BSP out to control traders’ ‘animal spirits’ with new code

Financial market traders will soon be subjected to stricter rules regarding professionalism with the approval of a new code for good behavior by the Bangko Sentral ng Pilipinas (BSP).

This comes amid recent pronouncements by BSP Governor Amando M. Tetangco Jr., who said market players should rein in their ‘animal spirits’ when making trades to ensure stability in the industry.

Globally, regulators have also cracked down on bankers’ excesses, the root of the blind risk-taking that led to the crash in 2008.

‘New regulations set the BSP’s expectations on supervised institutions’ management of operational risk arising from their treasury activities, as lapses may bring about significant losses and exposures to compliance and reputational risks,’ a BSP statement on Monday read.

The BSP said the new rules approved last week called on the industry to develop a code that all traders should adhere to. Accountability mechanisms for the enforcement of these rules, which individual banks have to adopt, should also be created, it said.

More specific rules covering bank treasury departments, where foreign exchange and fixed income trades take place, should also be made, it added.

The BSP said these rules must require banks to distinguish the different functions performed by bank treasury units, and to segregate functions such as risk-taking and recording, reconciliation, and settlement.

Banks and other financial institutions’ so-called ‘control’ departmentsórisk management, compliance, and auditóshould also regularly participate in the oversight of treasury activities.

On a broader scale, the BSP said it would introduce changes to the ‘fit and proper’ rules for individuals who wish to serve as bank senior officers and directors.

Under existing rules, all potential directors and senior bank officers need to be vetted by the BSP.

Would-be officers and directors would be judged based on their integrity and reputation in the market, ‘as well as his ability to comply with market conduct rules and requirements of other requirements of other regulatory bodies beyond the BSP.’

This means people with a history of running into trouble or defying regulators may have a harder time getting the BSP’s nod.

The BSP said it would give more importance to ‘displayed behaviors rather than a checklist of requirements’ before giving the green light for certain people to serve as bank officers and directors.