The Bangko Sentral ng Pilipinas (BSP) is moving to amend its corporate governance guidelines for supervised financial institutions (BSFIs), seeking to monitor the integrity and competence of directors and officers through enhanced and routine evaluation.

A draft circular shows the central bank wants at least an annual “fit and proper” assessment of executives at banks and other financial institutions. The proposal is still at the draft stage, meaning it remains subject to stakeholder feedback and final Monetary Board approval before it takes effect.

According to the regulator, the amendments are designed to ensure that the evaluation of directors’ and officers’ fitness and propriety is not confined to their initial election or appointment, but extends throughout their entire tenure at the institution. The changes would build on the enhanced corporate governance framework the BSP put in place for the financial system in 2017, and they track fit-and-proper standards long applied by central banks and financial supervisors worldwide, including the Basel Committee on Banking Supervision’s corporate governance principles, which stress the individual and collective competence of bank boards.

“These enhancements underscore the pivotal role of the board of directors in safeguarding the safety and soundness of the BSFI,” the central bank said.

“This is to ascertain that, at all times, they consistently possess the requisite integrity, competence, and diligence necessary to discharge their fiduciary duties and oversight responsibilities, individually and collectively,” it added.

Under the proposed rule changes, BSFIs would be required to conduct an internal assessment to determine whether their elected or appointed directors and officers meet both the official minimum qualifications set out in the BSP’s manual of regulations and the institution’s internal board policies, ensuring they can perform their duties effectively.

For directors, the review must evaluate how their individual expertise strengthens the board’s collective skills, taking into account the institution’s risk profile, its goals, and developments in the surrounding financial system.

BSFIs must also submit documentation to the BSP proving that their elected or appointed directors and officers are fit and proper for their roles, placing the burden of proving qualification on all elected or appointed BSFI executives.

The proposed package includes mandatory technical expertise requirements for executives of digital banks and domestic systemically important banks (DSIBs), along with stricter oversight of technology-related risks and cybersecurity. Both categories already carry heightened supervisory expectations: digital banks operate under a licensing framework the BSP introduced in 2020, while DSIBs are banks whose distress could pose risks to the wider financial system and are subject to additional prudential requirements.

DSIBs and digital banks would be required to have at least one senior management officer with a minimum of three years of experience and technical knowledge in technology or e-commerce.

Corporate governance committees of BSFIs must likewise ensure their boards exercise proper technology and cyber risk oversight, including at least one director with relevant expertise in information technology, cybersecurity, or data governance. The technology focus reflects a recurring theme in the BSP’s supervisory agenda, as the regulator has identified cyber resilience and information technology risk management among its priorities amid the expansion of digital financial services.

The committee would also be tasked with identifying individual and collective competency gaps and addressing them through targeted training interventions.

Executives of technology-driven BSFIs would be mandated to undergo digital literacy training programs to keep them informed of evolving industry threats and strengthen their risk management. This would come on top of the required corporate governance training for all BSFI executives for the development and maintenance of their fitness and propriety.

The country head of a foreign bank branch would be required to attend a seminar on corporate governance for directors, while BSFIs’ chief compliance officers must complete a BSP-prescribed seminar on corporate governance.

The BSP is also seeking the authority to require the reconstitution or modification of a BSFI’s board, independent directors, or board-level committees if the institution is assigned a Supervisory Assessment Framework rating below “3.” Under the framework, supervised institutions receive composite ratings in which lower scores indicate a stronger condition, so a rating below “3” signals weaknesses that draw closer supervisory scrutiny.

If the amendments are approved, the Monetary Board will serve as the confirming authority for the chief executive officer or president and directors of all DSIBs, regardless of asset size. For universal and commercial banks (UBs and KBs) not classified as DSIBs, the BSP’s Financial Supervision Sector will handle the confirmation of their CEOs or presidents.

UBs, KBs, and digital banks would be asked to submit documentary requirements for preferred candidates three months prior to — and not later than five banking days from — the intended election or appointment.

“The newly elected/appointed director/officer in domestic UBs and KBs, including their subsidiary banks, and digital banks, shall not assume office unless confirmed by the Bangko Sentral,” the BSP said.

For all other BSFIs, the central bank wants the submission of directors’ and officers’ bio-data to be done annually rather than only upon election, re-election, or promotion.

The submission window would also be shortened to five banking days from the date of election or appointment, down from the 20 days currently allowed by the BSP. All submissions must likewise be made electronically. If the circular is finalized, BSFIs would need to align board succession planning, appointment timelines, and training calendars with the tighter deadlines; the final circular’s effectivity date and any transition provisions have yet to be specified.

Source: Bworldonline — Katherine K. Chan