BSP issues rules on banks’ ‘reputational risk’ handling

Published April 18, 2021, 6:00 AM

by Lee C. Chipongian

A Bangko Sentral ng Pilipinas (BSP) new guidelines are providing banks with the capability to control and manage hits and threats to their reputation as trusted financial institutions and to avoid triggering systemic risks amid the still raging global health crisis.

 “As the financial sector continues to evolve and face challenges arising from digital disruption and stiffer competition, financial institutions must be increasingly sensitive to, and vigilant in addressing potentially more damaging reputation events,” said BSP Governor Benjamin E. Diokno on Friday, after announcing the Monetary Board approval of the guidelines for banks’ reputational risks management.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno (MB file)

All BSP supervised financial institutions (BSFI) will have the next 12 months to fully comply with the guidelines.

 Diokno said that with these “tools and perspective” BSFIs will be “more equipped in preventing and managing reputational threats.”

 “If not properly managed, these reputational concerns may lead to financial losses, negative publicity, and loss of stakeholder confidence, any of which could have lasting debilitating impact on the institution,” he said.

The bottomline is that banks and non-banks – both big and small – should handle reputational risks in a holistic manner and find solutions that would take into account all parts that are interconnected with their operation as financial institutions. 

BSP Deputy Governor Chuchi G. Fonacier has emphasized that the piecemeal solving of all bank-related problems are no longer applicable, that banks should dig deeper and find the root cause or causes of these upheavals. “It should be incumbent upon them (banks) to really understand what’s causing a particular issue. This is where resiliency is really important. Resiliency not just in communicating to customers, more so in addressing as well the root cause of the problem,” she said earlier.

The BSP wants BSFIs to report any problems or hits to their reputation – called reputation event or events — within five calendar days of its occurrence. These events could come from different social media platforms that will negatively effect BSFIs and could “lead to a full-blown crisis if not responded to in a timely and effective manner.” And in cases of operational risk events, the BSP reminded BSFIs to immediately notify or report to the BSP any major cyber-related incidents and/or disruption of financial services and operations, or liquidity or funding emergencies.

 The approved guidelines on reputational risk management centers on the identification, assessment, and management of reputational risks that are commensurate to a bank’s size, nature, and complexity of operations, overall risk profile, and systemic importance.

 The guidelines are part of BSP’s good governance framework. “Reputational risk is closely interlinked with other risk exposures such as credit, market, liquidity, and operational risks, including those arising from cybersecurity threats and negative information in the social media. Such risks may trigger reputational risk or vice versa.  In this respect, the guidelines expect BSFIs to adopt a framework to holistically and actively manage reputational risk across the organization and within the conglomerate or group to which they belong. The roles and responsibilities of personnel across the organization in relation to the implementation of such framework shall be clearly communicated and disseminated,” explained the BSP.

 Banks and non-banks have the flexibility to implement and design their reputational risk management as stand-alone function or integrated with other risk management functions depending on how reputational risk exposures are being managed, said the BSP. “The BSFIs may continue to use their existing measures or consider adopting the tools suggested in the guidance to identify and assess reputational risks relevant to their business and industry,” it added.