BSP finalizing framework for clearing switch operations

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is finalizing a regulatory framework to ensure the efficiency of clearing switch operations within the national payment system, particularly the automated clearing houses under the National Retail Payment System.

The regulator has made available a draft circular on the proposed guidelines for industry players to comment until Dec. 11.

The BSP said efficiency is the presence of quick and affordable payment means which are fit for the purpose of the transactions as well as the needs of the users and the participants.

In line with this, clearing switch operators (CSOs) are expected to design and implement effective and sound governance, including management of significant risks. They should also define and monitor measurable and achievable goals and key performance indicators, such as minimum service levels, risk-management expectations and business priorities.

CSOs should also ensure reliable and consistent service availability with prompt issue resolution, enable fair and open access of participating institutions to the system as well as facilitate and promote interoperability among the participating institutions.

They are also expected to adopt equitable and transparent pricing, where reasonable and fair market-based pricing is observed for all participating institutions regardless of size or influence.

Aligned with these principles, CSOs will be mandated to observe governance management measures, implement comprehensive risk management frameworks and comply with all relevant laws, including obtaining necessary licenses and approvals from regulatory bodies.

In terms of interoperability and reliability, CSOs must ensure their systems are compatible with other CSOs and participants, as applicable. They should also maintain high system availability to ensure continuous operation.

Transactions must be processed with established service level agreements, including the ability to handle high transaction volumes without degradation of service quality and real-time monitoring of key metrics such as processing times, system performance and capacity utilization.

“CSOs must notify the appropriate supervising department of the BSP and the participating institutions on the occurrence of scheduled and unscheduled downtime,” the central bank said.

CSOs should also ensure the security and confidentiality of transaction data. This includes using encryption, secure access controls and regular security audits. In case of an incident, operators should have a well-defined incident response plan to address security breaches or operational failures promptly.

For fair pricing, CSOs need to adopt competitive pricing strategies assessing prevailing market conditions and industry benchmarks in pricing decisions.

“The clearing and onboarding fees shall be calculated based on cost-related factors, such as volume of transactions, risks associated with the transactions and costs incurred by the CSOs necessary for clearing and settling payment instructions,” the BSP said.

The BSP also drafted the guidelines outlining the selection process and criteria for CSOs. It said that prospective CSOs must submit their intent to provide clearing switch services to the ACH participant group prior to their evaluation.

“At least two ACH participants must formally signify their intent to engage the services of the CSO to the ACH participant group, including submission of any relevant factual information about the eligibility of the CSO,” the central bank said.

The ACH participant group should notify the BSP within 30 days of the actions taken or to be taken. The BSP will then evaluate the eligibility of prospective CSOs using a selection criteria.