28 January 2022
Philippines

The Bangko Sentral ng Pilipinas (“BSP”), in BSP Circular No. 1129 series of 2021, has amended the corporate governance guidelines (the “Guidelines”) for BSP-supervised financial institutions. The amendments introduced strengthen the disqualification rules for directors and officers and reinforce the governance framework for interlocking directorships and officerships. The Guidelines aims to ensure, among others, that potential conflicts of interest are averted.

In determining whether a director or officer is fit and proper for the position, the Guidelines requires that concurrent positions held by such director or officer in the same financial institution and interlocking positions in other entities that may pose conflict of interest be considered. The board of directors is given the primary responsibility to ensure that the financial institution’s policy on interlocking directorships/officerships is in line with the Guidelines. In this regard, the board is mandated to institute a policy on approval of interlocking directorships/officerships (e.g., the sectors or industries of the entities where the directors/officers may assume other positions; limit on the number of entities where the director/officer may hold interlocking positions; requirement to obtain approval from the board of directors prior to acceptance of interlocking directorship/officership positions in other entities; requirement to obtain proof of disclosure to and consent from all the involved entities on interlocking officership positions held outside the banking group/conglomerate; and courses of action in case conflict of interest arise). The board is also tasked to conduct a periodic performance evaluation of the concerned directors/officers to ensure that the directors/officers holding interlocking positions in other entities effectively carry out their duties and responsibilities.

Furthermore, the Guidelines lays down the following rules for interlocking directorship/officership:

  • interlocking directorships/officerships are allowed provided that the positions do not pose conflict of interests;
  • interlocking directorships are allowed except in cases involving banks belonging to the same category;
  • as a general rule, interlocking officerships shall not be allowed except:
    • held in the same capacity within a banking group as (i) corporate secretary, (ii) security officer, (iii) chief risk officer, chief compliance officer, head of internal audit, or (iv) other positions performing similar functions as those in (i) to (iii);
    • as corporate secretary or assistant corporate secretary between/among entities which are not part of the same banking group/conglomerate; and
  • interlocking directorships/officerships between a bank and an investment house are allowed, subject to the requirements of the Guidelines and other applicable regulations.

Financial institutions shall also be required to submit an annual report of all interlocking positions of its directors and officers within 20 banking days from the end of each reference year starting 31 December 2021. Furthermore, financial institutions are mandated to keep a complete record of all interlocking positions of its directors and officers, and documentation of the assessments conducted by the board.

In addition to the foregoing, the Guidelines requires that the Chairperson of the board must not have served as CEO within the past three years.

Implications for business in the Philippines

Financial institutions are given until 30 June 2022 to comply with the provisions of the Guidelines. Thus, existing BSP-registered financial institutions must reassess their existing governance structure, including interlocking positions in the company, and, where necessary, implement appropriate corrective measures.

If you have any questions or require any additional information, please contact Felix Sy or Aubbrey Lim of Insights Philippines Legal Advisors (a member of ZICO Law).

This alert is for general information only and is not a substitute for legal advice.