December 4, 2020

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IMF backs lifting of bank secrecy

3 min read


THE Bank Secrecy Law is constraining the Bangko Sentral ng Pilipinas’ (BSP) ability to effectively supervise the banking industry, the International Monetary Fund (IMF) said.

In a financial sector assessment report released on Nov. 10, the IMF said the Bank Secrecy Law should be amended to allow the BSP full access to banks’ deposit and other data.

“BSP should be granted unimpaired access to information on all customer accounts, and the ability, without constraints, to employ and share depositor information for any prudential purpose (e.g., funding concentrations from related parties, intra-group dependencies, cash flow analysis, related-party transactions (RPT) and off-site anti-money laundering (AML) data and analysis) in order to fulfill its supervisory mandate to address safety and soundness concerns,” it said.

There are bills filed in Congress proposing to reinstate Presidential Decree 1792 which gave the BSP the mandate to examine bank deposits, provided it found reasonable grounds such as fraud, serious irregularity or unlawful activities.

The Wirecard AG scandal in June sparked renewed calls from the BSP and the Department of Finance to pass amendments to the Bank Secrecy Law. The German payments firm initially claimed it kept $2.1 billion in two local banks, but later admitted the funds did not exist.

In the report, the IMF said there is a need to strengthen the BSP’s ability to gauge the impact of mixed conglomerate structures on domestic systemically important banks (D-SIB) or those deemed as “too big to fail.”

“The BSP has to rely to a large extent on public information for assessing risks in the wider conglomerates as it does not have the power to supervise a bank’s parent or the wider group, or to review their activities to determine their impact on the safety and soundness of the bank and the bank groups within the conglomerates,” it said.

The BSP has identified several D-SIBs, most which belong to big Philippine conglomerates and some are foreign bank branches, the IMF said.

Based on the IMF’s assessment, Republic Act. No. 11211 or the New Central Bank Act only gave the BSP the additional power to obtain data and information relating to parent and affiliate companies of D-SIBs only for “statistical and policy development purposes.”

“Limited scope of this new authority does not provide the BSP with sufficient powers to assess any potential negative impact the activities of those companies may have on the safety and soundness of the banking group. Limitations on BSP’s enforcement powers also impair its ability to fully protect the bank from the actions of parent companies and affiliates,” the IMF said.

The IMF said the BSP should also strengthen its oversight on the assessment of ultimate beneficial ownership (UBO) of banks in the Philippines.

“BSP’s ability to assess the resolvability of banks, especially D-SIBs, and support the orderly resolution of a problem bank, including the preparedness for effectively dealing with a major bank failure needs to be developed,” it added.

Also, the IMF raised concern over the inclusion of a Cabinet member in the Monetary Board (MB). Under the New Ce​ntral Bank Act, one of the MB’s government sector members should also be a member of the Cabinet design​ated by the President.

“Although the Cabinet member has only one vote and there is no evidence of any past political interference in the supervisory decisions taken by the MB, the presence of a senior political appointee to the MB, by definition, gives rise to a concern that the operational independence of the BSP is compromised,” it said.

The current MB includes Finance Secretary Carlos G. Dominguez III.

The IMF also said the central bank should continue to work on improving its prompt corrective action (PCA) framework to ensure bank failures are resolved promptly. It recommended that the framework should involve the transition procedures of problem banks with the Philippine Deposit Insurance Corp. to avoid losses to the deposit insurance fund and lessen moral hazard risks.

The report detailed the IMF and World Bank’s findings on the Philippines in relation to the observance of the Basel core principles for effective banking supervision, based on information available as of July 2019. — L.W.T.Noble



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