The central bank’s expanded monetary penalty system which now covers employees, will drastically change the behavior of bank directors, officials and employees, said Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
Diokno said the inclusion of employees is a provision in the new BSP Charter which allowed it to expand the coverage of BSP supervised financial institutions (BSFIs) subject to monetary penalties.
“From only banks, quasi-banks and their directors and officers -- it now covers all BSFIs and their directors or trustees, officers and employees,” he said during his regular "GBED Talks" on Thursday. “Reinforcing responsible and ethical behavior, through a more stringent penalty system, is critical in risk awareness, risk-taking activities, and risk management of BSFIs,” he added.
Diokno said the expansion of coverage should more clearly define the BSP’s enforcement powers. “Likewise, employees are now covered in the scope of administrative sanctions. This is in view of their significant dealings and the role that they perform in the operations of a BSFI,” he also said.
The BSP issued BSP Circular No. 1125 implementing the higher fines and charges last August 20. The monetary penalty was increased from P30,000 to a maximum of P1 million for each transactional violation and to P100,000 per calendar day for persistent or continuing offence or violations. The regulator can also fine an erring BSFI no more than three times the profit gained or loss avoided due to the violation. “This is aimed at ensuring that violation of laws, rules and regulations shall not be used by BSFIs as a tool to attain economic advantage,” said Diokno.
For decades the BSP was only imposing P30,000 per day penalty per violation. With this rate, the BSP only raised P859 million from fines imposed between 2018 until 2020, of which P7.2 million are fines slapped to directors, trustees, officers and employees of BSFIs, mostly for the non-compliance with BSP issuances on mandatory credit and other regulatory requirements.
Diokno is hoping the new monetary penalty framework will “foster a culture of accountability and responsibility”.
He also assures BSFIs of BSP’s “strict observance of due process.”
Setting a higher penalty system was one of the provisions in the amended BSP law or Republic Act No. 11211 which was approved in 2019. But the pandemic delayed its imposition since extending relief measures to all BSFIs amid COVID-19 was more crucial.
There are separate penalties imposed on other BSP rules including reporting violations and the non-compliance of anti-money laundering regulations. With the higher penalties imposed on erring BSFIs, the Philippines may be able to get delisted from the International Co-operation Review Group of “dirty money” watchdog, the Financial Action Task Force as scheduled.
Based on the circular, to ensure fairness, consistency and reasonableness in the imposition of monetary penalties, the BSP takes into consideration the attendant circumstances of each case, such as the nature and gravity of the violation or irregularity and the size of the financial institution.
These circumstances include “aggravating and mitigating factors” which are not only based on the nature, gravity and seriousness of the violation or irregularity, but also on financial and/or non-financial impact of the violation or irregularity to the bank. The BSP will also consider factors such as impact on the industry and/or the financial system, as well as the intentionality, frequency and duration of the violation or irregularity, and the measures undertaken to stop or correct the violation or irregularity.