CHAPTER 10
OTHER BANK FUNCTIONS
 UB and KB, as well as other banks depending on the type of bank
and/or corresponding authority given by the Monetary Board may
also exercise may of the following functions:
1. Receive in custody funds, documents, and valuable objects;
2. Act as financial agent and buy and sell, by order of and for the
account of their customers, shares, evidences of indebtedness and
all types of securities;
3. Make collections and payments for the account of others and
perform such other services for their customers as are not
incompatible with banking business;
4. Upon prior approval of the Monetary Board, act as managing agent,
adviser, consultant or administrator of investment
management/advisory/-consultancy accounts; and
5. Rent out safety deposit boxes.
SAFETY DEPOSIT BOXES
 The SC in CA Agro-Industrial Development Corp. vs. Court of
Appeals, held that a contract of deposit that is to be strictly
governed by the provisions in the Civil Code on deposit; the contract
in the case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643
because the full and absolute possession and control of the safety
deposit box was not given to the joint renters.
 The relationship between the bank and the renter is the relationship
of a bailee and bailor.
 Consequently, a stipulation in the contract stating that the bank shall
not be obliged to exercise any diligence over the contents of the
safety deposit box is void.
 In so far as renting of safety deposit boxes is concerned, BSP
Circular No. 251, series of 2000, which was issued to combat
money-laundering, provides that banks should take reasonable
measures to establish and record the true identity of the clients.
FOREIGN EXCHANGE OPERATIONS
ARTICLE III
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE
BANKS
Section 76. Foreign Exchange Holdings of the Banks. - In order that
the Bangko Sentral may at all times have foreign exchange
resources sufficient to enable it to maintain the international
stability and convertibility of the peso, or in order to promote the
domestic investment of bank resources, the Monetary Board may
require the banks to sell to the Bangko Sentral or to other banks all
or part of their surplus holdings of foreign exchange. Such transfers
may be required for all foreign currencies or for only certain of such
currencies, according to the decision of the Monetary Board. The
transfers shall be made at the rates established under the provisions
of Section 74 of this Act.
The Monetary Board may, whenever warranted, determine the net
assets and net liabilities of banks and shall, in making such a
determination, take into account the bank's networth, outstanding
liabilities, actual and contingent, or such other financial or
performance ratios as may be appropriate under the circumstances.
Any such determination of net assets and net liabilities shall be
applied in all banks uniformly and without discrimination.
Section 77. Requirement of Balanced Currency Position. - The
Monetary Board may require the banks to maintain a balanced
position between their assets and liabilities in Philippine pesos or in
any other currency or currencies in which they operate. The banks
shall be granted a reasonable period of time in which to adjust their
currency positions to any such requirement.
The powers granted under this section shall be exercised only when
special circumstances make such action necessary, in the opinion
of the Monetary Board, and shall be applied to all banks alike and
without discrimination.
Section 78. Regulation of Non-spot Exchange Transactions. - In
order to restrain the banks from taking speculative positions with
respect to future fluctuations in foreign exchange rates, the
Monetary Board may issue such regulations governing bank
purchases and sales of non-spot exchange as it may consider
necessary for said purpose.
Section 79. Other Exchange Profits and Losses. - The banks shall
bear the risks of non-compliance with the terms of the foreign
exchange documents and instruments which they buy and sell, and
shall also bear any other typically commercial or banking risks,
including exchange risks not assumed by the Bangko Sentral under
the provisions of the preceding section.
Section 80. Information on Exchange Operations. - The banks shall
report to the Bangko Sentral the volume and composition of their
purchases and sales of gold and foreign exchange each day, and
must furnish such additional information as the Bangko Sentral may
request with reference to the movements in their accounts in foreign
currencies.
The Monetary Board may also require other persons and entities to
report to it currently all transactions or operations in gold, in any
shape or form, and in foreign exchange whether entered into or
undertaken by them directly or through agents, or to submit such
data as may be required on operations or activities giving rise to or
in connection with or relating to a gold or foreign exchange
transaction. The Monetary Board shall prescribe the forms on which
such declarations must be made. The accuracy of the declarations
may be verified by the Bangko Sentral by whatever inspection it may
deem necessary.
DISCOUNTING OF EVIDENCE OF DEBT AND ACQUISITION OF
SECURITIES
 Section 29 of the GBL, authorizes a commercial bank to acquire
marketable bonds and other debt securities. It also allows a
commercial bank to discount promissory notes, drafts, bill of
exchange, and other evidence of debt.
 Section X238, MORB - No bank shall sell, discount, assign, or
negotiate, in whole or in part, such as thru syndications,
participations and other similar arrangements, any notes,
receivables, loans, debt instruments and any type of financial asset
or claim, except government securities, or be a party in any capacity
in any of the above transactions, on a without recourse basis unless
such receivables, notes, loans, debt instruments and financial assets
or claims are registered with the SEC. This prohibition includes
transactions between a bank and its trust department.
DEPOSIT SUBSTITUTES
Section 95. Definition of Deposit Substitutes. - The term "deposit
substitutes" is defined as an alternative form of obtaining funds
from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower's
own account, for the purpose of relending or purchasing of
receivables and other obligations.
These instruments may include, but need not be limited to:
1. bankers acceptances,
2. promissory notes,
3. participations,
4. certificates of assignment and similar instruments with
recourse, and
5. repurchase agreements. 
CORRESPONDENT BANK
 A bank may likewise act as correspondent bank in the remittance of
funds from other countries.
 A bank in another country (foreign bank) enters into an agreement
with a local bank (correspondent bank) whereby the foreign bank
can ask the correspondent bank to pay amounts to a 3rd party.
 Upon payment to the 3rd party by the correspondent bank, the latter
bank is entitled to bill the foreign bank for reimbursement.
 The contract between the foreign bank and the local bank is in the
nature of an agreement pour autrui
 SC ruled:
 Even if the beneficiary is indebted to the correspondent bank, the
latter cannot do a shortcut and simply intercept funds being coursed
through it, for transmittal to another bank, and eventually to be
deposited to the account of the beneficiary.
 The bank cannot invoke the legal compensation in such a case.
 The applicable regulation is BSP Circular No. 436 series of 2004.
 AMLC rules on Correspondent Bank
 AMLC requires covered persons to adopt policies and procedures to
prevent correspondent banking activities from being utilized for money
laundering activities, and designate an officer responsible in ensuring
compliance with these policies and procedures.
 A covered person may rely on the customer identification process
undertaken by the respondent bank pursuant to the circulars and
guidelines that may be promulgated by the BSP.
a. In relation to cross-border correspondent banking and other
similar relationships, covered persons are required to:
i.  Gather sufficient information about the respondent institution
to understand fully the nature of the respondent’s business,
and to determine from publicly available information the
reputation of the institution and the quality of supervision,
including whether it has been subject to a money laundering
and terrorist financing (ML/TF) investigation or regulatory
action;
ii. Assess the respondent institution’s anti-money laundering and
combating the financing of terrorism (AML/CFT) controls;
iii. Obtain approval from senior management before establishing
new correspondent relationships; and
iv. Clearly understand the respective AML/CFT responsibilities of
each institution.
b.    With respect to “payable-through accounts,” covered
persons are required to satisfy themselves that the respondent
bank:
i. Has performed customer due diligence obligations on its
customers that have direct access to the accounts of the
correspondent bank; and
ii. Is able to provide relevant customer due diligence information
upon request to the correspondent bank.
Covered persons are prohibited from entering into, or continuing,
correspondent banking relationships with shell banks and should have
measures to satisfy themselves that respondent financial institutions do
not permit their accounts to be used by shell banks.
INSURANCE BUSINESS
 Banks are prohibited from engaging in insurance business.
 Under the Insurance Code, “doing an insurance business” includes:
1. Making or proposing to make, as insurer, any insurance contract;
2. Making or proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental to any other legitimate
business or activity of the surety;
3. Doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
4. Doing or proposing to do any business in substance equivalent to
any of the foregoing in a manner designed to evade the provisions
of this Code.
 However, a UB can own shares in an insurance corporation
because it is authorized to invest in non-allied businesses.
 Guarantees
 It should be noted in this connection that the former law, General
Banking Act, prohibited banks to enter, “directly or indirectly, into any
contract of guaranty or suretyship or to guaranty the interest or
principal of any obligation of any person, co-partnership, association,
corporation, or other entity.
 There is an opinion to the effect that the non-inclusion of the
provisions of Section 76 means that banks nor issue guaranteed of
any form and it is not limited to letters of credit.
 However, it is submitted that the absence of the provisions of
Section 74 of the old law in the GBL should be construed in the light
of the prohibition on banks to engage in insurance business.
 Thus, if the bank will act as surety as a business undertaking on a
regular basis, this may already be construed as a prohibited act
because it is considered “insurance business.”
 Bancassurance
 The amended provisions of the Insurance Code now expressly
recognized Bancassurance.
RA 10607
Section 375. The term bancassurance shall mean the
presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the
head office of such bank duly licensed by the Bangko Sentral ng
Pilipinas or any of its branches under such rules and regulations
which the Commissioner and the Bangko Sentral ng Pilipinas
may promulgate. To engage in bancassurance arrangement, a
bank is not required to have equity ownership of the insurance
company.
No insurance company shall enter into a bancassurance
arrangement unless it possesses all the requirements as may be
prescribed by the Commissioner and the Bangko Sentral ng
Pilipinas.
 It is clear however that it is not the bank that will engage in
insurance business,
 Insurance companies are just allowed to present their products in
the bank premises.
OUTSOURCING OF BANK FUNCTIONS
 Section X106 of the MORB provides that “a bank may outsource to
third parties or to related companies in the group, in accordance with
existing Bangko Sentral Regulations, certain services or activities to
have access to certain areas of expertise or to address resource
constraints.
 However, the MORB requires that the bank “has in place appropriate
processes, procedures, and information system that can adequately
identify, monitor, and mitigate operational risks arising from the
outsourced activities.
 OUTSOURCING
 Shall refer to any contractual agreement between a bank and a
qualified service provider for the latter to perform designated
activities on a continuing basis on behalf of the bank.
 PROHBITED OUTSOURCING
 A bank is prohibited by Section 55(1)(e) of the GBL to
outsource banking functions.
 Subsection X162.2 of the MORB identifies the inherent banking
functions that cannot be outsourced:
1. taking of deposits from the public;
2. granting of loans and extension of other credit exposure;
3. managing of risk exposures; and
4. general management
 Since the prohibition is limited to outsourcing of inherent banking
functions, the BSP allows outsourcing of certain functions but only
with service providers with demonstrable technical and financial
capability commensurate to the service to be rendered.
 The contract with the service provider is subject to review by the
BSP.
 The SC explained that the competence in determining which
banking functions may or may not be outsourced lies with the BSP.
 This does not mean that banks can simply outsource banking
functions allowed by the BSP thru its circulars, w/o giving regard
to the guidelines set forth by other agencies like the DOLE.
 For instance, DOLE D.O. No. 10, Series of 1997, enumerated
the permissible contracting or subcontracting activities.
 However, the provision allows subcontracting only of “worker or
services not directly related or nor integral to the main business
or operation of the principal.”
 Thus, the DOLE regulation does not limit or prohibit the
appropriate government agency, such as the BSP, to issue rules,
regulations or circulars to further and specifically determine the
permissible services to be contracted out.
 Consequently, the outsourcing of the cashiering and accounting
requirements of the branch of a bank is allowed under existing rules.
 The subject functions appear to be nor in anyway directly related
to the core activities of banks.
 They are functions in a processing center of the bank that does
not handle or manage deposit transactions,
 The functions that were outsourced are not inherent banking
functions, and, thus, are well within the permissible services
under the rules.
FUNCTIONS THAT MAY BE OUTSOURCED
1. Information technology system and process
- Exempted are functions affecting the ability of the bank to
ensure the fitness of technology services deployed to meet its
strategic and business objectives and to comply with all
pertinent banking laws and regulations, such as but not limited
to strategic planning for the use of information technology;
determination of system functionalities; change management
inclusive of quality assurance and testing; service level and
contract management; and security policy and administration.
2. Subject to prior approval of the Monetary Board:
a. data imaging, storage, retrieval and other related systems;
b. clearing and processing of checks not included in the Philippine
Clearing House System;
c. Printing of bank deposit statements.
3. The bank may also outsource:
a. Credit card services;
b. Printing of bank loan statements and other non-deposit
records, bank forms and promotional materials;
c. Credit investigation and collection;
d. Processing of export, import, and other trading transaction;
 e. Transfer agent services for debt and equity securities;
f. Messenger, courier, and postal services;
g. Security guard services;
h. Vehicle service contracts;
i. Janitorial services;
j. Human resource related services;
k. Public relations services;
l. Procurement services;
m. Temporary staffing; and
n. Legal services from local legal counsel.

BROKERING OF SECURITIES
 Pursuant to the Bangko Sentral’s policy of promoting the
development of domestic capital markets by upholding investor
protection and transparency in securities transactions, following are
the guidelines relating to the segregation, handling and reporting of
customer funds and securities received by banks in the performance
of their securities brokering functions. The limited coverage of the
guidelines shall not relieve the bank acting as securities broker of its
obligation to comply with other requirements of the Securities
Regulation Code (SRC) and its Implementing Rules and Regulations
(IRR).

 Securities brokering- A securities brokering transaction refers to

the act of buying and selling evidences of indebtedness, shares and
all types of securities by order of and for the account of customers.

b. Securities broker – A securities broker refers to an entity which

is duly-registered by the SEC to engage in securities brokering
transactions.

c. Customer – A customer refers to any person from whom, or on

whose behalf, a securities broker receives, acquires or holds funds
or securities for the account of such person.