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REGULATORY ISSUANCES   

REGULATORY ISSUANCE NO. 2011-02
TO :All Member Banks
SUBJECT :Rules and Regulations Governing Deposit Accounts or Transactions Excluded from the Coverage of Deposit Insurance

Pursuant to its authority to prescribe and issue rules and regulations under Section 2(d)(1) of Republic Act No. 3591,as amended (the "PDIC Charter"), the Board of Directors of the Philippine Deposit Insurance Corporation (PDIC), under Resolution No. 2010-12-160 dated December 15, 2010, approved the promulgation of the following implementing rules and regulations governing deposit accounts or transactions excluded from the coverage of deposit insurance under Sections 4(f) and (g) of the PDIC Charter.

Section 1. Statement of Policy

PDIC is primarily tasked with promoting and safeguarding the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits and in helping develop a sound and stable banking system at all times. To this end, only legitimate deposits of bona fide depositors shall be entitled to deposit insurance, unless otherwise excluded under Section 4(f) of the PDIC Charter and this Regulatory Issuance.

Section 2. Definition of Terms and Phrases

  1. Bona Fide Depositor – refers to a natural or juridical person, or entity who/which is the owner of a deposit, as determined by PDIC under Regulatory Issuance No. 2009-03 (Determination of Beneficial Ownership of Legitimate Deposits), and whose deposit is recorded in the books of the bank.

  2. Deposit – refers to the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, or created/issued in accordance with Bangko Sentral rules and regulations and other applicable laws, together with such other obligations of a bank, which, consistent with banking usage and practices, the PDIC Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank. It does not include deposit obligations of a bank which are payable at the office of the bank located outside of the Philippines; Provided, that, subject to the approval of the PDIC Board of Directors, any insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit obligations payable only at such branch.

    Under the foregoing definition of Deposit, the following terms shall be understood to have the following meaning:

    1. Money – refers to a measure of value and a medium of exchange, authorized and accepted by law. It shall include: 1) coins and currency declared by the Philippine government to be acceptable and officially recognized payment for all debts, both public and private; 2) Philippine notes and coins issued and circulating in accordance with R.A. No. 7653; and 3) other currencies authorized to be accepted by banks with foreign currency deposit units.

    2. Equivalent (of money) – refers to a representative of money as defined herein, such as, but not limited to, cleared personal checks, manager’s or cashier’s checks and money orders.

    3. Received by a Bank – refers to the inflow into or receipt by a bank of money or its equivalent as consideration for the deposit made by the depositor or his/her duly authorized representative, which is recorded in the books of the bank.

    4. Usual Course of Business – refers to the solicitation, acceptance, receipt, and/or recording of deposits in accordance with law, including rules and regulations governing deposit-taking practices or any amendments thereto, as issued or may be issued by the PDIC, Bangko Sentral ng Pilipinas (BSP) and/or the Anti Money Laundering Council (AMLC).

  3. Directive to Cease and Desist (DCD) – refers to a directive issued by PDIC under this Regulatory Issuance prohibiting, among others, a bank and/or its directors, officers, employees or agents from offering, marketing or promoting, or continuing to offer, market or promote deposit products or accounts, or transactions, which constitute and/or emanate from an Unsafe and/or Unsound Banking Practice, and representing to the public that the said deposit products or accounts, or transactions, are insured by PDIC.

  4. Legitimate Deposit – refers to money or its equivalent received by a bank as a deposit in the usual course of business and recorded in the books of the bank as such, and opened in accordance with established forms and requirements of the BSP and/or the PDIC.

  5. Publication – refers to the one-time printing in a newspaper of general circulation.

  6. Unlawful Activity – refers to any act or omission or series or combination thereof involving or having direct relation to the enumerations laid down in Section 3(i) of Republic Act No. 9160, otherwise known as the “Anti-Money Laundering Act of 2001, as amended.”

  7. Unsafe and/or Unsound Banking Practice – refers to:

    1. Any act or omission which constitutes conducting business in an unsafe and/or unsound manner pursuant to PDIC Board Resolution No. 2010-02-003, which adopted the guidelines and principles contained in BSP Circular No. 341, series of 2002, as amended by BSP Circular No. 640, series of 2009, or

    2. Such other acts or omissions which the PDIC Board, through regulation or resolution, may determine to constitute as conducting business in an unsafe and/or unsound manner.

Section 3. Exclusions from Deposit Insurance Coverage

PDIC shall not pay deposit insurance for the following accounts or transactions whether denominated, documented, recorded or booked as deposits by the bank:

  1. Investment products such as bonds and securities, trust accounts, and other similar instruments which do not fall under the definition of a Deposit.

    The following features may be considered as grounds for determining that a product is an investment:

    1. No debtor-creditor relationship exists between the bank and the client;

    2. Relationship between the bank and the client is either that of a trustee-trustor or an agent-principal;

    3. Principal amount is not protected;

    4. Amount deposited is not withdrawable on demand; and/or

    5. Other analogous features.

  2. Deposit accounts or transactions which are unfunded, or are fictitious or fraudulent.

    1. A deposit account or transaction shall be deemed unfunded when no Money or Equivalent (of money) is Received by a Bank for such account or transaction.

    2. A deposit account or transaction shall be deemed fictitious when it is simulated, feigned or is not a genuine deposit account or transaction, e.g. Money or Equivalent (of money) was made to appear to have been Received by a Bank, or the deposit account or the name of the depositor does not appear in the records of the bank.

    3. A deposit account or transaction shall be deemed fraudulent whenever the bank and/or depositor knowingly employ means calculated to deceive, including acts, omissions and concealment involving a breach of legal or equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another, e.g. the named depositor denies ownership of the deposit.

  3. Deposit accounts or transactions constituting, and/or emanating from, Unsafe and/or Unsound Banking Practice/s, as determined by the PDIC, in consultation with the BSP, after due notice and hearing, and Publication of the DCD issued by the PDIC against such deposit accounts or transactions, in accordance with Section 4 of this Regulatory Issuance.

  4. Deposits that are determined to be the proceeds of an Unlawful Activity as defined under Republic Act No. 9160, as amended, subject to Section 6 of this Regulatory Issuance.

Section 4. Determination of Deposit Accounts or Transactions Constituting and/or Emanating from an Unsafe and/or Unsound Banking Practice and Issuance of a Directive to Cease and Desist (DCD)

The determination of deposit accounts or transactions which constitute and/or emanate from an Unsafe and/or Unsound Banking Practice/s and the issuance of a DCD thereof shall be governed by the following rules:

  1. Unsafe and/or Unsound Banking Practice/s Based on Bank Examination Findings

  2. If in the course of an examination of a bank and after giving the bank an opportunity to comment on PDIC’s findings in accordance with Regulatory Issuance No. 2009-05 (Rules & Regulations on Examination of Banks), the PDIC determines, in consultation with the BSP, that deposit account/s or transaction/s constitute and/or emanate from Unsafe and/or Unsound Banking Practice/s, the PDIC Board of Directors may issue a DCD:

    1. Enjoining the bank from (a) offering or continuing to offer to the public the subject deposit account/s or transaction/s or other account/s or transaction/s which substantially have the same nature, characteristics, or features as those covered by the DCD, and/or (b) representing that such deposit account/s or transaction/s are insured with PDIC; and

    2. Advising the bank and the public of the withdrawal of deposit insurance coverage over these types or kinds of deposit account/s or transaction/s effective upon the Publication of the DCD until lifted or dissolved by PDIC.

  3. Report or Complaint of Unsafe and/or Unsound Banking Practice/s

  4. A report or complaint that a bank is offering a deposit product/s constituting and/or emanating from Unsafe and/or Unsound Banking Practice/s shall be resolved in accordance with procedures laid down in PDIC Regulatory Issuance No. 2005-03. If, in accordance with these procedures, the PDIC determines, in consultation with the BSP, that deposit account/s or transaction/s constitute and/or emanate from Unsafe and/or Unsound Banking Practice/s, the PDIC Board of Directors may issue a DCD:

    1. Enjoining the bank from (a) offering or continuing to offer to the public the subject deposit account/s or transaction/s or other account/s or transaction/s which substantially have the same nature, characteristics, or features as those covered by the DCD, and/or (b) representing that such deposit account/s or transaction/s are insured with PDIC; and

    2. Advising the bank and the public of the withdrawal of deposit insurance coverage over these types or kinds of deposit account/s or transaction/s effective upon the Publication of the DCD until lifted or dissolved by PDIC.

  5. Reconsideration of the Resolution of the PDIC Board

    1. Within ten (10) days from receipt of the resolution of the PDIC Board in paragraphs (a) [“Unsafe and/or Unsound Banking Practice/s Based on Bank Examination Findings”] or (b) [“Report or Complaint of Unsafe and/or Unsound Banking Practice/s”] above, the bank or a depositor in the bank whose deposit/s have been excluded from deposit insurance coverage may file a request for reconsideration based on newly-discovered evidence which materially affects the questioned resolution. The request shall be addressed to the PDIC Board of Directors c/o the Office of the Corporate Secretary.

    2. The request for reconsideration shall be verified, accompanied by affidavit/s and other document/s in support of the ground for reconsideration. Request for reconsideration by a bank shall be filed by a person authorized by the bank’s Board of Directors in a resolution specifically for that purpose.

    3. The resolution of the PDIC Board shall be deemed final after the lapse of the period provided in paragraph 1 above and no reconsideration is filed, or if the request for reconsideration is filed out of time.

  6. Publication of a DCD and its Effect on Deposits

    1. The DCD shall be effective upon Publication thereof until dissolved or discharged by the PDIC, and notwithstanding any request for reconsideration thereof.

    2. The bank, through its President or Compliance Officer, shall be notified in writing of the resolution of the PDIC Board and furnished with a copy of the DCD.

    3. The bank is required to inform via registered mail the depositors of the accounts covered by the subject DCD and that such accounts are excluded from the coverage of PDIC deposit insurance. Failure of the bank to comply with this obligation shall not affect the effectivity and enforceability of the DCD. The President and the members of the Board of Directors of the bank shall likewise be liable criminally and/or civilly under existing PDIC regulations.

    4. Effective upon Publication of the DCD, the following shall not be covered by deposit insurance:

      1. Deposit account/s or transaction/s opened on or after the Publication of the DCD, which substantially have the same characteristics, features or nature as those covered by the DCD, as determined by the PDIC.

      2. Existing and outstanding deposit account/s or transaction/s of the bank prior to the Publication of the DCD which are covered by deposit insurance but were subsequently renewed, rolled over, converted or transformed to, the account/s covered by the DCD, or otherwise remains to be Unsafe and Unsound Banking Practice in contemplation of the DCD.

Section 5. Dissolution of a DCD

  1. Upon application by the affected bank, a DCD may be dissolved or lifted when the bank:

    1. Has actually ceased to offer the subject deposit account/s or other account/s or transaction/s which substantially have the same characteristics, features or nature as those covered by the DCD to the public and has fully complied with the corrective measures prescribed in the DCD, as verified by the PDIC through a compliance audit, and

    2. Undertakes to cease from further offering to the public the subject deposit account/s or transaction/s which substantially have the same characteristics, features or nature as those covered by the DCD.

  2. The depositors of the bank and the public shall likewise be informed of the dissolution or lifting of the DCD through Publication.

  3. Upon Publication of the dissolution or lifting of the DCD, the deposit insurance coverage for the subject deposit account/s or transaction/s shall be restored.

Section 6. Deposits that are Proceeds of an Unlawful Activity

Deposits that are determined to be the proceeds of an Unlawful Activity shall be governed by the following rules:

  1. Payment of deposit insurance shall be deferred on any deposit which is the subject matter of any freeze order, civil forfeiture proceedings, money laundering case, or any other case involving an Unlawful Activity, pending before the Department of Justice, Office of the Ombudsman, or the regular court.

  2. Deposit insurance payments shall only be made upon a final judgment effectively holding that the deposits do not constitute proceeds of an Unlawful Activity.

  3. Deposits determined with finality by the courts to be proceeds of an Unlawful Activity shall not be paid deposit insurance.

For purposes of this issuance, the phrase “proceeds of an unlawful activity” shall be understood to include deposits whose proceeds are related to an Unlawful Activity as defined under Republic Act No. 9160, otherwise known as the “Anti-Money Laundering Act of 2001, as amended.”

Section 7. Assessments on Deposits Excluded from Deposit Insurance

Prior to the Publication of the DCD, banks shall continue to pay assessments on all covered deposit accounts or transactions. Banks shall remove from the computation of the assessment base all deposit accounts or transactions excluded from the coverage of deposit insurance under the DCD upon the effectivity thereof.

Section 8. Remedies

  1. Denial of Deposit Insurance Claim

    If a deposit insurance claim is denied under this Regulatory Issuance, the concerned depositor may file within sixty (60) days from receipt of the denial, a verified request for reconsideration based on discovery of new evidence that has not been submitted to PDIC when the claim was filed, together with affidavit/s and other document/s that would support the payment of the claim. The request shall be addressed to the Claims Group of the PDIC.

  2. Finality of PDIC Actions

    As provided for in Section 4(f) of the PDIC Charter, the actions of the PDIC under this Regulatory Issuance shall be final and executory, and may not be restrained or set aside by the court, except on appropriate petition for certiorari under Rule 65 of the Rules of Court on the ground that the action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack or excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of denial of a request for reconsideration.

Section 9. Penalties

The penalty of prision mayor or a fine of not less than fifty thousand pesos (P50,000.00) but not more than two million pesos (P2,000,000.00) or both, at the discretion of the court, as provided for under Section 21 (f) of the PDIC Charter, shall be imposed upon any responsible director, officer, employee or agent of a bank for any failure or refusal to comply with, or any violation of any provision of this Regulatory Issuance on deposit accounts or transactions excluded from the coverage of deposit insurance.

The foregoing is without prejudice to the imposition of administrative fines against a bank and its responsible directors, officers, employees, or agents by the PDIC Board of Directors, pursuant to Section 21 (g) of the PDIC Charter and its implementing regulatory issuance/s.

Section 10. Repealing Clause

All other related rules and/or regulations of the PDIC, which are inconsistent herewith are hereby repealed or amended accordingly.

Section 11. Separability Clause

Sections of this Regulatory Issuance shall be deemed severable, and should any section, subsection, paragraph, sentence, or phrase of this Issuance be declared by a court of competent jurisdiction to be invalid, unenforceable, or unconstitutional, such decision shall not affect the validity of this Regulatory Issuance as a whole, or any part thereof, other than the part so declared to be invalid, unenforceable, or unconstitutional.

Section 12. Effectivity

This Regulatory Issuance shall take effect fifteen (15) days after its Publication.



For your guidance and strict compliance.




JOSE C. NOGRALES
President

Published in the Manila Bulletin and Businessmirror - January 27, 2011

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