Recent statements from Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. indicate that the BSP will be limiting certain aspects of the banking sector in terms of what services may now be outsourced.
The amended guidelines state that banks are now only permitted to outsource internal functions with “appropriate processes, procedures, and information system[s] that can adequately identify, monitor, and mitigate operational risks arising from the outsourced activities,” according to BSP Circular 889, issued on January 18 of this year.
“The amendments to the guidelines on outsourcing aim to set out an overarching governance framework, and align expectations with the principles of the guidelines on operational risk management,” said Espenilla Jr.
Specific operational procedures that may no longer be outsourced include:
* Activities related to position taking;
* Activities related to market risk-taking;
* The management of risk exposure;
* The extension of credit exposures;
* The granting of loans;
* Strategic decision making;
* The placement of deposits/withdrawals.
In addition to the release of Circular 889 was the subsequent release of Circular 900, which essentially calls for tighter controls on the risks from operational procedures; a comprehensive operational risk management plan absolutely must be implemented to safeguard financial institutions outside of market risk exposure, liquidity, and direct credit systems.
The Circular, released on the same day as Circular 899, state that the BSP’s Supervision and Examination Sector must be officially notified of any actions that could be considered an operational risk leading to substantial losses that are with regards to the commencement of any plans for business continuity, or any material changes to the current operational climate within 10 days of the initial discovery. Any such activities that are not reported within the specified timeframe could see the offenders being served with penalties: “The BSP may issue directives to improve the operational risk management system, or impose sanctions to limit the level of or suspend any business activity that has adverse effects on the safety or soundness of the [financial institutions under the BSP’s supervision], among others,” accordingly to Circular 900.
For more information on either of these Circulars, please contact one of our payroll geniuses on genius@philpay.ph.
