BSP globally competitive except for bank secrecy blind spot, IMF-WB exam finds

A recently concluded examination of the Philippine financial system by the world’s two largest multilateral lending institutions found the central bank at par with international standards, but also noted key shortcomings that must be solved by Congress. In a statement, the Bangko Sentral ng Pilipinas (BSP) said a team from the International Monetary Fund and the World Bank have determined that its supervision framework was either “compliant” or “largely compliant” with 27 requirements of the Basel Core Principles for Effective Banking Supervision, but “materially noncompliant” in two areas.

“The two remaining [issues] are mainly due to identified legislative gaps,” the central bank said over the weekend. “This is a significant improvement in terms of enhancing the regulatory framework and supervisory approach of the BSP as compared to the 2002 full Financial Sector Assessment Program where 11 materially noncompliant and one noncompliant ratings were noted.”

BSP Gov. Benjamin Diokno welcomed the results of the examination—conducted from June 2019 to October 2020—describing it as “encouraging news amid the pandemic.”

According to the report, “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.”

It said the central bank has a well-resourced, experienced and highly committed staffing complement, but there is an ongoing need to develop and maintain adequate expertise in certain complex areas, like risk modeling.

Since the last assessment in 2002, and an 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.

Guided by the recommendations from the latest assessment, the central bank said it was working closely with both chambers of Congress for the approval of the amendments to the bank deposit secrecy laws and other critical legislative reforms necessary to reinforce banking supervision and financial system resilience.

“The BSP will continue to pursue proportionate and responsive regulatory reforms sensitive of the developments and challenges in the business environment,” the agency said. INQ