BSP: New rules on ‘reputational risks’ seek to buttress PH financial system
MANILA, Philippines—New guidelines that unify bank practices on reputation risks, caused by irregularities ranging from computer hacking to fraud by rogue employees, are ultimately aimed at making the Philippine financial system more resilient to shocks, according to the country’s central bank.
At an online press briefing, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said there was a need to protect the trust of stakeholders in the financial system and formal guidelines to govern what are currently largely left to the discretion of individual institutions will help.
“The guidelines emphasize the importance of having a clear understanding of various sources of reputational risk and their impact on supervised entities,” he said.
“We underscore this because building and maintaining stakeholder confidence in financial institutions is key to fostering the stability and growth in the financial sector,” Diokno added.
Circular No. 1114 sets out the supervisory expectations for BSP-supervised financial institutions on the identification, assessment and management of reputational risks commensurate to their size, nature, complexity of operations, overall risk profile and systemic importance.
The circular defines reputational risk as events or circumstances that threaten earnings, capital and liquidity arising from negative perception on the financial institutions by its customers, shareholders, investors, and employees, market analysts, media, and other stakeholders like regulators and other government agencies.
These risks can adversely affect ability to maintain existing business relationships, establish new businesses or partnerships or continuously access varied sources of funding.
Essentially, the circular highlights the need to effectively manage reputational risk by taking a holistic approach and by considering its interrelationship with other risk areas.
In line with this, the reputational risk management framework must not only be embedded in the financial institutions’ enterprise-wide risk management system, but also integrated in the organization’s crisis management process.
“A well-established reputation enables banks and other financial institutions to strengthen their market position, increase their market value, and to attract and retain talents,” Diokno said.
The recently issued guidelines for managing reputational risk support broader supervisory policy reforms aimed at promoting the stability of the financial system that is fundamentally built on trust, the BSP stressed.
