Monetary body approves Compliance Rating System

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The Bangko Sentral ng Pilipinas (BSP) on Thursday announced that its Monetary Board recently approved the adoption of a Compliance Rating System in assessing the overall effectiveness of an institution’s compliance system.

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According to the BSP, the system is an assessment tool that the central bank has developed to evaluate during an on-site examination the effectiveness of a bank’s and other supervised financial institutions’ compliance system in mitigating business risk.

“BSP Circular 747 requires institutions to have a robust, dynamically responsive and appropriate compliance system as an integral component of an institution’s internal controls,” it stated.

The BSP added that the Compliance Rating System was adopted to prevent and to address operational weaknesses and violation of rules and regulations of an institution.

“The Compliance Rating System complements an increasingly broad array of assessment tools developed by the BSP,” it further stated.

The central bank continued that the assessment in compliance system will form part of BSP’s assessment of “controls and independent oversight” factor in the corporate governance assessment.

Furthermore, the BSP explained that the effectiveness of the compliance system will be assessed based on three components, which will be assessed taking into account the size, complexity and risk profile of an institution.

The first component rating measures whether the board of directors (BOD) and senior management (SM) have fulfilled their duties and responsibilities on compliance.

The second component is the soundness and effectiveness of the implementation of compliance policy through a compliance program.

“The compliance system shall be designed to specifically identify and mitigate business risk which may erode the franchise value of the institution,” the BSP said.

The third component measures the adequacy and soundness of internal controls that support BOD and SM in identifying, measuring, monitoring and controlling business risks; and the effectiveness of the internal audit in assessing the compliance function.

The BSP said that each component will be rated using a four point rating scale, with 4 as the highest rating. The rating of 4 indicates the strongest and most effective compliance system, while the rating of 1 signifies the weakest compliance system.

Lastly, the BSP announce that the Compliance Rating System will be used in assessing the effectiveness of bank’s compliance system in examinations starting September 2013.

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