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11 January 2016

New operational risk management framework for Philippines finance firms

Content team

The central bank of the Philippines has confirmed the approval of a new set of operational risk management (ORM) guidelines for its supervised financial institutions (BSFIs).

In a statement, the Bangko Sentral ng Pilipinas (BSP) said this latest move is part of a series of ongoing initiatives to ensure the sustainability and security of some of the country's biggest financial organisations.

Operational risk was identified as one of the main areas of exposure for BSFIs, alongside credit, liquidity and market-related threats.

Inadequate policies on acceptable behaviour and practices, unsatisfactory working environments, poor sales and marketing practices, and natural or man-induced disasters are among the many factors that can heighten operational risk.

Despite these dangers, many financial institutions are taking a fragmented approach to ORM, underestimating the impact it could be having on their operations and the potential losses they could incur as a result.

One of the key messages in the new guidelines is that every member of staff has a responsibility to implement the ORM framework.

This means it is important for supervised financial institutions to employ competent, responsible individuals with "a high degree of integrity", the BSP said.

"The board of directors should adopt policies in the areas of recruitment and selection, performance management, training and development, remuneration and compensation, and succession planning to promote a culture of high standards of ethical behaviour and consistency of performance in the organisation," the central bank added.

"Said policies should require continuing assessment of the fitness and propriety of personnel, with the results of said assessment considered in the development of individual training and development programmes."

Business line management and personnel was identified as the first of three lines of defence against operational risk, followed by a combination of the ORM and compliance functions, and finally the internal audit system, which should independently assess the whole ORM framework.

Content team, Bureau van Dijk

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