BSP defers new compliance rating system for banks

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has deferred by six months the deployment of a more forward-looking compliance rating system in assessing the compliance of banks and other financial institutions in mitigating business risk.

According to BSP Deputy Governor Chuchi Fonacier, the revised timeline would give banks and financial institutions more time to prepare for the implementation of the Supervisory Assessment Framework (SAFr), given the impact of the coronavirus disease 2019 or COVID-19 pandemic.

“This shall facilitate the conduct of the preparatory activities for the effective rollout of the new supervisory framework in view of the impact of the COVID-19 pandemic,” Fonacier said.

In a memorandum, Fonacier said that the Monetary Board has issued a resolution approving the revised timeline for the adoption of the SAFr to Jan. 1, 2021 instead of July 1, 2020.

The new framework would replace the CAMELS (capital adequacy, asset quality, management earnings, liquidity, and sensitivity to market risk) and the ROCA (risk management, operational controls, compliance and asset quality) rating systems implemented in 2013.

According to the BSP, the SAFr aims to facilitate robust, dynamic and forward looking assessments of BSP-supervised financial institutions and explicitly links the systemic importance and risk profile of a bank to the crafting of supervisory plans for each supervised institution.

Under the new compliance rating system, supervisory attention continues to be proportionately focused on financial institutions that are of greater impact and higher risk, while prompt and calibrated enforcement actions are deployed to reinforce prudent risk-taking behavior.

The principles, concepts and processes of the SAFr apply to all BSP-supervised financial institutions, regardless of size and risk profile. It also facilitates the conduct of consolidated supervision, where impact and risks are viewed on a group-wide basis.

It uses a four-point rating scale instead of five and is more forward looking compared to the CAMELS.

The proposed framework will be used as an assessment tool to comprehensively evaluate during on-site examination the effectiveness of banks and the supervised financial institutions’ compliance system in mitigating business risks.

Under Republic Act 11211, the BSP has the flexibility to determine the frequency of examinations unlike the previous central bank charter that requires bank examination once every 12 months.

Fonacier said earlier the BSP could conduct examination every two to three years under the proposed framework depending on “good behavior” by banks and other financial institutions.