21 Sept 2018

Compliance Framework and Best

Practices

Presented by: Ms. Milott B. Requillo

Topic Outline
PART 1 - Compliance
I. Compliance Function
II. Compliance Program
III. Compliance Officer
IV. Responsibilities of the Board of
Directors & Senior Management

PART 2 – Best Practices

Historical Background

On October 02, 1997, a number of

bank failures in the Philippines led
to the issuance of BSP Circular
145 – mandating the appointment
of a Compliance Officer and
Compliance Program.
COMPLIANCE FUNCTIONS
Compliance Functions
1. Formal Status and Authority
2. Independence: Ability to freely express and disclose
findings
3. Direct access to the Board / Formal reporting
relationship
4. Ability to conduct investigation and hold officers/staff
accountable.
5. Oversee implementation of the Banks Compliance
Program
6. Assist in Identifying, Monitoring and Controlling
Compliance Risk
7. Conduct periodic compliance testing
 Compliance Functions
8. Maintaining a constructive working relationship with
the Bangko Sentral and other regulators

9. Advising the Board and Senior Management on

relevant laws.
10. Apprising banks personnel on compliance issues, and
acting as a contact point within the bank for compliance
queries.

* Functionally the Compliance Officer reports to the Board or

Board Audit Committee, but administratively it reports to the
Office of the President.
COMPLIANCE PROGRAM
 Compliance Program
* Set out the planned activities of the compliance function.

1. Analysis of the Regulatory and Corporate Environment

- Risk based approach
- Identification of Relevant Laws, Rules and Regulations
- Gap Analysis
2. Guidance of Stakeholders on Relevant Laws/Regulation
- Communication / Dissemination
- Reference Portal
- Training

3. Assessment of Compliance
- Independent Compliance Testing
 Compliance Program
4. Reporting and Remediation
- Recommendation of Controls , Policies and Guidelines
- Constructive working relationship with Regulatory Agencies

5. Monitoring and Assessment of the Compliance Function

- IAD to Audit Compliance

6. Program Review and Updates

COMPLIANCE OFFICER
 Compliance Officer
* Should have
1. Necessary Qualifications
2. Experience
3. Professional Background
4. Understanding of relevant laws and regulation
5. Continuous training
* Should
1. Oversee the identification and management of the compliance risk
2. Supervise the compliance function of staff
3. Liaise if necessary, with BSP on compliance related issue

* Shall be responsible for ensuring the INTEGRITY and

ACCURACY of all documentary submissions to the BSP.
 RESPONSIBILITY OF
THE BOARD AND
SENIOR MANAGEMENT
 Responsibility of the BOD and SM
A. Board of Directors
1. Compliance Program is defined for the Bank.
2. Approves the Compliance Program
3. Ensure that personnel adhere to the pre-defined
compliance standards
4. Ultimately responsible for the Compliance System
5. Compliance issues are resolved expeditiously
6. A board-level Committee, chaired by a non-executive director
shall oversee the compliance
B. Senior Management
1. Responsible for achieving compliance
2. Communicates compliance policy
3. Reports to the Board breaches and matters that affect the
implementation of the Compliance Program
Compliance Structure /
Road Map

Please see attached file

 REGULATORY
EXPECTATIONS
 Regulatory Expectations
* What do the examiners look for when they examine banks for
compliance?
1. Adequacy of the business risk management program.
2. Ability to manage the business risk it faces.
3. Whether the board and senior management are actively
involve in “setting the tone at the top”.
4. Soundness of business risk policies, procedures and internal
control in the Bank.
5. Well designed compliance program.
6. Training program that ensures compliance policies,
procedures and controls.
 Common Deficiencies/ Issues
* Insufficient Board Oversight
* Insufficient involvement of Senior Management in Compliance
Matters
* Failure to introduce, maintain or enforce compliance policies and
procedures on a consistent basis throughout the bank
* Lack of Independence of the compliance function
* Inadequate resources of the compliance function
* Imbalance between financial performance incentives and
compliance incentives
* Insufficient compliance culture, awareness or training
21 Sept 2018

Best Practices
Presented by: Ms. Milott B. Requillo
 CUCS
C- Corporate Governance

U - Unsafe and Unsound Practices

C - Capitalization

S- Succession
Corporate Governance
Corporate Governance
* The way that the Boards oversee and
governed the bank.

* Tone at the Top

* Qualifications of the Chairperson and

Director

* BOD Meetings
Corporate Governance

* Board-level Committees

* Absentee President and Directors

* Remuneration and Other Incentives

* Evaluation of the Performance of

the BOD
Unsafe and Unsound Practices
 Unsafe and Unsound Practices
Common circumstances noted to be unsafe or
unsound:

* Policies and practices detrimental to the bank

and jeopardize the safety of its deposit.

* Operating with total adjusted capital and

reserves that are inadequate vis-à-vis kind
and quality of the assets of the bank.

* Operating in a net loss without measures to

ensure surplus / net income in the future.
 Unsafe and Unsound Practices
* Serious lack of liquidity

* Engaging in speculative and hazardous

investment policy

* Excessive reliance on large, high-cost or

volatile deposit /borrowings to fund aggressive
growth

* Failure to limit, control and document

contingent liabilities
 Unsafe and Unsound Practices
* Engaging in hazardous lending and collection
Practices
* Permitting Officers to engage in lending
practices beyond their authority

* Inadequate internal control

* Failure to keep accurate and updated books

and records

* Excessive volume of out-of-territory loans

 Unsafe and Unsound Practices
* Excessive volume of non-earning assets

* Failure to heed warnings and admonitions of

the supervisory and regulatory authorities

* Continued and flagrant violation of any law,

rule, regulation or written agreement between
the bank and BSP
* Paying excessive cash dividends in relation to
the capital position, earnings capacity and
asset quality of the bank.
Capital Deficiency
 Capital Deficiency

* Review dividend policy and profit sharing

programs.

* How to protect your capital?

* Supervisory Enforcement Actions

Succession
 Succession

Appropriate succession and transition strategies

for key officers and personnel should be in place
to provide for a smooth transition in the event of
turnover.

Succession plan / strategies should be adequately

documented to facilitate monitoring and
assessment of implementation.
Other Matters
Other Matters
1.Creation of Compliance Officers Association
(Federation and National Level).

2. Gathering of Compliance Officers once in

every two years at the national level for a
one stop training , refresher and workshops,
and sharing of best practices.
THANK YOU