Bangko Sentral to monitor banks' business risk compliance more closely

Starting September, Bangko Sentral ng Pilipinas will use a new assessment tool for a comprehensive evaluation of how effective banks are in their compliance system in mitigating business risk, central bank said Thursday.

 

“The adoption of the compliance rating system will serve as a tool for BSP in assessing in a systemic and consistent manner the overall effectiveness of an institution’s compliance system, both to prevent and address operational weaknesses and violations of rules and regulations,” Bangko Sentral noted in a  statement.

 

The system will be used in assessing how effective is a bank's own compliance system during on site examinations.

 

The Monetary Board approved the new approach during a meeting earlier this month based on central bank Circular 747 which requires banks to have in place a compliance system as an integral component of internal controls.

 

The size, complexity and risk profile of  a bank are the three main components the central bank system will look at in assessing an institution's compliance system. 

 

“The first component is the effectiveness and efficiency of the board of directors and senior management… Ultimately, this component rating measures whether the board of directors and senior management have fulfilled their duties and responsibilities on compliance,” according to Bangko Sentral.

 

A strong management oversight component exhibits a clear delineation of duties and responsibilities, as well as independence of the compliance function, sufficient resources to carry out responsibilities effectively, and cooperative and constructive working relationship with the Band Sentral and other units within the bank.

 

The soundness and effectiveness of implementation policy through a program are reflected in the second component or the complexity of a bank.

 

The risk profile measures the adequacy and soundness of internal controls that support the board of directors and senior management in identifying, measuring, monitoring and controlling business risks, Bangko Sentral noted.

 

Each component is rated based on a four-point scale, with 4 the highest which indicates the strongest and most effective system that entails minimal supervisory concern on compliance.

 

The a rating of 1 signifies the weakest system and requires the highest degree of supervisory concern on compliance.

 

The composite rating is not arrived at by computing the arithmetic average of the component ratings, but Bangko Sentral will assess the areas that exert the greatest impact on safety and soundness of a bank.

 

“The overall or composite rating generally bears a close relationship to each component rating assigned,” the BSP added. — VS, GMA News