BSP’s KYE rule to trim its “blackbook” listing

Published May 7, 2021, 7:00 AM

by Lee C. Chipongian

The central bank’s stricter policy on banks’ screening of its new hires and other human resource-related practices should decrease the number of blacklisted and watchlisted bankers and employees, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.

“It’s hard to predict whether it (number of erring bankers) will decline or increase. If there’s a 100-percent compliance on the part of the banks, maybe it will decline,” said Diokno. But, persistent and continuous “bad behavior on the part of the workers” will only increase their watchlist and derogatory information file (DIF) which is reviewed on a weekly basis. Basically, the DIF is the BSP’s “blackbook” of erring bankers, from the rank and file to directors and senior officials.

BSP Governor Benjamin E. Diokno (Bloomberg file)

Recently, the BSP issued its Know Your Employee (KYE) rules to – as described by the BSP – weed out “unprincipled personnel who may cause reputational risk to a bank and to the financial system”.

Currently, there are 7,500 names in the BSP’s DIF and Diokno said the most common reason is dismissal for cause. The list is not limited to disqualified bank personnel.

“People are the very heart of every institution, especially in banking which is built on trust. The KYE rules are key to managing people risk by ensuring that the supervised financial institution hires persons with the right competency, experience and integrity to fulfil their duties and responsibilities,” said Diokno during his online “GBED Talks”.

The KYE rules basically instructs all BSP supervised financial institutions (BSFIs) to adopt a risk-focused screening process based on the “sensitivities of certain positions” that requires “more stringent screening.”

BSP wants BSFIs to have adequate understanding of an employee’s personal background, character, conflict of interest and propensity to commit fraud or irregularity, and to be able to identify “certain behaviors” that are red flags.

“Aside from preventing losses due to frauds or irregularities arising from weak operational risk management, the (KYE) principle is aimed at fostering the confidence of the public in our financial institutions and the Philippine banking system,” said Diokno. He also said that KYE rules “promote accountability among BSFIs in the recruitment and selection process. The rules also tighten controls related to the confirmation of accounts of clients or depositors.”

Last year, before the pandemic was declared, the BSP issued new guidelines that allowed erring officials that have been banned from working as directors and officers to be delisted from the blackbook after five years “serving” as a watchlisted disqualified person.

According to, a disqualified bank director or officer “may request delisting only after the lapse of five years from the date of his/her receipt of notice of disqualification.”

There are exceptions that could lead to an early delisting and reclassification if a case against a director or officer came out in his/her favor or “upon clearance by the appropriate body” such as judiciary, quasi-judicial bodies and domestic financial regulatory authorities, or similar agencies in foreign countries where the disqualified person has a derogatory record.

The BSP has been enhancing the clean up procedures by establishing new criteria for placement in the DIF. The BSP also reviewed how it acquires information for the DIF, which are usually sourced from disclosures or official reports from banks, as well as BSP onsite examination findings. 

The DIF, as implemented by the BSP, is a permanent reference file that is internal to the BSP. As the name implies, it contains the list of individuals cited with adverse derogatory information but not yet disqualified from holding a director or officer position in any financial institution supervised by the BSP.

The BSP has two watchlist files, Disqualification File “A” for permanent disqualifications and File “B” for temporary watchlisted. The amended circular said that a reclassification from “B” to “A” may be approved by the Monetary Board when the case that landed the erring banker in “B” has become final and executory.