New risk management rules for central bank-supervised financial institutions, specifically focused on their treasury activities, have been approved by the Monetary Board.
The Bangko Sentral ng Pilipinas (BSP) on Monday said the issuance of the new rules was in line with an initiative to update its supervisory approach to suit industry practices and global standards.
“The new regulations set BSP’s expectations on BSFIs (BSP-supervised financial institutions) management of operational risk arising from their treasury activities, as lapses may bring about significant losses and exposures to compliance and reputational risks,” the central bank said in a statement.
It underscored the need for BSFIs to act ethically and with integrity, especially in the context of their participation in financial markets, and stressed that the new regulations highlighted the key roles played by bank boards and senior management.
BSFIs are expected to have codes of conduct specific to their treasury units—in addition to any institution- or industry-wide codes that personnel currently have to follow—plus policies and procedures to ensure that the codes’ provisions are upheld.
“The regulations set out a requirement to distinguish between the different functions performed by a treasury unit and to segregate conflicting duties, for instance, risk-taking and recording, and reconciliation and settlement, in line with internal control principles,” it said.
The central bank also expects BSFI control functions, namely risk management, compliance and audit, to regularly and actively be used in the oversight of treasury activities.
The regulator will implement the appropriate supervisory enforcement actions—set out in the BSP Supervisory Enforcement Policy under Circular 875 dated April 15, 2015—for non-compliant BSFIs.
Changes to the so-called “fit and proper” rules were also approved by the Monetary Board, the central bank announced.
“In order to support the principle of upholding market integrity and professionalism at the highest level of governance of a BSFI, the qualifications for directors and officers are being amended to explicitly relate the assessment of a person’s integrity and probity to his reputation in the market, as well as his ability to comply with market conduct rules and the requirements of other regulatory bodies beyond the BSP,” the central bank said.
The BSP added that it was also timely to introduce a new perspective in the overall evaluation of a person’s fitness and propriety to assume a directorship or executive position by giving more importance to displayed behaviors rather than a checklist of requirements.
In this regard, the central bank said existing criteria—laid out in the Basel Committee on Banking Supervision’s guidance on corporate governance principles for banks—had been supplemented by skills and, for directors, independence of mind and sufficiency of time.