THE central bank is in the process of enhancing the set of rules seeking to ensure that directors and officers of its supervised financial institutions would be subject to continuing evaluation.
A draft circular issued by the Bangko Sentral ng Pilipinas (BSP) addresses the ‘M’ in the ‘Camels’ framework-‘Management quality’-used by regulators to test the health of banks, in this case, BSP-supervised financial institutions, or ‘BSFIs.’
‘These enhancements underscore the pivotal role of the board of directors in safeguarding the safety and soundness of the BSFI,’ the draft circular of the central bank read.
‘To this end, the amendments aim to ensure that directors and officers are not only assessed for fitness and propriety at the time of their election or appointment but are also subject to continuing evaluation,’ the document also noted.
According to the BSP, the guidelines is being issued to ascertain that, at all times, top leaders of BSFIs ‘consistently possess the requisite integrity, competence, and diligence necessary to discharge their fiduciary duties and oversight responsibilities, individually and collectively.’
BOD composition
ACCORDING to the central bank, members of the board of directors shall be selected from a ‘broad pool of qualified candidates.’
‘Non-executive directors, who shall include independent directors, shall comprise at least majority of the board of directors to promote the independent oversight of management by the board of directors,’ the draft circular of BSP read.
In the case of a digital bank and a domestic systemically important bank (DSIB), at least one member of the board of directors should have a minimum of three years of experience and technical knowledge in operating a business in the field of technology or e-commerce.
Director’s qualifications
FOR a person to be elected as director, the central bank said one has the ‘burden to prove that he possess all the foregoing minimum qualifictions and none of the cases mentioned under Section 138 (Persons disqualified to become directors and officers) of the Manual of Regulations for Banks (MORB).
Further, the BSP said the person must have attended a seminar on corporate governance for board of directors.
‘A director shall submit to the Bangko Sentral a certification of compliance with the Bangko Sentral-prescribed syllabus on corporate governance for newly elected directors and documentary proof of such compliance,’ the proposed amendment noted.
Corporate governance
SOME of the proposed amendments laid out in the draft circular are aimed at expanding the duties and responsibilities of the corporate governance committee.
For one, the committee shall oversee the nomination process for members of the board of directors and for positions appointed by the board of directors.
‘The committee shall review and evaluate the qualifications of all persons nominated to the board of directors as well as those nominated to other positions requiring appointment by the board of directors,’ the circular noted, adding that the committee shall take into account the BSFI’s risk profile, strategic direction, and developments in banking, regulatory, and operating environment.
‘BSFIs with significant technology exposures, technology-enabled business models, or substantial reliance on digital delivery channels, the committee shall ensure that the board collectively possess the competencies necessary for the effective oversight of technology and cyber-related risks, including the presence of at least one (1) director with relevant expertise, experience, or qualifications in information technology, cybersecurity, digital technology, data governance, or related disciplines,’ the circular noted.
According to the BSP, the committee shall also oversee the training and development program for the board of directors.
‘The committee shall ensure allocation of sufficient time, budget and other resources for the continuing education of directors, and draw on external expertise as needed. It shall establish and oversee the effective implementation of the BSFI’s policy for on-boarding/orientation program and annual continuing education for all directors, and ensure compliance with the Bangko Sentral requirements on board competency development,’ the proposed amendment noted.
The central bank explained that training programs shall support the development and maintenance of the competencies necessary for the ‘effective discharge’ of directors’ duties and responsibilities.
Further, the BSP said the committee shall ‘periodically assess’ the training needs of individual directors and the board as a whole based on individual and collective competencies, taking into consideration nature, scale, complexity, and risk profile of the BSFI’s operations, and the results of performance evaluations, and shall ensure that ‘identified competency gaps’ are addressed through appropriate training interventions.
To oversee the performance evaluation process, the committee ‘s evaluation shall assess the extend to which the Board effectively discharges its oversight responsibilities, including providing active oversight of technology-related and cyber risks commensurate with the BSFI’s risk profile and operating environment.
Officer qualifications
IN the case of a digital bank and a DSIB, at least one senior management officer should have a minimum of three years of experience and technical knowledge in operating a business in the field of technology or e-commerce.
In the case of foreign bank branches, the BSP proposes that the country head must have attended a seminar on corporate governance for directors.
Confirmations
ACCORDING to the draft circular, the Monetary Board shall serve as the confirming authority for directors and CEO/President or its equivalent rank in a DSIB, including their subsidiary banks, QBs, trust corporations and non-bank financial institutions (NBFIs) with trust authority.
Meanwhile, the BSP’s Financial Supervision Sector (FSS) shall have the authority to confirm the election/appointment of directors and CEO/President or its equivalent rank in universal and commercial banks other than DSIBs, including their subsidiary banks, QBs, trust corporations, and NBFIs with trust authority; of other stand-alone banks, QBs and NBFIs with trust authority.
The FSS shall also be the confirming authority for the heads of the following functions: comptrollership/finance, lending, treasury, branch banking, information technology and such other significant activities or operating functions that are ‘material’ to the BSFI’s business model, directly reporting to the CEO/President or its equivalent rank or to the foreign bank office, and with the rank of at least senior vice president of UKBs and digital banks, as may be applicable.
The FSS shall also be the one to confirm the election or appointment of heads of internal audit, risk management and compliance functions, regardless of rank, of banks, QBs and NBFIs with trust authority; and of trust corporations.