BSP Plans Tighter Rules on Forex Derivatives

The Bangko Sentral ng Pilipinas (BSP) has issued a draft circular to introduce stricter rules on certain foreign exchange (forex) transactions to prevent excessive risks in the financial system.

- — Keisha Ta-asan

These changes apply to non-deliverable forwards (NDFs), non-deliverable swaps (NDSs), and non-deliverable cross-currency swaps (NDCCSs) involving the Philippine peso.

The draft circular, which introduces stricter guidelines on the management and reporting of these financial instruments, aims to mitigate systemic risks in the foreign exchange market and ensure prudent banking practices.

Under the proposed changes, the BSP explicitly defines NDF, NDS, and NDCCS transactions in the Manual of Regulations for Banks. The new definitions highlight that these derivatives, while useful as hedging instruments, could pose system-wide risks if not properly regulated.