BSP tightens grip on treasury operations amid global financial uncertainties

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has tightened the rules on the treasury operations of banks and other financial institutions amid the uncertainties in the global financial market brought about by the impending interest rate hike in the US and the economic slowdown in China.

The BSP said the Monetary Board approved the treasury regulations on the treasury activities of BSP-supervised financial institutions as well as the changes to the fit and proper rule.

The regulator said the new rules set the central bank’s expectations of BSP-supervised financial institutions’ management of operational risk arising from their treasury activities.

The BSP believes that lapses in addressing operational risks from treasury activities could bring about significant losses and exposures to compliance and reputational risks.

“Owing to the significant role played by the treasury function in pursuit of a BSP supervised financial institutions’ strategic objectives, the guidance underscores the need to act ethically and with utmost integrity, especially in the context of their active participation in financial markets,” the central bank said.

The new regulations, the BSP said, highlights the role played by the board of directors and senior management in setting the tone at the top and establishing standards of good behavior including adherence to market conduct rules.

The regulator added BSP-supervised financial institutions should have codes of conduct specific to the treasury unit in addition to any institution or industry-wide codes that personnel adhere to as well as policies and procedures to ensure the provisions of the code are upheld.

Under the new rules, the BSP said supervised financial institutions should distinguish between the difference functions performed by a treasury unit and should segregate conflicting duties.

 Conflicting duties, according to the central bank, include risk taking and recording; reconciliation and settlement, in line with internal control principles.

Furthermore, the regulator also expects the risk management, compliance, and audit teams of BSP supervised financial institutions to actively participate in the oversight of treasury functions.

The regulator pointed out the BSP would deploy supervisory enforcement actions against violators of the new regulations government treasury activities of supervised financial institutions.

The BSP also amended the qualifications for directors and officers to explicitly relate the assessment of a person’s integrity and probity to his reputation in the market, as well as his ability to comply with market conduct rules and the requirements of other regulatory bodies beyond the central bank.

The central bank also deemed it timely to introduce a new perspective in the overall evaluation of a person’s fitness and propriety to assume a directorship or officership by giving more importance to displayed behaviors rather than a checklist of requirements.

According to the BSP, the existing criteria have been supplemented by skills and for directors, independence of mind and sufficiency of time as set out in the Basel Committee on Banking Supervision’s recent guidance, “Corporate governance principles for banks.”

 “The issuance of these regulations forms part of the BSP’s initiatives to update its supervisory approach to suit current industry practices and align with international standards,” the regulator said.

It added the issuance of a broader set of guidelines on operational risk management is in the pipeline.

Global financial markets continued to be volatile amid uncertainties as to when the US Federal Reserve would increase interest rates as well as the economic slowdown in China.

However, strong macroeconomic fundamentals continue to help the Philippines survive external shocks.