MANILA, Philippines - Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the BSP would support initiatives that would plug regulatory gaps and harmonize basic regulations in the financial sector.
Widely-viewed as caused by regulatory failure, the financial meltdown in Europe and the US have sparked policy debates about the regulation of financial markets and the corporate sector around the globe.
Where the natural checks and balances in the market have failed, regulators have begun to yield to public pressure to review and possibly reform the regulatory regime to address these concerns.
Tetangco expressed apprehension over the tendency to over-react and swing towards over-regulation but he admitted there were gaps that needed to be plugged, even in the Philippines.
According to Tetangco, there were existing mechanisms that would allow the different regulatory agencies to harmonize their policies and ensure full coverage of the country’s increasingly sophisticated financial market.
But Tetangco said more work needs to be done to anticipate conditions that could arise as the country becomes even more integrated with the global financial system.
“The BSP will support initiatives that will plug regulatory gaps and harmonize basic regulations across several financial activities that require clarification of the oversight framework,” Tetangco said.
According to Tetangco, this would become even more critical in cases where more than one regulator was involved.
In the Philippines, banks and non-bank financial institutions are regulated separately by the BSP while insurance companies are under the jurisdiction of the Insurance Commission. The Securities and Exchange Commission, on the other hand, regulates the corporate sector, including the pre-need industry.
Tetangco said the need to harmonize the regulatory policies of these different regulatory bodies could be addressed by the Financial Sector Forum but said legislation might be necessary to address legal issues that were beyond the individual mandate of the agencies concerned.
Tetangco has said policy-makers could start considering the possibility of creating an inter-agency regulatory body that would harmonize regulations governing financial institutions.
Tetangco was quick to brush aside an earlier proposal to merge the financial regulatory agencies but he admitted it would help to formalize an institution where these agencies would draw up policies and have the authority to issue regulations.
“It doesn’t have to be a physical merger of existing institutions,” Tetangco said. He said institutionalizing the FSF might actually be more appropriate, with the least disruption.
Tetangco said a more formal arrangement was preferable, especially if this body could be institutionalized with a mandate to make regulatory issuances.
The creation of such an agency, however, would require legislation especially if it would have the authority to make regulatory and policy decisions that would be binding to all the member agencies. “Clearly such a mechanism would help cover the possible gaps in regulation and also strengthen coordination and harmonization of regulations particularly regulations that cut across different types of institutions.”
If there is anything to be learned from the financial market meltdown in the US, Tetangco said, it was that markets could not be left unregulated.
The on-going crisis demonstrated that even mature markets were prey to the same pitfalls as emerging ones even if they often apply more stringent standards and were capable of complex early-warning system to detect emerging systemic crisis.
But Tetangco said the aversion towards market regulation could be eased if these regulations could be crafted so that they would make markets work instead of restricting them.