BSP to further tighten fit-and-proper rules for bank directors, officers

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is set to tighten governance standards for financial institutions by requiring regular fit-and-proper assessments of key officials and subjecting certain incoming directors and officers to regulatory confirmation before they can assume office.

Under a draft circular, BSP-supervised financial institutions (BSFIs) will be required to assess at least annually the continuing fitness and propriety of every director and officer holding a position subject to BSP confirmation. Documentary proof of the periodic assessment must be available for on-site examination or off-site verification.

The proposed amendments seek to ensure that directors and officers are evaluated not only when they are elected or appointed but throughout their tenure.

“This is to ascertain that, at all times, they consistently possess the requisite integrity, competence and diligence necessary to discharge their fiduciary duties and oversight responsibilities, individually and collectively,” the BSP said.

BSFIs will also have to notify the BSP within five banking days after becoming aware of information that may materially compromise the fitness and propriety of a director or officer subject to confirmation. The institution must assess whether the information presents a material risk that could impair the official’s ability to perform his or her duties.

For domestic universal and commercial banks, their subsidiary banks and digital banks, the proposed rules will require documents supporting the qualifications of preferred candidates for directors or officers to be submitted three months before their election or appointment.

In all cases, the documents must be submitted no later than five banking days after election or appointment. Newly elected or appointed directors and officers covered by the rule will not be allowed to assume office until confirmed by the BSP.

An exception will apply when a sudden vacancy caused by death, resignation or disqualification leaves the board without a quorum. In such cases, the replacement may assume office before BSP confirmation, while institutions may designate acting officers pending the appointment and confirmation of a permanent replacement.

The BSP may also interview prospective directors and officers as part of its fit-and-proper assessment. Failure to submit complete documentary requirements or appear for a scheduled interview without valid justification may be treated as failure to establish qualifications for the position.

Technology and cybersecurity expertise will likewise receive greater emphasis.

For institutions with significant technology exposure, technology-enabled business models or substantial reliance on digital channels, corporate governance committees must ensure that boards collectively have the skills needed to oversee technology and cyber risks.

This includes having at least one director with expertise, experience or qualifications in information technology, cybersecurity, digital technology, data governance or related fields.

The draft also retains the requirement for digital banks and domestic systemically important banks to have at least one director with at least three years of experience and technical knowledge in technology or e-commerce.

At least one senior management officer in a digital bank or systemically important bank should likewise have at least three years of experience and technical knowledge in the field.