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Regulation addressed to quasi-banks

Part One on "Organization, Management and Administration"
Regulation addressed to NBFIs

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OFFICE OF THE GOVERNOR

CIRCULAR NO. 204

The Monetary Board, in its Resolution No. 1034 dated July 22, 1998, adopted the new Manual of Regulations for Non-Bank Financial Institutions ("New Manual") as a code of Bangko Sentral regulations for non-bank financial institutions which shall be cited as authority for enjoining compliance with rules governing such institutions and as the basis for the imposition of sanctions for the violation hereof.

The New Manual shall become effective fifteen (15) days after its complete publication in the Official Gazette: Provided, That non-bank financial institutions are given three (3) months grace period to comply with the new regulations prescribed therein: Provided, further, That prior to such effectivity, Bangko Sentral regulatory issuances for non-bank financial institutions shall continue to be in force. On the date the New Manual becomes effective, the Manual of Regulations for Banks and Other Financial Intermediaries, Book IV, and the provisions of issuances existing as at December 31, 1996 which are inconsistent therewith shall be deemed repealed and/or suspended.

Bangko Sentral regulations for non-bank financial institutions issued after December 31, 1996 shall be printed semestrally as updates or supplements to the New Manual.

The New Manual and subsequent updates shall be available for sale at the Public Information, Relations and Special Events Office (PIRSEO) located at the Ground Floor, Cafetorium Building, BSP Complex, Bangko Sentral ng Pilipinas, Malate, Manila.

May 28, 1999

FOR THE MONETARY BOARD:

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(Sgd.) GABRIEL C. SINGSON
Governor

Q REGULATIONS (REGULATIONS GOVERNING NON-BANK FINANCIAL INSTITUTIONS PERFORMING QUASI-BANKING FUNCTIONS)

PART ONE

ORGANIZATION, MANAGEMENT

AND ADMINISTRATION

PART ONE

§§ 41010 - 4101Q.1 96.12.31

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;

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 quasibanking 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.

§ 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.

Manual of Regulations for Non-Bank Financial Institutions

Q Regulations §§ 41010.1 - 41010.2 96.12.31

a

To be considered 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.

§ 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

Q Regulations

Manual of Regulations for Non-Bank Financial Institutions

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