Compliance Risks Haunt Philippine Banks: Experts Warn of Legal, Regulatory Consequences
The Bangko Sentral ng Pilipinas (BSP) has sounded the alarm on compliance risks facing the country’s banking sector, warning that failures to adhere to regulations can lead to legal and regulatory consequences.
Key Requirements for Compliance
According to a circular dated August 22, 2017, banks must have:
- A formal compliance function that reports directly to the board of directors or a designated committee
- A Chief Compliance Officer (CCO) who possesses the necessary qualifications and experience
- A system in place to advise senior management on legal and regulatory issues, monitor and test compliance risk exposures
Importance of Compliance Function
The BSP emphasized the importance of appointing a CCO who oversees the identification and management of compliance risks and supervises compliance function staff. Experts warn that banks that fail to comply with regulations may face serious consequences, including:
- Legal action
- Reputational damage
- “Compliance is not just a tick-box exercise,” said a banking expert. “It’s essential for ensuring the integrity of the financial system and protecting customers’ interests.”
Cross-Border Compliance
The BSP circular also highlighted the need for banks to consider cross-border compliance issues when conducting business in other jurisdictions. Banks must ensure that local compliance concerns are addressed within the framework of their group-wide compliance policy.
Outsourcing Compliance Risk Assessment
In addition, the BSP allowed for the outsourcing of compliance risk assessment and testing to qualified third parties, but emphasized that such arrangements must be governed by relevant regulations.
Conclusion
The circular is seen as a wake-up call for banks to prioritize compliance and avoid potential legal and regulatory consequences. As the banking sector continues to evolve, it’s clear that compliance will remain a critical issue for financial institutions in the Philippines.