured Securities that are in the BSP-SES RoSS Account 1. On maturity date, BTr shall instruct BSP-Accounting to credit the deposit account of BSP-SES with BSP-Accounting for the redemption value of securities that mature while held as security deposit in the RoSS account of BSP-SES. 2. BTr shall send to SRSO a copy of the credit advice. 3. SRSO shall immediately provide the appropriate BSP-SES department a copy of the credit advice. 4. The responsible BSP-SES department shall immediately inform the trust institution concerned of the cash credit and shall inquire whether the trust institution intends to transfer securities to the RoSS account of the BSP-SES to replace the matured securities. 5. The trust institution shall advise the appropriate BSP-SES department that it will transfer RoSS securities to BSP-SES in place of the cash credited to the deposit account of BSP-SES with BSP-Accounting for matured securities. The trust institution shall check Box "d" of the prescribed form (Annex 3). The concerned department shall determine if the book value of the securities to be transferred is equal to or greater than the cash credit. 6. The trust institution shall electronically instruct BTr to transfer securities from its own RoSS accounts to the BSP-SES RoSS account and its corresponding Client Securities Account on the specified date. In the case of a trust institution with a settlement arrangement, the instruction shall be coursed through the settlement bank and the securities shall come from the RoSS account of the same bank. 7. BTr shall effect the transfer upon verification of RoSS balances. At the end of the day, BTr shall send a report to SRSO containing the transfer. 8. SRSO shall provide the appropriate BSP-SES department a copy of the report. 9. The BSP-SES department concerned shall immediately check from the report whether the securities transferred to the BSP-SES account are the same securities described in the advice (Annex 3) sent earlier by the trust institution. If in order, the Director (or in his absence, the designated alternate officer) of the Department shall direct the SRSO to instruct BSP-Accounting Department to debit the BSP-SES deposit account and transfer the funds to the DDA of the trust institution (or its designated settlement bank). The Department concerned shall use Annex 5 and check Boxes "c" and "e". The BSP-SES department concerned shall also advise the trust institution that it has approved the replacement of matured securities by using Annex 6 and checking Boxes "c" and "e" and the appropriate box under "e" depending on whether or not the trust institution has a settlement arrangement. 10. SRSO shall direct BSP-Accounting to debit the BSP-SES deposit account and credit the same amount to the DDA of the trust institution (or its designated settlement bank) using Annex 7. 11. BSP-Accounting shall effect the transaction and send a copy of the debit advice to SRSO and a copy of the credit advice to the trust institution (or the designated settlement bank). 12. SRSO shall send a copy of the debit advice to the SES department concerned. ANNEX 1 SUPERVISION AND EXAMINATION SECTOR __________ Date ______________________ Treasurer of the Philippines Bureau of Treasury Palacio del Gobernador Intramuros, Manila Attention: Registry of Scripless Securities (RoSS) Dear ________________________: The Supervision and Examination Sector of the Bangko Sentral ng Pilipinas (BSP-SES) hereby makes an application to open a Principal Securities Account in the Registry of Scripless Securities (RoSS) for the purpose of holding the security deposit for the faithful performance of trust duties of institutions engaged in trust business pursuant to Section 65 of R.A. No. 337, as amended. acIHDA We understand that the Bureau of Treasury shall maintain the Principal Securities Account of BSP-SES for free. Very truly yours, __________________ Deputy Governor ANNEX 1-A SUPERVISION AND EXAMINATION SECTOR __________ Date ______________________ Treasurer of the Philippines Bureau of Treasury Palacio del Gobernador Intramuros, Manila Attention: Registry of Scripless Securities (RoSS) Dear Ms. _________________________ In connection with the Principal Securities Account of BSP-SES in the Registry of Scripless Securities (RoSS), please open Client Securities Account for the following trust institutions so we can keep track of their security deposit for the faithful performance of trust duties. Please note that the settlement bank of the institution, if it is required, is also indicated. Name of Settlement Bank, Name of Trust Institution where required 1. _____________________ _______________________ 2. _____________________ _______________________ n. _____________________ _______________________ We understand that the Bureau of Treasury will maintain the Client Securities Account for P1,000 per month per account. Very truly yours, (Signature) Authorized Signatory ANNEX 2-A To be used by a trust institution with own demand deposit account with BSP-Accounting Letterhead of Trust Institution AUTODEBIT/AUTOCREDIT AUTHORIZATION The __________________ (name of trust institution) hereby authorizes the Bureau of Treasury (BTr) and the Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account with BSP-Accounting for coupons/interest payment of our securities in the BSP-SES RoSS accounts; and to settle the payment of monthly maintenance fees to BTr of our client securities account under the BSP-SES RoSS account. We also authorize the BTr and the BSP to credit the Account of BSP-SES with BSP-Accounting for the redemption proceeds of our securities in the event such securities mature while in the RoSS account of BSP-SES. cSTDIC This authorization will take effect on __________________ (indicate date). (Signature) (Authorized Signatory) ANNEX 2-B To be used by a trust institution with settlement arrangement with a bank Letterhead of Trust Institution AUTODEBIT/AUTOCREDIT AUTHORIZATION The _________________ (name of settlement bank) for the account of _______________________ (name of trust institution) hereby authorizes the Bureau of Treasury (BTr) and the Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account with BSP-Accounting for coupons/ interest payment of securities of the trust institution in the BSP-SES RoSS accounts; for maturing securities of the trust institution held in our RoSS Principal Securities Account with BTr; and to settle the payment of monthly maintenance fees to BTr of our client securities account under the BSP-SES RoSS account. The __________________ (name of trust institution) also authorizes the BTr and the BSP to credit the Account of BSP-SES with BSP-Accounting for the redemption proceeds of our securities in the event such securities mature while in the RoSS account of BSP-SES. This authorization will take effect on ___________________ (indicate date). (Signature) (Authorized Signatory of Settlement Bank) (Signature) (Authorized Signatory of Trust Institution) ANNEX 3 Letterhead of Trust Institution ____________ Date The Director DTBNBFI Bangko Sentral ng Pilipinas A. Mabini St., Manila Dear Sir: We are transferring on (indicate date of transfer) the following securities to your Principal Securities Account and our Client Securities Account (sub-account) as our security deposit for the faithful performance of trust duties pursuant to Section 65 of R.A. No. 337, as amended. Purchase Issue Due Remaining Face Purchase Type ISIN Date Date Date Tenor a Amount Price _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ We are transferring the above securities: a. [ ] As our initial deposit b. [ ] As an additional security deposit c. [ ] To replace the following securities which we deposited on ______ (date). Purchase Issue Due Remaining Face Purchase Type ISIN Date Date Date Tenor a Amount Price _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ d. [ ] To replace matured securities the redemption value of which P _________ is credited to the deposit account of BSP-SES with BSP-Accounting. Very truly yours, (Signature) Name and Designation of Authorized Signatory a Reckoned from actual date of transfer/withdrawal ANNEX 4 Letterhead of Trust Institution Date: _________________ The Director DTBNBFI Bangko Sentral ng Pilipinas A. Mabini St., Manila Dear Sir: We wish to withdraw on _____________ (indicate date of transfer) the following securities used as security deposit for the faithful performance of trust duties from the Principal Securities Account and from our corresponding Client Securities Account (sub-account). IaEASH Purchase Issue Due Remaining Face Purchase Type ISIN Date Date Date Tenor a Amount Price _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ Very truly yours, (Signature) Name and Designation of Authorized Signatory a Reckoned from actual date of transfer/withdrawal ANNEX 5 MEMORANDUM DTBNBFI For : The Director Supervisory Reports and Studies Office From : The Director Subject : Scripless Securities Used As Deposit for Trust Duties Date : In connection with the request of (indicate name of trust institution) dated ______________ to: a. [ ] Replace outstanding RoSS securities b. [ ] Withdraw RoSS securities c. [ ] Replace cash credit of matured securities with outstanding RoSS securities, you are hereby authorized to: d. [ ] Instruct the Bureau of Treasury to transfer the following securities out of the BSP-SES RoSS accounts to the RoSS Principal Securities Account of (indicate name of trust institution or, where applicable, the name of its settlement bank) Purchase Issue Due Remaining Face Purchase Type ISIN Date Date Date Tenor a Amount Price _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ _________ _____ _______ ________ ______ ________ ________ _______ e. [ ] Instruct BSP-Accounting to debit the BSP-SES deposit account in the amount of P________ and to transfer said amount to the demand deposit account of (indicate name of trust institution or, where applicable, the name of its designated settlement bank). (Signature) Authorized Signatory a Reckoned from actual date of transfer/withdrawal ANNEX 6 DTBNBFI Date __________ (Name of Trust Institution) ____________________ (Address) ____________________ Subject : Scripless Securities Used As Deposit for Trust Duties Dear Mr. ____________: We are pleased to inform you that we have approved your request dated _______________ to: a. [ ] Replace outstanding RoSS securities b. [ ] Withdraw RoSS securities c. [ ] Replace cash credit of matured securities with outstanding RoSS securities. Accordingly, we have authorized the Supervisory Reports and Studies Office to: d. [ ] Instruct the Bureau of Treasury to transfer the following securities out of the BSP-SES RoSS accounts to [ ] the RoSS Principal Securities Account [ ] your settlement bank's RoSS Principal Securities Account, the securities described in your request. e. [ ] Instruct BSP-Accounting to debit the BSP-SES deposit account in the amount of P_______ and to credit said amount to [ ] your demand deposit account with BSP-Accounting [ ] your settlement bank's demand deposit account with BSP-Accounting Very truly yours, (Signature) __________________________ Authorized Signatory ANNEX 7 MEMORANDUM DTBNBFI For : The Director Accounting Department From : The Director Date : Subject : Security Deposit for Trust Duties You are hereby instructed to debit our deposit account in the amount of P ___________ and to credit said amount to the demand deposit account of (indicate name of trust institution or, where applicable, the name of its settlement bank). The trust institution has transferred RoSS securities to the Principal Securities Account of BSPSES to replace the matured securities. (Signature) Authorized Signatory Appendix Q-22 PROFORMA PAYMENT FORM (Appendix to Subsec. 4653Q.2) PAYMENT FORM (Department Name) Date The Director Cash Department Bangko Sentral ng Pilipinas P. Ocampo, Sr. Cor. A. Mabini, Manila S i r : Attached is _______________________ _________________ ____________ (Bank) (Check/DD/CC) Number in the amount of P_________________ as payment for: AMOUNT 1. LEGAL RESERVE ____________ 2. SUPERVISORY FEES YEAR AMOUNT ___________ ___________ ___________ ___________ ____________ 3. FINES/PENALTIES NATURE PERIOD COVERED AMOUNT a) Late reporting ______________ ______________ b) Reserve deficiency ______________ ______________ c) SBL ______________ ______________ d) Others (Specify) ______________ ______________ ______________ TOTAL ============= _________________________ Signature Over Printed Name _________________________ Position Appendix Q-23 ANTI-MONEY LAUNDERING REGULATIONS ( Appendix to Sec. 4691Q ) Banks, quasi-banks, trust entities and all other institutions, and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R.A. No. 9160 and the following rules and regulations on anti-money laundering. 1. Customer identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. The guidelines on Customer Due Diligence for NBQBs issued by the BASEL Committee on Banking Supervision which highlights the Know-Your-Customer (KYC) standards to be observed in the design of KYC programs are shown in Annex Q-23-c. The guidelines on the Account Opening and Customer Identification issued by the BASEL Committee on Banking Supervision represent the starting point, which can be used by banks in the area of customer identification are shown in Annex Q-23-d. When establishing business relations or conducting transactions (particularly opening of deposit accounts, accepting deposit substitutes, entering into trust and other fiduciary transactions, renting of safety deposit boxes, performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients. Said client identification may be based on official or other reliable documents and records. a. In cases of corporate and other legal entities, the following measures should be taken, when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both, proof of incorporation, including information concerning the customer's name, legal form, address, directors, principal officers and provisions regulating the power behind the entity. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. b. In case of doubt as to whether their purported clients or customers are acting for themselves or for another, reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. cDCIHT c. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. In case where numbered accounts is allowed (i.e., peso and foreign currency non-checking numbered accounts), covered institutions should ensure that the client is identified in an official or other identifying documents. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts. Covered institutions shall phase out within a period of one (1) year from April 2, 2001 or upon their maturity, whichever is earlier, anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them, which are not expressly allowed under existing law. d. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by covered institutions should be renewed/updated at least every other year. e. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. With respect to closed accounts, the records on customer identification, account files and business correspondence, shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Such records must be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal behaviour. f. Special attention should be given to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies. g. Covered institutions should not, or should at least avoid, transacting business with criminals. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. 2. Programs against money laundering . Programs against money laundering should be developed. These programs, should include, as a minimum: a. The development of internal policies, procedures and controls, including the designation of compliance officers at management level, and adequate screening procedures to ensure high standards when hiring employees; b. An ongoing employee training program; and c. An audit function to test the system. 3. Submission of plans of action . Covered institutions shall submit a plan of action on how to comply with the requirements of App. Q-23 nos. 1, 2 and 4 within thirty (30) business days from July 31, 2000 or from opening of the institution. 4. Required reporting of certain transactions . If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R.A. No. 9160 and/or its IRRs, the transactions involving such funds or attempts to transact the same, should be reported to the Anti-Money Laundering Council (AMLC) in accordance with Rules 5.2 and 5.3 of the AMLA IRRs. a. Report on suspicious transactions . 1 Banks shall report covered transactions and suspicious transactions, as defined in Rules 5.2 and 5.3 of the AMLA IRRs, to the AMLC using the forms prescribed by the AMLC. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose; (2) Inward remittances without visible lawful purpose or without underlying trade transactions; (3) Unusual purchases of foreign exchange without visible lawful purpose; (4) Unusual sales of foreign exchange whose sources are not satisfactorily established; (5) Complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose; (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities; and aIcDCH (7) All other suspicious transactions/activities which can be reported without violating any law. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. (b) A brief description of the transaction or transactions. (c) Date or date the transaction(s) occurred. (d) Amount(s) involved in every transaction. (e) Such other relevant information which can be of help to the authorities should there be an investigation. b. Exemption from Bank Secrecy Law . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates shall not be deemed to have violated R.A. No. 1405, as amended; R.A. No. 6426, as amended; R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, shall be criminally liable. However, no administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under R.A. 9160 or any other Philippine law. c. Prohibition from disclosure of the covered transaction report . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. 5. Certification of compliance with anti-money laundering regulations . Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification ( Annex Q-23-a ) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations. The certification shall be submitted in accordance with Appendix Q-3 and shall be considered a Category A-2 report. ANNEX Q-23-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS ( Annex to Appendix Q-23 ) CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 2 April 2001, we hereby certify: 1. That we have monitored (Name of NBQB)'s compliance with R.A. No. 9160 (Anti-Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259 and 302; 2. That the NBQB is complying with the required customer identification, documentation of all new clients, and continued monitoring of customer's activities; 3. That the NBQB is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years; 4. That the NBQB does not maintain anonymous or fictitious accounts; and 5. That we conduct regular anti-money laundering training sessions for all NBQB officers and selected staff members holding sensitive positions. SITCEA _______________________ ____________________ (Name of President or officer (Name of Compliance of equivalent rank) Officer) SUBSCRIBED AND SWORN to before me, _____ this ____ day of ____________, affiant/s exhibiting to me their Residence Certificates as follows: Community Date/Place Name Tax Cert. No Issued Doc. No. _________; Notary Public Page No. _________; Book No. _________; Series of 2002 ANNEX Q-23-b AMLC Resolution No. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS ( Annex to Appendix Q-23 ) 1. All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property. 2. Banks shall file covered transaction reports (CTRs) on transactions involving all kinds of monetary instruments or property, i.e., in cash or non-cash, whether in domestic or foreign currency. 3. Covered institutions, other than banks, shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. Due to the nature of the transactions in the stock exchange, only the brokers-dealers shall be required to file CTRs and STRs. The PSE, PCD, SCCP and transfer agents are exempt from filing CTRs. They, are however, required to file STRs when the transactions that pass through them are deemed to be suspicious. 4. Where the covered institution engages in bulk transactions with a bank, i.e., deposits of premium payments in bulk or settlements of trade, and the bulk transactions do not distinguish clients and their respective transaction amounts, said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500,000 and are included in the bulk transactions. 5. With respect to insurance companies, when the total amount of the premiums for the entire year, regardless of the mode of payment (monthly, quarterly, semi-annually or annually), exceeds P500,000, such amount shall be reported as a covered transaction, even if the amounts of the amortizations are less than the threshold amount. The CTR shall be filed upon payment of the first premium amount, regardless of the mode of payment. Under this rule, the insurance company shall file the CTR only once every year until the policy matures or rescinded, whichever comes first. 6. The submission of CTRs is deferred until the AMLC directs otherwise. Submission of STRs, however, are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require. ANNEX Q-23-c CUSTOMER DUE DILIGENCE FOR BANKS AND NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS (NBQBs) ( Annex to Appendix Q-23 ) 1. Customer acceptance policy Quasi-banks should develop clear customer acceptance policies and procedures, including a description of the types of customer that are unacceptable to quasi-bank management. In preparing such policies, factors such as customers' background, country of origin, public or high profile position, business activities or other risk indicators should be considered. Quasi-banks should develop graduated customer acceptance policies and procedures that require more extensive due diligence for high risk customers. For example, the policies may require the most basic account-opening requirements for a working individual with a small account balance, whereas quite extensive due diligence may be deemed essential for an individual with a high net worth whose source of funds is unclear. Decisions to enter into business relationships with high risk customers, such as individuals holding important/prominent positions, public or private (see below), should be taken exclusively at senior management level. 2. Customer identification Customer identification is an essential element of KYC standards. A customer is defined as any person or entity that keeps an account with a quasi-bank and any person or entity on whose behalf an account is maintained, as well as the beneficiaries of transactions conducted by professional financial intermediaries. Specifically, a customer should include an account-holder and the beneficial owner of an account. A customer should also include the beneficiary of a trust, an investment fund, a pension fund or a company whose assets are managed by an asset manager, or the grantor of a trust. Quasi-banks should establish a systematic procedure for verifying the identity of new customers and should never enter a business relationship until the identity of a new customer is satisfactorily established. Quasi-banks should "document and enforce policies for identification of customers and those acting on their behalf". 1 The best documents for verifying the identity of customers are those most difficult to obtain illicitly and to counterfeit, such as passport, driver's license or alien certificate of registration . Special attention should be exercised in the case of non-resident customers and in no case should a quasi-bank short-circuit identity procedures just because the new customer is unable to present himself for interview. The quasi-bank should always ask itself why the customer has chosen to open an account in a foreign jurisdiction. The customer identification process applies naturally at the outset of the relationship, but there is also a need to apply KYC standards to existing customer accounts. Where such standards have been introduced only recently and do not as yet apply fully to existing customers, a risk assessment exercise can be undertaken and priority given to obtaining necessary information, where it is deficient, in respect of the higher risk cases. An appropriate time to review the information available on existing customers is when a transaction of significance takes place, or when there is a material change in the way that the account is operated. However, if a quasi-bank is aware that it lacks sufficient information about an existing high-risk customer, it should take steps to ensure that all relevant information is obtained as quickly as possible. In addition, the supervisor needs to set an appropriate target date for completion of a KYC review and regularization of all existing accounts. In any event, a quasi-bank should undertake regular reviews of its customer base to establish that it has up-to-date information and a proper understanding of its account holders' identity and of their business. DcIHSa Quasi-banks that offer private banking services are particularly exposed to reputational risk. Private quasi-banking by nature involves a large measure of confidentiality. Private quasi-banking accounts can be opened in the name of an individual, a commercial business, a trust, an intermediary or a personalized investment company. In each case reputational risk may arise if the quasi-bank does not diligently follow established KYC procedures. In no circumstances should private quasi-banking operations function autonomously, or as a "quasi-bank within a quasi-bank" 2 , and no part of the quasi-bank should ever escape the required procedures. This means that all new clients and new accounts should be approved by at least one person other than the private quasi-banking relationship manager. If particular safeguards are put in place internally to protect confidentiality of private quasi-banking customers and their business, quasi-banks must still ensure that at least equivalent scrutiny and monitoring of these customers and their business can be conducted, e.g. they must be open to review by compliance officers and auditors. 2.1 General identification requirements Quasi-banks need to obtain all information necessary to establish to their full satisfaction the identity of each new customer and the purpose and intended nature of the business relationship. The extent and nature of the information depends on the type of applicant (personal, corporate, etc.) and the expected size of the account. National supervisors are encouraged to provide guidance to assist quasi-banks in their designing their own identification procedures. Examples of the type of information that would be appropriate are set out in Annex Q-23-c-1. Quasi-banks should apply their full KYC procedures to applicants that plan to transfer an opening balance from another financial institution, bearing in mind that the previous account manager may have asked for the account to be removed because of a concern about dubious activities. Quasi-banks should never agree to open an account or conduct ongoing business with a customer who insists on anonymity or "bearer" status or who gives a fictitious name. Nor should confidential numbered 3 accounts function as anonymous accounts but they should be subject to exactly the same KYC procedures as all other customer accounts, even if the test is carried out by selected staff. Whereas a numbered account can offer additional protection for the identity of the account-holder, the identity must be known to a sufficient number of staff to operate proper due diligence. Such accounts should in no circumstances be used to hide the customer identity from a quasi-bank's compliance function or from the supervisors. Quasi-banks need to be vigilant in preventing corporate business entities from being used by natural persons as a method of operating anonymous accounts. Personal asset holding vehicles, such as international business companies (IBCs), may make proper identification of customers or beneficial owners difficult. A quasi-bank should take all steps necessary to satisfy itself that it knows the true identity of the ultimate owner of all such entities. 2.2 Specific identification issues There are a number of more detailed issues relating to customer identification which need to be addressed. Particular comments are invited on the issues mentioned in this section. Several of these are currently under consideration by the FATF as part of a general review of its forty recommendations, and the Working Group recognizes the need to be consistent with the FATF. 2.2.1 Trust, nominee and fiduciary accounts or client accounts opened by professional intermediaries Trust, nominee and fiduciary accounts can be used to avoid customer identification procedures. While it may be legitimate under certain circumstances to provide an extra layer of security to protect the confidentiality of legitimate private quasi-banking customers, it is essential that the true relationship is understood. Quasi-banks should establish whether the customer is acting on behalf of another person as trustee, nominee or professional intermediary (e.g. a lawyer or an accountant). If so, a necessary precondition is receipt of satisfactory evidence of the identity of any intermediaries and of the persons upon whose behalf they are acting, as well as details of the nature of the trust or other arrangements in place. Quasi-banks may hold "pooled" accounts (e.g. client accounts managed by law firms) or accounts opened on behalf of pooled entities, such as mutual funds and money managers. In such cases, quasi-banks have to decide, given the circumstances, whether the customer is the intermediary, or whether it would be more appropriate to look through the intermediary to the ultimate beneficial owners. In each case, the identity of the customer that is subject to due diligence should be clearly established. The beneficial owners should be verified where possible. Where not, the quasi-banks should perform due diligence on the intermediary and establish to its complete satisfaction that the intermediary has a sound due diligence process for each of its clients. TECcHA Special care needs to be exercised in initiating business transactions with companies that have nominee shareholders or shares in bearer form. Satisfactory evidence of the identity of beneficial owners of all companies needs to be obtained. The above procedures may prove difficult for quasi-banks in some countries to follow. In the case of professional intermediaries such as lawyers, there might exist professional codes of conduct preventing the dissemination of information concerning their clients. The FATF is currently engaged in a review of KYC procedures governing accounts opened by lawyers on behalf of clients. The Working Group has therefore not taken a definitive position on this issue. 2.2.2 Introduced business The performance of identification procedures can be time consuming and there is a natural desire to limit any inconvenience for new customers. In some countries, it has therefore become customary for quasi-banks to rely on the procedures undertaken by other quasi-banks or introducers when business is being referred. In doing so, quasi-banks risk placing excessive reliance on the due diligence procedures that they expect the introducers to have performed. Relying on due diligence conducted by an introducer, however reputable, does not in any way remove the ultimate responsibility of the recipient quasi-bank to know its customers and their business. In particular, quasi-banks should not rely on introducers that are subject to weaker standards than those governing the quasi-banks' own KYC procedures or that are unwilling to share copies of due diligence documentation. The FATF is currently engaged in a review of the appropriateness of eligible introducers, i.e. whether they should be confined to reputable quasi-banks only or should extend to other regulated institutions, whether a quasi-bank should establish a contractual relationship with its introducers and whether it is appropriate to rely on a third party introducer at all. The Working Group is still developing its thinking on this topic. 2.2.3 Reputational risk Business relationship with individuals holding important /prominent positions, public or private , and with persons or companies clearly related to them may expose a quasi-bank to significant reputational and/or legal risks. Accepting and managing funds from such persons could put at risk the quasi-bank's own reputation and can undermine public confidence in the ethical standards of an entire financial centre, since such cases usually receive extensive media attention and strong political reaction, even if the illegal origin of the assets is often difficult to prove. In addition, the quasi-bank may be subject to costly information requests and seizure orders from law enforcement or judicial authorities (including international mutual assistance procedures in criminal matters) and could be liable to actions for damages by the state concerned or the victims of a regime. Under certain circumstances, the quasi-bank and/or its officers and employees themselves can be exposed to charges of money laundering, if they know or should have known that the funds stemmed from corruption or other serious crimes. 3. On-going monitoring of high risk accounts On-going monitoring of accounts and transactions is an essential aspect of effective KYC procedures. Quasi-banks can only effectively control and reduce their risk if they have an understanding of normal and reasonable account activity of their customers. Without such knowledge, they are likely to fail in their duty to report suspicious transactions to the appropriate authorities in cases where they are required to do so. The on-going monitoring process includes the following: Quasi-banks should develop "clear standards on what records must be kept on customer identification and individual transactions and the retention period". 4 As the starting point and natural follow-up of the identification process, quasi-banks should obtain and keep up to date customer identification papers and retain them for at least five years after an account is closed. They should also retain all financial transaction records for at least five years after the transaction has taken place. Quasi-banks should ensure that they have adequate management information systems to provide managers and compliance officers with timely information needed to identify, analyse and effectively monitor higher risk customer accounts. The types of reports that may be needed include reports of missing account opening documentation, transactions made through a customer account that are unusual, and aggregations of a customer's total relationship with the quasi-bank. HTScEI Senior management of a quasi-bank in charge of private quasi-banking business should know the personal circumstances of the quasi-bank's large/important customers and be alert to sources of third party information. Every quasi-bank should draw its own distinction between large/important customers and others, and set threshold indicators for them accordingly, taking into account the country of origin and other risk factors. Significant transactions by high-risk customers should be approved by a senior manager. Quasi-banks should have systems in place to detect unusual or suspicious patterns of activity. This can be done by establishing limits for a particular class or category of accounts. Particular attention should be paid to transactions that exceed these limits. Certain types of transactions should alert quasi-banks to the possibility that the customer is conducting undesirable activities. They may include transactions that do not make economic or commercial sense, or that involve large amounts of cash deposits that are not consistent with the normal and expected transactions of the customer. Very high account turnover, inconsistent with the size of the balance, may indicate that funds are being "washed" through the account. A list of suspicious activities drawn up by supervisors can be very helpful to quasi-banks. Quasi-bank should develop a clear policy and internal guidelines, procedures and controls and remain especially vigilant regarding business relationships with individuals holding important/prominent positions, public or private , and high profile individuals or with persons and companies that are clearly related to or associated with them. 5 4. Risk Management Effective KYC procedures embrace routines for proper management oversight, systems and controls, segregation of duties, training and other related policies. The board of directors of the quasi-bank should be fully committed to an effective KYC programme by establishing appropriate procedures and ensuring their effectiveness. Quasi-banks should appoint a senior officer with explicit responsibility for ensuring that the quasi-bank's policies and procedures are, at a minimum, in accordance with local supervisory practice. Quasi-banks should have clear written procedures, communicated to all personnel, for staff to report suspicious transactions to a specified senior manager. That manager must then assess whether the quasi-bank's statutory obligations under recognized suspicious activity reporting regimes require the transaction to be reported to the appropriate law enforcement and supervisory authorities. All quasi-banks must have an ongoing employee-training programme so that quasi-bank staff is adequately trained in KYC procedures. The timing and content of training for various sectors of staff will need to be adapted by the quasi-bank for its own needs. Training requirements should have a different focus for new staff, front-line staff, compliance staff or staff dealing with new customers. New staff should be educated in the importance of KYC policies and the basic requirements at the quasi-bank. Front-line staff members who deal directly with the public should be trained to verify the customer identity for new customers, to exercise due diligence in handling accounts of existing customers on an ongoing basis and to detect patterns of suspicious activity. Regular refresher training should be provided to ensure that staff is reminded of their responsibilities and is kept informed of new developments. It is crucial that all relevant staff fully understand the need for and implement KYC policies consistently. A culture within quasi-banks that promotes such understanding is the key to successful implementation. Quasi-banks' internal audit and compliance functions have important responsibilities in evaluating and ensuring adherence to KYC policies and procedures. As a general rule, the compliance function provides an independent evaluation of the quasi-bank's own policies and procedures, including legal and regulatory requirements. Its responsibilities should include ongoing monitoring of staff performance through sample testing of compliance and review of exception reports to alert senior management or the Board of Directors if it believes management is failing to address KYC procedures in a responsible manner. Internal audit plays an important role in independently evaluating the risk management and controls, discharging its responsibility to the Audit Committee of the Board of Directors or a similar oversight body through periodic evaluations of the effectiveness of compliance with KYC policies and procedures. Management should ensure that audit functions are staffed adequately with individuals who are well-versed in such policies and procedures. In addition, internal auditors should be proactive in following-up their findings and criticisms. STcAIa ANNEX Q-33-c-1 GENERAL IDENTIFICATION REQUIREMENTS This annex presents a suggested list of identification requirements for personal customers and corporates. National supervisors are encouraged to provide guidance to assist quasi-banks in designing their own identification procedures. Personal customers For personal customers, quasi-banks need to obtain the following information: Name and/or names used, permanent residential address, date and place of birth, name of employer or nature of self-employment/business, specimen signature, and source of funds. Additional information would relate to nationality or country of origin, public or high profile position, etc. Quasi-banks should verify the information against original documents of identity issued by an official authority (examples including identity cards and passports). Such documents should be those that are most difficult to obtain illicitly. In countries where new customers do not possess the prime identity documents, e.g., identity cards, passports or driving licenses, some flexibility may be required. However, particular care should be taken in accepting documents that are easily forged or which can be easily obtained in false identities. Where there is face to face contact, the appearance should be verified against an official document bearing a photograph. Any subsequent changes to the above information should also be recorded and verified. Corporate and other business customers For corporate and other business customers, quasi-banks should obtain evidence of their legal status, such as an incorporation document, partnership agreement, association documents or a business license. For large corporate accounts, a financial statement of the business or a description of the customer's principal line of business should also be obtained. In addition, if significant changes to the company structure or ownership occur subsequently, further checks should be made. In all cases, quasi-banks need to verify that the corporation or business entity exists and engages in its stated business. The original documents or certified copies of certificates should be produced for verification. ANNEX Q-23-d GENERAL GUIDE TO ACCOUNT OPENING AND CUSTOMER IDENTIFICATION ( Annex to Appendix Q-23 ) 1. The Basel Committee on Banking Supervision in its paper on Customer Due Diligence for Banks published in October 2001 referred to the intention of the Working Group on Cross-border Banking 1 to develop guidance on customer identification. Customer identification is an essential element of an effective customer due diligence programme which banks need to put in place to guard against reputational, operational, legal and concentration risks. It is also necessary in order to comply with anti-money laundering legal requirements and a prerequisite for the identification of bank accounts related to terrorism. 2. What follows is account opening and customer identification guidelines and a general guide to good practice based on the principles of the Basel Committee's Customer due diligence for banks paper. This document, which has been developed by the Working Group on Cross-border Banking, does not cover every eventuality, but instead focuses on some of the mechanisms that banks can use in developing an effective customer identification programme. 3. These guidelines represent a starting point for supervisors and banks in the area of customer identification. This document does not address the other elements of the Customer Due Diligence for banks paper, such as the ongoing monitoring of accounts. However, these elements should be considered in the development of effective customer due diligence, anti-money laundering and combating the financing of terrorism procedures. SIHCDA 4. These guidelines may be adapted for use by national supervisors who are seeking to develop or enhance customer identification programmes. However, supervisors should recognize that any customer identification programme should reflect the different types of customers ( individual vs. institution) and the different levels of risk resulting from a customer's relationship with a bank. Higher risk transactions and relationships, such as those with politically exposed persons or organizations, will clearly require greater scrutiny than lower risk transactions and accounts. 5. Guidelines and best practices created by national supervisors should also reflect the various types of transactions that are most prevalent in the national banking system. For example, non-face-to-face opening of accounts may be more prevalent in one country than another. For this reason the customer identification procedures may differ between countries. 6. Some identification documents are more vulnerable to fraud than others. For those that are most susceptible to fraud, or where there is uncertainty concerning the validity of the document(s) presented, the bank should verify the information provided by the customer through additional inquiries or other sources of information. 7. Customer identification documents should be retained for at least five years after an account is closed. All financial transaction records should be retained for at least five years after the transaction has taken place. 8. These guidelines are divided into two sections covering different aspects of customer identification. Section A describes what types of information should be collected and verified for natural persons seeking to open accounts or perform transactions. Section B describes what types of information should be collected and verified for institutions and is in two parts, the first relating to corporate vehicles and the second to other types of institutions. 9. All the terms used in these guidelines have the same meaning as in the Customer due diligence for banks paper. A. Natural Persons 10. For natural persons the following information should be obtained, where applicable: legal name and any other names used (such as maiden name); correct permanent address (the full address should be obtained; a Post Office box number is not sufficient); telephone number, fax number, and e-mail address; date and place of birth; nationality; occupation, public position held and/or name of employer; an official person identification number or other unique identifier contained in an unexpired official document (e.g. passport, identification card, residence permit, social security records, driving license) that bears a photograph of the customer; type of account and nature of the banking relationship; signature. 11. The bank should verify this information by at least one of the following methods: confirming the date of birth from an official document (e.g. birth certificate, passport, identity card, social security records); confirming the permanent address (e.g. utility bill, tax assessment, bank statement, a letter from a public authority); contacting the customer by telephone, by letter or by e-mail to confirm the information supplied after an account has been opened (e.g. a disconnected phone, returned mail, or incorrect e-mail address should warrant further investigation); confirming the validity of the official documentation provided through certification by an authorised person (e.g. embassy official, notary public). 12. The examples quoted above are not the only possibilities. In particular jurisdictions there may be other documents of an equivalent nature which may be produced as satisfactory evidence of customer's identity. cCHITA 13. Financial institutions should apply equally effective customer identification procedures for non-face-to-face customers as for those available for interview. 14. From the information provided in paragraph 10, financial institutions should be able to make an initial assessment of a customer's risk profile. Particular attention needs to be focused on those customers identified thereby as having a higher risk profile and additional inquiries made or information obtained in respect of those customers to include the following: evidence of an individual's permanent address sought through a credit reference agency search, or through independent verification by home visits; personal reference (i.e. by an existing customer of the same institution); prior bank reference and contact with the bank regarding the customer; source of wealth; verification of employment, public position held (where appropriate). 15. For one-off or occasional transactions where the amount of the transaction or series of linked transactions does not exceed an established minimum monetary value, it might be sufficient to require and record only name and address. 16. It is important that the customer acceptance policy is not so restrictive that it results in a denial of access by the general public to banking services, especially for people who are financially or socially disadvantaged. B. Institutions 17. The underlying principles of customer identification for natural persons have equal application to customer identification for all institutions. Where in the following the identification and verification of natural persons is involved, the foregoing guidance in respect of such persons should have equal application. 18. The term institution includes any entity that is not a natural person. In considering the customer identification guidance for the different types of institutions, particular attention should be given to the different levels of risk involved. I. Corporate Entities 19. For corporate entities (i.e. corporations and partnerships), the following information should be obtained: name of institution; principal place of institution's business operations; mailing address of institution; contact telephone and fax numbers; some form of official identification number, if available (e.g. tax identification number); the original or certified copy of the Certificate of Incorporation and Memorandum and Articles of Association; the resolution of the Board of Directors to open an account and identification of those who have authority to operate the account; nature and purpose of business and its legitimacy. 20. The bank should verify this information by at least one of the following methods: for established corporate entities reviewing a copy of the latest report and accounts (audited, if available); conducting an enquiry by a business information service, or an undertaking from a reputable and known firm of lawyers or accountants confirming the documents submitted; undertaking a company search and/or other commercial enquiries to see that the institution has not been, or is not in the process of being, dissolved, struck off, wound up or terminated; utilising an independent information verification process, such as by accessing public and private databases; obtaining prior bank references; visiting the corporate entity, where practical; contacting the corporate entity by telephone, mail or e-mail. 21. The bank should also take reasonable steps to verify the identity and reputation of any agent that opens an account on behalf of a corporate customer, if that agent is not an officer of the corporate customer. TaCDIc Corporations/Partnerships 22. For corporations/partnerships, the principal guidance is to look behind the institution to identify those who have control over the business and the company's/partnership's assets, including those who have ultimate control. For corporations, particular attention should be paid to shareholders, signatories, or others who inject a significant proportion of the capital or financial support or otherwise exercise control. Where the owner is another corporate entity or trust, the objective is to undertake reasonable measures to look behind that company or entity and to verify the identity of the principals. What constitutes control for this purpose will depend on the nature of a company, and may rest in those who are mandated to manage funds, accounts or investments without requiring further authorisation, and who would be in a position to override internal procedures and control mechanisms. For partnerships, each partner should be identified and it is also important to identify immediate family members that have ownership control. 23. Where a company is listed on a recognised stock exchange or is a subsidiary of such a company then the company itself may be considered to be the principal to be identified. However, consideration should be given to whether there is effective control of a listed company by an individual, small group of individuals or another corporate entity or trust. If this is the case then those controllers should also be considered to be principals and identified accordingly. II. Other Types of Institution 24. For the account categories referred to paragraphs 26 to 34, the following information should be obtained in addition to that required to verify the identity of the principals: name of account; mailing address; contact telephone and fax numbers; some form of official identification number, if available (e.g. tax identification number); description of the purpose/activities of the account holder (e.g. in a formal constitution); copy of documentation confirming the legal existence of the account holder (e.g. register of charities). 25. The bank should verify this information by at least one of the following: obtaining an independent undertaking from a reputable and known firm of lawyers or accountants confirming the documents submitted; obtaining prior bank references; accessing public and private databases or official sources. Retirement Benefit Programmes 26. Where an occupational pension programme, employee benefit trust or share option plan is an applicant for an account the trustee and any other person who has control over the relationship (e.g. administrator, programme manager, and account signatories) should be considered as principals and the bank should take steps to verify their identities. Mutuals/Friendly Societies, Cooperatives and Provident Societies 27. Where these entities are an applicant for an account, the principals to be identified should be considered to be those persons exercising control or significant influence over the organisation's assets. This will often include board members plus executives and account signatories. Charities, Clubs and Associations 28. In the case of accounts to be opened for charities, clubs, and societies, the bank should take reasonable steps to identify and verify at least two signatories along with the institution itself. The principals who should be identified should be considered to be those persons exercising control or significant influence over the organisation's assets. This will often include members of a governing body or committee, the President, any board members, the treasurer, and all signatories. 29. In all cases independent verification should be obtained that the persons involved are true representatives of the institution. Independent confirmation should also be obtained of the purpose of the institution. Trusts and Foundations 30. When opening an account for a trust, the bank should take reasonable steps to verify the trustee(s), the settler(s) of the trust (including any persons settling assets into the trust) any protector(s), beneficiary(ies), and signatories. Beneficiaries should be identified when they are defined. In the case of a foundation, steps should be taken to verify the founder, the managers/directors and the beneficiaries. Professional Intermediaries 31. When a professional intermediary opens a client account on behalf of a single client that client must be identified. Professional intermediaries will often open "pooled" accounts on behalf of a number of entities. Where funds held by the intermediary are not co-mingled but where there are "sub-accounts" which can be attributable to each beneficial owner, all beneficial owners of the account held by the intermediary should be identified. Where the funds are co-mingled, the bank should look through to the beneficial owners; however, there may be circumstances which should be set out in supervisory guidance where the bank may not need to look beyond the intermediary (e.g. when the intermediary is subject to the same due diligence standards in respect of its client base as the bank). SDHCac 32. Where such circumstances apply and an account is opened for an open or closed ended investment company, unit trust or limited partnership which is also subject to the same diligence standards in respect of its client base as the bank, the following should be considered as principals and the bank should take steps to identify: the fund itself; its directors or any controlling board where it is a company; its trustee where it is a unit trust; its managing (general) partner where it is a limited partnership; account signatories; any other person who has control over the relationship e.g. fund administrator or manager. 33. Where other investment vehicles are involved, the same steps should be taken as in paragraph 32 where it is appropriate to do so. In addition all reasonable steps should be taken to verify the identity of the beneficial owners of the funds and of those who have control of the funds. 34. Intermediaries should be treated as individual customers of the bank and the standing of the intermediary should be separately verified by obtaining the appropriate information drawn from the itemised lists included in paragraphs 19-20 above. APPENDIX Q-24 ACTIVITIES WHICH MAY BE CONSIDERED UNSAFE AND UNSOUND PRACTICES ( Appendix to Secs. 4149Q and 4408Q and Subsec. 4301Q.6 ) The following activities are considered only as guidelines and are not irrebutably presumed to be unsafe or unsound. Conversely, not all practices which might under the circumstances be termed unsafe or unsound are mentioned here. The Monetary Board may consider any other acts/omissions as unsafe or unsound practices. a. Operating with management whose policies and practices are detrimental to the NBQB/trust entity and jeopardize the safety of its deposit substitutes/trust accounts. b. Operating with total adjusted capital and reserves that are inadequate in relation to the kind and quality of the assets of the NBQB/trust entity. c. Operating in a way that produces a deficit in net operating income. d. Operating with a serious lack of liquidity, especially in view of the asset and deposit substitute/liability structure of the NBQB/trust entity. e. Engaging in speculative and hazardous investment policies. f. Paying excessive cash dividends in relation to the capital position, earnings capacity and asset quality of the NBQB/trust entity. g. Excessive reliance on large, high-interest or volatile borrowings. h. Excessive reliance on letters of credit either issued by the NBQB/trust entity or accepted as collateral to loans advanced. i. Excessive amounts of loan participations sold. j. Paying interest on participations without advising participating institution that the source of interest was not from the borrower. k. Selling participations without disclosing to the purchasers of those participations material, non-public information known to the NBQB/trust entity. l. Failure to limit, control and document contingent liabilities. m. Engaging in hazardous lending and lax collection policies and practices, as evidenced by: (1) An excessive volume of loans subject to adverse classification; (2) An excessive volume of loans without adequate documentation, including credit information; (3) Excessive net loan losses; (4) An excessive volume of loans in relation to the total assets and deposit substitutes/trust liabilities of the NBQB/trust entity; (5) An excessive volume of weak and self-serving loans to persons connected with the NBQB/trust entity, especially if a significant portion of these loans are adversely classified; (6) Excessive concentrations of credit, especially if a substantial portion of this credit is adversely classified; (7) Indiscriminate participation in weak and undocumented loans originated by other institutions; (8) Failing to adopt written loan policies; (9) An excessive volume of past due or non-performing loans; (10) Failure to diversify the loan portfolio/asset mix of the institution; and (11) Failure to make provision for an adequate reserve for possible loan losses. n. Permitting officers to engage in lending practices beyond the scope of their positions. EAcCHI o. Operating the NBQB/trust entity with inadequate internal controls. p. Failure to keep accurate and updated books and records. q. Operating the institution with excessive volume of out-of-territory loans. r. Excessive volume of non-earning assets. s. Failure to heed warnings and admonitions of the supervisory authorities of the institution. t. Continued and flagrant violation of any law, rule, regulation or written agreement between the institution and the BSP. u. Any action likely to cause insolvency or substantial dissipation of assets or earnings of the institution or likely to seriously weaken its condition or otherwise seriously prejudice the interest of its investors/clients. v. Non-observance of the principles and the requirements for managing and monitoring large exposures and credit risk concentrations under Subsec. 4301Q.6a and b. APPENDIX Q-25 REVISED IMPLEMENTING RULES AND REGULATIONS R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194 ( Appendix to Sec. 4691Q ) RULE 1 Title Rule 1.a. Title . These Rules shall be known and cited as the "Revised Rules and Regulations Implementing Republic Act No. 9160", (the Anti-Money Laundering Act of 2001 [AMLA]), AS AMENDED BY REPUBLIC ACT NO. 9194. Rule 1.b. Purpose . These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA, AS AMENDED BY REPUBLIC ACT NO. 9194. RULE 2 Declaration of Policy Rule 2. Declaration of Policy . It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. RULE 3 Definitions Rule 3. Definitions . For purposes of THIS ACT, the following terms are hereby defined as follows: Rule 3.a. " Covered Institution " refers to: Rule 3.a.1. Banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng Pilipinas (BSP). (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank, quasi-bank, trust entity or any other institution supervised or regulated by the BSP. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank, quasi-bank, trust entity, or any other institution supervised and/or regulated by the BSP. Rule 3.a.2. Insurance companies, insurance agents, insurance brokers, professional reinsurers, reinsurance brokers, holding companies, holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). TcHCIS (a) An insurance company includes those entities authorized to transact insurance business in the Philippines, whether life or non-life and whether domestic, domestically incorporated or branch of a foreign entity. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Transacting insurance business includes making or proposing to make, as insurer, any insurance contract, or as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety, doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Presidential Decree (P.D.) No. 612, as amended, including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P.D. No. 612, as amended. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. (c) An insurance broker includes any person who acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. (d) A professional reinsurer includes any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines, whether domestic, domestically incorporated or a branch of a foreign entity. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. (e) A reinsurance broker includes any person who, not being a duly authorized agent, employee or officer of an insurer in which any reinsurance is effected, acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance, for any insurance company authorized to do business in the Philippines. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. A holding company system includes a holding company together with its controlled insurers and controlled persons. Rule 3.a.3. (i) Securities dealers, brokers, salesmen, associated persons of brokers or dealers, investment houses, investment agents and consultants, trading advisors, and other entities managing securities or rendering similar services, (ii) mutual funds or open-end investment companies, close-end investment companies, common trust funds, pre-need companies or issuers and other similar entities; (iii) foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. (c) A securities salesman includes a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial. (e) An investment house includes an enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding, any redeemable security of which it is the issuer. HSCATc (g) A closed-end investment company includes an investment company other than open-end investment company. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee, for the purpose of administration, holding or management of such funds and/or properties for the use, benefit or advantage of the trustor or of others known as beneficiaries. (i) A pre-need company or issuer includes any corporation supervised and/or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need, payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life, pension, education, internment and other plans, which the Commission may, from time to time, approve. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. (k) Investment Advisor/Agent/Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others, either directly or through circulars, reports, publications or writings, as to the value of any security and as to the advisability of trading in any security; or (2) who for compensation and as part of a regular business, issues or promulgates, analyzes reports concerning the capital market, except: (a) any bank or trust company; (b) any journalist, reporter, columnist, editor, lawyer, accountant, teacher; (c) the publisher of any bonafide newspaper, news, business or financial publication of general and regular circulation, including their employees; (d) any contract market; (e) such other person not within the intent of this definition, provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. (3) any person who undertakes the management of portfolio securities of investment companies, including the arrangement of purchases, sales or exchanges of securities. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. (m) A money payment, remittance and transfer company includes any person offering to pay, remit or transfer or transmit money on behalf of any person to another person. (n) "Customer" refers to any person or entity that keeps an account, or otherwise transacts business, with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted, as well as the beneficiary of said transactions. A customer also includes the beneficiary of a trust, an investment fund, a pension fund or a company or person whose assets are managed by an asset manager, or a grantor of a trust. It includes any insurance policy holder, whether actual or prospective. CEcaTH (o) "Property" includes any thing or item of value, real or personal, tangible or intangible, or any interest therein or any benefit, privilege, claim or right with respect thereto. Rule 3.b. "COVERED TRANSACTION" IS A TRANSACTION IN CASH OR OTHER EQUIVALENT MONETARY INSTRUMENT INVOLVING A TOTAL AMOUNT IN EXCESS OF FIVE HUNDRED THOUSAND PESOS (PHP500,000.00) WITHIN ONE (1) BANKING DAY. Rule 3.b.1. SUSPICIOUS TRANSACTIONS ARE TRANSACTIONS, REGARDLESS OF AMOUNT, WHERE ANY OF THE FOLLOWING CIRCUMSTANCES EXISTS: (1) THERE IS NO UNDERLYING LEGAL OR TRADE OBLIGATION, PURPOSE OR ECONOMIC JUSTIFICATION; (2) THE CLIENT IS NOT PROPERLY IDENTIFIED; (3) THE AMOUNT INVOLVED IS NOT COMMENSURATE WITH THE BUSINESS OR FINANCIAL CAPACITY OF THE CLIENT; (4) TAKING INTO ACCOUNT ALL KNOWN CIRCUMSTANCES, IT MAY BE PERCEIVED THAT THE CLIENT'S TRANSACTION IS STRUCTURED IN ORDER TO AVOID BEING THE SUBJECT OF REPORTING REQUIREMENTS UNDER THE ACT; (5) ANY CIRCUMSTANCE RELATING TO THE TRANSACTION WHICH IS OBSERVED TO DEVIATE FROM THE PROFILE OF THE CLIENT AND/OR THE CLIENT'S PAST TRANSACTIONS WITH THE COVERED INSTITUTION; (6) THE TRANSACTION IS IN ANY WAY RELATED TO AN UNLAWFUL ACTIVITY OR ANY MONEY LAUNDERING ACTIVITY OR OFFENSE UNDER THIS ACT THAT IS ABOUT TO BE, IS BEING OR HAS BEEN COMMITTED; OR (7) ANY TRANSACTION THAT IS SIMILAR, ANALOGOUS OR IDENTICAL TO ANY OF THE FOREGOING. Rule 3.c. "Monetary Instrument" refers to: (1) Coins or currency of legal tender of the Philippines, or of any other country; (2) Drafts, checks and notes; (3) Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money market instruments; (4) Contracts or policies of insurance, life or non-life, and contracts of suretyship; and (5) Other similar instruments where title thereto passes to another by endorsement, assignment or delivery. Rule 3.d. "Offender" refers to any person who commits a money laundering offense. Rule 3.e. "Person" refers to any natural or juridical person. Rule 3.f. "Proceeds" refers to an amount derived or realized from an unlawful activity. It includes: (1) All material results, profits, effects and any amount realized from any unlawful activity; (2) All monetary, financial or economic means, devices, documents, papers or things used in or having any relation to any unlawful activity; and (3) All moneys, expenditures, payments, disbursements, costs, outlays, charges, accounts, refunds and other similar items for the financing, operations, and maintenance of any unlawful activity. Rule 3.g. "Supervising Authority" refers to the BSP, the SEC and the IC. Where the BSP, SEC or IC supervision applies only to the registration of the covered institution, the BSP, the SEC or the IC, within the limits of the AMLA, shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. TDCAIS Rule 3.h. "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution. Rule 3.i. "Unlawful activity" refers to any act or omission or series or combination thereof involving or having relation, to the following: (A) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (1) Kidnapping for ransom (B) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15 and 16 of Republic Act No. 9165 , otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002 ; (2) Importation of prohibited drugs; (3) Sale of prohibited drugs; (4) Administration of prohibited drugs; (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den, Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10) Possession of prohibited drugs (11) Use of prohibited drugs (12) Cultivation of plants which are sources of prohibited drugs (13) Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b, c, e, g, h and i of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act ; (14) Directly or indirectly requesting or receiving any gift, present, share, percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party, wherein the public officer in his official capacity has to intervene under the law; (15) Directly or indirectly requesting or receiving any gift, present or other pecuniary or material benefit, for himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any government permit or license, in consideration for the help given or to be given, without prejudice to Section 13 of R.A. 3019; (16) Causing any undue injury to any party, including the government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence; (17) Entering, on behalf of the government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby; (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest; (19) Directly or indirectly becoming interested, for personal gain, or having material interest in any transaction or act requiring the approval of a board, panel or group of which he is a member, and which exercise of discretion in such approval, even if he votes against the same or he does not participate in the action of the board, committee, panel or group. (D) Plunder under Republic Act No. 7080, as amended ; (20) Plunder through misappropriation, conversion, misuse or malversation of public funds or raids upon the public treasury; (21) Plunder by receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned; (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions, agencies, instrumentalities or government-owned or controlled corporations or their subsidiaries; (23) Plunder by obtaining, receiving or accepting, directly or indirectly, any shares of stock, equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking; (24) Plunder by establishing agricultural, industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests; (25) Plunder by taking undue advantage of official position, authority, relationship, connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. (E) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended ; (26) Robbery with violence or intimidation of persons; (27) Robbery with physical injuries, committed in an uninhabited place and by a band, or with use of firearms on a street, road or alley; (28) Robbery in an uninhabited house or public building or edifice devoted to worship. DTEScI (F) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602 ; (29) Jueteng; (30) Masiao. (G) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532 ; (31) Piracy on the high seas; (32) Piracy in inland Philippine waters; (33) Aiding and abetting pirates and brigands. (H) Qualified theft under Article 310 of the Revised Penal Code, as amended ; (34) Qualified theft. (I) Swindling under Article 315 of the Revised Penal Code, as amended ; (35) Estafa with unfaithfulness or abuse of confidence by altering the substance, quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so, even though such obligation be based on an immoral or illegal consideration; (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting, to the prejudice of another, money, goods or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property; (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank, and by writing any document above such signature in blank, to the prejudice of the offended party or any third person; (38) Estafa by using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions, or by means of other similar deceits; (39) Estafa by altering the quality, fineness or weight of anything pertaining to his art or business; (40) Estafa by pretending to have bribed any government employee; (41) Estafa by postdating a check, or issuing a check in payment of an obligation when the offender has no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check; (42) Estafa by inducing another, by means of deceit, to sign any document; (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game; (44) Estafa by removing, concealing or destroying, in whole or in part, any court record, office files, document or any other papers. (J) Smuggling under Republic Act Nos. 455 and 1937 ; (45) Fraudulent importation of any vehicle; (46) Fraudulent exportation of any vehicle; (47) Assisting in any fraudulent importation; (48) Assisting in any fraudulent exportation; (49) Receiving smuggled article after fraudulent importation; (50) Concealing smuggled article after fraudulent importation; (51) Buying smuggled article after fraudulent importation; (52) Selling smuggled article after fraudulent importation; (53) Transportation of smuggled article after fraudulent importation; (54) Fraudulent practices against customs revenue. (K) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000 ; K.1. Hacking or cracking, which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system; or (56) any access in order to corrupt, alter, steal, or destroy using a computer or other similar information and communication devices, without the knowledge and consent of the owner of the computer or information and communications system, including (57) the introduction of computer viruses and the like, resulting in the corruption, destruction, alteration, theft or loss of electronic data messages or electronic document; K.2. Piracy, which refers to: (58) the unauthorized copying, reproduction, (59) the unauthorized dissemination, distribution, (60) the unauthorized importation, (61) the unauthorized use, removal, alteration, substitution, modification, (62) the unauthorized storage, uploading, downloading, communication, making available to the public, or (63) the unauthorized broadcasting, of protected material, electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunication networks, such as, but not limited to, the internet, in a manner that infringes intellectual property rights; K.3. Violations of the Consumer Act or Republic Act No. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act; (65) Sale of any product that has been banned by a rule under the Consumer Act; (66) Sale of any adulterated or mislabeled product using electronic documents; (67) Adulteration or misbranding of any consumer product; (68) Forging, counterfeiting or simulating any mark, stamp, tag, label or other identification device; (69) Revealing trade secrets; (70) Alteration or removal of the labeling of any drug or device held for sale; (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act; (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act; (73) Sale of any drug or device beyond its expiration date; (74) Introduction into commerce of any mislabeled or banned hazardous substance; (75) Alteration or removal of the labeling of a hazardous substance; (76) Deceptive sales acts and practices; (77) Unfair or unconscionable sales acts and practices; (78) Fraudulent practices relative to weights and measures; (79) False representations in advertisements as the existence of a warranty or guarantee; (80) Violation of price tag requirements; (81) Mislabeling consumer products; (82) False, deceptive or misleading advertisements; (83) Violation of required disclosures on consumer loans; (84) Other violations of the provisions of the E-Commerce Act; (L) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets ; (85) Hijacking; (86) Destructive arson; (87) Murder; (88) Hijacking, destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets; (M) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000 ; (89) Sale, offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC; (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe; (91) Violation of reportorial requirements imposed upon issuers of securities; (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market; (93) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that raises their prices to induce the purchase of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (94) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that depresses their price to induce the sale of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (95) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices; (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security; (97) Manipulation of security prices by making false or misleading statements with respect to any material fact, which he knew or had reasonable ground to believe was so false and misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange; (98) Manipulation of security prices by effecting, alone or with others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC; (99) Sale or purchase of any security using any manipulative deceptive device or contrivance; (100) Execution of short sales or stop-loss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors; (101) Employment of any device, scheme or artifice to defraud in connection with the purchase and sale of any securities; (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; (103) Engaging in any act, transaction, practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person; (104) Insider trading; (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer, or acting as a salesman, or an associated person of any broker or dealer without any registration from the Commission; (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman, not registered with the SEC; (107) Effecting any transaction in any security, or reporting such transaction, in an Exchange or using the facility of an Exchange which is not registered with the SEC; (108) Making use of the facility of a clearing agency which is not registered with the SEC; (109) Violations of margin requirements; (110) Violations on the restrictions on borrowings by members, brokers and dealers; (111) Aiding and Abetting in any violations of the Securities Regulation Code; (112) Hindering, obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC; (113) Violations of any of the provisions of the implementing rules and regulations of the SEC; (114) Any other violations of any of the provisions of the Securities Regulation Code. (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries . In determining whether or not a felony or offense punishable under the penal laws of other countries, is "of a similar nature", as to constitute the same as an unlawful activity under the AMLA, the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3.i. RULE 4 Money Laundering Offense Rule 4.1. Money Laundering Offense Money laundering is a crime whereby the proceeds of an unlawful activity AS HEREIN DEFINED are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so. RULE 5 Jurisdiction of Money Laundering Cases and Money Laundering Investigation Procedures Rule 5.1. Jurisdiction of Money Laundering Cases . The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. Rule 5.2. Investigation of Money Laundering Offenses . The AMLC shall investigate: (a) SUSPICIOUS TRANSACTIONS; (b) COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION CONDUCTED BY THE AMLC; (c) MONEY LAUNDERING ACTIVITIES; AND (d) OTHER VIOLATIONS OF THIS ACT. Rule 5.3. Attempts at Transactions . Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. Accordingly, the reports required under Rule 9.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity. RULE 6 Prosecution of Money Launderin g Rule 6.1. Prosecution of Money Laundering . (a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the APPLICATION EX-PARTE by the AMLC TO THE COURT OF APPEALS FOR A FREEZE ORDER with respect to the MONETARY INSTRUMENT OR PROPERTY involved therein and resort to other remedies provided under the AMLA, THE RULES OF COURT AND OTHER PERTINENT LAWS AND RULES. Rule 6.2. When the AMLC finds, after investigation, that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA, it shall cause a complaint to be filed, pursuant to Section 7 (4) of the AMLA, before the Department of Justice or the Ombudsman, which shall then conduct the preliminary investigation of the case. AICHaS Rule 6.3. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice, or the Ombudsman, as the case may be, and the latter should find probable cause of a money laundering offense, it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. Rule 6.4. Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan, as the case may be. Rule 6.5. Knowledge of the offender that any monetary instrument or property represents, involves, or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC, may be established by direct evidence or inferred from the attendant circumstances. Rule 6.6. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt, including the element of knowledge that the monetary instrument or property represents, involves or relates to the proceeds of any unlawful activity. Rule 6.7. No element of the unlawful activity, however, including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. RULE 7 Creation of Anti-Money Laundering Council (AMLC) Rule 7.1.a. Composition . The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as Chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission as members. Rule 7.1.b. Unanimous Decision . The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. However, in the case of the incapacity, absence or disability of any member to discharge his functions, the officer duly designated or authorized to discharge the functions of the Governor of the BSP, the Chairman of the SEC or the Insurance Commissioner, as the case may be, shall act in his stead in the AMLC. Rule 7.2. Functions . The functions of the AMLC are defined hereunder: (1) to require and receive covered OR SUSPICIOUS transaction reports from covered institutions; (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered OR SUSPICIOUS transaction report, or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity; (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses; (5) TO INVESTIGATE SUSPICIOUS TRANSACTIONS AND COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION BY THE AMLC, money laundering activities and other violations of this Act; (6) TO APPLY BEFORE THE COURT OF APPEALS, EX-PARTE, FOR THE FREEZING OF any monetary instrument or property alleged to be proceeds of any unlawful activity AS DEFINED UNDER SECTION 3(i) HEREOF; (7) to implement such measures as may be inherent, necessary, implied, incidental and justified under the AMLA to counteract money laundering. Subject to such limitations as provided for by law, the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store, track and analyze money laundering transactions for the resolute prevention, detection and investigation of money laundering offenses. For this purpose, the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database; (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations, in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provisions of the Constitution, or the execution thereof is likely to prejudice the national interest of the Philippines. (9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. (10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders. The AMLC may require the intelligence units of the Armed Forces of the Philippines, the Philippine National Police, the Department of Finance, the Department of Justice, as well as their attached agencies, and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may, in any way, facilitate the resolute prevention, investigation and prosecution of money laundering offenses and other violations of the AMLA. IEaHSD (11) TO IMPOSE ADMINISTRATIVE SANCTIONS FOR THE VIOLATION OF LAWS, RULES, REGULATIONS AND ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. Rule 7.3. Meetings . The AMLC shall meet every first Monday of the month, or as often as may be necessary at the call of the Chairman. RULE 8 Creation of a Secretariat Rule 8.1. The Executive Director . The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. He must be a member of the Philippine Bar, at least thirty-five (35) years of age, must have served at least five (5) years either at the BSP, the SEC or the IC and of good moral character, unquestionable integrity and known probity. He shall be considered a regular employee of the BSP with the rank of Assistant Governor, and shall be entitled to such benefits and subject to such rules and regulations, as well as prohibitions, as are applicable to officers of similar rank. Rule 8.2. Composition . In organizing the Secretariat, the AMLC may choose from those who have served, continuously or cumulatively, for at least five (5) years in the BSP, the SEC or the IC. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. Rule 8.3. Detail and Secondment . The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP, the SEC or the IC, or any other branch, department, bureau, office, agency or instrumentality of the government, including government-owned and controlled corporations, in undertaking any and all anti-money laundering operations. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC, subject to existing laws and Civil Service Rules and Regulations. Detailed personnel shall continue to receive their salaries, benefits and emoluments from their respective mother units. Seconded personnel shall receive, in lieu of their respective compensation packages from their respective mother units, the salaries, emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. Rule 8.4. Confidentiality Provisions . The members of the AMLC, the Executive Director, and all the members of the Secretariat, whether permanent, on detail or on secondment, shall not reveal, in any manner, any information known to them by reason of their office. This prohibition shall apply even after their separation from the AMLA. In case of violation of this provision, the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. RULE 9 Prevention of Money Laundering; Customer Identification Requirements and Record Keeping Rule 9.1. Customer Identification Requirements Rule 9.1.a. Customer Identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. Rule 9.1.b. Trustee, Nominee and Agent Accounts . When dealing with customers who are acting as trustee, nominee, agent or in any capacity for and on behalf of another, covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. Covered institutions shall also establish and record the true and full identity of such trustees, nominees, agents and other persons and the nature of their capacity and duties. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws, it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties. Rule 9.1.c. Minimum Information/Documents Required for Individual Customers . Covered institutions shall require customers to produce original documents of identity issued by an official authority, bearing a photograph of the customer. Examples of such documents are identity cards and passports. The following minimum information/documents shall be obtained from individual customers: 1) Name; 2) Present address; 3) Permanent address; 4) Date and place of birth; 5) Nationality; 6) Nature of work and name of employer or nature of self-employment/business; 7) Contact numbers; 8) Tax identification number, Social Security System number or Government Service and Insurance System number; 9) Specimen signature; 10) Source of fund(s); and 11) Names of beneficiaries in case of insurance contracts and whenever applicable. Rule 9.1.d. Minimum Information/Documents Required for Corporate and Juridical Entities . Before establishing business relationships, covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being, dissolved, wound up or voided, or that its business or operations has not been or is not in the process of being, closed, shut down, phased out, or terminated. Dealings with shell companies and corporations, being legal entities which have no business substance in their own right but through which financial transactions may be conducted, should be undertaken with extreme caution. The following minimum information/documents shall be obtained from customers that are corporate or juridical entities, including shell companies and corporations: (1) Articles of Incorporation/Partnership; (2) By-laws; (3) Official address or principal business address; (4) List of directors/partners; (5) List of principal stockholders owning at least two percent (2%) of the capital stock; (6) Contact numbers; (7) Beneficial owners, if any; and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. Rule 9.1.e. Prohibition against Certain Accounts . Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Rule 9.1.f. Prohibition against opening of Accounts without Face-to-face Contact . No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9.1.c of these Rules. Rule 9.1.g. Numbered Accounts . Peso and foreign currency non-checking numbered accounts shall be allowed: Provided , That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records, and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. Rule 9.2. Record Keeping Requirements Rule 9.2.a. Record Keeping: Kinds of Records and Period for Retention . All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. Covered institutions shall prepare and maintain documentation, in accordance with the aforementioned client identification requirements, on their customer accounts, relationships and transactions such that any account, relationship or transaction can be so reconstructed as to enable the AMLC, and/or the courts to establish an audit trail for money laundering. Rule 9.2.b. Existing and New Accounts and New Transactions . All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from October 17, 2001 or from the dates of the accounts or transactions, whichever is later. Rule 9.2.c. Closed Accounts . With respect to closed accounts, the records on customer identification, account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed. EAHDac Rule 9.2.d. Retention of Records in Case a Money Laundering Case has been Filed in Court . If a money laundering case based on any record kept by the covered institution concerned has been filed in court, said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules, as the case may be, until it is confirmed that the case has been finally resolved or terminated by the court. Rule 9.2.e. Form of Records . Records shall be retained as originals in such forms as are admissible in court pursuant to existing laws and the applicable rules promulgated by the Supreme Court. Rule 9.3. Reporting of Covered Transactions . Rule 9.3.a. Period of Reporting Covered Transactions and Suspicious Transactions . COVERED INSTITUTIONS SHALL REPORT TO THE AMLC ALL COVERED TRANSACTIONS AND SUSPICIOUS TRANSACTIONS WITHIN FIVE (5) WORKING DAYS FROM OCCURRENCE THEREOF, UNLESS THE SUPERVISING AUTHORITY CONCERNED PRESCRIBES A LONGER PERIOD NOT EXCEEDING TEN (10) WORKING DAYS. SHOULD A TRANSACTION BE DETERMINED TO BE BOTH A COVERED AND A SUSPICIOUS TRANSACTION, THE COVERED INSTITUTION SHALL REPORT THE SAME AS A SUSPICIOUS TRANSACTION. THE REPORTING OF COVERED TRANSACTIONS BY COVERED INSTITUTIONS SHALL BE DEFERRED FOR A PERIOD OF SIXTY (60) DAYS AFTER THE EFFECTIVITY OF REPUBLIC ACT NO. 9194, OR AS MAY BE DETERMINED BY THE AMLC, IN ORDER TO ALLOW THE COVERED INSTITUTIONS TO CONFIGURE THEIR RESPECTIVE COMPUTER SYSTEMS; PROVIDED THAT, ALL COVERED TRANSACTIONS DURING SAID DEFERMENT PERIOD SHALL BE SUBMITTED THEREAFTER. Rule 9.3.b. Covered AND SUSPICIOUS Transaction Report Forms . The Covered Transaction Report (CTR) AND THE SUSPICIOUS TRANSACTION REPORT (STR) shall be in the forms prescribed by the AMLC. Rule 9.3.b.1. COVERED INSTITUTIONS SHALL USE THE EXISTING FORMS FOR COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS, UNTIL SUCH TIME AS THE AMLC HAS ISSUED NEW SETS OF FORMS. Rule 9.3.b.2. COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS SHALL BE SUBMITTED IN A SECURED MANNER TO THE AMLC IN ELECTRONIC FORM, EITHER VIA DISKETTES, LEASED LINES, OR THROUGH INTERNET FACILITIES, WITH THE CORRESPONDING HARD COPY FOR SUSPICIOUS TRANSACTIONS. THE FINAL FLOW AND PROCEDURES FOR SUCH REPORTING SHALL BE MAPPED OUT IN THE MANUAL OF OPERATIONS TO BE ISSUED BY THE AMLC. Rule 9.3.c. Exemption from Bank Secrecy Laws . When reporting covered OR SUSPICIOUS transactions to the AMLC, covered institutions and their officers and employees, shall not be deemed to have violated R.A. No. 1405, as amended, R.A. No. 6426, as amended, R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered or suspicious transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer and employee of the covered institution, shall be criminally liable. Rule 9.3.d. Confidentiality Provisions . When reporting covered transactions or suspicious transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, or the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation hereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. Rule 9.3.e. Safe Harbor Provisions . No administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report OR A SUSPICIOUS transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. AHCETa RULE 10 APPLICATION FOR FREEZE ORDERS Rule 10.1. WHEN THE AMLC MAY APPLY FOR THE FREEZING OF ANY MONETARY INSTRUMENT OR PROPERTY. (a) AFTER AN INVESTIGATION CONDUCTED BY THE AMLC AND UPON DETERMINATION THAT PROBABLE CAUSE EXISTS THAT A MONETARY INSTRUMENT OR PROPERTY IS IN ANY WAY RELATED TO ANY UNLAWFUL ACTIVITY AS DEFINED UNDER SECTION 3 (i), THE AMLC MAY FILE AN EX-PARTE APPLICATION BEFORE THE COURT OF APPEALS FOR THE ISSUANCE OF A FREEZE ORDER ON ANY MONETARY INSTRUMENT OR PROPERTY subject thereof prior to the institution or in the course of, the criminal proceedings involving the unlawful activity to which said MONETARY INSTRUMENT OR PROPERTY is any way related. (b) Considering the intricate and diverse web of related and interlocking accounts PERTAINING TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) that any person may create in the different covered institutions, their branches and/or other units, the AMLC may APPLY TO THE COURT OF APPEALS FOR THE FREEZING, NOT ONLY OF THE MONETARY INSTRUMENTS OR PROPERTIES IN THE NAMES OF THE REPORTED OWNER(S)/HOLDER(S), AND MONETARY INSTRUMENTS OR PROPERTIES NAMED IN THE APPLICATION OF THE AMLC BUT ALSO ALL OTHER RELATED WEB OF ACCOUNTS PERTAINING TO OTHER MONETARY INSTRUMENTS AND PROPERTIES, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM OR ARE RELATED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). (c) THE FREEZE ORDER SHALL BE EFFECTIVE FOR TWENTY (20) DAYS UNLESS EXTENDED BY THE COURT OF APPEALS UPON APPLICATION BY THE AMLC. Rule 10.2. Definition of Probable Cause . Probable cause includes such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. Rule 10.3. DUTY OF COVERED INSTITUTION UPON RECEIPT THEREOF. Rule 10.3.a. Upon receipt of the notice of the freeze order, the covered institution concerned shall immediately freeze the monetary instrument or property AND RELATED WEB OF ACCOUNTS subject thereof. Rule 10.3.b. THE COVERED INSTITUTION SHALL LIKEWISE IMMEDIATELY FURNISH A COPY OF THE NOTICE OF THE FREEZE ORDER UPON THE OWNER OR HOLDER OF THE MONETARY INSTRUMENT OR PROPERTY OR RELATED WEB OF ACCOUNTS SUBJECT THEREOF. Rule 10.3.c. Within twenty-four (24) hours from receipt of the freeze order, the covered institution concerned shall submit to the COURT OF APPEALS AND THE AMLC, by personal delivery, a detailed written return on the freeze order, specifying ALL THE PERTINENT AND RELEVANT INFORMATION WHICH SHALL INCLUDE THE FOLLOWING: 1. THE ACCOUNT NUMBER(S); 2. THE NAME(S) OF THE ACCOUNT OWNER(S) OR HOLDER(S); 3. THE AMOUNT OF THE MONETARY INSTRUMENT, PROPERTY OR RELATED WEB OF ACCOUNTS AS OF THE TIME THEY WERE FROZEN; 4. ALL RELEVANT INFORMATION AS TO THE NATURE OF THE MONETARY INSTRUMENT OR PROPERTY; 5. ANY INFORMATION ON THE RELATED WEB OF ACCOUNTS PERTAINING TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER; AND 6. THE TIME WHEN THE FREEZE THEREON TOOK EFFECT. Rule 10.4. DEFINITION OF RELATED WEB OF ACCOUNTS. "RELATED WEB OF ACCOUNTS PERTAINING TO THE MONEY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER" IS DEFINED AS THOSE ACCOUNTS, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). cCEAHT UPON RECEIPT OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS AND UPON VERIFICATION BY THE COVERED INSTITUTION THAT THE RELATED WEB OF ACCOUNTS ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER, THE COVERED INSTITUTION SHALL FREEZE THESE RELATED WEB OF ACCOUNTS WHEREVER THESE FUNDS MAY BE FOUND. THE RETURN OF THE COVERED INSTITUTION AS REQUIRED UNDER RULE 10.3.c SHALL INCLUDE THE FACT OF SUCH FREEZING AND AN EXPLANATION AS TO THE GROUNDS FOR THE IDENTIFICATION OF THE RELATED WEB OF ACCOUNTS. Rule 10.5. Extension of the Freeze Order . BEFORE THE TWENTY (20) DAY PERIOD OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS EXPIRES, THE AMLC MAY APPLY IN THE SAME COURT FOR AN EXTENSION OF SAID PERIOD. UPON THE TIMELY FILING OF SUCH APPLICATION AND PENDING THE DECISION OF THE COURT OF APPEALS TO EXTEND THE PERIOD, SAID PERIOD SHALL BE DEEMED SUSPENDED AND THE FREEZE ORDER SHALL REMAIN EFFECTIVE. HOWEVER, THE COVERED INSTITUTION SHALL NOT LIFT THE EFFECTS OF THE FREEZE ORDER WITHOUT SECURING OFFICIAL CONFIRMATION FROM THE AMLC. Rule 10.6. Prohibition against Issuance of Freeze Orders against candidates for an electoral office during election period . No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period. RULE 11 Authority to Inquire into Bank Deposits Rule 11.1. Authority to Inquire into Bank Deposits WITH COURT ORDER . Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution AND THEIR SUBSIDIARIES AND AFFILIATES upon order of any competent court in cases of violation of this Act, when it has been established that there is probable cause that the deposits or investments involved are related to AN UNLAWFUL ACTIVITY AS DEFINED IN SECTION 3 (i) HEREOF OR a money laundering offense UNDER SECTION 4 HEREOF; EXCEPT IN CASES AS PROVIDED UNDER RULE 11.2. Rule 11.2. Authority to Inquire into Bank Deposits WITHOUT COURT ORDER. The AMLC MAY INQUIRE INTO OR EXAMINE DEPOSIT AND INVESTMENTS WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WITHOUT A COURT ORDER WHERE ANY OF THE FOLLOWING UNLAWFUL ACTIVITIES ARE INVOLVED: (a) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (b) Sections 4, 5, 6, 8, 9, 10. 12, 13, 14, 15 AND 16 of Republic Act No. 9165 , otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002 ; (c) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against noncombatant persons and similar targets ICASEH Rule 11.2.a. PROCEDURE FOR EXAMINATION WITHOUT A COURT ORDER. WHERE ANY OF THE UNLAWFUL ACTIVITIES ENUMERATED UNDER THE IMMEDIATELY PRECEDING RULE 11.2 ARE INVOLVED, AND THERE IS PROBABLE CAUSE THAT THE DEPOSITS OR INVESTMENTS WITH ANY BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES ARE IN ANYWAY RELATED TO THESE UNLAWFUL ACTIVITIES THE AMLC SHALL ISSUE A RESOLUTION AUTHORIZING THE INQUIRY INTO OR EXAMINATION OF ANY DEPOSIT OR INVESTMENT WITH SUCH BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES CONCERNED. Rule 11.2.b. DUTY OF THE BANKING INSTITUTION OR NON-BANKING INSTITUTION UPON RECEIPT OF THE AMLC RESOLUTION. THE BANKING INSTITUTION OR THE NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES SHALL, IMMEDIATELY UPON RECEIPT OF THE AMLC RESOLUTION, ALLOW THE AMLC AND/OR ITS AUTHORIZED REPRESENTATIVE(S) FULL ACCESS TO ALL RECORDS PERTAINING TO THE DEPOSIT OR INVESTMENT ACCOUNT. Rule 11.3. BSP Authority to Examine deposits and investments; Additional Exception to the Bank Secrecy Act . TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS (BSP) MAY INQUIRE INTO OR EXAMINE ANY PARTICULAR DEPOSIT OR INVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WHEN THE EXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION, IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP. Rule 11.3.a. BSP Rules of Examination . THE BSP SHALL PROMULGATE ITS RULES OF EXAMINATION FOR ENSURING COMPLIANCE BY BANKS AND NON-BANK FINANCIAL INSTITUTIONS AND THEIR SUBSIDIARIES AND AFFILIATES WITH THE AMLA AND THESE RULES. ANY FINDINGS OF THE BSP WHICH MAY CONSTITUTE A VIOLATION OF ANY PROVISION OF THIS ACT SHALL BE TRANSMITTED TO THE AMLC FOR APPROPRIATE ACTION. RULE 12 Forfeiture Provisions Rule 12.1. Authority to Institute Civil Forfeiture Proceedings . The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. Rule 12.2. When Civil Forfeiture May be Applied . When there is a SUSPICIOUS TRANSACTION REPORT OR A COVERED TRANSACTION REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE AMLC, and the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply. Rule 12.3. Claim on Forfeited Assets . Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA, the offender or any other person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to him, and for segregation or exclusion of the monetary instrument or property corresponding thereto. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture, in default of which the said order shall become final and executory. This provision shall apply in both civil and criminal forfeiture. Rule 12.4. Payment in lieu of Forfeiture . Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA, and said order cannot be enforced because any particular monetary instrument or property cannot, with due diligence, be located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been concealed, removed, converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court, or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes of forfeiture, the court may, instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. This provision shall apply in both civil and criminal forfeiture. aTEADI RULE 13 Mutual Assistance among States Rule 13.1. Request for Assistance from a Foreign State . Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense, the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this purpose, be at all times recognized. Rule 13.2. Powers of the AMLC to Act on a Request for Assistance from a Foreign State . The AMLC may execute a request for assistance from a foreign state by: (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules; (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules; and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided , That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state, and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.3. Obtaining Assistance from Foreign States . The AMLC may make a request to any foreign state for assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money laundering offense or any other matter directly or indirectly related thereto; (3) to the extent allowed by the law of the foreign state, applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in said request, and/or search any or all such persons named therein and/or remove any document, material or object named in said request: Provided , That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state; and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided , That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.4. Limitations on Requests for Mutual Assistance . The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines, unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. Rule 13.5. Requirements for Requests for Mutual Assistance from Foreign States . A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense; (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction; (3) give sufficient particulars as to the identity of said person; (4) give particulars sufficient to identify any covered institution believed to have any information, document, material or object which may be of assistance to the investigation or prosecution; (5) ask from the covered institution concerned any information, document, material or object which may be of assistance to the investigation or prosecution; (6) specify the manner in which and to whom said information, document, material or object obtained pursuant to said request, is to be produced; (7) give all the particulars necessary for the issuance by the court in the requested state of the writs, orders or processes needed by the requesting state; and (8) contain such other information as may assist in the execution of the request. Rule 13.6. Authentication of Documents . For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA, a document is authenticated if the same is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting state, and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister, secretary of state, or officer in or of, the government of the requesting state, or of the person administering the government or a department of the requesting territory, protectorate or colony. The certificate of authentication may also be made by a secretary of the embassy or legation, consul general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept, and authenticated by the seal of his office. HCaDET Rule 13.7. Suppletory Application of the Revised Rules of Court . Rule 13.7.1. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA, execution and satisfaction of final judgments of forfeiture, application for examination of witnesses, procuring search warrants, production of bank documents and other materials and all other actions not specified in the AMLA and these Rules, and assistance for any of the aforementioned actions, which is subject of a request by a foreign state, resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. Rule 13.7.2. Authority to Assist the United Nations and other International Organizations and Foreign States . The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. Rule 13.8. Extradition . The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. With respect, however, to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on October 22, 2001, money laundering is deemed to be included as an extraditable offense in any extradition treaty existing between said state parties, and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. RULE 14 Penal Provisions Rule 14.1. Penalties for the Crime of Money Laundering . Rule 14.1.a. Penalties under Section 4 (a) of the AMLA . The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three Million Philippine Pesos (Php3,000,000.00) but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4 (a) of the AMLA. Rule 14.1.b. Penalties under Section 4 (b) of the AMLA . The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One Million Five Hundred Thousand Philippine Pesos (Php1,500,000.00) but not more than Three Million Philippine Pesos (Php3,000,000.00), shall be imposed upon a person convicted under Section 4 (b) of the AMLA. Rule 14.1.c. Penalties under Section 4 (c) of the AMLA . The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of the AMLA. Rule 14.1.d. Administrative Sanctions . (1) AFTER DUE NOTICE AND HEARING, THE AMLC SHALL, AT ITS DISCRETION, IMPOSE FINES UPON ANY COVERED INSTITUTION, ITS OFFICERS AND EMPLOYEES, OR ANY PERSON WHO VIOLATES ANY OF THE PROVISIONS OF REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194 AND RULES, REGULATIONS, ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. THE FINES SHALL BE IN AMOUNTS AS MAY BE DETERMINED BY THE COUNCIL, TAKING INTO CONSIDERATION ALL THE ATTENDANT CIRCUMSTANCES, SUCH AS THE NATURE AND GRAVITY OF THE VIOLATION OR IRREGULARITY, BUT IN NO CASE SHALL SUCH FINES BE LESS THAN ONE HUNDRED THOUSAND PESOS (PHP100,000.00) BUT NOT TO EXCEED FIVE HUNDRED THOUSAND PESOS (PHP500,000.00). THE IMPOSITION OF THE ADMINISTRATIVE SANCTIONS SHALL BE WITHOUT PREJUDICE TO THE FILING OF CRIMINAL CHARGES AGAINST THE PERSONS RESPONSIBLE FOR THE VIOLATIONS. cTDaEH Rule 14.2. Penalties for Failure to Keep Records . The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9 (b) of the AMLA. Rule 14.3. Penalties for Malicious Reporting . Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), at the discretion of the court: Provided , That the offender is not entitled to avail the benefits of the Probation Law. Rule 14.4. Where Offender is a Juridical Person . If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in, or ALLOWED BY THEIR GROSS NEGLIGENCE the commission of the crime. If the offender is a juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties herein prescribed. If the offender is a public official or employee, he shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be. Rule 14.5. Refusal by a Public Official or Employee to Testify . Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein. Rule 14.6. Penalties for Breach of Confidentiality . The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Five Hundred Thousand Philippine Pesos (Php500,000.00) but not more than One Million Philippine Pesos (Php1,000,000.00), shall be imposed on a person convicted for a violation under Section 9(c). IN CASE OF A BREACH OF CONFIDENTIALITY THAT IS PUBLISHED OR REPORTED BY MEDIA, THE RESPONSIBLE REPORTER, WRITER, PRESIDENT, PUBLISHER, MANAGER AND EDITOR-IN-CHIEF SHALL BE LIABLE UNDER THIS ACT. RULE 15 Prohibitions Against Political Harassment Rule 15.1. Prohibition against Political Persecution . The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. Rule 15.2. Provisional Remedies Application; Exception . Rule 15.2.a. The AMLC may apply, in the course of the criminal proceedings, for provisional remedies to prevent the monetary instrument or property subject thereof from being removed, concealed, converted, commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. However, no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. Rule 15.2.b. Where there is conviction for money laundering under Section 4 of the AMLA, the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. However, no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. RULE 16 Restitution Rule 16. Restitution . Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. RULE 17 Implementing Rules and Regulations and Money Laundering Prevention Programs Rule 17.1. Implementing Rules and Regulations . (a) Within thirty (30) days from the effectivity of REPUBLIC ACT NO. 9160, as amended by REPUBLIC ACT NO. 9194, the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA, which shall be submitted to the Congressional Oversight Committee for approval. cDAEIH (b) The Supervising Authorities, the BSP, the SEC and the IC shall, under their own respective charters and regulatory authority, issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194. Rule 17.2. Money Laundering Prevention Programs . Rule 17.2.a. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules, including, but not limited to, information dissemination on money laundering activities and their prevention, detection and reporting, and the training of responsible officers and personnel of covered institutions, subject to such guidelines as may be prescribed by their respective supervising authority. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. Rule 17.2.b. Every money laundering program shall establish detailed procedures implementing a comprehensive, institution-wide "know-your-client" policy, set-up an effective dissemination of information on money laundering activities and their prevention, detection and reporting, adopt internal policies, procedures and controls, designate compliance officers at management level, institute adequate screening and recruitment procedures, and set-up an audit function to test the system. Rule 17.2.c. Covered institutions shall adopt, as part of their money laundering programs, a system of flagging and monitoring transactions that qualify as suspicious transactions, regardless of amount or covered transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. All covered institutions, including banks insofar as non-deposit and non-government bond investment transactions are concerned, shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be, is being, or has been committed. Rule 17.3. Training of Personnel . Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules. Rule 17.4. Amendments . These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of REPUBLIC ACT NO. 9160, as amended BY REPUBLIC ACT NO. 9194. RULE 18 Congressional Oversight Committee Rule 18.1. Composition of Congressional Oversight Committee . There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. The members from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. Rule 18.2. Powers of the Congressional Oversight Committee . The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation of this Act, and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. RULE 19 Appropriations For and Budget of the AMLC Rule 19.1. Budget . The budget of Php25,000,000.00 appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. Appropriations for succeeding years shall be included in the General Appropriations Act. The BSP shall advance the funds necessary to defray the capital outlay, maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations. cISAHT Rule 19.2. Costs and Expenses . The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil, criminal or administrative action, suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the AMLC in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. RULE 20 Separability Clause Rule 20. Separability Clause . If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid, the other provisions of these Rules, and the application of such provision or Rule to other persons or circumstances, shall not be affected thereby. RULE 21 Repealing Clause Rule 21. Repealing Clause . All laws, decrees, executive orders, rules and regulations or parts thereof, including the relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as amended, and other similar laws, as are inconsistent with the AMLA, are hereby repealed, amended or modified accordingly. RULE 22 Effectivity of The Rules Rule 22.1. Effectivity . These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. RULE 23 Transitory Provisions Rule 23.1. Transitory Provisions . EXISTING FREEZE ORDERS ISSUED BY THE AMLC SHALL REMAIN IN FORCE FOR A PERIOD OF THIRTY (30) DAYS AFTER EFFECTIVITY OF THIS ACT, UNLESS EXTENDED BY THE COURT OF APPEALS. Rule 23.2. EFFECT OF REPUBLIC ACT NO. 9194 ON CASES FOR EXTENSION OF FREEZE ORDERS RESOLVED BY THE COURT OF APPEALS. ALL EXISTING FREEZE ORDERS WHICH THE COURT OF APPEALS HAS EXTENDED SHALL REMAIN EFFECTIVE, UNLESS OTHERWISE DISSOLVED BY THE SAME COURT. APPENDIX Q-26 INVESTMENT HOUSES AND FINANCING COMPANIES (IH/FC) WITH QUASI-BANKING FUNCTIONS ( Appendix to Subsec. 4602Q.1 ) REVERSE REPURCHASE AGREEMENTS WITH BSP PRO-FORMA ACCOUNTING ENTRIES 1. To record the purchase by IH/FC from BSP of government securities under reverse REPO agreement. DR Trading Account Securities Loans - Government Securities Purchased under Reverse Repurchase Agreements with BSP CR Due from BSP (or any appropriate account) 2. To record the subsequent sale by IH/FC of reverse REPO with BSP to clients DR Cash (or any appropriate account) CR Bills Payable Others - Reverse Repurchase Agreements with BSP Sold to Clients 3. To record payment of client's claim on the IH/FC DR Bills Payable Others - Reverse Repurchase Agreements with BSP Sold to Clients DR Interest Expense on Borrowed Funds Bills Payable Others CR Cash (or any appropriate account) 4. To record BSP's payment of the reverse REPO agreement DR Due from BSP (or any appropriate account) CR Trading Account Securities Loans - Government Securities Purchased under Reverse Repurchase Agreements with BSP CR Interest Income Trading Account Securities Loans APPENDIX Q-27 DETAILS ON THE COMPUTATION OF QUARTERLY INTEREST PAYMENTS CREDITED TO THE DEMAND DEPOSIT ACCOUNTS (DDAs) OF QUASI-BANKS' LEGAL RESERVE DEPOSITS WITH BSP ( Appendix to Subsec. 4246Q.7 ) The following are the pertinent information on the computation of quarterly interest payments credited to the demand deposit accounts (DDAs) of quasi-banks' legal reserve deposits with BSP. HAEDCT 1. BSP Circular No. 262, as amended, (for regular DDA) and Memorandum to All Banks and Other Financial Intermediaries Performing Trust, Other Fiduciary Business and Investment Management Activities (for CTF and TOFA), as amended, both dated October 18, 2000 state that computation of quarterly interest payments due on quasi-banks' legal reserve deposits with the BSP is based on the lower of their outstanding daily DDA balance and forty percent (40%) of the reserve requirement (excluding liquidity reserve). Interest rate is at four percent (4%) per annum and interest base at 365 days. 2. The daily DDA balance used in the computation of interest may be obtained from the semi-monthly demand deposit statements of account balances that are available electronically to quasi-banks through EFTIS (for PhilPaSS participants) or monthly through the DDA statements sent by mail (for non- PhilPaSS participants). 3. The data on reserve requirements are based on the institutions' Consolidated Report of Condition Required and Available Reserves against deposit substitutes and special financing submitted to the SRSO on a weekly basis. Unless SRSO furnishes an amended data, the quasi-bank's computation is used in determining the forty percent (40%) of the reserve requirement that shall be compared with the outstanding daily balance, in arriving at the amount of interest credit. 4. The interest credit to each DDA is supported by a credit advice which indicates the period covered by the payment. For PhilPaSS participants, the credit advices are released through their authorized quasi-bank representatives together with the cancelled checks drawn against the institutions' DDA with the BSP while for non- PhilPaSS participants, the credit advices are sent by mail together with their DDA Statement of Accounts. APPENDIX Q-28 TRANSFER/SALE OF NON-PERFORMING ASSETS TO A SPECIAL PURPOSE VEHICLE OR TO AN INDIVIDUAL ( Appendix to Sec. 4396Q ) The following procedures shall govern the transfer/sale of non-performing assets (NPAs) to a Special Purpose Vehicle (SPV) or to an individual that involves a single family residential unit, or transactions involving dacion en pago by the borrower or third party of a non-performing loan (NPL), for the purpose of obtaining the Certificate of Eligibility (COE) which is required to avail of the incentives provided under R.A. No. 9182. a. Prior to the filing of any application for transfer/sale of NPAs, a quasi-bank shall coordinate with the BSP through the SRSO and the appropriate supervising and examining department (SED) to develop a reconciled and finalized master list of its eligible NPAs. For this purpose, quasi-banks were requested to submit a complete inventory of their NPAs in the format prescribed under Circular Letter dated January 7, 2003. Only NPAs included in the master list that meet the definition of NPA, NPL and ROPOA under R.A. No. 9182 may qualify for the COE. The quasi-banks shall be provided a copy of their reconciled and finalized master list for their guidance. b. An application for eligibility of specific NPAs shall be filed in writing (hard copy) by the selling quasi-bank with the BSP through the appropriate SED for each proposed transfer of asset/s. Although no specific form is prescribed, the applicant shall describe in sufficient detail its proposed transaction, identifying its counterparty/ies and disclosing the terms, conditions and all material commitments related to the transaction. c. For applications involving more than ten (10) NPA accounts, the list of NPAs to be transferred/sold shall be submitted in soft copy (by electronic mail or diskette) in excel format using the prescribed data structure/format for NPLs and ROPOAs to the appropriate SED of the applicant quasi-bank at the following addresses: [emailprotected] [emailprotected] [emailprotected] [emailprotected] For applications involving ten (10) NPA accounts or less, it is preferable that the list be submitted also in soft copy. The applicant may opt to submit the list in hard copy, provided all the necessary information shown in the prescribed data structure that are relevant to each NPL or ROPOA to be transferred/sold will be indicated. The list to be submitted in hard copy would be ideal for the sale/transfer of NPAs that involve one (1) promissory note and/or one (1) asset item per account. ICESTA d. The application shall be accompanied by a written certification signed by a senior officer with a rank of at least Senior Vice President or equivalent, who is authorized by the board of directors, or by the country head, in the case of foreign banks, that: (1) the assets to be sold/transferred are NPAs as defined under the SPV Act of 2002; (2) the proposed sale/transfer of said NPAs is under a true sale; (3) the notification requirement to the borrowers has been complied with; and (4) the maximum ninety (90)-day period for renegotiation and restructuring has been complied with. Items (3) and (4) above shall not apply if the NPL has become a ROPOA after June 30, 2002. e. In the case of dacion en pago by the borrower or a third party to a quasi-bank, the application for COE on the NPL being settled shall be accompanied by a Deed of Dacion executed by the borrower, the third party, the registered owner of the property and the quasi-bank. f. The appropriate SED may conduct an on-site review of the NPLs and ROPOAs proposed to be transferred/sold. After the on-site review, the application for transfer/sale shall be submitted to the Deputy Governor, Supervision and Examination Sector (SES) for approval and for the issuance of the corresponding COE. g. A processing fee for each COE issued shall be charged equivalent to 1/100 of one percent (1%) of the transfer price but not below P10,000 if the transfer is made to an SPV, or P3,000 if the transfer is made to an individual or in the case of a dacion en pago arrangement by an individual or corporate borrower. The processing fee shall be charged/collected by BSP upon issuance of the COE. h. An SPV that intends to transfer/sell to a third party an NPA that is covered by a COE previously issued by the BSP shall file an application for such transfer/sale with the SEC which shall issue the corresponding COE based on the data base of COEs maintained at the BSP. An individual who intends to transfer/sell an NPA that involves a single family residential unit he had acquired that is covered by a COE shall file an application for the another COE with the BSP through the quasi-bank from which the NPA was acquired. The individual shall indicate in his application the previous COE issued for the NPA he had acquired and the name, address and Taxpayer's Identification Number (TIN) of the transferee/buyer of the NPA. A processing fee of P3,000 shall be collected by BSP upon issuance of the COE. APPENDIX Q-28-a ACCOUNTING GUIDELINES ON THE SALE OF NON-PERFORMING ASSETS TO SPECIAL PURPOSE VEHICLES AND TO QUALIFIED INDIVIDUALS FOR HOUSING UNDER "THE SPECIAL PURPOSE VEHICLE (SPV) ACT OF 2002" ( Appendix to Sec. 4396Q ) General Principles These guidelines set out alternative regulatory accounting treatment of the sale of non-performing assets (NPAs) by banks and other financial institutions (FIs) under BSP supervision to Special Purpose Vehicles (SPVs) and to qualified individuals for housing under Republic Act No. 9182, otherwise known as "The Special Purpose Vehicle (SPV) Act of 2002". The guidelines recognize that banks/FIs may need temporary regulatory relief, in addition to tax relief under the SPV Law, particularly in the timing of recognition of losses, so that they may be encouraged to maximize the sale of their NPAs even at substantial discounts: Provided, however , That in the interest of upholding full transparency and sustaining market discipline, banks/FIs that avail of such regulatory relief shall fully disclose its impact in all relevant financial reports. HCSAIa The guidelines cover the following areas: (1) Derecognition of NPAs sold/transferred to an SPV and initial recognition of financial instruments issued by the SPV to the selling bank/FI as partial or full settlement of the NPAs sold/transferred to the SPV; (2) Subsequent measurement of the carrying amount of financial instruments issued by the SPV to the selling bank/FI; (3) Capital adequacy ratio (CAR) calculation; and (4) Disclosure requirement on the selling bank/FI. The sale/transfer of NPAs to SPV referred to in these guidelines shall be in the nature of a "true sale" pursuant to Section 13 of the SPV Law and its Implementing Rules and Regulations. I. Derecognition of NPAs Sold and Initial Recognition of Financial Instruments Received A bank/FI should derecognize an NPA when, and only when, the bank/FI loses control of the contractual rights of that NPA, as in a "true sale" transaction. On derecognition, any excess of the carrying amount of the NPA (i.e., net of specific allowance for probable loss after booking the BSP recommended valuation reserve) over the proceeds received in the form of cash and/or financial instruments issued by the SPV represents an actual loss that should be charged to current period's operations. However, a bank/FI may use any existing specific allowance for probable losses on NPA sold: (1) to cover any unbooked (specific general) allowance for probable losses; and (2) to apply the excess, if any, as additional (specific/general) allowance for probable losses, on remaining assets, in which case the carrying amount of the NPA (which is compared with the proceeds received for purposes of determining the actual loss) shall be the gross amount of the NPA: Provided , That the use of such existing specific allowance for probable losses on the NPA sold as provisions against remaining assets shall be properly disclosed. The loss may, moreover, be booked under "Deferred Charges" account which should be written down over the next ten (10) years based on the following schedule: End of Period Cumulative From Date of Write-down of Transaction Deferred Charges Year 1 5% Year 2 10% Year 3 15% Year 4 25% Year 5 35% Year 6 45% Year 7 55% Year 8 70% Year 9 85% Year 10 100% Provided , That the staggered booking of actual loss on sale/transfer of the NPA shall be properly disclosed. In case the face amounts of the financial instruments exceed the excess of the carrying amount of the NPA over the cash proceeds, the same shall be adjusted by setting up specific allowance for probable losses so that no gain shall be recognized from the transaction. The carrying amount of the NPA shall be initially assumed to be the NPA's fair value. The excess of the carrying amount of the NPA over the cash proceeds or the face amounts of the financial instruments, whichever is lower, shall then be the initial cost of financial instruments received. aTICAc Banks/FIs shall book such financial instruments under the general ledger account "Investments in Bonds and Other Debt Instruments" for debt instruments or "Equity Investments in Allied Undertakings" for equity instruments. II. Subsequent Measurement of Financial Instruments Received (a) A bank/FI should assess at end of each fiscal year or more frequently whether there is any objective evidence or indication based on analysis of expected net cash inflows that the carrying amount of financial instruments issued by an SPV may be impaired. A financial instrument is impaired if its carrying amount (i.e., net of specific allowance for probable loss) is greater than its estimated recoverable amount. The estimated recoverable amount is determined based on the net present value of expected future cash flows discounted at the current market rate of interest for a similar financial instrument. In applying discounted cash flow analysis, a bank/FI should use the discount rate(s) equal to the prevailing rate of return for financial instruments having substantially the same terms and characteristics, including the creditworthiness of the issuer. (b) Alternatively, the estimated recoverable amount of the financial instruments may be determined based on an updated estimate of residual net present value (NPV) of the issuing SPV. The estimated recoverable amount of the financial instrument shall be the present value of the excess of expected cash inflows (e.g., proceeds from the sale of collaterals and/or ROPOAs, which in no case shall exceed the contract price of the NPAs sold/transferred, interest on the reinvestment of proceeds) over expected cash outflows (e.g., direct costs to sell, administrative expenses, principal and interest payments on senior obligations, interest payments on the financial instruments). The fair market value of the collateral and/or ROPOAs should under this method be considered only under the following conditions: (1) The appraisal was performed by an independent appraiser acceptable to the BSP; and (2) The valuation of the independent appraiser is based on current market valuation of similar assets in the same locality as underlying collateral rather than other valuation methods such as replacement cost, etc. The assumptions regarding the timing of sale, the direct cost to sell, administrative expenses, reinvestments rate and current market rate should be disclosed in sufficient detail in the audited financial statements. The applicable discount rate should be based on the implied stripped yield of the Treasury note or bond for the tenor plus an appropriate risk premium. (c) In case of impairment, the carrying amount of the financial instrument should be reduced to its estimated recoverable amount, through the use of specific allowance for probable losses account that should be charged to current period's operations. However, at the end of the fiscal year the sale/transfer of NPA occurred, such setting up of specific allowance for probable losses account may be booked on a staggered basis over the next ten (10) years based on the following schedule: End of Period Cumulative Booking From Date of of Allowance for Transaction Probable Losses Year 1 5% Year 2 10% Year 3 15% Year 4 25% Year 5 35% Year 6 45% Year 7 55% Year 8 70% Year 9 85% Year 10 100% Provided , That the staggered booking of impairment, if any, upon remeasurement of financial instruments at end of the fiscal year the sale/transfer of the NPA occurred shall be properly disclosed. After initially recognizing an impairment loss, the bank/FI should review the financial instruments for future impairment in subsequent financial reporting date. If in a subsequent period, the estimated recoverable amount of the financial instrument decreases, the bank/FI should immediately book additional allowance for probable losses corresponding to the decrease. However, a bank/FI may stagger the booking of such additional allowance for probable losses in such a way that it catches up and keeps pace with the original deferral schedule (e.g., if the impairment occurred in Year 8, a bank/FI should immediately book 70 percent (70%) at end of Year 8, and thereafter, additional 15 percent (15%) each at end of Year 9 and Year 10, respectively): Provided , That the staggered booking of impairment, if any, upon remeasurement of financial instruments shall be properly disclosed. If in a subsequent period, the estimated recoverable amount of the financial instrument increases exceeding its carrying amount, and the increase can be objectively related to an event occurring after the write-down, the write-down of the financial instruments should be reversed by adjusting the specific allowance for probable losses account. The reversal should not result in a carrying amount of the financial instrument that exceeds what the cost would have been had the impairment not been recognized at the date the write-down of the financial instrument is reversed. The amount of the reversal should be included in the profit for the period. Illustrative accounting entries for derecognition of NPAs, initial recognition of financial instruments issued by the SPV, and subsequent measurement of the carrying amount of the financial instrument are in Annex 1. III. Capital Adequacy Ratio (CAR) Calculation Banks/FIs may, for purposes of calculating capital adequacy ratio (CAR), likewise stagger over a period of seven (7) years the recognition of: (1) actual loss on sale/transfer of NPAs; and (2) impairment, if any, upon remeasurement of financial instruments, in accordance with the following schedule: End of Period Cumulative From Date of Recognition of Transaction Losses/Impairment Year 1 5% Year 2 10% Year 3 15% Year 4 25% Year 5 35% Year 6 45% Year 7 55% Year 8 70% Year 9 85% Year 10 100% Provided , That no cash dividend on common stock and/or preferred stock shall be declared by the bank/FI while the staggered recognition of actual loss on sale/transfer of NPA and/or impairment, if any, on the re-measurement of financial instruments at end of the first fiscal year following the sale/transfer of NPA exist. AIDTHC The financial instruments received by the selling bank/FI shall be risk weighted in accordance with Sec. 4116Q. A bank/FI may declare cash dividend on common and/or preferred stock notwithstanding deferred recognition of loss duly authorized by the BSP. IV. Disclosure Banks/FIs should disclose as "Additional Information" in periodic reports submitted to the BSP, as well as in published reports and audited financial statements and all relevant financial reports the specific allowance for probable losses on NPAs sold used as provisions against remaining assets, the staggered recognition of actual loss on sale/transfer of NPAs" and/or impairment, if any, on the remeasurement of financial instruments. In addition, banks/FIs which receive financial instruments issued by the SPVs as partial or full settlement of the NPAs transferred to the SPVs should disclose in the audited financial statements the method used and the significant assumptions applied in estimating the recoverable amount of the financial instruments, including the timing of the sale, the direct cost to sell, administrative expenses, reinvestment rate, current market rate, etc. (The pro-forma disclosure requirements on the staggered recognition of actual loss on sale/transfer of NPAs and/or impairment, if any, on the remeasurement of financial instruments are shown in Annex Q-28-a-2.) PRO-FORMA DISCLOSURE REQUIREMENT A. STATEMENT OF CONDITION PARTICULARS AMOUNT ADDITIONAL INFORMATION : NPAS SOLD, GROSS XXX ALLOWANCE FOR PROBABLE LOSSES (SPECIFIC) XXX ON NPAS SOLD ALLOWANCE FOR PROBABLE LOSSES (SPECIFIC) ON NPAS SOLD APPLIED TO: UNBOOKED ALLOWANCE FOR PROBABLE LOSSES: SPECIFIC XXX GENERAL XXX ADDITIONAL ALLOWANCE FOR PROBABLE LOSSES SPECIFIC XXX GENERAL XXX CASH RECEIVED XXX FINANCIAL INSTRUMENTS RECEIVED, GROSS XXX LESS: ALLOWANCE FOR PROBABLE LOSSES (SPECIFIC) XXX CARRYING AMOUNT OF FINANCIAL INSTRUMENTS RECEIVED XXX LESS: UNBOOKED ALLOWANCE FOR PROBABLE LOSSES (SPECIFIC) XXX ADJ. CARRYING AMOUNT OF FINANCIAL INSTRUMENTS RECEIVED XXX DEFERRED CHARGES, GROSS XXX LESS: DEFERRED CHARGES WRITTEN DOWN XXX CARRYING AMOUNT OF DEFERRED CHARGES XXX B. STATEMENT OF INCOME AND EXPENSES PARTICULARS AMOUNT ADDITIONAL INFORMATION : NET INCOME AFTER INCOME TAX (WITH REGULATORY RELIEF) XXX LESS: DEFERRED CHARGES NOT YET WRITTEN DOWN XXX UNBOOKED ALLOWANCE FOR PROBABLE LOSSES (SPECIFIC) ON FINANCIAL INSTRUMENTS RECEIVED XXX TOTAL DEDUCTION XXX ADD: DEFERRED TAX LIABILITY, IF APPLICABLE XXX NET DEDUCTIONS XXX NET INCOME AFTER INCOME TAX (WITHOUT REGULATORY RELIEF) XXX Appendix Q-29 GUIDELINES AND MINIMUM DOCUMENTARY REQUIREMENTS FOR FOREIGN EXCHANGE (FX) FORWARD AND SWAP TRANSACTIONS ( APPENDIX TO SUBSECS. 4603Q.16 - 4603Q.18 ) THE FOLLOWING IS A LIST OF MINIMUM DOCUMENTARY REQUIREMENTS FOR FX FORWARD AND SWAP TRANSACTIONS TO COVER FX OBLIGATIONS AND EXPOSURES. UNLESS OTHERWISE INDICATED, ORIGINAL DOCUMENTS* SHALL BE PRESENTED ON OR BEFORE DEAL DATE TO BANKS, NON-BANKS WITH QUASI-BANKING FUNCTIONS AND THEIR SUBSIDIARIES/AFFILIATES AUTHORIZED TO ENGAGE IN FINANCIAL DERIVATIVES ACTIVITIES. * IF COPY IS INDICATED, IT SHALL MEAN PHOTOCOPY, ELECTRONIC COPY OR FACSIMILE OF ORIGINAL. A. FORWARD SALE OF FX TO COVER OBLIGATIONS DELIVERABLE AND NON-DELIVERABLE 1. FORWARD SALE OF FX TRADE ( INCLUDES TRADES WITH BANKS OTHER THAN THE ISSUING BOOKING BANK ) 1.1 TRADE TRANSACTIONS 1.1.1 UNDER LETTERS OF CREDIT A. COPY OF LC OPENED; AND B. ACCEPTED DRAFT, OR COMMERCIAL INVOICE/BILL OF LADING 1.1.2 UNDER DOCUMENTS AGAINST ACCEPTANCES (DA)/OPEN ACCOUNT (OA) ARRANGEMENTS A. BSP REGISTRATION LETTER OR COPY OF RECORDS OF GOODS IMPORTED (RGI) RECEIVED AND ACKNOWLEDGED BY THE BSP; B. COPY OF COMMERCIAL INVOICE; AND C. COPY OF BILL OF LADING, OR SHIPPING GUARANTEE. IN ADDITION TO THE ABOVE REQUIREMENTS, THE BANK/QUASI-BANK AND THEIR SUBSIDIARIES/AFFILIATES SHALL REQUIRE THE PURCHASER TO SUBMIT A NOTARIZED LETTER OF UNDERTAKING THAT: I. AT MATURITY DATE OF THE FORWARD CONTRACT, IT SHALL COMPLY WITH THE DOCUMENTATION REQUIREMENTS ON SALE OF FX FOR TRADE TRANSACTIONS UNDER CIRCULAR-LETTER DATED JANUARY 24, 2002, AS AMENDED; AND II. NO DOUBLE HEDGING HAS BEEN OBTAINED BY THE CLIENT FOR THE COVERED TRANSACTIONS. 1.1.3 DIRECT REMITTANCE ORIGINAL SHIPPING DOCUMENTS INDICATED IN ITEM II.A OF CIRCULAR LETTER DATED JANUARY 24, 2002. 2. NON-TRADE TRANSACTIONS ONLY NON-TRADE TRANSACTIONS WITH SPECIFIC DUE DATES SHALL BE ELIGIBLE FOR FORWARD CONTRACTS, SUBJECT TO THE SAME DOCUMENTATION REQUIREMENTS UNDER CIRCULAR NO. 388 DATED MAY 26, 2003 ON THE SALE OF FX FOR NON-TRADE PURPOSES. 2.1 FOREIGN CURRENCY LOANS OWED TO NON-RESIDENTS OR AABS 2.1.1 DELIVERABLE FORWARDS THE MATURING PORTION OF THE OUTSTANDING ELIGIBLE OBLIGATION, I.E., THOSE THAT ARE REGISTERED BY THE BSP, INCLUDING INTEREST AND FEES THEREON AS INDICATED IN THE BSP REGISTRATION LETTER, MAY BE COVERED BY A DELIVERABLE FORWARD SUBJECT TO THE DOCUMENTARY REQUIREMENTS UNDER CIRCULAR NO. 388 DATED MAY 26, 2003, EXCEPT THAT THE CREDITOR'S BILLING STATEMENT SHALL BE SUBMITTED ONLY ON OR BEFORE THE MATURITY DATE OF THE CONTRACT. 2.1.2 NDFS THE OUTSTANDING ELIGIBLE OBLIGATION, I.E., THOSE THAT ARE REGISTERED BY THE BSP, INCLUDING INTERESTS AND FEES THEREON AS INDICATED IN THE BSP REGISTRATION LETTER MAY BE COVERED BY A NON-DELIVERABLE FORWARD SUBJECT TO THE DOCUMENTARY REQUIREMENTS UNDER CIRCULAR NO. 388 DATED MAY 26, 2003 EXCEPT THE CREDITOR'S BILLING STATEMENT WHICH NEED NOT BE SUBMITTED. THE AMOUNT OF THE FORWARD CONTRACT SHALL NOT EXCEED THE OUTSTANDING AMOUNT OF THE UNDERLYING OBLIGATION DURING THE TERM OF THE CONTRACT. 2.2 INWARD FOREIGN INVESTMENTS THE OUTSTANDING AMOUNT OF SALES/MATURITY PROCEEDS DUE FOR REPATRIATION TO NON-RESIDENT INVESTORS PERTAINING TO BSP REGISTERED INVESTMENTS IN: A. PSE-LISTED SHARES OF STOCK; B. GOVERNMENT SECURITIES; C. MONEY MARKET INSTRUMENTS; AND D. PESO TIME DEPOSITS WITH A MINIMUM TENOR OF 90 DAYS MAY BE COVERED BY FORWARD FX CONTRACTS SUBJECT TO THE PRESENTATION OF THE ORIGINAL BSRD ON OR BEFORE DEAL DATE, EXCEPT THAT FOR ITEM 2.2.A ABOVE, THE ORIGINAL BSRD OR BSRD LETTER-ADVICE TOGETHER WITH THE LOCAL BROKER'S SALES INVOICE SHALL BE PRESENTED ON OR BEFORE MATURITY DATE OF THE FX FORWARD CONTRACT WHICH COINCIDES WITH THE SETTLEMENT DATE OF THE PSE SALE TRANSACTION. SALES PROCEEDS OF BSP-REGISTERED INVESTMENTS IN SHARES OF STOCK THAT ARE NOT LISTED IN THE PSE MAY BE COVERED BY A DELIVERABLE FORWARD CONTRACT ONLY IF DETERMINED TO BE OUTSTANDING AND PAYABLE ON A SPECIFIC FUTURE DATE AS INDICATED IN THE CONTRACT TO SELL/DEED OF ABSOLUTE SALE AND SUBJECT TO THE SAME DOCUMENTARY REQUIREMENTS UNDER CIRCULAR NO. 388 DATED MAY 26, 2003. B. FORWARD SALE OF FX TO COVER EXPOSURES DELIVERABLE AND NON-DELIVERABLE 1. TRADE ( INCLUDES TRADES WITH BANKS OTHER THAN THE ISSUING/BOOKING BANK ) 1.1 UNDER LC A. COPY OF LC OPENED; AND B. PROFORMA INVOICE, OR SALES CONTRACT/PURCHASE ORDER 1.2 UNDER DA/OA, DOCUMENTS AGAINST PAYMENT (DP) OR DIRECT REMITTANCE (DR) ANY OF THE FOLLOWING WHERE DELIVERY OR SHIPMENT SHALL BE MADE NOT LATER THAN ONE (1) YEAR FROM DEAL DATE: A. SALES CONTRACT B. CONFIRMED PURCHASE ORDER C. ACCEPTED PROFORMA INVOICE D. SHIPMENT/IMPORT ADVICE OF THE SUPPLIER IN ADDITION TO THE ABOVE REQUIREMENTS, THE BANK/QUASI-BANK AND THEIR SUBSIDIARIES/AFFILIATES SHALL REQUIRE THE PURCHASER TO SUBMIT A NOTARIZED LETTER OF UNDERTAKING THAT: I. AT MATURITY OF THE FORWARD CONTRACT, IT SHALL COMPLY WITH THE DOCUMENTATION REQUIREMENTS ON THE SALE OF FX FOR TRADE TRANSACTIONS UNDER CIRCULAR-LETTER DATED JANUARY 24, 2002, AS AMENDED; AND II. NO DOUBLE HEDGING HAS BEEN OBTAINED BY THE CLIENT FOR THE COVERED TRANSACTIONS. HIAAED 2. NON-TRADE (NON-DELIVERABLE) BSP-REGISTERED FOREIGN INVESTMENTS WITHOUT SPECIFIC DUE DATES ARE CONSIDERED FX EXPOSURES. AS SUCH, THE OUTSTANDING BALANCE OF THIS INVESTMENT, APPEARING IN THE COVERING BSRD MAY ONLY BE COVERED BY AN NDF CONTRACT, BASED ON ITS MARKET/BOOK VALUE ON DEAL DATE, SUBJECT TO PRIOR BSP APPROVAL UNDER CIRCULAR NO. 135 DATED JULY 22, 1997 AND PRESENTATION OF THE COVERING BSRD AND THE PROOF THAT THE INVESTMENT STILL EXISTS (E.G. STOCK CERTIFICATE, OR BROKER'S BUY INVOICE, OR CONFIRMATION OF SALE, OR CERTIFICATE OF INVESTMENT IN MONEY MARKET INSTRUMENTS, OR CERTIFICATE OF PESO TIME DEPOSITS). HEDGING FOR PERMANENTLY ASSIGNED CAPITAL REQUIRED FOR PHILIPPINE BRANCHES OF FOREIGN BANKS/FIRMS IS NOT ALLOWED. C. FORWARD PURCHASE OF FX FX FORWARD CONTRACTS SHALL BE SUBJECT TO THE INSTITUTION'S "KNOW YOUR CUSTOMER" POLICY OF THE INSTITUTION AND THE AMLA GUIDELINES OF THE BSP. IN ADDITION, COUNTERPARTIES MUST BE LIMITED TO THOSE WHICH ARE MANIFESTLY ELIGIBLE TO ENGAGE IN FX FORWARDS AS PART OF THE NORMAL COURSE OF THEIR OPERATIONS AND WHICH SATISFY THE INSTITUTION'S SUITABILITY AND ELIGIBILITY RULES FOR SUCH TRANSACTIONS. D. FX SWAP TRANSACTIONS 1. FX SALE ( FIRST LEG )/FORWARD FX PURCHASE ( SECOND LEG ) ( WITH NONBLANK COUNTERPARTIES ) THE SAME MINIMUM DOCUMENTARY REQUIREMENTS FOR SALE OF FX UNDER BSP CIRCULAR NO. 388 DATED MAY 26, 2003 FOR NON-TRADE TRANSACTIONS, AND CIRCULAR-LETTER DATED JANUARY 24, 2002 FOR TRADE TRANSACTIONS, AS AMENDED, SHALL BE PRESENTED ON OR BEFORE DEAL DATE. 2. FX PURCHASE ( FIRST LEG )/FORWARD FX SALE ( SECOND LEG ) ( WITH NONBLANK COUNTERPARTIES ) THE FIRST LEG OF THE SWAP WILL BE SUBJECT TO THE INSTITUTION'S "KNOW YOUR CUSTOMER" POLICY AND THE AMLA GUIDELINES OF THE BSP AND WILL REQUIRE THE CONVERSION OF FOREIGN CURRENCY TO PESOS. THE SECOND LEG OF THE SWAP TRANSACTION WILL BE SUBJECT TO THE SWAP CONTRACT BETWEEN THE COUNTERPARTIES. BANKS/QUASI-BANKS AND THEIR SUBSIDIARIES/AFFILIATES SHALL: (A) RETAIN COPIES OF SUPPORTING DOCUMENTS PERTAINING TO THE UNDERLYING TRANSACTION (E.G., BSP APPROVAL OR REGISTRATION [FOR BSP-APPROVED/REGISTERED FOREIGN CURRENCY LOANS AND INVESTMENTS], PROMISSORY NOTE, LOAN AGREEMENT, STOCK CERTIFICATE, CERTIFICATE OF TIME DEPOSIT, PROOF OF FCDU DEPOSIT, SHIPPING DOCUMENTS) WHICH SHALL BE MADE AVAILABLE TO THE BSP FOR VERIFICATION; AND (B) SUBMIT COPIES OF THE COVERING SWAP CONTRACTS TO THE BSP-TREASURY DEPARTMENT WITHIN THREE (3) DAYS FROM THE EXECUTION OF THE SWAP CONTRACT. SWAP CONTRACTS OF THIS TYPE WITH NON-RESIDENTS SHALL, HOWEVER, REQUIRE PRIOR BSP APPROVAL. Appendix Q-30 GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT AND THE REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF QUASI-BANKS ( Appendix to Sec. 4180Q ) A. GENERAL REQUIREMENTS Only external auditors included in the list of BSP selected external auditors shall be engaged by banks, quasi-banks, trust entities or NSSLAs for regular audit or special engagements. The external auditor to be hired shall also be in-charge of the audit of the entity's subsidiaries and affiliates engaged in allied activities: Provided , That the external auditor shall be changed or the lead and concurring partner shall be rotated every five (5) years or earlier: Provided, further , That the rotation of the lead and concurring partner shall have an interval of at least two (2) years. Banks, quasi-banks, trust entities or NSSLAs which have engaged their respective external auditors for a consecutive period of five (5) years or more as of November 26, 2003 (effectivity of Circular No. 410) shall have a one (1) year period from said date within which to either change their external auditors or rotate the lead and/or concurring partner. The following are the selection requirements for external auditors: 1. No external auditor may be engaged by a bank, quasi-bank, trust entity or NSSLA if he or any member of his immediate family has or has committed to acquire any direct or indirect financial interest in the bank, quasi-bank, trust entity or NSSLA, its subsidiaries and affiliates, or if his independence is considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public Accountants (CPAs). In the case of a partnership, this limitation shall apply to the partners, associates and the auditor-in-charge of the engagement and members of their immediate family; 2. The external auditor and the members of the audit team do not have/shall not have outstanding loans or any credit accommodations (except credit card obligations which are normally available to other credit card holders and fully secured auto loans and housing loans which are not past due) with the bank, quasi-bank, trust entity or NSSLA, its subsidiaries and affiliates at the time of signing the engagement and during the engagement. In the case of partnership, this prohibition shall apply to the partners and the auditor-in-charge of the engagement; 3. The external auditor must not be currently engaged nor was engaged during the preceding year in providing the following services to the bank, quasi-bank, trust entity or NSSLA its subsidiaries and affiliates: a. Internal audit functions; b. Information systems design, implementation and assessment; and c. Such other services which could affect his independence as may be determined by the Monetary Board; 4. The external auditor, auditor-in-charge and members of the audit team must adhere to the highest standards of professional conduct and shall carry out services in accordance with relevant ethical and technical standards, such as the Generally Accepted Auditing Standards (GAAS) and the Code of Professional Ethics for Certified Public Accountants; 5. The external auditor should have the following track record in conducting external audits: a. The external auditor for a UB or KB must have at least twenty (20) existing corporate clients with resources of at least P50 million each and at least one (1) existing client UB or KB in the regular audit or in lieu thereof, the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of UBs or KBs; b. The external auditor for a TB, quasi-bank, trust entity and national Coop Bank must have at least ten (10) existing corporate clients with resources of at least P25 million each and at least one (1) existing client TB, quasi-bank, trust entity or national Coop Bank in the regular audit or in lieu thereof, the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of TBs, quasi-banks, trust entities or national Coop Banks: Provided , That an external auditor who has been selected by the BSP to audit a UB or KB is automatically qualified to audit a TB, quasi-bank, trust entity or national Coop Bank; and c. The external auditor for an RB or local Coop Bank must have at least three (3) years track record in conducting external audit: Provided , That an external auditor who has been selected by the BSP to audit a UB, KB, TB, quasi-bank, trust entity and national Coop bank is automatically qualified to audit an RB, local Coop Bank and NSSLA; 6. A bank, quasi-bank, trust entity or NSSLA shall not engage the services of an external auditor whose partner or auditor-in-charge of audit engagement during the preceding year had been hired or employed by the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates as Chief Executive Officer, Chief Financial Officer, Controller, Chief Accounting Officer or any position of equivalent rank; and 7. The external auditor must undertake to keep for at least five (5) years all audit or review working papers in sufficient detail to support the conclusions in the audit report which shall be made available to the BSP upon request. Working papers shall include, but shall not be limited to, pre-audit analysis, audit scope and detailed work program. B. APPLICATION AND PRE-QUALIFICATION REQUIREMENTS The application for BSP selection shall be signed by the external auditor or the managing partner, in case of partnership and shall be submitted to the appropriate supervising and examining department of the BSP together with the following documents/information: 1. An undertaking: a. That the external auditor, partners, associates, auditor-in-charge of the engagement and the members of their immediate family shall not acquire any direct or indirect financial interest with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates. Neither shall the external auditor, partners, associates and auditor-in-charge accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where they or any member of their immediate family have any direct or indirect financial interest and that their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs; b. That the external auditor, partners, associates, auditor-in-charge and members of the audit team do not have nor shall apply for loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans) nor shall accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where they have outstanding loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans which are not past due); c. That the external auditor shall not accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where he was engaged during the preceding year in providing the following services: 1. Internal audit functions; 2. Information systems design, implementation and assessment; and 3. Such other services, which could affect his independence as may be determined by the Monetary Board from time to time. STCDaI This requirement shall not, however, affect audit engagement existing as of November 26, 2003 (effectivity of Circular No. 410). d. That the external auditor and members of the audit team shall adhere to the highest standards of professional conduct and shall carry out their services in accordance with relevant ethical and technical standards of the accounting profession; e. That the lead or concurring partner and auditor-in-charge shall not accept employment with the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates being audited during the engagement period and within a period of one (1) year after the audit engagement; f. That the external auditor shall not accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where an officer (i.e., Chief Executive Officer, Chief Financial Officer, Controller, Chief Accounting Officer or other senior officer of equivalent rank) had been a partner of the external auditor or had worked for the audit firm and had been the auditor-in-charge of the audit engagement of said entities during the year immediately preceding the engagement; g. That the external auditor shall keep all audit or review working papers for at least five (5) years in sufficient detail to support the conclusions in the audit report; and h. That the audit work shall include assessment of the audited institution's compliance with BSP rules and regulations, such as, but not limited to the following: 1. Capital adequacy ratio; and 2. Loans and other risk assets review and classification. 2. Other documents/information: a. List of existing corporate clients with resources of at least P50 million each for external auditor of a UB or KB; for a TB, quasi-bank, trust entity, NSSLA, and national Coop Bank, list of existing corporate clients with resources of at least P25 million each; and list of existing clients and/or details of three (3) years track record in external audit for external auditors of an RB, NSSLA and a local Coop Bank; b. If the external auditor for a UB or KB has no existing UB or KB client, and the external auditor for a TB, quasi-bank, trust entity and national Coop Bank, has no existing client TB or national Coop Bank, a notarized certification that the external auditor or the auditor-in-charge of the engagement has at least five (5) years experience in the regular audit of banks of appropriate category mentioning the banks they have audited; c. Updated Professional Regulation Commission (PRC) license (for individual auditors) and business license for the partnership; d. Copy of the proposed engagement contract between the bank, quasi-bank, trust entity or NSSLA and the external auditor where applicable; and e. Certification from PRC that the external auditor, lead partner, concurring partner, auditor-in-charge and members of the audit team have no derogatory information, previous conviction or any pending investigation. However, in the event that the certification cannot be obtained because of the pendency of a case, the BSP may dispense with this requirement upon determination by the Monetary Board that the case involves purely legal question, or does not, in any way, negate the auditor's adherence to the highest standards of professional conduct nor degrade his integrity and objectivity. CIHTac C. REQUIRED REPORTS 1. To enable the BSP to take timely and appropriate remedial action, the external auditor must report to the BSP within thirty (30) calendar days after discovery, the following cases: a. Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit); and b. Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital. 2. The external auditor shall report directly to the BSP within fifteen (15) calendar days the occurrence of the following: a. Termination or resignation as external auditor and stating the reason therefor; b. Discovery of a material breach of laws or BSP rules and regulations such as, but not limited to: 1. Capital adequacy ratio; and 2. Loans and other risk assets review and classification. c. Findings on matters of corporate governance that may require urgent action by the BSP. The management of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates shall be informed of the adverse findings and the external auditor's report to the BSP shall include its explanation and/or corrective action. The management of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates shall be given the opportunity to be present in the discussions between the BSP and the external auditor regarding the audit findings, except in circumstances where the external auditor believes that the entity's management is involved in fraudulent conduct. D. DEFINITION OF TERMS For purposes of these guidelines, the following terms shall be defined as follows: 1. Subsidiary . A corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank, quasi-bank, trust entity or NSSLA. 2. Affiliate . A corporation, not more than fifty percent (50%) but not less than ten percent (10%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank, quasi-bank, trust entity, NSSLA and a juridical person that is under common control with the bank, quasi-bank, trust entity or NSSLA. 3. Control . Exists when the parent owns directly or indirectly more than one half of the voting power of an enterprise unless, in exceptional circumstance, it can be clearly demonstrated that such ownership does not constitute control. Control may also exist even when ownership is one half or less of the voting power of an enterprise when there is: a. Power over more than one-half of the voting rights by virtue of an agreement with other stockholders; b. Power to govern the financial and operating policies of the enterprise under a statute or an agreement; c. Power to appoint or remove the majority of the members of the board of directors or equivalent governing body; d. Power to cast the majority votes at meetings of the board of directors or equivalent governing body; or e. Any other arrangement similar to any of the above. 4. Associate . Any director, officer, manager or any person occupying a similar status or performing similar functions in the audit firm including employees performing supervisory role in the auditing process. 5. Partner . All partners including those not performing audit engagements. 6. Lead Partner . Also referred to as the engagement partner/partner-in-charge/managing partner who is responsible for signing the audit report on the consolidated financial statements of the audit client, and where relevant, the individual audit report of any entity whose financial statements form part of the consolidated financial statements. 7. Concurring Partner . The partner who is responsible for reviewing the audit report. 8. Auditor-in-charge . Refers to the team leader of the audit engagement. E. INCLUSION IN BSP LIST In case of partnership, inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. The BSP will circularize to all banks, quasi-banks, trust entities and NSSLAs the list of selected external auditors once a year. The BSP, however, shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks, quasi-banks, trust entities, or NSSLAs, for regular audit or special engagements. F. SPECIFIC REVIEW When warranted by supervisory concern, the Monetary Board may, at the expense of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates require the external auditor to undertake a specific review of a particular aspect of the operations of these institutions. The report shall be submitted to the BSP and the audited institution simultaneously, within thirty (30) calendar days after the conclusion of said review. G. AUDIT ENGAGEMENT CONTRACT Banks, quasi-banks, trust entities, and NSSLAs, shall submit the audit engagement contract between them, their subsidiaries and affiliates and the external auditor to the appropriate supervising and examining department of the BSP within fifteen (15) calendar days from signing thereof. Said contract shall include the following provisions: 1. That the bank, quasi-bank, trust entity, or NSSLA shall be responsible for keeping the auditor fully informed of existing and subsequent changes to prudential, regulatory and statutory requirements of the BSP and that both parties shall comply with said requirements; 2. That disclosure of information by the external auditor to the BSP as required under Items " C " and " F " hereof, shall be allowed; and 3. That both parties shall comply with all of the requirements under these guidelines. H. DELISTING OF EXTERNAL AUDITORS 1. Grounds for delisting TIDHCc External auditors may be delisted from the list of BSP selected external auditor for the bank, quasi-bank, trust entity or NSSLA for violation of, or non-compliance with any provision of these guidelines or in case of dissolution of the audit firm except when said dissolution was solely for the purpose of admitting new partner/s and the new partner/s have complied with the requirements of these guidelines. 2. Procedure for delisting An external auditor shall only be delisted upon prior notice to him and after giving him the opportunity to be heard and defend himself by presenting witnesses/evidence in his favor. Delisted external auditor may re-apply for BSP selection after the period prescribed by the Monetary Board. cd06bsp I. AUDIT BY THE BOARD OF DIRECTORS Pursuant to Section 58 of R.A. No. 8791, otherwise known as "The General Banking Law of 2000" the Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity, NSSLA or the individual members thereof, to conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank, trust entity or NSSLA to review the internal audit and the internal control system of the concerned entity and to submit a report of such audit to the Monetary Board within thirty (30) calendar days after the conclusion thereof. Appendix Q-31 QUALIFICATION REQUIREMENTS FOR A BANK/NBFI APPLYING FOR ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR BOND ISSUED BY ANY MUNICIPALITY, GOVERNMENT-OWNED OR CONTROLLED CORPORATION, OR ANY BODY POLITIC ( Appendix to Subsec. 4409Q.16 ) A bank/NBFI applying for accreditation to act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic must comply with the following requirements: a. It must be a bank or NBFI under BSP supervision; b. It must have a license to engage in trust and other fiduciary business; c. It must have complied with the minimum capital accounts required under existing regulations, as follows: UBs and KBs The amount required under existing regulations or such amount as may be required by the Monetary Board in the future Branches of The amount required under existing regulations Foreign Banks Thrift Banks P650 million or such amounts as may be required by the Monetary Board in the future NBFIs Adjusted capital of at least P300 million or such amounts as may be required by the Monetary Board in the future. d. Its risk-based capital adequacy ratio is not lower than twelve percent (12%) at the time of filing the application; e. The articles of incorporation or governing charter of the institution shall include among its powers or purposes, acting as trustee or administering any trust or holding property in trust or on deposit for the use, or in behalf of others; f. The by-laws of the institution shall include among others, provisions on the following: (1) The organization plan or structure of the department, office or unit which shall conduct the trust and other fiduciary business of the institution; (2) The creation of a trust committee, the appointment of a trust officer and subordinate officers of the trust department; and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers and staff within the organization. g. The bank's operation during the preceding calendar year and for the period immediately preceding the date of application has been profitable; h. It has not incurred net weekly reserve deficiencies during the eight (8) weeks period immediately preceding the date of application; i. It has generally complied with banking laws, rules and regulations, orders or instructions of the Monetary Board and/or BSP Management in the last two preceding examinations prior to the date of application, particularly on the following: (1) election of at least two (2) independent directors; (2) attendance by every member of the board of directors in a special seminar for board of directors conducted or accredited by the BSP; (3) the ceilings on credit accommodations to DOSRI; (4) liquidity floor requirements for government deposits; (5) single borrower's loan limit; and (6) investment in bank premises and other fixed assets. j. It maintains adequate provisions for probable losses commensurate to the quality of its assets portfolio but not lower than the required valuation reserves as determined by the BSP; k. It does not have float items outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/Branches/Other Offices" accounts and the "Due from Bangko Sentral" account exceeding one percent (1%) of the total resources as of date of application; l. It has established a risk management system appropriate to its operations characterized by clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal controls and complete, timely and efficient risk reporting system; m. It has a CAMELS Composite Rating of at least 3 in the last regular examination with management rating of not lower than 3; and n. It is a member of the PDIC in good standing (for banks only). Compliance with the foregoing as well as with other requirements under existing regulations shall be maintained up to the time the trust license is granted. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. Appendix Q-33 RULES AND REGULATIONS ON COMMON TRUST FUNDS 1 ( Appendix to Sec. 4410Q ) 1. The administration of CTFs shall be subject to the provisions of Subsecs. 4409Q.1 up to 4409Q.6 and to the following regulations. As an alternative compliance with the required prior authority and disclosure under Subsecs. 4409Q.2 and 4409Q.3, a list which shall be updated quarterly of prospective and/or outstanding investment outlets may be made available by the trustee for the review of all CTF clients. ( Sec. 4410Q ) 2. Establishment of common trust funds . Any trust company or investment house authorized to engage in trust business may establish, administer and maintain one (1) or more CTFs. ( Subsec. 4410Q.1 ) 3. Minimum documentary requirements for common trust funds . In addition to the trust agreement or indenture required under Subsec. 4409Q.1, each CTF shall be established, administered and maintained in accordance with a written declaration of trust referred to as the plan, which shall be approved by the board of directors of the trustee and a copy submitted to the appropriate supervising and examining department of the BSP within thirty (30) business days prior to its implementation. The plan shall make provisions on the following matters: a. Title of the plan; b. Manner in which the plan is to be operated; c. Investment powers of the trustee with respect to the plan, including the character and kind of investments which may be purchased; d. Allocation, apportionment and distribution dates of income, profit and losses; e. Terms and conditions governing the admission or withdrawal as well as expansion or contraction of participations in the plan including the minimum initial placement and account balance to be maintained by the trustor; f. Auditing and settlement of accounts of the trustee with respect to the plan; g. Detailed information on the basis, frequency, and method of valuing and accounting of CTF assets and each participation in the fund; h. Basis upon which the plan may be terminated; i. Liability clause of the trustee; j. Schedule of fees and commissions which shall be uniformly applied to all participants in a fund and which shall not be changed between valuation dates; and k. Such other matters as may be necessary or proper to define clearly the rights of participants under the plan. The legal capacity of the institution administering a CTF shall be indicated in the plan and other related agreements or contracts as trustee of the fund and not in any other capacity such as fund manager, financial manager, or like terms. The provisions of the plan shall control all participations in the fund and the rights and benefits of all parties in interest. The plan may be amended by resolution of the board of directors of the trustee: Provided, however , That participants in the fund shall be immediately notified of such amendments and shall be allowed to withdraw their participations if they are not in conformity with the amendments made: Provided, further , That amendments to the plan shall be submitted to the appropriate supervising and examining department of the BSP within ten (10) business days from approval of the amendments by the board of directors. ACcISa A copy of the plan shall be available at the principal office of the trustee during regular office hours for inspection by any person having an interest in a trust whose funds are invested in the plan or by his authorized representative. Upon request, a copy of the plan shall be furnished such person. ( Subsec. 4410Q.2 ) 4. Management of common trust funds . The trustee shall have the exclusive management and control of each CTF administered by it, and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund. cd06bsp The trustee shall designate clearly in its records the trust accounts owning participation in the CTF and the extent of the interests of such account. The trustee shall not negotiate nor assign the trustor's beneficial interest in the CTF without prior written consent of the trustor or beneficiary. No trust account holding a participation in a CTF shall have or be deemed to have any ownership or interest in any particular asset or investment in the common trust fund but shall have only its proportionate beneficial interest in the fund as a whole. ( Subsec. 4410Q.3 ) 5. Trustee as participant in common trust funds . A trustee administering a CTF shall not have any interest in such fund other than in its capacity as trustee of the CTF nor grant any loan on the security of a participation in such fund: Provided, however , That a trustee which administers funds representing employee benefit plans under trust or investment management may invest funds in the CTF: Provided, further , That in the case of employee benefit plans under trust belonging to employees of entities other than that of the trustee, the trustee may invest such funds in its own CTF only on a temporary basis in accordance with Subsec. 4409Q.5. ( Subsec. 4410Q.4 ) 6. Exposure limit of common trust fund to a single person or entity . No investment for a CTF shall be made in stocks, bonds, bank deposits or other obligations of any one (1) person, firm or corporation, if as a result of such investment the total amount invested in stocks, bonds, bank deposits or other obligations issued or guaranteed by such person, firm or corporation shall aggregate to an amount in excess of fifteen percent (15%) of the market value of the CTF: Provided , That this limitation shall not apply to investments in government securities or other evidences of indebtedness of the Republic of the Philippines and of the BSP, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. ( Subsec. 4410Q.5 ) 7. Operating and accounting methodology . By its inherent nature, a CTF shall be operated and accounted for in accordance with the following: a. The trustee shall have exclusive management and control of each CTF administered by it and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund; b. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as pooled fund accounting ; c. Contributions to each fund by clients shall always be through participations in the fund; d. All such participations shall be pooled and invested as one (1) account (referred to as collective investments); and e. The interest of each participant shall be determined by a formal method of participation valuation established in the written plan of the CTF, and no participation shall be admitted to or withdrawn from the fund except on the basis of such valuation. ( Subsec. 4410Q.6 ) 8. ( Reserved ) 9. Custody of Securities . Investments in securities of all existing CTFs shall be delivered to a BSP-accredited third party custodian not later than 31 October 2004. Appendix Q-33 CHECKLIST OF BSP REQUIREMENTS IN THE SUBMISSION OF AUDITED FINANCIAL STATEMENTS AND ANNUAL REPORT ( Appendix to Sec. 4172Q ) The external independent auditor (Included in the List of BSP Selected External Auditors) shall start the audit not later than thirty (30) calendar days after the close of the calendar/fiscal year adopted by the bank and quasi-bank. Audited financial statements (AFS) of banks/quasi-banks with subsidiaries shall be presented side by side on a solo basis and on a consolidated basis (banks/quasi-banks and subsidiaries). The AFS shall be submitted to the appropriate supervising and examining department of the BSP not later than ninety (90) calendar days after start of audit, together with the following: Information/Data Required Deadline for submission 1. Certification on the following: For submission together with the audited financial statements (AFS). (Not later than a. The dates of commencement and ninety (90) calendar days after start of termination of audit. audit) b. The date when the audit report was submitted to the bank's/institution's board of directors/executive officer or country head. c. That the external auditor, partners, associates, auditor-in-charge of the engagement and the members of their immediate family do not have any direct or indirect financial interest with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where they or any member of their immediate family member have any direct or indirect financial interest and their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public Accountants. 2. Reconciliation for the differences in For submission together with the audited amounts between the audited financial financial statements (AFS). (Not later than statements and the submitted ninety (90) calendar days after start of Consolidated Statement of Condition audit) (CSOC) and Consolidated Statement of Income and Expenses (CSIE) for bank proper (regular and FCDU) and trust department, including copies of adjusting entries effected by the external auditor. Note : Please see pro-forma comparative analysis (Annex Q-33-a). 3. Letter of Comments (LOC) by the Within thirty (30) banking days after the external auditor and Certification of the receipt of the LOC by the Board of external auditor on the Date when the Directors/Chief Executive Officer or Letter of Comments was submitted to Country Head. the bank/institution's board of directors. Note : The Letter of Comments embodies the external auditor's findings and comments on the bank's material weakness on the internal control systems and other aspects of operations. In case no material weakness is noted to warrant the issuance of an LOC, a formal statement issued by the external auditor confirming said fact shall be submitted by the bank/quasi-bank. 4. Copies of the board resolutions Within thirty (30) banking days after the showing the: receipt of the audit report (AFS) by the Board of Directors/Chief Executive Officer a. Action taken on the financial audit or Country Head. (AFS to be submitted report and among other things, the within Ninety (90) days after start of audit) names of the directors present and absent. b. Action taken on the findings and Within thirty (30) banking days after the recommendations in the Letter of receipt of the LOC by the Board of Comments (LOC) and among other Directors/Chief Executive Officer or things, the names of the directors Country Head. present and absent. Note : Foreign banks with branch in the Philippines having no board of directors in the country may submit a certification from the authorized officers that the management had acted on the AFS and LOC in lieu of the board resolution. 5. All the required disclosures in the (Information is an integral part of audited financial statements provided the AFS) under Subsecs. 4172Q.3 to 4172Q.5. 6. Annual report of management to stock Within one hundred eighty (180) calendar holders days after the close of the calendar year or fiscal year adopted by the bank. i. For UBs, KBs and TBs with at least P1billion resources. ii. For Quasi-Banks 7. All the required disclosures in the (Information is an integral part of the annual report provided under Subsec. Annual Report) 4172Q.4 (Circular No. 212 dated 20 October 1999). 8. Reports required to be submitted by the Within thirty (30) calendar days after external auditor under Item "C" of discovery. Appendix Q-30 . a. To enable the BSP to take timely and appropriate remedial action, the external auditor must report to the BSP, the following cases: 1. Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit); and 2. Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital. b. The external auditor shall report Within fifteen (15) calendar days after the directly to the BSP the following: occurrence/discovery 1. Termination or resignation as external auditor and starting the reason therefore; 2. Discovery of a material breach of laws or BSP rules and regulations such as, but not limited to: a. Capital adequacy ratio; and b. Loans and other risk assets review and classification. 3. Findings on matters of corporate governance that may require urgent action by the BSP. Note : In case there are no matters to For submission together with the audited report (e.g. fraud, dishonesty, breach of financial statements (AFS). laws, etc.), the external auditor shall submit a notarized certification that there is none to report with regard to the items enumerated under Item "C" of Appendix Q-30 . ANNEX Q-33-a Name of Quasi-Bank Comparison of Audited Financial Statements and Submitted Consolidated Statement of Condition and Income and Expenses As of (end of calendar or fiscal year) (In Thousand Pesos) Audited Submitted Reasons for FS Report Discrepancy Discrepancy Cash and Other Cash Items Due from BSP Due from Other Banks IBODI Loans and Discounts, net Interbank Loans Receivable Equity Investments Property and Equipment, net ROPOA, net Other Assets ________ _________ __________ ________ Total Assets ======= ======== ========= ======== Deposit Liabilities Bills Payable Accrued Interest, Taxes and Other Expenses Other Liabilities ________ _________ __________ ________ Total Liabilities ________ _________ __________ ________ Total Capital Accounts ________ _________ __________ ________ Total Liabilities and Capital ======= ======== ========= ======== Contingent Accounts ======= ======== ========= ======== Total Income Total Expenses ________ _________ __________ ________ Net Income before Income Tax ________ _________ __________ ________ Appendix Q-34 QUARTERLY INVESTMENT DISCLOSURE STATEMENT ( Appendix to Subsec. 4410Q.7 ) Name of Unit Investment Trust Fund: For the Quarter ended: Net Asset Value, end of quarter: Net Asset Value Per Unit (NAVPu): Short Description : (e.g., The Fund is a peso denominated fixed-income fund. The investment objective of the Fund is to generate a steady stream of income by investing in a diversified portfolio of high-grade marketable securities) Administrative Details : Trust Fee: Minimum Investment: Holding Period: Participation/Redemption Conditions: Special Reimbursable Expenses, if any: Outstanding Investments : The Fund has investments in the following: (may be in graph format showing weightings per investment type or class of security) Prospective Investments : The following names/securities are among the fund's approved investment outlets where the Trustee intends to invest in depending on its availability or other market driven circumstances: MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS S REGULATIONS (Regulations Governing Non-Stock Savings and Loan Associations) TABLE OF CONTENTS PART ONE Organization, Management And Administration A. Scope of Authority SECTION 4101S. Scope of Authority of Non-Stock Savings and Loan Associations 4101S.1 Membership 4101S.2 Organizational requirements SECTIONS 4102S 4105S (Reserved) B. Capitalization SECTION 4106S. Capital 4106S.1 Revaluation surplus SECTIONS 4107S 4110S (Reserved) C. ( Reserved ) SECTIONS 4111S 4115S (Reserved) D. Net Worth-To-Risk Assets Ratio SECTION 4116S. Capital-to-Risk Assets SECTION 4117S. Withdrawable Share Reserve SECTION 4118S. Surplus Reserve for Ledger Discrepancies SECTION 4119S. Reserve for Office Premises, Furniture, Fixtures and Equipment SECTION 4120S. (Reserved) E. ( Reserved ) SECTIONS 4121S 4125S (Reserved) F. Dividends SECTION 4126S. Limitations on Declaration of Dividends SECTIONS 4127S 4140S (Reserved) G. Trustees, Officers, Employees and Agents SECTION 4141S. Definition; Qualifications; Responsibilities and Duties of Trustees 4141S.1 Definition of trustees 4141S.2 Qualifications of trustees 4141S.3 Powers and authority of the board of trustees 4141S.4 General responsibility of the board of trustees 4141S.5 Duties and responsibilities of the board of trustees SECTION 4142S. Definition and Qualifications of Officers 4142S.1 Definition of officers 4142S.2 Qualifications of officers SECTION 4143S. Disqualifications of Trustees and Officers 4143S.1 Persons disqualified to become trustees 4143S.2 Persons disqualified to become officers 4143S.3 Disqualification procedures 4143S.4 Effect of non-possession of qualifications or possession of disqualifications 4143S.5 (Reserved) 4143S.6 Watchlisting SECTION 4144S. Compensation of Trustees, Officers and Employees 4144S.1 Compensation increases 4144S.2 Liability for loans contrary to law SECTION 4145S. Bonding of Officers and Employees SECTION 4146S. Agents and Representatives SECTION 4147S. (Reserved) SECTION 4148S. Full-Time Manager for NSSLAs SECTIONS 4149S 4150S (Reserved) H. Branches and Other Offices SECTION 4151S. Establishment of Branches/Extension Offices 4151S.1 Application 4151S.2 Conditions precluding acceptance/processing of application 4151S.3 Internal control system 4151S.4 Permit to operate SECTIONS 4152S 4155S (Reserved) I. Business Days and Hours SECTION 4156S. Business Days and Hours SECTIONS 4157S 4160S (Reserved) J. Reports SECTION 4161S. Records 4161S.1 Uniform system of accounts 4161S.2 Adoption of statements of financial accounting standards SECTION 4162S. Reports 4162S.1 Categories and signatories of reports 4162S.2 Manner of filing 4162S.3 Sanctions and procedures for filing and payment of fines SECTIONS 4163S 4170S (Reserved) K. Internal Control SECTION 4171S. External Auditor SECTIONS 4172S 4179S (Reserved) SECTION 4180S. Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity L. Miscellaneous Provisions SECTION 4181S. Publication Requirements SECTION 4182S. Business Name SECTION 4183S. Prohibitions SECTIONS 4184S 4198S (Reserved) SECTION 4199S. General Provision on Sanctions PART TWO Deposit and Borrowing Operations A. Demand Deposits SECTION 4201S. Checking Accounts SECTIONS 4202S 4205S (Reserved) B. Savings Deposits SECTION 4206S. Definition SECTION 4207S. Minimum Deposit SECTION 4208S. Withdrawals SECTION 4209S. Dormant Savings Deposits SECTIONS 4210S 4215S (Reserved) C. ( Reserved ) SECTIONS 4216S 4220S (Reserved) D. Time Deposits SECTION 4221S. (Reserved) SECTION 4222S. Minimum Term and Size of Time Deposits SECTION 4223S. Withdrawals of Time Deposits SECTIONS 4224S 4230S (Reserved) E.-F. ( Reserved ) SECTIONS 4231S 4240S (Reserved) G. Interest on Deposits SECTION 4241S. Interest on Savings Deposits SECTION 4242S. Interest on Time Deposits 4242S.1 Time of payment 4242S.2 Treatment of matured time deposits SECTIONS 4243S 4250S (Reserved) H. Reserved SECTIONS 4251S 4260S (Reserved) I. Sundry Provisions on Deposit Operations SECTION 4261S. Opening and Operation of Deposit Accounts 4261S.1 Who may open deposit accounts 4261S.2 Identification of member-depositors 4261S.3 Number of deposit accounts 4261S.4 Signature card 4261S.5 Passbook and certificate of time deposit 4261S.6 Deposits in checks and other cash items SECTIONS 4262S 4280S (Reserved) J. ( Reserved ) SECTIONS 4281S 4285S (Reserved) K. Other Borrowings SECTION 4286S. Borrowings SECTIONS 4287S 4298S (Reserved) SECTION 4299S. General Provision on Sanctions PART THREE Loans and Investments A. Loans in General SECTION 4301S. Authority; Loan Limits; Maturity of Loans SECTION 4302S. Basic Requirements in Granting Loans SECTION 4303S. Loan Proceeds SECTION 4304S. Loan Repayment SECTION 4305S. Interest and Other Charges 4305S.1 Rate ceilings 4305S.2 Payment of loan before maturity 4305S.3 Interest in the absence of contract 4305S.4 Escalation clause; when allowable 4305S.5 Accrual of interest earned on loans SECTION 4306S. Past Due Accounts 4306S.1 Accounts considered past due 4306S.2 Extension/renewal of loans 4306S.3 Write-off of loans as bad debts SECTION 4307S. "Truth in Lending Act" Disclosure Requirements 4307S.1 Definition of terms 4307S.2 Information to be disclosed 4307S.3 Inspection of contracts covering credit transactions 4307S.4 Posters 4307S.5 Penal provisions SECTIONS 4308S 4320S (Reserved) B. Secured Loans SECTION 4321S. Kinds of Security SECTIONS 4322S 4335S (Reserved) C.-D. ( Reserved ) SECTIONS 4336S 4355S (Reserved) E. Loans/Credit Accommodations to Trustees, Officers, Stockholders and their Related Interests SECTION 4356S. General Policy SECTION 4357S. Direct/Indirect Borrowings; Ceilings SECTION 4358S. Records; Reports SECTIONS 4359S 4369S (Reserved) SECTION 4370S. Sanctions F.-I. ( Reserved ) SECTIONS 4371S 4390S (Reserved) J. Other Operations SECTION 4391S. Fund Investments SECTIONS 4392S 4395S (Reserved) K. Miscellaneous Provisions SECTIONS 4396S 4398S (Reserved) SECTION 4399S. General Provision on Sanctions PART FOUR ( Reserved ) SECTIONS 4401S 4499S (Reserved) PART FIVE ( Reserved ) SECTIONS 4501S 4599S (Reserved) PART SIX Miscellaneous A. Other Operations SECTION 4601S. Payment of fines SECTIONS 4602S 4630S. (Reserved) SECTION 4631S. Revocation/Suspension of NSSLA License SECTIONS 4632S 4650S (Reserved) B. Sundry Provisions SECTION 4651S. Notice of Dissolution SECTION 4652S. Confidential Information SECTION 4653S. Examination by the BSP SECTION 4654S. Applicability of Other Rules SECTION 4655S. Annual Fees on Non-Stock Savings and Loan Association SECTION 4656S. Basic Law Governing Non-Stock Savings and Loan Associations SECTION 4657S. NSSLA Premises and Other Fixed Assets 4657S.1-4657S.2 (Reserved) 4657S.3 Reclassification of real and other properties owned or acquired as NSSLA premises 4657S.4-4657S.8 (Reserved) 4657S.9 Batas Pambansa Blg. 344 An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments And Public Utilities To Install Facilities And Other Devices SECTIONS 4658S 4690S (Reserved) SECTION 4691S. Anti-Money Laundering Regulations 4691S.1-4691S.8 (Reserved) 4691S.9 Sanctions and Penalties SECTIONS 4692S 4698S (Reserved) SECTION 4699S. General Provision on Sanctions LIST OF APPENDICES No. Subject Matter S-1 Safeguards in Bonding of NSSLA Accountable Officers and Employees S-2 List of Reports Required from NSSLAs Annex S-2-a Reporting Guidelines on Crimes/Losses S-3 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex S-3-a Format of Resolution for Signatories of Category A-1 Reports Annex S-3-b Format of Resolution for Signatories of Category A-2 Reports Annex S-3-c Format of Resolution for Signatories of Categories A-3 and B Reports S-4 Format-Disclosure Statement of Loan/Credit Transaction S-5 Abstract of "Truth in Lending Act" S-6 Anti-Money Laundering Regulations Annex S-6-a Certification of Compliance with Anti-Money Laundering Regulations Annex S-6-b Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions S-7 Revised Implementing Rules and Regulations R.A. No. 9160, as Amended by R.A. No. 9194 S-8 Guidelines to Govern the Selection, Appointment and the Reporting Requirement for External Auditors of NSSLAs PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101S. Scope of Authority of Non-Stock Savings and Loan Associations . A non-stock savings and loan association (NSSLA) shall include any non-stock, non-profit corporation engaged in the business of accumulating the savings of its members and using such accumulations for loans to members to service the needs of households by providing long-term financing for home building and development and for personal finance. An NSSLA may also engage in a death benefit program meant exclusively for the benefit of its members. An NSSLA shall accept deposits from and grant loans to its members only and shall not transact business with the general public. SUBSECTION 4101S.1 Membership a. NSSLAs shall issue a certificate of membership to every qualified member and shall maintain a registry of their members. b. An NSSLA shall confine its membership to a well-defined group of persons. A well-defined group shall consist of any of the following: (1) Employees, officers, and trustees of one company, including member-retirees; (2) Government employees belonging to the same office, branch, or department, including member-retirees; and (3) Immediate members of the families up to the second degree of consanguinity or affinity of those falling under Items "(1)" and "(2)" above. NSSLAs whose articles of incorporation and by-laws were approved and registered prior to the effectivity of R.A. No. 8367 and which limit and/or allow membership coverage broader or narrower than the foregoing definition, shall be allowed to continue as such. The Monetary Board may, as circumstances warrant, require NSSLAs mentioned in the immediately preceding paragraph to amend their by-laws to comply with the concept of a well-defined group . c. In no case shall the total amount of entrance fees exceed one percent (1%) of the amount to be contributed or otherwise paid in by the particular member: Provided , That for new members, the fee shall be based on the amount of contributions computed in accordance with the revaluation of the assets of the NSSLA. SUBSECTION 4101S.2 Organizational requirements a. Articles of Incorporation; by-laws . The articles of incorporation and by-laws of a proposed NSSLA, or any amendment thereto, shall not be registered with the Securities and Exchange Commission (SEC) unless accompanied by a certificate of approval from the Monetary Board. b. Application for approval . The articles of incorporation and by-laws of a proposed NSSLA, both accomplished in the prescribed forms, shall be submitted to the Monetary Board through the appropriate supervising and examining department of the Bangko Sentral ng Pilipinas (BSP) together with a covering application for the approval thereof, signed by a majority of the Board of Trustees and verified by one of them. The application shall include: (1) The proposed articles of incorporation and by-laws together with the names and addresses of the incorporators, trustees and officers, with a statement of their character, experience, and general fitness to engage in the non-stock savings and loan business; AaHTIE (2) An itemized statement of the estimated receipts and expenditures of the proposed NSSLA for the first year; (3) Filing fee of P1,000; (4) Such other information as the Monetary Board may require. c. Grounds for disapproval of application . The Monetary Board may deny the application to organize an NSSLA on the basis of a finding that: (1) The NSSLA is being organized for any purpose other than to engage in the business of a legitimate NSSLA; (2) The NSSLA's financial program is unsound; (3) The proposed members are adequately served by one (1) or more existing NSSLAs; and (4) There exist other reasons which the Monetary Board may consider as sufficient ground for such disapproval. d. Certificate of authority to operate; revocation or suspension thereof. NSSLAs, prior to transacting business, shall procure a certificate of authority to transact business from the Monetary Board. After due notice and hearing, the Monetary Board may revoke or suspend, for such period as it determines, the certificate of authority of any NSSLA, the solvency of which is imperiled by losses or irregularities, or of any NSSLA which willfully violates any provision of R.A. No. 8367, these rules or any pertinent law or regulation. SECTIONS 4102S 4105S ( Reserved ) B. Capitalization SECTION 4106S. Capital . NSSLAs established after August 14, 2001, shall have a minimum capital contribution of at least P1,000,000. The minimum capital contribution requirement shall also apply to all pending applications to establish NSSLAs received prior to August 14, 2001. Members who have contributed P1,000 or more to the capital of an NSSLA may increase their capital contribution. Partial withdrawal from the amount paid by a member as capital contribution, during his membership, may be allowed unless the by-laws of the NSSLA provide otherwise, and subject to such rules and regulations as the Monetary Board may prescribe in the matter of such withdrawal of capital contribution. However, in no case, shall such partial withdrawal diminish the member's capital contribution to less than P1,000. Members of NSSLAs may participate in the profits of the NSSLA on the basis of their capital contributions on the date dividends are declared. SUBSECTION 4106S.1 Revaluation surplus . In cases of both retiring and new members, a revaluation surplus shall be added to their contributions by imputing their respective proportionate shares in the withdrawable share reserve and the reserve for furniture, fixtures, and furnishings. SECTIONS 4107S 4110S (Reserved) C. ( Reserved ) SECTIONS 4111S 4115S (Reserved) D. Net Worth-To-Risk Assets Ratio SECTION 4116S. Capital-to-Risk Assets . The combined capital accounts of each NSSLA shall not be less than an amount equal to ten percent (10%) of its risk assets which is defined as its total assets minus the following assets: a. Cash on hand; DIECTc b. Evidences of indebtedness of the Republic of the Philippines and of the BSP and any other evidences of indebtedness/obligations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; c. Loans to the extent covered by hold-out on, or assignment of, deposits maintained in the lending NSSLA and held in the Philippines; d. Office premises, depreciated; e. Furniture, fixtures and equipment, depreciated; f. Real estate mortgage loans insured by the Home Insurance Guarantee Corporation to the extent of the amount of the insurance; and g. Other non-risk items as the Monetary Board may, from time to time, authorize to be deducted from total assets. The Monetary Board shall prescribe the manner of determining the total assets of such NSSLA for the purpose of this Section, but contingent accounts shall not be included among total assets. Whenever the capital accounts of an NSSLA are deficient with respect to the requirement of the preceding paragraph, the Monetary Board, after considering a report of the appropriate supervising and examining department of the BSP on the state of solvency of the NSSLA concerned, shall limit or prohibit the distribution of net profits and shall require that part or all of net profits be used to increase the capital accounts of the NSSLA until the minimum requirement has been met. The Monetary Board may, after considering the aforesaid report of the appropriate supervising and examining department of the BSP, and if the amount of the deficiency justifies it, restrict or prohibit the making of new investments of any sort by the NSSLA with the exception of the purchases of the evidence of indebtedness included under Item "b" of this Section until the minimum required capital ratio has been restored. SECTION 4117S. Withdrawable Share Reserve . NSSLAs shall create a withdrawable share reserve which shall consist of two percent (2%) of the total capital contributions of the members. An amount corresponding to the withdrawable share reserve shall be set up by the NSSLA, such amount invested in bonds or evidences of indebtedness of the Republic of the Philippines or of its subdivisions, agencies or instrumentalities, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines, and evidences of indebtedness of the BSP. For a uniform interpretation of the provisions of this Section, the following shall serve as guidelines: a. The withdrawable share reserve shall be set up from the profits of the NSSLA and shall be funded in the form of cash deposited as a separate account and/or an investment allowed under this Section; b. Should there be an increase in the capital contribution, the reserve shall be correspondingly adjusted at the end of each month from undivided profits, if any; and c. The reserve shall be adjusted first before the NSSLA shall declare and pay out dividends at any time of the year. SECTION 4118S. Surplus Reserve for Ledger Discrepancies . Whenever an NSSLA has a discrepancy between its general ledger accounts and their respective subsidiary ledgers, the board of trustees of the NSSLA shall set up from the net profits of the NSSLA, if any, a surplus reserve, in an amount equivalent to the amount of discrepancy, and this reserve shall not be available for distribution as dividends or for any other purpose unless and until the discrepancy is accounted for. The board of trustees shall also direct the employee responsible for the discrepancy to account for said discrepancy: Provided , That the failure of the employee to do so shall constitute as ground for his dismissal if the discrepancy is of serious or recurring nature. NSSLAs shall report such discrepancies to the appropriate supervising and examining department of the BSP within fifteen (15) days from discovery. SECTION 4119S. Reserve for Office Premises, Furniture, Fixtures and Equipment . NSSLAs shall set aside five percent (5%) of their yearly net profits until it amounts to at least five percent (5%) of the total assets as a reserve for a building fund to cover the cost of construction or acquisition of office premises, and of the purchase of office furniture, fixtures and equipment. An NSSLA which, as determined by its board of trustees, has adequate office premises, furniture, fixtures and equipment necessary for the conduct of its business need not set up the reserve: Provided , That this fact should be certified by its board of trustees in a resolution to be submitted to the appropriate supervising and examining department of the BSP for verification and approval: Provided, however , That in case reserves had been set up, the NSSLA so exempted may revert the reserves to free surplus. SECTION 4120S. ( Reserved ) E. ( Reserved ) SECTIONS 4121S 4125S (Reserved) F. Dividends SECTION 4126S. Limitations on Declaration of Dividends . a. Basis for participation in profits . Member-depositors of an NSSLA may participate in the profits of the NSSLA on the basis of their capital contributions on the date dividends are declared. b. Level of withdrawable share reserve . NSSLAs shall not pay any dividend or distribute any profit to its members if the withdrawable share reserve required under Sec. 4117S is less than, or if by such payment or distribution would be reduced below, the amount specified in said Section. The reserve shall be adjusted first before the NSSLA shall declare and pay out dividends at any time of the year. c. Capital-to-risk assets ratio . NSSLAs shall not pay any dividend or distribute any profit to their members if their capital-to-risk assets ratio is below the level required under Sec. 4116S. d. Discrepancies between general ledger and subsidiary ledger accounts . The surplus reserve set up as required under Sec. 4118S shall not be reverted for distribution as dividends unless and until the discrepancy between the general ledger accounts and their respective subsidiary ledgers for which the surplus reserve has been set up ceases to exist. SECTIONS 4127S 4140S (Reserved) G. Trustees, Officers, Employees and Agents SECTION 4141S. Definition; Qualifications; Responsibilities and Duties of Trustees . For purposes of this Section, the following shall be the definition, qualifications, responsibilities and duties of trustees. SUBSECTION 4141S.1 Definition of trustees . Trustees shall include: (a) those who are named as such in the articles of incorporation; (b) those duly elected in subsequent meetings of the NSSLA's members; and (c) those elected to fill vacancies in the board of trustees. SUBSECTION 4141S.2 Qualifications of trustees . No person shall be eligible as trustee of an NSSLA unless he is a member of good standing of such NSSLA. In addition, such person shall have the qualifications and none of the disqualifications as provided in pertinent laws and BSP rules. A trustee shall have the following minimum qualifications: a. He shall be at least twenty-five (25) years of age at the time of his election/appointment; b. He shall at least a college graduate or have at least five (5) years experience in business, or shall have undergone any BSP training in NSSLA or banking operations: Provided, however , That undergraduates eligible to be elected as trustees in the NSSLA's by-laws may be allowed as may be approved by the Monetary Board; c. He must have attended a special seminar on corporate governance for board of trustees conducted or accredited by the BSP; and d. He must be fit and proper for the position of a trustee of the NSSLA. In determining whether a person is fit and proper for the position of a trustee, the following matters must be considered: integrity/probity; competence; education; diligence; and experience/training The foregoing qualifications for trustees shall be in addition to those already required or prescribed by R.A. No. 8367, as amended, and other existing applicable laws and regulations. SUBSECTION 4141S.3 Powers and authority of the board of trustees . The corporate powers of an NSSLA shall be exercised, its business conducted, and all its property shall be controlled and held by its board of trustees. The powers of the board of trustees as conferred by law are original and cannot be revoked by the members. The trustees hold their office charged with the duty to act for the NSSLA in accordance with their best judgment. SUBSECTION 4141S.4 General responsibility of the board of trustees . The position of an NSSLA trustee is a position of trust. A trustee assumes certain responsibilities to different constituencies or stakeholders (e.g. the NSSLA itself, its member-depositors and other creditors, its management and employees and the public at large). These constituencies or stakeholders have the right to expect that the institution is being run in a prudent and sound manner. The board of trustees is primarily responsible for the corporate governance of the NSSLA. To ensure good governance of the NSSLA, the board of trustees should establish strategic objectives, policies and procedures that will guide and direct the activities of the NSSLA and the means to attain the same as well as the mechanism for monitoring management's performance. While the management of the day-to-day affairs of the institution is the responsibility of the management team, the board of trustees is, however, responsible for monitoring and overseeing management action. SUBSECTION 4141S.5 Duties and responsibilities of the board of trustees . To ensure prudent and efficient administration of NSSLAs, the following guidelines shall govern the responsibilities and duties of the board of trustees of NSSLAs: a. Specific duties and responsibilities of the board of trustees (1) To select and appoint officers who are qualified to administer the NSSLA affairs effectively and soundly and to establish adequate selection process for all personnel . It is the primary responsibility of the board of trustees to appoint competent management team at all times. The board of trustees should apply fit and proper standards on key personnel. Integrity, technical expertise and experience in the institution's business, either current or planned, should be the key considerations in the selection process. And because mutual trust and a close working relationship are important, the board of trustees' choice should share its general operating philosophy and vision for the institution. The board of trustees shall establish an appropriate compensation package for all personnel which shall be consistent with the interest of all stakeholders. DHTCaI (2) To establish objectives and draw up a business strategy for achieving them . Consistent with the institution's objectives, business plans should be established to direct its on-going activities. The board of trustees should ensure that performance against plan is regularly reviewed, with corrective action taken as needed. (3) To conduct the affairs of the institution with high degree of integrity . Since reputation is a very valuable asset, it is in the institution's best interest that in dealings with its members, it observes a high standard of integrity. The board of trustees should prescribe corporate values, codes of conduct and other standards of appropriate behavior for itself, the senior management and other employees. Among other matters, activities and transactions that could result or potentially result in conflict of interest, personal gain at the expense of the institution, or unethical conduct shall be strictly prohibited. It shall provide policies that will prevent the use of the facilities of the NSSLA in furtherance of criminal and other illegal activities. (4) To prescribe a clear assignment of responsibilities and decision-making authorities, incorporating a hierarchy of required approvals from individuals to the board of trustees . The board of trustees shall establish in writing the limits of the discretionary powers of each officer, committee, sub-committee and such other group for the purpose of lending, investing or committing the NSSLA to any financial undertaking or exposure to risk at any time. The board of trustees shall have a schedule of matters and authorities reserved to it for decision, such as major capital expenditures, equity investments and divestments. (5) To effectively supervise the NSSLA's affairs . The board of trustees shall establish a system of checks and balances which applies in the first instance to the board itself. Among the members of the board, an effective system of checks and balances must exist. The system shall also provide a mechanism for effective check and control by the board of trustees over the chief executive officer and key managers and by the latter over the line officers of the NSSLA. (6) To monitor, assess and control the performance of management . The board of trustees shall put in place an appropriate reporting system so that it is provided with relevant and timely information to be able to effectively assess the performance of management. For this purpose, it may constitute a governance committee. (7) To adopt and maintain adequate risk management policy . The board of trustees shall be responsible for the formulation and maintenance of written policies and procedures relating to the management of risks throughout the institution. The risk management policy shall include: (a) a comprehensive risk management approach; (b) a detailed structure of limits, guidelines and other parameters used to govern risk-taking; (c) a clear delineation of lines of responsibilities for managing risk; (d) an adequate system for measuring risk; and (e) effective internal controls and a comprehensive risk-reporting process. aEIADT The board of trustees may constitute a committee for this purpose. (8) To constitute the Audit Committee . The Audit Committee shall be composed of trustees, preferably with accounting and finance experience. Said audit committee provides oversight of the institution's internal and external auditors. It shall be responsible for the setting up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor. It shall monitor and evaluate the adequacy and effectiveness of the internal control system. (9) To meet regularly . To properly discharge its function, the board of trustees shall meet regularly. Independent views in board meetings shall be given full consideration and all such meetings shall be duly minuted. (10) To keep the individual members of the board and the members informed . It is the duty of the board of trustees to present to all its members and to the stakeholders a balanced and understandable assessment of the NSSLA's performance and financial condition. It should also provide appropriate information that flows internally and to the public. All members of the board shall have reasonable access to any information about the institution. (11) To ensure that the NSSLA has beneficial influence on the economy . The board of trustees has a continuing responsibility to provide those services and facilities which will be supportive of the national economy. (12) To assess at least annually its performance and effectiveness as a body, as well as its various committees, the chief executive officer and the NSSLA itself. The composition of the board of trustees shall also be reviewed regularly with the end in view of having a balanced membership. Towards this end, a system and procedure for evaluation shall be adopted which may include, but not limited to, the setting of benchmark and peer group analysis. (13) To keep their authority within the powers of the institution as prescribed in the articles of incorporation, by-laws and in existing laws, rules and regulations . To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws and regulations, the board of trustees shall appoint a compliance officer who shall be responsible for coordinating, monitoring and facilitating compliance with existing laws and regulations. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. It may also constitute a compliance committee. b. Specific duties and responsibilities of a trustee (1) To conduct fair business transactions with the NSSLA and to ensure that personal interest does not bias board decisions . Trustees should, whenever possible, avoid situations that would give rise to a conflict of interest. If transactions with the institution cannot be avoided, it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. The basic principle to be observed is that a trustee should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. He should avoid situations that would compromise his impartiality. (2) To act honestly and in good faith, with loyalty and in the best interest of the NSSLA, its members, regardless of the amount of their capital contributions, and creditors, if any . A trustee must always act in good faith, with the care which an ordinarily prudent man would exercise under similar circumstances. While a trustee should always strive to promote the interest of all members, he shall also give due regard to the rights and interests of other stakeholders. (3) To devote time and attention necessary to properly discharge their duties and responsibilities . Trustees shall devote sufficient time to familiarize themselves with the institution's business. They must be constantly aware of the institution's condition and be knowledgeable enough to contribute meaningfully to the board's work. They must attend and actively participate in board and committee meetings, request and review meeting materials, ask questions and request explanations. If a person cannot give sufficient time and attention to the affairs of the institution, he shall neither accept his nomination nor run for election as member of the board of trustees. (4) To act judiciously . Before deciding on any matter brought before the board of trustees, every trustee should thoroughly evaluate the issues, ask questions and seek clarifications when necessary. (5) To exercise independent judgment . A trustee should view each problem/situation objectively. When a disagreement with others occurs, he should carefully evaluate the situation and state his position. He should not be afraid to take a position even though it might be unpopular. Corollarily, he should support plans and ideas that he thinks will be beneficial to the institution. (6) To have a working knowledge of the statutory and regulatory requirements affecting the NSSLA, including the content of its articles of incorporation and by-laws, the requirements of the BSP, and where applicable, the requirements of other regulatory agencies . A trustee also keeps himself informed of the industry developments and business trends in order to safeguard the institution's competitiveness. (7) To observe confidentiality . Trustees must observe the confidentiality of non-public information acquired by reason of their position as trustees. They may not disclose said information to any other person without the authority of the board. SECTION 4142S. Definition and Qualifications of Officers . Officers shall include the President, Vice-President, General Manager, Corporate Secretary, Treasurer and others mentioned as officers of the NSSLA, or whose duties as such are defined in the by-laws. The minimum qualifications for trustees prescribed in Sec. 4141S are also applicable to officers. SUBSECTION 4142S.1 Definition of officers . Officers shall include the President, Executive Vice President, Senior Vice President, Vice President, General Manager, Secretary, Treasurer, and others mentioned as officers of the NSSLA, or those whose duties as such are defined in the by-laws, or are generally known to be the officers of the NSSLA (or any of its branches and offices other than the head office) either through announcement, representation, publication or any kind of communication made by the NSSLA. A person holding the position of chairman, vice-chairman or any other position of the board who also performs functions of management such as those ordinarily performed by regular officers shall also be considered an officer. aEDCSI SUBSECTION 4142S.2 Qualifications of officers . An officer shall have the following minimum qualifications: a. He shall be at least twenty-one (21) years of age; b. He shall be at least a college graduate or have at least five (5) years experience in NSSLA or banking operations or related activities or in a field related to his position and responsibilities, or have undergone training in NSSLA or banking operations acceptable to the appropriate supervising and examining department of the BSP; c. He must be fit and proper for the position of an officer of the NSSLA. In determining whether a person is fit and proper for the position of an officer, the following matters must be considered: integrity/probity; competence; education; diligence; and experience/training. The foregoing qualifications for officers shall be in addition to those already required or prescribed by R.A. No. 8367, as amended, and other existing applicable laws and regulations. SECTION 4143S. Disqualification of Trustees and Officers . The following regulations shall govern the disqualification of NSSLAs' trustees and officers. SUBSECTION 4143S.1 Persons disqualified to become trustees . Without prejudice to specific provisions of laws prescribing disqualifications for trustees, the following are disqualified from becoming trustees: a. Permanently disqualified The following persons are permanently disqualified from holding a trustee position: (1) Persons who have been convicted by final judgment of the court for offenses involving dishonesty or breach of trust, such as estafa, embezzlement, extortion, forgery, malversation, swindling and theft; (2) Persons who have been convicted by final judgment of the court for violation of banking/quasi-banking/NSSLA laws; (3) Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract; or (4) Directors/trustees, officers or employees of closed banks/quasi-banks/trust entities, NSSLAs or other financial institutions (FIs) under BSP supervision/regulation who were responsible for such institution's closure as determined by the Monetary Board. b. Temporarily disqualified Persons disqualified from holding a trustee position for a specific/indefinite period of time are: (1) Persons who refuse to fully disclose the extent of their business interest to the appropriate supervising and examining department when required pursuant to a provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as the refusal persists; (2) Trustees who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings, both regular and special, of the board of trustees during their incumbency, or any twelve (12)-month period during said incumbency. This disqualification applies for purposes of the succeeding election; (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with an NSSLA where he/she is a trustee or officer, or at least two (2) obligations with other banks/financial institutions, under different credit lines or loan contracts, are past due pursuant to existing regulations; (b) Obligations shall include all borrowings from a bank/NBQB/trust entity/NSSLA/other FIs obtained by: (i) A trustee or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor, endorser or surety for loans from such financial institutions; (ii) The spouse or child under the parental authority of the trustee or officer; (iii) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director, trustee or officer; (iv) A partnership of which a trustee or officer, or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership; and (v) A corporation, association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items "(i)" , "(ii)" and "(iv)" ; This disqualification shall be in effect as long as the delinquency persists. (4) Persons convicted for offenses involving dishonesty, breach of trust or violation of banking/quasi-banking and NSSLA laws and regulations but whose conviction has not yet become final and executory; (5) Directors/trustees and officers of closed banks/NBQBs/trust entities/NSSLAs and other FIs under BSP supervision/regulation pending their clearance by the Monetary Board; (6) Trustees disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate supervising and examining department of such trustees' election/re-election; (7) Trustees who failed to attend the special seminar on corporate governance for board of trustees required by BSP. This disqualification applies until the trustee concerned had attended such seminar; (8) Persons dismissed/terminated from employment for cause. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity; (9) Those under preventive suspension; or (10) Persons with derogatory records with the National Bureau of Investigation (NBI), court, police, Interpol and monetary authority (central bank) of other countries (for foreign trustees and officers) involving violation of any law, rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of an NSSLA trustee/officer. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity. ASHEca SUBSECTION 4143S.2 Persons disqualified to become officers . a. The disqualifications for trustees mentioned in Subsec. 4143S.1 shall likewise apply to officers, except those stated in Items "b(2)" and "b(7)" . b. Except as may be authorized by the Monetary Board or the Governor, the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of Chairman, Vice Chairman, President, Executive Vice President or any position of equivalent rank, General Manager, Treasurer, Chief Cashier or Chief Accountant is disqualified from holding or being elected or appointed to any of said positions in the same NSSLA; and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of Manager, Cashier, or Accountant of a branch or office of an NSSLA is disqualified from holding or being appointed to any of said positions in the same branch or office; c. Except as may otherwise be allowed under C.A. No. 108, otherwise known as "The Anti-Dummy Law," as amended, foreigners cannot be officers or employees of NSSLAs; and d. Any appointive or elective public official, whether full time or part time, except in cases where such service is incident to financial assistance provided by the government or government-owned or controlled corporations or in cases allowed under existing law. SUBSECTION 4143S.3 Disqualification procedures . a. Upon the establishment of any of the grounds for disqualification, the office of the disqualified trustee or officer shall immediately become vacant, except in the case of delinquency in the payment of obligations wherein the trustee or officer concerned shall be given a grace period of thirty (30) days after such ground for disqualification has been established. b. All cases of disqualification shall be immediately reported to the board of trustees of the NSSLA concerned. If the ground for disqualification is delinquency in the payment of obligations, the report shall be made at the expiry of the thirty (30)-day grace period mentioned in Item "a" above. The board of trustees shall act on the report not later than the following board of trustees' meeting. Within seventy-two (72) hours thereafter, the corporate secretary shall report to the Governor of the BSP through the appropriate supervising and examining department the name of the trustee or officer involved, the ground for his disqualification and the action taken by the board. c. When the ground for disqualification ceases to exist, the trustee or officer concerned shall be eligible to become trustee or officer of any NSSLA only upon prior approval by the Monetary Board. SUBSECTION 4143S.4 Effect of non-possession of qualifications or possession of disqualifications . Trustees/officers elected or appointed without possessing the qualifications in Subsecs. 4141S.2/4142S.2 or possessing any of the disqualifications as enumerated in Subsecs. 4143S.1/4143S.2, shall vacate their respective positions immediately. SUBSECTION 4143S.5 ( Reserved ) SUBSECTION 4143S.6. Watchlisting . To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as trustee or officer of an NSSLA, the SES shall maintain a watchlist of disqualified NSSLA trustees/officers under the following procedures: a. Watchlist categories . Watchlisting shall be categorized as follows: (1) Disqualification File "A" (Permanent) Trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee/officer position in any institution under the supervision/regulation of BSP. (2) Disqualification File "B" (Temporary) Trustees/officers/employees temporarily disqualified by the Monetary Board from holding a director/trustee/officer position in any institution under the supervision/regulation of BSP. b. Inclusion of trustees/officers/employees in the watchlist . Upon recommendation by the appropriate supervising and examining department, the inclusion of trustees/officers/employees in watchlist disqualification files "A" and "B" on the basis of decisions, actions or reports of the courts, banks, NBQBs, other NSSLAs and FIs under BSP supervision, BSP, NBI or any other administrative agencies shall first be approved by the Monetary Board. c. Notification of trustees/officers/employees . Upon approval by the Monetary Board, the concerned trustee/officer/employee shall be informed through registered mail, with registry return receipt card at his/her last known address of his/her inclusion in the masterlist of watchlisted persons disqualified to be a trustee/officer in any financial institution under the supervision of the BSP. d. Confidentiality . Watchlisting shall be for internal use only and may not be accessed or queried upon by outside parties including banks, NBQBs, trust entities, NSSLAs or other FIs under BSP supervision except with the authority of the person concerned and with the approval of the Deputy Governor, SES, or the Governor, or the Monetary Board. e. Delisting . All delistings shall be approved by the Monetary Board upon recommendation of the appropriate supervising and examining department except in cases of persons known to be dead, where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist Disqualification File "B" (Temporary) (a) After the lapse of the specific period of disqualification; (b) When the conviction by the court for crimes involving dishonesty, breach of trust and/or violation of banking laws becomes final and executory, in which case the trustee/officer/employee is relisted to Watchlist Disqualification File "A" (Permanent); (c) Upon favorable decision or clearance by the appropriate body, i.e., court, NBI, bank, NBQB, trust entity or such other agency/body where the concerned individual had derogatory record. Trustees/officers/employees delisted from the Watchlist Disqualification File "B" other than those upgraded to Watchlist Disqualification File "A" shall be eligible for re-employment with any bank, NBQB, trust entity, NSSLA or other FI under BSP supervision. SECTION 4144S. Compensation of Trustees, Officers and Employees . No trustee, officer or employee of an NSSLA shall receive from such NSSLA and no NSSLA shall pay to any trustee, officer, or employee of such NSSLA, any commission, emolument, gratuity or reward based on the volume or number of loans made, or based on the interest or fees collected thereon. Nothing in this Section, however, prohibits or limits any of the following: a. Receipt or payment of salaries of trustees, officers and employees; b. Receipt or payment of commissions to agents whether or not based on the volume or number of loans or on the interest and fees collected thereon; or c. Receipt or payment of bonuses of trustees, officers or employees if such bonuses are based on the profits and not on the volume or number of loans made or on the interest or fees collected thereon. SUBSECTION 4144S.1 Compensation increases . All increases in compensation, in any form, of all trustees and trustee-officers in excess of ten percent (10%) thereof per annum shall require the approval of the BSP. SUBSECTION 4144S.2 Liability for loans contrary to law . No NSSLA shall make or purchase any loan or investment not authorized or permitted under R.A. No. 8367, and any trustee, officer or employee, who on behalf of any such NSSLA, knowingly makes or purchases any such loan or investment or who knowingly consents thereto shall be personally liable to the NSSLA for the full amount of any such loan or investment. SECTION 4145S. Bonding of Officers and Employees . All officers and employees of an NSSLA who, in the regular discharge of their duties have access to money or negotiable securities shall, before entering upon such duties, furnish to the employing NSSLA a good and sufficient bond and providing for indemnity to the NSSLA against the loss of money or securities, by reason of their dishonesty. The bond of the cashier, assistant cashier, treasurer, and other employees having money accountability shall not be less than their average daily accountability. The bond must be issued by a reputable bonding company duly licensed by the Insurance Commission and approved by the BSP. Capital contribution or a cash bond deposited with the NSSLA or with a bank, may also be allowed. To protect the funds of depositors and creditors, the Monetary Board may regulate/restrict the payment by the NSSLA of compensation, allowances, fees, bonuses, and fringe benefits to its trustees and officers in exceptional cases and when the circumstances warrant, such as, but not limited to the following: a. When the NSSLA is found by the Monetary Board to be conducting business in an unsafe or unsound manner; b. When the NSSLA is found by the Monetary Board to be in an unsatisfactory financial condition such as, but not limited to, the following cases: (1) Its capital is impaired; and (2) It has suffered continuous losses from operations for the past three (3) years. In the presence of any one (1) or more of the circumstances mentioned above, the Monetary Board may impose the following restrictions in the compensation and other benefits of trustees and officers: (a) Except for the financial assistance to meet expenses for the medical, maternity, education and other emergency needs of the trustees or officers or their immediate family, other forms of financial assistance may be suspended. (b) When the total compensation package including salaries, allowances, fees and bonuses of trustees and officers are significantly excessive as compared with industry averages, the Monetary Board may order their reduction to reasonable levels. SECTION 4146S. Agents and Representatives . No person shall act as an agent or sales representative of an NSSLA or operate an agency without obtaining a license from the Monetary Board. No license is required for a collector of an NSSLA but no person shall hold himself out or act as collector unless he is authorized as a collector in writing by such NSSLA. DTEIaC SECTION 4147S. ( Reserved ) SECTION 4148S. Full-Time Manager for NSSLAs . NSSLAs with total assets of at least P5,000,000 shall maintain a full-time manager to take charge of the operations of the NSSLA. The manager shall possess all the qualifications and shall not have any disqualification under Subsecs. 4142S.2 and 4143S.2, respectively. SECTIONS 4149S 4150S (Reserved) H. Branches and Other Offices SECTION 4151S. Establishment of Branches/Extension Offices . Prior BSP authority shall be obtained before operating a branch or other offices. SUBSECTION 4151S.1 Application . The application shall be prescribed by the appropriate supervising and examining department of the BSP and accompanied by the following minimum requirements: a. Sketch of the location of the proposed office which shall be within the compound of the mother firm's branch office; b. Itemized statement of estimated receipts and expenses of the NSSLA in connection with such branch or extension office; c. Description or enumeration of service facilities that will cater to the deposit and credit needs of members of the NSSLA; d. Financial statements for the year immediately preceding the date of application; e. Certification as to the actual number of members that will be serviced by the branch/extension office; and f. Undertaking that the branch/extension office will service only members of the NSSLA. SUBSECTION 4151S.2 Conditions precluding acceptance/processing of application . The application shall not be accepted/processed in any of the following cases: a. The NSSLA's operation during the year immediately preceding the date of filing of application was unprofitable; b. Total capital accounts of the NSSLA are less than P100 million as of the date of filing of the application; c. Total number of members to be served in the proposed branch/extension office is less than 500; or d. Non-compliance by the NSSLA with any of the pertinent provisions of banking laws, rules, regulations and policies of the BSP. SUBSECTION 4151S.3. Internal control system . The NSSLA shall submit to the appropriate supervising and examining department of the BSP a system of internal safeguards and control measures to be adopted for compliance by the staff of the proposed branch/extension office. SUBSECTION 4151S.4 Permit to operate . Actual operation shall commence only after a permit to operate has been issued by the BSP. SECTIONS 4152S 4155S (Reserved) I. Business Days and Hours SECTION 4156S. Business Days and Hours . NSSLAs may, with the prior approval of the appropriate supervising and examining department of the BSP, adopt such business days and hours as may be convenient for them. NSSLAs shall be open for business during business hours and days except when extraordinary instances caused by unforeseen, unavoidable event directly affect the NSSLA's ability to open for business. NSSLAs shall post conspicuously at all times in their place of business their schedule of regular business hours and days. SECTIONS 4157S 4160S (Reserved) J. Reports SECTION 4161S. Records . NSSLAs shall have a true and accurate account, record or statement of their daily transactions. The making of any false entry or the willful omission of entries relevant to any transaction is a ground for the Monetary Board for the imposition of administrative sanctions under Section 37 of R.A. No. 7653, without prejudice to the criminal liability of the director or officer responsible therefor under Sections 35 and 36 of R.A. No. 7653 and/or the applicable provisions of the Revised Penal Code. Records shall be up-to-date and shall contain sufficient detail so that an audit trail is established. SUBSECTION 4161S.1 Uniform System of Accounts . NSSLAs are required to pattern their charts of accounts and recording systems after the Uniform System of Accounts prescribed for NSSLAs including reportorial and publication requirements. The voucher system of accounting or the ticket system, or such other accounting system acceptable to the BSP as well as the prescribed chart of accounts shall be adopted for use by NSSLAs. SUBSECTION 4161S.2 Adoption of Statements of Financial Accounting Standards . NSSLAs are hereby required to adopt the Statements of Financial Accounting Standards (SFAS) in their financial statements and reports to the BSP prepared in accordance with the generally accepted accounting principles. However, in cases where there are differences between BSP regulations and SFAS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the SFAS, the option or limit prescribed by BSP regulations shall be adopted by NSSLAs. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). Copies of the aforesaid SFAS may be obtained from the PICPA House, Shaw Blvd., Mandaluyong, Metro Manila. SECTION 4162S. Reports . NSSLAs shall submit to the appropriate supervising and examining department of the BSP the reports in prescribed form listed in Appendix S-2 . SUBSECTION 4162S.1 Categories and signatories of reports . For purposes of designating the signatories of reports, certain weekly, monthly, quarterly, semi-annual, and annual statements/reports required to be submitted to the BSP are hereby grouped into Category A-1, A-2, A-3 and Category B, as enumerated in Appendix S-3 . Category A-1 reports shall be signed by the NSSLA's Chief Executive Officer (who may be the President or Chairman of the Board, or designated in the by-laws), or in his absence, by the Executive Vice President or the officer duly authorized under a resolution approved by the board of trustees and by the Chief Finance Officer (i.e., Controller or Chief Accountant, who shall likewise be duly authorized by the NSSLA's board of trustees in a format prescribed in Appendix S-3a . Category A-2 reports of the head office of the NSSLA shall be signed by the NSSLA's President or Senior Vice-President/equivalent position. Offices/units (such as branch) reports in this category shall be signed by their respective managers/officers-in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of trustees in the format prescribed in Appendix S-3b . Category A-3 and B reports are those required to be submitted to the BSP and are not included in Categories A-1 and A-2. They shall be signed by officers or their alternates, who shall be duly designated by the board of trustees. A copy of the board resolution with format as prescribed in Appendix S-3c , covering the initial designation and subsequent changes in signatories and alternates, shall be submitted to the appropriate supervising and examining department of the BSP within three (3) days from the date of resolution. If a report is submitted to the BSP under the signature of an officer who is not listed or included in any of the resolutions mentioned above, the supervising and examining department shall refuse to acknowledge the report as valid or consider the report as not having been submitted at all. If such a report is not resubmitted by the NSSLA under the signature of a duly authorized signing officer, administrative sanctions/penalties shall be imposed on the erring NSSLA for the late reporting or failure to submit the required report, as the case may be. SUBSECTION 4162S.2 Manner of filing . The submission of the reports shall be effected by filing them personally with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices or by sending them registered mail or special delivery, unless otherwise specified in the circular or memorandum of the Monetary Board or the BSP. SUBSECTION 4162S.3 Sanctions and procedures for filing and payment of fines . Failure to submit the above reports on or before the specified dates shall subject the person responsible or entity concerned to the penalties provided by law. For willful delay in the submission of reports, the following rules shall apply: a. Definition of Terms . The following definitions shall apply: (1) Report shall refer to all written reports/statements required of an NSSLA to be submitted to the BSP periodically or within a specified period. (2) Willful delay in the submission of reports shall refer to the failure of any NSSLA to submit on time the report defined in Item " (1) " above. Failure to submit a report on time due to fortuitous events, such as fire and other natural calamities and public disorders, shall not be considered as willful delay. (3) Examination shall include, but need not be limited to, the verification, review, audit, investigation and inspection of the books and records, business affairs, administration and financial condition of any NSSLA including the reproduction of the records as well as the taking possession of the books and records and keeping them under BSP custody after giving proper receipts therefor. It shall also include the interview of the directors and personnel of any NSSLA. (4) Refusal to permit examination shall mean any act or omission which impedes, delays or obstructs the duly authorized BSP officer/examiner/employee from conducting an examination, including the act of refusing to honor a letter of authority to examine presented by any officer/examiner/employee of the BSP. b. Fines for willful delay in submission of reports . NSSLAs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-1, A-2 and A-3 reports Per business day of default Until the report is filed P180 II. For Category B reports Per business day of default Until the report is filed 60 Delay or default shall start to run on the day following the last day required for the submission of reports. However, should the last day of filing fall on a non-working day in the locality where the reporting NSSLA is situated, delay or default shall start to run on the day following the next working day. The due date/deadline for submission of reports to BSP as prescribed under Sec. 4162S governing the frequency and deadlines indicated in Appendix S-2 shall be automatically moved to the next business day whenever a half-day suspension of business operations in government offices is declared due to an emergency such as typhoon, floods, etc. For the purpose of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted or the date of mailing postmarked on the envelope/the date of registry or special delivery receipt, as the case may be, shall be considered as the date of filing. Delayed schedules/attachments and amendments shall be considered late reporting subject to above penalties. c. Sanctions for willful refusal to permit examination/making of false statement (1) Any NSSLA which shall willfully refuse to permit examination shall pay a fine of P3,000 daily from the day of refusal and for as long as such refusal lasts. The provisions of Section 34 of R. A. No. 7653 shall apply to any agent, manager, or other officer-in-charge of any NSSLA who willfully refuses any lawful examination into the affairs of such NSSLA. The willful making of a false statement or misleading statement on a material fact to the Monetary Board or to the director of the department of the BSP charged with the regulation of NSSLAs or to his examiner shall be punished in accordance with Section 36 of R. A. No. 7653. (2) Procedures in imposing the fine (a) The BSP officer/examiner/employee shall report the refusal of the NSSLA to permit examination to the head of the appropriate department of BSP, who shall forthwith make a written demand upon the NSSLA concerned for such examination. If the NSSLA continues to refuse said examination without any satisfactory explanation therefor, the BSP officer/examiner/employee concerned shall submit a report to that effect to the appropriate department head. (b) The fine shall be imposed starting on the day following the receipt by the appropriate department of the written report submitted by the BSP officer/examiner/employee concerned regarding the continued refusal of the NSSLA to permit the desired examination. d. Manner of payment or collection of fines . The regulations embodied in Sec. 4601S shall be observed in the collection of the fines from NSSLAs. e. Appeal to the Monetary Board . NSSLAs may appeal to the Monetary Board from a ruling of the appropriate department imposing a fine. f. Other penalties . The foregoing penalties shall not preclude the application of, or shall be without prejudice to, other administrative sanctions as well as to the filing of criminal case as provided for in the other provisions of the law, as may be warranted by the nature of the offense. SECTIONS 4163S 4170S (Reserved) K. Internal Control SECTION 4171S. External Auditor . NSSLAs except those with total resources of P10,000,000 or less, shall engage the services of an independent Certified Public Accountant to audit their books of accounts at least once a year, or as often as necessary. SECTIONS 4172S 4179S (Reserved) SECTION 4180S. Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity . Under Section 58, R.A. No. 8791, the Monetary Board may require an NSSLA to engage the services of an independent auditor to be chosen by the NSSLA concerned from a list of certified public accountants acceptable to the Monetary Board. It is the policy of the BSP to promote high ethical and professional standards in public accounting practice and to encourage coordination and sharing of information between external auditors and regulatory authorities of banks, quasi-banks, NSSLAs, and/or trust entities to ensure effective audit and supervision of these institutions and to avoid unnecessary duplication of efforts. In furtherance of this policy and to ensure that reliance by regulatory authorities and the public on the opinion of external auditors is well placed, the BSP hereby prescribes the rules and regulations that shall govern the selection, appointment, reporting requirements and delisting for external auditors of banks, quasi-banks, NSSLAs, and/or trust entities, their subsidiaries and affiliates engaged in allied activities and other financial institutions which under special laws are subject to BSP supervision. The selection of external auditors shall be valid for a period of three years. BSP selected external auditors shall apply for the renewal of their selection every three years. The provisions of Items " A " and " B " of Appendix S-8 shall likewise apply for each application for renewal. The Supervision and Examination Sector (SES) shall make an annual assessment of the performance of external auditors and will recommend deletion from the list even prior to the three-year renewal period, if based on assessment, the external auditors' report did not comply with BSP requirements. External auditors who meet the requirements specified in this Section shall be included in the list of BSP selected external auditors. In case of partnership, inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. The BSP will circularize to all banks, quasi banks, trust entities and NSSLAs the list of selected external auditors once a year. The BSP, however, shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks, quasi-banks, trust entities or NSSLAs for regular audit or special engagements. a. Rules and regulations . The rules and regulations to govern the selection and delisting by the BSP of external auditors of NSSLAs and their subsidiaries and affiliates engaged in allied activities are shown in Appendix S-8 . b. Sanctions . The applicable sanctions/penalties prescribed under Sections 36 and 37 of R. A. No. 7653 to the extent applicable shall be imposed on the NSSLA, its audit committee and the directors approving the hiring of external auditors who are not in the BSP list of selected auditors for banks, quasi-banks, NSSLAs, and trust entities or for hiring, and/or retaining the services of the external auditor in violation of any of the provisions of this Section and for non-compliance with the Monetary Board directive under Item " I " in Appendix S-8 . Erring external auditors may also be reported by the BSP to the PRC for appropriate disciplinary action. L. Miscellaneous Provisions SECTION 4181S. Publication Requirements . NSSLAs shall, within 120 calendar days after the close of the calendar year or their fiscal year, as the case may be, furnish the Monetary Board and post in any of the NSSLAs' bulletin boards or in any other conspicuous place a copy of their financial statements showing, in such form and detail as the Monetary Board shall require, the amount and character of the assets and liabilities of the NSSLAs at the end of the preceding fiscal year. The Monetary Board may, in addition to the foregoing, require the disclosure of such other information as it shall deem necessary for the protection of the members of the NSSLA. SECTION 4182S. Business Name . NSSLAs organized or operating under R.A. No. 8367 and licensed by the BSP shall include in their names the words " Savings and Loan Association ". Such NSSLAs shall display in a conspicuous place at their business offices a sign including, among other things, the following words: " Authorized by the Bangko Sentral ng Pilipinas ". SECTION 4183S. Prohibitions . a. No person, association, partnership or corporation shall do business as an NSSLA, or shall use the terms " Savings and Loan Association " or any other title or name tending to give the public impression that it is engaged in the operations and activities of an NSSLA unless so authorized under R.A. No. 8367 and these regulations. b. The use by an NSSLA of any other name or title or combination of names and titles or any other deviation from the requirements of this Section shall not be authorized except upon prior approval of the Monetary Board. c. NSSLAs shall not issue, publish or cause or permit to be issued or published, any advertisement that it is doing or permitted to do business which is prohibited by law to an NSSLA. d. No NSSLA shall advertise or represent itself to its members or to the public as a bank, or as a trust company. SECTIONS 4184S 4198S (Reserved) SECTION 4199S. General Provision on Sanctions . Unless otherwise provided, any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34, 35, 36 and 37 of Republic Act No. 7653, whenever applicable. PART TWO Deposit and Borrowing Operations A. Demand Deposits SECTION 4201S. Checking Accounts . No NSSLA shall have or carry upon its books for any person any demand, commercial or checking account, or any credit to be withdrawn upon the presentation of any negotiable check or draft. SECTIONS 4202S 4205S (Reserved) B. Savings Deposits SECTION 4206S. Definition . Savings deposits are deposits evidenced by a passbook consisting of funds deposited to the credit of one (1) or more individuals with respect to which the depositor may withdraw anytime, unless prior notice in writing of an intended withdrawal is required by the NSSLA. SECTION 4207S. Minimum Deposit . Savings deposits with NSSLAs may be opened with a minimum deposit of P100. SECTION 4208S. Withdrawals . Withdrawal from a savings deposit shall be made through the presentation to the NSSLA of a duly accomplished withdrawal slip together with the depositor's passbook. NSSLAs shall reserve the right to require the depositor to give prior written notice of withdrawal of not more than thirty (30) days. NSSLAs may limit the number of withdrawals that a depositor may make: Provided , That the number of the withdrawals allowed shall not be less than three (3) times a month. A service charge to be determined by the board of trustees of the NSSLA and approved by the BSP, may be charged by the NSSLA for every withdrawal made in excess of the maximum number allowed in any one (1) month. SECTION 4209S. Dormant Savings Deposits . NSSLAs may charge a fee, the amount of which shall be approved by the BSP for the maintenance of dormant savings deposits. Savings deposit shall be classified as dormant if no deposit or withdrawal has been made for the last two (2) years. SECTIONS 4210S 4215S (Reserved) C. (Reserved) SECTIONS 4216S 4220S (Reserved) D. Time Deposits SECTION 4221S. (Reserved) SECTION 4222S. Minimum Term and Size of Time Deposits . a. Term No time deposit shall be accepted for a term of less than thirty (30) days. b. Minimum Size NSSLAs shall not require a minimum amount of time deposit greater than P1,000. SECTION 4223S. Withdrawals of Time Deposits . The withdrawal of a time deposit can be made only by presentation of the certificate of time deposit on the day of or after its maturity. SECTIONS 4224S 4230S (Reserved) E.-F. (Reserved) SECTIONS 4231S 4240S (Reserved) G. Interest on Deposits SECTION 4241S. Interest on Savings Deposits . Savings deposits of NSSLAs shall not be subject to any interest rate ceiling. SECTION 4242S. Interest on Time Deposits . Interest on time deposits shall not be subject to any interest rate ceiling. SUBSECTION 4242S.1 Time of payment . Interest on time deposits may be paid at maturity or upon withdrawal or in advance: Provided, however , That interest paid in advance shall not exceed the interest for one (1) year. SUBSECTION 4242S.2 Treatment of matured time deposits . A time deposit not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn an interest from maturity to the date of actual withdrawal or renewal at a rate applicable to savings deposits. SECTIONS 4243S 4250S (Reserved) H. (Reserved) SECTIONS 4251S 4260S (Reserved) I. Sundry Provisions on Deposit Operations SECTION 4261S. Opening and Operation of Deposit Accounts . The following are basic provisions on the opening and operation of deposit accounts of NSSLAs. SUBSECTION 4261S.1 Who may open deposit accounts . Only members who have contributed P1,000 or more to the capital of the NSSLA may open deposit accounts with NSSLAs. A natural person, although lacking capacity to contract, may nevertheless open a savings or time deposit account for himself, provided he has sufficient discretion. However, he cannot withdraw therefrom, except through, or with the assistance of a guardian authorized to act for him. Parents may deposit for their minor children, and guardians for their wards. Notwithstanding the provisions of the preceding paragraph, the cashier, bookkeeper and their assistants, and other employees of an NSSLA whose duties entail the handling of cash or checks are prohibited from opening savings deposit accounts with the head office or branch of the NSSLA in which they are assigned as such. SUBSECTION 4261S.2 Identification of member-depositors . NSSLAs shall be responsible for the proper identification of their member-depositors. SUBSECTION 4261S.3 Number of deposit accounts . A member-depositor may open and have more than one (1) savings deposit in his own name in the same capacity, and he may open and have various deposits in different capacities such as guardian, agent, or trustee for others. SUBSECTION 4261S.4 Signature card . A signature card bearing at least three (3) specimen signatures of each member-depositor shall be required upon opening of a deposit account. SUBSECTION 4261S.5 Passbook and certificate of time deposit . A savings deposit passbook, signed by the receiving teller and an authorized officer, shall be issued to a member-depositor showing, among other things, his name and address, account number, date, amount of deposit, interest credits and balance. NSSLAs shall pre-number their savings deposit passbooks. In the case of a time deposit, a certificate of time deposit signed by two (2) authorized officers, shall be issued to the member-depositor containing, among other things, his name, amount of deposit, date when the deposit was made, its due date and interest rate. SUBSECTION 4261S.6 Deposits in checks and other cash items . Checks and other cash items may be accepted for deposit by NSSLAs: Provided , That withdrawals from such deposits shall not be made until the check or other cash item is collected. SECTIONS 4262S 4280S (Reserved) J. (Reserved) SECTIONS 4281S 4285S (Reserved) K. Other Borrowings SECTION 4286S. Borrowings . An NSSLA may borrow money or incur such obligation up to not more than twenty percent (20%) of the total assets of the NSSLA, from any public lending institution, and from private banking institutions, and such private lending institutions as may be approved by the Monetary Board: Provided , That the proceeds of such loan shall be used exclusively to meet the normal credit requirements of its members. The Monetary Board may, in meritorious cases, raise the ceiling on the borrowing capacity of an NSSLA to not more than thirty percent (30%) of its total assets. NSSLAs organized by employees of an entity or a corporation may borrow funds from said entity or corporation, but not vice-versa. SECTIONS 4287S 4298S (Reserved) SECTION 4299S. General Provision on Sanctions . Unless otherwise provided, any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34, 35, 36 and 37 of Republic Act No. 7653, whenever applicable. PART THREE Loans and Investments A. Loans in General SECTION 4301S. Authority; Loan Limits; Maturity of Loans . The board of trustees of NSSLAs shall prescribe their own rules and regulations governing credit operations of the NSSLAs within the framework of the terms and conditions embodied in this Section. a. Loan limit to a single borrower . An NSSLA may grant loans not exceeding the amount deposited and/or contributed by the member-borrower plus his twelve (12) months salary or retirement pension from his employment, or up to seventy percent (70%) of the fair market value of any property acceptable as collateral on first mortgage that he may put up by way of security: Provided , That direct indebtedness to an NSSLA of any member-borrower for money borrowed with the exception of money borrowed against obligations of the BSP or of the Philippine Government, or borrowed with the full guarantee of the Philippine Government in the payment of principal and interest, shall not exceed fifteen percent (15%) of the unimpaired capital and surplus of the NSSLA. For purposes of this Section, regular income of persons who are self-employed shall be their average monthly income during the twelve (12)-month period immediately preceding the date of loan application. b. Limitations on lending authority . NSSLAs shall not commit to make any loan for amounts in excess of the total of the following amounts: (1) Amount of cash available for loan purposes; (2) Amount of cash which can be readily realized upon the sale or redemption of permissible investments made by NSSLAs; and (3) Amount of credit available for loan purposes from government or private financing institutions. c. Maximum loan maturity . No loan granted by NSSLAs shall have a maturity date of more than five (5) years except loans on the security of unencumbered real estate for the purpose of home building and home development which may be granted with maturities not exceeding twenty-five (25) years and medium or long-term loans to finance agricultural projects. SECTION 4302S. Basic Requirements in Granting Loans . a. Application . A member-borrower applying for a loan must submit an application stating the purpose of the loan and such other information as may be required by the NSSLA. The loan application and other required documents shall form part of credit information file of the member-borrower in the NSSLA. b. Credit investigation . No loan shall be approved unless prior investigation has been made to determine the credit standing of the applicant and/or the fair market value of the property offered as security and the report thereon shall be made part of the loan application: Provided, however , That this requirement may be waived by an NSSLA in the case of permanent employee or wage earner who is borrowing an amount not exceeding his deposit plus his twelve (12) months regular salary or retirement pension. c. Credit information file/collateral file . An NSSLA shall maintain as far as practicable, a credit information file which must contain, among other things, the member-borrower's application and financial record. Other information relative to the member-borrower, where applicable, shall also be maintained which must contain among other things, the collateral and other documents pertinent to the loan. d. Loan approvals . Loans shall be approved by the NSSLA's board of trustees or if approved by a body or officer/s duly authorized by the board, such loan must be confirmed by the board of trustees. e. Loan agreements . For each loan granted by an NSSLA, a promissory note must be executed by the member-borrower in favor of the NSSLA expressing such particulars as the amount of the loan, date granted, due date, interest rate and other similar information. f. Inscription of lien . In case of mortgage loans, no release against an approved loan shall be made before the inscription of the mortgage. SECTION 4303S. Loan Proceeds . NSSLAs shall in no case require member-borrowers to deposit a portion of the loan proceeds, whether in the form of savings or time deposits. Where, subsequent to the release of the loan proceeds, member-borrowers open deposit accounts or make additional deposits to their existing accounts, no part of such new deposits shall be covered by a stipulation prohibiting or limiting withdrawal while new portion of their loans are outstanding: Provided, however , That this prohibition shall not apply in cases of loans secured by a hold-out on deposits to the extent of the unencumbered amount of the deposit existing at the time of the filing of the above-mentioned loan application. SECTION 4304S. Loan Repayment . The treasurer, cashier or paymaster of the firm employing a member-borrower shall be required, pursuant to R.A. No. 8367, to make deductions from the salary, wage, income or retirement pension of the member-borrower in accordance with the terms of his loan, and all other deductions authorized by the member-borrower, to remit such deductions to the NSSLA concerned and to collect such reasonable fee for his services as may be authorized by rules promulgated by the Monetary Board. SECTION 4305S. Interest and Other Charges . The following rules shall govern the rates of interest and other charges on loans granted by NSSLAs. SUBSECTION 4305S.1 Rate ceilings . (Deleted by Cir. 192.) SUBSECTION 4305S.2 Payment of loan before maturity . (Deleted by Cir. 192.) SUBSECTION 4305S.3 Interest in the absence of contract . In the absence of express contract, the rate of interest for the loan or forbearance of any money, goods or credit and the rate allowed in judgment shall be twelve percent (12%) per annum. SUBSECTION 4305S.4 Escalation clause; when allowable . Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by the Monetary Board: Provided , That such stipulations are valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided, further , That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. SUBSECTION 4305S.5 Accrual of interest earned on loans . NSSLAs shall not accrue interest income on loans which are already past due or on loan installments which are in arrears, regardless of whether the loans are secured or unsecured. Interest on past due loans or loans installments in arrears shall be taken up as income only when actual payments thereon are received. SECTION 4306S. Past Due Accounts . Past due accounts of an NSSLA shall, as a general rule, refer to all accounts which are not paid at maturity. SUBSECTION 4306S.1 Accounts considered past due . The following shall be considered as past due: a. A loan or receivable payable on demand not paid upon written demand as required herein or within one (1) year from date of grant or renewal whichever comes earlier. NSSLAs shall in case of non-payment of a demand loan, make a written demand within six (6) months following the grant of such loan. The demand shall indicate a period of payment which shall not be later than six (6) months from date of said demand. b. The total outstanding balance of a loan or receivable payable in installments, in accordance with the following schedules: Mode of Payment Installments in Arrears Monthly 6 or more Quarterly 2 or more Semestral 1 or more Annual 1 or more Provided, however , That when the total amount of arrearages reaches twenty percent (20%) of the total outstanding balance of the loan, the entire total outstanding balance of the loan shall be considered as past due, irrespective of the number of installments in arrears: Provided, further , That the modes of payment other than those listed above (e.g. daily, weekly or semi-monthly), the entire outstanding balance of the loan/receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total loan/receivable balance; c. Any due and unpaid loan installment or portion hereof, from the time the obligor defaults for the purpose of obligations as defined in Sec. 4143S(d); and d. All items in litigation as defined in the Manual of Accounts for NSSLAs. SUBSECTION 4306S.2 Extension/renewal of loans . Extension of the period of payment of loans may be allowed under the following circumstances: a. For production loans, the extension shall not exceed one-half (1/2) of the original period: Provided , That thirty percent (30%) of the loan shall have been paid. A second extension shall not exceed one-half (1/2) of the period of the first extension. b. For consumer loans, the extension shall not exceed one-half (1/2) of the original period: Provided , That thirty percent (30%) of the loan shall have been paid. Loans payable in periodical installments may be renewed for the full amount of loans: Provided , That at least thirty percent (30%) of the loan shall have been paid. SUBSECTION 4306S.3 Write-off of loans as bad debts . To maximize the protection of members of NSSLAs against misfeasance and malfeasance of the trustees and officers thereof, the Monetary Board adopted the following regulations on writing off of loans by NSSLAs. a. The term loan shall include all types of credit accommodations granted to, and advances made by the NSSLA for the account of the borrowers/debtors, including the interest thereon recorded in the books; b. Writing-off of loans by an NSSLA shall be made not more than twice a year by its board of trustees; c. Notice/application for write-off of loans shall be submitted, in the prescribed form to the appropriate supervising and examining department of the BSP at least thirty (30) days prior to the intended date of write-off: Provided , That no such loans with an aggregate outstanding amount of P15,000 or more, as certified in said notice/application shall be written-off without the prior approval of: (1) The Monetary Board in case of loans to trustees and officers of the NSSLA, direct or indirect; or (2) The head of the appropriate supervising and examining department of the BSP, subject to confirmation by the Monetary Board, in case of loans other than those mentioned in Item " (1) " above. SECTION 4307S. "Truth in Lending Act" Disclosure Requirements . NSSLAs are required to strictly adhere to the provisions of R. A. No. 3765, otherwise known as the "Truth in Lending Act," and shall make the true and effective cost of borrowing an integral part of every loan contract. a. Transactions covered (1) Any loan, mortgage, deed of trust, advance and discount; (2) Any conditional sales contract, any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which, part or all of the price is payable subsequent to the making of such sale or contract; (3) Any option, demand, lien, pledge, or other claim against, or for delivery of, property or money; (4) Any purchase, or other acquisition of, or any credit upon the security of any obligation or claim arising out of any of the foregoing; and (5) Any transaction or series of transactions having a similar purpose or effect. b. Transactions not covered Considering that the specific purpose of the law is the full disclosure of the true cost of credit, the following categories of credit transactions are outside the scope of the above regulations: (1) Credit transactions which do not involve the payment of any finance charge by the debtor; and (2) Credit transactions in which the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds, etc. SUBSECTION 4307S.1 Definition of terms . a. Creditor (who shall furnish the information) means any person engaged in the business of extending credit (including any person who as a regular business practice makes loans or sells or rents property or services on a time, credit, or installment basis, either as principal or as agent), who requires as an incident to the extension of credit, the payment of a finance charge. The term creditor shall include, but shall not be limited to, banks and banking institutions, insurance and bonding companies, savings and loan associations, credit unions, financing companies, installment houses, real estate dealers, lending investors, pawnshops, and any other person or entity engaged in the business of extending credit who requires as an incident to the extension of credit, the payment of a finance charge. b. Person means any individual, corporation, partnership, NSSLA, or other organized group of persons, or the legal successor or representative of the foregoing, and includes the Philippine Government or any agency thereof, or any other government, or any of its political subdivisions, or any agency of the foregoing. c. Cash price or delivered price (in case of trade transactions) is the amount of money which would constitute full payment upon delivery of the property (except money) or service purchased at the creditor's place of business. In the case of financial transactions, cash price represents the amount of money received by the debtor upon consummation of the credit transaction, net of finance charges collected at the time the credit is extended (if any). d. Down payment represents the amount paid by the debtor at the time of the transaction in partial payment for the property or service purchased. e. Trade-in represents the value of an asset, agreed upon by the creditor and debtor, given at the time of the transaction in partial payment for the property or service purchased. f. Non-finance charges correspond to the amounts advanced by the creditor for items normally associated with the ownership of the property or of the availment of the service purchased which are not incident to the extension of credit. For example, in the case of the purchase of an automobile on credit, the creditor may advance the insurance premium as well as the registration fee for the account of the debtor. g. Amount to be financed consists of the cash price plus non-finance charges less the amount of the down payment and value of the trade-in. h. Finance charge represents the amount to be paid by the debtor incident to the extension of credit such as interest or discounts, collection fees, credit investigation fees, attorney's fees, and other service charges. The total finance charge represents the difference between (i) the aggregate consideration (down payment plus installments) on the part of the debtor, and (ii) the sum of the cash price and non-finance charges. i. Simple annual rate is the uniform percentage which represents the ratio, on an annual basis, between the finance charges and the amount to be financed. In the case of single payment upon maturity, the simple annual rate (R) in percent is determined by the following method: finance charge 12 R = x x 100 amount to maturity period be financed in months In the case of the normal installment type of credit of at least one (1) year in duration, where installment payments of equal amount are made in regular time periods spaced not more than one (1) year apart, R in percent is computed by the following method: Number of payments finance charge in a year R =2 x x x 100 amount to total number be financed of payments plus one In cases where the credit matures in less than one (1) year [e.g., installment payments are required every month for six (6) months], the same formula will apply except that the number of payments in a year would refer to the number of installment periods, as defined in the credit contract, as if the credit matures in one (1) year. For example, the number of payments in a year would be twelve (12) for this purpose in cases where six (6) monthly installment payments are called for in the credit transaction. 1 In cases where credit terms provide for premium or penalty charges depending on, say, the timelines of the debtor's payments, the annual rate to be disclosed in writing shall be the rate for regular payments, i.e., the premium and penalty need not be taken into account in the determination of the annual rate. Such premium or penalty charges shall, however, be indicated in the credit contract. SUBSECTION 4307S.2 Information to be disclosed NSSLAs shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth the following information to be disclosed. a. The cash price or delivered price of the property or service to be acquired; b. The amounts, if any, to be credited as down payment and/or trade-in; c. The difference between the amounts set forth under Items " a " and " b "; d. The charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; e. The total amount to be financed; f. The finance charges expressed in terms of pesos and centavos; and g. The percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. The contract covering the credit transaction, or any other document to be acknowledged and signed by the debtor, shall indicate the above seven (7) items of information. In addition, the contract or document shall specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the debtor. In case the seven (7) items of information mentioned in this Section are not disclosed in the contract covering the credit transaction, said items to the extent applicable, shall be disclosed in another document in the form ( Appendix S-4 ) prescribed by the Monetary Board, to be signed by the debtor and appended to the main contract. A copy of the disclosure statement shall be furnished the borrower. SUBSECTION 4307S.3 Inspection of contracts covering credit transactions . NSSLAs shall keep in their office or place of business copies of contracts covering all credit transactions entered into by them which involve the extension of credit to another and the payment of finance charges therefor. Such copies shall be available for inspection or examination by the appropriate supervising and examining departments of the BSP. SUBSECTION 4307S.4 Posters . An abstract of R.A. No. 3765 otherwise known as the "Truth in Lending Act" ( Appendix S-5 ) shall be reproduced in a format which is sixty (60) cm. wide and seventy-five (75) cm. long, and posted on a conspicuous place in the NSSLAs' place(s) of business. SUBSECTION 4307S.5 Penal provisions . a. NSSLAs which in connection with any credit transaction fail to disclose to any person any information in violation of this Section or any regulation issued hereafter shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such NSSLAs in connection with such transactions, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person within one (1) year from the date of the occurrence of the violation, in any court of competent jurisdiction. In any action under this Subsection in which any person is entitled to a recovery, the NSSLAs shall be liable for reasonable attorney's fees and court costs as determined by the court. b. Except as specified in Item " a " above, nothing contained in this rule shall affect the validity or enforceability of any contract or transaction. c. Any person who willfully violates any provision of this Section or regulation issued hereafter shall be fined by not less than P1,000 nor more than P5,000 or imprisonment for not less than six (6) months, nor more than one (1) year or both. d. No punishment or penalty provided by this Section shall apply to the Philippine Government or any agency or any political subdivision thereof. SECTIONS 4308S 4320S (Reserved) B. Secured Loans SECTION 4321S. Kinds of Security . Loans by an NSSLA may be secured by any or all of the following: a. Mortgages on registered real estate; b. Chattel mortgages on harvested or stored crops of non-perishable character; c. Chattel mortgages on livestock, tools, equipment or machinery, supplies or materials, merchandise and other personal properties; d. Assignment of quedans which gives the right of disposal of readily marketable products; e. Time and/or savings deposits and/or capital contribution; f. Pledge of bonds, stock and other securities of the government or government-owned or controlled corporations and other bonds, stocks or securities which are non-speculative in nature; g. Land transfer certificates issued by the government to tenant farmers, under the agrarian reform program to the extent of sixty percent (60%) of the value of the farm holdings: Provided , That a certification shall be first secured from the office of the Registry of Deeds to the effect that the Land Transfer Certificate being presented is valid; and h. Other securities as may be approved by the Monetary Board. SECTION 4322S 4335S. (Reserved) C.-D. (Reserved) SECTION 4336S 4355S. (Reserved) E. Loans/Credit Accommodations to Trustees, Officers, Stockholders and their Related Interests SECTION 4356S. General Policy . The transactions of all trustee or officers with the NSSLA shall not be under terms more favorable than those transacted with other members. SECTION 4357S. Direct/Indirect Borrowings; Ceilings . No NSSLA shall directly or indirectly make any loan to any trustee or officer of such NSSLA, either for himself or as agent or as partner of another, except with the written approval of the majority of the trustees of the NSSLA, excluding the trustee concerned: Provided , That the aggregate loans to such trustees and officers shall not exceed twenty percent (20%) of the total capital contributions of the NSSLA. SECTION 4358S. Records; Reports . In all cases of accommodations granted to trustees and officers under Sec. 4357S, the written approval of the majority of the trustees of the NSSLA, excluding the trustee concerned, shall be entered upon the records of the NSSLA and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the BSP within twenty (20) business days from the date of approval. SECTIONS 4359S 4369S (Reserved) SECTION 4370S. Sanctions . The office of any trustee or officer of an NSSLA who violates the provisions of these rules on accommodations granted to trustee and officers shall immediately become vacant and said trustees or officer shall be punished by imprisonment of not more than one (1) year nor more than ten (10) years and by a fine of not less than P5,000 nor more than P50,000.00 pursuant to Section 15 of R.A. No. 8367. F.-I. (Reserved) SECTIONS 4371S 4390S (Reserved) J. Other Operations SECTION 4391S. Fund Investments . An NSSLA may invest its funds in any or all of the following: a. In bonds and securities in an aggregate amount not exceeding ten percent (10%) of its total assets; any investment in excess of ten percent (10%) shall require the prior approval of the BSP: Provided , That NSSLAs may invest available funds in excess of ten percent (10%) of total assets in sound non-speculative enterprise, particularly in readily marketable and high grade commercial papers, bonds and securities issued by the Government of the Philippines or any of its political subsidiaries, instrumentalities or corporations including government-owned or -controlled corporations, subject to the following conditions: (1) The credit needs of the members shall be served/satisfied first; (2) The investment in any one (1) corporation (excluding the Government of the Philippines, any of its political subdivisions, instrumentalities, or corporations including government-owned or -controlled corporations), shall not exceed twenty-five percent (25%) of the Association's combined capital accounts; and (3) The additional investment may be up to another ten percent (10%) of the Association's total assets; b. In real property, in an aggregate amount not exceeding at any one time five percent (5%) of the total assets of such NSSLA; and c. In furniture, fixtures, furnishings and equipment, and leasehold improvements for its offices, in amount not exceeding at any one time ten percent (10%), of its total capital contribution. SECTIONS 4392S 4395S (Reserved) K. Miscellaneous Provisions SECTIONS 4396S 4398S (Reserved) SECTION 4399S. General Provision on Sanctions . Unless otherwise provided, any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34, 35, 36 and 37 of Republic Act No. 7653, whenever applicable. PART FOUR SECTIONS 4401S 4499S (Reserved) PART FIVE SECTIONS 4501S 4599S (Reserved) PART SIX Miscellaneous A. Other Operations SECTION 4601S. Payment of Fines . (1) NSSLAs shall, within thirty (30) calendar days from receipt of the statement of account from the BSP, pay the fines imposed thereon for willful failure or refusal to comply with, or violation of, any law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor. (2) Failure to settle the full amount of the fines within the period or on the day prescribed herein shall make an NSSLA, its trustees and officers liable to the sanctions imposed under Sec. 4199S. SECTION 4602S 4630S. (Reserved) SECTION 4631S. Revocation/Suspension of NSSLA License . In reference to Section 22 of R.A. No. 8367 or the Revised Non-Stock Savings and Loan Association Act of 1997, the Monetary Board, upon due notice and hearing, has the authority to either revoke or suspend the license of any NSSLA for such period as it deems necessary, based on any of the following grounds: a. Suspension of license : (1) Repeated violations (uncorrected similar examination findings for the last two examinations, regular or special,) of any of the provisions of R.A. No. 8367, and/or any rules or regulations promulgated to implement said law, or BSP directives and/or instructions; and (2) Paid-up capital is impaired by continuing losses for the last two (2) fiscal years. Lifting of the suspension of license shall be approved by the Monetary Board upon recommendation of the appropriate BSP supervising department. b. Revocation of license : (1) When the solvency of the NSSLA is imperiled by losses and irregularities; (2) When the NSSLA willfully violates any provision of R.A. No. 8367, any rule or regulation promulgated to implement said law and BSP directives and/or instructions; (3) When the NSSLA is conducting business in an unsafe and unsound manner; (4) When it is unable to pay its liabilities as they become due in the ordinary course of business; (5) When it has insufficient realizable assets, as determined by the BSP, to meet its liabilities; (6) When it cannot continue in business without involving probable losses to its members or creditors; and (7) When it has willfully violated a cease and desist order of the Monetary Board involving acts or transactions which amount to fraud or a dissipation of assets of the institution. As to the effects of the revocation/suspension of license of the NSSLA, the NSSLA is prohibited from engaging in the business of accumulating the savings of its members and using such accumulations for loans to its members, subject to applicable sanctions and penalties provided by law in case of violation thereof. After the cessation of its operations due to revocation of its license, the NSSLA should proceed with its dissolution, in accordance with the provisions under the Corporation Code. The dissolution of a corporation involves the termination of its corporate existence, at least, as far as the right to go on doing ordinary business is concerned, and the winding up its affairs, the payments of its debts and distribution of its assets among the members or stakeholders or other persons involved. The board of trustees of the corporation also has the option of adopting a plan for the distribution of its assets, as stated under Section 95 of the Corporation Code. After the revocation/suspension of its license, the Monetary Board may direct the board of trustees of the NSSLA to proceed with the voluntary dissolution of the corporation. In the event that the board of trustees refuses to effectuate such dissolution, the Monetary Board may refer the matter to the Solicitor General for the filing of a quo warranto case against the corporation in accordance with the provision under the Corporation Code. SECTIONS 4632S 4650S (Reserved) B. Sundry Provisions SECTION 4651S. Notice of Dissolution . NSSLAs contemplating to dissolve shall give written notice thereof to the Monetary Board through the appropriate supervising and examining department of the BSP at least thirty (30) days before taking steps to effect dissolution. SECTION 4652S. Confidential Information . No trustee, officer or employee of NSSLAs or of the BSP shall disclose any information relating to member-borrowers and their applications or to the operations of the NSSLAs unless permitted by the Monetary Board of the BSP: Provided, however , That in the case of NSSLAs under examination, the head of the appropriate supervising and examining department of the BSP may furnish findings of examination to the office or firm where such NSSLAs do business. All deposits of whatever nature with NSSLAs are considered absolutely confidential in nature, and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of competent court in cases of bribery or dereliction of duty of public officials or in cases where the money deposited or invested is the subject matter of litigation. No official or employee of NSSLAs shall disclose to any person any information concerning said deposits, except in cases mentioned in the preceding paragraph. Any official or employee of NSSLAs who violates this Section shall be punished under R. A. No. 1405, as amended. SECTION 4653S. Examination by the BSP . The head of the appropriate supervising and examining department of the BSP, personally or by deputy, shall make at least once a year and at such other times as he or the Monetary Board may deem necessary and expedient, an examination, inspection or investigation of the books and records, business affairs, administration and financial condition of NSSLAs. SECTION 4654S. Applicability of Other Rules . Other rules and regulations applicable to the examination of thrift banks, insofar as they are applicable and not inconsistent with these rules shall apply to NSSLAs. SECTION 4655S. Annual Fees on Non-Stock Savings and Loan Association . For purposes of computing the annual fees chargeable against NSSLAs, the term Total Assessable Assets shall be the amount referred to as the total assets under Section 28 of R.A. No. 7653 {end-of-quarter total assets per balance sheet, after deducting cash on hand and amounts due from banks, including the BSP and banks abroad}. Average Assessable Assets (AAAs) shall be the summation of end-of-quarter total assessable assets divided by the number of quarters in operation during the particular assessment period. The prescribed rate of annual fees for NSSLAs, assessable only when actual examination is conducted for the year, shall be one-fortieth of one percent (1/40 of 1%) of AAAs for 2002 or P100,000 whichever is lower, payable within thirty (30) days from receipt of the bill. Failure to pay the bill within the prescribed period shall subject the NSSLAs to administrative sanctions. SECTION 4656S. Basic Law Governing Non-Stock Savings and Loan Associations . R.A. No. 8367, as amended, known as the "Revised Non-Stock Savings and Loan Association Act of 1997", regulates the organization and operation of NSSLAs. SECTION 4657S. NSSLA Premises and Other Fixed Assets . The following rules shall govern the premises and other fixed assets of NSSLAs. SUBSECTIONS 4657S.1 4657S.2 (Reserved) SUBSECTION 4657S.3 Reclassification of real and other properties owned or acquired as NSSLA premises . Real and other properties owned or acquired (ROPOA) reclassified either as Real Property-Land or Real Property-Building shall be booked at their ROPOA balance, net of any valuation reserves: Provided , That only such acquired asset or a portion thereof that will be immediately used or earmarked for future use may be reclassified and booked as Real Property-Land/Building. NSSLAs, prior to the reclassification of their ROPOA accounts to Real Property-Land/Building, shall first secure prior BSP approval before effecting the reclassification and shall submit, in case of future use, justification and plans for expansion/use. SUBSECTIONS 4657S.4 4657S.8 (Reserved) SUBSECTION 4657S.9 Batas Pambansa Blg. 344 An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments And Public Utilities To Install Facilities And Other Devices . In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they live and the enjoyment of the opportunities available to other citizens, no license or permit for the construction, repair or renovation of public and private buildings for public use, educational institutions, airports, sports and recreation centers and complexes, shopping centers or establishments, public parking places, workplaces, public utilities, shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building, establishment or public utility, such architectural facilities or structural features as shall reasonably enhance the mobility of disabled persons such as sidewalks, ramps, railings and the like. If feasible, all such existing buildings, institutions, establishments, or public utilities may be renovated or altered to enable the disabled persons to have access to them. SECTION 4658S 4690S (Reserved) SECTION 4691S. Anti-Money Laundering Regulations . Banks, offshore banking units (OBUs), quasi-banks (QBs), trust entities, non-stock savings and loan associations (NSSLAs), pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the BSP, otherwise known as "covered institutions" shall comply with the provisions of R.A. No. 9160, as amended, otherwise known as the "Anti-Money Laundering Act of 2001" and its Implementing Rules and Regulations (IRRs) in Appendix S-7 and those in Appendix S-6 . SUBSECTIONS 4691S.1 4691S.8 (Reserved) SUBSECTION 4691S.9 Sanctions and penalties a. Whenever a covered institution violates the provisions of Section 9 of R.A. No. 9160 or of this Section, the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50,000 nor more than P200,000 or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court pursuant to Section 36 of R.A. No. 7653, otherwise known as "The New Central Bank Act". b. Without prejudice to the criminal sanctions prescribed above against the culpable persons, the Monetary Board may, at its discretion, impose upon any covered institution, its directors and/or officers for any violation of Section 9 of R.A. No. 9160, the administrative sanctions provided under Section 37 of R.A. No. 7653. SECTIONS 4692S 4698S (Reserved) SECTION 4699S. General Provision on Sanctions . Unless otherwise provided, any violation of the provisions of this Part shall be subject to the sanctions provided in Sections 34, 35, 36 and 37 of Republic Act No. 7653, whenever applicable. Appendix S-1 SAFEGUARDS IN BONDING OF NSSLA ACCOUNTABLE OFFICERS AND EMPLOYEES ( Appendix to Sec. 4145S ) 1. The Teller . He should not be allowed to accumulate more than a specific maximum amount to be determined by the association but in no case to exceed P10,000 in cash at any given time while in the performance of his duties. The procedures in this regard are as follows: a. Cash . All cash in excess of the maximum amount determined by the association shall be turned over to the cashier. When deposits received by a teller will increase his cash in excess of the maximum limit, the teller shall immediately make a cash turn-over of, at least, the excess. Thus, although his transactions during the day may total more than the maximum limit, the amount of money directly in his custody at any given time will never exceed the limit. b. Checks and Other Cash Items (COCIs) . All COCIs received by a teller should be stamped as "NON-NEGOTIABLE." The stamping should be made diagonally on the face of the check. Thus, all checks that are received by the tellers lose their further negotiability. There should, however, be an agreement with the association's depository banks whereby they will accept for deposit only to the account of the association the COCI previously stamped by the tellers as "NON-NEGOTIABLE." Therefore, only the association and nobody else can further negotiate these checks, and only the association's depository bank will accept them and solely for deposit to its account. Thus, even in the remote possibility that someone presents a COCI stolen from the association to one of its depository banks, it will not be accepted for encashment. 2. The COCIs Clerk . In view of the fact that all COCIs received by the tellers are stamped "NON-NEGOTIABLE" as detailed above, the COCIs clerk who records and processes these checks carries no accountabilities whatsoever. From the moment that a check is received up to the moment that it is deposited to the account of the association with one of its depository banks, that check is just a piece of paper to be processed and recorded. It will only reassume its negotiability upon its receipt by the association's depository bank. In cases, however, where checks are received by mail, the COCIs clerk shall be charged with the duty of stamping the checks as "NON-NEGOTIABLE." 3. As an added precautionary measure, the manager/accountant/loan officer should check from time to time whether all COCIs received are stamped "NON-NEGOTIABLE." In the event that a COCI is not so stamped and results in financial loss on the part of the association, the employee charged with the duty to stamp and who failed to do so, shall be held personally responsible, together with the manager/accountant/loan officer, for the loss. Appendix S-2 LIST OF REPORTS REQUIRED FROM NON-STOCK SAVINGS AND LOAN ASSOCIATIONS (Appendix to Sec. 4162S) Report Frequency of Deadline for Submission Category BSP Form No. Subject of Report Reporting Submission Procedure A-2 BSP 7-26-02H Consolidated Statement of Condition Quarterly 30th day after end of Original - SED III each quarter A-3 BSP 7-26-03H Consolidated Statement of Income and -do- -do- -do- Expenses A-3 BSP 7-26-18.1H Copy of entry in NSSLA records of written As 20th business day -do- approval of majority of directors on credit approved from date of approval -do- accommodation to directors and officers with accompanying Certification on Loans Granted to Directors/Officers B Audited/Unaudited Financial Statements Annually 120th/60th day after -do- required in Sec. 4181S accompanied by end of fiscal year as annual report * (to members, if any) required in Sec. 4181S B BSP 7-26-01H Information Sheet Annually ** 30th day after -do- calendar year-end B BSP 7-26-01.1H Biographical Data of Directors/Officers Annually ** 30th day after calendar -do- year-end or 15th day following creation or filling up of vacancy in Board of Directors, sub-bodies or Board or managerial staff of NSSLAs B BSP 7-26-20H Report on Crimes/Losses As crime/ See Annex S-2-a for -do- incident guidelines on reporting occurs crimes and losses B BSP 7-26-25H Dividends Declaration As declared 10th business day Original - SED III after date of declaration B - Report of Discrepancies of Accounts Everytime a 15th day from -do- discrepancy discovery of occurs *** discrepancy B - Notice/Application for Write-Off of Loans As write-off 30th day prior to the -do- occurs intended date of write-off B - Board Resolution on NSSLA's signatories As 3rd day from date of -do- to reports submitted to Bangko Sentral authorized resolution A-2 Unnumbered Report on Suspicious Transactions As 5th business day To be submitted transaction from date of transaction/ to the Anti-Money occurs knowledge Laundering Council B Unnumbered Report on Covered Transactions -do- -do- -do- A-2 Unnumbered Plan of action to comply with Anti-Money - 30th business day -do- Laundering requirements from July 31, 2000 or from opening of the institution Unnumbered (no Certification of compliance with existing Annually 20th business day -do- prescribed form) anti-money laundering regulations after end of reference year Audit Engagement Contract As contract 15th calendar day -do- is signed from date of signing of contract * Required of NSSLAs with total resources of P10 million more ** Not required where no change occurs *** Not required where the discrepancies do not exceed 1% of NSSLA's net worth or P100,000, whichever is lower APPENDIX S-2-a REPORTING GUIDELINES ON CRIMES/LOSSES ( Annex to Appendix S-2 ) 1. NSSLAs shall report on the following matters through the appropriate supervising and examining department: a. Crimes whether consummated, frustrated or attempted against property/facilities (such as robbery, theft, swindling or estafa, forgery and other deceits) and other crimes involving loss/destruction of property of the NSSLA when the amount involved in each crime is P20,000 or more. Crimes involving NSSLA personnel, regardless of whether or not such crimes involve the loss/destruction of property of the NSSLA, even if the amount involved is less than those above specified, shall likewise be reported to the BSP. b. Incidents involving material loss, destruction or damage to the institution's property/facilities, other than arising from a crime, when the amount involved per incident is P20,000 or more. 2. The following guidelines shall be observed in the preparation and submission of the report. a. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident, the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator, thru the Director, Security Investigation and Transport Department. b. Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the five (5)-business day deadline may be accepted: Provided , That a complete report is submitted not later than fifteen (15) business days from termination of investigation. Appendix S-3 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION ( Appendix to Subsec. 4162S.1 ) Category A-1 reports shall be signed by the chief executive officer, or in his absence, by the executive vice-president, and by the comptroller, or in his absence, by the chief accountant, or by officers holding equivalent positions. The designated signatories in this category, including their specimen signatures, shall be contained in a resolution approved by the board of directors in the format prescribed in Annex S-3-a. Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex S-3-b. Categories A-3 and B reports shall be signed by officers or their alternates, who shall be duly designated by the board of directors. A copy of the board resolution, with format as prescribed in Annex S-3-c. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) business days from the date of resolution. ANNEX S-3-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS ( Annex to Appendix S-3 ) Resolution No. ____ Whereas, it is required under Subsec. 4162S.1 that Category A-1 reports be signed by the Chief Executive Officer, or in his absence, by the Executive Vice President, and by the comptroller, or in his absence, by the Chief Accountant, or by officers holding equivalent positions. Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of (Name of Institution), are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's Chief Executive Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be, and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: 1. Mr. ________ President _____________________ Specimen Signature or 2. Mr. ________ Executive Vice-Pres. _____________ Specimen Signature and 3. Mr. _______ Comptroller _____________________ Specimen Signature or 4. Mr. _______ Chief Accountant _________________ Specimen Signature are hereby authorized to sign Category A-1 reports of ___________________; (Name of Institution) Done in the City of _________, Philippines, this _______ day of _____________, 19_____. ___________________________ CHAIRMAN OF THE BOARD ___________ ___________ DIRECTOR DIRECTOR ___________ ___________ DIRECTOR DIRECTOR ___________ ___________ DIRECTOR DIRECTOR ATTESTED BY: __________________________ CORPORATE SECRETARY ANNEX S-3-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS ( Annex to Appendix S-3 ) Resolution No. _____ Whereas, it is required under Subsec. 4162S.1 that Category A-2 reports of head offices be signed by the President, Executive Vice-Presidents, Vice-Presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of (Name of Institution), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No. are hereby authorized to sign the Category A-2 reports indicated above of ________________; (Name of Institution) Done in the City of ________, Philippines, this _______ day of ___________, 19_____. __________________________ CHAIRMAN OF THE BOARD ___________ ___________ DIRECTOR DIRECTOR ___________ ___________ DIRECTOR DIRECTOR ___________ ___________ DIRECTOR DIRECTOR ATTESTED BY: __________________________ CORPORATE SECRETARY ANNEX S-3-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS ( Annex to Appendix S-3 ) Resolution No. _____ Whereas, it is required under Subsec. 4162S.1 that Categories A-3 and B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of (Name of Institution) are conscious that, in designating the officials who would sign said Categories A-3 and B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Signatory/ Speciment Position Report Alternate Signature Title No. 1. Authorized ( Alternate ) 2. Authorized ( Alternate ) etc. are hereby authorized to sign Categories A-3 and B reports (Name of Institution). Done in the City of ________, Philippines, this _____ day of ______________, 19____. __________________________ CHAIRMAN OF THE BOARD ___________ ___________ DIRECTOR DIRECTOR ___________ ___________ DIRECTOR DIRECTOR ___________ ___________ DIRECTOR DIRECTOR ATTESTED BY: __________________________ CORPORATE SECRETARY Appendix S-4 FORMAT-DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION ( Appendix to Subsec. 4307S.2 ) ________________________ (Business Name of Creditor) DISCLOSURE STATEMENT OF LOAN/CREDIT TRANSACTION (SINGLE PAYMENT OR INSTALLMENT PLAN) (As required under R.A. 3765, Truth in Lending Act) Name of Borrower _______________________________________________ Address ________________________________________________________ 1. Cash/Purchase Price _____________ (Item Purchased) or Net Proceeds of Loan P _______________ 2. LESS: Downpayment and/or Trade-in Value (Not applicable for loan transaction) ___________________ 3. Unpaid Balance of Cash/Purchase Price or Net Proceeds of Loan _________________ 4. Non-Finance Charges [Advanced by Seller/Creditor]: a. Insurance Premium P ___________ b. Taxes ___________ c. Registration Fees ___________ d. Documentary/Science Stamps ___________ e. Notarial Fees ___________ f. Others: ___________ ___________ ___________ ___________ ___________ ___________ Total Non-Finance Charges ___________ 5. Amount to be Financed (Items 3 + 4) P ========== 6. Finance Charges * a. Interest _______% p.a. from ________ to ________ P___________ [ ] Simple [ ] Monthly [ ] Compound [ ] Quarterly [ ] Semi-Annual [ ] Annual b. Discounts ___________ c. Service/Handling Charges ___________ d. Collection Charges ___________ e. Credit Investigation Fees ___________ f. Appraisal Fees ___________ g. Attorney's/Legal Fees ___________ h. Other charges incidental to the extension of credit (specify): ___________ ___________ ___________ ___________ ___________ ___________ Total Non-Finance Charges P ========== 7. Percentage of Finance Charges to Total Amount Financed (Computed in accordance with Subsec. 4307S.1) ___________ % 8. Effective Interest Rate (Method of computation attached) ___________ % 9. Payment P ========== a. Single Payment due ______________ (Date) P ========== b. Total Installment Payments P ========== (Payable in _____ weeks/months @ P_____) 10. Additional charges in case certain stipulations in the contract are not met by the debtor: Nature Rate Amount ______________ ______________ ______________ ______________ ______________ ______________ ______________ ______________ ______________ ______________ ______________ ______________ CERTIFIED CORRECT: _____________________ (Signature of Creditor/ Authorized Representative Over Printed Name) ______________ Position I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO THE TERMS AND CONDITIONS THEREOF. _________________________ (Signature of Buyer/Borrower Over Printed Name) DATE _____________ NOTICE TO BUYER/BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. * Time price differential should be disclosed as a finance charge. If an itemization cannot be made, a lump-sum figure may be reported under Other charges incidental to the extension of credit in Item 6h . Appendix S-5 ABSTRACT OF "TRUTH IN LENDING ACT" (Republic Act No. 3765) ( Appendix to Subsec. 4307S.4 ) SECTION 1. This Act shall be known as the "Truth in Lending Act." SECTION 2. Declaration of Policy . It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. xxx xxx xxx Sec. 3. As used in this Act, the term xxx xxx xxx (3) "Finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the extension of credit as the Board may by regulation prescribe. xxx xxx xxx Sec. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) the cash price or delivered price of the property or service to be acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in; (3) the difference between the amounts set forth under clauses (1) and (2); (4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; (5) the total amount to be financed; (6) the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. xxx xxx xxx Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. xxx xxx xxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,000 nor more than P5,000 or imprisonment for not less than 6 months nor more than one year or both. xxx xxx xxx (d) Any final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding brought by any other party against such defendant under this Act as to all matters respecting which said judgment would be an estoppel as between the parties thereto. Sec. 7. This Act shall become effective upon approval. Approved, June 22, 1963. Appendix S-6 ANTI-MONEY LAUNDERING REGULATIONS ( Appendix to Section 4691S ) Banks, quasi-banks, trust entities and all other institutions, and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R.A. No. 9160 and the following rules and regulations on anti-money laundering. 1. Customer identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. When establishing business relations or conducting transactions (particularly opening of deposit accounts, accepting deposit substitutes, entering into trust and other fiduciary transactions, renting of safety deposit boxes, performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients. Said client identification may be based on official or other reliable documents and records. a. In cases of corporate and other legal entities, the following measures should be taken, when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both, proof of incorporation, including information concerning the customer's name, legal form, address, directors, principal officers and provisions regulating the power behind the entity. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. b. In case of doubt as to whether their purported clients or customers are acting for themselves or for another, reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. c. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. In case where numbered accounts is allowed (i.e., peso and foreign currency non-checking numbered accounts), covered institutions should ensure that the client is identified in an official or other identifying documents. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts. Covered institutions shall phase out within a period of one (1) year from April 2, 2001 or upon their maturity, whichever is earlier, anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them, which are not expressly allowed under existing law. d. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by the covered institutions should be renewed/updated at least every other year. e. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. With respect to closed accounts, the records on customer identification, account files and business correspondence, shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Such records must be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal behaviour. f. Special attention should be given to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies. g. Covered institutions should not, or should at least avoid, transacting business with criminals. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. 2. Programs against money laundering . Programs against money laundering should be developed. These programs, should include, as a minimum: a. The development of internal policies, procedures and controls, including the designation of compliance officers at management level, and adequate screening procedures to ensure high standards when hiring employees; b. An ongoing employee training program; and c. An audit function to test the system. 3. Submission of plans of action . Covered institutions shall submit a plan of action on how to comply with the requirements of App. S-6 nos. 1, 2 and 4 within thirty (30) business days from July 31, 2000 or from opening of the institution. 4. Required reporting of certain transactions . If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R.A. No. 9160 and/or its IRRs, the transactions involving such funds or attempts to transact the same, should be reported to the Anti-Money Laundering Council (AMLC) in accordance with Rules 5.2 and 5.3 of the AMLA IRRs. a. Report on suspicious transactions . 1 Banks shall report covered transactions and suspicious transactions, as defined in Rules 5.2 and 5.3 of the AMLA IRRs, to the AMLC using the forms prescribed by the AMLC. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose; (2) Inward remittances without visible lawful purpose or without underlying trade transactions; (3) Unusual purchases of foreign exchange without visible lawful purpose; (4) Unusual sales of foreign exchange whose sources are not satisfactorily established; (5) Complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose; (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities; and (7) All other suspicious transactions/activities which can be reported without violating any law. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. (b) A brief description of the transaction or transactions. (c) Date or date the transaction(s) occurred. (d) Amount(s) involved in every transaction. (e) Such other relevant information which can be of help to the authorities should there be an investigation. b. Exemption from Bank Secrecy Law . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates shall not be deemed to have violated R.A. No. 1405, as amended; R.A. No. 6426, as amended; R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, shall be criminally liable. However, no administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under R.A. 9160 or any other Philippine law. c. Prohibition from disclosure of the covered transaction report . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. 5. Certification of compliance with anti-money laundering regulations . Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification (Annex S-6-a) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations. The certification shall be submitted in accordance with Appendix S-2 and shall be considered a Category A-2 report. ANNEX S-6-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS ( Annex to Appendix S-6 ) CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 2 April 2001, we hereby certify: 1. That we have monitored (Name of NSSLA)'s compliance with R.A. No. 9160 (Anti-Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259 and 302; 2. That the NSSLA is complying with the required customer identification, documentation of all new clients, and continued monitoring of customer's activities; 3. That the NSSLA is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years; 4. That the NSSLA does not maintain anonymous or fictitious accounts; and 5. That we conduct regular anti-money laundering training sessions for all NSSLA officers and selected staff members holding sensitive positions. ________________________ ________________________ (Name of President or officer (Name of Compliance of equivalent rank) Officer) SUBSCRIBED AND SWORN to before me, _____ this ____ day of ____________, affiant/s exhibiting to me their Residence Certificates as follows: Community Date/Place Name Tax Cert. No Issued Doc. No. ________; Notary Public Page No. ________; Book No. ________; Series of 2002 ANNEX S-6-b AMLC Resolution No. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS ( Annex to Appendix S-6 ) 1. All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property. 2. Banks shall file covered transaction reports (CTRs) on transactions involving all kinds of monetary instruments or property, i.e., in cash or non-cash, whether in domestic or foreign currency. 3. Covered institutions, other than banks, shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. Due to the nature of the transactions in the stock exchange, only the brokers-dealers shall be required to file CTRs and STRs. The PSE, PCD, SCCP and transfer agents are exempt from filing CTRs. They, are however, required to file STRs when the transactions that pass through them are deemed to be suspicious. 4. Where the covered institution engages in bulk transactions with a bank, i.e., deposits of premium payments in bulk or settlements of trade, and the bulk transactions do not distinguish clients and their respective transaction amounts, said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500,000 and are included in the bulk transactions. 5. With respect to insurance companies, when the total amount of the premiums for the entire year, regardless of the mode of payment (monthly, quarterly, semi-annually or annually), exceeds P500,000, such amount shall be reported as a covered transaction, even if the amounts of the amortizations are less than the threshold amount. The CTR shall be filed upon payment of the first premium amount, regardless of the mode of payment. Under this rule, the insurance company shall file the CTR only once every year until the policy matures or rescinded, whichever comes first. 6. The submission of CTRs is deferred until the AMLC directs otherwise. Submission of STRs, however, are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require. Appendix S-7 REVISED IMPLEMENTING RULES AND REGULATIONS R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194 ( Appendix to Sec. 4691S ) RULE 1 Title Rule 1.a. Title . These Rules shall be known and cited as the "Revised Rules and Regulations Implementing Republic Act No. 9160", (the Anti-Money Laundering Act of 2001 [AMLA]), AS AMENDED BY REPUBLIC ACT NO. 9194. Rule 1.b. Purpose . These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA, AS AMENDED BY REPUBLIC ACT NO. 9194. RULE 2 Declaration of Policy Rule 2. Declaration of Policy . It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. RULE 3 Definitions Rule 3. Definitions . For purposes of THIS ACT, the following terms are hereby defined as follows: Rule 3.a . " Covered Institution " refers to: Rule 3.a.1 . Banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng Pilipinas (BSP). (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank, quasi-bank, trust entity or any other institution supervised or regulated by the BSP. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank, quasi-bank, trust entity, or any other institution supervised and/or regulated by the BSP. Rule 3.a.2 . Insurance companies, insurance agents, insurance brokers, professional reinsurers, reinsurance brokers, holding companies, holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). (a) An insurance company includes those entities authorized to transact insurance business in the Philippines, whether life or non-life and whether domestic, domestically incorporated or branch of a foreign entity. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Transacting insurance business includes making or proposing to make, as insurer, any insurance contract, or as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety, doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Presidential Decree (P.D.) No. 612, as amended, including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P.D. No. 612, as amended. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. (c) An insurance broker includes any person who acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. (d) A professional reinsurer includes any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines, whether domestic, domestically incorporated or a branch of a foreign entity. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. (e) A reinsurance broker includes any person who, not being a duly authorized agent, employee or officer of an insurer in which any reinsurance is effected, acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance, for any insurance company authorized to do business in the Philippines. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. A holding company system includes a holding company together with its controlled insurers and controlled persons. Rule 3.a.3 . (i) Securities dealers, brokers, salesmen, associated persons of brokers or dealers, investment houses, investment agents and consultants, trading advisors, and other entities managing securities or rendering similar services, (ii) mutual funds or open-end investment companies, close-end investment companies, common trust funds, pre-need companies or issuers and other similar entities; (iii) foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. (c) A securities salesman includes a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial. (e) An investment house includes an enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding, any redeemable security of which it is the issuer. (g) A closed-end investment company includes an investment company other than open-end investment company. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee, for the purpose of administration, holding or management of such funds and/or properties for the use, benefit or advantage of the trustor or of others known as beneficiaries. (i) A pre-need company or issuer includes any corporation supervised and/or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need, payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life, pension, education, internment and other plans, which the Commission may, from time to time, approve. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. (k) Investment Advisor/Agent/Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others, either directly or through circulars, reports, publications or writings, as to the value of any security and as to the advisability of trading in any security; or (2) who for compensation and as part of a regular business, issues or promulgates, analyzes reports concerning the capital market, except: (a) any bank or trust company; (b) any journalist, reporter, columnist, editor, lawyer, accountant, teacher; (c) the publisher of any bonafide newspaper, news, business or financial publication of general and regular circulation, including their employees; (d) any contract market; (e) such other person not within the intent of this definition, provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. (3) any person who undertakes the management of portfolio securities of investment companies, including the arrangement of purchases, sales or exchanges of securities. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. (m) A money payment, remittance and transfer company includes any person offering to pay, remit or transfer or transmit money on behalf of any person to another person. (n) "Customer" refers to any person or entity that keeps an account, or otherwise transacts business, with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted, as well as the beneficiary of said transactions. A customer also includes the beneficiary of a trust, an investment fund, a pension fund or a company or person whose assets are managed by an asset manager, or a grantor of a trust. It includes any insurance policy holder, whether actual or prospective. (o) "Property" includes any thing or item of value, real or personal, tangible or intangible, or any interest therein or any benefit, privilege, claim or right with respect thereto. Rule 3.b . "COVERED TRANSACTION" IS A TRANSACTION IN CASH OR OTHER EQUIVALENT MONETARY INSTRUMENT INVOLVING A TOTAL AMOUNT IN EXCESS OF FIVE HUNDRED THOUSAND PESOS (PHP500,000.00) WITHIN ONE (1) BANKING DAY. Rule 3.b.1 . SUSPICIOUS TRANSACTIONS ARE TRANSACTIONS, REGARDLESS OF AMOUNT, WHERE ANY OF THE FOLLOWING CIRCUMSTANCES EXISTS: (1) THERE IS NO UNDERLYING LEGAL OR TRADE OBLIGATION, PURPOSE OR ECONOMIC JUSTIFICATION; (2) THE CLIENT IS NOT PROPERLY IDENTIFIED; (3) THE AMOUNT INVOLVED IS NOT COMMENSURATE WITH THE BUSINESS OR FINANCIAL CAPACITY OF THE CLIENT; (4) TAKING INTO ACCOUNT ALL KNOWN CIRCUMSTANCES, IT MAY BE PERCEIVED THAT THE CLIENT'S TRANSACTION IS STRUCTURED IN ORDER TO AVOID BEING THE SUBJECT OF REPORTING REQUIREMENTS UNDER THE ACT; (5) ANY CIRCUMSTANCE RELATING TO THE TRANSACTION WHICH IS OBSERVED TO DEVIATE FROM THE PROFILE OF THE CLIENT AND/OR THE CLIENT'S PAST TRANSACTIONS WITH THE COVERED INSTITUTION; (6) THE TRANSACTION IS IN ANY WAY RELATED TO AN UNLAWFUL ACTIVITY OR ANY MONEY LAUNDERING ACTIVITY OR OFFENSE UNDER THIS ACT THAT IS ABOUT TO BE, IS BEING OR HAS BEEN COMMITTED; OR (7) ANY TRANSACTION THAT IS SIMILAR, ANALOGOUS OR IDENTICAL TO ANY OF THE FOREGOING. Rule 3.c . "Monetary Instrument" refers to: (1) Coins or currency of legal tender of the Philippines, or of any other country; (2) Drafts, checks and notes; (3) Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money market instruments; (4) Contracts or policies of insurance, life or non-life, and contracts of suretyship; and (5) Other similar instruments where title thereto passes to another by endorsement, assignment or delivery. Rule 3.d . "Offender" refers to any person who commits a money laundering offense. Rule 3.e . "Person" refers to any natural or juridical person. Rule 3.f. "Proceeds" refers to an amount derived or realized from an unlawful activity. It includes: (1) All material results, profits, effects and any amount realized from any unlawful activity; (2) All monetary, financial or economic means, devices, documents, papers or things used in or having any relation to any unlawful activity; and (3) All moneys, expenditures, payments, disbursements, costs, outlays, charges, accounts, refunds and other similar items for the financing, operations, and maintenance of any unlawful activity. Rule 3.g . "Supervising Authority" refers to the BSP, the SEC and the IC. Where the BSP, SEC or IC supervision applies only to the registration of the covered institution, the BSP, the SEC or the IC, within the limits of the AMLA, shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. Rule 3.h . "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution. Rule 3.i . "Unlawful activity" refers to any act or omission or series or combination thereof involving or having relation, to the following: (A) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (1) Kidnapping for ransom (B) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15 and 16 of Republic Act No. 9165 , otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002; (2) Importation of prohibited drugs; (3) Sale of prohibited drugs; (4) Administration of prohibited drugs; (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den, Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10) Possession of prohibited drugs (11) Use of prohibited drugs (12) Cultivation of plants which are sources of prohibited drugs (13) Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b, c, e, g, h and i of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act; (14) Directly or indirectly requesting or receiving any gift, present, share, percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party, wherein the public officer in his official capacity has to intervene under the law; (15) Directly or indirectly requesting or receiving any gift, present or other pecuniary or material benefit, for himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any government permit or license, in consideration for the help given or to be given, without prejudice to Section 13 of R.A. 3019; (16) Causing any undue injury to any party, including the government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence; (17) Entering, on behalf of the government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby; (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest; (19) Directly or indirectly becoming interested, for personal gain, or having material interest in any transaction or act requiring the approval of a board, panel or group of which he is a member, and which exercise of discretion in such approval, even if he votes against the same or he does not participate in the action of the board, committee, panel or group. (D) Plunder under Republic Act No. 7080, as amended; (20) Plunder through misappropriation, conversion, misuse or malversation of public funds or raids upon the public treasury; (21) Plunder by receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned; (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions, agencies, instrumentalities or government-owned or controlled corporations or their subsidiaries; (23) Plunder by obtaining, receiving or accepting, directly or indirectly, any shares of stock, equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking; (24) Plunder by establishing agricultural, industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests; (25) Plunder by taking undue advantage of official position, authority, relationship, connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. (E) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended; (26) Robbery with violence or intimidation of persons; (27) Robbery with physical injuries, committed in an uninhabited place and by a band, or with use of firearms on a street, road or alley; (28) Robbery in an uninhabited house or public building or edifice devoted to worship. (F) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602; (29) Jueteng; (30) Masiao. (G) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532; (31) Piracy on the high seas; (32) Piracy in inland Philippine waters; (33) Aiding and abetting pirates and brigands. (H) Qualified theft under Article 310 of the Revised Penal Code, as amended; (34) Qualified theft. (I) Swindling under Article 315 of the Revised Penal Code, as amended; (35) Estafa with unfaithfulness or abuse of confidence by altering the substance, quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so, even though such obligation be based on an immoral or illegal consideration; (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting, to the prejudice of another, money, goods or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property; (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank, and by writing any document above such signature in blank, to the prejudice of the offended party or any third person; (38) Estafa by using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions, or by means of other similar deceits; (39) Estafa by altering the quality, fineness or weight of anything pertaining to his art or business; (40) Estafa by pretending to have bribed any government employee; (41) Estafa by postdating a check, or issuing a check in payment of an obligation when the offender has no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check; (42) Estafa by inducing another, by means of deceit, to sign any document; (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game; (44) Estafa by removing, concealing or destroying, in whole or in part, any court record, office files, document or any other papers. (J) Smuggling under Republic Act Nos. 455 and 1937; (45) Fraudulent importation of any vehicle; (46) Fraudulent exportation of any vehicle; (47) Assisting in any fraudulent importation; (48) Assisting in any fraudulent exportation; (49) Receiving smuggled article after fraudulent importation; (50) Concealing smuggled article after fraudulent importation; (51) Buying smuggled article after fraudulent importation; (52) Selling smuggled article after fraudulent importation; (53) Transportation of smuggled article after fraudulent importation; (54) Fraudulent practices against customs revenue. (K) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000; K.1. Hacking or cracking, which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system; or (56) any access in order to corrupt, alter, steal, or destroy using a computer or other similar information and communication devices, without the knowledge and consent of the owner of the computer or information and communications system, including (57) the introduction of computer viruses and the like, resulting in the corruption, destruction, alteration, theft or loss of electronic data messages or electronic document; K.2. Piracy, which refers to: (58) the unauthorized copying, reproduction, (59) the unauthorized dissemination, distribution, (60) the unauthorized importation, (61) the unauthorized use, removal, alteration, substitution, modification, (62) the unauthorized storage, uploading, downloading, communication, making available to the public, or (63) the unauthorized broadcasting, of protected material, electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunication networks, such as, but not limited to, the internet, in a manner that infringes intellectual property rights; K.3. Violations of the Consumer Act or Republic Act No. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act; (65) Sale of any product that has been banned by a rule under the Consumer Act; (66) Sale of any adulterated or mislabeled product using electronic documents; (67) Adulteration or misbranding of any consumer product; (68) Forging, counterfeiting or simulating any mark, stamp, tag, label or other identification device; (69) Revealing trade secrets; (70) Alteration or removal of the labeling of any drug or device held for sale; (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act; (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act; (73) Sale of any drug or device beyond its expiration date; (74) Introduction into commerce of any mislabeled or banned hazardous substance; (75) Alteration or removal of the labeling of a hazardous substance; (76) Deceptive sales acts and practices; (77) Unfair or unconscionable sales acts and practices; (78) Fraudulent practices relative to weights and measures; (79) False representations in advertisements as the existence of a warranty or guarantee; (80) Violation of price tag requirements; (81) Mislabeling consumer products; (82) False, deceptive or misleading advertisements; (83) Violation of required disclosures on consumer loans; (84) Other violations of the provisions of the E-Commerce Act; (L) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets; (85) Hijacking; (86) Destructive arson; (87) Murder; (88) Hijacking, destructive arson or murder perpetrated by terrorists against noncombatant persons and similar targets; (M) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000; (89) Sale, offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC; (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe; (91) Violation of reportorial requirements imposed upon issuers of securities; (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market; (93) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that raises their prices to induce the purchase of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (94) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that depresses their price to induce the sale of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (95) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices; (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security; (97) Manipulation of security prices by making false or misleading statements with respect to any material fact, which he knew or had reasonable ground to believe was so false and misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange; (98) Manipulation of security prices by effecting, alone or with others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC; (99) Sale or purchase of any security using any manipulative deceptive device or contrivance; (100) Execution of short sales or stop-loss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors; (101) Employment of any device, scheme or artifice to defraud in connection with the purchase and sale of any securities; (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; (103) Engaging in any act, transaction, practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person; (104) Insider trading; (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer, or acting as a salesman, or an associated person of any broker or dealer without any registration from the Commission; (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman, not registered with the SEC; (107) Effecting any transaction in any security, or reporting such transaction, in an Exchange or using the facility of an Exchange which is not registered with the SEC; (108) Making use of the facility of a clearing agency which is not registered with the SEC; (109) Violations of margin requirements; (110) Violations on the restrictions on borrowings by members, brokers and dealers; (111) Aiding and Abetting in any violations of the Securities Regulation Code; (112) Hindering, obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC; (113) Violations of any of the provisions of the implementing rules and regulations of the SEC; (114) Any other violations of any of the provisions of the Securities Regulation Code. (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries. In determining whether or not a felony or offense punishable under the penal laws of other countries, is "of a similar nature", as to constitute the same as an unlawful activity under the AMLA, the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3.i. RULE 4 Money Laundering Offense Rule 4.1. Money Laundering Offense Money laundering is a crime whereby the proceeds of an unlawful activity AS HEREIN DEFINED are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so. RULE 5 Jurisdiction of Money Laundering Cases and Money Laundering Investigation Procedures Rule 5.1. Jurisdiction of Money Laundering Cases . The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. Rule 5.2. Investigation of Money Laundering Offenses . The AMLC shall investigate: (a) SUSPICIOUS TRANSACTIONS; (b) COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION CONDUCTED BY THE AMLC; (c) MONEY LAUNDERING ACTIVITIES; AND (d) OTHER VIOLATIONS OF THIS ACT. Rule 5.3. Attempts at Transactions . Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. Accordingly, the reports required under Rule 9.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity. RULE 6 Prosecution of Money Laundering Rule 6.1. Prosecution of Money Laundering . (a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the APPLICATION EX-PARTE by the AMLC TO THE COURT OF APPEALS FOR A FREEZE ORDER with respect to the MONETARY INSTRUMENT OR PROPERTY involved therein and resort to other remedies provided under the AMLA, THE RULES OF COURT AND OTHER PERTINENT LAWS AND RULES. Rule 6.2 . When the AMLC finds, after investigation, that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA, it shall cause a complaint to be filed, pursuant to Section 7 (4) of the AMLA, before the Department of Justice or the Ombudsman, which shall then conduct the preliminary investigation of the case. Rule 6.3 . After due notice and hearing in the preliminary investigation proceedings before the Department of Justice, or the Ombudsman, as the case may be, and the latter should find probable cause of a money laundering offense, it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. Rule 6.4 . Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan, as the case may be. Rule 6.5 . Knowledge of the offender that any monetary instrument or property represents, involves, or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC, may be established by direct evidence or inferred from the attendant circumstances. Rule 6.6 . All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt, including the element of knowledge that the monetary instrument or property represents, involves or relates to the proceeds of any unlawful activity. Rule 6.7 . No element of the unlawful activity, however, including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. RULE 7 Creation of Anti-Money Laundering Council (AMLC) Rule 7.1.a. Composition . The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as Chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission as members. Rule 7.1.b. Unanimous Decision . The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. However, in the case of the incapacity, absence or disability of any member to discharge his functions, the officer duly designated or authorized to discharge the functions of the Governor of the BSP, the Chairman of the SEC or the Insurance Commissioner, as the case may be, shall act in his stead in the AMLC. Rule 7.2. Functions . The functions of the AMLC are defined hereunder: (1) to require and receive covered OR SUSPICIOUS transaction reports from covered institutions; (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered OR SUSPICIOUS transaction report, or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity; (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses; (5) TO INVESTIGATE SUSPICIOUS TRANSACTIONS AND COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION BY THE AMLC, money laundering activities and other violations of this Act; (6) TO APPLY BEFORE THE COURT OF APPEALS, EX-PARTE, FOR THE FREEZING OF any monetary instrument or property alleged to be proceeds of any unlawful activity AS DEFINED UNDER SECTION 3(i) HEREOF; (7) to implement such measures as may be inherent, necessary, implied, incidental and justified under the AMLA to counteract money laundering. Subject to such limitations as provided for by law, the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store, track and analyze money laundering transactions for the resolute prevention, detection and investigation of money laundering offenses. For this purpose, the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database; (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations, in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provisions of the Constitution, or the execution thereof is likely to prejudice the national interest of the Philippines. (9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. (10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders. The AMLC may require the intelligence units of the Armed Forces of the Philippines, the Philippine National Police, the Department of Finance, the Department of Justice, as well as their attached agencies, and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may, in any way, facilitate the resolute prevention, investigation and prosecution of money laundering offenses and other violations of the AMLA. (11) TO IMPOSE ADMINISTRATIVE SANCTIONS FOR THE VIOLATION OF LAWS, RULES, REGULATIONS AND ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. Rule 7.3. Meetings . The AMLC shall meet every first Monday of the month, or as often as may be necessary at the call of the Chairman. RULE 8 Creation of a Secretariat Rule 8.1. The Executive Director . The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. He must be a member of the Philippine Bar, at least thirty-five (35) years of age, must have served at least five (5) years either at the BSP, the SEC or the IC and of good moral character, unquestionable integrity and known probity. He shall be considered a regular employee of the BSP with the rank of Assistant Governor, and shall be entitled to such benefits and subject to such rules and regulations, as well as prohibitions, as are applicable to officers of similar rank. Rule 8.2. Composition . In organizing the Secretariat, the AMLC may choose from those who have served, continuously or cumulatively, for at least five (5) years in the BSP, the SEC or the IC. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. Rule 8.3. Detail and Secondment . The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP, the SEC or the IC, or any other branch, department, bureau, office, agency or instrumentality of the government, including government-owned and controlled corporations, in undertaking any and all anti-money laundering operations. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC, subject to existing laws and Civil Service Rules and Regulations. Detailed personnel shall continue to receive their salaries, benefits and emoluments from their respective mother units. Seconded personnel shall receive, in lieu of their respective compensation packages from their respective mother units, the salaries, emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. Rule 8.4. Confidentiality Provisions . The members of the AMLC, the Executive Director, and all the members of the Secretariat, whether permanent, on detail or on secondment, shall not reveal, in any manner, any information known to them by reason of their office. This prohibition shall apply even after their separation from the AMLA. In case of violation of this provision, the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. RULE 9 Prevention of Money Laundering; Customer Identification Requirements and Record Keeping Rule 9.1. Customer Identification Requirements. Rule 9.1.a. Customer Identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. Rule 9.1.b. Trustee, Nominee and Agent Accounts . When dealing with customers who are acting as trustee, nominee, agent or in any capacity for and on behalf of another, covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. Covered institutions shall also establish and record the true and full identity of such trustees, nominees, agents and other persons and the nature of their capacity and duties. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws, it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties. Rule 9.1.c. Minimum Information/Documents Required for Individual Customers . Covered institutions shall require customers to produce original documents of identity issued by an official authority, bearing a photograph of the customer. Examples of such documents are identity cards and passports. The following minimum information/documents shall be obtained from individual customers: 1) Name; 2) Present address; 3) Permanent address; 4) Date and place of birth; 5) Nationality; 6) Nature of work and name of employer or nature of self-employment/business; 7) Contact numbers; 8) Tax identification number, Social Security System number or Government Service and Insurance System number; 9) Specimen signature; 10) Source of fund(s); and 11) Names of beneficiaries in case of insurance contracts and whenever applicable. Rule 9.1.d. Minimum Information/Documents Required for Corporate and Juridical Entities . Before establishing business relationships, covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being, dissolved, wound up or voided, or that its business or operations has not been or is not in the process of being, closed, shut down, phased out, or terminated. Dealings with shell companies and corporations, being legal entities which have no business substance in their own right but through which financial transactions may be conducted, should be undertaken with extreme caution. The following minimum information/documents shall be obtained from customers that are corporate or juridical entities, including shell companies and corporations: (1) Articles of Incorporation/Partnership; (2) By-laws; (3) Official address or principal business address; (4) List of directors/partners; (5) List of principal stockholders owning at least two percent (2%) of the capital stock; (6) Contact numbers; (7) Beneficial owners, if any; and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. Rule 9.1.e. Prohibition against Certain Accounts . Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Rule 9.1.f. Prohibition against opening of Accounts without Face-to-face Contact . No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9.1.c of these Rules. Rule 9.1.g. Numbered Accounts . Peso and foreign currency non-checking numbered accounts shall be allowed: Provided , That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records, and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. Rule 9.2. Record Keeping Requirements. Rule 9.2.a. Record Keeping: Kinds of Records and Period for Retention . All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. Covered institutions shall prepare and maintain documentation, in accordance with the aforementioned client identification requirements, on their customer accounts, relationships and transactions such that any account, relationship or transaction can be so reconstructed as to enable the AMLC, and/or the courts to establish an audit trail for money laundering. Rule 9.2.b. Existing and New Accounts and New Transactions . All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from October 17, 2001 or from the dates of the accounts or transactions, whichever is later. RULE 9.2.c. Closed Accounts . With respect to closed accounts, the records on customer identification, account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed. RULE 9.2.d. Retention of Records in Case a Money Laundering Case has been Filed in Court . If a money laundering case based on any record kept by the covered institution concerned has been filed in court, said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules, as the case may be, until it is confirmed that the case has been finally resolved or terminated by the court. RULE 9.2.e. Form of Records . Records shall be retained as originals in such forms as are admissible in court pursuant to existing laws and the applicable rules promulgated by the Supreme Court. RULE 9.3. Reporting of Covered Transactions . RULE 9.3.a. Period of Reporting Covered Transactions and Suspicious Transactions . COVERED INSTITUTIONS SHALL REPORT TO THE AMLC ALL COVERED TRANSACTIONS AND SUSPICIOUS TRANSACTIONS WITHIN FIVE (5) WORKING DAYS FROM OCCURRENCE THEREOF, UNLESS THE SUPERVISING AUTHORITY CONCERNED PRESCRIBES A LONGER PERIOD NOT EXCEEDING TEN (10) WORKING DAYS. STECAc SHOULD A TRANSACTION BE DETERMINED TO BE BOTH A COVERED AND A SUSPICIOUS TRANSACTION, THE COVERED INSTITUTION SHALL REPORT THE SAME AS A SUSPICIOUS TRANSACTION. THE REPORTING OF COVERED TRANSACTIONS BY COVERED INSTITUTIONS SHALL BE DEFERRED FOR A PERIOD OF SIXTY (60) DAYS AFTER THE EFFECTIVITY OF REPUBLIC ACT NO. 9194, OR AS MAY BE DETERMINED BY THE AMLC, IN ORDER TO ALLOW THE COVERED INSTITUTIONS TO CONFIGURE THEIR RESPECTIVE COMPUTER SYSTEMS; PROVIDED THAT, ALL COVERED TRANSACTIONS DURING SAID DEFERMENT PERIOD SHALL BE SUBMITTED THEREAFTER. RULE 9.3.b. Covered AND SUSPICIOUS Transaction Report Forms . The Covered Transaction Report (CTR) AND THE SUSPICIOUS TRANSACTION REPORT (STR) shall be in the forms prescribed by the AMLC. RULE 9.3.b.1. COVERED INSTITUTIONS SHALL USE THE EXISTING FORMS FOR COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS, UNTIL SUCH TIME AS THE AMLC HAS ISSUED NEW SETS OF FORMS. RULE 9.3.b.2. COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS SHALL BE SUBMITTED IN A SECURED MANNER TO THE AMLC IN ELECTRONIC FORM, EITHER VIA DISKETTES, LEASED LINES, OR THROUGH INTERNET FACILITIES, WITH THE CORRESPONDING HARD COPY FOR SUSPICIOUS TRANSACTIONS. THE FINAL FLOW AND PROCEDURES FOR SUCH REPORTING SHALL BE MAPPED OUT IN THE MANUAL OF OPERATIONS TO BE ISSUED BY THE AMLC. RULE 9.3.c. Exemption from Bank Secrecy Laws . When reporting covered OR SUSPICIOUS transactions to the AMLC, covered institutions and their officers and employees, shall not be deemed to have violated R.A. No. 1405, as amended, R.A. No. 6426, as amended, R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered or suspicious transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer and employee of the covered institution, shall be criminally liable. AaHDSI RULE 9.3.d. Confidentiality Provisions . When reporting covered transactions or suspicious transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, or the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation hereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. RULE 9.3.e. Safe Harbor Provisions . No administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report OR A SUSPICIOUS transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. RULE 10 Application for Freeze Orders RULE 10.1. WHEN THE AMLC MAY APPLY FOR THE FREEZING OF ANY MONETARY INSTRUMENT OR PROPERTY. (a) AFTER AN INVESTIGATION CONDUCTED BY THE AMLC AND UPON DETERMINATION THAT PROBABLE CAUSE EXISTS THAT A MONETARY INSTRUMENT OR PROPERTY IS IN ANY WAY RELATED TO ANY UNLAWFUL ACTIVITY AS DEFINED UNDER SECTION 3 (i), THE AMLC MAY FILE AN EX-PARTE APPLICATION BEFORE THE COURT OF APPEALS FOR THE ISSUANCE OF A FREEZE ORDER ON ANY MONETARY INSTRUMENT OR PROPERTY subject thereof prior to the institution or in the course of, the criminal proceedings involving the unlawful activity to which said MONETARY INSTRUMENT OR PROPERTY is any way related. AEDcIH (b) Considering the intricate and diverse web of related and interlocking accounts PERTAINING TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) that any person may create in the different covered institutions, their branches and/or other units, the AMLC may APPLY TO THE COURT OF APPEALS FOR THE FREEZING, NOT ONLY OF THE MONETARY INSTRUMENTS OR PROPERTIES IN THE NAMES OF THE REPORTED OWNER(S)/HOLDER(S), AND MONETARY INSTRUMENTS OR PROPERTIES NAMED IN THE APPLICATION OF THE AMLC BUT ALSO ALL OTHER RELATED WEB OF ACCOUNTS PERTAINING TO OTHER MONETARY INSTRUMENTS AND PROPERTIES, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM OR ARE RELATED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). (c) THE FREEZE ORDER SHALL BE EFFECTIVE FOR TWENTY (20) DAYS UNLESS EXTENDED BY THE COURT OF APPEALS UPON APPLICATION BY THE AMLC. RULE 10.2. Definition of Probable Cause . Probable cause includes such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. RULE 10.3. DUTY OF COVERED INSTITUTION UPON RECEIPT THEREOF. RULE 10.3.a. Upon receipt of the notice of the freeze order, the covered institution concerned shall immediately freeze the monetary instrument or property AND RELATED WEB OF ACCOUNTS subject thereof. RULE 10.3.b. THE COVERED INSTITUTION SHALL LIKEWISE IMMEDIATELY FURNISH A COPY OF THE NOTICE OF THE FREEZE ORDER UPON THE OWNER OR HOLDER OF THE MONETARY INSTRUMENT OR PROPERTY OR RELATED WEB OF ACCOUNTS SUBJECT THEREOF. RULE 10.3.c. Within twenty-four (24) hours from receipt of the freeze order, the covered institution concerned shall submit to the COURT OF APPEALS AND THE AMLC, by personal delivery, a detailed written return on the freeze order, specifying ALL THE PERTINENT AND RELEVANT INFORMATION WHICH SHALL INCLUDE THE FOLLOWING: 1. THE ACCOUNT NUMBER(S); 2. THE NAME(S) OF THE ACCOUNT OWNER(S) OR HOLDER(S); DTCAES 3. THE AMOUNT OF THE MONETARY INSTRUMENT, PROPERTY OR RELATED WEB OF ACCOUNTS AS OF THE TIME THEY WERE FROZEN; 4. ALL RELEVANT INFORMATION AS TO THE NATURE OF THE MONETARY INSTRUMENT OR PROPERTY; 5. ANY INFORMATION ON THE RELATED WEB OF ACCOUNTS PERTAINING TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER; AND 6. THE TIME WHEN THE FREEZE THEREON TOOK EFFECT. RULE 10.4. DEFINITION OF RELATED WEB OF ACCOUNTS. "RELATED WEB OF ACCOUNTS PERTAINING TO THE MONEY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER" IS DEFINED AS THOSE ACCOUNTS, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). UPON RECEIPT OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS AND UPON VERIFICATION BY THE COVERED INSTITUTION THAT THE RELATED WEB OF ACCOUNTS ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER, THE COVERED INSTITUTION SHALL FREEZE THESE RELATED WEB OF ACCOUNTS WHEREVER THESE FUNDS MAY BE FOUND. THE RETURN OF THE COVERED INSTITUTION AS REQUIRED UNDER RULE 10.3.c SHALL INCLUDE THE FACT OF SUCH FREEZING AND AN EXPLANATION AS TO THE GROUNDS FOR THE IDENTIFICATION OF THE RELATED WEB OF ACCOUNTS. RULE 10.5. Extension of the Freeze Order . BEFORE THE TWENTY (20) DAY PERIOD OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS EXPIRES, THE AMLC MAY APPLY IN THE SAME COURT FOR AN EXTENSION OF SAID PERIOD. UPON THE TIMELY FILING OF SUCH APPLICATION AND PENDING THE DECISION OF THE COURT OF APPEALS TO EXTEND THE PERIOD, SAID PERIOD SHALL BE DEEMED SUSPENDED AND THE FREEZE ORDER SHALL REMAIN EFFECTIVE. HOWEVER, THE COVERED INSTITUTION SHALL NOT LIFT THE EFFECTS OF THE FREEZE ORDER WITHOUT SECURING OFFICIAL CONFIRMATION FROM THE AMLC. SDIaHE RULE 10.6. Prohibition against Issuance of Freeze Orders against candidates for an electoral office during election period . No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period. RULE 11 Authority to Inquire into Bank Deposits RULE 11.1. Authority to Inquire into Bank Deposits WITH COURT ORDER . Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution AND THEIR SUBSIDIARIES AND AFFILIATES upon order of any competent court in cases of violation of this Act, when it has been established that there is probable cause that the deposits or investments involved are related to AN UNLAWFUL ACTIVITY AS DEFINED IN SECTION 3 (i) HEREOF OR a money laundering offense UNDER SECTION 4 HEREOF; EXCEPT IN CASES AS PROVIDED UNDER RULE 11.2. RULE 11.2. Authority to Inquire into Bank Deposits WITHOUT COURT ORDER . The AMLC MAY INQUIRE INTO OR EXAMINE DEPOSIT AND INVESTMENTS WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WITHOUT A COURT ORDER WHERE ANY OF THE FOLLOWING UNLAWFUL ACTIVITIES ARE INVOLVED: (a) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (b) Sections 4, 5, 6, 8, 9, 10. 12, 13, 14, 15 AND 16 of Republic Act No. 9165, otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002; (c) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against noncombatant persons and similar targets RULE 11.2.a. PROCEDURE FOR EXAMINATION WITHOUT A COURT ORDER. WHERE ANY OF THE UNLAWFUL ACTIVITIES ENUMERATED UNDER THE IMMEDIATELY PRECEDING RULE 11.2 ARE INVOLVED, AND THERE IS PROBABLE CAUSE THAT THE DEPOSITS OR INVESTMENTS WITH ANY BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES ARE IN ANYWAY RELATED TO THESE UNLAWFUL ACTIVITIES THE AMLC SHALL ISSUE A RESOLUTION AUTHORIZING THE INQUIRY INTO OR EXAMINATION OF ANY DEPOSIT OR INVESTMENT WITH SUCH BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES CONCERNED. RULE 11.2.b. DUTY OF THE BANKING INSTITUTION OR NON-BANKING INSTITUTION UPON RECEIPT OF THE AMLC RESOLUTION. THE BANKING INSTITUTION OR THE NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES SHALL, IMMEDIATELY UPON RECEIPT OF THE AMLC RESOLUTION, ALLOW THE AMLC AND/OR ITS AUTHORIZED REPRESENTATIVE(S) FULL ACCESS TO ALL RECORDS PERTAINING TO THE DEPOSIT OR INVESTMENT ACCOUNT. cTCEIS RULE 11.3. BSP Authority to Examine deposits and investments; Additional Exception to the Bank Secrecy Act . TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS (BSP) MAY INQUIRE INTO OR EXAMINE ANY PARTICULAR DEPOSIT OR INVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WHEN THE EXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION, IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP. RULE 11.3.a. BSP Rules of Examination . THE BSP SHALL PROMULGATE ITS RULES OF EXAMINATION FOR ENSURING COMPLIANCE BY BANKS AND NON-BANK FINANCIAL INSTITUTIONS AND THEIR SUBSIDIARIES AND AFFILIATES WITH THE AMLA AND THESE RULES. ANY FINDINGS OF THE BSP WHICH MAY CONSTITUTE A VIOLATION OF ANY PROVISION OF THIS ACT SHALL BE TRANSMITTED TO THE AMLC FOR APPROPRIATE ACTION. RULE 12 Forfeiture Provisions RULE 12.1. Authority to Institute Civil Forfeiture Proceedings . The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. RULE 12.2. When Civil Forfeiture May be Applied . When there is a SUSPICIOUS TRANSACTION REPORT OR A COVERED TRANSACTION REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE AMLC, and the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply. RULE 12.3. Claim on Forfeited Assets . Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA, the offender or any other person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to him, and for segregation or exclusion of the monetary instrument or property corresponding thereto. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture, in default of which the said order shall become final and executory. This provision shall apply in both civil and criminal forfeiture. RULE 12.4. Payment in lieu of Forfeiture . Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA, and said order cannot be enforced because any particular monetary instrument or property cannot, with due diligence, be located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been concealed, removed, converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court, or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes of forfeiture, the court may, instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. This provision shall apply in both civil and criminal forfeiture. SIcCTD RULE 13 Mutual Assistance among States RULE 13.1. Request for Assistance from a Foreign State . Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense, the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this purpose, be at all times recognized. RULE 13.2. Powers of the AMLC to Act on a Request for Assistance from a Foreign State . The AMLC may execute a request for assistance from a foreign state by: (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules; (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules; and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided , That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state, and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. RULE 13.3. Obtaining Assistance from Foreign States . The AMLC may make a request to any foreign state for assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money laundering offense or any other matter directly or indirectly related thereto; (3) to the extent allowed by the law of the foreign state, applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in said request, and/or search any or all such persons named therein and/or remove any document, material or object named in said request: Provided , That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state; and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided , That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. TDcCIS RULE 13.4. Limitations on Requests for Mutual Assistance . The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines, unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. RULE 13.5. Requirements for Requests for Mutual Assistance from Foreign States . A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense; (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction; (3) give sufficient particulars as to the identity of said person; (4) give particulars sufficient to identify any covered institution believed to have any information, document, material or object which may be of assistance to the investigation or prosecution; (5) ask from the covered institution concerned any information, document, material or object which may be of assistance to the investigation or prosecution; (6) specify the manner in which and to whom said information, document, material or object obtained pursuant to said request, is to be produced; (7) give all the particulars necessary for the issuance by the court in the requested state of the writs, orders or processes needed by the requesting state; and (8) contain such other information as may assist in the execution of the request. RULE 13.6. Authentication of Documents . For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA, a document is authenticated if the same is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting state, and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister, secretary of state, or officer in or of, the government of the requesting state, or of the person administering the government or a department of the requesting territory, protectorate or colony. The certificate of authentication may also be made by a secretary of the embassy or legation, consul general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept, and authenticated by the seal of his office. RULE 13.7. Suppletory Application of the Revised Rules of Court . RULE 13.7.1. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA, execution and satisfaction of final judgments of forfeiture, application for examination of witnesses, procuring search warrants, production of bank documents and other materials and all other actions not specified in the AMLA and these Rules, and assistance for any of the aforementioned actions, which is subject of a request by a foreign state, resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. AcCTaD RULE 13.7.2. Authority to Assist the United Nations and other International Organizations and Foreign States . The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. RULE 13.8. Extradition . The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. With respect, however, to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on October 22, 2001, money laundering is deemed to be included as an extraditable offense in any extradition treaty existing between said state parties, and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. RULE 14 Penal Provisions RULE 14.1. Penalties for the Crime of Money Laundering . RULE 14.1.a. Penalties under Section 4 (a) of the AMLA . The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three Million Philippine Pesos (Php3,000,000.00) but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4 (a) of the AMLA. RULE 14.1.b. Penalties under Section 4 (b) of the AMLA . The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One Million Five Hundred Thousand Philippine Pesos (Php1,500,000.00) but not more than Three Million Philippine Pesos (Php3,000,000.00), shall be imposed upon a person convicted under Section 4 (b) of the AMLA. IHCSET RULE 14.1.c. Penalties under Section 4 (c) of the AMLA . The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of the AMLA. RULE 14.1.d. Administrative Sanctions . (1) AFTER DUE NOTICE AND HEARING, THE AMLC SHALL, AT ITS DISCRETION, IMPOSE FINES UPON ANY COVERED INSTITUTION, ITS OFFICERS AND EMPLOYEES, OR ANY PERSON WHO VIOLATES ANY OF THE PROVISIONS OF REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194 AND RULES, REGULATIONS, ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. THE FINES SHALL BE IN AMOUNTS AS MAY BE DETERMINED BY THE COUNCIL, TAKING INTO CONSIDERATION ALL THE ATTENDANT CIRCUMSTANCES, SUCH AS THE NATURE AND GRAVITY OF THE VIOLATION OR IRREGULARITY, BUT IN NO CASE SHALL SUCH FINES BE LESS THAN ONE HUNDRED THOUSAND PESOS (PHP100,000.00) BUT NOT TO EXCEED FIVE HUNDRED THOUSAND PESOS (PHP500,000.00). THE IMPOSITION OF THE ADMINISTRATIVE SANCTIONS SHALL BE WITHOUT PREJUDICE TO THE FILING OF CRIMINAL CHARGES AGAINST THE PERSONS RESPONSIBLE FOR THE VIOLATIONS. RULE 14.2. Penalties for Failure to Keep Records . The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9 (b) of the AMLA. RULE 14.3. Penalties for Malicious Reporting . Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), at the discretion of the court: Provided , That the offender is not entitled to avail the benefits of the Probation Law. RULE 14.4. Where Offender is a Juridical Person . If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in, or ALLOWED BY THEIR GROSS NEGLIGENCE the commission of the crime. If the offender is a juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties herein prescribed. If the offender is a public official or employee, he shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be. IaTSED RULE 14.5. Refusal by a Public Official or Employee to Testify . Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein. RULE 14.6. Penalties for Breach of Confidentiality . The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Five Hundred Thousand Philippine Pesos (Php500,000.00) but not more than One Million Philippine Pesos (Php1,000,000.00), shall be imposed on a person convicted for a violation under Section 9(c). IN CASE OF A BREACH OF CONFIDENTIALITY THAT IS PUBLISHED OR REPORTED BY MEDIA, THE RESPONSIBLE REPORTER, WRITER, PRESIDENT, PUBLISHER, MANAGER AND EDITOR-IN-CHIEF SHALL BE LIABLE UNDER THIS ACT. RULE 15 Prohibitions Against Political Harassment RULE 15.1. Prohibition against Political Persecution . The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. RULE 15.2. Provisional Remedies Application; Exception . RULE 15.2.a. The AMLC may apply, in the course of the criminal proceedings, for provisional remedies to prevent the monetary instrument or property subject thereof from being removed, concealed, converted, commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. However, no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. RULE 15.2.b. Where there is conviction for money laundering under Section 4 of the AMLA, the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. However, no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. RULE 16 Restitution RULE 16. Restitution . Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. RULE 17 Implementing Rules and Regulations and Money Laundering Prevention Programs RULE 17.1. Implementing Rules and Regulations . (a) Within thirty (30) days from the effectivity of REPUBLIC ACT NO. 9160, as amended by REPUBLIC ACT NO. 9194, the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA, which shall be submitted to the Congressional Oversight Committee for approval. (b) The Supervising Authorities, the BSP, the SEC and the IC shall, under their own respective charters and regulatory authority, issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194. RULE 17.2. Money Laundering Prevention Programs . RULE 17.2.a. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules, including, but not limited to, information dissemination on money laundering activities and their prevention, detection and reporting, and the training of responsible officers and personnel of covered institutions, subject to such guidelines as may be prescribed by their respective supervising authority. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. RULE 17.2.b. Every money laundering program shall establish detailed procedures implementing a comprehensive, institution-wide "know-your-client" policy, set-up an effective dissemination of information on money laundering activities and their prevention, detection and reporting, adopt internal policies, procedures and controls, designate compliance officers at management level, institute adequate screening and recruitment procedures, and set-up an audit function to test the system. RULE 17.2.c. Covered institutions shall adopt, as part of their money laundering programs, a system of flagging and monitoring transactions that qualify as suspicious transactions, regardless of amount or covered transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. All covered institutions, including banks insofar as non-deposit and non-government bond investment transactions are concerned, shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be, is being, or has been committed. RULE 17.3. Training of Personnel . Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules. RULE 17.4. Amendments . These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of REPUBLIC ACT NO. 9160, as amended BY REPUBLIC ACT NO. 9194. RULE 18 Congressional Oversight Committee RULE 18.1. Composition of Congressional Oversight Committee . There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. The members from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. RULE 18.2. Powers of the Congressional Oversight Committee . The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation of this Act, and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. RULE 19 Appropriations for and Budget of the AMLC RULE 19.1. Budget . The budget of Php25,000,000.00 appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. Appropriations for succeeding years shall be included in the General Appropriations Act. The BSP shall advance the funds necessary to defray the capital outlay, maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations. RULE 19.2. Costs and Expenses . The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil, criminal or administrative action, suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the AMLC in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. RULE 20 Separability Clause RULE 20. Separability Clause . If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid, the other provisions of these Rules, and the application of such provision or Rule to other persons or circumstances, shall not be affected thereby. RULE 21 Repealing Clause RULE 21. Repealing Clause . All laws, decrees, executive orders, rules and regulations or parts thereof, including the relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as amended, and other similar laws, as are inconsistent with the AMLA, are hereby repealed, amended or modified accordingly. RULE 22 Effectivity of the Rules RULE 23.1. Effectivity . These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. RULE 23 Transitory Provisions RULE 23.1. Transitory Provisions . EXISTING FREEZE ORDERS ISSUED BY THE AMLC SHALL REMAIN IN FORCE FOR A PERIOD OF THIRTY (30) DAYS AFTER EFFECTIVITY OF THIS ACT, UNLESS EXTENDED BY THE COURT OF APPEALS. RULE 23.2. EFFECT OF REPUBLIC ACT NO. 9194 ON CASES FOR EXTENSION OF FREEZE ORDERS RESOLVED BY THE COURT OF APPEALS. ALL EXISTING FREEZE ORDERS WHICH THE COURT OF APPEALS HAS EXTENDED SHALL REMAIN EFFECTIVE, UNLESS OTHERWISE DISSOLVED BY THE SAME COURT. EAIcCS APPENDIX S-8 GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT AND THE REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF NSSLAs ( Appendix to Sec. 4180S ) A. GENERAL REQUIREMENTS Only external auditors included in the list of BSP selected external auditors shall be engaged by banks, quasi-banks, trust entities or NSSLAs for regular audit or special engagements. The external auditor to be hired shall also be in-charge of the audit of the entity's subsidiaries and affiliates engaged in allied activities: Provided , That the external auditor shall be changed or the lead and concurring partner shall be rotated every five (5) years or earlier: Provided, further , That the rotation of the lead and concurring partner shall have an interval of at least two (2) years. Banks, quasi-banks, trust entities or NSSLAs which have engaged their respective external auditors for a consecutive period of five (5) years or more as of November 26, 2003 (effectivity of Circular No. 410) shall have a one (1) year period from said date within which to either change their external auditors or rotate the lead and/or concurring partner. The following are the selection requirements for external auditors: 1. No external auditor may be engaged by a bank, quasi-bank, trust entity or NSSLA if he or any member of his immediate family has or has committed to acquire any direct or indirect financial interest in the bank, quasi-bank, trust entity or NSSLA, its subsidiaries and affiliates, or if his independence is considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public Accountants (CPAs). In the case of a partnership, this limitation shall apply to the partners, associates and the auditor-in-charge of the engagement and members of their immediate family; 2. The external auditor and the members of the audit team do not have/shall not have outstanding loans or any credit accommodations (except credit card obligations which are normally available to other credit card holders and fully secured auto loans and housing loans which are not past due) with the bank, quasi-bank, trust entity or NSSLA, its subsidiaries and affiliates at the time of signing the engagement and during the engagement. In the case of partnership, this prohibition shall apply to the partners and the auditor-in-charge of the engagement; 3. The external auditor must not be currently engaged nor was engaged during the preceding year in providing the following services to the bank, quasi-bank, trust entity or NSSLA its subsidiaries and affiliates: a. Internal audit functions; b. Information systems design, implementation and assessment; and c. Such other services which could affect his independence as may be determined by the Monetary Board; 4. The external auditor, auditor-in-charge and members of the audit team must adhere to the highest standards of professional conduct and shall carry out services in accordance with relevant ethical and technical standards, such as the Generally Accepted Auditing Standards (GAAS) and the Code of Professional Ethics for Certified Public Accountants; 5. The external auditor should have the following track record in conducting external audits: a. The external auditor for a UB or KB must have at least twenty (20) existing corporate clients with resources of at least P50 million each and at least one (1) existing client UB or KB in the regular audit or in lieu thereof, the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of UBs or KBs; b. The external auditor for a TB, quasi-bank, trust entity and national Coop Bank must have at least ten (10) existing corporate clients with resources of at least P25 million each and at least one (1) existing client TB, quasi-bank, trust entity or national Coop Bank in the regular audit or in lieu thereof, the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of TBs, quasi-banks, trust entities or national Coop Banks: Provided , That an external auditor who has been selected by the BSP to audit a UB or KB is automatically qualified to audit a TB, quasi-bank, trust entity or national Coop Bank; and c. The external auditor for an RB or local Coop Bank must have at least three (3) years track record in conducting external audit: Provided , That an external auditor who has been selected by the BSP to audit a UB, KB, TB, quasi-bank, trust entity and national Coop bank is automatically qualified to audit an RB, local Coop Bank and NSSLA; 6. A bank, quasi-bank, trust entity or NSSLA shall not engage the services of an external auditor whose partner or auditor-in-charge of audit engagement during the preceding year had been hired or employed by the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates as Chief Executive Officer, Chief Financial Officer, Controller, Chief Accounting Officer or any position of equivalent rank; and 7. The external auditor must undertake to keep for at least five (5) years all audit or review working papers in sufficient detail to support the conclusions in the audit report which shall be made available to the BSP upon request. Working papers shall include, but shall not be limited to, pre-audit analysis, audit scope and detailed work program. 06cdtai B. APPLICATION AND PRE-QUALIFICATION REQUIREMENTS The application for BSP selection shall be signed by the external auditor or the managing partner, in case of partnership and shall be submitted to the appropriate supervising and examining department of the BSP together with the following documents/information: 1. An undertaking: a. That the external auditor, partners, associates, auditor-in-charge of the engagement and the members of their immediate family shall not acquire any direct or indirect financial interest with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates. Neither shall the external auditor, partners, associates and auditor-in-charge accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where they or any member of their immediate family have any direct or indirect financial interest and that their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs; b. That the external auditor, partners, associates, auditor-in-charge and members of the audit team do not have nor shall apply for loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans) nor shall accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where they have outstanding loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans which are not past due); c. That the external auditor shall not accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where he was engaged during the preceding year in providing the following services: 1. Internal audit functions; 2. Information systems design, implementation and assessment; and 3. Such other services, which could affect his independence as may be determined by the Monetary Board from time to time. This requirement shall not, however, affect audit engagement existing as of November 26, 2003 (effectivity of Circular No. 410). d. That the external auditor and members of the audit team shall adhere to the highest standards of professional conduct and shall carry out their services in accordance with relevant ethical and technical standards of the accounting profession; e. That the lead or concurring partner and auditor-in-charge shall not accept employment with the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates being audited during the engagement period and within a period of one (1) year after the audit engagement; f. That the external auditor shall not accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where an officer (i.e., Chief Executive Officer, Chief Financial Officer, Controller, Chief Accounting Officer or other senior officer of equivalent rank) had been a partner of the external auditor or had worked for the audit firm and had been the auditor-in-charge of the audit engagement of said entities during the year immediately preceding the engagement; ASHaDT g. That the external auditor shall keep all audit or review working papers for at least five (5) years in sufficient detail to support the conclusions in the audit report; and h. That the audit work shall include assessment of the audited institution's compliance with BSP rules and regulations, such as, but not limited to the following: 1. Capital adequacy ratio; and 2. Loans and other risk assets review and classification. 2. Other documents/information: a. List of existing corporate clients with resources of at least P50 million each for external auditor of a UB or KB; for a TB, quasi-bank, trust entity, NSSLA, and national Coop Bank, list of existing corporate clients with resources of at least P25 million each; and list of existing clients and/or details of three (3) years track record in external audit for external auditors of an RB, NSSLA and a local Coop Bank; b. If the external auditor for a UB or KB has no existing UB or KB client, and the external auditor for a TB, quasi-bank, trust entity and national Coop Bank, has no existing client TB or national Coop Bank, a notarized certification that the external auditor or the auditor-in-charge of the engagement has at least five (5) years experience in the regular audit of banks of appropriate category mentioning the banks they have audited; c. Updated Professional Regulation Commission (PRC) license (for individual auditors) and business license for the partnership; d. Copy of the proposed engagement contract between the bank, quasi-bank, trust entity or NSSLA and the external auditor where applicable; and e. Certification from PRC that the external auditor, lead partner, concurring partner, auditor-in-charge and members of the audit team have no derogatory information, previous conviction or any pending investigation. However, in the event that the certification cannot be obtained because of the pendency of a case, the BSP may dispense with this requirement upon determination by the Monetary Board that the case involves purely legal question, or does not, in any way, negate the auditor's adherence to the highest standards of professional conduct nor degrade his integrity and objectivity. C. REQUIRED REPORTS 1. To enable the BSP to take timely and appropriate remedial action, the external auditor must report to the BSP within thirty (30) calendar days after discovery, the following cases: a. Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit); and b. Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital. 2. The external auditor shall report directly to the BSP within fifteen (15) calendar days the occurrence of the following: a. Termination or resignation as external auditor and stating the reason therefor; b. Discovery of a material breach of laws or BSP rules and regulations such as, but not limited to: 1. Capital adequacy ratio; and 2. Loans and other risk assets review and classification. c. Findings on matters of corporate governance that may require urgent action by the BSP. The management of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates shall be informed of the adverse findings and the external auditor's report to the BSP shall include its explanation and/or corrective action. The management of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates shall be given the opportunity to be present in the discussions between the BSP and the external auditor regarding the audit findings, except in circumstances where the external auditor believes that the entity's management is involved in fraudulent conduct. D. DEFINITION OF TERMS For purposes of these guidelines, the following terms shall be defined as follows: 1. Subsidiary . A corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank, quasi-bank, trust entity or NSSLA, 2. Affiliate . A corporation, not more than fifty percent (50%) but not less than ten percent (10%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank, quasi-bank, trust entity, NSSLA and a juridical person that is under common control with the bank, quasi-bank, trust entity or NSSLA. 3. Control . Exists when the parent owns directly or indirectly more than one half of the voting power of an enterprise unless, in exceptional circumstance, it can be clearly demonstrated that such ownership does not constitute control. Control may also exist even when ownership is one half or less of the voting power of an enterprise when there is: a. Power over more than one-half of the voting rights by virtue of an agreement with other stockholders; b. Power to govern the financial and operating policies of the enterprise under a statute or an agreement; c. Power to appoint or remove the majority of the members of the board of directors or equivalent governing body; d. Power to cast the majority votes at meetings of the board of directors or equivalent governing body; or e. Any other arrangement similar to any of the above. 4. Associate . Any director, officer, manager or any person occupying a similar status or performing similar functions in the audit firm including employees performing supervisory role in the auditing process. 06cdtai 5. Partner . All partners including those not performing audit engagements. 6. Lead Partner . Also referred to as the engagement partner/partner-in-charge/managing partner who is responsible for signing the audit report on the consolidated financial statements of the audit client, and where relevant, the individual audit report of any entity whose financial statements form part of the consolidated financial statements. 7. Concurring Partner . The partner who is responsible for reviewing the audit report. 8. Auditor-in-charge . Refers to the team leader of the audit engagement. E. INCLUSION IN BSP LIST In case of partnership, inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. The BSP will circularize to all banks, quasi-banks, trust entities and NSSLAs the list of selected external auditors once a year. The BSP, however, shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks, quasi-banks, trust entities, or NSSLAs, for regular audit or special engagements. F. SPECIFIC REVIEW When warranted by supervisory concern, the Monetary Board may, at the expense of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates require the external auditor to undertake a specific review of a particular aspect of the operations of these institutions. The report shall be submitted to the BSP and the audited institution simultaneously, within thirty (30) calendar days after the conclusion of said review. G. AUDIT ENGAGEMENT CONTRACT Banks, quasi-banks, trust entities, and NSSLAs, shall submit the audit engagement contract between them, their subsidiaries and affiliates and the external auditor to the appropriate supervising and examining department of the BSP within fifteen (15) calendar days from signing thereof. Said contract shall include the following provisions: 1. That the bank, quasi-bank, trust entity, or NSSLA shall be responsible for keeping the auditor fully informed of existing and subsequent changes to prudential, regulatory and statutory requirements of the BSP and that both parties shall comply with said requirements; cdll 2. That disclosure of information by the external auditor to the BSP as required under Items " C " and " F " hereof, shall be allowed; and 3. That both parties shall comply with all of the requirements under these guidelines. H. DELISTING OF EXTERNAL AUDITORS 1. Grounds for delisting External auditors may be delisted from the list of BSP selected external auditor for the bank, quasi-bank, trust entity or NSSLA for violation of, or non-compliance with any provision of these guidelines or in case of dissolution of the audit firm except when said dissolution was solely for the purpose of admitting new partner/s and the new partner/s have complied with the requirements of these guidelines. 2. Procedure for delisting An external auditor shall only be delisted upon prior notice to him and after giving him the opportunity to be heard and defend himself by presenting witnesses/evidence in his favor. Delisted external auditor may re-apply for BSP selection after the period prescribed by the Monetary Board. I. AUDIT BY THE BOARD OF DIRECTORS Pursuant to Section 58 of R.A. No. 8791, otherwise known as "The General Banking Law of 2000" the Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity, NSSLA or the individual members thereof, to conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank, trust entity or NSSLA to review the internal audit and the internal control system of the concerned entity and to submit a report of such audit to the Monetary Board within thirty (30) calendar days after the conclusion thereof. MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS P REGULATIONS (Regulations Governing Pawnshops) TABLE OF CONTENTS PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101P. Scope of Authority of Pawnshops 4101P.1 Form of organization 4101P.2 Organizational requirements 4101P.3 Prior Bangko Sentral licensing to perform quasi-banking functions SECTION 4102P. Definition of Terms SECTIONS 4103P 4105P (Reserved) B. Capitalization SECTION 4106P. Capital of Pawnshops SECTIONS 4107P 4110P (Reserved) C.-F. ( Reserved ) SECTIONS 4111P 4140P (Reserved) G. Directors, Officers and Employees SECTION 4141P. Bonding of Officers and Employees SECTION 4142P. (Reserved) SECTION 4143P. Disqualification of Directors and Officers 4143P.1 Persons disqualified to become directors 4143P.2 Persons disqualified to become officers 4143P.3 Disqualification procedures 4143P.4 Effect of possession of disqualifications 4143P.5 (Reserved) 4143P.6 Watchlisting SECTIONS 4144P 4150P (Reserved) H. Branches and Other Offices SECTION 4151P. Establishment of Branches 4151P.1 Definition of term 4151P.2 Operations and functions 4151P.3 Basis for establishment 4151P.4 Capital requirement 4151P.5 Documentary requirements 4151P.6 Date of opening for business SECTIONS 4152P 4155P (Reserved) I. Business Days and Hours SECTION 4156P. Business Days and Hours SECTIONS 4157P 4160P (Reserved) J. Records and Reports SECTION 4161P. Records 4161P.1 Uniform System of Accounts 4161P.2 Adoption of statements of financial accounting standards SECTION 4162P. Reports 4162P.1 Categories of and signatories to reports 4162P.2 Manner of filing 4162P.3 Sanctions SECTIONS 4163P 4170P (Reserved) K. Internal Control SECTION 4171P. Safekeeping of Pawns and Records and Insurance of Office Building SECTION 4172P. Separation of Pawnshop Business from Other Businesses SECTIONS 4173P 4180P (Reserved) L. Miscellaneous Provisions SECTION 4181P. Business Name SECTION 4182P. Closing or Transfer of Business SECTIONS 4183P 4198P (Reserved) SECTION 4199P. General Provision on Sanctions PART TWO Borrowing Operations A.-J. ( Reserved ) SECTIONS 4201P 4285P (Reserved) K. Other Borrowings SECTION 4286P. Borrowings Constituting Quasi-Banking Functions SECTIONS 4287P 4298P (Reserved) SECTION 4299P. General Provision on Sanctions PART THREE Loans and Investments A. Loans in General SECTION 4301P. Loan Limits SECTION 4302P. Interest and Other Charges SECTION 4303P. Past Due Accounts; Renewal/Redemption of Pawns SECTIONS 4304P 4320P (Reserved) B. Secured Loans SECTION 4321P. Kinds of Security SECTION 4322P. Pawn Ticket 4322P.1 Contents of pawn ticket 4322P.2 Sanctions SECTION 4323P. Reminder to Pawner; Notice to the Public SECTION 4324P. Public Auction of Pawns SECTIONS 4325P 4335P (Reserved) C.-J. ( Reserved ) SECTIONS 4336P 4395P (Reserved) K. Miscellaneous SECTIONS 4396P 4398P (Reserved) SECTION 4399P. General Provision on Sanctions PART FOUR ( Reserved ) SECTIONS 4401P 4499P (Reserved) PART FIVE ( Reserved ) SECTIONS 4501P 4599P (Reserved) PART SIX Miscellaneous A. ( Reserved ) SECTIONS 4601P 4650P (Reserved) B. Sundry Provisions SECTION 4651P. Supervisory Powers of the Bangko Sentral SECTION 4652P. Basic Law Governing Pawnshops SECTIONS 4653P 4656P (Reserved) SECTION 4657P. Batas Pambansa Blg. 344 An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments and Public Utilities To Install Facilities and Other Devices SECTIONS 4658P 4690P (Reserved) SECTION 4691P. Anti-Money Laundering Regulations 4691P.1-4691P.8 (Reserved) 4691P.9 Sanctions and penalties SECTIONS 4692P 4698P (Reserved) SECTION 4699P. Administrative Sanctions LIST OF APPENDICES No. SUBJECT MATTER P-1 Chart of Accounts and Description of Loan Register of Pawnshops P-2 List of Reports Required from Pawnshops Annex P-2-a Reporting Guidelines on Crimes/Losses P-3 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex P-3-a Format of Resolution for Signatories of Category A-1 Reports Annex P-3-b Format of Resolution for Signatories of Category A-2 Reports Annex P-3-c Format of Resolution for Signatories of Categories A-3 and B Reports P-4 Standard Pawn Ticket App. P-4-a Terms and Conditions of Standard Pawn Ticket P-5 Anti-Money Laundering Regulations Annex P-5-a Certification of Compliance with Anti-Money Laundering Regulations Annex P-5-b Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions P-6 Revised Implementing Rules and Regulations R.A. No. 9160, as Amended by R.A. No. 9194 PART ONE Organization, Management and Administration A. Scope of Authority SECTION 4101P. Scope of Authority of Pawnshops . A duly organized and licensed pawnshop has, in general, the power to engage in the business of lending money on the security of personal property within the framework and limitations of P.D. No. 114 and the following regulations, subject to the regulatory and supervisory powers of the Bangko Sentral ng Pilipinas (BSP). SUBSECTION 4101P.1 Form of organization . A pawnshop may be established as a single proprietorship, a partnership or corporation. Only Filipino citizens may establish and own a pawnshop organized as a single proprietorship. A pawnshop established as a single proprietorship by a non-Filipino owner prior to January 29, 1973 may continue as such during the lifetime of the registered owner. If a pawnshop is organized as a partnership, at least seventy percent (70%) of its capital shall be owned by Filipino citizens. Pawnshops established as partnerships prior to January 29, 1973, with non-Filipino partners whose aggregate holdings amount to more than thirty percent (30%) of the capital may retain the percentage of their aggregate holdings as of January 29, 1973, and said percentage shall not be increased, but may be reduced, and once reduced shall not be increased thereafter beyond thirty percent (30%) of the capital stock of such pawnshop. In the case of a pawnshop organized as a corporation, at least seventy percent (70%) of the voting stock therein shall be owned by citizens of the Philippines, or if there be no capital stock, at least seventy percent (70%) of the members entitled to vote shall be citizens of the Philippines. Pawnshops registered as a corporation with foreign equity participation in excess of thirty percent (30%) of the voting stock, or members entitled to vote, of the pawnshop may retain the percentage of foreign equity as of January 29, 1973, and said percentage shall not be increased, but may be reduced and once reduced, shall not be increased thereafter beyond thirty percent (30%) of the voting stock, or number of members entitled to vote, of such pawnshop. The percentage of foreign-owned voting stock in a pawnshop corporation shall be determined by the citizenship of its individual stockholders. If the voting stock in a pawnshop corporation is held by another corporation, the percentage of foreign ownership in that pawnshop, shall be computed on the basis of the foreign citizenship of the individuals owning voting stocks in, or members entitled to vote of, the stockholder corporation. SUBSECTION 4101P.2 Organizational requirements . Any person or entity desiring to establish a pawnshop shall register with the Bureau of Trade Regulation and Consumer Protection (BTRCP), in the case of a single proprietorship, or with the Securities and Exchange Commission (SEC), in the case of a partnership/corporation. Pawnshops with foreign equity participation shall also register with the Board of Investments. After registering with the BTRCP or with the SEC, the single proprietorship or the partnership/corporation, as the case may be, shall secure a business license from the city or municipality where the pawnshop is to be established and operated, in accordance with the requirements of the pertinent ordinance in that city or municipality. The following documents shall be filed with the BTRCP, the SEC and/or the BSP in accordance with the forms prescribed by them: a. Application under oath (BTRCP) form; b. Articles of Partnership/Incorporation (for partnerships and/or corporations); c. List of partners/stockholders/directors/officers; d. Personal data sheet of owners/partners/incorporators/directors/officers; e. Projected financial statements covering the first twelve (12) months of operations; f. Certificate of incorporation or registration with SEC or BTRCP; g. City/municipal license; and h. Such other documents as may be required by the BTRCP, the SEC, or the BSP. cSATDC Before commencing actual business operations, the single proprietorship, partnership or corporation shall file with the BSP an information sheet signed by the proprietor, managing partner or president under oath. SUBSECTION 4101P.3 Prior Bangko Sentral licensing to perform quasi-banking functions . Pawnshops desiring to engage in quasi-banking functions shall first obtain a Certificate of Authority from the BSP pursuant to BSP regulations. a. Definition of quasi-banking functions . Quasi-banking functions consist of the following: (1) Borrowing funds for the borrower's own account; (2) Twenty (20) or more lenders at any one time; (3) Methods of borrowing: issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as: (a) acceptances; (b) promissory notes; (c) participations; (d) certificates of assignment or similar instruments with recourse; (e) trust certificates; (f) repurchase agreements; and (g) such other instruments as the Monetary Board may determine; and (4) Purpose: (a) relending, or (b) purchasing receivables or other obligations. As used in the definition of quasi-banking functions , the following terms and phrases shall be understood as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in (3) and (4) above, whether the borrower's liability thereby is treated as real or contingent. For the borrower's own account shall refer to the assumption of liability in one's own capacity and not in representation, or as an agent or trustee, of another. Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money, including interbank borrowings or borrowings between financial institutions, or of securities, of any amount and maturity, from domestic or foreign sources. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed in the absence of express stipulation, when the institution is regularly engaged in lending. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, i.e., continuous or consistent lending as distinguished from isolated lending transactions. b. Guidelines on lender count . The following guidelines shall govern lender count on borrowings or funds mobilized by pawnshops: (1) For purposes of ascertaining the number of lenders/placers to determine whether or not a pawnshop is engaged in quasi-banking functions, the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. In such case the actual/real lenders/placers as appearing in such proof, shall be the basis for counting the number of lenders/placers. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement, the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided, however , That a debt instrument issued in the name of a husband and wife followed by the word spouses , whether under an and, and/or , or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement shall be counted as one (1) borrowing/placement. (2) Each debt instrument payable to bearer, shall be counted as one (1) lender/placer, except when the pawnshop can prove that there is only one owner for several debt instruments so payable. (3) Two (2) or more debt instruments issued to the same payee, irrespective of the date and amount, shall be counted as one (1) borrowing or placement. (4) Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm, standby or best-efforts basis shall be counted on the basis of the number of purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided, however , That in case of unsold debt instruments in a firm commitment underwriting, the underwriter shall be counted as a lender. (5) Each buyer, assignee, and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale, assignment, and/or endorsement of securities or receivables on a without recourse basis whenever the terms and/or attendant documentation, practice, or circumstances indicate that the sale, assignment, and/or endorsement thereof legally obligates the pawnshop to repurchase or reacquire the securities/receivables sold, assigned, endorsed or to pay the buyer, assignee, or indorsee at some subsequent time. (6) Funds obtained by way of advances from stockholders, directors or officers, regardless of nature, shall be considered borrowed funds or funds mobilized and such stockholders, directors or officers shall be counted in determining the number of lenders/placers. SECTION 4102P. Definition of Terms . a. Pawnshop shall refer to a person or entity engaged in the business of lending money on personal property delivered as security for loans. The term shall be synonymous, and may be used interchangeably, with pawnbroker or pawnbrokerage . b. Pawner shall refer to the borrower from a pawnshop. c. Pawnee shall refer to the pawnshop or pawnbroker. d. Pawn is the personal property delivered by the pawner to the pawnee as security for a loan. e. Pawn ticket is the pawnbroker's receipt for a pawn. f. Property shall include only such personal property as may actually be delivered to the control and possession of the pawnee. g. Voting stock is that portion of the authorized capital which is subscribed and entitled to vote. h. Vital records shall consist of the Loans Extended/Paid Registers, General Ledger/Journal covering the current and at least the preceding two (2) years of operations, unused accountable forms and permanent pawnshop records, e.g., articles of incorporation/co-partnership, stock certificates, etc. i. Bulky pawns shall refer to household appliances, office machines and the like, which occupy considerable amount of space, i.e., measuring at least 1.5 x 1.5 x 0.5 feet. j. Premises shall refer to the area where the pawnshop conducts its business and maintains office. It includes office or storage spaces maintained and/or used by the pawnshop which are adjacent to the pawnshop's location. SECTIONS 4103P 4105P ( Reserved ) B. Capitalization SECTION 4106P. Capital of Pawnshops . Pawnshops shall have a minimum paid-in capital of P100,000. Paid-in capital shall mean cash and other properties, including real estate and improvements thereon: Provided , That such properties are necessary for the conduct of the pawnshop business. Properties forming part of capital in accordance with the preceding paragraph may be valued at acquisition cost less depreciation or at any other value not exceeding the appraised value as fixed by an independent appraiser, at the option of the contributor, partner or proprietor. The value of properties forming part of capital in accordance with the immediately preceding two paragraphs shall not exceed twenty-five percent (25%) of paid-in capital and surplus: Provided, however , That for pawnshops existing as at 29 January 1973 whose value of properties exceeds the prescribed ratio, such percentage may be retained or reduced but shall not be increased thereafter. Should the ratio, on the other hand, fall below the prescribed level, it may be increased but not beyond twenty-five percent (25%). SECTIONS 4107P 4110P ( Reserved ) C.-F. ( Reserved ) SECTIONS 4111P 4140P ( Reserved ) G. Directors, Officers and Employees SECTION 4141P. Bonding of Officers and Employees . Accountable officers and employees, especially those who have access to pawned articles, of pawnshops shall be required to post bonds of reputable companies accredited by the Insurance Commissioner. SECTION 4142P. ( Reserved ) SECTION 4143P. Disqualification of Directors and Officers . The following regulations shall govern the disqualification of pawnshop directors and officers. SUBSECTION 4143P.1 Persons disqualified to become directors . Without prejudice to specific provisions of law prescribing disqualifications for directors, the following are disqualified from becoming directors of pawnshops: a. Permanently disqualified Directors/trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee position: (1) Persons who have been convicted by final judgment of the court for offenses involving dishonesty or breach of trust such as estafa, embezzlement, extortion, forgery, malversation, swindling and theft; (2) Persons who have been convicted by final judgment of the court for violation of banking laws; (3) Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract; or (4) Directors, trustees, officers or employees of closed institutions under the supervisory and regulatory powers of the BSP who were responsible for such institutions' closure as determined by the Monetary Board. b. Temporarily disqualified Directors/trustees/officers/employees disqualified by the Monetary Board from holding a director/trustee position for a specific/indefinite period of time. Included are: (1) Persons who refuse to fully disclose the extent of their business interest to the appropriate supervising and examining department when required pursuant to a provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as the refusal persists; (2) Directors who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings, both regular and special, of the board of directors during their incumbency, or any twelve (12)-month period during said incumbency. This disqualification applies for purposes of the succeeding election; (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with the institution where he/she is a director or officer, or at least two (2) obligations with other financial institutions, under different credit lines or loan contracts, are past due pursuant to Secs. X306, 4308Q, 4306S and 4303P; (b) Obligations shall include all borrowings from any financial institution obtained by: (i) A director, trustee or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor, endorser or surety for loans from such financial institutions; (ii) The spouse or child under the parental authority of the director, trustee or officer; (iii) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director, trustee or officer; (iv) A partnership of which a director, trustee or officer, or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership; and (v) A corporation, association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items "(i)", "(ii)" and "(iv)" ; This disqualification shall be in effect as long as the delinquency persists. (4) Persons convicted for offenses involving dishonesty, breach of trust or violation of banking laws but whose conviction has not yet become final and executory; (5) Directors, trustees and officers of closed institutions under the supervisory and regulatory powers of the BSP pending their clearance by the Monetary Board; (6) Directors and trustees disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate supervising and examining department of such directors' election/reelection; (7) Persons dismissed/terminated from employment for cause. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity; (8) Those under preventive suspension; and (9) Persons with derogatory records with the National Bureau of Investigation (NBI), court, police, Interpol and monetary authority (central bank) of other countries (for foreign directors and officers) involving violation of any law, rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of a director/trustee/officer. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity. SUBSECTION 4143P.2 Persons disqualified to become officers a. The disqualifications for directors mentioned in Subsec. 4143P.1 shall likewise apply to officers, except those stated in Items "b(2)" . HCITcA b. Except as may be authorized by the Monetary Board or the Governor, the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of Chairman, President, Executive Vice President or any position of equivalent rank, General Manager, Treasurer, Chief Cashier or Chief Accountant is disqualified from holding or being elected or appointed to any of said positions in the same pawnshop [NBFI]; and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of Manager, Cashier, or Accountant of a branch or office of a pawnshop [an NBFI] is disqualified from holding or being appointed to any of said positions in the same branch or office. SUBSECTION 4143P.3 Disqualification procedures . a. Upon establishment of any of the grounds for disqualification mentioned in Subsecs. 4143P.1 and 4143P.2, the office of the disqualified director or officer shall immediately become vacant, except in the case of delinquency in the payment of obligations wherein the director or officer concerned shall be given a grace period of thirty (30) days after such ground for disqualification has been established. b. All cases of disqualification shall be immediately reported to the board of directors of the institution concerned. If the ground for disqualification is delinquency in the payment of obligations, the report shall be made at the expiry of the thirty (30)-day grace period mentioned in Item " a " above. The board shall act on the report not later than the following board meeting. Within seventy-two (72) hours thereafter, the corporate secretary shall report to the Governor of the BSP through the appropriate supervising and examining department the name of the director or officer involved, the ground for his disqualification and the action taken by the board. c. When the ground for disqualification ceases to exist, the director or officer concerned shall be eligible to become director, trustee or officer of any institution under the supervisory and regulatory powers of the BSP only upon prior approval by the Monetary Board. SUBSECTION 4143P.4 Effect of possession of disqualifications . Directors/officers elected or appointed possessing any of the disqualifications as enumerated herein, shall vacate their respective positions immediately. SUBSECTION 4143P.5 ( Reserved ) SUBSECTION 4143P.6 Watchlisting . To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as trustee or officer of an institution under the supervisory and regulatory powers of the BSP, the SES shall maintain a watchlist of disqualified directors/trustees/officers under the following procedures: a. Watchlist categories . Watchlisting shall be categorized as follows: (1) Disqualification File "A" (Permanent) Directors/trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee/officer position. (2) Disqualification File "B" (Temporary) Directors/trustees/officers/employees temporarily disqualified by the Monetary Board from holding a director/trustee/officer position. b. Inclusion of directors/trustees/officers/employees in the watchlist . Upon recommendation by the appropriate supervising and examining department, the inclusion of directors/trustees/officers/employees in watchlist disqualification files "A" and "B" on the basis of decisions, actions or reports of the courts, institutions under the supervisory and regulatory powers of the BSP, BSP, NBI or any other administrative agencies shall first be approved by the Monetary Board. c. Notification of directors/trustees/officers/employees . Upon approval by the Monetary Board, the concerned director/trustee/officer/employee shall be informed through registered mail, with registry return receipt card, at his last known address of his inclusion in the masterlist of watchlisted persons disqualified to be a director/trustee/officer in any institution under the supervisory and regulatory powers of the BSP. d. Confidentiality . Watchlisting shall be for internal use only and may not be accessed or queried upon by outside parties including such institutions under the supervisory and regulatory powers of the BSP, except with the authority of the person concerned and with the approval of the Deputy Governor, SES, the Governor, or the Monetary Board. e. Delisting . All delistings shall be approved by the Monetary Board upon recommendation of the appropriate supervising and examining department except in cases of persons known to be dead where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist Disqualification File "B" (Temporary) (a) After the lapse of the specific period of disqualification; (b) When the conviction by the court for crimes involving dishonesty, breach of trust and/or violation of banking laws becomes final and executory, in which case the director/trustee/officer/employee is relisted to Watchlist Disqualification File "A" (Permanent); or (c) Upon favorable decision or clearance by the appropriate body, i.e., court, NBI, institutions under the supervisory and regulatory powers of the BSP, or such other agency/body where the concerned individual had derogatory record. Directors/trustees/officers/employees delisted from the Watchlist Disqualification File "B" other than those upgraded to Watchlist Disqualification File "A" shall be eligible for re-employment with any institution under the supervisory and regulatory powers of the BSP. SECTIONS 4144P 4150P ( Reserved ) H. Branches and Other Offices SECTION 1451P. Establishment of Branches . No pawnshop shall open, maintain or operate a branch office without first applying for and obtaining from the BSP, through the appropriate supervising and examining department, authority to operate such branch which shall be processed in accordance with the following guidelines. SUBSECTION 4151P.1 Definition of term . As used in these rules the term branch office shall include any place of business outside the main office of a pawnshop, where pawnshop operations or transactions or any phase thereof are conducted by said pawnshop under the control and supervision of a head or main office. SUBSECTION 4151P.2 Operations and functions . The operations/transactions of a branch office shall likewise be governed by the provisions of P.D. No. 114 governing operations/transactions of a head office, as well as by other pertinent laws, BSP rules and regulations. The primary purpose of branching shall be to provide an additional source of credit to small borrowers left unserved by the banking and other financial institutions. SUBSECTION 4151P.3 Basis for establishment . Branch offices shall be allowed on the basis of the head office's ability to conduct operations, as well as correspondent arrangements. The BSP department concerned shall not process an application for branching of a pawnshop which has an approved but unopened branch. SUBSECTION 4151P.4 Capital requirement . Upon compliance with the minimum paid-in capital of P100,000, permission to open a maximum of one (1) branch may be granted, subject to the provisions of the rules on branching. Additional paid-in capital of P100,000 shall be required for each additional branch. SUBSECTION 4151P.5 Documentary requirements . The following documents shall be filed with the appropriate supervising and examining department of the BSP in connection with an application to operate a branch a. Bank certification on paid-in capital deposit; b. Bio-data of the proposed manager and accountable employees; c. Information on branch location, facilities (such as vault), bonding and insurance; d. Certified true copy of the board resolution authorizing the establishment of the branch (in case of corporation); and e. Business and/or economic justification (including data) for the establishment of the branch, etc. acCITS SUBSECTION 4151P.6 Date of opening for business . A branch office shall open for business within six (6) months from receipt of its authority to operate said branch, otherwise, the authority is automatically revoked. SECTIONS 4152P 4155P ( Reserved ) I. Business Days and Hours SECTION 4156P. Business Days and Hours . Pawnshops shall transact business at a minimum of five (5) days a week, for a minimum of six (6) hours a day, both to be selected by them. They may, at their discretion, remain open beyond the above requirement for as long as they deem it necessary. The business hours and business days shall be posted conspicuously at all times at the door of the pawnshop. Exemption from the above requirement shall be granted to pawnshops in troubled areas after due evaluation of their requests. Special public holidays proclaimed for local government shall be regular working days. SECTIONS 4157P 4160P ( Reserved ) J. Records and Reports SECTION 4161P. Records . The accounting period of all pawnshops shall be on the calendar year basis. The accounting records of pawnshops shall consist of records of original entry and books of final entry. The records of original entry shall consist of pawn tickets, official receipts, vouchers and other supporting documents. The books of final entry shall consist of the general ledger, subsidiary ledgers and registers of loans extended and loans paid. Pawnshops may use any form of register: Provided , That (a) it contains spaces and columns adequate to substantially reflect the data required by the BSP, (b) said register is with a permanent binding, and (c) no register with loose leaves or detachable pages shall be allowed. The Chart of Accounts and Description of Loan Registers of Pawnshops provided in Appendix P-1 shall be followed. No pawnbroker or other persons shall alter or erase any entry made in the registers of a pawnshop. No pawnshop shall destroy or dispose of any record, ledger, book, or document for at least three (3) years from the date thereof. SUBSECTION 4161P.1 Uniform System of Accounts . Pawnshops shall strictly adopt/implement the Uniform System of Accounts prescribed for pawnshops in the recording of daily transactions including reportorial requirements. SUBSECTION 4161P.2 Adoption of Statements of Financial Accounting Standards . Pawnshops shall adopt the Statements of Financial Accounting Standards (SFAS) in their financial statements and reports to the BSP. However, in cases where there are differences between BSP regulations and SFAS, as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by the SFAS, the option or limit prescribed by BSP regulations shall be adopted by pawnshops. For purposes hereof, the SFAS shall refer to the issuances of the Accounting Standards Council (ASC) and approved by the Professional Regulation Commission (PRC). SECTION 4162P. Reports . Pawnshops shall submit to the appropriate supervising and examining department of the BSP the reports listed in Appendix P-2 in the forms as may be prescribed by the Deputy Governor, Supervision and Examination Sector, BSP. Any change in, or amendment to, the articles of incorporation/co-partnership, by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation, by-laws or material document to the appropriate supervising and examining department of the BSP within fifteen (15) days following such change. SUBSECTION 4162P.1 Categories of and signatories to reports . Reports required to be submitted to the BSP are classified into Categories A-1, A-2, A-3 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix P-2 . Appendix P-3 prescribes the signatories for each report category and the requirements on signatory authorization. Reports submitted in computer media shall be subject to the same requirements. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having submitted. SUBSECTION 4162P.2 Manner of filing . The submission of the reports shall be effected by filing them personally with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices/Units, or by sending them by registered mail or special delivery through private couriers, unless otherwise specified in the circular or memorandum of the BSP. SUBSECTION 4162P.3 Sanctions . a. Definition of terms . For purposes of these rules, the following definitions shall apply: (1) Report shall refer to any report or statement required of a pawnshop to be submitted to the BSP periodically or within a specified period. (2) Faulty report shall refer to an inaccurate/improperly accomplished report. (3) Willful delay or default in the submission of reports shall refer to the failure of a pawnshop to submit a report on time. Failure to submit a report on time due to fortuitous events, such as fire and other natural calamities and public disorders, including strike or lockout affecting a pawnshop as defined in the Labor Code or a national emergency affecting operations of pawnshops, shall not be considered as willful delay. (4) False Statement shall refer to any untruthful data or information or falsehoods made in a report to the BSP or its authorized agents, with intent to deceive or mislead. Any false statement which tends to favor the pawnshop submitting the report shall be prima facie evidence of intent to deceive or mislead. (5) Repeated violation shall mean the commission of the same offense for at least two (2) times. (6) Persistent violation shall mean the commission of the same offense for at least three (3) times. (7) Offense shall refer to submission of faulty report, willful delay in submission of reports, or making of false statements in reports. b. Fine for submission of faulty report . Any pawnshop which submits a faulty report shall pay to the BSP a fine of P30 per business day which shall accrue beginning on the sixth business day from the day the written notice of faulty report is received by the pawnshop concerned until a correct report is submitted. c. Fines for willful delay in submission of reports . Pawnshops incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-1, A-2 and A-3 reports Per business day of P90 default until the report is filed II. For Category B reports Per business day of P30 default until the report is filed Delay or default shall start to run on the day following the last day required for the submission of reports. However, should the last day of filing fall on a non-working day in the locality where the reporting pawnshop is situated, delay or default shall start to run on the day following the next working day. The due date/deadline for submission of reports to BSP as prescribed under Sec. 4162P governing the frequency and deadlines indicated in Appendix P-2 shall be automatically moved to the next banking day whenever a half-day suspension of business operations in government offices is declared due to an emergency such as typhoon, floods, etc. For the purpose of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted or the date of mailing postmarked on the envelope or the date of registry or special delivery receipt, as the case may be, shall be considered as the date of filing. ADHCSE Delayed schedules or attachments and amendments shall be considered late reporting subject to the above penalties. d. Fines for making false statements . Any pawnshop which makes a false statement in any of its reports to the BSP or its authorized agents shall pay to the BSP a fine in accordance with the following schedule: (1) On the first and P300 and P60 second offense, for every day a fine payable of delay in on the business payment until day following the fine is the receipt of fully paid BSP advice (2) On repeated P600 and violations P120 for every day of delay in payment until the fine is fully paid (3) On persistent Suspension, violations after due hearing, of the pawnshop's directors/ officers/ proprietor/ managing partner Any false statement made in a previous report which was not immediately known but was discovered only in later reports shall constitute only one (1) violation. The penalty shall operate on the sixth working day counted from receipt of notice of submission of a false statement from the BSP or its authorized agents until a correct statement is submitted. e. Manner of collection and payment of fines . A pawnshop shall be billed by the appropriate supervising and examining department of the BSP. The pawnshop shall thereupon remit the amount of the fine to the BSP thru the appropriate supervising and examining department. Failure of a pawnshop to effect the settlement of the full amount of the fine within a period of fifteen (15) days from receipt of the bill shall subject it to other administrative sanctions and/or to the penal provisions of P.D. No. 114. f. Appeal to the Monetary Board . A pawnshop may appeal to the Monetary Board a ruling of the appropriate supervising and examining department of the BSP imposing any penalty prescribed herein. g. Payment of the penalties by installments . (1) The head of the appropriate supervising and examining department may approve requests for payment of penalties by installments: Provided , That the pawnshop's cash position is not sufficient to pay the penalty in full, as determined by that department based on the pawnshop's latest statement of condition duly certified by its president/manager/proprietor/managing partner, as the case may be. The request shall be made in writing. (2) The maximum number of installment payments shall be in accordance with the following schedule: Amount of Penalty No. of Installments P500 and below Two (2) equal monthly installments P501-750 Three (3) equal monthly installments P751-1,000 Four (4) equal monthly installments P1,001-2,000 Six (6) equal monthly installments P2,001-5,000 Eight (8) equal monthly installments P5,001 and above Ten (10) equal monthly installments Default in payment of any installment shall render the unpaid amount payable in full. h. The appropriate supervising and examining department shall refuse registration of new pawnshops the owner(s) of which owned another pawnshop which closed or ceased operations without paying previously assessed penalties. SECTIONS 4163P 4170P ( Reserved ) K. Internal Control SECTION 4171P. Safekeeping of Pawns and Records and Insurance of Office Building . Pawns must be kept inside the safe or concrete vault; however, bulky pawns may be placed outside the safe or vault but within the pawnshop premises. Vital records must be kept inside the safe or vault when not in use. Other pawnshop records/documents may be placed in filing cabinets/shelves outside the vault or safe but within the pawnshop premises. The office building/premises and all pawns of the pawnshop, except those which are kept inside a fireproof vault, must be insured against fire. SECTION 4172P. Separation of Pawnshop Business from Other Businesses . Any person or entity engaged in the pawnshop business and, at the same time, engaged in other businesses not directly related nor incidental to the business of a pawnshop, shall keep such businesses distinct and separate from the pawnshop operation. SECTIONS 4173P 4180P ( Reserved ) L. Miscellaneous Provisions SECTION 4181P. Business Name . No person or entity shall advertise or hold itself out as being engaged in pawnshop operations or use in connection with its business title the words pawnshop, pawnbroker, pawnbrokerage , or words of similar import, or transact in any manner the business of a pawnshop without having first complied with the provisions of P.D. No. 114 and of these regulations. SECTION 4182P. Closing or Transfer of Business . No pawnshop shall close or transfer its place of business within three (3) months following the maturity of any loan or pledge, or before any pawn shall have been sold or disposed of as provided for under existing regulations. Any pawnshop may transfer its place of business from one location to another within the territorial limits of the city or municipality upon compliance with the following requirements: a. Notice of transfer shall be published in English and in Pilipino or in the local dialect in two (2) daily newspapers of general circulation in the city or municipality where the pawnshop is closing business, and posted in a conspicuous place in the premises to be vacated and to be transferred to; b. The notice shall be published for at least three (3) consecutive days, the last day of which shall be five (5) days before the actual transfer; and c. Notice shall contain the following information: (1) Date of transfer; (2) Address of the premises to be vacated; and (3) Address of the premises to which the pawnshop intends to transfer. In remote areas where newspapers are not available, the publication shall be complied with by posting notices at the city hall or municipal building of the city or municipality where the pawnshop has its place of business. SECTIONS 4183P 4198P ( Reserved ) SECTION 4199P. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Section 18 of P.D. No. 114. PART TWO Borrowing Operations A.-J. ( Reserved ) SECTIONS 4201P 4285P ( Reserved ) K. Other Borrowings SECTION 4286P. Borrowings Constituting Quasi-Banking Functions . Borrowing from twenty (20) or more lenders for the purpose of relending or purchase of receivables or other obligations, which constitutes quasi-banking functions as defined in Subsec. 4101P.3, shall be subject to prior BSP authority on performance of quasi-banking functions under BSP regulations. SECTIONS 4287P 4298P ( Reserved ) HITEaS SECTION 4299P. General Provision on Sanctions . Any violation of the provisions of this Part shall be subject to Sections 36 and 37 of R.A. No. 7653. PART THREE Loans and Investments A. Loans in General SECTION 4301P. Loan Limits . Pawnshops may grant such amount of loans as may be agreed upon between the parties: Provided , That the amount of a loan shall in no case be less than thirty percent (30%) of the appraised value of the security offered for the loan, unless the pawner manifests in writing that he is applying for a lesser amount. Pawnshops shall not under-appraise the security offered for the loan for the purpose of defeating the restriction prescribed by this Section. SECTION 4302P. Interest and Other Charges . The rate of interest, including commissions, premiums, fees and other charges, on any loan or forbearance of money extended by a pawnshop shall not be subject to any ceiling. No pawnshop shall collect interest on loans in advance for a period of more than one (1) year. SECTION 4303P. Past Due Accounts; Renewal/Redemption of Pawns . A loan may be renewed for such amount and period as may be agreed upon between the pawnshop and the pawner, subject to the same conditions as are provided in this Part for new loans. A pawner who fails to pay or renew his obligation with a pawnshop on the date it falls due shall have ninety (90) days from the date of maturity of the loan within which to redeem the pawn by paying the principal amount of the loan plus the amount of interest that shall have accrued thereon. The amount of interest due and payable after the maturity date of the loan shall be computed upon redemption based on the sum of the principal loan and interest earned as of the date of maturity. The procedures to be followed in case the pawner fails to redeem his pawn are prescribed in Sec. 4323P. SECTION 4304P 4320P ( Reserved ) B. Secured Loans SECTION 4321P. Kinds of Security . Only personal property that is capable of being physically delivered to the control and possession of the pawnshop shall be accepted as security for loans. Certain specified chattels, such as guns, knives, or similar weapons, whose reception in pawn is expressly prohibited by other laws, decrees, or regulations, shall not be accepted by pawnshops as security for loans. SECTION 4322P. Pawn Ticket . Pawnshops shall at the time of the loan, deliver to each pawner a pawn ticket which shall contain the following: a. Name and residence of the pawner; b. Date the loan is granted; c. Amount of the principal loan; d. Interest rate in percent; e. Period of maturity; f. Description of the pawn; g. Expiry date of redemption period; h. Signature of the pawnshop's authorized representative; i. Signature or thumbmark of the pawner or his authorized representative; and j. Such other terms and conditions as may be agreed upon between the pawnshop and the pawner. SUBSECTION 4322P.1 Contents of pawn ticket . The contents of the face of the standard pawn ticket, prescribed for pawnshops pursuant to the requirements of P.D. No. 114, and the terms and conditions on the reverse side thereof, are prescribed in Appendices P-4 and P-4-a . Suplusage data shall be avoided. Additional terms and conditions which pawnshops may wish to incorporate shall be subject to prior approval by the appropriate supervising and examining department of the BSP. Pawn tickets shall not be smaller than 8" x 5". Pawn tickets shall at least be in duplicate. The first copy shall contain the word "Original" and the second copy shall be marked "Duplicate". Pawn tickets shall be serially numbered. Pawnshops may choose the color and quality of the paper used as pawn ticket. SUBSECTION 4322P.2 Sanctions . Any pawnshop which violates or fails to comply with the requirements of Subsec. 4322P.1 shall pay a fine of P500 and shall be liable for such other administrative sanctions as the BSP may impose. The owner, partner, manager, or officer-in-charge of the pawnshop responsible for the violation or non-compliance shall be jointly liable with the pawnshop. SECTION 4323P. Reminder to Pawner; Notice to the Public . On or before the expiration of the ninety (90)-day grace period allowed in Sec. 4303P, the pawnshop shall duly notify the pawner in writing that the pawn shall be sold or otherwise disposed of in the event that the pawner fails to redeem the pawn within the ninety (90)-day grace period, specifying in the same notification the date, hour and place where the sale shall take place. If upon the expiration of the ninety (90)-day grace period, the pawner fails to redeem his pawn, the pawnshop may sell or dispose of the pawn only after it has published a notice of public auction of unredeemed articles held as security for loans in at least two (2) newspapers circulated in the city or municipality where the pawnshop has its place of business, six (6) days prior to the date set for the public auction. The notice shall be in English and in Pilipino or in the local dialect and shall contain the following: a. Name and address of the owner of the pawnshop; and b. Date and hour of the auction sale. In remote areas where newspapers are neither published nor circulated, the publication shall be complied with by posting notices at the city hall or municipal building of the city or municipality and in two (2) other conspicuous public places where the pawnshop has its place of business. SECTION 4324P. Public Auction of Pawns . No pawnshop shall sell or otherwise dispose of any article or thing received as security for a loan except by public auction at any of the following places: a. Pawnshop's place of business; or b. Any public place within the territorial limits of the municipality or city where the pawnshop conducts its business. The auction shall be conducted under the control and direction of a duly licensed auctioneer. In cities and municipalities where there is no duly licensed auctioneer, the public auction may be conducted by a notary public of the city or province where the pawnshop has its place of business. The Auction Sheet/Book containing entries of auctioned pawned articles duly signed by the auctioneer or notary public under oath shall be maintained by the pawnshop. SECTIONS 4325P 4335P ( Reserved ) C.-J. ( Reserved ) SECTIONS 4336P 4395P ( Reserved ) K. Miscellaneous SECTIONS 4396P 4398P ( Reserved ) SECTION 4399P. General Provisions on Sanctions . Any violation of the provisions of this Part shall be subject to Section 18 of P.D. No. 114. PART FOUR SECTIONS 4401P 4499P ( Reserved ) PART FIVE SECTIONS 4501P 4599P ( Reserved ) PART SIX Miscellaneous A. ( Reserved ) SECTIONS 4601P 4650P ( Reserved ) B. Sundry Provisions SECTION 4651P. Supervisory Powers of the Bangko Sentral . The head of the appropriate supervising and examining department of the BSP and his duly designated representatives are authorized to conduct an examination, inspection, or investigation of books, records, business affairs, administration, and financial condition of any pawnshop, whenever said official deems it necessary for the effective implementation of P.D. No. 114, and other pertinent rules and regulations. Said official and his duly designated representatives may administer oaths to any director, officer, or employee of the pawnshop. If, upon such examination, inspection, or investigation, the official or his deputies shall establish that the pawnshop is violating or is not complying with the requirements of P.D. No. 114 and of the provisions of other pertinent rules and regulations, said official shall immediately inform the Monetary Board of his findings and recommendations, and the Monetary Board shall take appropriate actions to stop such violation or non-compliance, and punish the persons responsible. SECTION 4652P. Basic Law Governing Pawnshops . P.D. No. 114, known as the Pawnshop Regulation Act, regulates the establishment and operation of pawnshops. SECTIONS 4653P 4656P ( Reserved ) SECTION 4657P. Batas Pambansa Blg. 344 An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments And Public Utilities To Install Facilities And Other Devices . In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they live and the enjoyment of the opportunities available to other citizens, no license or permit for the construction, repair or renovation of public and private buildings for public use, educational institutions, airports, sports and recreation centers and complexes, shopping centers or establishments, public parking places, workplaces, public utilities, shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building, establishment or public utility, such architectural facilities or structural features as shall reasonably enhance the mobility of disabled persons such as sidewalks, ramps, railings and the like. If feasible, all such existing buildings, institutions, establishments, or public utilities may be renovated or altered to enable the disabled persons to have access to them. SECTIONS 4658P 4690P ( Reserved ) SECTION 4691P. Anti-Money Laundering Regulations . Banks, offshore banking units(OBUs), quasi-banks (QBs), trust entities, non-stock savings and loan associations (NSSLAs), pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the BSP, otherwise known as "covered institutions" shall comply with the provisions of R.A. No. 9160, as amended, otherwise known as the "Anti-Money Laundering Act of 2001" and its Implementing Rules and Regulations (IRRs) in Appendix P-6 and those in Appendix P-5 . SUBSECTIONS 4691P.1 4691P.8 ( Reserved ) SUBSECTION 4691P.9 Sanctions and penalties . a. Whenever a covered institution violates the provisions of Section 9 of R.A. No. 9160 of this Section, the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50,000 nor more than P200,000 or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court pursuant to Section 36 of R.A. No. 7653, otherwise known as "The New Central Bank Act". b. Without prejudice to the criminal sanctions prescribed above against the culpable persons, the Monetary Board may, at its discretion, impose upon any covered institution, its directors and/or officers for any violation of Section 9 of R.A. No. 9160, the administrative sanctions provided under Section 37 of R.A. No. 7653. SECTIONS 4692P 4698P ( Reserved ) SECTION 4699P. Administrative Sanctions . The Monetary Board shall impose upon pawnshops, their owners, partners, directors and officers for any violation of the provisions of the rules on pawnshops, P.D. No. 114, pertinent laws or any order or instruction of the Monetary Board or its authorized official; or any commission of irregularities in the conduct of its business, the following administrative sanctions: a. For a violation consummated at a single instance and not punishable on a per-day basis, a fine of not more than P500; or for a violation which is continuing and punishable on a per-day basis, a fine of not more than P600 for every day of violation or non-compliance; and/or b. Suspension or, after due hearing, removal of partners/directors or officers. For purposes of this Section, the phrase any commission of irregularities in the conduct of its business shall include any act or omission described hereunder. 1. Failure to produce pawn upon redemption or in any other case where the pawnshop has the obligation to produce the pawn. 2. Allowing the redemption of pawn without the surrender of the corresponding original pawn ticket/substitute pawn ticket/affidavit of loss. 3. Falsifying pawn tickets. 4. Actual collection of interest in advance and or service charges without reflecting the same on the pawn ticket. 5. Tampering or substitution of pawn. 6. Failure to issue official receipts for amounts collected. 7. Any other act or omission analogous to the above-enumerated acts and omissions. Appendix P-1 CHART OF ACCOUNTS AND DESCRIPTION OF LOAN REGISTER OF PAWNSHOPS ( Appendix to Sec. 4161P ) A. General Ledger . The General Ledger is the controlling record of all subsidiary ledger accounts. The general ledger accounts shall be grouped as follows: (1) Assets Asset accounts shall consist of the following: (a) Cash on hand and in banks; (b) Pledge loans; (c) Land; (d) Building; (e) Furniture and fixtures; (f) Office equipment; (g) Leasehold improvements; (h) Investment in securities; and (i) Other assets. Other assets shall include all assets not included in any of the above classification, such as prepaid expenses, advances, accounts receivables. (2) Liabilities Liabilities represent obligations of the pawnshop, such as: (a) Loans payable; (b) Accounts payable; and (c) Other liabilities. Other liabilities are liabilities not included in the above classification, such as SSS Premiums and medicare, tax withheld, accruals. (3) Capital Capital at the end of the year is the excess of assets over liabilities, or the sum of paid-in capital, surplus or retained earnings accounts and net income for the year. The accounts under this group shall consist of the following: (a) Capital/capital stock; (b) Drawings; (c) Retained earnings; and (d) Net income for the year. (4) Income This account represents the "general ledger control" account for all income of the pawnshop. An "Income Subsidiary Ledger" shall be maintained and the total of this ledger shall equal the balance of "Income Control" account of the general ledger at all times. TSIaAc The "Income Subsidiary Ledger" shall contain the following accounts: (a) Interests pledge loans; (b) Service charges; (c) Gain or loss at auction sale; (d) Interests on securities; and (e) Other income (5) Expenses The expenses account shall include the following: (a) Salaries and allowances; (b) Interest on borrowed money; (c) Rental; (d) Depreciation; (e) Light and water; (f) Taxes and licenses; (g) SSS contribution; (h) Costs of telephone, postage and/or telegram; (i) Stationery and/or supplies; and (j) Miscellaneous expenses. B. Registers . The following registers shall be maintained to trace loan transactions. (1) Loans Extended Register Every pawnbroker shall keep a "Loans Extended Register" in which shall be entered in ink, at the time of each loan or pledge transaction, an accurate account and description in English, with corresponding translation in the local dialect, the following minimum data: (a) Date of transaction; (b) Number of pawn ticket; (c) Amount of money loaned or principal; (d) Rate of interest to be paid, in percent; (e) Service charge collected; (f) Description of pawn; (g) Appraised value of pawn; (h) Name of pawner; (i) Address of pawner; (j) Description of the pawner, including: (i) Nationality; (ii) Sex; and (iii) General appearance; and (k) Signature or thumbmark of the pawner and the name of the pawner written by and signature of the witness to the thumbmarking. (2) Loans Paid Register A "Loans Paid Register" shall be maintained in which shall be entered in ink, the principal and interest payments of loans. It shall contain the following minimum data: (a) Date of payment; (b) Number of pawn ticket; (c) Name of pawner; (d) Principal amount; and (e) Amount of interest paid. APPENDIX P-2 LIST OF REPORTS REQUIRED FROM PAWNSHOPS ( Appendix to Sec. 4161P.1 ) Report Frequency of Deadline for Submission Category BSP Form No. Subject of Report Reporting Submission Procedure B BSP 7-26-01.C Information Sheet Upon - Original SED III registration B BSP 7-26-01.1C Personal Data Sheet of Owner/Partner/ - do - - - do - Incorporator/Director/Officer A-2 BSP 7-26-02.C Consolidated Balance Sheet Annually January 31 - do - A-2 BSP 7-26-02.1C Breakdown of Pledged Loans According - do - - do - - do - to Size A-3 BSP 7-26-03.C Statement of Income & Expenses - do - - do - - do - B Unnumbered (no Annual Report of Management to Annually 31 March following - do - prescribed form) Stockholders Covering Results of end of each year Operations for the Previous Year B Audited Financial Statement for the - do - - do - - do - Previous Year Ended Prepared by the External Auditor B Loss/Destruction of Pawned Articles/ As incident See Annex P-2-a - do - Pawnshop Property Caused by Crimes occurs For guidelines on or Fortuitous Events reporting crimes and losses A-2 Unnumbered Report on Suspicious Transactions As transaction 5th business day from To be submitted to occurs date of transaction/ the Anti-Money knowledge Laundering Council A-2 Unnumbered Report on Covered Transactions - do - - do - - do - B Unnumbered Plan of action to comply with Anti-Money - 30th business day Original SED III Laundering requirements from July 31, 2000 or from opening of the institution A-2 Unnumbered Certification of compliance with existing Annually 20th business day SED III anti-money laundering regulations after end of reference year ANNEX P-2-a REPORTING GUIDELINES ON CRIMES/LOSSES ( Annex to Appendix P-2 ) 1. Pawnshops shall report on the following matters through the appropriate supervising and examining department: a. Crimes whether consummated, frustrated or attempted against pawned articles/property/facilities (such as robbery, theft, swindling or estafa, forgery and other deceits) and other crimes involving loss/destruction of pawn/property of the pawnshop: Provided , That if no pawned article is involved, the amount involved in each crime is P20,000 or more. Crimes involving the pawnshop personnel, regardless of whether or not such crimes involve the loss/destruction of pawned articles/property of the pawnshop, even if the amount involved is less than those above specified, shall likewise be reported to the BSP. b. Incidents involving material loss, destruction or damage to the institution's pawned articles/property/facilities, other than arising from a crime: Provided , That if no pawned article is involved, the amount involved per incident is P20,000 or more. 2. The following guidelines shall be observed in the preparation and submission of the report. a. The report shall be prepared in two (2) copies and shall be submitted within five (5) business days from knowledge of the crime or incident, the original to the appropriate supervising department and the duplicate to the BSP Security Coordinator, thru the Director, Security Investigation and Transport Department. b. Where a thorough investigation and evaluation of facts is necessary to complete the report, an initial report submitted within the five (5) business day deadline may be accepted: Provided , That a complete report is submitted not later than fifteen (15) business days from termination of investigation. APPENDIX P-3 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION ( Appendix to Subsec. 4162P.1 ) Category A-1 reports shall be signed by the chief executive officer, or in his absence, by the executive vice-president, and by the comptroller, or in his absence, by the chief accountant, or by officers holding equivalent positions. The designated signatories in this category, including their specimen signatures, shall be contained in a resolution approved by the board of directors in the format prescribed in Annex P-3-a. Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex P-3-b. Categories A-3 and B reports shall be signed by officers or their alternates, who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex P-3-c. caIDSH Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) days from the date of resolution. In the case of pawnshops organized as single proprietorship or partnership, the reports shall be signed by the proprietor or managing partner, as the case may be, in place of chief executive officer or president. Other signatories shall be authorized by the proprietor/managing partner in a letter of authority to be submitted to the appropriate supervising and examining department of the BSP indicating the names, positions and specimen signatures of the designated signatories as well as the reports they are to sign. ANNEX P-3-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-1 REPORTS ( Annex to Appendix P-3 ) Resolution No. _____ Whereas, it is required under Subsec. 4162P.1 that Category A-1 reports be signed by the chief executive officer, or in his absence, by the executive vice-president, and by the comptroller, or in his absence, by the chief accountant, or by officers holding equivalent positions. Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of _________________ (Name of Institution), are conscious that, in designating the officials who would sign said Category A-1 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's Chief Executive Officer, Executive Vice-President, Comptroller and Chief Accountant, as the case may be, and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: 1. Mr. ______________________, President ______________________________ Specimen Signature or Executive 2. Mr. ______________________, Vice-Pres. _____________________________ Specimen Signature and 3. Mr. ______________________, Comptroller ____________________________ Specimen Signature or Chief 4. Mr. ______________________, Accountant __________________________ Specimen Signature are hereby authorized to sign Category A-1 reports of ___________________; (Name of Institution) Done in the City of __________, Philippines, this ____________ day of ____, 19___. __________________________ CHAIRMAN OF THE BOARD __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR ATTESTED BY: __________________________ CORPORATE SECRETARY ANNEX P-3-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS ( Annex to Appendix P-3 ) Resolution No. _____ Whereas, it is required under Subsec. 4162P.1 that Category A-2 reports of head offices be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of _______________ (Name of Institution), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ________________ (Name of Institution); Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No. are hereby authorized to sign the Category A-2 reports indicated above of _____________________ (Name of Institution); Done in the City of _________, Philippines, this ________ day of _______, 19 __. __________________________ CHAIRMAN OF THE BOARD __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR ATTESTED BY: __________________________ CORPORATE SECRETARY ANNEX P-3-c FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORIES A-3 AND B REPORTS ( Annex to Appendix P-3 ) Resolution No. _____ Whereas, it is required under Subsec. 4162P.1 that Categories A-3 and B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of _______________ (Name of Institution), are conscious that, in designating the officials who would sign said Categories A-3 and B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ___________________ (Name of Institution) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by afore-said officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Signatory/ Specimen Position Report Alternate Signature Title No. 1. Authorized (Alternate) 2. Authorized (Alternate) etc. are hereby authorized to sign the Categories A-3 and B reports of _______________ (Name of Institution). STcEaI Done in the City of __________, Philippines, this ________ day of _________, 19 ___. __________________________ CHAIRMAN OF THE BOARD __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR __________________ __________________ DIRECTOR DIRECTOR ATTESTED BY: CORPORATE SECRETARY PAWNER IS ADVISED TO READ AND UNDERSTAND THE TERMS AND CONDITIONS ON REVERSE SIDE HEREOF Appendix P-4-a TERMS AND CONDITIONS OF STANDARD PAWN TICKET 1. The pawner hereby accepts the pawnshop's appraisal as proper. 2. The interest rate stipulated herein is in accordance with the existing policy of the Monetary Board. The pawnshop hereby agrees not to collect in advance interest for a period of more than one (1) year. 3. The service charge is equivalent to one percent (1%) of the principal loan, but not exceeding five pesos (P5.00). No other charges shall be collected. 4. This loan is renewable for such amount and period as may be agreed upon between the pawnshop and the pawner, subject to the requirements of P.D. No. 114 for a new loan. ICDSca 5. Upon maturity of this loan, as indicated on the face of this ticket, the pawner still has ninety (90) days from maturity date within which to redeem the pawn by paying the principal loan plus the interest that shall have accrued thereon. The amount of interest due and payable after the maturity date of the loan and during the redemption period shall be computed upon redemption at the same rate of interest provided in No. 2 based on the sum of the principal loan and interest earned as of the date of maturity. 6. The pawnshop shall send a written reminder to pawner, before the expiration of the ninety (90)-day grace period, that the pawn shall be sold or disposed of in the event the pawner fails to redeem the pawn within the ninety (90)-day grace period. 7. The parties hereby agree that this ticket shall be surrendered at maturity date upon payment of the loan. In case of loss or destruction of this ticket, the pawner hereby undertakes to personally present an affidavit to the pawnshop before the redemption period expires. It is hereby agreed upon that the pawnshop has a period of two (2) days within which to verify from its records before (1) indicating on the affidavit that it shall take the place of the original pawn ticket for purposes of redemption; or (2) issuing a substitute ticket, the original pawn ticket thereby being deemed cancelled. 8. The pawner hereby agrees not to assign, sell or in any other way alienate the pawn securing this loan as evidenced by the pawn ticket without prior written consent of the pawnshop and subject to the terms and conditions of this contract. 9. In case of pre-payment of this loan by pawner, the interest collected in advance shall accrue in full to the pawnshop. 10. The pawner shall not be entitled to the excess of the public auction sale price over the amount of principal interest and service fee; neither shall the pawnshop be entitled to recover the defeciency from the pawner. Appendix P-5 ANTI-MONEY LAUNDERING REGULATIONS ( Appendix to Section 4691P ) Banks, quasi-banks, trust entities and all other institutions, and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R.A. No. 9160 and the following rules and regulations on anti-money laundering. 1. Customer identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. When establishing business relations or conducting transactions (particularly opening of deposit accounts, accepting deposit substitutes, entering into trust and other fiduciary transactions, renting of safety deposit boxes, performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients. Said client identification may be based on official or other reliable documents and records. a. In cases of corporate and other legal entities, the following measures should be taken, when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both, proof of incorporation, including information concerning the customer's name, legal form, address, directors, principal officers and provisions regulating the power behind the entity. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. b. In case of doubt as to whether their purported clients or customers are acting for themselves or for another, reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. c. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. In case where numbered accounts is allowed (i.e., peso and foreign currency non-checking numbered accounts), covered institutions should ensure that the client is identified in an official or other identifying documents. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts. CDISAc Covered institutions shall phase out within a period of one (1) year from April 2, 2001 or upon their maturity, whichever is earlier, anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them, which are not expressly allowed under existing law. d. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by the covered institutions should be renewed/updated at least every other year. e. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. With respect to closed accounts, the records on customer identification, account files and business correspondence, shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Such records must be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal behaviour. f. Special attention should be given to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies. g. Covered institutions should not, or should at least avoid, transacting business with criminals. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. 2. Programs against money laundering . Programs against money laundering should be developed. These programs, should include, as a minimum: a. The development of internal policies, procedures and controls, including the designation of compliance officers at management level, and adequate screening procedures to ensure high standards when hiring employees; b. An ongoing employee training program; and c. An audit function to test the system. 3. Submission of plans of action . Covered institutions shall submit a plan of action on how to comply with the requirements of App. P-5 nos. 1, 2 and 4 within thirty (30) business days from July 31, 2000 or from opening of the institution. 4. Required reporting of certain transactions . If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R.A. No. 9160 and/or its IRRs, the transactions involving such funds or attempts to transact the same, should be reported to the Anti-Money Laundering Council (AMLC) in accordance with Rules 5.2 and 5.3 of the AMLA IRRs. a. Report on suspicious transactions . 1 Banks shall report covered transactions and suspicious transactions, as defined in Rules 5.2 and 5.3 of the AMLA IRRs, to the AMLC using the forms prescribed by the AMLC. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose; (2) Inward remittances without visible lawful purpose or without underlying trade transactions; (3) Unusual purchases of foreign exchange without visible lawful purpose; (4) Unusual sales of foreign exchange whose sources are not satisfactorily established; (5) Complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose; (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities; and (7) All other suspicious transactions/activities which can be reported without violating any law. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. (b) A brief description of the transaction or transactions. (c) Date or date the transaction(s) occurred. (d) Amount(s) involved in every transaction. (e) Such other relevant information which can be of help to the authorities should there be an investigation. IcCDAS b. Exemption from Bank Secrecy Law . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates shall not be deemed to have violated R.A. No. 1405, as amended; R.A. No. 6426, as amended; R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, shall be criminally liable. However, no administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under R.A. 9160 or any other Philippine law. c. Prohibition from disclosure of the covered transaction report . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. 5. Certification of compliance with anti-money laundering regulations . Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification (Annex P-5-a) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations. The certification shall be submitted in accordance with Appendix P-2 and shall be considered a Category A-2 report. Appendix P-5-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS ( Annex to Appendix P-5 ) CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 2 April 2001, we hereby certify: 1. That we have monitored (Name of Pawnshop)'s compliance with R.A. No. 9160 (Anti-Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259 and 302; 2. That the Pawnshop is complying with the required customer identification, documentation of all new clients, and continued monitoring of customer's activities; 3. That the Pawnshop is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years; 4. That the Pawnshop does not maintain anonymous or fictitious accounts; and 5. That we conduct regular anti-money laundering training sessions for all Pawnshop officers and selected staff members holding sensitive positions. ________________________ ________________________ (Name of President or officer (Name of Compliance of equivalent rank) Officer) SUBSCRIBED AND SWORN to before me, _____ this ____ day of ____________, affiant/s exhibiting to me their Residence Certificates as follows: Community Date/Place Name Tax Cert. No Issued Doc. No. ________; Notary Public Page No. ________; Book No. ________; Series of 2002 Appendix P-5-b AMLC Resolution No. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS ( Annex to Appendix P-5 ) 1. All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property. CHaDIT 2. Banks shall file covered transaction reports (CTRs) on transactions involving all kinds of monetary instruments or property, i.e., in cash or non-cash, whether in domestic or foreign currency. 3. Covered institutions, other than banks, shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. Due to the nature of the transactions in the stock exchange, only the brokers-dealers shall be required to file CTRs and STRs. The PSE, PCD, SCCP and transfer agents are exempt from filing CTRs. They, are however, required to file STRs when the transactions that pass through them are deemed to be suspicious. 4. Where the covered institution engages in bulk transactions with a bank, i.e., deposits of premium payments in bulk or settlements of trade, and the bulk transactions do not distinguish clients and their respective transaction amounts, said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500,000 and are included in the bulk transactions. 5. With respect to insurance companies, when the total amount of the premiums for the entire year, regardless of the mode of payment (monthly, quarterly, semi-annually or annually), exceeds P500,000, such amount shall be reported as a covered transaction, even if the amounts of the amortizations are less than the threshold amount. The CTR shall be filed upon payment of the first premium amount, regardless of the mode of payment. Under this rule, the insurance company shall file the CTR only once every year until the policy matures or rescinded, whichever comes first. 6. The submission of CTRs is deferred until the AMLC directs otherwise. Submission of STRs, however, are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require. Appendix P-6 REVISED IMPLEMENTING RULES AND REGULATIONS R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194 ( Appendix to Sec. 4691P ) RULE 1 Title Rule 1.a. Title . These Rules shall be known and cited as the "Revised Rules and Regulations Implementing Republic Act No. 9160", (the Anti-Money Laundering Act of 2001 [AMLA]), AS AMENDED BY REPUBLIC ACT NO. 9194. Rule 1.b. Purpose . These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA, AS AMENDED BY REPUBLIC ACT NO. 9194. RULE 2 Declaration of Policy Rule 2. Declaration of Policy . It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. RULE 3 Definitions Rule 3. Definitions . For purposes of THIS ACT, the following terms are hereby defined as follows: Rule 3.a. " Covered Institution " refers to: Rule 3.a.1. Banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng Pilipinas (BSP). (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank, quasi-bank, trust entity or any other institution supervised or regulated by the BSP. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank, quasi-bank, trust entity, or any other institution supervised and/or regulated by the BSP. Rule 3.a.2. Insurance companies, insurance agents, insurance brokers, professional reinsurers, reinsurance brokers, holding companies, holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). AECacT (a) An insurance company includes those entities authorized to transact insurance business in the Philippines, whether life or non-life and whether domestic, domestically incorporated or branch of a foreign entity. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Transacting insurance business includes making or proposing to make, as insurer, any insurance contract, or as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety, doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Presidential Decree (P.D.) No. 612, as amended, including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P.D. No. 612, as amended. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. (c) An insurance broker includes any person who acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. (d) A professional reinsurer includes any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines, whether domestic, domestically incorporated or a branch of a foreign entity. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. (e) A reinsurance broker includes any person who, not being a duly authorized agent, employee or officer of an insurer in which any reinsurance is effected, acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance, for any insurance company authorized to do business in the Philippines. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. A holding company system includes a holding company together with its controlled insurers and controlled persons. Rule 3.a.3. (i) Securities dealers, brokers, salesmen, associated persons of brokers or dealers, investment houses, investment agents and consultants, trading advisors, and other entities managing securities or rendering similar services, (ii) mutual funds or open-end investment companies, close-end investment companies, common trust funds, pre-need companies or issuers and other similar entities; (iii) foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. (c) A securities salesman includes a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial. (e) An investment house includes an enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding, any redeemable security of which it is the issuer. (g) A closed-end investment company includes an investment company other than open-end investment company. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee, for the purpose of administration, holding or management of such funds and/or properties for the use, benefit or advantage of the trustor or of others known as beneficiaries. (i) A pre-need company or issuer includes any corporation supervised and/or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need, payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life, pension, education, internment and other plans, which the Commission may, from time to time, approve. CAacTH (j) A foreign exchange corporation includes any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. (k) Investment Advisor/Agent/Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others, either directly or through circulars, reports, publications or writings, as to the value of any security and as to the advisability of trading in any security; or (2) who for compensation and as part of a regular business, issues or promulgates, analyzes reports concerning the capital market, except: (a) any bank or trust company; (b) any journalist, reporter, columnist, editor, lawyer, accountant, teacher; (c) the publisher of any bonafide newspaper, news, business or financial publication of general and regular circulation, including their employees; (d) any contract market; (e) such other person not within the intent of this definition, provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. (3) any person who undertakes the management of portfolio securities of investment companies, including the arrangement of purchases, sales or exchanges of securities. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. (m) A money payment, remittance and transfer company includes any person offering to pay, remit or transfer or transmit money on behalf of any person to another person. (n) "Customer" refers to any person or entity that keeps an account, or otherwise transacts business, with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted, as well as the beneficiary of said transactions. A customer also includes the beneficiary of a trust, an investment fund, a pension fund or a company or person whose assets are managed by an asset manager, or a grantor of a trust. It includes any insurance policy holder, whether actual or prospective. (o) "Property" includes any thing or item of value, real or personal, tangible or intangible, or any interest therein or any benefit, privilege, claim or right with respect thereto. Rule 3.b. "COVERED TRANSACTION" IS A TRANSACTION IN CASH OR OTHER EQUIVALENT MONETARY INSTRUMENT INVOLVING A TOTAL AMOUNT IN EXCESS OF FIVE HUNDRED THOUSAND PESOS (PHP500,000.00) WITHIN ONE (1) BANKING DAY. Rule 3.b.1. SUSPICIOUS TRANSACTIONS ARE TRANSACTIONS, REGARDLESS OF AMOUNT, WHERE ANY OF THE FOLLOWING CIRCUMSTANCES EXISTS: (1) THERE IS NO UNDERLYING LEGAL OR TRADE OBLIGATION, PURPOSE OR ECONOMIC JUSTIFICATION; (2) THE CLIENT IS NOT PROPERLY IDENTIFIED; (3) THE AMOUNT INVOLVED IS NOT COMMENSURATE WITH THE BUSINESS OR FINANCIAL CAPACITY OF THE CLIENT; TAEcSC (4) TAKING INTO ACCOUNT ALL KNOWN CIRCUMSTANCES, IT MAY BE PERCEIVED THAT THE CLIENT'S TRANSACTION IS STRUCTURED IN ORDER TO AVOID BEING THE SUBJECT OF REPORTING REQUIREMENTS UNDER THE ACT; (5) ANY CIRCUMSTANCE RELATING TO THE TRANSACTION WHICH IS OBSERVED TO DEVIATE FROM THE PROFILE OF THE CLIENT AND/OR THE CLIENT'S PAST TRANSACTIONS WITH THE COVERED INSTITUTION; (6) THE TRANSACTION IS IN ANY WAY RELATED TO AN UNLAWFUL ACTIVITY OR ANY MONEY LAUNDERING ACTIVITY OR OFFENSE UNDER THIS ACT THAT IS ABOUT TO BE, IS BEING OR HAS BEEN COMMITTED; OR (7) ANY TRANSACTION THAT IS SIMILAR, ANALOGOUS OR IDENTICAL TO ANY OF THE FOREGOING. Rule 3.c. " Monetary Instrument " refers to: (1) Coins or currency of legal tender of the Philippines, or of any other country; (2) Drafts, checks and notes; (3) Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money market instruments; (4) Contracts or policies of insurance, life or non-life, and contracts of suretyship; and (5) Other similar instruments where title thereto passes to another by endorsement, assignment or delivery. Rule 3.d. "Offender" refers to any person who commits a money laundering offense. Rule 3.e. "Person" refers to any natural or juridical person. Rule 3.f. "Proceeds" refers to an amount derived or realized from an unlawful activity. It includes: (1) All material results, profits, effects and any amount realized from any unlawful activity; (2) All monetary, financial or economic means, devices, documents, papers or things used in or having any relation to any unlawful activity; and (3) All moneys, expenditures, payments, disbursements, costs, outlays, charges, accounts, refunds and other similar items for the financing, operations, and maintenance of any unlawful activity. Rule 3.g. "Supervising Authority" refers to the BSP, the SEC and the IC. Where the BSP, SEC or IC supervision applies only to the registration of the covered institution, the BSP, the SEC or the IC, within the limits of the AMLA, shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. ASEIDH Rule 3.h. "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution. Rule 3.i. "Unlawful activity" refers to any act or omission or series or combination thereof involving or having relation, to the following: (A) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (1) Kidnapping for ransom (B) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15 and 16 of Republic Act No. 9165, otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002; (2) Importation of prohibited drugs; (3) Sale of prohibited drugs; (4) Administration of prohibited drugs; (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den, Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10) Possession of prohibited drugs (11) Use of prohibited drugs (12) Cultivation of plants which are sources of prohibited drugs (13) Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b, c, e, g, h and i of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act; (14) Directly or indirectly requesting or receiving any gift, present, share, percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party, wherein the public officer in his official capacity has to intervene under the law; (15) Directly or indirectly requesting or receiving any gift, present or other pecuniary or material benefit, for himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any government permit or license, in consideration for the help given or to be given, without prejudice to Section 13 of R.A. 3019; (16) Causing any undue injury to any party, including the government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence; (17) Entering, on behalf of the government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby; (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest; (19) Directly or indirectly becoming interested, for personal gain, or having material interest in any transaction or act requiring the approval of a board, panel or group of which he is a member, and which exercise of discretion in such approval, even if he votes against the same or he does not participate in the action of the board, committee, panel or group. (D) Plunder under Republic Act No. 7080, as amended; (20) Plunder through misappropriation, conversion, misuse or malversation of public funds or raids upon the public treasury; (21) Plunder by receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned; ACETIa (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions, agencies, instrumentalities or government-owned or controlled corporations or their subsidiaries; (23) Plunder by obtaining, receiving or accepting, directly or indirectly, any shares of stock, equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking; (24) Plunder by establishing agricultural, industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests; (25) Plunder by taking undue advantage of official position, authority, relationship, connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. (E) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended; (26) Robbery with violence or intimidation of persons; (27) Robbery with physical injuries, committed in an uninhabited place and by a band, or with use of firearms on a street, road or alley; (28) Robbery in an uninhabited house or public building or edifice devoted to worship. (F) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602; (29) Jueteng; (30) Masiao. (G) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532; (31) Piracy on the high seas; (32) Piracy in inland Philippine waters; (33) Aiding and abetting pirates and brigands. (H) Qualified theft under Article 310 of the Revised Penal Code, as amended; (34) Qualified theft. (I) Swindling under Article 315 of the Revised Penal Code, as amended; (35) Estafa with unfaithfulness or abuse of confidence by altering the substance, quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so, even though such obligation be based on an immoral or illegal consideration; (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting, to the prejudice of another, money, goods or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property; (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank, and by writing any document above such signature in blank, to the prejudice of the offended party or any third person; (38) Estafa by using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions, or by means of other similar deceits; (39) Estafa by altering the quality, fineness or weight of anything pertaining to his art or business; (40) Estafa by pretending to have bribed any government employee; (41) Estafa by postdating a check, or issuing a check in payment of an obligation when the offender has no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check; (42) Estafa by inducing another, by means of deceit, to sign any document; (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game; (44) Estafa by removing, concealing or destroying, in whole or in part, any court record, office files, document or any other papers. (J) Smuggling under Republic Act Nos. 455 and 1937; (45) Fraudulent importation of any vehicle; (46) Fraudulent exportation of any vehicle; (47) Assisting in any fraudulent importation; (48) Assisting in any fraudulent exportation; (49) Receiving smuggled article after fraudulent importation; (50) Concealing smuggled article after fraudulent importation; (51) Buying smuggled article after fraudulent importation; (52) Selling smuggled article after fraudulent importation; (53) Transportation of smuggled article after fraudulent importation; (54) Fraudulent practices against customs revenue. (K) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000; K.1. Hacking or cracking, which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system; or DAaIHT (56) any access in order to corrupt, alter, steal, or destroy using a computer or other similar information and communication devices, without the knowledge and consent of the owner of the computer or information and communications system, including (57) the introduction of computer viruses and the like, resulting in the corruption, destruction, alteration, theft or loss of electronic data messages or electronic document; K.2. Piracy, which refers to: (58) the unauthorized copying, reproduction, (59) the unauthorized dissemination, distribution, (60) the unauthorized importation, (61) the unauthorized use, removal, alteration, substitution, modification, (62) the unauthorized storage, uploading, downloading, communication, making available to the public, or (63) the unauthorized broadcasting, of protected material, electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunication networks, such as, but not limited to, the internet, in a manner that infringes intellectual property rights; K.3. Violations of the Consumer Act or Republic Act No. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act; (65) Sale of any product that has been banned by a rule under the Consumer Act; (66) Sale of any adulterated or mislabeled product using electronic documents; (67) Adulteration or misbranding of any consumer product; (68) Forging, counterfeiting or simulating any mark, stamp, tag, label or other identification device; (69) Revealing trade secrets; (70) Alteration or removal of the labeling of any drug or device held for sale; (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act; (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act; (73) Sale of any drug or device beyond its expiration date; (74) Introduction into commerce of any mislabeled or banned hazardous substance; (75) Alteration or removal of the labeling of a hazardous substance; (76) Deceptive sales acts and practices; (77) Unfair or unconscionable sales acts and practices; (78) Fraudulent practices relative to weights and measures; (79) False representations in advertisements as the existence of a warranty or guarantee; (80) Violation of price tag requirements; (81) Mislabeling consumer products; (82) False, deceptive or misleading advertisements; (83) Violation of required disclosures on consumer loans; (84) Other violations of the provisions of the E-Commerce Act; (L) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets; (85) Hijacking; (86) Destructive arson; (87) Murder; (88) Hijacking, destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets; (M) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000; (89) Sale, offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC; (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe; (91) Violation of reportorial requirements imposed upon issuers of securities; (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market; (93) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that raises their prices to induce the purchase of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (94) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that depresses their price to induce the sale of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; CHaDIT (95) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices; (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security; (97) Manipulation of security prices by making false or misleading statements with respect to any material fact, which he knew or had reasonable ground to believe was so false and misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange; (98) Manipulation of security prices by effecting, alone or with others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC; (99) Sale or purchase of any security using any manipulative deceptive device or contrivance; (100) Execution of short sales or stop-loss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors; (101) Employment of any device, scheme or artifice to defraud in connection with the purchase and sale of any securities; (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; (103) Engaging in any act, transaction, practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person; (104) Insider trading; (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer, or acting as a salesman, or an associated person of any broker or dealer without any registration from the Commission; (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman, not registered with the SEC; (107) Effecting any transaction in any security, or reporting such transaction, in an Exchange or using the facility of an Exchange which is not registered with the SEC; (108) Making use of the facility of a clearing agency which is not registered with the SEC; (109) Violations of margin requirements; (110) Violations on the restrictions on borrowings by members, brokers and dealers; (111) Aiding and Abetting in any violations of the Securities Regulation Code; (112) Hindering, obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC; (113) Violations of any of the provisions of the implementing rules and regulations of the SEC; (114) Any other violations of any of the provisions of the Securities Regulation Code. SDEITC (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries. In determining whether or not a felony or offense punishable under the penal laws of other countries, is "of a similar nature", as to constitute the same as an unlawful activity under the AMLA, the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3.i. RULE 4 Money Laundering Offense Rule 4.1. Money Laundering Offense Money laundering is a crime whereby the proceeds of an unlawful activity AS HEREIN DEFINED are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so. RULE 5 Jurisdiction of Money Laundering Cases and Money Laundering Investigation Procedures Rule 5.1. Jurisdiction of Money Laundering Cases . The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. Rule 5.2. Investigation of Money Laundering Offenses . The AMLC shall investigate: (a) SUSPICIOUS TRANSACTIONS; (b) COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION CONDUCTED BY THE AMLC; (c) MONEY LAUNDERING ACTIVITIES; AND (d) OTHER VIOLATIONS OF THIS ACT. Rule 5.3. Attempts at Transactions . Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. Accordingly, the reports required under Rule 9.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity. RULE 6 Prosecution of Money Laundering Rule 6.1. Prosecution of Money Laundering . (a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the APPLICATION EX-PARTE by the AMLC TO THE COURT OF APPEALS FOR A FREEZE ORDER with respect to the MONETARY INSTRUMENT OR PROPERTY involved therein and resort to other remedies provided under the AMLA, THE RULES OF COURT AND OTHER PERTINENT LAWS AND RULES. Rule 6.2. When the AMLC finds, after investigation, that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA, it shall cause a complaint to be filed, pursuant to Section 7 (4) of the AMLA, before the Department of Justice or the Ombudsman, which shall then conduct the preliminary investigation of the case. ASHaDT Rule 6.3. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice, or the Ombudsman, as the case may be, and the latter should find probable cause of a money laundering offense, it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. Rule 6.4. Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan, as the case may be. Rule 6.5. Knowledge of the offender that any monetary instrument or property represents, involves, or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC, may be established by direct evidence or inferred from the attendant circumstances. Rule 6.6. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt, including the element of knowledge that the monetary instrument or property represents, involves or relates to the proceeds of any unlawful activity. Rule 6.7. No element of the unlawful activity, however, including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. RULE 7 Creation of Anti-Money Laundering Council (AMLC) Rule 7.1.a. Composition . The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as Chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission as members. Rule 7.1.b. Unanimous Decision . The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. However, in the case of the incapacity, absence or disability of any member to discharge his functions, the officer duly designated or authorized to discharge the functions of the Governor of the BSP, the Chairman of the SEC or the Insurance Commissioner, as the case may be, shall act in his stead in the AMLC. Rule 7.2. Functions . The functions of the AMLC are defined hereunder: (1) to require and receive covered OR SUSPICIOUS transaction reports from covered institutions; (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered OR SUSPICIOUS transaction report, or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity; (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses; (5) TO INVESTIGATE SUSPICIOUS TRANSACTIONS AND COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION BY THE AMLC, money laundering activities and other violations of this Act; (6) TO APPLY BEFORE THE COURT OF APPEALS, EX-PARTE, FOR THE FREEZING OF any monetary instrument or property alleged to be proceeds of any unlawful activity AS DEFINED UNDER SECTION 3(i) HEREOF; (7) to implement such measures as may be inherent, necessary, implied, incidental and justified under the AMLA to counteract money laundering. Subject to such limitations as provided for by law, the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store, track and analyze money laundering transactions for the resolute prevention, detection and investigation of money laundering offenses. For this purpose, the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database; IDScTE (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations, in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provisions of the Constitution, or the execution thereof is likely to prejudice the national interest of the Philippines. (9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. (10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders. The AMLC may require the intelligence units of the Armed Forces of the Philippines, the Philippine National Police, the Department of Finance, the Department of Justice, as well as their attached agencies, and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may, in any way, facilitate the resolute prevention, investigation and prosecution of money laundering offenses and other violations of the AMLA. (11) TO IMPOSE ADMINISTRATIVE SANCTIONS FOR THE VIOLATION OF LAWS, RULES, REGULATIONS AND ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. Rule 7.3. Meetings . The AMLC shall meet every first Monday of the month, or as often as may be necessary at the call of the Chairman. RULE 8 Creation of a Secretariat Rule 8.1. The Executive Director . The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. He must be a member of the Philippine Bar, at least thirty-five (35) years of age, must have served at least five (5) years either at the BSP, the SEC or the IC and of good moral character, unquestionable integrity and known probity. He shall be considered a regular employee of the BSP with the rank of Assistant Governor, and shall be entitled to such benefits and subject to such rules and regulations, as well as prohibitions, as are applicable to officers of similar rank. Rule 8.2. Composition . In organizing the Secretariat, the AMLC may choose from those who have served, continuously or cumulatively, for at least five (5) years in the BSP, the SEC or the IC. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. Rule 8.3. Detail and Secondment . The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP, the SEC or the IC, or any other branch, department, bureau, office, agency or instrumentality of the government, including government-owned and controlled corporations, in undertaking any and all anti-money laundering operations. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC, subject to existing laws and Civil Service Rules and Regulations. Detailed personnel shall continue to receive their salaries, benefits and emoluments from their respective mother units. Seconded personnel shall receive, in lieu of their respective compensation packages from their respective mother units, the salaries, emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. Rule 8.4. Confidentiality Provisions . The members of the AMLC, the Executive Director, and all the members of the Secretariat, whether permanent, on detail or on secondment, shall not reveal, in any manner, any information known to them by reason of their office. This prohibition shall apply even after their separation from the AMLA. In case of violation of this provision, the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. SEDIaH RULE 9 Prevention of Money Laundering; Customer Identification Requirements and Record Keeping Rule 9.1. Customer Identification Requirements Rule 9.1.a. Customer Identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. Rule 9.1.b. Trustee, Nominee and Agent Accounts . When dealing with customers who are acting as trustee, nominee, agent or in any capacity for and on behalf of another, covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. Covered institutions shall also establish and record the true and full identity of such trustees, nominees, agents and other persons and the nature of their capacity and duties. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws, it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties. Rule 9.1.c. Minimum Information/Documents Required for Individual Customers . Covered institutions shall require customers to produce original documents of identity issued by an official authority, bearing a photograph of the customer. Examples of such documents are identity cards and passports. The following minimum information/documents shall be obtained from individual customers: 1) Name; 2) Present address; 3) Permanent address; 4) Date and place of birth; 5) Nationality; 6) Nature of work and name of employer or nature of self-employment/business; 7) Contact numbers; 8) Tax identification number, Social Security System number or Government Service and Insurance System number; 9) Specimen signature; 10) Source of fund(s); and 11) Names of beneficiaries in case of insurance contracts and whenever applicable. Rule 9.1.d. Minimum Information/Documents Required for Corporate and Juridical Entities . Before establishing business relationships, covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being, dissolved, wound up or voided, or that its business or operations has not been or is not in the process of being, closed, shut down, phased out, or terminated. Dealings with shell companies and corporations, being legal entities which have no business substance in their own right but through which financial transactions may be conducted, should be undertaken with extreme caution. The following minimum information/documents shall be obtained from customers that are corporate or juridical entities, including shell companies and corporations: (1) Articles of Incorporation/Partnership; (2) By-laws; (3) Official address or principal business address; (4) List of directors/partners; (5) List of principal stockholders owning at least two percent (2%) of the capital stock; (6) Contact numbers; (7) Beneficial owners, if any; and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. Rule 9.1.e. Prohibition against Certain Accounts . Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Rule 9.1.f. Prohibition against opening of Accounts without Face-to-face Contact . No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9.1.c of these Rules. HSAcaE Rule 9.1.g. Numbered Accounts . Peso and foreign currency non-checking numbered accounts shall be allowed: Provided , That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records, and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. Rule 9.2. Record Keeping Requirements Rule 9.2.a. Record Keeping: Kinds of Records and Period for Retention . All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. Covered institutions shall prepare and maintain documentation, in accordance with the aforementioned client identification requirements, on their customer accounts, relationships and transactions such that any account, relationship or transaction can be so reconstructed as to enable the AMLC, and/or the courts to establish an audit trail for money laundering. Rule 9.2.b. Existing and New Accounts and New Transactions . All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from October 17, 2001 or from the dates of the accounts or transactions, whichever is later. Rule 9.2.c. Closed Accounts . With respect to closed accounts, the records on customer identification, account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Rule 9.2.d. Retention of Records in Case a Money Laundering Case has been Filed in Court . If a money laundering case based on any record kept by the covered institution concerned has been filed in court, said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules, as the case may be, until it is confirmed that the case has been finally resolved or terminated by the court. Rule 9.2.e. Form of Records . Records shall be retained as originals in such forms as are admissible in court pursuant to existing laws and the applicable rules promulgated by the Supreme Court. Rule 9.3. Reporting of Covered Transactions . Rule 9.3.a. Period of Reporting Covered Transactions and Suspicious Transactions . COVERED INSTITUTIONS SHALL REPORT TO THE AMLC ALL COVERED TRANSACTIONS AND SUSPICIOUS TRANSACTIONS WITHIN FIVE (5) WORKING DAYS FROM OCCURRENCE THEREOF, UNLESS THE SUPERVISING AUTHORITY CONCERNED PRESCRIBES A LONGER PERIOD NOT EXCEEDING TEN (10) WORKING DAYS. SHOULD A TRANSACTION BE DETERMINED TO BE BOTH A COVERED AND A SUSPICIOUS TRANSACTION, THE COVERED INSTITUTION SHALL REPORT THE SAME AS A SUSPICIOUS TRANSACTION. THE REPORTING OF COVERED TRANSACTIONS BY COVERED INSTITUTIONS SHALL BE DEFERRED FOR A PERIOD OF SIXTY (60) DAYS AFTER THE EFFECTIVITY OF REPUBLIC ACT NO. 9194, OR AS MAY BE DETERMINED BY THE AMLC, IN ORDER TO ALLOW THE COVERED INSTITUTIONS TO CONFIGURE THEIR RESPECTIVE COMPUTER SYSTEMS; PROVIDED THAT, ALL COVERED TRANSACTIONS DURING SAID DEFERMENT PERIOD SHALL BE SUBMITTED THEREAFTER. Rule 9.3.b. Covered AND SUSPICIOUS Transaction Report Forms . The Covered Transaction Report (CTR) AND THE SUSPICIOUS TRANSACTION REPORT (STR) shall be in the forms prescribed by the AMLC. Rule 9.3.b.1. COVERED INSTITUTIONS SHALL USE THE EXISTING FORMS FOR COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS, UNTIL SUCH TIME AS THE AMLC HAS ISSUED NEW SETS OF FORMS. Rule 9.3.b.2. COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS SHALL BE SUBMITTED IN A SECURED MANNER TO THE AMLC IN ELECTRONIC FORM, EITHER VIA DISKETTES, LEASED LINES, OR THROUGH INTERNET FACILITIES, WITH THE CORRESPONDING HARD COPY FOR SUSPICIOUS TRANSACTIONS. THE FINAL FLOW AND PROCEDURES FOR SUCH REPORTING SHALL BE MAPPED OUT IN THE MANUAL OF OPERATIONS TO BE ISSUED BY THE AMLC. Rule 9.3.c. Exemption from Bank Secrecy Laws . When reporting covered OR SUSPICIOUS transactions to the AMLC, covered institutions and their officers and employees, shall not be deemed to have violated R.A. No. 1405, as amended, R.A. No. 6426, as amended, R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered or suspicious transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer and employee of the covered institution, shall be criminally liable. Rule 9.3.d. Confidentiality Provisions . When reporting covered transactions or suspicious transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, or the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation hereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. cCSHET Rule 9.3.e. Safe Harbor Provisions . No administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report OR A SUSPICIOUS transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. RULE 10 Application for Freeze Orders Rule 10.1. WHEN THE AMLC MAY APPLY FOR THE FREEZING OF ANY MONETARY INSTRUMENT OR PROPERTY. (a) AFTER AN INVESTIGATION CONDUCTED BY THE AMLC AND UPON DETERMINATION THAT PROBABLE CAUSE EXISTS THAT A MONETARY INSTRUMENT OR PROPERTY IS IN ANY WAY RELATED TO ANY UNLAWFUL ACTIVITY AS DEFINED UNDER SECTION 3 (i), THE AMLC MAY FILE AN EX-PARTE APPLICATION BEFORE THE COURT OF APPEALS FOR THE ISSUANCE OF A FREEZE ORDER ON ANY MONETARY INSTRUMENT OR PROPERTY subject thereof prior to the institution or in the course of, the criminal proceedings involving the unlawful activity to which said MONETARY INSTRUMENT OR PROPERTY is any way related. (b) Considering the intricate and diverse web of related and interlocking accounts PERTAINING TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) that any person may create in the different covered institutions, their branches and/or other units, the AMLC may APPLY TO THE COURT OF APPEALS FOR THE FREEZING, NOT ONLY OF THE MONETARY INSTRUMENTS OR PROPERTIES IN THE NAMES OF THE REPORTED OWNER(S)/HOLDER(S), AND MONETARY INSTRUMENTS OR PROPERTIES NAMED IN THE APPLICATION OF THE AMLC BUT ALSO ALL OTHER RELATED WEB OF ACCOUNTS PERTAINING TO OTHER MONETARY INSTRUMENTS AND PROPERTIES, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM OR ARE RELATED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). (c) THE FREEZE ORDER SHALL BE EFFECTIVE FOR TWENTY (20) DAYS UNLESS EXTENDED BY THE COURT OF APPEALS UPON APPLICATION BY THE AMLC. Rule 10.2. Definition of Probable Cause . Probable cause includes such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. Rule 10.3. DUTY OF COVERED INSTITUTION UPON RECEIPT THEREOF. Rule 10.3.a. Upon receipt of the notice of the freeze order, the covered institution concerned shall immediately freeze the monetary instrument or property AND RELATED WEB OF ACCOUNTS subject thereof. Rule 10.3.b. THE COVERED INSTITUTION SHALL LIKEWISE IMMEDIATELY FURNISH A COPY OF THE NOTICE OF THE FREEZE ORDER UPON THE OWNER OR HOLDER OF THE MONETARY INSTRUMENT OR PROPERTY OR RELATED WEB OF ACCOUNTS SUBJECT THEREOF. Rule 10.3.c. Within twenty-four (24) hours from receipt of the freeze order, the covered institution concerned shall submit to the COURT OF APPEALS AND THE AMLC, by personal delivery, a detailed written return on the freeze order, specifying ALL THE PERTINENT AND RELEVANT INFORMATION WHICH SHALL INCLUDE THE FOLLOWING: 1. THE ACCOUNT NUMBER(S); 2. THE NAME(S) OF THE ACCOUNT OWNER(S) OR HOLDER(S); 3. THE AMOUNT OF THE MONETARY INSTRUMENT, PROPERTY OR RELATED WEB OF ACCOUNTS AS OF THE TIME THEY WERE FROZEN; 4. ALL RELEVANT INFORMATION AS TO THE NATURE OF THE MONETARY INSTRUMENT OR PROPERTY; 5. ANY INFORMATION ON THE RELATED WEB OF ACCOUNTS PERTAINING TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER; AND 6. THE TIME WHEN THE FREEZE THEREON TOOK EFFECT. Rule 10.4. DEFINITION OF RELATED WEB OF ACCOUNTS. "RELATED WEB OF ACCOUNTS PERTAINING TO THE MONEY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER" IS DEFINED AS THOSE ACCOUNTS, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). ISCHET UPON RECEIPT OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS AND UPON VERIFICATION BY THE COVERED INSTITUTION THAT THE RELATED WEB OF ACCOUNTS ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER, THE COVERED INSTITUTION SHALL FREEZE THESE RELATED WEB OF ACCOUNTS WHEREVER THESE FUNDS MAY BE FOUND. THE RETURN OF THE COVERED INSTITUTION AS REQUIRED UNDER RULE 10.3.c SHALL INCLUDE THE FACT OF SUCH FREEZING AND AN EXPLANATION AS TO THE GROUNDS FOR THE IDENTIFICATION OF THE RELATED WEB OF ACCOUNTS. Rule 10.5. Extension of the Freeze Order . BEFORE THE TWENTY (20) DAY PERIOD OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS EXPIRES, THE AMLC MAY APPLY IN THE SAME COURT FOR AN EXTENSION OF SAID PERIOD. UPON THE TIMELY FILING OF SUCH APPLICATION AND PENDING THE DECISION OF THE COURT OF APPEALS TO EXTEND THE PERIOD, SAID PERIOD SHALL BE DEEMED SUSPENDED AND THE FREEZE ORDER SHALL REMAIN EFFECTIVE. HOWEVER, THE COVERED INSTITUTION SHALL NOT LIFT THE EFFECTS OF THE FREEZE ORDER WITHOUT SECURING OFFICIAL CONFIRMATION FROM THE AMLC. Rule 10.6. Prohibition against Issuance of Freeze Orders against candidates for an electoral office during election period . No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period. RULE 11 Authority to Inquire into Bank Deposits Rule 11.1. Authority to Inquire into Bank Deposits WITH COURT ORDER . Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution AND THEIR SUBSIDIARIES AND AFFILIATES upon order of any competent court in cases of violation of this Act, when it has been established that there is probable cause that the deposits or investments involved are related to AN UNLAWFUL ACTIVITY AS DEFINED IN SECTION 3 (i) HEREOF OR a money laundering offense UNDER SECTION 4 HEREOF; EXCEPT IN CASES AS PROVIDED UNDER RULE 11.2. Rule 11.2. Authority to Inquire into Bank Deposits WITHOUT COURT ORDER . The AMLC MAY INQUIRE INTO OR EXAMINE DEPOSIT AND INVESTMENTS WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WITHOUT A COURT ORDER WHERE ANY OF THE FOLLOWING UNLAWFUL ACTIVITIES ARE INVOLVED: (a) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (b) Sections 4,5,6, 8, 9, 10. 12, 13, 14, 15 AND 16 of Republic Act No. 9165, otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002; (c) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against noncombatant persons and similar targets Rule 11.2.a. PROCEDURE FOR EXAMINATION WITHOUT A COURT ORDER. WHERE ANY OF THE UNLAWFUL ACTIVITIES ENUMERATED UNDER THE IMMEDIATELY PRECEDING RULE 11.2 ARE INVOLVED, AND THERE IS PROBABLE CAUSE THAT THE DEPOSITS OR INVESTMENTS WITH ANY BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES ARE IN ANYWAY RELATED TO THESE UNLAWFUL ACTIVITIES THE AMLC SHALL ISSUE A RESOLUTION AUTHORIZING THE INQUIRY INTO OR EXAMINATION OF ANY DEPOSIT OR INVESTMENT WITH SUCH BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES CONCERNED. Rule 11.2.b. DUTY OF THE BANKING INSTITUTION OR NON-BANKING INSTITUTION UPON RECEIPT OF THE AMLC RESOLUTION. THE BANKING INSTITUTION OR THE NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES SHALL, IMMEDIATELY UPON RECEIPT OF THE AMLC RESOLUTION, ALLOW THE AMLC AND/OR ITS AUTHORIZED REPRESENTATIVE(S) FULL ACCESS TO ALL RECORDS PERTAINING TO THE DEPOSIT OR INVESTMENT ACCOUNT. Rule 11.3. BSP Authority to Examine deposits and investments; Additional Exception to the Bank Secrecy Act . TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS (BSP) MAY INQUIRE INTO OR EXAMINE ANY PARTICULAR DEPOSIT OR INVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WHEN THE EXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION, IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP. HaTISE Rule 11.3.a. BSP Rules of Examination . THE BSP SHALL PROMULGATE ITS RULES OF EXAMINATION FOR ENSURING COMPLIANCE BY BANKS AND NON-BANK FINANCIAL INSTITUTIONS AND THEIR SUBSIDIARIES AND AFFILIATES WITH THE AMLA AND THESE RULES. ANY FINDINGS OF THE BSP WHICH MAY CONSTITUTE A VIOLATION OF ANY PROVISION OF THIS ACT SHALL BE TRANSMITTED TO THE AMLC FOR APPROPRIATE ACTION. RULE 12 Forfeiture Provisions Rule 12.1. Authority to Institute Civil Forfeiture Proceedings . The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. Rule 12.2. When Civil Forfeiture May be Applied . When there is a SUSPICIOUS TRANSACTION REPORT OR A COVERED TRANSACTION REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE AMLC, and the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply. Rule 12.3. Claim on Forfeited Assets . Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA, the offender or any other person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to him, and for segregation or exclusion of the monetary instrument or property corresponding thereto. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture, in default of which the said order shall become final and executory. This provision shall apply in both civil and criminal forfeiture. Rule 12.4. Payment in lieu of Forfeiture . Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA, and said order cannot be enforced because any particular monetary instrument or property cannot, with due diligence, be located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been concealed, removed, converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court, or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes of forfeiture, the court may, instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. This provision shall apply in both civil and criminal forfeiture. RULE 13 Mutual Assistance among States Rule 13.1. Request for Assistance from a Foreign State . Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense, the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this purpose, be at all times recognized. Rule 13.2. Powers of the AMLC to Act on a Request for Assistance from a Foreign State . The AMLC may execute a request for assistance from a foreign state by: (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules; (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules; and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided , That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state, and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.3. Obtaining Assistance from Foreign States . The AMLC may make a request to any foreign state for assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money laundering offense or any other matter directly or indirectly related thereto; (3) to the extent allowed by the law of the foreign state, applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in said request, and/or search any or all such persons named therein and/or remove any document, material or object named in said request: Provided , That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state; and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided , That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.4. Limitations on Requests for Mutual Assistance . The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines, unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. Rule 13.5. Requirements for Requests for Mutual Assistance from Foreign States . A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense; (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction; (3) give sufficient particulars as to the identity of said person; (4) give particulars sufficient to identify any covered institution believed to have any information, document, material or object which may be of assistance to the investigation or prosecution; (5) ask from the covered institution concerned any information, document, material or object which may be of assistance to the investigation or prosecution; (6) specify the manner in which and to whom said information, document, material or object obtained pursuant to said request, is to be produced; (7) give all the particulars necessary for the issuance by the court in the requested state of the writs, orders or processes needed by the requesting state; and (8) contain such other information as may assist in the execution of the request. Rule 13.6. Authentication of Documents . For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA, a document is authenticated if the same is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting state, and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister, secretary of state, or officer in or of, the government of the requesting state, or of the person administering the government or a department of the requesting territory, protectorate or colony. The certificate of authentication may also be made by a secretary of the embassy or legation, consul general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept, and authenticated by the seal of his office. Rule 13.7. Suppletory Application of the Revised Rules of Court . Rule 13.7.1. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA, execution and satisfaction of final judgments of forfeiture, application for examination of witnesses, procuring search warrants, production of bank documents and other materials and all other actions not specified in the AMLA and these Rules, and assistance for any of the aforementioned actions, which is subject of a request by a foreign state, resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. Rule 13.7.2. Authority to Assist the United Nations and other International Organizations and Foreign States . The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. EaISDC Rule 13.8. Extradition . The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. With respect, however, to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on October 22, 2001, money laundering is deemed to be included as an extraditable offense in any extradition treaty existing between said state parties, and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. RULE 14 Penal Provisions Rule 14.1. Penalties for the Crime of Money Laundering . Rule 14.1.a. Penalties under Section 4 (a) of the AMLA . The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three Million Philippine Pesos (Php3,000,000.00) but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4 (a) of the AMLA. Rule 14.1.b. Penalties under Section 4 (b) of the AMLA . The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One Million Five Hundred Thousand Philippine Pesos (Php1,500,000.00) but not more than Three Million Philippine Pesos (Php3,000,000.00), shall be imposed upon a person convicted under Section 4 (b) of the AMLA. Rule 14.1.c. Penalties under Section 4 (c) of the AMLA . The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of the AMLA. Rule 14.1.d. Administrative Sanctions . (1) AFTER DUE NOTICE AND HEARING, THE AMLC SHALL, AT ITS DISCRETION, IMPOSE FINES UPON ANY COVERED INSTITUTION, ITS OFFICERS AND EMPLOYEES, OR ANY PERSON WHO VIOLATES ANY OF THE PROVISIONS OF REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194 AND RULES, REGULATIONS, ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. THE FINES SHALL BE IN AMOUNTS AS MAY BE DETERMINED BY THE COUNCIL, TAKING INTO CONSIDERATION ALL THE ATTENDANT CIRCUMSTANCES, SUCH AS THE NATURE AND GRAVITY OF THE VIOLATION OR IRREGULARITY, BUT IN NO CASE SHALL SUCH FINES BE LESS THAN ONE HUNDRED THOUSAND PESOS (PHP100,000.00) BUT NOT TO EXCEED FIVE HUNDRED THOUSAND PESOS (PHP500,000.00). THE IMPOSITION OF THE ADMINISTRATIVE SANCTIONS SHALL BE WITHOUT PREJUDICE TO THE FILING OF CRIMINAL CHARGES AGAINST THE PERSONS RESPONSIBLE FOR THE VIOLATIONS. Rule 14.2. Penalties for Failure to Keep Records The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9 (b) of the AMLA. Rule 14.3. Penalties for Malicious Reporting . Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), at the discretion of the court: Provided , That the offender is not entitled to avail the benefits of the Probation Law. Rule 14.4. Where Offender is a Juridical Person . If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in, or ALLOWED BY THEIR GROSS NEGLIGENCE the commission of the crime. If the offender is a juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties herein prescribed. If the offender is a public official or employee, he shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be. Rule 14.5. Refusal by a Public Official or Employee to Testify . Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein. Rule 14.6. Penalties for Breach of Confidentiality . The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Five Hundred Thousand Philippine Pesos (Php500,000.00) but not more than One Million Philippine Pesos (Php 1,000,000.00), shall be imposed on a person convicted for a violation under Section 9(c). IN CASE OF A BREACH OF CONFIDENTIALITY THAT IS PUBLISHED OR REPORTED BY MEDIA, THE RESPONSIBLE REPORTER, WRITER, PRESIDENT, PUBLISHER, MANAGER AND EDITOR-IN-CHIEF SHALL BE LIABLE UNDER THIS ACT. RULE 15 Prohibitions Against Political Harassment Rule 15.1. Prohibition against Political Persecution . The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. cDCEHa Rule 15.2. Provisional Remedies Application; Exception . Rule 15.2.a. The AMLC may apply, in the course of the criminal proceedings, for provisional remedies to prevent the monetary instrument or property subject thereof from being removed, concealed, converted, commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. However, no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. Rule 15.2.b. Where there is conviction for money laundering under Section 4 of the AMLA, the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. However, no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. RULE 16 Restitution Rule 16. Restitution . Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. RULE 17 Implementing Rules and Regulations and Money Laundering Prevention Programs Rule 17.1. Implementing Rules and Regulations . (a) Within thirty (30) days from the effectivity of REPUBLIC ACT NO. 9160, as amended by REPUBLIC ACT NO. 9194, the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA, which shall be submitted to the Congressional Oversight Committee for approval. (b) The Supervising Authorities, the BSP, the SEC and the IC shall, under their own respective charters and regulatory authority, issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194. Rule 17.2. Money Laundering Prevention Programs . Rule 17.2.a. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules, including, but not limited to, information dissemination on money laundering activities and their prevention, detection and reporting, and the training of responsible officers and personnel of covered institutions, subject to such guidelines as may be prescribed by their respective supervising authority. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. Rule 17.2.b. Every money laundering program shall establish detailed procedures implementing a comprehensive, institution-wide "know-your-client" policy, set-up an effective dissemination of information on money laundering activities and their prevention, detection and reporting, adopt internal policies, procedures and controls, designate compliance officers at management level, institute adequate screening and recruitment procedures, and set-up an audit function to test the system. Rule 17.2.c. Covered institutions shall adopt, as part of their money laundering programs, a system of flagging and monitoring transactions that qualify as suspicious transactions, regardless of amount or covered transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. All covered institutions, including banks insofar as non-deposit and non-government bond investment transactions are concerned, shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be, is being, or has been committed. Rule 17.3. Training of Personnel . Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules. Rule 17.4. Amendments . These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of REPUBLIC ACT NO. 9160, as amended BY REPUBLIC ACT NO. 9194. RULE 18 Congressional Oversight Committee Rule 18.1. Composition of Congressional Oversight Committee . There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. The members from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. CTAIHc Rule 18.2. Powers of the Congressional Oversight Committee . The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation of this Act, and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. RULE 19 Appropriations For and Budget of the AMLC Rule 19.1. Budget . The budget of Php25,000,000.00 appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. Appropriations for succeeding years shall be included in the General Appropriations Act. The BSP shall advance the funds necessary to defray the capital outlay, maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations. Rule 19.2. Costs and Expenses . The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil, criminal or administrative action, suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the AMLC in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. RULE 20 Separability Clause Rule 20. Separability Clause . If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid, the other provisions of these Rules, and the application of such provision or Rule to other persons or circumstances, shall not be affected thereby. RULE 21 Repealing Clause Rule 21. Repealing Clause . All laws, decrees, executive orders, rules and regulations or parts thereof, including the relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as amended, and other similar laws, as are inconsistent with the AMLA, are hereby repealed, amended or modified accordingly. RULE 22 Effectivity of The Rules Rule 22.1. Effectivity . These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. RULE 23 Transitory Provisions Rule 23.1. Transitory Provisions . EXISTING FREEZE ORDERS ISSUED BY THE AMLC SHALL REMAIN IN FORCE FOR A PERIOD OF THIRTY (30) DAYS AFTER EFFECTIVITY OF THIS ACT, UNLESS EXTENDED BY THE COURT OF APPEALS. Rule 23.2. EFFECT OF REPUBLIC ACT NO. 9194 ON CASES FOR EXTENSION OF FREEZE ORDERS RESOLVED BY THE COURT OF APPEALS. ALL EXISTING FREEZE ORDERS WHICH THE COURT OF APPEALS HAS EXTENDED SHALL REMAIN EFFECTIVE, UNLESS OTHERWISE DISSOLVED BY THE SAME COURT. MANUAL OF REGULATIONS FOR NON-BANK FINANCIAL INSTITUTIONS N REGULATIONS (Regulations Governing Other Non-Bank Financial Institutions) TABLE OF CONTENTS SECTION 4101N. Applicable Regulations on Trust and Other Fiduciary Activities SECTION 4102N. Minimum Capital for Investment Houses SECTION 4103N. Prior Bangko Sentral Authority on Quasi-Banking Functions 4103N.1 Quasi-banking functions 4103N.2 Transactions not considered quasi-banking 4103N.3 Delivery of securities 4103N.4 Securities custodianship operations SECTION 4104N. Anti-Money Laundering Regulations 4104N.1 - 4104N.8 (Reserved) 4104N.9 Sanctions and penalties SECTIONS 4105N 4109N (Reserved) 4109N.1 - 4109N.15 (Reserved) 4109N.16 Qualification and accreditation of non-bank financial institutions acting as trustee on any mortgage or bond issuance by any municipality, government-owned or controlled corporation, or any body politic SECTIONS 4110N 4142N (Reserved) SECTION 4143N. Disqualification of Directors and Officers 4143N.1 Persons disqualified to become directors 4143N.2 Persons disqualified to become officers 4143N.3 Disqualification procedures 4143N.4 Effect of possession of disqualifications 4143N.5 (Reserved) 4143N.6 Watchlisting SECTION 4144N. Securities Custodianship and Securities Registry Operations ScaAET 4144N.1 Statement of policy 4144N.2 Applicability of this regulation 4144N.3 Prior Bangko Sentral approval 4144N.4 Application for authority 4144N.5 Pre-qualification requirements for a securities custodian/registry 4144N.6 Functions and responsibilities of a securities custodian 4144N.7 Functions and responsibilities of a securities registry 4144N.8 Protection of securities of the customer 4144N.9 Independence of the registry and custodian 4144N.10 Registry of scripless securities of the Bureau of the Treasury 4144N.11 Confidentiality 4144N.12 Compliance with anti-money laundering laws/regulations 4144N.13 Basic security deposit 4144N.14 Reportorial requirements 4144N.15 - 4144N.28 (Reserved) 4144N.29 Sanctions SECTIONS 4145N 4156N (Reserved) SECTION 4157N. Batas Pambansa Blg. 344 An Act To Enchance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments And Public Utilities To Install Facilities And Other Devices SECTIONS 4158N 4161N (Reserved) SECTION 4162N. Reports 4162N.1 Categories and signatories of reports 4162N.2 Manner of filing 4162N.3 Sanctions in case of willful delay in the submission of reports SECTIONS 4163N 4179N (Reserved) SECTION 4180N. Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity SECTION 4181N. Publication Requirements SECTIONS 4182N 4200N (Reserved) SECTIONS 4201N 4300N (Reserved) SECTION 4301N. Credit Card Operations; General Policy 4301N.1 Definition of terms 4301N.2 Risk management system 4301N.3 Minimum requirements 4301N.4 Information to be disclosed 4301N.5 Accrual of interest earned 4301N.6 Finance charges 4301N.7 Deferral charges 4301N.8 Late payment/penalty fees 4301N.9 Confidentiality of information 4301N.10 Suspension, termination of effectivity and reactivation CaHAcT 4301N.11 Inspection of records covering credit card transactions 4301N.12 Offsets 4301N.13 Handling of complaints 4301N.14 Unfair collection practices 4301N.15 Sanctions SECTION 4302N. Classification of Credit Card SECTIONS 4303N 4400N (Reserved) SECTIONS 4401N 4500N (Reserved) SECTIONS 4501N 4600N (Reserved) SECTIONS 4601N 4699N (Reserved) SECTION 4700N. General Provision on Sanctions LIST OF APPENDICES No. SUBJECT MATTER N - 1 List of Reports Required from Non-Bank Financial Institutions N - 2 Guidelines on Prescribed Reports Signatories and Signatory Authorization Annex N-2-a Format of Resolution for Signatories of Category A-2 Reports Annex N-2-b Format of Resolution for Signatories of Category B Reports N - 3 Anti-Money Laundering Regulations Annex N-3-a Certification of Compliance with Anti-Money Laundering Regulations Annex N-3-b Rules on Submission of Covered Transaction Reports and Suspicious Transaction Reports by Covered Institutions N - 4 Revised Implementing Rules and Regulations - R.A. No. 9160, as Amended by R.A. No. 9194 N - 5 Guidelines to Govern the Selection, Appointment and the Reporting Requirement for External Auditors of NBFIs N - 6 Qualification Requirements for a Bank/NBFI Applying for Accreditation to Act as Trustee on any Mortgage or Bond Issued by any Municipality, Government-Owned or Controlled Corporation, or any Body Politic BSP Manual of Regulations for Non-Bank Financial Institutions N Regulations (Regulations Governing Other Non-Bank Financial Institutions) SECTION 4101N. Applicable Regulations on Trust and Other Fiduciary Activities . Trust operations and investment management activities of non-bank financial institutions not performing quasi-banking functions shall be subject to the applicable regulations on such activities of non-bank financial institutions performing quasi-banking functions in Part IV of the Q Regulations of this Manual, to the regulations in the other parts of the Q Regulations addressed also to trust entities and to the regulations implementing the Truth in Lending Act in Sec. 4309Q. SECTION 4102N. Minimum Capital for Investment Houses . Investment houses not performing quasi-banking functions shall also be subject to the minimum capital requirement in Sec. 4107Q of this Manual. SECTION 4103N. Prior Bangko Sentral Authority on Quasi-Banking Functions . Borrowing by non-bank financial institutions (NBFIs) from twenty (20) or more lenders for the purpose of relending or purchase of receivables or other obligations, which constitutes quasi-banking functions, shall be subject to prior Bangko Sentral ng Pilipinas (BSP) authority on performance of quasi-banking functions under BSP regulations. SUBSECTION 4103N.1 Quasi-banking functions Quasi-banking functions shall consist of the following: a. Borrowing funds for the borrower's own account; b. Twenty (20) or more lenders at any one (1) time; c. Methods of borrowing: issuance, endorsement, or acceptance of debt instruments of any kind, other than deposits, such as: (1) acceptances; (2) promissory notes; (3) participations; (4) certificates of assignment or similar instruments with recourse; (5) trust certificates; (6) repurchase agreements; and (7) such other instruments as the Monetary Board may determine; and d. Purpose: (1) relending, or (2) purchasing receivables or other obligations. As used in the definition of quasi-banking functions , the following terms and phrases shall be understood as follows: Borrowing shall refer to all forms of obtaining or raising funds through any of the methods and for any of the purposes provided in c and d , above whether the borrower's liability thereby is treated as real or contingent. For the borrower's own account shall refer to the assumption of liability in one's own capacity and not in representation, or as an agent or trustee, of another. cTCaEA Purchasing of receivables or other obligations shall refer to the acquisition of claims collectible in money, including interbank borrowings or borrowings between financial institutions, or of securities, of any amount and maturity, from domestic or foreign sources. Relending shall refer to the extension of loans by an institution with antecedent borrowing transactions. Relending shall be presumed in the absence of express stipulation, when the institution is regularly engaged in lending. Regularly engaged in lending shall refer to the practice of extending loans, advances, discounts or rediscounts as a matter of business, i.e., continuous or consistent lending as distinguished from isolated lending transactions. The following guidelines shall govern lender count on borrowings or funds mobilized by NBFIs not performing quasi-banking functions: 1. For purposes of ascertaining the number of lenders/placers to determine whether or not an NBFI is engaged in quasi-banking functions, the names of payees on the face of each debt instrument shall serve as the primary basis for counting the lenders/placers except when proof to the contrary is adduced such as the official receipts or documents other than the debt instrument itself. In such case the actual/real lenders/placers as appearing in such proof, shall be the basis for counting the number of lenders/placers. In a debt instrument issued to two (2) or more named payees under an and/or and or arrangement, the number of payees appearing on the instrument shall be the basis for counting the number of lenders/placers: Provided, however , That a debt instrument issued in the name of a husband and wife followed by the word spouses , whether under an and, and/or or or arrangement or in the name of a designated payee under an in trust for (ITF) arrangement shall be counted as one borrowing/placement. 2. Each debt instrument payable to bearer shall be counted as one (1) lender/placer, except when the NBFI can prove that there is only one (1) owner for several debt instruments so payable. 3. Two (2) or more debt instruments issued to the same payee, irrespective of the date and amount shall be counted as one (1) borrowing or placement. 4. Debt instruments underwritten by investment houses or traded by securities dealers/brokers whether on a firm, standby or best efforts basis shall be counted on the basis of the number or purchasers thereof and shall not be treated as having been issued solely to the underwriter or trader: Provided, however , That in case of unsold debt instruments in a firm commitment underwriting, the underwriter shall be counted as a lender. 5. Each buyer, assignee, and/or indorsee shall be counted in determining the number of lenders/placers of funds mobilized through sale, assignment, and/or indorsement of securities or receivables on a without recourse basis whenever the terms and/or attendant documentation, practice, or circumstances indicate that the sale, assignment, and/or indorsement thereof legally obligates the NBFI not performing quasi-banking functions to repurchase or reacquire the securities/receivables sold, assigned, indorsed or to pay the buyer, assignee, or indorsee at some subsequent time. 6. Funds obtained by way of advances from stockholders, directors, or officers, regardless of nature, shall be considered borrowed funds or funds mobilized and such stockholders, directors or officers shall be counted in determining the number of lenders/placers. SUBSECTION 4103N.2 Transactions not considered quasi-banking . The following shall not constitute quasi-banking: a. Borrowing by commercial, industrial and other non-financial companies, through the means listed in Subsec. 4103N.1 for the limited purpose of financing their own needs or the needs of their agents or dealers; and b. The mere buying and selling without recourse of instruments mentioned in Subsec. 4103N.1: Provided , That: (1) The institution selling without recourse shall indicate or stamp in conspicuous print on the instrument/s, as well as on the confirmation of sale, the phrase without recourse or sans recourse and the following statement: ( Name of non-bank ) assumes no liability for the payment, directly or indirectly, of this instrument . (2) In the absence of the phrase without recourse or sans recourse and the above-required accompanying statement, the instrument so issued, endorsed or accepted shall automatically be considered as falling within the purview of the rules on quasi-banking. SCDaHc Provided, further , That any of the following practices or practices similar and/or tantamount thereto in connection with a without recourse transaction renders such transaction as with recourse and within the purview of the rules on quasi-banking. i. Issuance of postdated checks by a financial intermediary, whether for its own account or as an agent of the debt instrument issuer, in payment of the debt instrument sold, assigned or transferred without recourse; ii. Issuance by a financial intermediary of any form of guaranty on sale transactions or on negotiations or assignment of debt instruments without recourse; or iii. Payment with the funds of the financial intermediary which assigned, sold or transferred the debt instrument without recourse, unless the financial intermediary can show that the issuer has with the said financial intermediary funds corresponding to the amount of the obligation. Any investment house violating the provisions of this Subsection shall be subject to the sanctions provided in Sections 12 and 16 of P.D. No. 129, as amended. SUBSECTION 4103N.3 Delivery of securities 1 Securities sold on a without recourse basis allowed under Subsec. 4101Q.3(b) shall be delivered physically to the purchaser, or to his designated custodian duly accredited by the BSP, if certificated, or by means of book-entry transfer to the appropriate securities account of the purchaser or his designated BSP accredited custodian in a registry for said securities, if immobilized or dematerialized, while the confirmation of sale or document of conveyance by the seller shall be physically delivered to the purchaser. The custodian shall hold the securities in the name of the buyer. Provided , That an NBFI authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said NBFI, its subsidiaries or affiliates, or of securities in bearer form. The delivery shall be effected upon payment and shall be evidenced by a securities delivery receipt duly signed by the authorized officer of the custodian and delivered to the purchaser. b. Sanctions . Violation of any provision of this Subsection shall be subject to the following sanctions/penalties: (1) Monetary penalties First offense Fine of P10,000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. Subsequent offenses Fine of P20,000 a day for each violation reckoned from the date the violation was committed up to the date it was corrected. (2) Other sanctions First offense Reprimand for the directors/officers responsible for the violation. Subsequent offense (a) Suspension for ninety (90) days without pay of directors/officers responsible for the violation; (b) Suspension or revocation of the accreditation to perform custodianship function; (c) Suspension or revocation of the authority to engage in quasi-banking function; and/or (d) Suspension or revocation of the authority to engage in trust and other fiduciary business. SUBSECTION 4103N.4 Securities custodianship operations a. Securities sold on a without recourse basis shall be delivered to the purchaser, or to his designated custodian duly accredited by the BSP: Provided , That the other entity authorized by the BSP to perform custodianship function may not be allowed to be custodian of securities issued or sold on a without recourse basis by said entity, its subsidiaries or affiliates, or of securities in bearer form. Existing securities being held under custodianship by other entities under BSP supervision, which are not in accordance with said regulation, must therefore, be delivered to a BSP accredited third party custodian. However, other financial institutions under BSP supervision may maintain custody of existing securities of their clients who are unable or unwilling to take delivery pursuant to the provisions of this Subsection but who declined to deliver their existing securities to a BSP accredited third party custodian subject to the following conditions: (1) the custody arrangements with clients have been in existence prior to 05 November 2004 (effectivity date of Circular 457 dated 14 October 2004); CTDAaE (2) the dealing NBFI under BSP supervision had been informed in writing by the client that he is not willing to have his existing securities delivered to a third party custodian; (3) any BSP regulated institution shall not enter into securities transactions with a client who has outstanding securities not delivered to a BSP accredited third party custodian; and (4) it shall be the responsibility of any BSP regulated institution to satisfy itself that the person purchasing securities from it has no outstanding securities holdings which were not delivered to a BSP accredited third party custodian. b. Sanctions . Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37, respectively, of the R.A. No. 7653, violation of any provision of this Subsection shall be subject to the following sanctions/penalties: (1) First Offense (a) Fine of up to P10,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (b) Reprimand for the directors/officers responsible for the violation. (2) Second Offense (a) Fine of up to P20,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (b) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. (3) Subsequent Offenses (a) Fine of up to P30,000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected; (b) Suspension or revocation of the authority to act as securities custodian and/or registry; and (c) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. SECTION 4104N. Anti-Money Laundering Regulations . Banks, offshore banking units (OBUs), quasi-banks (QBs), trust entities, non-stock savings and loan associations (NSSLAs), pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the BSP, otherwise known as "covered institutions" shall comply with the provisions of R.A. No. 9160, otherwise known as the "Anti-Money Laundering Act of 2001" and its Implementing Rules and Regulations (IRRs) in Appendix N-4 and those in Appendix N-3 . SUBSECTIONS 4104N.1 4104N.8 (Reserved) SUBSECTION 4104N.9 Sanctions and penalties a. Whenever a covered institution violates the provisions of Section 9 of R.A. No. 9160 of this Section, the officer(s) or other persons responsible for such violation shall be punished by a fine of not less than P50,000 nor more than P200,000 or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court pursuant to Section 36 of R.A. No. 7653, otherwise known as "The New Central Bank Act". b. Without prejudice to the criminal sanctions prescribed above against the culpable persons, the Monetary Board may, at its discretion, impose upon any covered institution, its directors and/or officers for any violation of Section 9 of R.A. No. 9160, the administrative sanctions provided under Section 37 of R.A. No. 7653. SECTIONS 4105N 4109N (Reserved) SUBSECTIONS 4109N.1 4109N.15 (Reserved) SUBSECTION 4109N.16 Qualification and accreditation of non-bank financial institutions acting as trustee on any mortgage or bond issuance by any municipality, government-owned or controlled corporation, or any body politic a. Applicability . NBFIs duly accredited by the BSP may act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic. b. Application for accreditation . An NBFI desiring to act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic shall file an application for accreditation with the appropriate supervising and examining department of SES. The application shall be signed by the president or officer of equivalent rank of the NBFI and shall be accompanied by the following documents: (1) certified true copy of the resolution of the institution's board of directors authorizing the application; (2) a certification signed by the president or officer of equivalent rank that the institution has complied with all the qualification requirements for accreditation. c. Qualification requirements . An NBFI applying for accreditation to act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic must comply with the requirements in Appendix N-6 . aSADIC d. Independence of the trustee . An NBFI is prohibited from acting as trustee of a mortgage or bond issuance if any elective or appointive official of the LGU, government-owned or controlled corporation, or body politic which issued said mortgage or bond and/or his related interests own such number of shares of the NBFI that will allow him or his related interests to elect at least one (1) member of the board of directors of such NBFI or is directly or indirectly the registered or beneficial owner of more than ten percent (10%) of any class of its equity security. e. Investment and management of the funds . A domestic NBFI designated as trustee of a mortgage or bond issuance may hold and manage, in accordance with the provisions of the trust indenture or agreement, the proceeds of the mortgage or bond issuance and such assets and funds of the issuing municipality, corporation, or body politic as may be required to be delivered to the Trustee under the Trust indenture/agreement, subject to the following conditions/restrictions: (1) Pending the utilization of such funds pursuant to the provisions of the trust indenture/agreement, the same shall only be (i) deposited in any bank authorized to accept deposits from the Government or government entities: Provided , That the depository bank is not a subsidiary or affiliate of the trustee NBFI, or (ii) invested in peso-denominated treasury bills acquired/purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate. (2) Investments of funds constituting or forming part of the sinking fund created as the primary source for the payment of the principal and interests due the mortgage or bonds shall also be limited to deposits in any bank authorized to accept deposits from the Government or government entities and investments in government securities that are consistent with such purpose which must be acquired/purchased from any securities dealer/entity, other than the trustee or any of its unit/department, its subsidiary or affiliate. f. Waiver of confidentiality . An NBFI designated as trustee of any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic shall submit to the appropriate supervising and examining department of SES a waiver of the confidentiality of information under Sections 2 and 3 of R.A. No. 1405, as amended, duly executed by the issuer of the mortgage or bond in favor of the BSP. g. Reportorial requirements . An NBFI authorized by the BSP to act as trustee of the proceeds of mortgage or bond issuance of a municipality, government-owned or controlled corporation, or body politic shall comply with reportorial requirements that may be prescribed by the BSP. h. Applicability of the rules and regulations on trust, other fiduciary business and investment management activities . The provisions of the Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities not inconsistent with the provisions of this Subsection shall form part of these rules. i. Sanctions . Without prejudice to the penal and administrative sanctions provided for under Sections 36 and 37, respectively, of the R.A. No. 7653, violation of any provision of this Subsection shall be subject to the following sanctions/penalties depending on the gravity of the offense: (1) First offense (a) Fine of up to P10,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (b) Reprimand for the directors/officers responsible for the violation. (2) Second offense (a) Fine of up to P20,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; (b) Suspension for ninety (90) days without pay for directors/officers responsible for the violation; and (c) Revocation of the authority to act as trustees on any mortgage or bond issuance by any municipality, government-owned or controlled corporations, or body politic. (3) Subsequent offense (a) Fine of up to P30,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; (b) Suspension or revocation of the trust license; (c) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. SECTIONS 4110N 4142N (Reserved) SECTION 4143N. Disqualification of Directors and Officers . The following regulations shall govern the disqualification of directors and officers of institutions under the supervisory and regulatory powers of the BSP other than banks, quasi-banks, NSSLAs and pawnshops. SUBSECTION 4143N.1 Persons disqualified to become directors . Without prejudice to specific provisions of law prescribing disqualifications for directors, the following are disqualified from becoming directors: a. Permanently disqualified Directors/trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee position: (1) Persons who have been convicted by final judgment of the court for offenses involving dishonesty or breach of trust such as estafa, embezzlement, extortion, forgery, malversation, swindling and theft; (2) Persons who have been convicted by final judgment of the court for violation of banking laws; (3) Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract; or (4) Directors, trustees, officers or employees of closed institutions under the supervisory and regulatory powers of the BSP who were responsible for such institutions' closure as determined by the Monetary Board. CcTIAH b. Temporarily disqualified Directors/trustees/officers/employees disqualified by the Monetary Board from holding a director/trustee position for a specific/indefinite period of time. Included are: (1) Persons who refuse to fully disclose the extent of their business interest to the appropriate supervising and examining department when required pursuant to a provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as the refusal persists; (2) Directors who have been absent or who have not participated for whatever reasons in more than fifty percent (50%) of all meetings, both regular and special, of the board of directors during their incumbency, or any twelve (12)-month period during said incumbency. This disqualification applies for purposes of the succeeding election; (3) Persons who are delinquent in the payment of their obligations as defined hereunder: (a) Delinquency in the payment of obligations means that an obligation of a person with the institution where he/she is a director or officer, or at least two (2) obligations with other financial institutions, under different credit lines or loan contracts, are past due pursuant to Secs. X306, 4308Q, 4306S and 4303P; (b) Obligations shall include all borrowings from any financial institution obtained by: (i) A director, trustee or officer for his own account or as the representative or agent of others or where he/she acts as a guarantor, endorser or surety for loans from such financial institutions; (ii) The spouse or child under the parental authority of the director, trustee or officer; (iii) Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director, trustee or officer; (iv) A partnership of which a director, trustee or officer, or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership; and (v) A corporation, association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items "( i )", "( ii )" and "( iv )"; IHaSED This disqualification shall be in effect as long as the delinquency persists. (4) Persons convicted for offenses involving dishonesty, breach of trust or violation of banking laws but whose conviction has not yet become final and executory; (5) Directors, trustees and officers of closed institutions under the supervisory and regulatory powers of the BSP pending their clearance by the Monetary Board; (6) Directors and trustees disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate supervising and examining department of such directors' election/reelection; (7) Persons dismissed/terminated from employment for cause. This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity; (8) Those under preventive suspension; and (9) Persons with derogatory records with the National Bureau of Investigation (NBI), court, police, Interpol and monetary authority (central bank) of other countries (for foreign directors and officers) involving violation of any law, rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of a director/trustee/officer. This disqualification applies until they have cleared themselves of involvement in the alleged irregularity. SUBSECTION 4143N.2 Persons disqualified to become officers a. The disqualifications for directors mentioned in Subsec. 4143N.1 shall likewise apply to officers, except those stated in Items "b( 2 )". b. Except as may be authorized by the Monetary Board or the Governor, the spouse or a relative within the second degree of consanguinity or affinity of any person holding the position of Chairman, President, Executive Vice President or any position of equivalent rank, General Manager, Treasurer, Chief Cashier or Chief Accountant is disqualified from holding or being elected or appointed to any of said positions in the same NBFI; and the spouse or relative within the second degree of consanguinity or affinity of any person holding the position of Manager, Cashier, or Accountant of a branch or office of an NBFI is disqualified from holding or being appointed to any of said positions in the same branch or office. SUBSECTION 4143N.3 Disqualification procedures a. Upon establishment of any of the grounds for disqualification mentioned in Subsecs. 4143N.1 and 4143N.2, the office of the disqualified director or officer shall immediately become vacant, except in the case of delinquency in the payment of obligations wherein the director or officer concerned shall be given a grace period of thirty (30) days after such ground for disqualification has been established. b. All cases of disqualification shall be immediately reported to the board of directors of the institution concerned. If the ground for disqualification is delinquency in the payment of obligations, the report shall be made at the expiry of the thirty (30)-day grace period mentioned in Item " a " above. The board shall act on the report not later than the following board meeting. Within seventy-two (72) hours thereafter, the corporate secretary shall report to the Governor of the BSP through the appropriate supervising and examining department the name of the director or officer involved, the ground for his disqualification and the action taken by the board. c. When the ground for disqualification ceases to exist, the director or officer concerned shall be eligible to become director, trustee or officer of any institution under the supervisory and regulatory powers of the BSP only upon prior approval by the Monetary Board. SUBSECTION 4143N.4 Effect of possession of disqualifications . Directors/officers elected or appointed possessing any of the disqualifications as enumerated herein, shall vacate their respective positions immediately. SUBSECTION 4143N.5 (Reserved) SUBSECTION 4143N.6 Watchlisting . To provide the BSP with a central information file to be used as reference in passing upon and reviewing the qualifications of persons elected or appointed as trustee or officer of an institution under the supervisory and regulatory powers of the BSP, the SES shall maintain a watchlist of disqualified directors/trustees/officers under the following procedures: a. Watchlist categories . Watchlisting shall be categorized as follows: (1) Disqualification File "A" (Permanent) Directors/trustees/officers/employees permanently disqualified by the Monetary Board from holding a director/trustee/officer position. (2) Disqualification File "B" (Temporary) Directors/trustees/officers/employees temporarily disqualified by the Monetary Board from holding a director/trustee/officer position. b. Inclusion of directors/trustees/officers/employees in the watchlist . Upon recommendation by the appropriate supervising and examining department, the inclusion of directors/trustees/officers/employees in watchlist disqualification files "A" and "B" on the basis of decisions, actions or reports of the courts, institutions under the supervisory and regulatory powers of the BSP, BSP, NBI or any other administrative agencies shall first be approved by the Monetary Board. c. Notification of directors/trustees/officers/employees . Upon approval by the Monetary Board, the concerned director/trustee/officer/employee shall be informed through registered mail, with registry return receipt card, at his last known address of his inclusion in the masterlist of watchlisted persons disqualified to be a director/trustee/officer in any institution under the supervisory and regulatory powers of the BSP. d. Confidentiality . Watchlisting shall be for internal use only and may not be accessed or queried upon by outside parties including such institutions under the supervisory and regulatory powers of the BSP, except with the authority of the person concerned and with the approval of the Deputy Governor, SES, the Governor, or the Monetary Board. EaHcDS e. Delisting . All delistings shall be approved by the Monetary Board upon recommendation of the appropriate supervising and examining department except in cases of persons known to be dead where delisting shall be automatic upon proof of death and need not be elevated to the Monetary Board. Delisting may be approved by the Monetary Board in the following cases: (1) Watchlist Disqualification File "B" (Temporary) (a) After the lapse of the specific period of disqualification; (b) When the conviction by the court for crimes involving dishonesty, breach of trust and/or violation of banking laws becomes final and executory, in which case the director/trustee/officer/employee is relisted to Watchlist Disqualification File "A" (Permanent); or (c) Upon favorable decision or clearance by the appropriate body, i.e., court, NBI, institutions under the supervisory and regulatory powers of the BSP, or such other agency/body where the concerned individual had derogatory record. Directors/trustees/officers/employees delisted from the Watchlist Disqualification File "B" other than those upgraded to Watchlist Disqualification File "A" shall be eligible for re-employment with any institution under the supervisory and regulatory powers of the BSP. SECTION 4144N. Securities Custodianship and Securities Registry Operations . The following rules and regulations shall govern securities custodianship and securities registry operations of non-bank financial institutions (NBFIs) under BSP supervision. SUBSECTION 4144N.1 Statement of policy . It is the policy of the BSP to promote the protection of investors in order to gain their confidence and encourage their participation in the development of the domestic capital market. Therefore, the following rules and regulations are promulgated to enhance transparency of securities transactions with the end in view of protecting investors. SUBSECTION 4144N.2 Applicability of this regulation . This regulation shall govern securities custodianship and securities registry operations of banks and NBFIs under BSP supervision. It shall cover all their transactions in securities as defined in Section 3 of the Securities Regulation Code (SRC), whether exempt or required to be registered with the Securities and Exchange Commission (SEC), that are sold, borrowed, purchased, traded, held under custody or otherwise transacted in the Philippines where at least one (1) of the parties is a bank or an NBFI under BSP supervision. However, this regulation shall not cover the operations of stock and transfer agents duly registered with the SEC pursuant to the provisions of SRC Rule 36-4.1 and whose only function is to maintain the stock and transfer book for shares of stock. SUBSECTION 4144N.3 Prior Bangko Sentral approval . NBFIs under BSP supervision may act as securities custodian and/or registry only upon prior Monetary Board approval. SUBSECTION 4144N.4 Application for authority . A BSP-supervised entity desiring to act as securities custodian and/or registry shall file an application with the appropriate supervising and examining department of the BSP. The application shall be signed by the highest ranking officer of the NBFI and shall be accompanied by a certified true copy of the resolution of the NBFI's board of directors authorizing the NBFI to engage in securities custodianship and/or registry. SUBSECTION 4144N.5 Pre-qualification requirements for a securities custodian/registry a. It must be an NBFI under BSP supervision; b. It must have complied with the minimum capital accounts required under existing regulations not lower than an adjusted capital of P300 million or such amounts as may be required by the Monetary Board in the future; c. It must have a CAMELS composite rating of at least "4" (as rounded off) in the last regular examination; d. It must have in place a comprehensive risk management system approved by its board of directors appropriate to its operations characterized by a clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal control and complete, timely and efficient risk reporting systems. In this connection, a manual of operations (which includes custody and/or registry operations) and other related documents embodying the risk management system must be submitted to the appropriate supervising and examining department at the time of application for authority and within thirty (30) days from updates; e. It must have adequate technological capabilities and the necessary technical expertise to ensure the protection, safety and integrity of client assets, such as: (1) It can maintain an electronic registry dedicated to recording of accountabilities to its clients; and (2) It has an updated and comprehensive computer security system covering system, network and telecommunication facilities that will: (a) limit access only to authorized users; (b) preserve data integrity; and (c) provide for audit trail of transactions. f. It has complied, during the period immediately preceding the date of application, with the following: (1) ceilings on credit accommodation to DOSRI; and (2) single borrower's limit. g. It has no reserve deficiencies during the eight (8) weeks immediately preceding the date of application; h. It has set up the prescribed allowances for probable losses, both general and specific, as of date of application; i. It has not been found engaging in unsafe and unsound practices during the last six (6) months preceding the date of application; j. It has generally complied with laws, rules and regulations, orders or instructions of the Monetary Board and/or BSP Management; k. It has submitted additional documents/information which may be requested by the appropriate supervision and examination department, such as, but not limited to: (a) Standard custody/registry agreement and other standard documents; cSATDC (b) Organizational structure of the custody/registry business; (c) Transaction flow; and (d) For those already in the custody or registry business, a historical background for the past three years; l. It shall be conducted in a separate unit headed by a qualified person with at least two (2) years experience in custody/registry operations; and m. It can interface with the clearing and settlement system of any recognized exchange in the country capable of achieving a real time gross settlement of trades. SUBSECTION 4144N.6 Functions and responsibilities of a securities custodian . A Securities Custodian shall have the following basic functions and responsibilities: a. Safekeeps the securities of the client; b. Holds title to the securities in a nominee capacity; c. Executes purchase, sale and other instructions; d. Performs at least a monthly reconciliation to ensure that all positions are properly recorded and accounted for; e. Confirms tax withheld; f. Represents clients in corporate actions in accordance with the direction provided by the securities owner; g. Conducts mark-to-market valuation and statement rendition; h. Does earmarking of encumbrances or liens such as, but not limited to, Deeds of Assignment and court orders; and In addition to the above basic functions, it may perform the following value-added service to clients: i. Acts as a collecting and paying agent: Provided , That the management of funds that may be collected shall be clearly defined in the custody contract or in a separate document or agreement attached thereto: Provided, further , That the custodian shall immediately make known to the securities owner all payments made and collections received with respect to the securities under custody; j. Securities borrowing and lending operations as agent. SUBSECTION 4144N.7 Functions and responsibilities of a securities registry a. Maintains an electronic registry book; b. Delivers confirmation of transactions and other documents within agreed trading periods; c. Issues registry confirmations for transfers of ownership as it occurs; d. Prepares regular statement of securities balances at such frequency as may be required by the owner on record but not less frequent than every quarter; and e. Follows appropriate legal documentation to govern its relationship with the Issuer. SUBSECTION 4144N.8 Protection of securities of the customer . A custodian must incorporate the following procedures in the discharge of its functions in order to protect the securities of the customer: a. Accounting and recording for securities . Custodians must employ accounting and safekeeping procedures that fully protect customer securities. It is essential that custodians segregate customer securities from one another and from its proprietary holdings to protect the same from the claims of its general creditors. HICcSA All securities held under custodianship shall be recorded in the books of the custodian at the face value of said securities in a separate subsidiary ledger account " Securities Held Under Custodianship " if booked in the Bank Proper or the subsidiary ledger account " Safekeeping and Custodianship Securities Held Under Custodianship ", if booked in the Trust Department: Provided , That securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be booked in the Trust Department. b. Documentation . The appropriate documentation for custodianship shall be made and it shall clearly define, among others, the authority, role, responsibilities, fees and provision for succession in the event the custodian can no longer discharge its functions. It shall be accepted in writing by the counterparties. The governing custodianship agreement shall be pre-numbered and this number shall be referred to in all amendments and supplements thereto. c. Confirmation of custody . The custodian shall issue a custody confirmation to the purchaser or borrower of securities to evidence receipt or transfer of securities as they occur. It shall contain, as a minimum, the following information on the securities under custody: (1) Owner of securities; (2) Issuer; (3) Securities type; (4) Identification or serial numbers; (5) Quantity; (6) Face value; and (7) Other information, which may be requested by the parties. (d) Periodic reporting . The custodian shall prepare at least quarterly (or as frequent as the owner of securities will require) securities statements delivered to the registered owner's address on record. Said statement shall present detailed information such as, but not limited to, inventory of securities, outstanding balances, and market values. SUBSECTION 4144N.9 Independence of the registry and custodian . A BSP-accredited securities registry must be a third party with no subsidiary/affiliate relationship with the issuer of securities while a BSP-accredited custodian must be a third party with no subsidiary/affiliate relationship with the issuer or seller of securities. An NBFI accredited by BSP as securities custodian may, however, continue holding securities it sold under the following cases: a. where the purchaser is a related entity acting in its own behalf and not as agent or representative of another; b. where the purchaser is a non-resident with existing global custody agreement governed by foreign laws and conventions wherein the NBFI is designated as custodian or sub-custodian; and c. upon approval by the BSP, where the purchaser is an insurance company whose custody arrangement is either governed by a global custody agreement where the NBFI is designated as custodian or sub-custodian or by a direct custody agreement with features at par with the standards set under this Subsection drawn or prepared by the parent company owning more than fifty percent (50%) of the capital stock of the purchaser and executed by the purchaser itself and its custodian. Purchases by non-residents and insurance companies that are exempted from the independence requirement of this Subsection shall, however, be subject to all other provisions of this Subsection. SUBSECTION 4144N.10 Registry of scripless securities of the Bureau of the Treasury . The Registry of Scripless Securities (RoSS), operated by the Bureau of the Treasury, which is acting as a registry for government securities is deemed to be automatically accredited for purposes of this Section and is likewise exempted from the independence requirement under Subsec. 4144N.9. However, securities registered under the RoSS shall only be considered delivered if said securities were transferred by means of book entry to the appropriate securities account of the purchaser or his designated custodian. Book entry transfer to a sub-account for clients under the primary account of the seller shall not constitute delivery for purposes of this Section. SUBSECTION 4144N.11 Confidentiality . A BSP-accredited securities custodian/registry shall not disclose to any unauthorized person any information relative to the securities under its custodianship/registry. The management shall likewise ensure the confidentiality of client accounts of the custody or registry unit from other units within the same organization. SUBSECTION 4144N.12 Compliance with anti-money laundering laws/regulations . For purposes of compliance with the requirements of R.A. No. 9160, otherwise known as the "Anti-Money Laundering Act of 2001," as amended, particularly the provisions regarding customer identification, record keeping and reporting of suspicious transactions, a BSP-accredited custodian may rely on referral by the seller/issuer of securities: Provided , That it maintains a record of such referral together with the minimum identification, information/documents required under the law and its implementing rules and regulations. A BSP accredited custodian must maintain accounts only in the true and full name of the owners of the security. However, said securities owners may be identified by number or code in reports and correspondences to keep his identity confidential. aSTAHD Securities subject of pledge and/or deed of assignment as of 14 October 2004 (date of Circular 457), may be held by a lending NBFI up to the original maturity of the loan or full payment thereof, whichever comes earlier. SUBSECTION 4144N.13 Basic security deposit Securities held under custodianship whether booked in the Trust Department or carried in the regular books of the NBFI shall be subject to a security deposit for faithful performance of duties at the rate of 1/25 of one percent (1%) of the total face value or P500,000 whichever is higher. However, securities held under custodianship where the custodian also performs securities borrowing and lending as agent shall be subject to a higher basic security deposit of one percent (1%) of the total face value. For this purpose, the following subsidiary ledger account shall be created in the Trust Department Books: " Safekeeping and Custodianship Securities Held Under Custodianship with Securities Borrowing and Lending As Agent " Compliance shall be in the form of government securities deposited with the BSP eligible pursuant to existing regulations governing security for the faithful performance of trust and other fiduciary business. SUBSECTION 4144N.14 Reportorial requirements An accredited securities custodian shall comply with reportorial requirements that may be prescribed by the BSP, which shall include as a minimum, the face and market value of securities held under custodianship. SUBSECTIONS 4144N.15 4144N.28 (Reserved) SUBSECTION 4144N.29 Sanctions Without prejudice to the penal and administrative sanctions provided for under Section 36 and 37, respectively, of the R.A. No. 7653, violation of any provision of this Section shall be subject to the following sanctions/penalties: a. First offense (1) Fine of up to P10,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (2) Reprimand for the directors/officers responsible for the violation. b. Second offense (1) Fine of up to P20,000 a day for the institution for each violation reckoned from the date the violation was committed up to the date it was corrected; and (2) Suspension for ninety (90) days without pay of directors/officers responsible for the violation. c. Subsequent offenses (1) Fine of up to P30,000 a day for the institution for each violation from the date the violation was committed up to the date it was corrected; (2) Suspension or revocation of the authority to act as securities custodian and/or registry; and (3) Suspension for one hundred twenty (120) days without pay of the directors/officers responsible for the violation. SECTIONS 4145N 4156N (Reserved) SECTION 4157N. Batas Pambansa Blg. 344 An Act To Enhance The Mobility Of Disabled Persons By Requiring Certain Buildings, Institutions, Establishments And Public Utilities To Install Facilities And Other Devices. In order to promote the realization of the rights of disabled persons to participate fully in the social life and the development of the societies in which they live and the enjoyment of the opportunities available to other citizens, no license or permit for the construction, repair or renovation of public and private buildings for public use, educational institutions, airports, sports and recreation centers and complexes, shopping centers or establishments, public parking places, workplaces, public utilities, shall be granted or issued unless the owner or operator thereof shall install and incorporate in such building, establishment or public utility, such architectural facilities or structural features as shall reasonably enhance the mobility of disabled persons such as sidewalks, ramps, railings and the like. If feasible, all such existing buildings, institutions, establishments, or public utilities may be renovated or altered to enable the disabled persons to have access to them. aDSTIC SECTIONS 4158N 4161N (Reserved) SECTION 4162N. Reports . NBFIs without quasi-banking functions but are subsidiaries/affiliates of banks and quasi-banks and investment houses without quasi-banking functions but with trust operations shall submit to the appropriate supervising and examining department of the BSP the reports listed in Appendix N-1 in the forms as may be prescribed by the Deputy Governor, Supervision and Examination Sector, BSP. Any change in, or amendment to, the articles of incorporation, by-laws or material documents required to be submitted to the BSP shall be reported by submitting copies of the amended articles of incorporation, by-laws, or material documents to the appropriate supervising and examining department of the BSP within fifteen (15) days following such change. SUBSECTION 4162N.1 Categories and signatories of reports . Reports required to be submitted to the BSP are classified into Categories A-2 and B reports as indicated in the list of reports required to be submitted to the BSP in Appendix N-1 . Appendix N-2 prescribes the signatories for each report category and the requirements on signatory authorization. Reports submitted by NBFIs in computer media shall be subject to the same requirements. A report submitted to the BSP under the signature of an officer who is not authorized in accordance with the requirements in this Subsection shall be considered as not having been submitted. SUBSECTION 4162N.2 Manner of filing . The submission of the reports shall be effected by filing them personally with the appropriate supervising and examining department of the BSP or with the BSP Regional Offices/Units, or by sending them by registered mail or special delivery through private couriers unless otherwise specified in the circular or memorandum of the BSP. SUBSECTION 4162N.3 Sanctions in case of willful delay in the submission of reports a. Definition of terms . For purposes of this Subsection, the following definitions shall apply: (1) Report shall refer to any report or statement required of an NBFI to be submitted to the BSP periodically or within a specified period. (2) Willful delay in the submission of reports shall refer to the failure of an NBFI to submit a report on time. Failure to submit a report on time due to fortuitous events, such as fire and other natural calamities and public disorders, including strike or lockout affecting an NBFI as defined in the Labor Code or national emergency affecting operations of NBFIs, shall not be considered as willful delay. b. Fines for willful delay in submission of reports . NBFIs incurring willful delay in the submission of required reports shall pay a fine in accordance with the following schedule: I. For Categories A-2 reports Per business day of default until the report is filed P300 II. For Category B reports Per business day of default until the report is filed P60 Delay or default shall start to run on the day following the last day required for the submission of reports. However, should the last day of filing fall on a non-working day in the locality where the reporting financial institution is situated, delay or default shall start to run on the day following the next working day. The due date/deadline for submission of reports to BSP as prescribed under Sec. 4162N governing the frequency and deadlines indicated in Appendix N-1 shall be automatically moved to the next business day whenever a half-day suspension of business operations in government offices is declared due to an emergency such as typhoon, floods, etc. For purposes of establishing delay or default, the date of acknowledgment by the appropriate supervising and examining department of the BSP or the BSP Regional Offices/Units appearing on the copies of such reports filed or submitted, or the date of mailing postmarked on the envelope/the date of registry/special delivery receipt, as the case may be, shall be considered as the date of filing by the NBFI. c. Manner of payment or collection of fines NBFIs shall, within fifteen (15) calendar days from receipt of the statement of account from the appropriate department of the BSP, pay the fines imposed thereon for willful delay on the submission of reports. SECTIONS 4163N 4179N (Reserved) SECTION 4180N. Selection, Appointment and Reporting Requirements for External Auditors; Sanction; Effectivity . Under Section 58, R.A. No. 8791, the Monetary Board may require a subsidiaries and affiliates of banks and quasi-banks to engage the services of an independent auditor to be chosen by the subsidiaries and affiliates of banks and quasi-banks concerned from a list of certified public accountants acceptable to the Monetary Board. It is the policy of the BSP to promote high ethical and professional standards in public accounting practice and to encourage coordination and sharing of information between external auditors and regulatory authorities of banks, quasi-banks, NSSLAs, and/or trust entities to ensure effective audit and supervision of these institutions and to avoid unnecessary duplication of efforts. In furtherance of this policy and to ensure that reliance by regulatory authorities and the public on the opinion of external auditors is well placed, the BSP hereby prescribes the rules and regulations that shall govern the selection, appointment, reporting requirements and delisting for external auditors of banks, quasi-banks, NSSLAs, and/or trust entities, their subsidiaries and affiliates engaged in allied activities and other financial institutions which under special laws are subject to BSP supervision. The selection of external auditors shall be valid for a period of three years. BSP selected external auditors shall apply for the renewal of their selection every three years. The provisions of Items "A" and "B" of Appendix N-5 shall likewise apply for each application for renewal. The Supervision and Examination Sector (SES) shall make an annual assessment of the performance of external auditors and will recommend deletion from the list even prior to the three-year renewal period, if based on assessment, the external auditors' report did not comply with BSP requirements. External auditors who meet the requirements specified in this Section shall be included in the list of BSP selected external auditors. In case of partnership, inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. The BSP will circularize to all banks, quasi banks, trust entities and NSSLAs the list of selected external auditors once a year. The BSP, however, shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks, quasi-banks, trust entities or NSSLAs for regular audit or special engagements. a. Rules and regulations . The rules and regulations to govern the selection and delisting by the BSP of external auditors of trust entities and banks'/quasi-banks'/trust entities' subsidiaries and affiliates engaged in allied activities and other financial institutions are shown in Appendix N-5 . b. Sanctions . The applicable sanctions/penalties prescribed under Sections 36 and 37 of R. A. No. 7653 to the extent applicable shall be imposed on the trust entity, its audit committee and the directors approving the hiring of external auditors who are not in the BSP list of selected auditors for banks, quasi-banks, NSSLAs, and/or trust entities, or for hiring, and/or retaining the services of the external auditor in violation of any of the provisions of this Section and for non-compliance with the Monetary Board directive under Item "I" in Appendix N-5 . Erring external auditors may also be reported by the BSP to the PRC for appropriate disciplinary action. SECTION 4181N. Publication Requirements . The quarterly consolidated statements of condition of a trust entity and its subsidiaries and affiliates shall be published side by side with the statement of condition of its head office and its branches/other offices as of such dates as the BSP may require within twenty (20) working days from receipt of call letter, in any newspaper of general circulation in the country in the prescribed format. SECTIONS 4182N 4200N (Reserved) SECTIONS 4201N 4300N (Reserved) SECTION 4301N. Credit Card Operations; General Policy . The BSP shall foster the development of consumer credit through innovative products such as credit cards under conditions of fair and sound consumer credit practices. The BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair dealings with customers. Towards this end, the following rules and regulations shall govern the credit card operations of subsidiary/affiliate credit card companies of banks/quasi-banks, aligned with global best practices. SUBSECTION 4301N.1 Definition of terms a. Credit card . Means any card, plate coupon book or other credit device existing for the purpose of obtaining money, property, labor or services on credit. b. Credit card receivables . Represents the total outstanding balance of credit cardholders arising from purchases of goods and services, cash advances, annual membership/renewal fees as well as interest, penalties, insurance fees, processing/service fees and other charges. c. Minimum amount due or minimum payment required . Means the minimum amount that the credit cardholder needs to pay on or before the payment due date for a particular billing period/cycle as defined under the terms and conditions or reminders stated in the statement of account/billing statement which may include: (1) total outstanding balance multiplied by the required payment percentage or a fixed amount whichever is higher; (2) any amount which is part of any fixed monthly installment that is charged to the card; (3) any amount in excess of the credit line; and (4) all past due amounts, if any. d. Default or delinquency . Shall mean non-payment of, or payment of any amount less than, the " Minimum Amount Due " or " Minimum Payment Required " within two (2) cycle dates, in which case, the " Total Amount Due " for the particular billing period as reflected in the monthly statement of account may be considered in default or delinquent. e. Acceleration Clause . Shall mean any provision in the contract between the bank and the cardholder that gives the bank the right to demand the obligation in full in case of default or non-payment of any amount due or for whatever valid reason. f. Subsidiary refers to a corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with the power to vote by a bank or other financial institution. g. Affiliate refers to an entity linked directly or indirectly to a bank or other financial institution through any one (1) or a combination of any of the following: (1) Ownership, control or power to vote, whether by permanent or temporary proxy or voting trust, or other similar contracts, by a bank or other financial institution of at least ten percent (10%) or more of the outstanding voting stock of the entity, or vice-versa; (2) Interlocking directorship or officership, except in cases involving independent directors as defined under existing regulations; (3) Common stockholders owning at least ten percent (10%) of the outstanding voting stock of each financial institution and the entity; or (4) Management contract or any arrangement granting power to the bank or other financial institution to direct or cause the direction of management and policies of the entity, or vice-versa. SUBSECTION 4301N.2 Risk management system . To safeguard their interests, subsidiary/affiliate credit card companies of banks/quasi-banks are required to establish an appropriate system for managing risk exposures from credit card operations which shall be documented in a complete and concise manner. The risk management system shall cover the organizational set-up, records and reports, accounting, policies and procedures and internal control. Written policies, procedures and internal control guidelines shall be established on the following aspects of credit card operations: a. Requirements for application; b. Solicitation and application processing; c. Determination and approval of credit limits; d. Pre-approved cards; e. Issuance, distribution and activation of cards; f. Supplementary or extension cards; g. Cash advances; h. Billing and payments; i. Deferred payment program or special installment plans; j. Collection of past due accounts; k. Handling of accounts for write-off; l. Suspension, cancellation and withdrawal or termination of card; m. Renewal of cards, upgrade or downgrade of credit limit; n. Lost or stolen cards and their replacement; o. Accounts of DOSRI and employees; p. Disposition of errors and/or questions about the billing statement/statement of account and other customers' complaints; and q. Dealings with marketing agents/collection agents. SUBSECTION 4301N.3 Minimum requirements Before issuing credit cards, subsidiary/affiliate credit card companies of banks/quasi-banks must exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling their credit commitments. The net take home pay of applicants who are employed, the net monthly receipts of those engaged in trade or business, or the net worth or cash flow inferred from deposits of those who are neither employed nor engaged in trade or business or the credit behavior exhibited by the applicant from his other existing credit cards, or other lifestyle indicators such as but not limited to club memberships, ownership and location of residence and motor vehicle ownership shall be determined and used as basis for setting credit limits. The gross monthly income may also be used provided reasonable deductions are estimated for income taxes, premium contributions, loan amortizations and other deductions. All credit card applications, especially those solicited by third party representatives/agents, shall undergo a strict credit risk assessment process and the information stated thereon validated and verified by persons other than those handling marketing. SUBSECTION 4301N.4 Information to be disclosed Subsidiary/affiliate credit card companies of banks/quasi-banks shall disclose to each person to whom the credit card privilege is extended in the agreement, contract or any equivalent document governing the issuance or use of the credit card or any amendment thereto or in such other statement furnished the cardholder from time to time, prior to the imposition of the charges and to the extent applicable, the following information: a. non-finance charges, individually itemized, which are paid or to be paid by the cardholder in connection with the transaction but which are not incident to the extension of credit; b. the percentage that the interest bears to the total amount to be financed expressed as a simple monthly or annual rate, as the case may be, on the outstanding balance of the obligation; c. the effective interest rate per annum; d. for installment loans, the number of installments, amount and due dates or periods of payment schedules to repay the indebtedness; e. the default, late payment/penalty fees or similar delinquency-related charges payable in the event of late payments; f. the conditions under which interest may be imposed, including the time period, within which any credit extended may be repaid without interest; g. the method of determining the balance upon which interest and/or delinquency charges may be imposed; h. the method of determining the amount of interest and/or delinquency charges, including any minimum or fixed amount imposed as interest and/or delinquency charge; i. where one (1) or more periodic rates may be used to compute interest, each such rate, the range of balances to which it is applicable, and the corresponding simple annual rate; and j. other fees, such as membership/renewal fees, processing fees, collection fees, credit investigation fees and attorney's fees. k. for transactions made in foreign currencies and/or outside the Philippines, for dual currency accounts (peso and dollar billings), as well as payments made by credit cardholders in any currency other than the billing currency: the application of payments; the manner of conversion from the transaction currency and payment currency to Philippine pesos or billing currency; definition or general description of verifiable blended exchange/conversion rates (e.g., MASTERCARD and/or VISA International rates on the day the item was processed/posted to the billing statement, plus mark-up, if any) including conversion commission; and/or other currency conversion charges and costs arising from the purchase by the card company of foreign currency to settle the customer's transactions shall also be disclosed. SUBSECTION 4301N.5 Accrual of interest earned Interest accrued and/or booked shall be reversed and no accrual of interest shall be allowed ninety (90) days after the credit card receivable has become past due as defined in Subsec. 4308Q.1. SUBSECTION 4301N.6 Finance charges . The amount of finance charges in connection with any credit card transaction shall refer to interest charged to the cardholder. SUBSECTION 4301N.7 Deferral charges . The bank and the cardholder may, prior to the consummation of the transaction, agree in writing to a deferral of all or part of one or more unpaid installments and the bank may collect a deferral charge which shall not exceed the rate previously disclosed pursuant to the provisions on disclosure. SUBSECTION 4301N.8 Late payment/penalty fees No late payment or penalty fee shall be collected from cardholders unless the collection thereof is fully disclosed in the contract between the issuer and the cardholder: Provided , That late payment or penalty fees shall be based on the unpaid minimum amount due or a prescribed minimum fixed amount: Provided, further , That said late payment or penalty fees may be based on the total outstanding balance of the credit card obligation, including amounts payable under installment terms or deferred payment schemes, if the contract between the issuer and the cardholder contains an " acceleration clause " and the total outstanding balance of the credit card is classified and reported as past due. SUBSECTION 4301N.9 Confidentiality of information . Subsidiary/affiliate credit card companies of banks/quasi-banks shall keep strictly confidential the data on the cardholder or consumer, except under the following circumstances: a. disclosure of information is with the consent of the cardholder or consumer; b. release, submission or exchange of customer information with other financial institutions, credit information bureaus, credit card issuers, their subsidiaries and affiliates; c. upon orders of court of competent jurisdiction or any government office or agency authorized by law, or under such conditions as may be prescribed by the Monetary Board; d. disclosure to collection agencies, counsels and other agents of the bank or card company to enforce its rights against the cardholder; e. disclosure to third party service providers solely for the purpose of assisting or rendering services to the bank or card company in the administration of its credit card business; and f. disclosure to third parties such as insurance companies, solely for the purpose of insuring the bank from cardholder default or other credit loss, and the cardholder from fraud or unauthorized charges. SUBSECTION 4301N.10 Suspension, termination of effectivity and reactivation . Subsidiary/affiliate credit card companies of banks/quasi-banks shall formulate criteria or parameters for suspension, revocation and reactivation of the right to use the card and shall include in their contract with cardholders a provision authorizing the issuer to suspend or terminate its effectivity, if circumstances warrant. SUBSECTION 4301N.11 Inspection of records covering credit card transactions . Subsidiary/affiliate credit card companies of banks/quasi-banks shall make available for inspection or examination by the appropriate supervising and examining department of the BSP complete and accurate files on card applicant/cardholder to support the consideration for approval of the application and determination of the credit limit which shall be in accordance with the verified debt repayment ability and/or net worth of the card applicant/cardholder. SUBSECTION 4301N.12 Offsets . For purposes of transparency and adequate disclosure, the credit card issuer shall inform/notify the credit cardholder in the agreement, contract or any equivalent document governing the issuance or use of the credit card that, pursuant to the provisions of Articles 1278 to 1290 of the New Civil Code of the Philippines, as amended the use of his credit card will subject his deposit/s with the bank to offset against any amount/s due and payable on his credit card which have not been paid in accordance with the terms of the agreement/contract. SUBSECTION 4301N.13 Handling of complaints Subsidiary/affiliate credit card companies of banks/quasi-banks shall give cardholders at least twenty (20) calendar days from statement date to examine charges posted in his/her statement of account and inform the credit card company in writing of any billing error or discrepancy. Within ten (10) calendar days from receipt of such written notice, the credit card company shall send a written acknowledgement to the cardholder unless the action required is taken within such ten (10)-day period. Not later than two (2) billing cycles or two (2) months which in no case shall exceed ninety (90) days after receipt of the notice and prior to taking any action to collect the contested amount, or any part thereof, banks/subsidiary credit card companies shall make appropriate corrections in their records and/or send a written explanation or clarification to the cardholder after conducting an investigation. Nothing in this Subsection shall be construed to prohibit any action by the bank/subsidiary credit card company to collect any amount which has not been indicated by the cardholder to contain a billing error or apply against the credit limit of the cardholder the amount indicated to be in error. SUBSECTION 4301N.14 Unfair collection practices Subsidiary/affiliate credit card companies of banks/quasi-banks, collection agencies, counsels and other agents may resort to all reasonable and legally permissible means to collect amounts due them under the credit card agreement: Provided , That in the exercise of their rights and performance of duties, they must observe good faith and reasonable conduct and refrain from engaging in unscrupulous or untoward acts. Without limiting the general application of the foregoing, the following conduct is a violation of this Subsection: a. the use or threat of violence or other criminal means to harm the physical person, reputation, or property of any person; b. the use of obscenities, insults, or profane language which amount to a criminal act or offense under applicable laws; c. disclosure of the names of credit cardholders who allegedly refuse to pay debts, except as allowed under Subsec. 4301N.9; d. threat to take any action that cannot legally be taken; e. communicating or threat to communicate to any person credit information which is known to be false, including failure to communicate that a debt is being disputed; f. any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a cardholder; and g. making contact at unreasonable/inconvenient times or hours which shall be defined as contact before 6:00 A.M. or after 10:00 P.M., unless the account is past due for more than sixty (60) days or the cardholder has given express permission or said times are the only reasonable or convenient opportunities for contact. SUBSECTION 4301N.15 Sanctions . Violations of the provisions of this Section shall be subject to any or all of the following sanctions depending upon their severity: a. Disqualification of the bank concerned from the credit facilities of the BSP except as may be allowed under Section 84 of R.A. No. 7653; b. Prohibition of the bank concerned from the extension of additional credit accommodation against personal security; and c. Penalties and sanctions provided under Sections 36 and 37 of R.A. No. 7653. SECTION 4302N. Classification of Credit Card Receivables . Credit card receivables shall be classified in accordance with age as follows: No. of days past due Classification 91-120 Substandard 121-180 Doubtful 181 or more Loss The foregoing is the minimum classification requirement. Management may therefore formulate additional specific guidelines. SECTIONS 4303N 4400N (Reserved) SECTIONS 4401N 4500N (Reserved) SECTIONS 4501N 4600N (Reserved) SECTIONS 4601N 4699N (Reserved) SECTION 4700N. General Provision on Sanctions Any violation of the preceding provisions shall be subject to Section 36 of R.A. No. 7653. LIST OF REPORTS REQUIRED FROM NON-BANK FINANCIAL INSTITUTIONS (Appendix to Sec. 4162N) Report Frequency of Deadline for Submission Category BSP Form No. Subject of Report Reporting Submission Procedure B BSP-7-26-01 Information Sheet Annually January 31 Original - Appropriate BSP SED Corporate stockholders should also submit Information Sheet B BSP-7-26-01.1 Biographical Data of Annually January 31 or 15th Original - Appropriate Directors/Officers calendar day BSP SED following the creation or filling In case of changes in up of a vacancy in educational attainment the Board of and experience in financial Directors and the management and related managerial staff fields, only additional qualifications that will enhance the director's or officer's competence or will qualify him to his present position shall be reported. B Unnumbered Change of List of As change Immediately Original - Appropriate Directors/Officers occurs after change BSP SED Duplicate - SRSO A-2 BSP-7-26-02 Statement of Monthly 15th business Original - Appropriate Condition day after end of BSP SED reference month Duplicate - SRSO or cc:mail/electronic transmission Separate report for Head Office and each Branch; and a Consolidated Report for Head Office and Branches A-2 BSP-7-26-02 Schedule of Monthly 15th business day Original - Appropriate Schedule 1 Loans/Receivables, after end of BSP SED (IHs only) Trading Account reference Duplicate - SRSO or Securities (TAS)- month cc:mail/electronic Loans and transmission Underwritten Debt Securities A-2 BSP 7-26-02 Schedule of -do- -do- -do- Schedule 1 Loans/Receivables and Trading Account Securities-Loans A-2 BSP-7-26-02 Schedule of Trading -do- -do- -do- Schedule 2 Account Securities - (FCs only) Investment in Bonds and Other Debt Instruments (IBODI) A-2 BSP-7-26-02 Interest Rate and -do- -do- -do- Schedule 3 Maturities Matching A-2 BSP-7-26-02 Remaining Maturities -do- -do- -do- Schedule 4 of Selected Accounts A-2 BSP-7-26-02 Schedule of Bills -do- -do- -do- Schedule 5 Payables and Bonds A-2 BSP-7-26-02 Data on Firm's -do- -do- -do- Schedule 6 Businesses (FCs only) A-2 BSP-7-26-03 Statement of Income -do- -do- -do- and Expenses A-2 BSP-7-26-23 Trust/Fund -do- -do- -do- (Entities w/Trust/ Management Fund Management Operations Only) A-2 BSP-7-26-24 Credit and Equity Quarterly 15th business day Electronic submission/ (Revised August Exposures to from end of diskette - SRSO 2003 per CL Individuals/Companies/ reference quarter dated 8.6.03) Groups Aggregating P1 Million and above Notarized Control Prooflist Fax to SRSO Prooflist A-2 Unnumbered (no Report on required and Weekly 3rd business day Original - Appropriate prescribed form) available reserves on following reference BSP SED (Entities with Peso-denominated week Duplicate - SRSO or Trust/Fund Common Trust Funds cc:mail/electronic Management only) (CTFs), such other transmission managed peso funds and TOFA-Others Separate report for Head Office and each Branch; and a Consolidated Report for Head Office and Branches B Unnumbered Board Resolution on As 3rd day from date NBFIs signatories of authorized of resolution reports submitted to Bangko Sentral A-2 Unnumbered Report on Suspicious As 5th business day To be submitted to the Transactions transaction from date of Anti-Money Laundering occurs transaction/ Council knowledge A-2 Unnumbered Report on Covered -do- -do- -do- Transactions B Unnumbered Plan of action to - 30th business To be submitted to the comply with Anti- day from July 31, appropriate BSP supervising Money Laundering 2000 or from and examining department requirements opening of the (SED) institution A-2 Unnumbered Certification of Annually 20th business -do- compliance with day after end of existing anti-money reference year laundering regulations Unnumbered (no Audit Engagement As contract 15th calendar Appropriate BSP SED prescribed form) Contract is signed day from date of signing of contract Waiver of the As Confidentiality of transaction Information under occurs Sections 2 and 3 of R.A. No. 1405, as amended Appendix N-2 GUIDELINES ON PRESCRIBED REPORTS SIGNATORIES AND SIGNATORY AUTHORIZATION ( Appendix to Subsec. 4162N.1 ) Category A-2 reports of head offices shall be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions. Such reports of other offices/units (such as branches) shall be signed by their respective managers/officers in-charge. Likewise, the signing authority in this category shall be contained in a resolution approved by the board of directors in the format prescribed in Annex N-2-a. Category B reports shall be signed by officers or their alternates, who shall be duly designated in a resolution approved by the board of directors in the format as prescribed in Annex N-2-b. Copies of the board resolutions on the report signatory designations shall be submitted to the appropriate supervising and examining department of the BSP within three (3) days from the date of resolution. ANNEX N-2-a FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY A-2 REPORTS ( Annex to Appendix N- 2) Resolution No. _____ Whereas, it is required under Subsec. 4162N.1 that Category A-2 reports of head offices be signed by the president, executive vice-presidents, vice-presidents or officers holding equivalent positions, and that such reports of other offices be signed by the respective managers/officers-in-charge; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we, the members of the Board of Directors of ( Name of Institution ), are conscious that, in designating the officials who would sign said Category A-2 reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's President (and/or the Executive Vice-President, etc., as the case may be) and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Specimen Position Report Officer Signature Title No. are hereby authorized to sign the Category A-2 reports of _________________ (Name of Institution) Done in the City of ___________, Philippines, this ___ day of __________, 200_. CHAIRMAN OF THE BOARD __________ __________ DIRECTOR DIRECTOR __________ __________ DIRECTOR DIRECTOR __________ __________ DIRECTOR DIRECTOR ATTESTED BY: ________________________ CORPORATE SECRETARY ANNEX N-2-b FORMAT OF RESOLUTION FOR SIGNATORIES OF CATEGORY B REPORTS ( Annex to Appendix N-2 ) Resolution No. _____ Whereas, it is required under Subsec. 4162N.1 that Category B reports be signed by officers or their alternates; Whereas, it is also required that aforesaid officers of the institution be authorized under a resolution duly approved by the institution's Board of Directors; Whereas, we the members of the Board of Directors of ( Name of Institution ) are conscious that, in designating the officials who would sign said Category B reports, we are actually empowering and authorizing said officers to represent and act for or in behalf of the Board of Directors in particular and ( Name of Institution ) in general; Whereas, this Board has full faith and confidence in the institution's authorized signatories and, therefore, assumes responsibility for all the acts which may be performed by aforesaid officers under their delegated authority; Now, therefore, we, the members of the Board of Directors, resolve, as it is hereby resolved that: Name of Authorized Specimen Position Report Signatory/Alternate Signature Title No. 1. Authorized ________________ ___________ __________ ________ (Alternate) ________________ ___________ __________ ________ 2. Authorized ________________ ___________ __________ ________ Alternate) ________________ ___________ __________ ________ etc. are hereby authorized to sign the Category B reports of __________________ (Name of Institution) Done in the City of _______, Philippines, this __ day of ______, 200_. __________________________ CHAIRMAN OF THE BOARD __________ __________ DIRECTOR DIRECTOR __________ __________ DIRECTOR DIRECTOR __________ __________ DIRECTOR DIRECTOR ATTESTED BY: ________________________ CORPORATE SECRETARY Appendix N-3 ANTI-MONEY LAUNDERING REGULATIONS ( Appendix to Section 4104N ) Banks, quasi-banks, trust entities and all other institutions, and their subsidiaries and affiliates supervised or regulated by the BSP (covered institutions) shall strictly comply with the provisions of Section 9 of R.A. No. 9160 and the following rules and regulations on anti-money laundering. 1. Customer identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. When establishing business relations or conducting transactions (particularly opening of deposit accounts, accepting deposit substitutes, entering into trust and other fiduciary transactions, renting of safety deposit boxes, performing remittances and other large cash transactions) covered institutions should take reasonable measures to establish and record the true identity of their clients. Said client identification may be based on official or other reliable documents and records. a. In cases of corporate and other legal entities, the following measures should be taken, when necessary: (1) Verification of the legal existence and structure of the client from the appropriate agency or from the client itself or both, proof of incorporation, including information concerning the customer's name, legal form, address, directors, principal officers and provisions regulating the power behind the entity. (2) Verification of the authority and identification of the person purporting to act on behalf of the client. b. In case of doubt as to whether their purported clients or customers are acting for themselves or for another, reasonable measures should be taken to obtain the true identity of the persons on whose behalf an account is opened or a transaction conducted. c. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. In case where numbered accounts is allowed (i.e., peso and foreign currency non-checking numbered accounts), covered institutions should ensure that the client is identified in an official or other identifying documents. The BSP may conduct annual testing solely limited to the determination of the existence and the identity of the owners of such accounts. Covered institutions shall phase out within a period of one (1) year from April 2, 2001 or upon their maturity, whichever is earlier, anonymous accounts or accounts under fictitious names as well as numbered accounts being kept or managed by them, which are not expressly allowed under existing law. d. The identity of existing clients or beneficial owners of deposits and other funds held or being managed by the covered institutions should be renewed/updated at least every other year. e. All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. With respect to closed accounts, the records on customer identification, account files and business correspondence, shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Such records must be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal behaviour. f. Special attention should be given to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies. g. Covered institutions should not, or should at least avoid, transacting business with criminals. Reasonable measures should be adopted to prevent the use of their facilities for laundering of proceeds of crimes and other illegal activities. 2. Programs against money laundering . Programs against money laundering should be developed. These programs, should include, as a minimum: a. The development of internal policies, procedures and controls, including the designation of compliance officers at management level, and adequate screening procedures to ensure high standards when hiring employees; b. An ongoing employee training program; and c. An audit function to test the system. 3. Submission of plans of action . Covered institutions shall submit a plan of action on how to comply with the requirements of App. N-3 nos. 1, 2 and 4 within thirty (30) business days from July 31, 2000 or from opening of the institution. 4. Required reporting of certain transactions . If there is reasonable ground to believe that the funds are proceeds of an unlawful activity as defined under R.A. No. 9160 and/or its IRRs, the transactions involving such funds or attempts to transact the same, should be reported to the Anti-Money Laundering Council (AMLC) in accordance with Rules 5.2 and 5.3 of the AMLA IRRs. a. Report on suspicious transactions . 1 Banks shall report covered transactions and suspicious transactions, as defined in Rules 5.2 and 5.3 of the AMLA IRRs, to the AMLC using the forms prescribed by the AMLC. Reportable transactions shall include the following: (1) Outward remittances without visible lawful purpose; (2) Inward remittances without visible lawful purpose or without underlying trade transactions; (3) Unusual purchases of foreign exchange without visible lawful purpose; (4) Unusual sales of foreign exchange whose sources are not satisfactorily established; (5) Complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent or visible lawful purpose; (6) Funds being managed or held as deposit substitutes if there is reasonable ground to believe that the same are proceeds of criminal and other illegal activities; and (7) All other suspicious transactions/activities which can be reported without violating any law. The report on suspicious transactions shall provide the following minimum information: (a) Name or names of the parties involved. (b) A brief description of the transaction or transactions. (c) Date or date the transaction(s) occurred. (d) Amount(s) involved in every transaction. (e) Such other relevant information which can be of help to the authorities should there be an investigation. b. Exemption from Bank Secrecy Law . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates shall not be deemed to have violated R.A. No. 1405, as amended; R.A. No. 6426, as amended; R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, shall be criminally liable. However, no administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under R.A. 9160 or any other Philippine law. c. Prohibition from disclosure of the covered transaction report . When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation thereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. 5. Certification of compliance with anti-money laundering regulations . Covered institution shall submit annually to the BSP thru the appropriate supervising and examining department a certification ( Annex N-3-a ) signed by the President or officer of equivalent rank and by their Compliance Officer to the effect that they have monitored compliance with existing anti-money laundering regulations. The certification shall be submitted in accordance with Appendix N-1 and shall be considered a Category A-2 report. ANNEX N-3-a CERTIFICATION OF COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS ( Annex to Appendix N-3 ) CERTIFICATION Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 2 April 2001, we hereby certify: 1. That we have monitored (Name of NBFI)'s compliance with R.A. No. 9160 (Anti-Money Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259 and 302; 2. That the NBFI is complying with the required customer identification, documentation of all new clients, and continued monitoring of customer's activities; 3. That the NBFI is also complying with the requirement to record all transactions and to maintain such records including the record of customer identification for at least five (5) years; 4. That the NBFI does not maintain anonymous or fictitious accounts; and 5. That we conduct regular anti-money laundering training sessions for all NBFI officers and selected staff members holding sensitive positions. ______________________ __________________ (Name of President or officer (Name of Compliance of equivalent rank) Officer) SUBSCRIBED AND SWORN to before me, _____ this ____ day of ____________, affiant/s exhibiting to me their Residence Certificates as follows: Community Date/Place Name Tax Cert. No Issued Doc. No. _________; Notary Public Page No. _________; Book No. _________; Series of 2002 ANNEX N-3-b AMLC Resolution No. 292 RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS ( Annex to Appendix N-3 ) 1. All covered institutions are required to file Suspicious Transaction Reports (STRs) on transactions involving all kinds of monetary instruments or property. 2. Banks shall file covered transaction reports (CTRs) on transactions involving all kinds of monetary instruments or property, i.e., in cash or non-cash, whether in domestic or foreign currency. 3. Covered institutions, other than banks, shall file CTRs on transactions in cash or foreign currency or other monetary instruments (other than checks) or properties. Due to the nature of the transactions in the stock exchange, only the brokers-dealers shall be required to file CTRs and STRs. The PSE, PCD, SCCP and transfer agents are exempt from filing CTRs. They, are however, required to file STRs when the transactions that pass through them are deemed to be suspicious. 4. Where the covered institution engages in bulk transactions with a bank, i.e., deposits of premium payments in bulk or settlements of trade, and the bulk transactions do not distinguish clients and their respective transaction amounts, said covered institutions shall be required to file CTRs on its clients whose transactions exceed P500,000 and are included in the bulk transactions. 5. With respect to insurance companies, when the total amount of the premiums for the entire year, regardless of the mode of payment (monthly, quarterly, semi-annually or annually), exceeds P500,000, such amount shall be reported as a covered transaction, even if the amounts of the amortizations are less than the threshold amount. The CTR shall be filed upon payment of the first premium amount, regardless of the mode of payment. Under this rule, the insurance company shall file the CTR only once every year until the policy matures or rescinded, whichever comes first. 6. The submission of CTRs is deferred until the AMLC directs otherwise. Submission of STRs, however, are not deferred and covered institutions are mandated to submit such STRs when the circumstances so require. Appendix N-4 REVISED IMPLEMENTING RULES AND REGULATIONS R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194 ( Appendix to Sec. 4104N ) RULE 1 Title Rule 1.a. Title . These Rules shall be known and cited as the "Revised Rules and Regulations Implementing Republic Act No. 9160", (the Anti-Money Laundering Act of 2001 [AMLA]), AS AMENDED BY REPUBLIC ACT NO. 9194. Rule 1.b. Purpose . These Rules are promulgated to prescribe the procedures and guidelines for the implementation of the AMLA, AS AMENDED BY REPUBLIC ACT NO. 9194 . RULE 2 Declaration of Policy Rule 2. Declaration of Policy . It is hereby declared the policy of the State to protect the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money-laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the Philippines shall extend cooperation in transnational investigations and prosecutions of persons involved in money laundering activities wherever committed. RULE 3 Definitions Rule 3. Definitions . For purposes of THIS ACT, the following terms are hereby defined as follows: Rule 3.a. " Covered Institution " refers to: Rule 3.a.1. Banks, offshore banking units, quasi-banks, trust entities, non-stock savings and loan associations, pawnshops, and all other institutions, including their subsidiaries and affiliates supervised and/or regulated by the Bangko Sentral ng Pilipinas (BSP). (a) A subsidiary means an entity more than fifty percent (50%) of the outstanding voting stock of which is owned by a bank, quasi-bank, trust entity or any other institution supervised or regulated by the BSP. (b) An affiliate means an entity at least twenty percent (20%) but not exceeding fifty percent (50%) of the voting stock of which is owned by a bank, quasi-bank, trust entity, or any other institution supervised and/or regulated by the BSP. Rule 3.a.2. Insurance companies, insurance agents, insurance brokers, professional reinsurers, reinsurance brokers, holding companies, holding company systems and all other persons and entities supervised and/or regulated by the Insurance Commission (IC). (a) An insurance company includes those entities authorized to transact insurance business in the Philippines, whether life or non-life and whether domestic, domestically incorporated or branch of a foreign entity. A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Transacting insurance business includes making or proposing to make, as insurer, any insurance contract, or as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety, doing any kind of business specifically recognized as constituting the doing of an insurance business within the meaning of Presidential Decree (P.D.) No. 612, as amended, including a reinsurance business and doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of P.D. No. 612, as amended. (b) An insurance agent includes any person who solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiation of such insurance. (c) An insurance broker includes any person who acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself. (d) A professional reinsurer includes any person, partnership, association or corporation that transacts solely and exclusively reinsurance business in the Philippines, whether domestic, domestically incorporated or a branch of a foreign entity. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. (e) A reinsurance broker includes any person who, not being a duly authorized agent, employee or officer of an insurer in which any reinsurance is effected, acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance, for any insurance company authorized to do business in the Philippines. (f) A holding company includes any person who directly or indirectly controls any authorized insurer. A holding company system includes a holding company together with its controlled insurers and controlled persons. Rule 3.a.3. (i) Securities dealers, brokers, salesmen, associated persons of brokers or dealers, investment houses, investment agents and consultants, trading advisors, and other entities managing securities or rendering similar services, (ii) mutual funds or open-end investment companies, close-end investment companies, common trust funds, pre-need companies or issuers and other similar entities; (iii) foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised and/or regulated by the Securities and Exchange Commission (SEC). (a) A securities broker includes a person engaged in the business of buying and selling securities for the account of others. (b) A securities dealer includes any person who buys and sells securities for his/her account in the ordinary course of business. (c) A securities salesman includes a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities. (d) An associated person of a broker or dealer includes an employee thereof who directly exercises control or supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial. (e) An investment house includes an enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government and its instrumentalities. (f) A mutual fund or an open-end investment company includes an investment company which is offering for sale or has outstanding, any redeemable security of which it is the issuer. (g) A closed-end investment company includes an investment company other than open-end investment company. (h) A common trust fund includes a fund maintained by an entity authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain money representing participation in the plan received by it in its capacity as trustee, for the purpose of administration, holding or management of such funds and/or properties for the use, benefit or advantage of the trustor or of others known as beneficiaries. (i) A pre-need company or issuer includes any corporation supervised and/or regulated by the SEC and is authorized or licensed to sell or offer for sale pre-need plans. Pre-need plans are contracts which provide for the performance of future service(s) or payment of future monetary consideration at the time of actual need, payable either in cash or installment by the planholder at prices stated in the contract with or without interest or insurance coverage and includes life, pension, education, internment and other plans, which the Commission may, from time to time, approve. (j) A foreign exchange corporation includes any enterprise which engages or purports to engage, whether regularly or on an isolated basis, in the sale and purchase of foreign currency notes and such other foreign-currency denominated non-bank deposit transactions as may be authorized under its articles of incorporation. (k) Investment Advisor/Agent/Consultant shall refer to any person: (1) who for an advisory fee is engaged in the business of advising others, either directly or through circulars, reports, publications or writings, as to the value of any security and as to the advisability of trading in any security; or (2) who for compensation and as part of a regular business, issues or promulgates, analyzes reports concerning the capital market, except: (a) any bank or trust company; (b) any journalist, reporter, columnist, editor, lawyer, accountant, teacher; (c) the publisher of any bonafide newspaper, news, business or financial publication of general and regular circulation, including their employees; (d) any contract market; (e) such other person not within the intent of this definition, provided that the furnishing of such service by the foregoing persons is solely incidental to the conduct of their business or profession. (3) any person who undertakes the management of portfolio securities of investment companies, including the arrangement of purchases, sales or exchanges of securities. (l) A moneychanger includes any person in the business of buying or selling foreign currency notes. (m) A money payment, remittance and transfer company includes any person offering to pay, remit or transfer or transmit money on behalf of any person to another person. (n) "Customer" refers to any person or entity that keeps an account, or otherwise transacts business, with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted, as well as the beneficiary of said transactions. A customer also includes the beneficiary of a trust, an investment fund, a pension fund or a company or person whose assets are managed by an asset manager, or a grantor of a trust. It includes any insurance policy holder, whether actual or prospective. (o) "Property" includes any thing or item of value, real or personal, tangible or intangible, or any interest therein or any benefit, privilege, claim or right with respect thereto. Rule 3.b. "COVERED TRANSACTION" IS A TRANSACTION IN CASH OR OTHER EQUIVALENT MONETARY INSTRUMENT INVOLVING A TOTAL AMOUNT IN EXCESS OF FIVE HUNDRED THOUSAND PESOS (PHP500,000.00) WITHIN ONE (1) BANKING DAY. Rule 3.b.1. SUSPICIOUS TRANSACTIONS ARE TRANSACTIONS, REGARDLESS OF AMOUNT, WHERE ANY OF THE FOLLOWING CIRCUMSTANCES EXISTS: (1) THERE IS NO UNDERLYING LEGAL OR TRADE OBLIGATION, PURPOSE OR ECONOMIC JUSTIFICATION; (2) THE CLIENT IS NOT PROPERLY IDENTIFIED; (3) THE AMOUNT INVOLVED IS NOT COMMENSURATE WITH THE BUSINESS OR FINANCIAL CAPACITY OF THE CLIENT; (4) TAKING INTO ACCOUNT ALL KNOWN CIRCUMSTANCES, IT MAY BE PERCEIVED THAT THE CLIENT'S TRANSACTION IS STRUCTURED IN ORDER TO AVOID BEING THE SUBJECT OF REPORTING REQUIREMENTS UNDER THE ACT; (5) ANY CIRCUMSTANCE RELATING TO THE TRANSACTION WHICH IS OBSERVED TO DEVIATE FROM THE PROFILE OF THE CLIENT AND/OR THE CLIENT'S PAST TRANSACTIONS WITH THE COVERED INSTITUTION; (6) THE TRANSACTION IS IN ANY WAY RELATED TO AN UNLAWFUL ACTIVITY OR ANY MONEY LAUNDERING ACTIVITY OR OFFENSE UNDER THIS ACT THAT IS ABOUT TO BE, IS BEING OR HAS BEEN COMMITTED; OR (7) ANY TRANSACTION THAT IS SIMILAR, ANALOGOUS OR IDENTICAL TO ANY OF THE FOREGOING. Rule 3.c. "Monetary Instrument" refers to: (1) Coins or currency of legal tender of the Philippines, or of any other country; (2) Drafts, checks and notes; (3) Securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money market instruments; (4) Contracts or policies of insurance, life or non-life, and contracts of suretyship; and (5) Other similar instruments where title thereto passes to another by endorsement, assignment or delivery. Rule 3.d. "Offender" refers to any person who commits a money laundering offense. Rule 3.e. "Person" refers to any natural or juridical person. Rule 3.f. "Proceeds" refers to an amount derived or realized from an unlawful activity. It includes: (1) All material results, profits, effects and any amount realized from any unlawful activity; (2) All monetary, financial or economic means, devices, documents, papers or things used in or having any relation to any unlawful activity; and (3) All moneys, expenditures, payments, disbursements, costs, outlays, charges, accounts, refunds and other similar items for the financing, operations, and maintenance of any unlawful activity. Rule 3.g. "Supervising Authority" refers to the BSP, the SEC and the IC. Where the BSP, SEC or IC supervision applies only to the registration of the covered institution, the BSP, the SEC or the IC, within the limits of the AMLA, shall have the authority to require and ask assistance from the government agency having regulatory power and/or licensing authority over said covered institution for the implementation and enforcement of the AMLA and these Rules. Rule 3.h. "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution. Rule 3.i. "Unlawful activity" refers to any act or omission or series or combination thereof involving or having relation, to the following: (A) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (1) Kidnapping for ransom (B) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15 and 16 of Republic Act No. 9165 , otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002 ; (2) Importation of prohibited drugs; (3) Sale of prohibited drugs; (4) Administration of prohibited drugs; (5) Delivery of prohibited drugs (6) Distribution of prohibited drugs (7) Transportation of prohibited drugs (8) Maintenance of a Den, Dive or Resort for prohibited users (9) Manufacture of prohibited drugs (10) Possession of prohibited drugs (11) Use of prohibited drugs (12) Cultivation of plants which are sources of prohibited drugs (13) Culture of plants which are sources of prohibited drugs (C) Section 3 paragraphs b, c, e, g, h and i of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act ; (14) Directly or indirectly requesting or receiving any gift, present, share, percentage or benefit for himself or for any other person in connection with any contract or transaction between the Government and any party, wherein the public officer in his official capacity has to intervene under the law; (15) Directly or indirectly requesting or receiving any gift, present or other pecuniary or material benefit, for himself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any government permit or license, in consideration for the help given or to be given, without prejudice to Section 13 of R.A. 3019; (16) Causing any undue injury to any party, including the government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence; (17) Entering, on behalf of the government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby; (18) Directly or indirectly having financial or pecuniary interest in any business contract or transaction in connection with which he intervenes or takes part in his official capacity, or in which he is prohibited by the Constitution or by any law from having any interest; (19) Directly or indirectly becoming interested, for personal gain, or having material interest in any transaction or act requiring the approval of a board, panel or group of which he is a member, and which exercise of discretion in such approval, even if he votes against the same or he does not participate in the action of the board, committee, panel or group. (D) Plunder under Republic Act No. 7080, as amended ; (20) Plunder through misappropriation, conversion, misuse or malversation of public funds or raids upon the public treasury; (21) Plunder by receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other form of pecuniary benefit from any person and/or entity in connection with any government contract or project or by reason of the office or position of the public officer concerned; (22) Plunder by the illegal or fraudulent conveyance or disposition of assets belonging to the National Government or any of its subdivisions, agencies, instrumentalities or government-owned or controlled corporations or their subsidiaries; (23) Plunder by obtaining, receiving or accepting, directly or indirectly, any shares of stock, equity or any other form of interest or participation including the promise of future employment in any business enterprise or undertaking; (24) Plunder by establishing agricultural, industrial or commercial monopolies or other combinations and/or implementation of decrees and orders intended to benefit particular persons or special interests; (25) Plunder by taking undue advantage of official position, authority, relationship, connection or influence to unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino people and the republic of the Philippines. (E) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended ; (26) Robbery with violence or intimidation of persons; (27) Robbery with physical injuries, committed in an uninhabited place and by a band, or with use of firearms on a street, road or alley; (28) Robbery in an uninhabited house or public building or edifice devoted to worship. (F) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602 ; (29) Jueteng; (30) Masiao. (G) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532 ; (31) Piracy on the high seas; (32) Piracy in inland Philippine waters; (33) Aiding and abetting pirates and brigands. (H) Qualified theft under Article 310 of the Revised Penal Code, as amended ; (34) Qualified theft. (I) Swindling under Article 315 of the Revised Penal Code, as amended ; (35) Estafa with unfaithfulness or abuse of confidence by altering the substance, quality or quantity of anything of value which the offender shall deliver by virtue of an obligation to do so, even though such obligation be based on an immoral or illegal consideration; (36) Estafa with unfaithfulness or abuse of confidence by misappropriating or converting, to the prejudice of another, money, goods or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property; (37) Estafa with unfaithfulness or abuse of confidence by taking undue advantage of the signature of the offended party in blank, and by writing any document above such signature in blank, to the prejudice of the offended party or any third person; (38) Estafa by using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions, or by means of other similar deceits; (39) Estafa by altering the quality, fineness or weight of anything pertaining to his art or business; (40) Estafa by pretending to have bribed any government employee; (41) Estafa by postdating a check, or issuing a check in payment of an obligation when the offender has no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check; (42) Estafa by inducing another, by means of deceit, to sign any document; (43) Estafa by resorting to some fraudulent practice to ensure success in a gambling game; (44) Estafa by removing, concealing or destroying, in whole or in part, any court record, office files, document or any other papers. (J) Smuggling under Republic Act Nos. 455 and 1937 ; (45) Fraudulent importation of any vehicle; (46) Fraudulent exportation of any vehicle; (47) Assisting in any fraudulent importation; (48) Assisting in any fraudulent exportation; (49) Receiving smuggled article after fraudulent importation; (50) Concealing smuggled article after fraudulent importation; (51) Buying smuggled article after fraudulent importation; (52) Selling smuggled article after fraudulent importation; (53) Transportation of smuggled article after fraudulent importation; (54) Fraudulent practices against customs revenue. (K) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000 ; K.1. Hacking or cracking, which refers to: (55) unauthorized access into or interference in a computer system/server or information and communication system; or (56) any access in order to corrupt, alter, steal, or destroy using a computer or other similar information and communication devices, without the knowledge and consent of the owner of the computer or information and communications system, including (57) the introduction of computer viruses and the like, resulting in the corruption, destruction, alteration, theft or loss of electronic data messages or electronic document; K.2. Piracy, which refers to: (58) the unauthorized copying, reproduction, (59) the unauthorized dissemination, distribution, (60) the unauthorized importation, (61) the unauthorized use, removal, alteration, substitution, modification, (62) the unauthorized storage, uploading, downloading, communication, making available to the public, or (63) the unauthorized broadcasting, of protected material, electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunication networks, such as, but not limited to, the internet, in a manner that infringes intellectual property rights; K.3. Violations of the Consumer Act or Republic Act No. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents: (64) Sale of any consumer product that is not in conformity with standards under the Consumer Act; (65) Sale of any product that has been banned by a rule under the Consumer Act; (66) Sale of any adulterated or mislabeled product using electronic documents; (67) Adulteration or misbranding of any consumer product; (68) Forging, counterfeiting or simulating any mark, stamp, tag, label or other identification device; (69) Revealing trade secrets; (70) Alteration or removal of the labeling of any drug or device held for sale; (71) Sale of any drug or device not registered in accordance with the provisions of the E-Commerce Act; (72) Sale of any drug or device by any person not licensed in accordance with the provisions of the E-Commerce Act; (73) Sale of any drug or device beyond its expiration date; (74) Introduction into commerce of any mislabeled or banned hazardous substance; (75) Alteration or removal of the labeling of a hazardous substance; (76) Deceptive sales acts and practices; (77) Unfair or unconscionable sales acts and practices; (78) Fraudulent practices relative to weights and measures; (79) False representations in advertisements as the existence of a warranty or guarantee; (80) Violation of price tag requirements; (81) Mislabeling consumer products; (82) False, deceptive or misleading advertisements; (83) Violation of required disclosures on consumer loans; (84) Other violations of the provisions of the E-Commerce Act; (L) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar targets ; (85) Hijacking; (86) Destructive arson; (87) Murder; (88) Hijacking, destructive arson or murder perpetrated by terrorists against non-combatant persons and similar targets; (M) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation Code of 2000 ; (89) Sale, offer or distribution of securities within the Philippines without a registration statement duly filed with and approved by the SEC; (90) Sale or offer to the public of any pre-need plan not in accordance with the rules and regulations which the SEC shall prescribe; (91) Violation of reportorial requirements imposed upon issuers of securities; (92) Manipulation of security prices by creating a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market; (93) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that raises their prices to induce the purchase of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (94) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that depresses their price to induce the sale of a security, whether of the same or different class, of the same issuer or of a controlling, controlled or commonly controlled company by others; (95) Manipulation of security prices by effecting, alone or with others, a series of transactions in securities that creates active trading to induce such a purchase or sale though manipulative devices such as marking the close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices; (96) Manipulation of security prices by circulating or disseminating information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security; (97) Manipulation of security prices by making false or misleading statements with respect to any material fact, which he knew or had reasonable ground to believe was so false and misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange; (98) Manipulation of security prices by effecting, alone or with others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by the Securities Regulation Code or by the rules of the SEC; (99) Sale or purchase of any security using any manipulative deceptive device or contrivance; (100) Execution of short sales or stop-loss order in connection with the purchase or sale of any security not in accordance with such rules and regulations as the SEC may prescribe as necessary and appropriate in the public interest or the protection of the investors; (101) Employment of any device, scheme or artifice to defraud in connection with the purchase and sale of any securities; (102) Obtaining money or property in connection with the purchase and sale of any security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; (103) Engaging in any act, transaction, practice or course of action in the sale and purchase of any security which operates or would operate as a fraud or deceit upon any person; (104) Insider trading; (105) Engaging in the business of buying and selling securities in the Philippines as a broker or dealer, or acting as a salesman, or an associated person of any broker or dealer without any registration from the Commission; (106) Employment by a broker or dealer of any salesman or associated person or by an issuer of any salesman, not registered with the SEC; (107) Effecting any transaction in any security, or reporting such transaction, in an Exchange or using the facility of an Exchange which is not registered with the SEC; (108) Making use of the facility of a clearing agency which is not registered with the SEC; (109) Violations of margin requirements; (110) Violations on the restrictions on borrowings by members, brokers and dealers; (111) Aiding and Abetting in any violations of the Securities Regulation Code; (112) Hindering, obstructing or delaying the filing of any document required under the Securities Regulation Code or the rules and regulations of the SEC; (113) Violations of any of the provisions of the implementing rules and regulations of the SEC; (114) Any other violations of any of the provisions of the Securities Regulation Code. (N) Felonies or offenses of a similar nature to the afore-mentioned unlawful activities that are punishable under the penal laws of other countries . In determining whether or not a felony or offense punishable under the penal laws of other countries, is "of a similar nature", as to constitute the same as an unlawful activity under the AMLA, the nomenclature of said felony or offense need not be identical to any of the predicate crimes listed under Rule 3.i. RULE 4 Money Laundering Offense Rule 4.1. Money Laundering Offense Money laundering is a crime whereby the proceeds of an unlawful activity AS HEREIN DEFINED are transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following: (a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property. (b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraph (a) above. (c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so. RULE 5 Jurisdiction of Money Laundering Cases and Money Laundering Investigation Procedures Rule 5.1. Jurisdiction of Money Laundering Cases . The Regional Trial Courts shall have the jurisdiction to try all cases on money laundering. Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan. Rule 5.2. Investigation of Money Laundering Offenses . The AMLC shall investigate: (a) SUSPICIOUS TRANSACTIONS; (b) COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION CONDUCTED BY THE AMLC; (c) MONEY LAUNDERING ACTIVITIES; AND (d) OTHER VIOLATIONS OF THIS ACT. Rule 5.3. Attempts at Transactions . Section 4 (a) and (b) of the AMLA provides that any person who attempts to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity shall be prosecuted for a money laundering offense. Accordingly, the reports required under Rule 9.3 (a) and (b) of these Rules shall include those pertaining to any attempt by any person to transact any monetary instrument or property representing, involving or relating to the proceeds of any unlawful activity. RULE 6 Prosecution of Money Laundering Rule 6.1. Prosecution of Money Laundering . (a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as defined under Rule 3 (i) of the AMLA. (b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the AMLA without prejudice to the APPLICATION EX-PARTE by the AMLC TO THE COURT OF APPEALS FOR A FREEZE ORDER with respect to the MONETARY INSTRUMENT OR PROPERTY involved therein and resort to other remedies provided under the AMLA, THE RULES OF COURT AND OTHER PERTINENT LAWS AND RULES. Rule 6.2. When the AMLC finds, after investigation, that there is probable cause to charge any person with a money laundering offense under Section 4 of the AMLA, it shall cause a complaint to be filed, pursuant to Section 7 (4) of the AMLA, before the Department of Justice or the Ombudsman, which shall then conduct the preliminary investigation of the case. Rule 6.3. After due notice and hearing in the preliminary investigation proceedings before the Department of Justice, or the Ombudsman, as the case may be, and the latter should find probable cause of a money laundering offense, it shall file the necessary information before the Regional Trial Courts or the Sandiganbayan. Rule 6.4. Trial for the money laundering offense shall proceed in accordance with the Code of Criminal Procedure or the Rules of Procedure of the Sandiganbayan, as the case may be. Rule 6.5. Knowledge of the offender that any monetary instrument or property represents, involves, or relates to the proceeds of an unlawful activity or that any monetary instrument or property is required under the AMLA to be disclosed and filed with the AMLC, may be established by direct evidence or inferred from the attendant circumstances. Rule 6.6. All the elements of every money laundering offense under Section 4 of the AMLA must be proved by evidence beyond reasonable doubt, including the element of knowledge that the monetary instrument or property represents, involves or relates to the proceeds of any unlawful activity. Rule 6.7. No element of the unlawful activity, however, including the identity of the perpetrators and the details of the actual commission of the unlawful activity need be established by proof beyond reasonable doubt. The elements of the offense of money laundering are separate and distinct from the elements of the felony or offense constituting the unlawful activity. RULE 7 Creation of Anti-Money Laundering Council (AMLC) Rule 7.1.a. Composition . The Anti-Money Laundering Council is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as Chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission as members. Rule 7.1.b. Unanimous Decision . The AMLC shall act unanimously in discharging its functions as defined in the AMLA and in these Rules. However, in the case of the incapacity, absence or disability of any member to discharge his functions, the officer duly designated or authorized to discharge the functions of the Governor of the BSP, the Chairman of the SEC or the Insurance Commissioner, as the case may be, shall act in his stead in the AMLC. Rule 7.2. Functions . The functions of the AMLC are defined hereunder: (1) to require and receive covered OR SUSPICIOUS transaction reports from covered institutions; (2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true identity of the owner of any monetary instrument or property subject of a covered OR SUSPICIOUS transaction report, or request for assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity; (3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General; (4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money laundering offenses; (5) TO INVESTIGATE SUSPICIOUS TRANSACTIONS AND COVERED TRANSACTIONS DEEMED SUSPICIOUS AFTER AN INVESTIGATION BY THE AMLC, money laundering activities and other violations of this Act; (6) TO APPLY BEFORE THE COURT OF APPEALS, EX-PARTE, FOR THE FREEZING OF any monetary instrument or property alleged to be proceeds of any unlawful activity AS DEFINED UNDER SECTION 3(i) HEREOF; (7) to implement such measures as may be inherent, necessary, implied, incidental and justified under the AMLA to counteract money laundering. Subject to such limitations as provided for by law, the AMLC is authorized under Rule 7 (7) of the AMLA to establish an information sharing system that will enable the AMLC to store, track and analyze money laundering transactions for the resolute prevention, detection and investigation of money laundering offenses. For this purpose, the AMLC shall install a computerized system that will be used in the creation and maintenance of an information database; (8) to receive and take action in respect of any request from foreign states for assistance in their own anti-money laundering operations as provided in the AMLA. The AMLC is authorized under Sections 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations, in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provisions of the Constitution, or the execution thereof is likely to prejudice the national interest of the Philippines. (9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing offenders. (10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government, including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations, which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and investigation of money laundering offenses and prosecution of offenders. The AMLC may require the intelligence units of the Armed Forces of the Philippines, the Philippine National Police, the Department of Finance, the Department of Justice, as well as their attached agencies, and other domestic or transnational governmental or non-governmental organizations or groups to divulge to the AMLC all information that may, in any way, facilitate the resolute prevention, investigation and prosecution of money laundering offenses and other violations of the AMLA. (11) TO IMPOSE ADMINISTRATIVE SANCTIONS FOR THE VIOLATION OF LAWS, RULES, REGULATIONS AND ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. Rule 7.3. Meetings . The AMLC shall meet every first Monday of the month, or as often as may be necessary at the call of the Chairman. RULE 8 Creation of a Secretariat Rule 8.1. The Executive Director . The Secretariat shall be headed by an Executive Director who shall be appointed by the AMLC for a term of five (5) years. He must be a member of the Philippine Bar, at least thirty-five (35) years of age, must have served at least five (5) years either at the BSP, the SEC or the IC and of good moral character, unquestionable integrity and known probity. He shall be considered a regular employee of the BSP with the rank of Assistant Governor, and shall be entitled to such benefits and subject to such rules and regulations, as well as prohibitions, as are applicable to officers of similar rank. Rule 8.2. Composition . In organizing the Secretariat, the AMLC may choose from those who have served, continuously or cumulatively, for at least five (5) years in the BSP, the SEC or the IC. All members of the Secretariat shall be considered regular employees of the BSP and shall be entitled to such benefits and subject to such rules and regulations as are applicable to BSP employees of similar rank. Rule 8.3. Detail and Secondment . The AMLC is authorized under Section 7 (10) of the AMLA to enlist the assistance of the BSP, the SEC or the IC, or any other branch, department, bureau, office, agency or instrumentality of the government, including government-owned and controlled corporations, in undertaking any and all anti-money laundering operations. This includes the use of any member of their personnel who may be detailed or seconded to the AMLC, subject to existing laws and Civil Service Rules and Regulations. Detailed personnel shall continue to receive their salaries, benefits and emoluments from their respective mother units. Seconded personnel shall receive, in lieu of their respective compensation packages from their respective mother units, the salaries, emoluments and all other benefits to which their AMLC Secretariat positions are entitled to. Rule 8.4. Confidentiality Provisions . The members of the AMLC, the Executive Director, and all the members of the Secretariat, whether permanent, on detail or on secondment, shall not reveal, in any manner, any information known to them by reason of their office. This prohibition shall apply even after their separation from the AMLA. In case of violation of this provision, the person shall be punished in accordance with the pertinent provisions of the Central Bank Act. RULE 9 Prevention of Money Laundering; Customer Identification Requirements and Record Keeping Rule 9.1. Customer Identification Requirements Rule 9.1.a. Customer Identification . Covered institutions shall establish and record the true identity of its clients based on official documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients, require a system of verifying their legal existence and organizational structure, as well as the authority and identification of all persons purporting to act on their behalf. Covered institutions shall establish appropriate systems and methods based on internationally compliant standards and adequate internal controls for verifying and recording the true and full identity of their customers. Rule 9.1.b. Trustee, Nominee and Agent Accounts . When dealing with customers who are acting as trustee, nominee, agent or in any capacity for and on behalf of another, covered institutions shall verify and record the true and full identity of the person(s) on whose behalf a transaction is being conducted. Covered institutions shall also establish and record the true and full identity of such trustees, nominees, agents and other persons and the nature of their capacity and duties. In case a covered institution has doubts as to whether such persons are being used as dummies in circumvention of existing laws, it shall immediately make the necessary inquiries to verify the status of the business relationship between the parties. Rule 9.1.c. Minimum Information/Documents Required for Individual Customers . Covered institutions shall require customers to produce original documents of identity issued by an official authority, bearing a photograph of the customer. Examples of such documents are identity cards and passports. The following minimum information/documents shall be obtained from individual customers: 1) Name; 2) Present address; 3) Permanent address; 4) Date and place of birth; 5) Nationality; 6) Nature of work and name of employer or nature of self-employment/business; 7) Contact numbers; 8) Tax identification number, Social Security System number or Government Service and Insurance System number; 9) Specimen signature; 10) Source of fund(s); and 11) Names of beneficiaries in case of insurance contracts and whenever applicable. Rule 9.1.d. Minimum Information/Documents Required for Corporate and Juridical Entities . Before establishing business relationships, covered institutions shall endeavor to ensure that the customer is a corporate or juridical entity which has not been or is not in the process of being, dissolved, wound up or voided, or that its business or operations has not been or is not in the process of being, closed, shut down, phased out, or terminated. Dealings with shell companies and corporations, being legal entities which have no business substance in their own right but through which financial transactions may be conducted, should be undertaken with extreme caution. The following minimum information/documents shall be obtained from customers that are corporate or juridical entities, including shell companies and corporations: (1) Articles of Incorporation/Partnership; (2) By-laws; (3) Official address or principal business address; (4) List of directors/partners; (5) List of principal stockholders owning at least two percent (2%) of the capital stock; (6) Contact numbers; (7) Beneficial owners, if any; and (8) Verification of the authority and identification of the person purporting to act on behalf of the client. Rule 9.1.e. Prohibition against Certain Accounts . Covered institutions shall maintain accounts only in the true and full name of the account owner or holder. The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Rule 9.1.f. Prohibition against opening of Accounts without Face-to-face Contact . No new accounts shall be opened and created without face-to-face contact and full compliance with the requirements under Rule 9.1.c of these Rules. Rule 9.1.g. Numbered Accounts . Peso and foreign currency non-checking numbered accounts shall be allowed: Provided, That the true identity of the customers of all peso and foreign currency non-checking numbered accounts are satisfactorily established based on official and other reliable documents and records, and that the information and documents required under the provisions of these Rules are obtained and recorded by the covered institution. No peso and foreign currency non-checking accounts shall be allowed without the establishment of such identity and in the manner herein provided. The BSP may conduct annual testing for the purpose of determining the existence and true identity of the owners of such accounts. The SEC and the IC may conduct similar testing more often than once a year and covering such other related purposes as may be allowed under their respective charters. Rule 9.2. Record Keeping Requirements Rule 9.2.a. Record Keeping: Kinds of Records and Period for Retention . All records of all transactions of covered institutions shall be maintained and safely stored for five (5) years from the dates of transactions. Said records and files shall contain the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. Covered institutions shall undertake the necessary adequate security measures to ensure the confidentiality of such file. Covered institutions shall prepare and maintain documentation, in accordance with the aforementioned client identification requirements, on their customer accounts, relationships and transactions such that any account, relationship or transaction can be so reconstructed as to enable the AMLC, and/or the courts to establish an audit trail for money laundering. Rule 9.2.b. Existing and New Accounts and New Transactions . All records of existing and new accounts and of new transactions shall be maintained and safely stored for five (5) years from October 17, 2001 or from the dates of the accounts or transactions, whichever is later. Rule 9.2.c. Closed Accounts . With respect to closed accounts, the records on customer identification, account files and business correspondence shall be preserved and safely stored for at least five (5) years from the dates when they were closed. Rule 9.2.d. Retention of Records in Case a Money Laundering Case has been Filed in Court . If a money laundering case based on any record kept by the covered institution concerned has been filed in court, said file must be retained beyond the period stipulated in the three (3) immediately preceding sub-Rules, as the case may be, until it is confirmed that the case has been finally resolved or terminated by the court. Rule 9.2.e. Form of Records . Records shall be retained as originals in such forms as are admissible in court pursuant to existing laws and the applicable rules promulgated by the Supreme Court. Rule 9.3. Reporting of Covered Transactions . Rule 9.3.a. Period of Reporting Covered Transactions and SuspiciousTransactions . COVERED INSTITUTIONS SHALL REPORT TO THE AMLC ALL COVERED TRANSACTIONS AND SUSPICIOUS TRANSACTIONS WITHIN FIVE (5) WORKING DAYS FROM OCCURRENCE THEREOF, UNLESS THE SUPERVISING AUTHORITY CONCERNED PRESCRIBES A LONGER PERIOD NOT EXCEEDING TEN (10) WORKING DAYS. SHOULD A TRANSACTION BE DETERMINED TO BE BOTH A COVERED AND A SUSPICIOUS TRANSACTION, THE COVERED INSTITUTION SHALL REPORT THE SAME AS A SUSPICIOUS TRANSACTION. THE REPORTING OF COVERED TRANSACTIONS BY COVERED INSTITUTIONS SHALL BE DEFERRED FOR A PERIOD OF SIXTY (60) DAYS AFTER THE EFFECTIVITY OF REPUBLIC ACT NO. 9194, OR AS MAY BE DETERMINED BY THE AMLC, IN ORDER TO ALLOW THE COVERED INSTITUTIONS TO CONFIGURE THEIR RESPECTIVE COMPUTER SYSTEMS; PROVIDED THAT, ALL COVERED TRANSACTIONS DURING SAID DEFERMENT PERIOD SHALL BE SUBMITTED THEREAFTER. Rule 9.3.b. Covered AND SUSPICIOUS Transaction Report Forms . The Covered Transaction Report (CTR) AND THE SUSPICIOUS TRANSACTION REPORT (STR) shall be in the forms prescribed by the AMLC. Rule 9.3.b.1. COVERED INSTITUTIONS SHALL USE THE EXISTING FORMS FOR COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS, UNTIL SUCH TIME AS THE AMLC HAS ISSUED NEW SETS OF FORMS. Rule 9.3.b.2. COVERED TRANSACTION REPORTS AND SUSPICIOUS TRANSACTION REPORTS SHALL BE SUBMITTED IN A SECURED MANNER TO THE AMLC IN ELECTRONIC FORM, EITHER VIA DISKETTES, LEASED LINES, OR THROUGH INTERNET FACILITIES, WITH THE CORRESPONDING HARD COPY FOR SUSPICIOUS TRANSACTIONS. THE FINAL FLOW AND PROCEDURES FOR SUCH REPORTING SHALL BE MAPPED OUT IN THE MANUAL OF OPERATIONS TO BE ISSUED BY THE AMLC. Rule 9.3.c. Exemption from Bank Secrecy Laws . When reporting covered OR SUSPICIOUS transactions to the AMLC, covered institutions and their officers and employees, shall not be deemed to have violated R.A. No. 1405, as amended, R.A. No. 6426, as amended, R.A. No. 8791 and other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered or suspicious transaction report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the concerned officer and employee of the covered institution, shall be criminally liable. Rule 9.3.d. Confidentiality Provisions . When reporting covered transactions or suspicious transactions to the AMLC, covered institutions and their officers, employees, representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person, entity, or the media, the fact that a covered transaction report was made, the contents thereof, or any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of violation hereof, the concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable. Rule 9.3.e. Safe Harbor Provisions . No administrative, criminal or civil proceedings, shall lie against any person for having made a covered transaction report OR A SUSPICIOUS transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law. RULE 10 APPLICATION FOR FREEZE ORDERS Rule 10.1. WHEN THE AMLC MAY APPLY FOR THE FREEZING OF ANY MONETARY INSTRUMENT OR PROPERTY. (a) AFTER AN INVESTIGATION CONDUCTED BY THE AMLC AND UPON DETERMINATION THAT PROBABLE CAUSE EXISTS THAT A MONETARY INSTRUMENT OR PROPERTY IS IN ANY WAY RELATED TO ANY UNLAWFUL ACTIVITY AS DEFINED UNDER SECTION 3 (i), THE AMLC MAY FILE AN EX-PARTE APPLICATION BEFORE THE COURT OF APPEALS FOR THE ISSUANCE OF A FREEZE ORDER ON ANY MONETARY INSTRUMENT OR PROPERTY subject thereof prior to the institution or in the course of, the criminal proceedings involving the unlawful activity to which said MONETARY INSTRUMENT OR PROPERTY is any way related. (b) Considering the intricate and diverse web of related and interlocking accounts PERTAINING TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) that any person may create in the different covered institutions, their branches and/or other units, the AMLC may APPLY TO THE COURT OF APPEALS FOR THE FREEZING, NOT ONLY OF THE MONETARY INSTRUMENTS OR PROPERTIES IN THE NAMES OF THE REPORTED OWNER(S)/HOLDER(S), AND MONETARY INSTRUMENTS OR PROPERTIES NAMED IN THE APPLICATION OF THE AMLC BUT ALSO ALL OTHER RELATED WEB OF ACCOUNTS PERTAINING TO OTHER MONETARY INSTRUMENTS AND PROPERTIES, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM OR ARE RELATED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). (c) THE FREEZE ORDER SHALL BE EFFECTIVE FOR TWENTY (20) DAYS UNLESS EXTENDED BY THE COURT OF APPEALS UPON APPLICATION BY THE AMLC. Rule 10.2. Definition of Probable Cause . Probable cause includes such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. Rule 10.3. DUTY OF COVERED INSTITUTION UPON RECEIPT THEREOF. Rule 10.3.a. Upon receipt of the notice of the freeze order, the covered institution concerned shall immediately freeze the monetary instrument or property AND RELATED WEB OF ACCOUNTS subject thereof. Rule 10.3.b. THE COVERED INSTITUTION SHALL LIKEWISE IMMEDIATELY FURNISH A COPY OF THE NOTICE OF THE FREEZE ORDER UPON THE OWNER OR HOLDER OF THE MONETARY INSTRUMENT OR PROPERTY OR RELATED WEB OF ACCOUNTS SUBJECT THEREOF. Rule 10.3.c. Within twenty-four (24) hours from receipt of the freeze order, the covered institution concerned shall submit to the COURT OF APPEALS AND THE AMLC, by personal delivery, a detailed written return on the freeze order, specifying ALL THE PERTINENT AND RELEVANT INFORMATION WHICH SHALL INCLUDE THE FOLLOWING: 1. THE ACCOUNT NUMBER(S); 2. THE NAME(S) OF THE ACCOUNT OWNER(S) OR HOLDER(S); 3. THE AMOUNT OF THE MONETARY INSTRUMENT, PROPERTY OR RELATED WEB OF ACCOUNTS AS OF THE TIME THEY WERE FROZEN; 4. ALL RELEVANT INFORMATION AS TO THE NATURE OF THE MONETARY INSTRUMENT OR PROPERTY; 5. ANY INFORMATION ON THE RELATED WEB OF ACCOUNTS PERTAINING TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER; AND 6. THE TIME WHEN THE FREEZE THEREON TOOK EFFECT. Rule 10.4. DEFINITION OF RELATED WEB OF ACCOUNTS. "RELATED WEB OF ACCOUNTS PERTAINING TO THE MONEY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER" IS DEFINED AS THOSE ACCOUNTS, THE FUNDS AND SOURCES OF WHICH ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT(S) OR PROPERTY(IES) SUBJECT OF THE FREEZE ORDER(S). UPON RECEIPT OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS AND UPON VERIFICATION BY THE COVERED INSTITUTION THAT THE RELATED WEB OF ACCOUNTS ORIGINATED FROM AND/OR ARE MATERIALLY LINKED TO THE MONETARY INSTRUMENT OR PROPERTY SUBJECT OF THE FREEZE ORDER, THE COVERED INSTITUTION SHALL FREEZE THESE RELATED WEB OF ACCOUNTS WHEREVER THESE FUNDS MAY BE FOUND. THE RETURN OF THE COVERED INSTITUTION AS REQUIRED UNDER RULE 10.3.c SHALL INCLUDE THE FACT OF SUCH FREEZING AND AN EXPLANATION AS TO THE GROUNDS FOR THE IDENTIFICATION OF THE RELATED WEB OF ACCOUNTS. Rule 10.5. Extension of the Freeze Order . BEFORE THE TWENTY (20) DAY PERIOD OF THE FREEZE ORDER ISSUED BY THE COURT OF APPEALS EXPIRES, THE AMLC MAY APPLY IN THE SAME COURT FOR AN EXTENSION OF SAID PERIOD. UPON THE TIMELY FILING OF SUCH APPLICATION AND PENDING THE DECISION OF THE COURT OF APPEALS TO EXTEND THE PERIOD, SAID PERIOD SHALL BE DEEMED SUSPENDED AND THE FREEZE ORDER SHALL REMAIN EFFECTIVE. HOWEVER, THE COVERED INSTITUTION SHALL NOT LIFT THE EFFECTS OF THE FREEZE ORDER WITHOUT SECURING OFFICIAL CONFIRMATION FROM THE AMLC. Rule 10.6. Prohibition against Issuance of Freeze Orders against candidates for an electoral office during election period . No assets shall be frozen to the prejudice of a candidate for an electoral office during an election period. RULE 11 Authority to Inquire into Bank Deposits Rule 11.1. Authority to Inquire into Bank Deposits WITH COURT ORDER . Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution AND THEIR SUBSIDIARIES AND AFFILIATES upon order of any competent court in cases of violation of this Act, when it has been established that there is probable cause that the deposits or investments involved are related to AN UNLAWFUL ACTIVITY AS DEFINED IN SECTION 3 (i) HEREOF OR a money laundering offense UNDER SECTION 4 HEREOF; EXCEPT IN CASES AS PROVIDED UNDER RULE 11.2. Rule 11.2. Authority to Inquire into Bank Deposits WITHOUT COURT ORDER . The AMLC MAY INQUIRE INTO OR EXAMINE DEPOSIT AND INVESTMENTS WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WITHOUT A COURT ORDER WHERE ANY OF THE FOLLOWING UNLAWFUL ACTIVITIES ARE INVOLVED: (a) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; (b) Sections 4,5,6, 8, 9, 10. 12, 13, 14, 15 AND 16 of Republic Act No. 9165 , otherwise known as the COMPREHENSIVE Dangerous Drugs Act of 2002 ; (c) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against noncombatant persons and similar targets Rule 11.2.a. PROCEDURE FOR EXAMINATION WITHOUT A COURT ORDER. WHERE ANY OF THE UNLAWFUL ACTIVITIES ENUMERATED UNDER THE IMMEDIATELY PRECEDING RULE 11.2 ARE INVOLVED, AND THERE IS PROBABLE CAUSE THAT THE DEPOSITS OR INVESTMENTS WITH ANY BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES ARE IN ANYWAY RELATED TO THESE UNLAWFUL ACTIVITIES THE AMLC SHALL ISSUE A RESOLUTION AUTHORIZING THE INQUIRY INTO OR EXAMINATION OF ANY DEPOSIT OR INVESTMENT WITH SUCH BANKING OR NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES CONCERNED. Rule 11.2.b. DUTY OF THE BANKING INSTITUTION OR NON-BANKING INSTITUTION UPON RECEIPT OF THE AMLC RESOLUTION. THE BANKING INSTITUTION OR THE NON-BANKING FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES SHALL, IMMEDIATELY UPON RECEIPT OF THE AMLC RESOLUTION, ALLOW THE AMLC AND/OR ITS AUTHORIZED REPRESENTATIVE(S) FULL ACCESS TO ALL RECORDS PERTAINING TO THE DEPOSIT OR INVESTMENT ACCOUNT. Rule 11.3. BSP Authority to Examine deposits and investments; Additional Exception to the Bank Secrecy Act . TO ENSURE COMPLIANCE WITH THIS ACT, THE BANGKO SENTRAL NG PILIPINAS (BSP) MAY INQUIRE INTO OR EXAMINE ANY PARTICULAR DEPOSIT OR INVESTMENT WITH ANY BANKING INSTITUTION OR NON-BANK FINANCIAL INSTITUTION AND THEIR SUBSIDIARIES AND AFFILIATES WHEN THE EXAMINATION IS MADE IN THE COURSE OF A PERIODIC OR SPECIAL EXAMINATION, IN ACCORDANCE WITH THE RULES OF EXAMINATION OF THE BSP. Rule 11.3.a. BSP Rules of Examination . THE BSP SHALL PROMULGATE ITS RULES OF EXAMINATION FOR ENSURING COMPLIANCE BY BANKS AND NON-BANK FINANCIAL INSTITUTIONS AND THEIR SUBSIDIARIES AND AFFILIATES WITH THE AMLA AND THESE RULES. ANY FINDINGS OF THE BSP WHICH MAY CONSTITUTE A VIOLATION OF ANY PROVISION OF THIS ACT SHALL BE TRANSMITTED TO THE AMLC FOR APPROPRIATE ACTION. RULE 12 Forfeiture Provisions Rule 12.1. Authority to Institute Civil Forfeiture Proceedings . The AMLC is authorized under Section 7 (3) of the AMLA to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General. Rule 12.2. When Civil Forfeiture May be Applied . When there is a SUSPICIOUS TRANSACTION REPORT OR A COVERED TRANSACTION REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE AMLC, and the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply. Rule 12.3. Claim on Forfeited Assets . Where the court has issued an order of forfeiture of the monetary instrument or property in a criminal prosecution for any money laundering offense under Section 4 of the AMLA, the offender or any other person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to him, and for segregation or exclusion of the monetary instrument or property corresponding thereto. The verified petition shall be filed with the court which rendered the judgment of conviction and order of forfeiture within fifteen (15) days from the date of the order of forfeiture, in default of which the said order shall become final and executory. This provision shall apply in both civil and criminal forfeiture. Rule 12.4. Payment in lieu of Forfeiture . Where the court has issued an order of forfeiture of the monetary instrument or property subject of a money laundering offense under Section 4 of the AMLA, and said order cannot be enforced because any particular monetary instrument or property cannot, with due diligence, be located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been concealed, removed, converted or otherwise transferred to prevent the same from being found or to avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the jurisdiction of the court, or it has been commingled with other monetary instruments or property belonging to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes of forfeiture, the court may, instead of enforcing the order of forfeiture of the monetary instrument or property or part thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the value of said monetary instrument or property. This provision shall apply in both civil and criminal forfeiture. RULE 13 Mutual Assistance among States Rule 13.1. Request for Assistance from a Foreign State . Where a foreign state makes a request for assistance in the investigation or prosecution of a money laundering offense, the AMLC may execute the request or refuse to execute the same and inform the foreign state of any valid reason for not executing the request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this purpose, be at all times recognized. Rule 13.2. Powers of the AMLC to Act on a Request for Assistance from a Foreign State . The AMLC may execute a request for assistance from a foreign state by: (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in the AMLA and in these Rules; (2) giving information needed by the foreign state within the procedures laid down in the AMLA and in these Rules; and (3) applying for an order of forfeiture of any monetary instrument or property in the court: Provided , That the court shall not issue such an order unless the application is accompanied by an authenticated copy of the order of a court in the requesting state ordering the forfeiture of said monetary instrument or property of a person who has been convicted of a money laundering offense in the requesting state, and a certification or an affidavit of a competent officer of the requesting state stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.3. Obtaining Assistance from Foreign States . The AMLC may make a request to any foreign state for assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money laundering offense or any other matter directly or indirectly related thereto; (3) to the extent allowed by the law of the foreign state, applying with the proper court therein for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in said request, and/or search any or all such persons named therein and/or remove any document, material or object named in said request: Provided , That the documents accompanying the request in support of the application have been duly authenticated in accordance with the applicable law or regulation of the foreign state; and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign state: Provided , That the request is accompanied by an authenticated copy of the order of the Regional Trial Court ordering the forfeiture of said monetary instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no further appeal lies in respect of either. Rule 13.4. Limitations on Requests for Mutual Assistance . The AMLC may refuse to comply with any request for assistance where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely to prejudice the national interest of the Philippines, unless there is a treaty between the Philippines and the requesting state relating to the provision of assistance in relation to money laundering offenses. Rule 13.5. Requirements for Requests for Mutual Assistance from Foreign States . A request for mutual assistance from a foreign state must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer named therein or that he has been convicted of any money laundering offense; (2) state the grounds on which any person is being investigated or prosecuted for money laundering or the details of his conviction; (3) give sufficient particulars as to the identity of said person; (4) give particulars sufficient to identify any covered institution believed to have any information, document, material or object which may be of assistance to the investigation or prosecution; (5) ask from the covered institution concerned any information, document, material or object which may be of assistance to the investigation or prosecution; (6) specify the manner in which and to whom said information, document, material or object obtained pursuant to said request, is to be produced; (7) give all the particulars necessary for the issuance by the court in the requested state of the writs, orders or processes needed by the requesting state; and (8) contain such other information as may assist in the execution of the request. Rule 13.6. Authentication of Documents . For purposes of Section 13 (f) of the AMLA and Section 7 of the AMLA, a document is authenticated if the same is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting state, and authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister, secretary of state, or officer in or of, the government of the requesting state, or of the person administering the government or a department of the requesting territory, protectorate or colony. The certificate of authentication may also be made by a secretary of the embassy or legation, consul general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines stationed in the foreign state in which the record is kept, and authenticated by the seal of his office. Rule 13.7. Suppletory Application of the Revised Rules of Court . Rule 13.7.1. For attachment of Philippine properties in the name of persons convicted of any unlawful activity as defined in Section 3 (i) of the AMLA, execution and satisfaction of final judgments of forfeiture, application for examination of witnesses, procuring search warrants, production of bank documents and other materials and all other actions not specified in the AMLA and these Rules, and assistance for any of the aforementioned actions, which is subject of a request by a foreign state, resort may be had to the proceedings pertinent thereto under the Revised Rules of Court. Rule 13.7.2. Authority to Assist the United Nations and other International Organizations and Foreign States . The AMLC is authorized under Section 7 (8) and 13 (b) and (d) of the AMLA to receive and take action in respect of any request of foreign states for assistance in their own anti-money laundering operations. It is also authorized under Section 7 (7) of the AMLA to cooperate with the National Government and/or take appropriate action in respect of conventions, resolutions and other directives of the United Nations (UN), the UN Security Council, and other international organizations of which the Philippines is a member. However, the AMLC may refuse to comply with any such request, convention, resolution or directive where the action sought therein contravenes the provision of the Constitution or the execution thereof is likely to prejudice the national interest of the Philippines. Rule 13.8. Extradition . The Philippines shall negotiate for the inclusion of money laundering offenses as defined under Section 4 of the AMLA among the extraditable offenses in all future treaties. With respect, however, to the state parties that are signatories to the United Nations Convention Against Transnational Organized Crime that was ratified by the Philippine Senate on October 22, 2001, money laundering is deemed to be included as an extraditable offense in any extradition treaty existing between said state parties, and the Philippines shall include money laundering as an extraditable offense in every extradition treaty that may be concluded between the Philippines and any of said state parties in the future. RULE 14 Penal Provisions Rule 14.1. Penalties for the Crime of Money Laundering . Rule 14.1.a. Penalties under Section 4 (a) of the AMLA . The penalty of imprisonment ranging from seven (7) to fourteen (14) years and a fine of not less than Three Million Philippine Pesos (Php3,000,000.00) but not more than twice the value of the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4 (a) of the AMLA. Rule 14.1.b. Penalties under Section 4 (b) of the AMLA . The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One Million Five Hundred Thousand Philippine Pesos (Php1,500,000.00) but not more than Three Million Philippine Pesos (Php3,000,000.00), shall be imposed upon a person convicted under Section 4 (b) of the AMLA. Rule 14.1.c. Penalties under Section 4 (c) of the AMLA . The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of the AMLA. Rule 14.1.d. Administrative Sanctions . (1) AFTER DUE NOTICE AND HEARING, THE AMLC SHALL, AT ITS DISCRETION, IMPOSE FINES UPON ANY COVERED INSTITUTION, ITS OFFICERS AND EMPLOYEES, OR ANY PERSON WHO VIOLATES ANY OF THE PROVISIONS OF REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194 AND RULES, REGULATIONS, ORDERS AND RESOLUTIONS ISSUED PURSUANT THERETO. THE FINES SHALL BE IN AMOUNTS AS MAY BE DETERMINED BY THE COUNCIL, TAKING INTO CONSIDERATION ALL THE ATTENDANT CIRCUMSTANCES, SUCH AS THE NATURE AND GRAVITY OF THE VIOLATION OR IRREGULARITY, BUT IN NO CASE SHALL SUCH FINES BE LESS THAN ONE HUNDRED THOUSAND PESOS (PHP100,000.00) BUT NOT TO EXCEED FIVE HUNDRED THOUSAND PESOS (PHP500,000.00). THE IMPOSITION OF THE ADMINISTRATIVE SANCTIONS SHALL BE WITHOUT PREJUDICE TO THE FILING OF CRIMINAL CHARGES AGAINST THE PERSONS RESPONSIBLE FOR THE VIOLATIONS. Rule 14.2. Penalties for Failure to Keep Records . The penalty of imprisonment from six (6) months to one (1) year or a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9 (b) of the AMLA. Rule 14.3. Penalties for Malicious Reporting . Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One Hundred Thousand Philippine Pesos (Php100,000.00) but not more than Five Hundred Thousand Philippine Pesos (Php500,000.00), at the discretion of the court: Provided , That the offender is not entitled to avail the benefits of the Probation Law. Rule 14.4. Where Offender is a Juridical Person . If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in, or ALLOWED BY THEIR GROSS NEGLIGENCE the commission of the crime. If the offender is a juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties herein prescribed. If the offender is a public official or employee, he shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be. Rule 14.5. Refusal by a Public Official or Employee to Testify . Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall suffer the same penalties prescribed herein. Rule 14.6. Penalties for Breach of Confidentiality . The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not less than Five Hundred Thousand Philippine Pesos (Php500,000.00) but not more than One Million Philippine Pesos (Php 1,000,000.00), shall be imposed on a person convicted for a violation under Section 9(c). IN CASE OF A BREACH OF CONFIDENTIALITY THAT IS PUBLISHED OR REPORTED BY MEDIA, THE RESPONSIBLE REPORTER, WRITER, PRESIDENT, PUBLISHER, MANAGER AND EDITOR-IN-CHIEF SHALL BE LIABLE UNDER THIS ACT. RULE 15 Prohibitions Against Political Harassment Rule 15.1. Prohibition against Political Persecution . The AMLA and these Rules shall not be used for political persecution or harassment or as an instrument to hamper competition in trade and commerce. No case for money laundering may be filed to the prejudice of a candidate for an electoral office during an election period. Rule 15.2. Provisional Remedies Application; Exception . Rule 15.2.a. The AMLC may apply, in the course of the criminal proceedings, for provisional remedies to prevent the monetary instrument or property subject thereof from being removed, concealed, converted, commingled with other property or otherwise to prevent its being found or taken by the applicant or otherwise placed or taken beyond the jurisdiction of the court. However, no assets shall be attached to the prejudice of a candidate for an electoral office during an election period. Rule 15.2.b. Where there is conviction for money laundering under Section 4 of the AMLA, the court shall issue a judgment of forfeiture in favor of the Government of the Philippines with respect to the monetary instrument or property found to be proceeds of one or more unlawful activities. However, no assets shall be forfeited to the prejudice of a candidate for an electoral office during an election period. RULE 16 Restitution Rule 16. Restitution . Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code. RULE 17 Implementing Rules and Regulations and Money Laundering Prevention Programs Rule 17.1. Implementing Rules and Regulations . (a) Within thirty (30) days from the effectivity of REPUBLIC ACT NO. 9160, as amended by REPUBLIC ACT NO. 9194, the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission shall promulgate the Implementing Rules and Regulations of the AMLA, which shall be submitted to the Congressional Oversight Committee for approval. (b) The Supervising Authorities, the BSP, the SEC and the IC shall, under their own respective charters and regulatory authority, issue their Guidelines and Circulars on anti-money laundering to effectively implement the provisions of REPUBLIC ACT NO. 9160, AS AMENDED BY REPUBLIC ACT NO. 9194. Rule 17.2. Money Laundering Prevention Programs . Rule 17.2.a. Covered institutions shall formulate their respective money laundering prevention programs in accordance with Section 9 and other pertinent provisions of the AMLA and these Rules, including, but not limited to, information dissemination on money laundering activities and their prevention, detection and reporting, and the training of responsible officers and personnel of covered institutions, subject to such guidelines as may be prescribed by their respective supervising authority. Every covered institution shall submit its own money laundering program to the supervising authority concerned within the non-extendible period that the supervising authority has imposed in the exercise of its regulatory powers under its own charter. Rule 17.2.b. Every money laundering program shall establish detailed procedures implementing a comprehensive, institution-wide "know-your-client" policy, set-up an effective dissemination of information on money laundering activities and their prevention, detection and reporting, adopt internal policies, procedures and controls, designate compliance officers at management level, institute adequate screening and recruitment procedures, and set-up an audit function to test the system. Rule 17.2.c. Covered institutions shall adopt, as part of their money laundering programs, a system of flagging and monitoring transactions that qualify as suspicious transactions, regardless of amount or covered transactions involving amounts below the threshold to facilitate the process of aggregating them for purposes of future reporting of such transactions to the AMLC when their aggregated amounts breach the threshold. All covered institutions, including banks insofar as non-deposit and non-government bond investment transactions are concerned, shall incorporate in their money laundering programs the provisions of these Rules and such other guidelines for reporting to the AMLC of all transactions that engender the reasonable belief that a money laundering offense is about to be, is being, or has been committed. Rule 17.3. Training of Personnel . Covered institutions shall provide all their responsible officers and personnel with efficient and effective training and continuing education programs to enable them to fully comply with all their obligations under the AMLA and these Rules. Rule 17.4. Amendments . These Rules or any portion thereof may be amended by unanimous vote of the members of the AMLC and submitted to the Congressional Oversight Committee as provided for under Section 19 of REPUBLIC ACT NO. 9160, as amended BY REPUBLIC ACT NO. 9194. RULE 18 Congressional Oversight Committee Rule 18.1. Composition of Congressional Oversight Committee . There is hereby created a Congressional Oversight Committee composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The members from the Senate shall be appointed by the Senate President based on the proportional representation of the parties or coalitions therein with at least two (2) Senators representing the minority. The members from the House of Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions therein with at least two (2) members representing the minority. Rule 18.2. Powers of the Congressional Oversight Committee . The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation of this Act, and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from the promulgation of the said rules. RULE 19 Appropriations For and Budget of the AMLC Rule 19.1. Budget . The budget of Php25,000,000.00 appropriated by Congress under the AMLA shall be used to defray the initial operational expenses of the AMLC. Appropriations for succeeding years shall be included in the General Appropriations Act. The BSP shall advance the funds necessary to defray the capital outlay, maintenance and other operating expenses and personnel services of the AMLC subject to reimbursement from the budget of the AMLC as appropriated under the AMLA and subsequent appropriations. Rule 19.2. Costs and Expenses . The budget shall answer for indemnification for legal costs and expenses reasonably incurred for the services of external counsel in connection with any civil, criminal or administrative action, suit or proceedings to which members of the AMLC and the Executive Director and other members of the Secretariat may be made a party by reason of the performance of their functions or duties. The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the AMLC in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the member to repay the amount advanced should it be ultimately determined that said member is not entitled to such indemnification. RULE 20 Separability Clause Rule 20. Separability Clause . If any provision of these Rules or the application thereof to any person or circumstance is held to be invalid, the other provisions of these Rules, and the application of such provision or Rule to other persons or circumstances, shall not be affected thereby. RULE 21 Repealing Clause Rule 21. Repealing Clause . All laws, decrees, executive orders, rules and regulations or parts thereof, including the relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as amended, and other similar laws, as are inconsistent with the AMLA, are hereby repealed, amended or modified accordingly. RULE 22 Effectivity of The Rules Rule 22.1. Effectivity . These Rules shall take effect after its approval by the Congressional Oversight Committee and fifteen (15) days after its complete publication in the Official Gazette or in a newspaper of general circulation. RULE 23 Transitory Provisions Rule 23.1. Transitory Provisions . EXISTING FREEZE ORDERS ISSUED BY THE AMLC SHALL REMAIN IN FORCE FOR A PERIOD OF THIRTY (30) DAYS AFTER EFFECTIVITY OF THIS ACT, UNLESS EXTENDED BY THE COURT OF APPEALS. Rule 23.2. EFFECT OF REPUBLIC ACT NO. 9194 ON CASES FOR EXTENSION OF FREEZE ORDERS RESOLVED BY THE COURT OF APPEALS . ALL EXISTING FREEZE ORDERS WHICH THE COURT OF APPEALS HAS EXTENDED SHALL REMAIN EFFECTIVE, UNLESS OTHERWISE DISSOLVED BY THE SAME COURT. Appendix N-5 GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT AND THE REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF NBFIs ( Appendix to Sec. 4180N ) A. GENERAL REQUIREMENTS Only external auditors included in the list of BSP selected external auditors shall be engaged by banks, quasi-banks, trust entities or NSSLAs for regular audit or special engagements. The external auditor to be hired shall also be in-charge of the audit of the entity's subsidiaries and affiliates engaged in allied activities: Provided , That the external auditor shall be changed or the lead and concurring partner shall be rotated every five (5) years or earlier: Provided, further , That the rotation of the lead and concurring partner shall have an interval of at least two (2) years. Banks, quasi-banks, trust entities or NSSLAs which have engaged their respective external auditors for a consecutive period of five (5) years or more as of November 26, 2003 (effectivity of Circular No. 410) shall have a one (1) year period from said date within which to either change their external auditors or rotate the lead and/or concurring partner. The following are the selection requirements for external auditors: 1. No external auditor may be engaged by a bank, quasi-bank, trust entity or NSSLA if he or any member of his immediate family has or has committed to acquire any direct or indirect financial interest in the bank, quasi-bank, trust entity or NSSLA, its subsidiaries and affiliates, or if his independence is considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public Accountants (CPAs). In the case of a partnership, this limitation shall apply to the partners, associates and the auditor-in-charge of the engagement and members of their immediate family; 2. The external auditor and the members of the audit team do not have/shall not have outstanding loans or any credit accommodations (except credit card obligations which are normally available to other credit card holders and fully secured auto loans and housing loans which are not past due) with the bank, quasi-bank, trust entity or NSSLA, its subsidiaries and affiliates at the time of signing the engagement and during the engagement. In the case of partnership, this prohibition shall apply to the partners and the auditor-in-charge of the engagement; 3. The external auditor must not be currently engaged nor was engaged during the preceding year in providing the following services to the bank, quasi-bank, trust entity or NSSLA its subsidiaries and affiliates: a. Internal audit functions; b. Information systems design, implementation and assessment; and c. Such other services which could affect his independence as may be determined by the Monetary Board; 4. The external auditor, auditor-in-charge and members of the audit team must adhere to the highest standards of professional conduct and shall carry out services in accordance with relevant ethical and technical standards, such as the Generally Accepted Auditing Standards (GAAS) and the Code of Professional Ethics for Certified Public Accountants; 5. The external auditor should have the following track record in conducting external audits: a. The external auditor for a UB or KB must have at least twenty (20) existing corporate clients with resources of at least P50 million each and at least one (1) existing client UB or KB in the regular audit or in lieu thereof, the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of UBs or KBs; b. The external auditor for a TB, quasi-bank, trust entity and national Coop Bank must have at least ten (10) existing corporate clients with resources of at least P25 million each and at least one (1) existing client TB, quasi-bank, trust entity or national Coop Bank in the regular audit or in lieu thereof, the external auditor or the auditor-in-charge of the engagement must have at least five (5) years experience in the regular audit of TBs, quasi-banks, trust entities or national Coop Banks: Provided , That an external auditor who has been selected by the BSP to audit a UB or KB is automatically qualified to audit a TB, quasi-bank, trust entity or national Coop Bank; and c. The external auditor for an RB or local Coop Bank must have at least three (3) years track record in conducting external audit: Provided , That an external auditor who has been selected by the BSP to audit a UB, KB, TB, quasi-bank, trust entity and national Coop bank is automatically qualified to audit an RB, local Coop Bank and NSSLA; 6. A bank, quasi-bank, trust entity or NSSLA shall not engage the services of an external auditor whose partner or auditor-in-charge of audit engagement during the preceding year had been hired or employed by the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates as Chief Executive Officer, Chief Financial Officer, Controller, Chief Accounting Officer or any position of equivalent rank; and 7. The external auditor must undertake to keep for at least five (5) years all audit or review working papers in sufficient detail to support the conclusions in the audit report which shall be made available to the BSP upon request. Working papers shall include, but shall not be limited to, pre-audit analysis, audit scope and detailed work program. B. APPLICATION AND PRE-QUALIFICATION REQUIREMENTS The application for BSP selection shall be signed by the external auditor or the managing partner, in case of partnership and shall be submitted to the appropriate supervising and examining department of the BSP together with the following documents/information: 1. An undertaking: a. That the external auditor, partners, associates, auditor-in-charge of the engagement and the members of their immediate family shall not acquire any direct or indirect financial interest with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates. Neither shall the external auditor, partners, associates and auditor-in-charge accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where they or any member of their immediate family have any direct or indirect financial interest and that their independence is not considered impaired under the circumstances specified in the Code of Professional Ethics for CPAs; b. That the external auditor, partners, associates, auditor-in-charge and members of the audit team do not have nor shall apply for loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans) nor shall accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where they have outstanding loans or any credit accommodations (except normal credit card obligations and fully secured auto loans and housing loans which are not past due); c. That the external auditor shall not accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where he was engaged during the preceding year in providing the following services: 1. Internal audit functions; 2. Information systems design, implementation and assessment; and 3. Such other services, which could affect his independence as may be determined by the Monetary Board from time to time. This requirement shall not, however, affect audit engagement existing as of November 26, 2003 (effectivity of Circular No. 410). d. That the external auditor and members of the audit team shall adhere to the highest standards of professional conduct and shall carry out their services in accordance with relevant ethical and technical standards of the accounting profession; e. That the lead or concurring partner and auditor-in-charge shall not accept employment with the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates being audited during the engagement period and within a period of one (1) year after the audit engagement; f. That the external auditor shall not accept an audit engagement with a bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates where an officer (i.e., Chief Executive Officer, Chief Financial Officer, Controller, Chief Accounting Officer or other senior officer of equivalent rank) had been a partner of the external auditor or had worked for the audit firm and had been the auditor-in-charge of the audit engagement of said entities during the year immediately preceding the engagement; g. That the external auditor shall keep all audit or review working papers for at least five (5) years in sufficient detail to support the conclusions in the audit report; and h. That the audit work shall include assessment of the audited institution's compliance with BSP rules and regulations, such as, but not limited to the following: 1. Capital adequacy ratio; and 2. Loans and other risk assets review and classification. 2. Other documents/information: a. List of existing corporate clients with resources of at least P50 million each for external auditor of a UB or KB; for a TB, quasi-bank, trust entity, NSSLA, and national Coop Bank, list of existing corporate clients with resources of at least P25 million each; and list of existing clients and/or details of three (3) years track record in external audit for external auditors of an RB, NSSLA and a local Coop Bank; b. If the external auditor for a UB or KB has no existing UB or KB client, and the external auditor for a TB, quasi-bank, trust entity and national Coop Bank, has no existing client TB or national Coop Bank, a notarized certification that the external auditor or the auditor-in-charge of the engagement has at least five (5) years experience in the regular audit of banks of appropriate category mentioning the banks they have audited; c. Updated Professional Regulation Commission (PRC) license (for individual auditors) and business license for the partnership; d. Copy of the proposed engagement contract between the bank, quasi-bank, trust entity or NSSLA and the external auditor where applicable; and e. Certification from PRC that the external auditor, lead partner, concurring partner, auditor-in-charge and members of the audit team have no derogatory information, previous conviction or any pending investigation. However, in the event that the certification cannot be obtained because of the pendency of a case, the BSP may dispense with this requirement upon determination by the Monetary Board that the case involves purely legal question, or does not, in any way, negate the auditor's adherence to the highest standards of professional conduct nor degrade his integrity and objectivity. C. REQUIRED REPORTS 1. To enable the BSP to take timely and appropriate remedial action, the external auditor must report to the BSP within thirty (30) calendar days after discovery, the following cases: a. Any material finding involving fraud or dishonesty (including cases that were resolved during the period of audit); and b. Any potential losses the aggregate of which amounts to at least one percent (1%) of the capital. 2. The external auditor shall report directly to the BSP within fifteen (15) calendar days the occurrence of the following: a. Termination or resignation as external auditor and stating the reason therefor; b. Discovery of a material breach of laws or BSP rules and regulations such as, but not limited to: 1. Capital adequacy ratio; and 2. Loans and other risk assets review and classification. c. Findings on matters of corporate governance that may require urgent action by the BSP. The management of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates shall be informed of the adverse findings and the external auditor's report to the BSP shall include its explanation and/or corrective action. The management of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates shall be given the opportunity to be present in the discussions between the BSP and the external auditor regarding the audit findings, except in circumstances where the external auditor believes that the entity's management is involved in fraudulent conduct. D. DEFINITION OF TERMS For purposes of these guidelines, the following terms shall be defined as follows: 1. Subsidiary . A corporation or firm more than fifty percent (50%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank, quasi-bank, trust entity or NSSLA, 2. Affiliate . A corporation, not more than fifty percent (50%) but not less than ten percent (10%) of the outstanding voting stock of which is directly or indirectly owned, controlled or held with power to vote by a bank, quasi-bank, trust entity, NSSLA and a juridical person that is under common control with the bank, quasi-bank, trust entity or NSSLA. 3. Control . Exists when the parent owns directly or indirectly more than one half of the voting power of an enterprise unless, in exceptional circumstance, it can be clearly demonstrated that such ownership does not constitute control. Control may also exist even when ownership is one half or less of the voting power of an enterprise when there is: a. Power over more than one-half of the voting rights by virtue of an agreement with other stockholders; b. Power to govern the financial and operating policies of the enterprise under a statute or an agreement; c. Power to appoint or remove the majority of the members of the board of directors or equivalent governing body; d. Power to cast the majority votes at meetings of the board of directors or equivalent governing body; or e. Any other arrangement similar to any of the above. 4. Associate . Any director, officer, manager or any person occupying a similar status or performing similar functions in the audit firm including employees performing supervisory role in the auditing process. 5. Partner . All partners including those not performing audit engagements. 6. Lead Partner . Also referred to as the engagement partner/partner-in-charge/ managing partner who is responsible for signing the audit report on the consolidated financial statements of the audit client, and where relevant, the individual audit report of any entity whose financial statements form part of the consolidated financial statements. 7. Concurring Partner . The partner who is responsible for reviewing the audit report. 8. Auditor-in-charge . Refers to the team leader of the audit engagement. E. INCLUSION IN BSP LIST In case of partnership, inclusion in the list of BSP selected external auditors shall apply to the audit firm only and not to the individual signing partners or auditors under its employment. The BSP will circularize to all banks, quasi-banks, trust entities and NSSLAs the list of selected external auditors once a year. The BSP, however, shall not be liable for any damage or loss that may arise from its selection of the external auditors to be engaged by banks, quasi-banks, trust entities, or NSSLAs, for regular audit or special engagements. F. SPECIFIC REVIEW When warranted by supervisory concern, the Monetary Board may, at the expense of the bank, quasi-bank, trust entity, NSSLA, its subsidiaries and affiliates require the external auditor to undertake a specific review of a particular aspect of the operations of these institutions. The report shall be submitted to the BSP and the audited institution simultaneously, within thirty (30) calendar days after the conclusion of said review. G. AUDIT ENGAGEMENT CONTRACT Banks, quasi-banks, trust entities, and NSSLAs, shall submit the audit engagement contract between them, their subsidiaries and affiliates and the external auditor to the appropriate supervising and examining department of the BSP within fifteen (15) calendar days from signing thereof. Said contract shall include the following provisions: 1. That the bank, quasi-bank, trust entity, or NSSLA shall be responsible for keeping the auditor fully informed of existing and subsequent changes to prudential, regulatory and statutory requirements of the BSP and that both parties shall comply with said requirements; 2. That disclosure of information by the external auditor to the BSP as required under Items "C" and "F" hereof, shall be allowed; and 3. That both parties shall comply with all of the requirements under these guidelines. H. DELISTING OF EXTERNAL AUDITORS 1. Grounds for delisting External auditors may be delisted from the list of BSP selected external auditor for the bank, quasi-bank, trust entity or NSSLA for violation of, or non-compliance with any provision of these guidelines or in case of dissolution of the audit firm except when said dissolution was solely for the purpose of admitting new partner/s and the new partner/ s have complied with the requirements of these guidelines. 2. Procedure for delisting An external auditor shall only be delisted upon prior notice to him and after giving him the opportunity to be heard and defend himself by presenting witnesses/evidence in his favor. Delisted external auditor may reapply for BSP selection after the period prescribed by the Monetary Board. I. AUDIT BY THE BOARD OF DIRECTORS Pursuant to Section 58 of R.A. No. 8791, otherwise known as "The General Banking Law of 2000" the Monetary Board may also direct the board of directors of a bank, quasi-bank, trust entity, NSSLA or the individual members thereof, to conduct, either personally or by a committee created by the board, an annual balance sheet audit of the bank, quasi-bank, trust entity or NSSLA to review the internal audit and the internal control system of the concerned entity and to submit a report of such audit to the Monetary Board within thirty (30) calendar days after the conclusion thereof. Appendix N-6 QUALIFICATION REQUIREMENTS FOR A BANK/NBFI APPLYING FOR ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR BOND ISSUED BY ANY MUNICIPALITY, GOVERNMENT-OWNED OR CONTROLLED CORPORATION, OR ANY BODY POLITIC ( Appendix to Subsec. 4109N.16 ) A bank/NBFI applying for accreditation to act as trustee on any mortgage or bond issued by any municipality, government-owned or controlled corporation, or any body politic must comply with the following requirements: a. It must be a bank or NBFI under BSP supervision; b. It must have a license to engage in trust and other fiduciary business; c. It must have complied with the minimum capital accounts required under existing regulations, as follows: UBs and KBs The amount required under existing regulations or such amount as may be required by the Monetary Board in the future Branches of The amount required under existing regulations Foreign Banks Thrift Banks P650 million or such amounts as may be required by the Monetary Board in the future NBFIs Adjusted capital of at least P300 million or such amount as may be required by the Monetary Board in the future. d. Its risk-based capital adequacy ratio is not lower than twelve percent (12%) at the time of filing the application; e. The articles of incorporation or governing charter of the institution shall include among its powers or purposes, acting as trustee or administering any trust or holding property in trust or on deposit for the use, or in behalf of others; f. The by-laws of the institution shall include among others, provisions on the following: (1) The organization plan or structure of the department, office or unit which shall conduct the trust and other fiduciary business of the institution; (2) The creation of a trust committee, the appointment of a trust officer and subordinate officers of the trust department; and (3) A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers and staff within the organization. g. The bank's operation during the preceding calendar year and for the period immediately preceding the date of application has been profitable; h. It has not incurred net weekly reserve deficiencies during the eight (8) weeks period immediately preceding the date of application; i. It has generally complied with banking laws, rules and regulations, orders or instructions of the Monetary Board and/ or BSP Management in the last two preceding examinations prior to the date of application, particularly on the following: (1) election of at least two (2) independent directors; (2) attendance by every member of the board of directors in a special seminar for board of directors conducted or accredited by the BSP; (3) the ceilings on credit accommodations to DOSRI; (4) liquidity floor requirements for government deposits; (5) single borrower's loan limit; and (6) investment in bank premises and other fixed assets. j. It maintains adequate provisions for probable losses commensurate to the quality of its assets portfolio but not lower than the required valuation reserves as determined by the BSP; k. It does not have float items outstanding for more than sixty (60) calendar days in the "Due From/To Head Office/ Branches/Other Offices" accounts and the "Due from Bangko Sentral" account exceeding one percent (1%) of the total resources as of date of application; l. It has established a risk management system appropriate to its operations characterized by clear delineation of responsibility for risk management, adequate risk measurement systems, appropriately structured risk limits, effective internal controls and complete, timely and efficient risk reporting system; m. It has a CAMELS Composite Rating of at least 3 in the last regular examination with management rating of not lower than 3; and n. It is a member of the PDIC in good standing (for banks only). Compliance with the foregoing as well as with other requirements under existing regulations shall be maintained up to the time the trust license is granted. A bank that fails in this respect shall be required to show compliance for another test period of the same duration. Footnotes PREFACE 1. now Director, Department of Commercial Banks II. 2. Retired. 3. Deceased. PART ONE, SUBSECTION 1401Q.4 1. Effective 16 November 2004 under Circular 450 dated 06 September 2004. PART ONE, SUBSECTION 1414Q.3 1. Effective 01 January 2005 under Circular 456 dated 04 October 2004. PART TWO, SUBSECTION 4211Q.4 1. Effective 16 November 2004 under Circular 450 dated 06 September 2004. 3. From 7% to 10% under Cir. 418 dated 05 February 2004 effective 06 February 2004. PART 3, SUBSECTION 4309Q.2 1. This can be determined by dividing twelve, the number of months in a year, by the number or fraction of months between installment payments. PART IV; SUBSECTION 4405Q.6 1. Under MAB dated 12.29.04, regular reserve and liquidity reserve rates shall be 9% and 10%, respectively, effective the reserve week starting 07 January 2005. 2. The regulations on common trust funds (CTFs) were relocated to Appendix Q-32. UIT Funds regulations took effect on 01 October 2004 (effectivity of Circular 447 dated 03 September 2004). APPENDIX TO SUBSEC. 4309Q.2 * Time price differential should be disclosed as a finance charge. If an itemization cannot be made, a lump-sum figure may be reported among Other charges incidental to the extension of credit in Item 6 h . APPENDIX Q-15 1. Dynamic hedging refers generally to the continuous process of buying and selling of instruments to offset exposures as market conditions change (e.g., an option writer selling an underlying asset as its price falls.) APPENDIX Q-23 1. Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex Q-23-b). ANNEX TO APPENDIX Q-23-b 1. Core Principles Methodology, Essential Criterion 2. ANNEX TO APPENDIX Q-23-c 1. Core Principles Methodology, Essential Criterion 2. 2. Some quasi-banks insulate their private quasi-banking functions or create Chinese walls as a means of providing additional protection for customer confidentiality. 3. In a numbered account, the name of the beneficial owner is known to the quasi-bank but is substituted by an account number or code name in subsequent documentation. 4. Core Principles Methodology, Essential Criterion 2. 5. It is unrealistic to expect the quasi-bank to know or investigate every distant family, political or business connection of a foreign customer. The need to pursue suspicions will depend on the size of the assets or turnover, pattern of transactions, economic background, reputation of the country, plausibility of the customer's explanations etc. It should however be noted that individuals holding important/prominent positions, public or private (or rather their family members and friends) would not necessarily present themselves in that capacity, but rather as ordinary (albeit wealthy) business people, masking the fact they owe their high position in a legitimate business corporation only to their privileged relation with the holder of the public office. ANNEX TO APPENDIX Q-23-d 1. The Working Group on Cross-border Banking is a joint group consisting of members of the Basel Committee and of the Offshore Group of Banking Supervisors. APPENDIX TO SEC. 4410Q 1. The rules and regulations on common trust funds (CTFs) were previously under Sec. 4410Q and the subsections enclosed in parentheses. The UIT Funds regulations which are now in said section/subsections took effect on 01 October 2004 (effectivity of Circular 447 dated 03 September 2004). PART THREE (Loans and Investments) 1. This can be determined by dividing twelve (12), the number of months in a year, by the number or fraction of months between installment payments. APPENDIX TO SECTION 4691S 1. Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex S-6-a). APPENDIX TO SECTION 4104N 1. Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex N-3-b). ANNEX TO APPENDIX P-5 1. Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex P-5-b). ANNEX TO N REGULATIONS 1. Effective 16 November 2004 under Circular 450 dated 06 September 2004.