QuestionsQuestions (BSP CIRCULAR NO. 747)
The Circular was issued by the Monetary Board, approving revisions through Resolution No. 116 dated 20 January 2012.
It amended the entirety of Section X180 [(2008 a X170) Compliance System; Compliance Officer] of the MORB, revising its contents and renumbering related subsections.
That BSP promotes the safety and soundness of the Philippine banking system through an enabling oversight environment governed by good corporate governance standards, and that a robust, dynamically-responsive, and distinctly-appropriate Compliance System must be put in place as part of internal controls.
It is defined as conditions that may erode the bank’s franchise value by being detrimental to the bank’s business model and its ability to generate returns; combining business risk with financial risks from borrowed funds yields total corporate risk.
Examples include: (1) reputation risks from internal decisions damaging market standing; (2) reputation risks impinging on public trust; (3) risks from actions contrary to regulations and best practices reflecting weaknesses in codes of conduct/standards; and (4) legal risks where changes in interpretation or provisions of regulations directly affect the business model.
It must be established by a charter or other formal document approved by the Board of Directors defining the compliance function’s standing, authority, and independence.
It must include, among others: measures ensuring independence from business activities; organizational structure and responsibilities; relationships with other units/functions and lines of cooperation; the right of access to necessary information; the right to conduct investigations; formal reporting relationships to senior management/Board/board committee; and direct access to the Board and appropriate board-level committee.
A written compliance manual reflecting the board-approved compliance program; clear distinction from the risk program and internal audit program; tailoring to size/complexity; an organizational structure to manage compliance (including CCO coordination); explicit definition of duties of the CCO and other compliance personnel; and a constructive working relationship and communication lines (training/education and consultation dialogues).
Compliance mitigates business risks; the risk program covers financial risks from balance sheet exposures; internal audit reviews ex-post whether guidelines were followed in transactions, procedures, decisions, and related activities.
It shall be deemed as a basis to assess a bank as involved in unsafe and unsound practices.
The President and the CCO must execute an affidavit, under oath, that the compliance system has been approved by the Board and that the Compliance manual reflects the approved system.
At least annually, to incorporate changing responses to evolving internal and external conditions.
It requires a constructive working relationship between the bank and BSP (including consultation and dialogue) and clear internal communication lines to educate and address compliance matters, including training for officers/staff and affiliated parties to appreciate the bank’s compliance culture.
To oversee the design of an appropriate compliance system, promote its effective implementation, address breaches, and ensure the integrity and accuracy of all documentary submissions to BSP.
The Monetary Board must approve the appointment. Qualifications must be subject to Section X142.2 on bank officers, including integrity/probity, competence, education, diligence, and experience/training.
Subject to prior Monetary Board approval, if the BSP deems the bank’s business model as 'simple' due to scale and complexity. The circular states deposit-taking and lending as the primary business for a simple model; it also provides that universal or commercial banks are complex, while thrift, rural, or cooperative banks are simple.
A board-level committee, chaired by a non-executive director, oversees the compliance program.
All provisions must be complied with on or before 01 July 2012.