THE Bangko Sentral ng Pilipinas (BSP) is proposing tougher corporate governance requirements for banks to ensure that directors and officers are capable of carrying out their responsibilities.
A draft central bank circular calls for rigorous assessments of director competence and performance, stronger board oversight of technology and cyber risks and continuing training.
The proposed amendments to the BSP’s rules on the fit-and-proper assessment of directors and officers would place greater responsibility on corporate governance committees to scrutinize the qualifications of board nominees and monitor the continuing competence of sitting directors.
“These enhancements underscore the pivotal role of the board of directors in safeguarding the safety and soundness of the BSP-supervised financial institutions (BSFIs),” the central bank said.
The draft also provides that results of periodic performance evaluations should be considered in determining the continuing fitness and propriety of directors and officers.
The proposed changes come as banks face an increasingly complex operating environment, with the BSP seeking to ensure that boards have the skills and expertise necessary to oversee risks arising from changing business models, technology and regulation.
“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,” the BSP said.
Under the draft circular, the corporate governance committee will oversee the nomination process for board members and positions appointed by the board.
It will have to review the qualifications of nominees while taking into account the financial institution’s risk profile, strategic direction, as well as developments in the banking, regulatory and operating environment.
The corporate governance committee will also oversee periodic assessments of the contribution and performance of the board, board-level committees and senior management.
The evaluation should cover areas such as competence, candor, attendance, preparedness and participation as well as the board’s ability to effectively discharge oversight responsibilities.
Banks will also be required to address the competing time commitments of directors who serve on multiple boards as well as officers who hold concurrent or interlocking positions in other entities.
This is intended to ensure that directors and officers have sufficient capacity to properly perform their responsibilities.
The corporate governance committee will also be responsible for ensuring the effective implementation of onboarding and orientation programs for first-time directors and annual continuing education for all board members.
It will also be expected to periodically assess the training needs of individual directors and the board as a whole, taking into consideration the bank’s nature, scale, complexity and risk profile as well as the results of performance evaluations.
Identified competency gaps will have to be addressed through appropriate training interventions and for directors with limited financial, regulatory, governance or risk-related experience, the draft calls for more robust and targeted training initiatives.
For financial institutions with significant technology exposures, technology-enabled business models or a substantial reliance on digital delivery channels, the corporate governance committee will have to ensure that the board collectively possesses the competencies needed to oversee technology and cyber-related risks.
The proposed rules call for at least one director with relevant expertise, experience or qualifications in information technology, cybersecurity, digital technology, data governance or related disciplines.
Directors will also undergo regular training to improve their digital literacy and strengthen their ability to oversee technology-related activities and risks.
For digital banks and domestic systemically important banks (DSIBs), the draft sets a more specific benchmark. At least one board member should have a minimum of three years of experience and technical knowledge in operating a technology or e-commerce business.
The proposed circular also gives the BSP a stronger role in addressing weaknesses in board composition.
Where warranted, including cases where a bank or financial institution receives a composite supervisory assessment rating below “3,” the BSP may require the reconstitution or modification of the composition of the board of directors, independent directors and/or board-level committees.
