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Banking Compliance Issues in the Philippines: A Major Concern for Financial Institutions
The Philippine banking sector has been grappling with compliance issues, posing significant risks to financial institutions and their stakeholders. Business or Compliance Risk refers to the potential regulatory or legal sanctions, material financial loss, or damage to reputation that banks may suffer due to non-compliance with laws, regulations, rules, and codes of conduct.
Revised Compliance Framework for Banks
Under Monetary Board Resolution No.116 dated January 20, 2011, and BSP Circular 747 Series of 2012 on the Revised Compliance Framework for Banks, banks are required to establish a robust compliance system and program to manage business risks effectively. The compliance function plays a critical role in identifying, evaluating, and addressing regulatory and reputational risk across all business lines.
Enterprise-Wide Compliance Program
The enterprise-wide compliance program helps banks to consider how activities in one area may affect the business or compliance risks of other areas and the entire group. This program also enables management to understand where risks are concentrated, provide comparisons of risk levels, and identify control processes that need enhancement.
Key Responsibilities
- The Bank’s Board of Directors, through its Audit Committee, provides oversight of the management of business risk and implementation of compliance function.
- The Compliance Office, led by the Chief Compliance Officer, is responsible for carrying out the compliance function at the management level.
Compliance Office Function
The Compliance Office oversees the implementation of the bank’s enterprise-wide compliance programs, taking into account size, complexity, relevant rules, and regulations that affect operations. Regulatory and Self-Assessment Matrices are used to formulate measures to mitigate identified risks, which are then tested for effectiveness.
Areas of Coverage
- Regulatory compliance
- Corporate governance
- Anti-money laundering compliance
- FATCA compliance
- Data privacy office
Testing and Monitoring Process
The Compliance Office applies a Three-Layered Testing and Monitoring Process, including: + Unit self-assessment testing + Independent random testing + Periodic review by the Bank’s Internal Audit unit
Compliance Database
A compliance database accessible to all employees promotes adherence, while continued dialogue with regulators ensures prompt dissemination of new regulations and developments.
Importance of Effective Banking Compliance
The importance of effective banking compliance cannot be overstated, as it directly impacts a bank’s reputation and ability to operate in the Philippines. With the compliance landscape constantly evolving, financial institutions must prioritize compliance and risk management to protect their stakeholders and maintain public trust.