BSP Issues Revised Governance Standards for Banks and Non-Bank Financial Institutions

The Bangko Sentral ng Pilipinas (BSP) has issued revised governance standards for banks and non-bank financial institutions, aiming to strengthen corporate governance and compliance frameworks.

Key Highlights

• The Monetary Board has approved Resolution 1484, which amends relevant provisions of the Manual of Regulations for Banks (MORB) and the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI).
• Non-Filipino citizens are now allowed to become members of the board of directors up to a certain extent, dependent on foreign participation in the equity of the BSP-supervised financial institution.
• The regulator has updated its requirements for director fit and propriety, including factors such as integrity, physical and mental fitness, relevant education, financial literacy, training, and possession of competencies relevant to the job.

Director Fit and Propriety

The revised guidelines exempt certain individuals from these requirements, including:

• Former chief justices and associate justices of the Supreme Court
• Distinguished Filipino and foreign nationals who served as senior officials in central banks and financial regulatory agencies
• Filipinos with recognized stature, influence, and reputation in the banking community.

Board Composition and Term Limits

• Independent directors are now limited to serving a maximum cumulative term of nine years, or eight years for cooperative banks.
• After this period, they are perpetually barred from serving as independent director in the same institution but may continue to serve as regular director.

The BSP has also introduced new rules on board composition, including:

• Prohibition on members of the board of directors holding positions such as corporate secretary or chief compliance officer
• Emphasis on separating the positions of chairperson and CEO
• Appointment of a lead independent director in exceptional cases already approved by the Monetary Board

Officer Fit and Propriety

The regulator has reiterated that officers of banks and financial institutions must be fit and proper for their position, and that interlocking positions held by directors and officers must be approved by the board of directors.

Implementation Timeline

Banks have been given until June next year to address issues noted in the assessment of interlocking positions in the election of directors and appointment of officers.

Purpose and Impact

The revised guidelines aim to enhance corporate governance practices among BSP-supervised financial institutions, ultimately contributing to a more robust and resilient financial system in the Philippines.