The Bangko Sentral ng Pilipinas (BSP) has released a draft circular proposing stricter and continuous fitness checks for directors and officers of banks and other BSP‑supervised financial institutions (BSFIs).
The amendments come at a time when cyber risks, digital transformation, and governance challenges are maneuvering the financial landscape, highlighting BSP’s commitment to ensuring that financial institutions are led by executives who embody integrity, competence, and financial soundness—not just at the point of appointment, but throughout their tenure.
The draft circular builds on existing fit‑and‑proper regulations, expanding them to include ongoing assessments of directors and officers. This means that fitness is no longer a one‑time requirement but a continuous obligation, reflecting the dynamic nature of risks in the financial sector.
Fitter and More Proper Leaders
The draft circular amends provisions under Circular No. 972, series of 2017, and related issuances on corporate governance.
Previously, fitness checks were conducted primarily at the time of appointment or when issues arose. The proposed amendments introduce continuous assessment mechanisms, requiring boards and compliance units to regularly evaluate the suitability of directors and officers.
Among the key inclusions are:
- Expanded documentation requirements for assessing integrity, competence, and financial soundness.
- Mandatory periodic reassessment of directors and officers, not just at appointment.
- Enhanced oversight of governance practices, particularly in relation to cybersecurity preparedness.
- Stronger accountability for boards to adopt formal policies and procedures for fitness assessments.
These amendments shift the regulatory framework from reactive to proactive, ensuring that governance standards evolve alongside emerging risks.
They retain the core principles of integrity, competence, and financial soundness but expand their application. Integrity remains a non‑negotiable requirement, competence now includes digital and cybersecurity literacy, and financial soundness is assessed continuously.
BSP also emphasizes that directors and officers must demonstrate ongoing commitment to ethical leadership and risk governance. Boards are tasked with ensuring that executives remain fit and proper throughout their tenure, with compliance units required to document and report assessments to the BSP.
What Prompted the Corporate Governance Changes?
The amendments were proposed in response to emerging risks in the financial sector, particularly cyber threats, digital transformation, and governance failures.
Recent global incidents of cyberattacks on banks have urged the need for leaders who are not only competent in traditional finance but also adept in digital risk management.
BSP also recognizes that governance failures can have systemic consequences, eroding public trust and destabilizing financial markets. Through strengthened oversight of directors and officers, the BSP aims to ensure that BSFIs are led by executives who can navigate these challenges and uphold public confidence.
Sound Corporate Governance Starts with the Leaders
Corporate governance refers to the system of rules, practices, and processes by which institutions are directed and controlled. It encompasses board oversight, accountability, transparency, and ethical leadership.
In the financial sector, corporate governance ensures that institutions act responsibly, safeguard stakeholder interests, and contribute to financial stability.
Sound corporate governance is not merely a compliance requirement; it is a strategic asset. Institutions with strong governance frameworks are better positioned to manage risks, attract investment, and sustain growth.
Directors and officers of BSFIs play a critical role in ensuring sound governance. They set the tone at the top, establish policies, oversee risk management, and ensure compliance with regulations. Their decisions directly impact the institution’s performance, resilience, and reputation.
When integrity and competence are embodied, directors and officers reinforce stakeholder confidence and contribute to the stability of the financial system. These leaders’ roles extend beyond the institution, influencing the larger financial ecosystem and societal trust in banks and financial institutions.
As the oversight, BSP plays a central role in ensuring that BSFIs uphold sound governance. Through regulations, circulars, and supervisory reviews, the BSP sets standards for integrity, competence, and accountability.
The proposed amendments reflect the BSP’s proactive stance in addressing emerging risks and aligning Philippine practices with international standards. By enforcing continuous fitness checks, the BSP ensures that governance is not static but evolves with the institution and the environment. This approach strengthens resilience and reinforces public trust in the financial system.
How Governance Translates to Outward Contributions
Sound corporate governance translates into stronger performance by aligning management with stakeholder interests. It also ensures compliance with regulatory standards, reducing the risk of penalties and reputational damage.
Beyond compliance, governance contributes to societal trust in financial institutions, enabling them to mobilize savings, extend credit, and support economic growth.
In the Philippine context, strong governance is essential for financial inclusion and stability. Institutions with robust governance frameworks are better equipped to support small businesses, households, and communities, contributing to national development.
What’s Next for BSFIs?
To BSP-supervised financial institutions (BSFIs), the draft circular will shift governance checks from static to dynamic, ongoing oversight.
Compliance action plans will require a multi‑layered approach that integrates governance, risk management, and regulatory reporting into daily operations.
BSFIs should begin by institutionalizing continuous fitness assessments.
Boards must adopt formal policies that define how directors and officers will be evaluated not only at appointment but throughout their tenure. These policies should include clear criteria for integrity, competence, and financial soundness, as well as mechanisms for documenting assessments.
Compliance units must be empowered to conduct regular reviews, maintain records, and report findings to the BSP.
Moreover, BSFIs must strengthen their governance frameworks to incorporate digital and cybersecurity literacy. BSP’s emphasis on cyber risks means that directors and officers must demonstrate competence in managing digital threats.
Institutions should invest in training programs for executives, ensuring they understand cybersecurity principles, digital transformation risks, and regulatory expectations. Boards should also integrate cybersecurity into risk management frameworks, making it a standing agenda item in governance discussions.
BSFIs, additionally, should enhance transparency and accountability. Institutions should also establish whistleblower mechanisms and internal audit functions to reinforce accountability.
Continuous fitness checks will require institutions to maintain detailed documentation of assessments, decisions, and corrective actions. This documentation should be readily available for BSP review, demonstrating proactive compliance.
Governance practices must also be aligned with international standards. The BSP’s amendments are designed to bring Philippine practices closer to global norms.
Institutions should benchmark their governance frameworks against international best practices, ensuring that they meet not only local requirements but also global expectations. This will strengthen their credibility with investors, regulators, and stakeholders.
Finally, BSFIs should foster a culture of ethical leadership and continuous improvement. Compliance is not just about meeting regulatory requirements; it is about building trust with stakeholders.
Institutions should encourage directors and officers to embody integrity, transparency, and accountability in their daily decisions. When this kind of culture is fostered within, BSFIs can reinforce public confidence and contribute to the stability of the financial system.
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Through integration of strict internal and external auditing systems, DOPAY upholds integrity and compliance in its services, officers, leaders, and actions.
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