irfstatt Scanned with CamScannerFUNDAMENTALS OF FINANCIAL Mayer Financial Regulation Every country must implement its regulatory system fo ensure controls ang qovatiane: Regulation was designed {0 set rules and guidelines to be followed thats Sesigned fo ensure balance among the individuals, firms and/or citizens as the case maybe. Regulation is also designed to reconcile conflicting interests. Public Utity Research Center in.the University of Florida defined lormally a regulatory agency was identified by law or by order to execute the regulatory framework and be an oversight of a certain industry or particular firm. its presence sets the boundaries to manage or control the behavior of the individuals, firms and/or citizens. World bank ‘sets regulatory measures to address certain risks and social factors, These are systemic risk, consumer protection, efficiency enhancement, and social objectives. consumer protection on the other hand is a factor to consider that policies enforced assumes the effect to the consumers’ welfare. Efficiency enhancements a factor that is considered to ensure the dynamism and agility of the policy to adopt in a fast- changing environment. In broader scope, the policy should take into consideration the alignment in the objectives of the society or what is factored as social objectives. Table 3.1 presents what regulatory measures address the risks identified. 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. Table 3.1 Regulatory Measures and Risk Management Objective Systemic Consumer _Efficlency Social Regutstory Meaacres Protection Environment Objectives Y ‘Antithrust / competition policy Disclosure standards Conduct of business rules Conflict of interest rules Capital adequacy standards Fit and Proper entry tests Liquidity Requirements, Reporting Requirements Restriction on services Asset restriction Deposit insurance Reserve requirements ‘Customer suitability requirements Interest Rate Celling ~ Deposits Interest Rate Ceiling ~ Loans Investment Requirements Geographic Restrictions Y Y <<<<<<< < <<<< < <<<< <<< < <<< <<< << jael, Jeffrey. The Development and Regulation of Non-Bank Financial institutions. World Bank. al Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET Market Drivers Regulated ive even they comply with In financial markets, some players of firms failed to survi 1d to the following market the regulation set. The reason being is that these firms respon drivers: * Competitiveness * Consistency © Market Behavior « Stability Competitiveness Government are duty bound to regulate competition in the environment, in this case is the financial sector, Financial sector has an important role in shaping the overall economy of a country hence itis a must that this must be regulated. Note that market forin the financial market the following are regulated: access to capital, credit and loan term offerings, support to providers of financing, management of business risks, transaction costs and tariffs. It must be noted that the main determinant of competition are the main forces that drives the market ie. buyers and sellers. Firms in the financial market must be able to understand how to respond and maximize their leverage in the industry and compete. Normally, investors explore for those which can offer with the less risk with favorable retums. The question is, how favorable is favorable? This will be discussed in the later chapters. The challenge is for the firm on the degree of risk it can assume to enable them to compete in the market. On the other hand, connivance in the market may be probable and impose a high collaborative rate among them, in this scenario government regulation will take place. To illustrate, Company A, a brokerage company, imposes 1% brokerage fee to its clients. Company B as a new player imposes a brokerage fee of 0.75% for every transaction it closes. Company C another player enters the market offering brokerage fee of 0.70% for every transaction. Company A kept its price policy. In this case, assuming the provide same level of service, Company A is facing a high risk of sustainability in the future if they will not adjust fo the competition. In the given. soenario, probability that their clients will shift to the now players that offer a lower rate. Government in this case may provide support to Company A to enable the company to ‘ould there are internal consideration or risk that they assume that can be compete sh passed on in other means. Note that pricing for services may be affected with the risks assumed by a firm. Market Behavior The behavior of the firms in the industry can be regulated by their behavior. Their behavior in the market can be demonstrated on their: (1) integrity on their activities; and (2) integrity on their representation. 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: full disclosure of information prohibition on insider trading control of new players setting minimum capital requirement 761 Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MaRKer © minimum governance rules. Consistency Consistency, same with the field of Accountancy, is considered as an importan Principle in the business. Consistency in the market is normally demonstrated to they information disclosure and policies. The firm must enable themselves to ensure that th, Provide sufficient information to their customers. Given that financial market is heavily + Service providing industry, information symmetry is a plus to all customersiclients tha enable them to make sound decision. Information is a vital asset in financial markete Government role is to set standards to regulate and ensure that information provided i, the market are fair, consistent, and conservative. This will allow the investors to mehe decision. In most of the times, the degree of risks assumed were based on the information made available. ‘The issue is that the company's ability to provide a fair and consistent inforrnation, ‘Trust of the clients is dictated on how the firms was able to maintain its rapport in terms of the information shared. In accounting parlance, information can be treated as an intangible asset hence value should be tested overtime. The principle of prudential regulation whereby the government impose rules or Standards that will govern the behavior of the financial institutions and financial markets that grants commitments to minimize the risk of uncertainty and strengthen the integrity of the firms, Stability Market stabilty is an external and fatal factor to be considered by the firms in the financial market. Given that market behavior is dependent on a lot of factors, the risk is very high. Most of the players failed to survive because their ability to forecast and to mitigate the market 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, Systemic instability is a challenge or threat whereby it arises where a segment or firm was not able to meet its commitment because of their failure to address the risks of the market. At the end of the day, the risk arises is the default risk of the company to ascertain repayments thereby disrupting the continuous flow of finances in the industry Regulators of Financial Activities Financial Activities has been referred to activities that deals on funding certain transaction or expenditures. In the financial market, the financial activities are focused on the trading of securities and financial instruments. Setting rules to set standards, control and order on the financial activities, regardless of the source, is called as financial activily regulation, 77\ Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET In the Philippine setting, the financial regulation is observed by the following, but not limited to the following: Bangko Sentral ng Pilipinas Board of Investment Insurance Commission Philippine Securities and Exchange Commission ©. Bangko Sentral ng Pilipinas (BSP)? ied fet of 199 Inder the Philippine law, this will act as which will act as @ corporate body that is responsible conceming money, banking and credit. BSP shall provide policy directions in these areas. It is also responsible for the supervision of financial institutions and exercise regulatory powers. The function of BSP are following: © Liquidity Management ‘The BSP formulates and issues monetary policy aimed at influencing money supply in order to maintain price stabil. Money supply will be further discussed in the later part of this chapter. © Currency Issue f “The sole responsibility to issue notes and coins representing the national currency for the Philippines. All issuances made by the BSP are with sovereign guarantee and shall be considered legal tender in exchange for private and public debts. * Lender of last resort BSP acts as the provider of discounts, advances and financial support to financial institution for them to maintain their liquidity. hreps://www.bsp.gov.ph 78 | ‘Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET Financial supervision ee E BSP regularly supervises the financial institutions and is empowered tg exercise regulatory powers over non-bank institutions conducting quasi-banking functions. 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. This is to preserve the intemational stability and position of the Philippine Peso. Determination of exchange rate policy L. BSP sets the policy that will determine the rate of exchange of Philippine Peso over different currency. Currently, BSP subscribes to a market-oriented foreign rate policy hence the rates are dependent in the behavior of the market, Other activities as banker, financial advisor and official depository of the Govemment and its instrumentalities. BSP shall be governed by the Monetary Board. The Monetary board is composed of seven members. The board is chaired by the Govemor of the BSP and composed of six other members coming from: 1 member — member of the cabinet designated by the President of the republic (thet cabinet member can designate an undersecretary of his department to attend on his behaif); 5 members ~ shall be coming from the private sector (3 members shall serve for 2 term of six months while 2 will serve for three months). All members can only be re-appointed once. The Governor acts as the Chief Executive Officer of the BSP. In order to carry its functions, it is supported by four sectors / functions. (1) Financial Supervision Sector is responsible mainly for the supervision and regulation of banks and other financial institutions under the scope of the 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. Lastly, is the (4) Point of Information! The BSP has its money museum within their complex. It was constructed since January 3, 1999. It serves are the repository of all currencies and other historical financial resources. The Museo ng Bangko Sentral ng Pilipinas is open from Monday to Friday 9:00 a.m. to 4:00 p.m. Visiting the museum is subject for appointment Corporate Services Group which is the support group of the BSP that conducts the human capital management, financial services, information technology support and other corporate resource management. More specific information is available on the Organization Primer of the BSP. 791 Scanned with CamScannerSe IN DAMENTAS OF FINAN HRSEEE Insurance Commission (IC)? IC mandated by virtue of Executive Order No. 192 s. 2015 to ensure enforcement of the provisions of the Insurance Code or Republic Act 10607, ive. to regulate and supervise the insurance, pre-need, and health maintenance organization industry. Itis governed by Department of Finance that supervises and regulates the operations oflife and non-life companies, mutual benefit associations, and trusts for charitable uses. IC issues licenses to insurance agents, general agents, resident agents, underwriters, brokers, adjusters and actuaries. It has also the authority to suspend or revoke such licenses. The functions of IC are as follows: . 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. 2. Licensing of insurance, reinsurance companies, its intermediaries, mutual benefit associations, trusts for charitable uses, pre-need companies, pre-need intermediaries, and HMO companies 3. Conducting insurance agent's examinations, as well as processing of reinsurance treaties and request for investments of insurance companies 4. Examination/verification of the financial condition and methods of doing business of entities engaged in insurance business, pre-need, mutual benefit associations, trusts for charitable uses, and HMO companies 5, Evaluation and preparation of statistical reports, studies, researches, annual reports, and position papers relative to insurance, pre-need matters, and HMO matters 6. Review of premium rates imposed by life and non-life companies, mutual benefit associations; statistical reports of adjusters to determine compliance with established standards. 7, Adjudication of claims and complaints involving loss, damage or liability incurred by an insurer under any kind of policy or contract of insurance or suretyship; 8. Review and approval of al life and non-life policies, pre-need, and HMO plans before sale to prospective clients. Philippine Securities and Exchange Commission (SEC) the Commonwealth Act No. 63. Scanned with CamScannerFUNDAMENTALS OF FINANCIAL Majer In the Republic Act 8799 or the Securities Regulation Code, widens the responsibility and scope of the SEC to include the following: 1. 10. 41. 12. 13. Have jurisdiction and supervision over all corporations, partnerships associations who are the grantees of primary franchises and/or a license or perm issued by the Government; Formulate policies and recommendations on issues conceming the securities market, advise Congress and other government agencies on all aspects of the Securities market and propose legislation and amendments thereto; Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; Regulate, investigate or supervise the activities of persons to ensure compliance: Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders; Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code; Issue cease and desist orders to prevent fraud ar injury to the investing public; Punish for contempt of the SEC, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, ‘search and seizure 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; ‘Suspend, or revoke, after proper notice and hearing the franchise or certificat® of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and ail Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET 14, Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, me express pawers granted the SEC (o echleve the objectives and, purposes of se laws, Board of Investments (BO!) BOI is the lead agency to promote investment in country and thereby generale local and foreign investment in the country. Its an attached an agency of the Department of Trade ‘and Industry. The agency proves acvisoy, actualization and post services to investors. BOI provides the following services to encourage new investments: Providing information for the knowledge-based research. Incentivize the investors through the provision of tax holidays, tax and duty ‘exemption of imported capital equipment etc. + Participate through policy advocacy initiatives to ensure that the laws and regulation are investment friendly. Money Supply and Payment System The financial system is an interrelated financial process which is fueled by money. Money supply is the availability of financial resources for deployment in the financial system. It is making the money available for use or for trade or investment. This is, of course, balanced with the monetary demand of the market. This balance is managed by the central bank. For the case of the Philippines, it is the Bangko Sentral ng Pilipinas. Money will ake the form of the following: ¢ Cash (coins and bills) Demand deposits Other financial instruments to be regulated somehow to enable the sovereign to have control to in the earlier chapters, money is an essential factor in the do this, monetary policies must be enforced with the yble output and employment at its peak and stabilize propriate or effective, the BSP must ensure the Money is expected its economy. As mentioned it financial system. In order to objective of promoting sustainal prices. For a monetary policy to be @pr following are present: «Alignment to the target goals Access to information Responsiveness of the variable set 82 Scanned with CamScanner| | FUNDAM! OF FINANCIAL, MARE Regulation of Circulation of Notes The central bank, BSP for the ease of the Philippines, is authorized by the Tents under R.A. 7683 that they have the sole powwsr to issue currency, within the temitory of the Phiiopines. Given itis a sole authority, no ona is allowed to issue or Frngeduce any document or object for general monetary circulation. Violators vill be facing with imprisonment of no less thai five (5) years but not more than (10) years, greater psnalty may be imposad depending on the grav vty pursuant to the Revised Peng) Code of the Philippines. In foreign countries, cfferent manner of regulation was imposed. According to Chapter 4 of the BSP Circular No. 829 series 2014 amending the Consolidated rules and regulations on currency notes and coins Issued in the Philippines, for the banks, including their branches, if applicable, must observe the following for the Geposit of their notes: * Banks shail classify their cash deposits and sorted by series and by denomination. They should classify it according to: 1. clean or fit notes 2. dirty or unfit notes * Banks shall provide securely sealed bags or containers separately for the clear Or fitnotes, and for the dirty or unfit notes accompanied by a deposit sip for wach type/category. It must be labeled “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 bome by the bank concemed. + Banks shall incorporate measures on the implementation thereof in their compliance program, For the deposit of their coins the following were observed: * 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 Pieces per Bag Amount per Bag Php 10.00 4,200 Php 12,000 Php 5.00 4,500 Php 7,500 Php 1.00 2000 Php 2,000 Php 0.25 3,000 Php 750 Php 0.10 4,500 Php 450 Php 0.05 5,000 Php 250 Php 0.01 5,000 Php 50 331 ‘Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET Personnel in charge for setting up the controls for [~ point of Information! Pointof none financial institutions, e.g. Accountants, Internal Auditors, Controllers, Comptroliers etc., must ensure that these idelines were D oy properly oeevae, currency. These are Auditors may consider as part of their procedures to validate the authenticity of the currencies, as. i i 2 Phi es, and described by the BSP in its circulars, a currency note Meo ere are oer 14 shall be considered unfit for circulation when: countries that used the As of 2019, there are 8 countries using Peso as @ ‘Argentina, Chile, Colombia, Cuba, Dominican Republic, It contains heavy crinkles which break the [exten prowess: +] fiber of the paper and indicate thet disintegration of the note has begun; or + [tis badly soiled/contaminated and/or with writings even if it has proper life or sizing; or + Itpresents a limp or rag-ike appearance and/or it cannot sustain its Upright position when held at the mid-portion of one of the shorter borders For currency coin shall be considered unfit for circulation when: * Itis bent or twisted out of shape or defaced or show signs of corrosion, but its genuineness and/or denomination can still be readily and clearly determined/identified; or « Ithas been considerably reduced in weight by natural abrasions/wear and tear. For guidance, these currencies which 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 not accept these currencies are as follows: The notes and coins can no longer be identified; or The coins have indications of filing, clipping or perforation; or Notes which have lost more than 2/5 of their surface or all of the signatures inscribed thereon; or Notes which are split edgewise resulting in the loss of the whole of or part of, 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 eppears to be caused by wear and tear, accidental burning, action of water or chemical or bites of insects etc. Purchasing Power ‘The purchasing power is practically based on the consumer price index. In economics, the consumer price index or CPI is the weighted average value of the basket of prices of all commodities representing the market. 84] Scanned with CamScannerThe commodity group in the consumer price index are: fo, " Or flecholle beverages; alcoholic beverages and tobacco; clothing aa id Non, ‘ousing, utilities and other fuels; furnishings and maintenance costs. -°' transport; communication; recreation and culture; education; resta Miscellaneous. ts; heal, + Salt rant any _ The degree of movement of the CPI from a period to another is inflation rate. Inflation is derived in EQ 3.1 Calle the CPI Eq 3.1 Inflation = }{—7- = 1} x 100% 434 Inlaion= (CF) CPI = Current price index CPlo = Base price index To illustrate, the CPI for years 1 and 2 are as follows: Year 1 = 112; y 116. The inflation is computed as follows: i pam rong ve, 116) Inflation = {(®-4 x 100% yc, tn Inflation = 0.0357 x 100% a i Inflation = 357% This means that the prices went up by 3.57%. In terms of the purchasing power this signifies that P1.00 can buy lesser than the previous year to about 3.57%. Inflationis an indication of the market risk. Hence, this also affects the ability of the people to make new purchases or settle their obligation. In finance, inflation is a driver of the financing costs. For regulatory purposes, BSP finds its way to control infiation and enable continuous flow of funds in the market. Thus, BSP is one of the credible agencies that targets the inflation. Philippine Statistics Authority, for the case of the Philippines, is the body that determines the current inflation based on the current movement of the commodities set as index in the market. There are two types of inflation: the core inflation and headline inflation. Per the BSP, G6relinflation is used for most of the economic estimates where it excludes in the equation the movement of the commodities or incidents with very volatile movement or outliers. H@@dlinelinflationion the other hand captures the changes of the cost of living based on the movement of the basket of commodities as a whole. In figure 3.1, you may note the trajectory ofthe headline and core inflation fort? years 2013 to 2018. You may observe thatthe relationship of the headline to core is Zonsistent over the years where the headiine is not always higher than the care inf This is because the excluded incident or commodity may overstate or understate "° basket of prices, but that effect wil not ast forlong term, itis important in thOS® engaging in financial markets to know which movement should be considered fo fong-term decision. For those in the capital market for example, this is @ 900 IPs (whether to buy, Sell or hold their secures, Strategies on how manage thes® $20 witievan the financial instruments will be discussed inthe later chapter of this a5! Suen aaa Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET Headline and Core inflation (2012 = 100} | January 2033 - Oecember 2018 20 70 so so 40 20 20 10 Figure 3.1 Headline and Core Inflation from 2013 to 2018 Payment System The business is not a business if without any trade or exchange. In civil law of the Philippines there are different way to settle an obligation after the delivery of, products or render of service. One of the modes of settlement is through payment of the products or services through a payment system. The payment system Characteristics for an Effective Payment System There is no ideal or best methodology to administer a payment system’ The system is dependent on the best amenable, convenient and acceptable solution for both parties i.e. the payee and the payor. The payment system will work on a certain network or sub-systems that will link the parties grounded by certain rules and procedures. According to BSP, @ payment system normally requires the following: «Standard methods of transmitting payment messages within the system «Agreed means of settlement + Common operating procedures and rules e.g, admission, fees and operating hours. Standard Methods of Transmitting Payment The conventional way of transmitting payment is the literal arm's length exchange of transaction whereby the seller or the obligor deliver the goods or tender service while the other party will deliver in the instance. However, this 86 | ‘Scanned with CamScannerFUNDAMENTALS OF FINANCIAL Map, iT a re Sr eee assd'|' became a challenge especially for those located in a remote location oF far from each other. Nowadays, this is no longer a challenge. Banking system already provides different ways to settle obligation or may payments. With the electronie banking or e-banking system, it enables the settlement to be made through fung transfer, online payment or special requests from the bank made virtually. Figure 3.2 presents an interface of a personal e-banking service. Figure 3.2 E-banking interface The e-banking with the other features allows payment and money transfers. This shows that payment system works within an infrastructure Providing efficient solution and real-time processing of payment with reduce risk. Agreed Means of Settlement Given that the exchange is a contract between the parties, it is essential that they also agree on the manner on how the payment is to be rendered, Even there is an available online infrastructure to make payments, some people are Still confident on doing it manual or the conventional way. Although the payment made through cheques is not that warranted, except ifit is a manager cheque, some people still preferred this type of payment. What is important in a payment system is that the parties will agree on the manner of payment. In accounts payable processing or AP processing, all transactions for Purposes of controls are charged to accounts payable account, Now, the settlement of these transactions varies depending on the manner on how it is agreed for settlement. Well, at the end of the day it ail boils down to a credit to. cash. The normal means of settlement are as follows: * Cash or cheque Payment Online payment (if the supplier of goods or service is an accredited merchant of a bank) Automated Teller Machine Fund transfer 371 Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET Credit Cards Debt Cards and Stored Value Cards Electronic Money Manual Money transfer Paybox System Cash deposit Assignment Common Operating Procedures and rules Other than the agreement on the manner on how it will be settled, another key requirement for an effective payment system is the operating procedures and rules. Like any other contract these information or guidelines must mutually accepted by both parties. These agreements are normally provided by the payment system facility to provide guidelines and protection for both parties in case of breach as well protection of the system that the transactions are cleared from the settling party. In an online banking system, these agreements are provided as a template to all clients or users of the system. These provides a formal authority to the facility to use information and the users agreed to subscribed to the banking policies. These policies sent by the banks or financial institutions were reguiated by the BSP. Importance of Payment System Payment System as mentioned is an essential facility to enable the complete course of the transaction. Based on the characteristics and features of payment system, BSP identified the following importance of the system, among others * Safe and Real Time Transaction: * Effective risk management; and Facilitates Financial Market Transactions. Safe and Real Time Transactions ‘The payment systems are designed to safeguard the identity and transaction as, a whole especially on electronic payment system facilities. Payment systems are deemed safe given that the characteristics are mutually agreed by the parties including the manner of payment which is convenient for both. Real time are normally applicable for electronic / internet-based system. Real time can be applicable to manual payment system. Essentially the transaction when the exchange is made, and settlement is rendered completes the transaction already in that point in time. For e-banking payment system facilities, it is debited to the account of the payor real-time however most of the systems requires 3 banking days before it is credited 88 | Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARK $$$ errr inning to the account of the payee, The payor should not worry for the potential interast, it Will be incurred for these can be resolved especially that in the terms and Niles ig lear that the reference should be the date ofthe transaction of the payor and not th Posting date to the payee, The three banking day rules is required as part of the 8 Clearing process, but most of the time, particularly for fund transfer itis credited real tima, ‘The Philiaping Bureau of Intemal Revenuio adopts tho use of the Electron Fl and Payment System, This allows you to fla and pay tha tax due of both personal and corporate, This payment system is a hybrid that is primarily design to encour complianea in tax fing and facilitates tha payment to provide convenience to the taxpayers. Effective Risk Management Since the payment system facility, nowadays, involve wall definad parties and rules. The payment system faciitias have verification process to allow the users to validate the transaction before completing the authority to make payments, Also, one advantage for established payment system is the absance of physical cash or financial instrument, everything can be made virtually or if spplicable electronically, this minimizes the risk of loss, theft and misapproprition. Although it is sn effective risk mitigation methodology, there are still risk that needs to be recognize upon using payment systems, These risks are enumerated in Table 3.2 Table 3.2 Risks of Payment Systems Credit Risk Ability of the payor to meet the full value of its obligation due to unforeseen charges, Liquidity Risk Timing difference on posting may affect the visibllity of the user or a party to determine that full amount due and end up its ability to calculate currently maturing obligation Default Risk Risk that payment will be made on time. Technological Risk System downtime and system “bugs” may occur. Legal Risk Changes in rules and regulations affecting the payment system 89| Scanned with CamScannerFUNDAMENTALS OF FINANCIAL MARKET Facilitates Financial Market Transactions In tho ememance of the e-banking systam that servas as the platform of the payment systom facilities. The payment system may facilitate the settlement of the financial markot transaction, The database may also be used to make future analysis or projections of the investors. The system can also be used to validate the personality or credit rating of certain instruments before completed the trade. Currently, certain platforms are integrated with online brokerage companies to (1) facilitate opening an account; (2) facilitate purchase or sale of the transactions; and (3) reduce human intervention provides objective approach to manage financial market transactions. SUMMARY + Financial Regulation set rules and standards to oversight the ability of the companies to establish and maintain appropriate level of capital to sustain in the operation. + Drivers in the market that led to failure for businesses are: competitiveness, market behavior, consistency, and stability. * Bangko Sentral ng Pilipinas is the top financial regulator in the Philippines, Together with it are: Philippine Secunties and Exchanga Commission, Insurance Commitments, and Board of Investments * Money is the basic form of the financial system, Monay supply is the availability of financial resources for deployment in the system. Purchasing power is based on the consumer price index. Payment Systom is a set of interrelated processes of settlement of goods or rendering of service in exchange for set of instrument that will undergo either a banking or non-banking procedures. * Characteristics for an Effective Payment System is that it should have (1) standard methods of transmitting payment message; (2) agreed means of settlement; (3) common operating procedures and rules, 90} —— eS Scanned with CamScanner