Philippines’ Banks Face New Compliance Requirements

In an effort to strengthen corporate governance and compliance frameworks, the Bangko Sentral ng Pilipinas (BSP) has issued revised guidelines for banks and non-bank financial institutions in the Philippines.

Key Changes

• Non-Filipino citizens are now allowed to become members of a bank’s board of directors, subject to the extent of foreign participation in the institution’s equity.
• Directors must meet strict criteria to ensure their fitness and propriety for the position.
• Independent directors have a maximum cumulative term of nine years, after which they are perpetually barred from serving in the same institution.

Eligibility Criteria

To be eligible as a director, one must demonstrate:

• Integrity
• Physical and mental fitness
• Relevant education or financial literacy
• Possession of competencies relevant to the job, including knowledge, experience, skills, diligence, and independence of mind
• Sufficient time to fully carry out their responsibilities
• No concurrent positions that may pose conflicts of interest

Exemptions

The following individuals are exempt from these requirements:

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

Additional Requirements

• The positions of chairperson and chief executive officer should not be held by one person, except in exceptional cases already approved by the Monetary Board.
• A lead independent director must be appointed in such circumstances.
• The chairperson is prohibited from having served as CEO within the past three years, unless it is consistent with the institution’s succession plan or there are no majority supervisory concerns regarding governance, risk management systems, internal controls, and compliance systems.

Officer Requirements

Officers of banks and financial institutions must also be fit and proper for their positions. Interlocking positions, which refer to multiple directorships or officer roles held by individuals, must be approved by the board of directors of banks and addressed by June next year.

Implementation Objective

The implementation of these new guidelines aims to enhance corporate governance and compliance frameworks in the Philippine banking industry, ensuring a safer and more stable financial system for all stakeholders.