Philippine Businesses Urged to Prioritize Compliance Risk Management Amid Rising Concerns
The Importance of Risk Management
A clear understanding of risks surrounding business activities is crucial for any organization to create sustainable stakeholder value in executing its strategies. It is therefore essential to reinforce the overall strategy of an organization with a prudent risk management framework so that the opportunities are optimized while minimizing the effects of downside risks.
PNB’s Approach to Risk Management
The Philippine National Bank (PNB) has emphasized the importance of having a robust Enterprise Risk Management Framework (ERMF), which outlines the risk management process, activities, tools, and organizational structure to ensure material risks are identified, measured, monitored, and managed throughout the entire organization.
The Three Lines-Of-Defense Model
According to PNB, the bank’s approach to managing risk relies heavily on the Three Lines-Of-Defense model, an effective method to enhance communication across the Bank’s units regarding risk and control. The model consists of three lines:
- First Line of Defense: The first line of defense is made up of the bank’s lines of business and legal entities, responsible for managing risks through proactive risk identification and design and implementation of risk mitigants and control mechanisms.
- Second Line of Defense: The second line of defense comes from the Risk Management, Compliance, and Information Security/Cyber Security functions of the Bank, which provide independent oversight and regularly report to the Risk Oversight Committee (ROC). The Enterprise Information Security Group (EISG) manages the bank’s information security/cyber security risk, while the Global Compliance Group (GCG) is vested with the effective implementation of the bank’s compliance program.
- Third Line of Defense: The third line of defense is performed by the Internal Audit Group (IAG), which provides independent assessment of the adequacy and effectiveness of the Bank’s risk management, risk control, compliance, and governance functions. IAG reports directly to the Board Audit and Compliance Committee (BACC).
Benefits of a Disciplined Risk Management Culture
By instituting a disciplined risk management culture and framework, PNB ensures oversight and accountability for risk at all levels of the organization and across all risk types. The bank’s Senior Management Team works closely with business lines in managing risk, while the seamless flow of a rich risk culture ensures effective implementation of the ERMF not only within the Bank but also across its subsidiaries and affiliates.
Importance of Compliance Risk Management for Philippine Businesses
As the banking industry continues to face increasing regulatory demands and rising concerns over compliance risk management, it is essential for Philippine businesses to prioritize this critical aspect of their operations. By adopting a robust risk management framework and fostering a culture of transparency and accountability, organizations can minimize the effects of downside risks and create sustainable stakeholder value.
Conclusion
In today’s complex business environment, it is crucial for organizations to prioritize compliance risk management to ensure long-term success. By following PNB’s approach and implementing a robust Enterprise Risk Management Framework, Philippine businesses can mitigate potential risks and create sustainable value for their stakeholders.