BSP tightens noose on financial institutions

TO ENSURE against bank failures due to mismanagement or flawed board decisions, the Monetary Board, policy making body of the Bangko Sentral ng Pilipinas has issued guidelines tightening corporate governance of financial institutions. 

 

New Policy Guidelines

The new policy guidelines is anchored on the fact that good governance must come from the top and the guidelines also enhanced the composition of the board so that it would have a good collective mix of individuals with the expertise and competence to effectively manage the financial institution.

This includes non-executive directors, who shall include independent directors, to comprise majority of the board.  The prescribed number of independent directors was raised from 20 percent to one-third, or two members, whichever is higher. 

But for rural banks, only one independent director is required, consistent with proportionality requirement. 

The independent director may serve only for a maximum of nine years and a non executive director may only hold five directorships concurrently in different publicly-listed companies.

Further the position of chairperson and chief executive officer must be held by two individuals (unlike the usual practice of one person) to ensure independence of the board from management and allow the board to challenge those involved in operations. 

In exceptional cases where the position of CEO and chairman is held by the same person, as approved by MB, an independent director shall be appointed.

 

Culture of Good Governance

Overall, the BSP expects the members of the board to promote a culture of good governance and display practices that maintain a balance between rewarding efficient and effective and upholding consistent adherence to the values of the organization. 

The duties and responsibilities of the board were streamlined in five key areas related to: a) shaping corporate values and culture; b) setting out objectives and strategies and oversight on management’s implementation thereof; c) appointing key members of senior management and control functions; d) overseeing the corporate governance framework and e) adopting a robust risk governance framework.

The MB also defined the supervisory expectations and minimum prudential requirements on risk governance and compliance functions. 

 

Risk Reporting

The policy provides a framework for risk governance that integrates the principles set out in other risk-related issuance of BSP under one umbrella. 

It covers the principles of risk data aggregation and risk reporting.

The guidelines provide the role of the board in establishing a dynamic and responsive compliance risk management system and emphasize the shared responsibility of personnel, officers and the board in managing business risk.

The amendments to the corporate governance guidelines are aimed at promoting prudence and greater accountability in line with the implementation of the continuing reforms of the financial sector. 

The approved standards are at par with international standards and are aligned with the Securities and Exchange Commission’s Code of Corporate Governance for publicly-listed companies.

It is also part of the financial sector supervisors to enhance corporate governance practices in the country.

 

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