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Banking Compliance Issues Plague Philippines Financial Institutions

The Bangko Sentral ng Pilipinas (BSP) has issued guidelines requiring banking and financial institutions (BSFIs) to establish a dynamic and responsive compliance risk management system. This move aims to strengthen regulatory oversight and identify and mitigate risks that may erode the franchise value of BSFIs.

Compliance Function Responsibilities

The compliance function is responsible for:

  • Advising the board of directors and senior management on relevant laws, rules, and standards
  • Establishing written guidance to staff on implementing these regulations
  • Identifying, documenting, and assessing compliance risks associated with business activities
  • Monitoring and testing compliance
  • Maintaining a constructive working relationship with regulators

Chief Compliance Officer (CCO)

A Chief Compliance Officer (CCO) has been appointed to oversee the identification and management of BSFI’s compliance risk and supervise the compliance function staff. The CCO reports to the board of directors or its designated committee and is responsible for ensuring the integrity and accuracy of all documentary submissions to the BSP.

Compliance Program Requirements

BSFIs are required to:

  • Ensure that personnel and affiliated parties adhere to pre-defined compliance standards
  • Implement the compliance program, with senior management responsible for overseeing the program
  • Obtain board approval for any changes, updates, or amendments to the compliance program

Cross-Border Compliance Issues

Operating in multiple jurisdictions has become a significant concern for BSFIs, requiring institutions to structure their compliance function to address local concerns within a framework of a group-wide compliance policy.

Outsourcing Compliance Risk Assessment and Testing

The BSP has introduced guidelines allowing for the outsourcing of compliance risk assessment and testing to qualified third parties. The handling and management of this outsourcing arrangement will be governed by existing regulations.

Impact on Operations and Resources

While the move is seen as a major step forward in strengthening regulatory oversight, critics have raised concerns about the potential impact on BSFIs’ operations and resources, highlighting the need for further clarification and guidance from regulators.