Question & AnswerQ&A (BSP CIRCULAR NO. 456)
The board of directors is required to constitute the Audit Committee, the Corporate Governance Committee, and the Risk Management Committee.
Members of the Audit Committee should preferably have accounting, auditing, or related financial management expertise or experience.
The Audit Committee is responsible for oversight of the institution’s financial reporting and control, internal and external audit functions, setting up the internal audit department, appointing internal and external auditors, monitoring and evaluating the adequacy and effectiveness of the internal control system, and ensuring an annual review of the institution’s internal controls and risk management.
The board must draw up a written charter or terms of reference that clearly sets out the Audit Committee’s authority and duties, as well as the reporting relationship with the board. This charter must be approved by the board and reviewed and updated periodically.
The Corporate Governance Committee must be composed of at least three members of the board of directors, two of whom shall be independent directors.
The Corporate Governance Committee assists the board in fulfilling its corporate governance responsibilities, reviews qualifications of nominees to the board and other key positions, ensures the board’s effectiveness, oversees periodic performance evaluations, conducts annual self-evaluation, decides on directors’ capability to perform duties, makes recommendations on continuing education, succession plans, and remuneration, and decides the manner for evaluating the board’s performance.
Members of the Risk Management Committee should have a range of expertise and adequate knowledge of the institution’s risk exposures to develop appropriate strategies for preventing and minimizing losses.
The core responsibilities include identifying and evaluating risk exposures, developing risk management strategies and a written risk management plan, implementing the risk management plan, reviewing and revising the plan as needed, and regularly reporting to the board on risk exposure and corrective actions.
The Audit Committee must have explicit authority to investigate any matter within its terms of reference, full access to and cooperation by management, discretion to invite any director or executive officer to its meetings, and adequate resources to effectively discharge its functions.
BSP Circular No. 456 took effect on January 1, 2005.