The bank secrecy laws and the lack of power of the Bangko Sentral ng Pilipinas to supervise parent companies and their affiliate banks continue to present a hindrance to its effective supervision of financial institutions, according to a report by the International Monetary Fund and the World Bank.
But the Bangko Sentral received affirmative assessment following the publication of the Detailed Assessment Report on the Observance of the Basel Core Principles or Effective Banking Supervision, except for some legislative gaps.
“This is an encouraging news amid the pandemic,” BSP Governor Benjamin Diokno said over the weekend.
The BCP assessment is a core component of the joint IMF and World Bank Financial Sector Assessment Program mission to the Philippines conducted from June 2019 to October 2020.
The IMF and World Bank mission team lauded the BSP for the reasonably good compliance with the BCPs. As a result, the BSP is rated either “compliant” or “largely compliant” in 27 core principles and “materially non-compliant” in two CPs.
The two remaining MNCs are mainly due to identified legislative gaps. This is a significant improvement in terms of enhancing the regulatory framework and supervisory approach of the BSP compared to the 2002 full FSAP assessment where 11 MNCs and one non-compliant ratings were noted.
“The BSP’s regulatory framework is broadly effective for the size and complexity of the Philippine banking system, but legislative gaps continue to hinder effective supervision of banks,” the report said.
It said the BSP has a well-resourced, experienced and highly-committed staffing complement, but there was an ongoing need to develop and maintain adequate expertise in certain complex areas such as risk modeling.
Since the FSAP in 2002 and the assessment update in 2010, the BSP has made significant progress in enhancing the regulatory framework in a number of areas.
“But significant weaknesses in the legislative framework, arising notably from the bank secrecy laws and the lack of power for the BSP to supervise the parent companies and their affiliates of banking groups, present a material hindrance to effective supervision,” the report said.
Guided by the recommendations from the Basel core principles assessment, Diokno said the BSP is working closely with both Houses of Congress for the approval of the amendments to the Bank Deposit Secrecy Laws and other critical legislative reforms necessary to reinforce the strengthened nexus of banking supervision and financial system resilience.
Diokno said the BSP would continue to pursue proportionate and responsive regulatory reforms sensitive of the developments and challenges in the business environment.
The Basel core principles are the globally-recognized standards for sound prudential regulation and supervision of banks and banking systems. The standards are being used by the IMF and WB, in the context of FSAP, to assess the quality of banking supervision and the effectiveness of supervisory systems and practices.
The BCPs consist of 29 core principles against which a supervisory agency may be assessed.
The 2020 mission was conducted remotely through video/audio conferencing because of the COVID-19 pandemic.