BSP to set stricter rules to protect financial consumers
The Bangko Sentral ng Pilipinas (BSP) will issue stronger rules on market risk management for all its supervised financial institutions to ensure more critical and accurate consumer protection measures.
In a proposed circular released on March 27 and currently being circulated among banks and non-banks under BSP supervision, the central bank intends to adopt the Financial Consumer Protection and Market Conduct (FCPMC) Supervision Framework as per the provisions of Republic Act No. 11765 or the “Financial Products and Services Consumer Protection Act” (FCP Act).
BSP Governor Eli M. Remolona Jr. in the draft circular said that essentially, the proposed FCPMC Supervision Framework will assess a BSP supervised institution’s (BSI) market conduct risk with a focus on consumer protection.
The proposed circular defines FCP or financial consumer protection market conduct as the manner by which a BSI designs and delivers its financial products and services, and manages its relationship with its clients and the public. Risks, meanwhile, refer to the risk from a BSI’s conduct or business practice that could negatively affect, or cause financial loss or other harm to financial consumers, said the BSP.
The BSP’s planned risk-based supervision approach through the framework will assess a BSI’s business conduct and practices “that pose risk of loss or other harm to financial consumers.”
In addition, the BSP emphasized that the FCPMC Supervision Framework is “distinct and separate” from the BSP Supervisory Assessment Framework (SAFr) that was first adopted in March 2020.
The two frameworks complement each other in that they “enable the BSP to undertake its functions of supervising prudential matters and financial consumer protection matters, providing a more accurate and holistic perspective of the risks to the Philippine financial system.”
While the SAFr assesses a BSI’s systemic importance and risk profile through prudential lens and will assess the market conduct risk and its impact on the soundness and strength of the BSI as a financial service provider, the FCPMC Supervision Framework will look at a BSI’s market conduct risk using a consumer protection lens. “(It will be more) focused on the assessment of the impact and risks of its business operations to financial consumers,” said the BSP.
As part of transitory provision, once the circular is approved, the BSP will conduct an internal FCPMC supervision guidelines and a manual of operations by the fourth quarter of 2025.
BSIs have until Friday, April 5, to submit feedback and other recommendations to the BSP after reviewing the proposed circular.
The FCPMC Supervision Framework basically supports the following: the crafting of FCP-focused supervisory plans for industry-wide monitoring and individual BSI-specific assessments; the application of risk-based supervision by determining supervisory attention to industries and/or BSIs that may have higher impact on, and/or pose greater risks to, financial consumers; and calibrated supervisory actions to instill good market conduct and customer-centric business practices.
The circular will also implement an FCP impact assessment which should capture the “potential impact of a BSI’s failure to identify, measure, monitor and mitigate FCPMC risks and related harm to consumers, which could result to diminished consumer trust and confidence in the financial system.”
The BSP said the FCP impact assessment involves evaluating the size and complexity of a BSI’s operations; its dependency on third parties and agents for its consumer-facing activities; and the number and profile of its retail client base.
In the course of the impact assessment, there will be FCP impact grade and indicators. The FCP impact indicators refer to a set of quantitative and qualitative information, metrics and/or variables that are analyzed and correlated to determine whether a BSI’s FCP impact grade is low, moderate, above average or high, explained the BSP.
Among other things, the circular is proposing the adoption of an FCP risk profile to indicate a BSI’s Consumer Protection Risk Management System (CPRMS) as strong, acceptable, adequate or weak.
Meanwhile, the BSP will also implement an FCPMC supervisory intensity which will simply determine a BSI’s degree of supervisory attention. This will depend on how the BSI scored in the impact grade and risk profile. Both indicators will be periodically updated.
In 2022, the BSP approved new rules to protect the interest of consumers of financial products and services through the effective handling of complaints and disputes through Circular No. 1160, another provision of the FCP Act which was just passed into a law that year.
The significance of the pro-consumer law, besides BSP improving its complaints handling mechanism, is that its consumer redress includes central bank’s capability to adjudicate or pronounce judgement in connection with financial transactions. With this power, the BSP can order the reimbursement of a sum of money not exceeding P10 million.