Law Summary
Functions Requiring Prior Monetary Board Approval
- Outsourced functions include data imaging, check processing outside the Philippine Clearing House System, printing deposit statements, credit card services, credit investigation and collection, processing trade transactions, property appraisal and management.
- Internal audit outsourcing is allowed under stringent conditions ensuring independence and accountability of the internal audit process.
- Marketing of loans, deposits, and other products may be outsourced provided deposit account openings are excluded.
- General bookkeeping and accounting outsourcing is permitted except for deposit servicing or inherently banking functions.
- Offsite records storage services and certain intra-group front/back office functions are included with conditions.
- The Monetary Board retains authority to allow other outsourcing activities as deemed appropriate.
Conditions for Outsourcing Internal Audit
- The Board of Directors and senior management remain responsible for internal controls and oversight.
- External service providers must be independent external auditors listed by BSP or parent companies with stipulated compliance requirements.
- Contracts must not exceed five years, with contingency plans to mitigate audit disruption.
- Engagement contracts must clearly define roles, scope, fees, regulatory review access, independence compliance, record retention of reports, confidentiality, and protocols for contract changes and termination.
Outsourcing Front/Back Office Functions within Business Groups
- Outsourcing between parent and subsidiary limited to trade support services.
- No inherent banking functions involving deposits are outsourced.
- Certifications and service level agreements outlining responsibilities and confidentiality are required.
- Breach of these conditions subjects outsourcing to the full regulatory requirements.
Functions Allowed to be Outsourced Without Prior Monetary Board Approval
- Includes printing of loan statements, transfer agent services, messenger and courier, security guard, vehicle service contracts, janitorial, public relations, procurement, temporary staffing (excluding deposit services).
- Also includes cash sorting and bagging, maintenance of computer hardware, payroll processing, telephone operator services, sale/disposal of acquired assets, personnel training, and maintenance of buildings and facilities.
- Monetary Board may designate other non-sensitive activities as allowed.
Extension to Quasi-Banks and Non-Bank Financial Institutions
- Outsourcing provisions applicable to banks are incorporated into the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) for quasi-banks and other financial institutions.
Effective Date
- The circular implementing these provisions takes effect 15 days following publication in the Official Gazette or a newspaper of general circulation.