BSP Proposes Tighter Integrity Controls for Philippine Merchant Payments

The Bangko Sentral ng Pilipinas (BSP) has proposed new payment-integrity requirements covering merchant payment arrangements in the Philippines, including stricter controls on layered payment structures, greater identification of merchants and ultimate recipients, and the establishment of a centralized national QR-code merchant database.

The proposed rules would amend the BSP’s Manual of Regulations for Payment Systems and apply to BSP-supervised institutions, payment system operators, merchant acquirers and payment service providers. The draft addresses payment arrangements in which intermediaries may sit between a merchant and the financial institution processing or settling the transaction.

Under the proposal, merchant payment arrangements would be classified as either direct or layered. A direct arrangement would involve an authorized acquiring institution maintaining the relationship directly with the merchant, without another party accepting, collecting, allocating or settling payments on the merchant’s behalf. A layered arrangement would involve one or more intermediaries between the acquiring institution and the business actually providing the goods or services.

The draft would restrict arrangements that conceal or obscure the identity of the merchant, an intermediary, the underlying seller or the ultimate recipient of funds. It would also address structures that prevent transactions from being reconstructed or make it difficult to identify parties connected with payment flows.

The proposed requirements extend beyond identification of the immediate contractual merchant. Risk assessments would also take account of the ultimate recipients of settlement funds. Under the proposed framework, the risk associated with an underlying recipient would form part of the assessment even where the direct merchant or contractual counterparty presents a different risk profile.

The BSP proposal also addresses payment arrangements involving pooled accounts, shared payment credentials and other structures in which transactions from different merchants or recipients may be combined. The draft seeks to maintain sufficient information to identify the parties involved and reconstruct the movement of funds through the payment chain.

A further component of the proposal is the creation of a centralized National QR Code Merchant Database. The database would be established, implemented and maintained by the BSP and would contain information concerning merchants using QR-code payment arrangements. The proposal is intended to provide a centralized record of merchants participating in QR-based payment transactions.

The proposed database would also address information concerning beneficiaries connected with merchant payment arrangements. This would allow merchant information associated with QR-based transactions to be maintained within a centralized framework rather than being held solely across individual payment institutions and service providers.

The draft also contains provisions concerning higher-risk merchant categories and payment activities. Virtual asset service providers, gambling-related businesses and certain other businesses are identified as higher-risk categories under the proposed framework, with additional controls applicable to payment relationships involving these activities.

For virtual asset businesses, the proposed rules would restrict BSP-supervised institutions providing merchant-acquiring services to direct merchant arrangements. The draft also provides for enhanced due diligence and ongoing monitoring in relevant relationships and establishes additional controls for payment and settlement activity involving higher-risk businesses.

The proposed framework also addresses the use of intermediaries in merchant-acquiring chains. Where multiple entities participate in accepting and settling payments, the institutions involved would be required to maintain sufficient information regarding the merchant and the parties ultimately receiving the funds.

The draft connects these requirements with the identification and management of risks relating to fraud, scams, money laundering, terrorist financing, proliferation financing, sanctions violations and other unlawful activity. The proposed controls are designed to preserve information about the parties and transactions involved in payment chains.

The proposal forms part of wider changes being considered by the BSP for the Philippine payments sector. Separately, the central bank has proposed suspending the acceptance and processing of new applications for registration as Operators of Payment Systems for 12 months while it reviews the existing classification and registration framework.

The proposed payment-integrity framework is not yet a final regulation. The draft circular is subject to the BSP’s regulatory process and public feedback before any final version is adopted. If finalized, the circular would establish requirements governing merchant identification, layered payment arrangements, risk assessment, monitoring and QR-code merchant information.

The proposal therefore introduces a framework in which payment institutions would be required to maintain visibility over the merchant, intermediaries and ultimate recipients involved in relevant payment arrangements. It also provides for a centralized database covering merchants using QR-code payment channels and additional controls for specified higher-risk activities.

By fLEXI tEAM