BSP issues new compliance rules, sets July 1 deadline

Local banks have until July 1 this year to comply with a new regulatory circular of the Bangko Sentral ng Pilipinas (BSP) on management of business risks. The BSP said new circular “covers wider ground” to include the bank’s reputation and decision making that could lead to the public’s trust in the bank.   “Under the new circular of the BSP, business risk is defined as the conditions which may be detrimental to the banks’ business model and its ability to generate returns from operations,” the regulator said.   The new circular on revised guidelines on corporate governance were adopted by the BSP Monetary Board adopted in their meeting last January 20. The previous circular issued in the wake of the Asian financial crisis in 1997 covered only adherence to what laws and regulations already lay down. Checks and balances   In the corporate governance guidelines, there is emphasis on “a strong system of checks and balances” covering matters such as board composition, independent director requirements, membership in board committees and specific duties and responsibilities of the board of directors.   “First, supervised entities are advised to select members of the BOD from a broad pool of candidates and to have sufficient number of non-executive members in the board,” the BSP said.   The guidelines now require that the number of independent directors must be at least 20 percent of the total number of members of the board, but not less than two.   Also in the guidelines are term limits on independent directors to ensure that they remain independent. The “5-2-5 rule” was prescribed and which means five years then a two-year “cooling off period” and five years of extension or re-election.   “After serving for ten years, the independent director shall be perpetually barred from being elected as such in the same company,” the BSP said.   The revised guidelines also bar the chief executive officer, the chief financial officer or treasurer from sitting in the audit committee “so as to prevent personnel holding said positions from exercising undue influence” on the audit committee’s decision-making,   Non-executive BOD members were also required to regularly meet the external auditor and the officers responsible for internal audit, compliance and risk management.   The revised compliance program directs banks’ BOD to appoint full-time chief compliance officers, who report directly to the board and have no line functions.    Dropped from the guidelines is the submission of a compliance manual. Now, the chief executive officer and the chief compliance officer are just required to submit an affidavit under oath that a compliance system has been approved by the bank’s Board and that the compliance manual reflects such an approved system. The manual must be available on bank premises when BSP inspectors come to conduct on-site examination. — ELR, GMA News