[ BSP CIRCULAR NO. 283, May 17, 2001 ]
BOARD OF DIRECTORS OF BANKS/QUASI-BANKS/TRUST ENTITY
Pursuant to Monetary Board Resolution No. 713 dated 10 May 2001, the provisions of the Manual of Regulations for banks and for non-bank financial institutions are hereby amended, as follows:
SECTION 1. Subsecs. X141.3 and 4141Q.3 are hereby added to the respective Manual of Regulations, to read as follows:
The corporate powers of a bank/quasi-bank/trust entity shall be exercised, its business conducted and all its property shall be controlled and held by its board of directors. The powers of the board of directors as conferred by law are original and cannot be revoked by the stockholders. The directors hold their office charged with the duty to act for the bank/ quasi-bank/trust entity in accordance with their best judgment.
SECTION 2. Subsecs. X141.4 and 4141Q.4 are hereby added to the Manual of Regulations to read as follows:
The position of a bank/quasi-bank/trust entity director is a position of trust. A direc tor assumes certain responsibilities to different constituencies or stakeholders e.g. The bank/quasi-bank/trust entity itself, its stockholders, its depositors and other creditors, its management and employees, and the public at large). These constituencies or stakehold ers have the right to expect that the institution is being run in a prudent and sound manner."
The board of directors is primarily responsible for the corporate governance of the bank/quasi-bank/trust entity. To ensure good governance of the bank/quasi-bank/trust entity, the board of directors should establish strategic objectives, policies and procedures that will guide and direct the activities of the bank/quasi-bank/trust entity and the means to attain the same as well as the mechanism for monitoring management's performance. While the management of the day-to-day affairs of the institution is the responsibility of the management team, the board of directors is, however, responsible for monitoring and overseeing management action.
SECTION 3. Subsecs. X141.4 and 4141 Q.4 are hereby added to the Manual of Regu lations to read as follows:
1. To select and appoint officers who are qualified to administrer the bank/quasi -bank/trust entity affairs effectively and soundly and to establish adequate selection process for all personnel. It is the primary responsibility of the board of directors to appoint competent management team at all times. The board of directors should apply fit and proper standards on key personnel. Integrity, technical expertise and experience in the institution's business, either current or planned, should be the key considerations in the selection process. And because mutual trust and a close working relationship are important, the board's choice should share its general operating philosophy and vision for the institution. The board of directors shall establish an appropriate compensation package for all personnel which shall be consistent with the interest of all stakeholders.
2. To establish objectives and draw up a business strategy for achieving them. Consistent with the institution's objectives. The board should ensure that performance against plan is regularly reviewed, with corrective action taken as needed.
3. To conduct the affairs of the institution with high degree of integrity. Since reputation is a very valuable asset, it is in the institution's best interest that in dealings with the public, it observes a high standard of integrity. The board of directors should prescribe corporate values, codes of conduct and other standards of appropriate behavior for itself, the senior management and other employees. Among others, activities and transactions that could result or potentially result in conflict of interest, personal gain at the expense of the institution, or unethical conduct shall be strictly prohibited. It should provide policies that will prevent the use of the facilities of the bank/quasi-bank/trust entity in furtherance of criminal and other illegal activites.
4. To establish and ensure compliance with sound written policies. The board should adopt written policies on all major business activities, i.e., investments, loans, assets and liability management, business planning and budgeting. A mechanism to ensure compliance with said policies shall also be provided.
5. To prescribe a clear assignment of responsibilities and decision-making authorities, incorporating a hierarchy of required approvals from individuals to the board of directors. The board should establish in writing the limits of the discretionary powers of each officer, committee, sub-committee and such other group for the purpose of lending, investing or committing the bank/quasi-bank/trust entity to any financial undertaking or exposure to risk at any time. The board should have a schedule of matters and authorities reserved to it for decision, such as: major capital expenditures, equity investments and divestments.
6. To effectively supervise the bank's/quasi-bank's/trust entities affairs. The board of directors should establish a system of checks and balances which applies in the first instance to the board itself. Among the members of the board, an effective system of checks and balances must exist. The system should also provide a mechanism for effective check and control by the board over the chief executive officer and key managers and by the latter over the line officers of the bank/quasi-bank/trust entity.
7. To monitor, assess and control the performance of management. The board shall put in place an appropriate reporting system so that it is provided with relevant and timely information to be able to effectively assess the performance of management. For this purpose, it may constitute a governance committee.
8. To adopt and maintain adequate risk management policy. The board of directors shall be responsible for the formulation and maintenance of written policies and procedures relating to the management of risks throughout the institution. The risk management policy shall include:
9. To constitute the following committees (optional for banks with net worth of less than P20 million but mandatory if a subsidiary of other banks);
11. To keep the individual members of the board and the shareholders informed. It is the duty of the board to present to all its members and to the shareholders a balanced and understandable assessment of the bank's/quasi-bank's/trust entity's performance and financial condition. It should also provide appropriate information that flows internally and to the public. All members of the board shall have reasonable access to any information about the institution.
12. To ensure that the bank/quasi-bank/trust entity have beneficial influence on the economy. The board has a continuing responsibility to provide those services and facilities which will be supportive of the national economy.
13. To assess at least annually its performance and effectiveness as a body, as welt as its various committees, the chief executive officer and the bank itself. The composition of the board shall also be reviewed regularly with the end in view of having a balanced membership Towards this end, a system and procedure for evaluation shall be adopted which may include, but not limited to, the setting of benchmark and peer group analysis.
14. To keep their authority within the powers of the institution as prescribed in the articles of incorporation, charter, by-laws and in existing laws, rules and regulations. To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws, rules and regulations, the board shall appoint a compliance officer shall be responsible for coordinating, monitoring and facilitating compliance with existing laws, rules and regulations. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. It may also constitute a compliance committee.
SECTION 4. Subsecs. X141.5 and 4141 Q.5 are hereby added to the Manual of Regulations to read as follows:
1. To conduct fair business transactions with the bank/quasi-bank/trust entity and to ensure that personal interest does not bias board decisions. Directors should, whenever possible, avoid situations that would give rise to a conflict of interest. If transactions with the institution cannot be avoided, it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. The basic principle to be observed is that a director should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. He should avoid situations that would compromise his impartiality.
2. To act honestly and in good faith, with loyalty and in the best interest of the institution, its stockholders, regardless of the amount of their stockholdings, and other stakeholders such as its depositors, investors, borrowers, other clients and the general public. A director must under similar circumstances. While a director should always strive to promote the interest of all stockholders, he should also give due regard to the rights and interests of other stakeholders.
3. To devote time and attention necessary to properly discharge their duties and responsibilities. Directors should devote sufficient time to familiarize themselves with the institution's condition and be knowledgeable enough to contribute meaningfully to the board's work. They must attend and actively participate in board and committee meetings, request and review meeting materials, ask questions, and request explanations, if a person cannot give sufficient time and attention to the affairs of the institution, he should neither accept his nomination nor run for election as member of the board.
4. To act judiciously. Before deciding on any matter brought before the board of directors, every director should thoroughly evaluate the issues, ask questions and seek clarifications when necessary.
5 To assess at least annually its performance and effectiveness as a body, as well as its various committees, the chief executive officer and the bank itself. The composition of the board shall also be reviewed regularly with the end in view of having a balanced membership. Towards this end, a system and procedure for evaluation shall be adopted which may include, but not limited to, the setting of benchmark and peer group analysis.
6. To keep their authority within the powers of the institution as prescribed in the articles of incorporation, charter, by-laws and in existing laws, rules and regulations. To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws, rules and regulations, the board shall appoint a compliance officer shall be responsible for coordinating, monitoring and facilitating compliance with existing laws, rules and regulations. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. It may also constitute a compliance committee.
SECTION 4. Subsecs. X141.5 and 4141Q.5 are hereby added to the Manual of Regulations to read as follows:
"Specific duties and responsibilites of a director:
1. To conduct fair business transactions with the bank/quasi-bank/trust entity and to ensure that personal interest does not bias board decisions. Directors should, whenever passible, avoid situations that would give rise to a conflict of interest. If transactions with the institution cannot be avoided, it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. The basic principle to be observed is that a director should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. He should avoid situations that would compromise his impartiality.
2. To act honestly and in good faith, with loyalty and in the best interest of the institution, its stockholders, regardless of the amount of their stockholdings, and other stakeholders such as its depositors, investors, borrowers, other clients and the general public. A director must always act in good faith, with the care which an ordinarily prudent man would exercise under similar circumstances. While a director should always strive to promote the interest of all stockholders, he should also give due regard to the rights and interests of other stakeholders.
3. To devote time and attention necessary to properly discharge their duties and responsibilities. Directors should devote sufficient time to familiarize themselves with the institution's condition and be knowledgeable enough to contribute meaningfully to the board's work. They must attend and actively participate in board and committee meetings, request and review meeting materials, ask questions, and request explanations. If a person cannot give sufficient time and attention to the affairs of the institution, he should neither accept his nomination nor run for election as member of the board.
4. To act judiciously. Before deciding on any matter brought before the board of directors, every director should thoroughly evaluate the issues, ask questions and seek clarifications when necessary.
5. To exercise independent judgment. A director should view each problem/situation objectively. When a disagreement with others occurs, he should carefully evaluate the situation and state his position. He should not be afraid to take a position even though it might be unpopular. Corollarily, he should support plans and ideas that he thinks will be beneficial to the institution.
6. To have a working knowledge of the statutory and regulatory requirements affecting the institution, including the content of its articles of incorporation and by-laws, the requirements of the Bangko Sentral ng Pilipinas, and where applicable, the requirements of other regulatory agencies. A director should also keep himself informed of the industry developments and business trends in order to safeguard the institution's competitiveness.
7. To observe confidentiality. Directors must observe the confidentiality of non-public information acquired by reason of their position as directors. They may not disclose said information to any other person without the authority of the board,
SECTION 5. Subsecs. X141.6 and 4141Q.6 are hereby added to the Manual of Regu lations to read as follows:
Banks/quasi-banks/trust entities shall furnish allot their directors with a copy of the specific dates and responsibilities of the board of directors prescribed under subsecs. X141.4 and 4141Q.4 as well as the specific duties and responsibilities of a director under Subsecs. X141.5 and4i41Q.5 within thirty (30) banking days from (date of this Circular) in cases of incumbent directors and at the time of election in cases of directors elected after (date of this Circular).
The directors concerned shall each be required to acknowledge receipt of the copies of such specific duties and responsibilities and shall certify that they fully understand the same.
Copies of the acknowledgement and certification herein required shall be submitted to the appropriate supervisory and examining department of SES within fifteen (15) days from date thereof. It shall be considered a major report (category a-2) and delay in its submission shall be subject to penalty in accordance with existing regulations.
SECTION 6. Subsection X141.7 and 4141Q.7 are hereby added to the manual of regulations to read as follows:
This Circular shall take effect immediately.
Adopted: 17 May 2001
(SGD.) RAFAEL B. BUENAVENTURA
Governor
SECTION 1. Subsecs. X141.3 and 4141Q.3 are hereby added to the respective Manual of Regulations, to read as follows:
"POWERS AND AUTHORITY OF THE BOARD OF DIRECTORS
The corporate powers of a bank/quasi-bank/trust entity shall be exercised, its business conducted and all its property shall be controlled and held by its board of directors. The powers of the board of directors as conferred by law are original and cannot be revoked by the stockholders. The directors hold their office charged with the duty to act for the bank/ quasi-bank/trust entity in accordance with their best judgment.
SECTION 2. Subsecs. X141.4 and 4141Q.4 are hereby added to the Manual of Regulations to read as follows:
"GENERAL RESPONSIBILITY OF THE BOARD OF DIRECTORS
The position of a bank/quasi-bank/trust entity director is a position of trust. A direc tor assumes certain responsibilities to different constituencies or stakeholders e.g. The bank/quasi-bank/trust entity itself, its stockholders, its depositors and other creditors, its management and employees, and the public at large). These constituencies or stakehold ers have the right to expect that the institution is being run in a prudent and sound manner."
The board of directors is primarily responsible for the corporate governance of the bank/quasi-bank/trust entity. To ensure good governance of the bank/quasi-bank/trust entity, the board of directors should establish strategic objectives, policies and procedures that will guide and direct the activities of the bank/quasi-bank/trust entity and the means to attain the same as well as the mechanism for monitoring management's performance. While the management of the day-to-day affairs of the institution is the responsibility of the management team, the board of directors is, however, responsible for monitoring and overseeing management action.
SECTION 3. Subsecs. X141.4 and 4141 Q.4 are hereby added to the Manual of Regu lations to read as follows:
"SPECIFIC DUTIES AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS:
1. To select and appoint officers who are qualified to administrer the bank/quasi -bank/trust entity affairs effectively and soundly and to establish adequate selection process for all personnel. It is the primary responsibility of the board of directors to appoint competent management team at all times. The board of directors should apply fit and proper standards on key personnel. Integrity, technical expertise and experience in the institution's business, either current or planned, should be the key considerations in the selection process. And because mutual trust and a close working relationship are important, the board's choice should share its general operating philosophy and vision for the institution. The board of directors shall establish an appropriate compensation package for all personnel which shall be consistent with the interest of all stakeholders.
2. To establish objectives and draw up a business strategy for achieving them. Consistent with the institution's objectives. The board should ensure that performance against plan is regularly reviewed, with corrective action taken as needed.
3. To conduct the affairs of the institution with high degree of integrity. Since reputation is a very valuable asset, it is in the institution's best interest that in dealings with the public, it observes a high standard of integrity. The board of directors should prescribe corporate values, codes of conduct and other standards of appropriate behavior for itself, the senior management and other employees. Among others, activities and transactions that could result or potentially result in conflict of interest, personal gain at the expense of the institution, or unethical conduct shall be strictly prohibited. It should provide policies that will prevent the use of the facilities of the bank/quasi-bank/trust entity in furtherance of criminal and other illegal activites.
4. To establish and ensure compliance with sound written policies. The board should adopt written policies on all major business activities, i.e., investments, loans, assets and liability management, business planning and budgeting. A mechanism to ensure compliance with said policies shall also be provided.
5. To prescribe a clear assignment of responsibilities and decision-making authorities, incorporating a hierarchy of required approvals from individuals to the board of directors. The board should establish in writing the limits of the discretionary powers of each officer, committee, sub-committee and such other group for the purpose of lending, investing or committing the bank/quasi-bank/trust entity to any financial undertaking or exposure to risk at any time. The board should have a schedule of matters and authorities reserved to it for decision, such as: major capital expenditures, equity investments and divestments.
6. To effectively supervise the bank's/quasi-bank's/trust entities affairs. The board of directors should establish a system of checks and balances which applies in the first instance to the board itself. Among the members of the board, an effective system of checks and balances must exist. The system should also provide a mechanism for effective check and control by the board over the chief executive officer and key managers and by the latter over the line officers of the bank/quasi-bank/trust entity.
7. To monitor, assess and control the performance of management. The board shall put in place an appropriate reporting system so that it is provided with relevant and timely information to be able to effectively assess the performance of management. For this purpose, it may constitute a governance committee.
8. To adopt and maintain adequate risk management policy. The board of directors shall be responsible for the formulation and maintenance of written policies and procedures relating to the management of risks throughout the institution. The risk management policy shall include:
- a comprehensive risk management approach;The board may constitute a committee for this purpose.
- a detailed structure of limits, guidelines and other parameters used to govern risk-taking;
- a dear delineation of lines of responsibilities for managing risk;
- an adequate system for measuring risk; and
- effective internal controls and a comprehensive risk-reporting process.
9. To constitute the following committees (optional for banks with net worth of less than P20 million but mandatory if a subsidiary of other banks);
a. Audit committee, which shall be comprised of independent board members, preferably, with accounting and finance experience- the audit committee provides oversight of the institution's internal and external auditors. It shall be responsible for the setting-up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor. It shall monitor and evaluate the adequacy and effectiveness of the internal control system.10. To meet regularly. To properly discharge its functions, the board of directors shall meet regularly. Independent views in board meetings shall be given full consideration and all such meetings shall be duly minuted.
b. Nomination committee - the nomination committee shall be composed of at least three (3) members of the board of directors, preferably all independent members. It shall review and evaluate the qualifications of all persons nominated to the board as well as those nominated to other positions requiring appointment by the board of directors.
11. To keep the individual members of the board and the shareholders informed. It is the duty of the board to present to all its members and to the shareholders a balanced and understandable assessment of the bank's/quasi-bank's/trust entity's performance and financial condition. It should also provide appropriate information that flows internally and to the public. All members of the board shall have reasonable access to any information about the institution.
12. To ensure that the bank/quasi-bank/trust entity have beneficial influence on the economy. The board has a continuing responsibility to provide those services and facilities which will be supportive of the national economy.
13. To assess at least annually its performance and effectiveness as a body, as welt as its various committees, the chief executive officer and the bank itself. The composition of the board shall also be reviewed regularly with the end in view of having a balanced membership Towards this end, a system and procedure for evaluation shall be adopted which may include, but not limited to, the setting of benchmark and peer group analysis.
14. To keep their authority within the powers of the institution as prescribed in the articles of incorporation, charter, by-laws and in existing laws, rules and regulations. To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws, rules and regulations, the board shall appoint a compliance officer shall be responsible for coordinating, monitoring and facilitating compliance with existing laws, rules and regulations. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. It may also constitute a compliance committee.
SECTION 4. Subsecs. X141.5 and 4141 Q.5 are hereby added to the Manual of Regulations to read as follows:
"Specific duties and responsibilities of a director:
1. To conduct fair business transactions with the bank/quasi-bank/trust entity and to ensure that personal interest does not bias board decisions. Directors should, whenever possible, avoid situations that would give rise to a conflict of interest. If transactions with the institution cannot be avoided, it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. The basic principle to be observed is that a director should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. He should avoid situations that would compromise his impartiality.
2. To act honestly and in good faith, with loyalty and in the best interest of the institution, its stockholders, regardless of the amount of their stockholdings, and other stakeholders such as its depositors, investors, borrowers, other clients and the general public. A director must under similar circumstances. While a director should always strive to promote the interest of all stockholders, he should also give due regard to the rights and interests of other stakeholders.
3. To devote time and attention necessary to properly discharge their duties and responsibilities. Directors should devote sufficient time to familiarize themselves with the institution's condition and be knowledgeable enough to contribute meaningfully to the board's work. They must attend and actively participate in board and committee meetings, request and review meeting materials, ask questions, and request explanations, if a person cannot give sufficient time and attention to the affairs of the institution, he should neither accept his nomination nor run for election as member of the board.
4. To act judiciously. Before deciding on any matter brought before the board of directors, every director should thoroughly evaluate the issues, ask questions and seek clarifications when necessary.
5 To assess at least annually its performance and effectiveness as a body, as well as its various committees, the chief executive officer and the bank itself. The composition of the board shall also be reviewed regularly with the end in view of having a balanced membership. Towards this end, a system and procedure for evaluation shall be adopted which may include, but not limited to, the setting of benchmark and peer group analysis.
6. To keep their authority within the powers of the institution as prescribed in the articles of incorporation, charter, by-laws and in existing laws, rules and regulations. To conduct and maintain the affairs of the institution within the scope of its authority as prescribed in its charter and in existing laws, rules and regulations, the board shall appoint a compliance officer shall be responsible for coordinating, monitoring and facilitating compliance with existing laws, rules and regulations. The compliance officer shall be vested with appropriate authority and provided with appropriate support and resources. It may also constitute a compliance committee.
SECTION 4. Subsecs. X141.5 and 4141Q.5 are hereby added to the Manual of Regulations to read as follows:
"Specific duties and responsibilites of a director:
1. To conduct fair business transactions with the bank/quasi-bank/trust entity and to ensure that personal interest does not bias board decisions. Directors should, whenever passible, avoid situations that would give rise to a conflict of interest. If transactions with the institution cannot be avoided, it should be done in the regular course of business and upon terms not less favorable to the institution than those offered to others. The basic principle to be observed is that a director should not use his position to make profit or to acquire benefit or advantage for himself and/or his related interests. He should avoid situations that would compromise his impartiality.
2. To act honestly and in good faith, with loyalty and in the best interest of the institution, its stockholders, regardless of the amount of their stockholdings, and other stakeholders such as its depositors, investors, borrowers, other clients and the general public. A director must always act in good faith, with the care which an ordinarily prudent man would exercise under similar circumstances. While a director should always strive to promote the interest of all stockholders, he should also give due regard to the rights and interests of other stakeholders.
3. To devote time and attention necessary to properly discharge their duties and responsibilities. Directors should devote sufficient time to familiarize themselves with the institution's condition and be knowledgeable enough to contribute meaningfully to the board's work. They must attend and actively participate in board and committee meetings, request and review meeting materials, ask questions, and request explanations. If a person cannot give sufficient time and attention to the affairs of the institution, he should neither accept his nomination nor run for election as member of the board.
4. To act judiciously. Before deciding on any matter brought before the board of directors, every director should thoroughly evaluate the issues, ask questions and seek clarifications when necessary.
5. To exercise independent judgment. A director should view each problem/situation objectively. When a disagreement with others occurs, he should carefully evaluate the situation and state his position. He should not be afraid to take a position even though it might be unpopular. Corollarily, he should support plans and ideas that he thinks will be beneficial to the institution.
6. To have a working knowledge of the statutory and regulatory requirements affecting the institution, including the content of its articles of incorporation and by-laws, the requirements of the Bangko Sentral ng Pilipinas, and where applicable, the requirements of other regulatory agencies. A director should also keep himself informed of the industry developments and business trends in order to safeguard the institution's competitiveness.
7. To observe confidentiality. Directors must observe the confidentiality of non-public information acquired by reason of their position as directors. They may not disclose said information to any other person without the authority of the board,
SECTION 5. Subsecs. X141.6 and 4141Q.6 are hereby added to the Manual of Regu lations to read as follows:
Banks/quasi-banks/trust entities shall furnish allot their directors with a copy of the specific dates and responsibilities of the board of directors prescribed under subsecs. X141.4 and 4141Q.4 as well as the specific duties and responsibilities of a director under Subsecs. X141.5 and4i41Q.5 within thirty (30) banking days from (date of this Circular) in cases of incumbent directors and at the time of election in cases of directors elected after (date of this Circular).
The directors concerned shall each be required to acknowledge receipt of the copies of such specific duties and responsibilities and shall certify that they fully understand the same.
Copies of the acknowledgement and certification herein required shall be submitted to the appropriate supervisory and examining department of SES within fifteen (15) days from date thereof. It shall be considered a major report (category a-2) and delay in its submission shall be subject to penalty in accordance with existing regulations.
SECTION 6. Subsection X141.7 and 4141Q.7 are hereby added to the manual of regulations to read as follows:
Without prejudice to the other sanctions prescribed under section 37 of R.A. No. 7653 and to the provisions of section 16 of R.A. No. 8791, any director of a bank/ quasi-bank/trust entity who violates or fails to observe and/or perform any of the above responsibilities and duties shall for each violation or offense, be penalized as follows:SECTION 7. Repealing Clause. The provisions of Circular No. 130 dated 6 June 1997 which may be inconsistent with the provisions of this Circular are hereby repealed.
P30, 000 for directors of commercial banks and expanded commercial banks;
P15,000 for directors of thrift banks, Islamic banks and quasi-banks;
P5.000 for directors of rural banks and national cooperative banks; and
P1,000 for directors of local cooperative banks
This Circular shall take effect immediately.
Adopted: 17 May 2001
(SGD.) RAFAEL B. BUENAVENTURA
Governor