BSP readies new compliance rating system for banks

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) plans to deploy in July a more forward-looking compliance rating system in assessing the compliance of banks and other financial institutions in mitigating business risk.

The BSP is reassessing the timeline for the implementation of the Supervisory Assessment Framework (SAFr) amid the impact of the coronavirus disease 2019 or COVID-19 pandemic.

The imposition of the enhanced community quarantine on March 16 to limit the spread of the virus has affected the activities lined up for the effective rollout of the new rating system.

BSP Deputy Governor Chuchi Fonacier has issued a memorandum informing all BSP-supervised financial institutions about the effectivity of the SAFr on July 1.

“We are still pushing for a July timeline on SAFr,” Fonacier told The STAR.

The new framework will 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.

“The SAFr will be used in assessing BSP-supervised financial institutions. lt will replace the various rating systems currently employed by the BSP, including the CAMELS and ROCA rating systems effective July 1,” Fonacier said.

The new framework 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 will 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.

The regulator implemented a parallel run of the new framework and the CAMELS rating system.

The SAFr would use 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 a bank 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 the BSP could conduct examination every two to three years under the proposed framework depending on “good behavior” by banks and other financial institutions.