Misbehaving banks beware

           It has come to this. The Bangko Sentral ng Pilipinas (BSP) wants to make public their enforcement actions and criminal cases against erring banks and other supervised entities in the name of transparency and market discipline, deter banks from misbehaving and protect the public interest.

It is within the BSP’s powers to let the public know -- especially crucial and critical information that financial consumers have to know – if your bank that you’ve entrusted your hard-earned money and savings with are keeping in line.

                It is not as if the BSP has not done that yet, they do. But they want structure on how this will be done and a framework on the publication of enforcement actions is its first line of control to prevent the bad practices and habits of BSP-supervised financial institutions (BSFIs).

                Public information of the failures of BSFIs to meet central bank’s good governance rules is aimed at promoting market discipline, and to some extent, it’s a scare tactic.

BSP Deputy Governor Chuchi G. Fonacier (Bloomberg file photo)

           “This is something new,” said BSP Deputy Governor Chuchi G. Fonacier. “We had a study on this. So, it has just been completed. But, we’ve been thinking about this before,” she added, referring to the proposed framework of the Financial Supervision Sector (FSS) which she heads, for the publication of administrative enforcement actions by both the FSS and the Office of the General Counsel and Legal Services (OGCLS) to discourage rule-breakers and to dissuade unacceptable behavior.

           Based on notes released by the FSS, a proposed Statistical Summary of Enforcement Actions will be published annually and this will contain enforcement actions which have been administratively imposed by the FSS on BSFIs and their directors, officers and employees (DOEs) with finality.

           The statistical summary will include the following information: number of monetary penalty impositions and the amount of monetary penalties assessed and collected; and number of non-monetary enforcement actions imposed on BSFIs and their DOEs classified according to type of enforcement action.

           “This is a way to inform the public and the industry of the consequences of the failure by concerned BSFIs and directors, officers and employees in meeting the BSP’s requirements and expectations on good corporate governance, sound risk management and prudent banking operations,” said Fonacier.

           The proposed framework for the publication of administrative enforcement actions by both the FSS and OGCLS will disclose information such as: administrative cases filed by the BSP against erring DOEs; criminal cases filed against erring DOEs, after filing of criminal complaint with the Department of Justice; criminal cases against erring DOEs, after determination of probable cause by the DOJ and upon filing of information in trial courts; and criminal convictions of accused DOEs by the trial court, regardless of whether the judgment has attained finality.

         The BSP is hoping that the publication of all of these information will serve as “deterrence” for “similar misconduct” by other players in the banking industry.

         The “intended effect” is that the published enforcement action will “enhance the effectiveness of the enforcement action/s, or if it will lead to the attainment of the desired positive change in the BSFI’s behavior, as well as mitigation of risks to the financial system.”

                The FSS said the publication of enforcement actions and criminal cases will encourage more “consciousness and responsibility” on the “propriety of (BSFIs and DOEs’) actions” as well as encourage what it called the “collective accountability” within a BSFI as far as observing proper conduct and behavior.

                “On the part of the BSP, this promotes transparency and strengthens accountability in its actions,” said the FSS.

                The BSP also wants to warn banks that the regulatory relief measures it has issued in response to the COVID-19 pandemic is not a relaxation of its rules and the BSP “remains steadfast” in “ensuring the stability of the financial system as well as promoting financial consumer protection.”

                “The regulatory relief measures adopted by the BSP to alleviate the impact of the coronavirus disease 2019 pandemic on the financial system and its clients should not be viewed as a relaxation of the BSP’s supervisory enforcement posture, especially if a financial institution’s activity or business would hinder the achievement of the BSP’s objectives,” said the BSP.

                Presently, the BSP practice of publishing enforcement actions are done via circular letters that include names of BSFIs that are banned from doing business in the country. These circulars also inform the public of suspended BSFIs.

                The BSP doesn’t stop there, they also issue press releases on its website for “extraordinary” administrative enforcement actions on banks for cases that could be systemic in nature or damage the public’s trust and confidence in the banking system. By providing information, it assures the public that the BSP is doing all it could to resolve the issue. It also publishes enforcement actions that are already public information such as court convictions on BSP-filed criminal cases.

                The FSS said the legal basis for the proposed framework is solid under its charter, or Republic Act No. 7653 as amended by RA No. 11211 in 2019.

                It said that the “disclosure and publication of administrative enforcement actions imposed by the BSP on erring BSFIs although considered confidential information (are) within the powers of the BSP.”

                The BSP law permits the disclosure of confidential information and allows BSP personnel to reveal confidential information “in any manner under such conditions it may prescribe” and the Monetary Board could “authorize any person in writing to receive confidential information.”

                The BSP also cited the Privacy Policy Office Advisory Policy Opinion No. 2018-040 or the “Publication of Names of Sanctioned Directors and Officers of BSP-Supervised Financial Institutions,” that the National Privacy Commission (NPC) has “unqualifiedly stated that the Data Protection Act will not operate to hinder the BSP from disclosing certain information it deems crucial for the information of the general public, anchored on its mandate to maintain financial stability.”

                “As discussed by the NPC, the business of banking is imbued with public interest. The stability of the banking industry largely depends on the confidence of the people in the honesty and efficiency of banks and the people managing the banks. Thus, BSP has a legitimate purpose in making the public aware of sanctions imposed by BSP through its publication,” said the BSP.