President Rodrigo Duterte has directed all non-bank government entities to formulate investment governance frameworks for foreign exchange (FX) derivatives transactions.
The President approved on Tuesday Administrative Order (AO) 48 to regulate FX derivatives transactions of non-bank entities to “configure the country’s public sector debt profile.”
Copies of the measure were released to the public on Thursday.
“There is a need to institute sufficient monitoring safeguards and risk management mechanisms in FX derivatives transactions to protect the National Government’s fiscal and economic interests in non-bank government entities,” Duterte wrote in the AO.
He also said the order aims to ensure that the government debt “involves extended maturities” and an “optimum mix of currencies” to minimize the impacts of drastic currency movements.
Duterte said the order would take effect immediately after its publication in the Official Gazette or a newspaper of general circulation.
Under the AO, the President directed the Department of Finance (DOF) to oversee all FX derivatives activities of all non-bank government entities like government-owned or -controlled corporations (GOCC).
These include Government Service Insurance System, Social Security System, Home Development Mutual Fund, and Philippine Health Insurance Corporation, as well as other government entities not regulated by the Bangko Sentral ng Pilipinas.
The finance department, as well as the Board of Directors or Trustees or the Heads of all covered entities, should approve investment governance frameworks.
The Secretary of Finance may disapprove or defer approval of investment governance frameworks on the ground of non-compliance with the requirements under the implementing guidelines to be issued under the order, provided that the covered entity concerned will be given an adequate opportunity to comply and address the concerns relative to its submission.
Covered entities should submit to the DOF at the end of every quarter a report on FX derivatives outstanding, a mark-to-market valuation report, if applicable, and such other reports as may be required under the AO’s implementing guidelines.
Such reports should be included in the GOCC’s liabilities and processing tool of the DOF, as may be appropriate, to allow the government to evaluate and analyze the impacts of such FX derivatives transactions.
The Secretary of Finance should promulgate implementing guidelines, which must include, among others, the content of the investment governance frameworks of covered entities within 60 days from the effectivity of the order.
Covered entities that have executed FX derivatives transactions before the issuance of this order are given 45 days from the issuance of the implementing guidelines to submit to the DOF their respective investment governance frameworks, as well as the required reports on FX derivatives outstanding.
Derivatives are contracts between two or more parties, which derive their value on an agreed-upon underlying financial asset, index, or security, such as bonds, commodities, currencies, or stocks.