Banks pressed to tighten controls to deter rogue employees

The country’s financial system is strong enough to withstand the economic disruptions and market volatility caused by the coronavirus pandemic, but regulators nonetheless want banks to keep their houses in order, including instituting tighter controls to deter potential rogue employees.

Thus said Bangko Sentral ng Pilipinas Governor Benjamin Diokno, who noted that the banking sector has not been affected by the recent Wirecard AG scandal and allegations about related lending violations.

“We will continue raising risk management standards and further reinforce accountability across the organization,” he said in a statement. “This includes highlighting the importance of having robust hiring process and continuing know-your-employee policies and procedures.”

Diokno noted that robust governance and risk management systems, which serve as multiple layers of defense, enabled banks to promptly detect and address threats to the integrity of the financial system.

“Likewise, expectations set out on dealings with related parties ensure that these transactions are done at arm’s length terms,” he said.

The central bank chief said the regulator continued to foster the safety and soundness of the banking system amid the uncertainties and challenges in the current business environment, especially through the implementation of financial sector reforms and strong collaboration with stakeholders.

Specifically, the adoption of global standards such as the Basel III framework and measures to promote good corporate governance and effective risk management systems have prepared banks for the current crisis, he said.

The adoption of risk-based supervision allowed the BSP to monitor compliance with standards and focus on areas that pose the most significant risk to the safety of individual banks and the soundness of the banking system as a whole. This is complemented by an enforcement framework that provides a range of tools and sanctions that may be imposed on noncompliance with regulations.

The Philippine banking system’s strength has been recognized by the S&P Global Ratings’ Banking Industry Country Risk Assessment as it retained the country’s rating of 5 (with 10 being the riskiest), citing Philippine banks’ good capital position and provisioning for nonperforming loans that put the banking system on a relatively strong footing to manage rising risks from the economic slowdown driven by COVID-19.

The rating also underscored that the high level of stable customer deposits supports the banking system’s funding profiles. INQ