Big banking players and digital lenders should not rely solely on “fit and proper” standards when appointing and retaining executives, the Bangko Sentral ng Pilipinas (BSP) said, calling instead for continuous assessments of their technical expertise, particularly in managing data and cyber risks.

Leadership, according to the BSP, must remain qualified throughout the entire tenure of banks’ directors and officers, urging financial institutions to move away from one-time fit-and-proper checks toward stricter evaluation of qualifications.

This proposal is detailed in the draft rule published last Monday, Aug. 17, with the BSP stating that the amendment to the existing standards seeks to ensure that “directors and officers are not only assessed for fitness and propriety at the time of their election or appointment but are also subject to continuing evaluation.”

Recognizing the specialized risks tied to highly digital financial institutions, the BSP now proposes particular technical experience at the board and senior management levels.

“In the case of a digital bank and a domestic systemically important bank (DSIB), at least one member of the board of directors should have a minimum of three years of experience and technical knowledge in operating a business in the field of technology or e-commerce,” the BSP said.

These requirements extend beyond the country’s largest banks to any institution with “significant technology exposures, technology-enabled business models, or substantial reliance on digital delivery channels.”

For these entities, the BSP wants corporate governance committees to ensure that bank boards have enough expertise to effectively oversee technology and cyber risks, including at least one director with a background in information technology (IT), cybersecurity, digital technology, data governance, or related fields.

To strengthen directors’ technical expertise, the BSP is also proposing mandatory training requirements, with first-time directors required to undergo at least eight hours of orientation and all directors to complete at least four hours of continuing training each year.

For technology-heavy banks, these sessions must be specifically designed to “continuously enhance the board’s digital literacy and competencies” to address the industry’s evolving risk profile.

With the proposed rules, appointees now bear the burden of proving their qualifications.

Failure to meet strict filing deadlines will carry immediate consequences. “Non-submission of complete documentary requirements or their equivalent within the prescribed period shall be construed as his failure to establish his qualifications for the position and results in his removal” from the board, the BSP warned.

For its oversight, the BSP is shortening the window for reporting leadership changes. The deadline for submitting bio-data and notarized lists of board members is being cut from 20 to just five banking days following an election or appointment.

Additionally, the BSP seeks to strengthen its authority to intervene in the leadership of struggling banks. If a bank’s supervisory rating falls below a certain threshold, the central bank may require changes to the board’s composition to restore effective oversight and protect depositors’ interests.

However, the BSP is proposing some flexibility for emergency situations to prevent governance paralysis.

Should certain posts become vacant due to death or resignation, an “individual may assume office prior to confirmation of the BSP if quorum can no longer be constituted in the board of directors.” Under these urgent cases, banks may also designate temporary officers to “assume in acting capacity” until a permanent replacement is confirmed.