Professional Documents
Culture Documents
Module 3
Module 3
Module 3
Financial Regulation is a type of regulation whereby rules and standards were set to oversight
the ability of the companies to establish and maintain appropriate level of capital to sustain its
operation. It also includes setting controls over the market factors that will affect the financial
sustainability of the firms and players in the industry.
Regulations focus on providing stability to the financial system, fair competition, consumer
protection, and prevention and reduction of financial crimes.
Successful financial regulation prevents market failure, promotes economic stability, protects
investors and improve market transparency.
Regulatory environment is one of the elements of the Financial System. It is the governance body
to ensure that the transactions that occur within the financial systems complies with the laws and
regulations imposed to the actors as well as the elements that plays within the system.
Financial systems are normally regulated by Central Banks.
These are the drivers in the market that led to failure in businesses, hence, proper regulation
should be executed.
• Competitiveness
Government are duty bound to regulate competition in the environment. Firms is facing a
high risk of sustainability in the future if they will not adjust to the competition. Government
may provide support to the firms to enable them to compete should there are internal
consideration or risk that they assume that can be passed on in other means.
Republic of the Philippines
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES
Office of the Vice President for Branches and Satellite Campuses
BATAAN BRANCH
• Market behavior
Regulation will come into play to address failures in the market by setting parameters to
ensure that firms will comply with certain standards to ensure integrity of the firms and
level the playing field. The government normally sets:
o Full disclosure of information
o Prohibition on insider trading
o Control of new players
o Setting minimum of capital requirement
• Consistency
Consistency in the market is normally demonstrated to their information disclosures and
policies. Government role is to set standards to regulate and ensure that information
provided in the market are fair, consistent and conservative.
• Stability
Market stability is an external and fatal factor to be considered by the firms in the financial
market. Most of the players failed to survive because their ability to forecast and to mitigate
risk. In the financial market, the impact of financial risk is something that the regulatory
environment should consider. The regulation must be able to protect the interest of the
clients as well as the companies to enable their corporate sustainability.
In Philippine setting, the financial regulation is observed by the following, but not limited to the
following:
The sole responsibility to issue notes and coins representing the national currency
for the Philippines.
o Lender of last resort
BSP acts as the provider of discounts, advances and financial support to financial
institution for them to maintain their liquidity.
o Financial supervision
BSP regularly supervises the financial institutions and is empowered to exercise
regulatory powers over non-bank institutions conducting quasi-banking functions.
o Management of foreign currency reserves
Manages the financial foreign currency requirement of the Republic by ensuring
sufficient international reserves will be made available on time.
o Determination of exchange rate policy
BSP sets the policy that will determine the rate of exchange of Philippine Peso over
different currency.
o Other activities as banker, financial advisor and official depository of the
Government and its instrumentalities
BSP shall be governed by the Monetary Board. The Monetary Board is composed of 7
members: (All can only be re-appointed once).
1 Chairman – Governor of the BSP
1 Member – member of the cabinet designated by the President of the Republic
2 Members – came from private sector (shall serve for a term of two months)
3 Members – came from private sector (shall serve for a term of six months)
Governor acts as the Chief Executive Officer of the BSP, supported by four sectors:
1 Financial Supervision Sector – responsible mainly for the supervision and
regulation of banks and other financial institutions under the scope of BSP
2 Monetary and Economics Sector – aims to conduct the formulation of monetary
policy, ensure its implementation and assess its effectiveness.
3 Currency Management Sector – will be responsible in the production,
distribution, disposal or retirement of currencies in the Philippines including
security documents, commemorative medals and medallions
4 Corporate Services Group – the support group of BSP that conducts the human
capital management, financial services, information technology support and
other corporate resource management.
Watch:
• About the Bangko Sentral ng Pilipinas
( https://www.youtube.com/watch?v=5yv1QCkCUpY )
• Insurance Commission (IC)
Insurance Commission by virtue of Executive Order No. 192 s. 2015 to ensure enforcement
of the provisions of the Insurance Code or Republic Act 10607 i.e. to regulate and supervise
the insurance, pre-need, and health maintenance organization industry. It is governed by
Department of Finance that supervises and regulates the operations of life and non-life
companies, mutual benefit associations and trusts for charitable uses.
Functions:
o Promulgation and implementation of policies, rules and regulations governing the
operations of entities engaged in insurance, pre-need and HMO activities as well as
benevolent features
Republic of the Philippines
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES
Office of the Vice President for Branches and Satellite Campuses
BATAAN BRANCH
o Punish for contempt of the SEC, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Conduct
o Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision
o Issue subpoena duces tecum and summon witnesses to appear in any proceedings
of the Commission and in appropriate cases, order the examination, search and
secure of all documents, papers, files and records, tax returns, and books of
accounts of any entity or person under investigation as may be necessary for the
proper disposition of the cases before it, subject to the provisions of existing laws.
o Suspend or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon and of the grounds
provided by law; and
o Exercise such other powers as may be provided by law as well as those which
maybe implied from, or which are necessary of incidental to the carrying out of, the
express powers granted the SEC to achieve the objectives and purposes of these
laws.
Watch:
• Securities and Exchange Commission (Philippines)
( https://www.youtube.com/watch?v=haVNMQ_AYus&t=83s )
• Board of Investments (BOI)
BOI is the lead agency to promote investment in country and thereby generate local and
foreign investment in the country. It is an attached agency of Department of Trade and
Industry. The agency provides advisory, actualization and post services to the investors.
BOI provides the following services to encourage new investments:
o Providing information for the knowledge-based research
o Incentivize the investors through the provision of tax holidays, tax and duty
exemption of imported capital equipment, etc.
o Participate through policy advocacy initiatives to ensure that the laws and
regulations are investment friendly.
Watch:
• Board of Investments Philippines
( https://www.youtube.com/watch?v=9a4eHKWEw6E )
Forms of Money:
• Cash (Coins and bills)
• Demand deposits (money deposited in bank account)
• Other financial instruments (Treasury bills, commercial paper)
✓ No one is allowed to issue or reproduce any document or object for general monetary
circulation
✓ Violators will be facing with imprisonment of no less than five (5) years but not more than
ten (10) years, greater penalty may be imposed depending on the gravity pursuant to the
Revised Penal Code of the Philippines
Bank, including their branches must observe the following for
Deposit of their notes:
✓ Bank shall classify their cash deposits and sorted by series and denomination. They
should classify it according to:
Clean or fit notes
Dirty or unfit notes
✓ Banks shall provide securely sealed bags or containers separately for the clean or fit
notes and for the dirty or unfit notes accompanied by a deposit slip for each type/category.
The deposit slip for the unfit currency notes shall be clearly labeled as “unfit.”
✓ Handling of deposits, banks’ deposits shall be packed in sealed bags or containers in
standard quantity of twenty (20) full bundles per denomination. Each bundle containing
1,000 notes in 10 equal straps. Each strap containing 100 notes.
✓ Banks located in the provinces may make direct deposits of currency notes, duly identified
and sorted, with the nearest BSP regional office/branch. For those without regional offices
available, they may arrange it with their respective head offices to be shipped to BSP in
Quezon City. The cost shall be borne by the bank concerned.
✓ Banks shall incorporate measures on the implementation thereof in their compliance
program
Deposit of their coins:
✓ Coins shall be free from adhesive tapes
✓ Coins shall be sorted into fit, unfit or mutilated per denomination and per series
✓ Each bag of coins shall contain the following standard number of pieces and amount per
denomination
Denomination Quantity (Pieces) Value
P10.00 1,200 P12,000.00
P 5.00 1,500 7,500.00
P 1.00 2,000 2,000.00
P .25 3,000 750.00
P .10 4,500 450.00
P .05 5,000 250.00
P .01 5,000 50.00
These currencies are no longer allowed to be used for circulation but may be presented for
exchange to or deposited with any bank. The reason that the BSP will accept these currencies
are as follows:
✓ The notes and coins can no longer be identified
✓ The coins have indication of filing, clipping or perforation
✓ Notes which have lost more than 2/5 of their surface or all of the signatures inscribed
thereon
✓ Notes which are split edgewise resulting in the loss of the whole of or part o either the
face or back portion of the banknote paper; or
✓ Notes where the Embedded Security Thread or Windowed Security Thread placed
thereon is completely lost except when the damage appears to be caused by wear and
tear, accidental burning, action of water or chemical or bites of insects etc.
Purchasing Power
is the value of a currency in terms of the goods or services that one unit of it can buy. It is
practically based on the consumer price index (CPI).
Consumer Price Index – the weighted average value of the basket of prices of all commodities
representing the market.
Inflation rate – the degree of movement of the CPI from a period to another.
the measure of the increase or rate of increase in the general price of selected
goods and services over a determined period of time.
CPI 1
Inflation = - 1 x 100%
CPI 0
116
Inflation = - 1 x 100%
112
= .0357 x 100%
= 3.57%
Example 2: In Merryland, there are only 3 goods: popcorn, movie shows, and diet
drinks. The following table shows the prices of these goods in 1980, 1990, and
1991:
1980 1990 1991
Popcorn P1 P1 P1.05
Movie shows 5 10 10.50
Diet drinks .70 .80 .75
A “market bundle” for a typical family is deemed to be 5 popcorn, 3 movie show,
and 3 drinks. CPI for each of the three years, using 1980 as the base year:
176.50
Inflation = - 1 x 100%
169.20
= .0431 x 100%
= 4.31%
For the purpose of regulation, BSP finds its way to control inflation and enable continuous
flow of funds in the market. Philippine Statistics Office is the body that determines the
current inflation based on the current movement of the commodities set as index in the
market.
Payment System
Is a set of interrelated processes of settlement of goods or services rendered in exchange for a
set of instruments that will undergo either a banking or non-banking procedures.
Like means of settlement, the operating procedures and rules should be understood and
mutually accepted by both parties.
Activities / Assessments
3. What is payment system? What different forms of payment can we use today?
4. In Merryland, there are only 3 goods: popcorn, movie shows, and diet drinks. The following
table shows the prices of these goods in 1980, 1990, and 1991:
1980 1990 1991
Popcorn P1 P1 P1.05
Movie shows 5 10 10.50
Diet drinks .70 .80 .75
A “market bundle” for a typical family is deemed to be 5 popcorn, 3 movie show, and 3
drinks. Compute CPI for each of the three years, using 1990 as the base year.
5. What was the rate of inflation from 1990 to 1991, using the CPI you calculated in (4)?