The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, has strengthened the oversight and control standards on related party transactions of financial institutions to protect all stakeholders.
The bank regulator said Tuesday the board approved the guidelines in a recent meeting.
“The BSP issuance is in recognition of the unique landscape of the Philippine financial industry largely composed of banks that are either part of conglomerates or small network of businesses owned by the same family group,” the Bangko Sentral said.
“The guidelines highlight that while transactions between and among the entities within the same group create financial, commercial, and economic benefits, higher degree of standards should be applied to protect the interest of all stakeholders,” it said. “It is emphasized that RPTs are generally allowed for as long as these are done on an ‘arm’s length’ basis.”
The bank said related party transactions should be conducted in the regular course of business and not undertaken on more favorable economic terms than similar deals with non-related parties under similar circumstances.
The guidelines provide that the board of directors, as an oversight body, should have the overall responsibility in ensuring that transactions with related parties are handled in a sound and prudent manner, with integrity and in compliance with applicable laws and regulations.
“The board is expected to approve an overarching policy on the handling of RPTs that should cover the scope of its RPT policy, guidelines in ensuring arm’s length terms, management of conflicts of interest, materiality thresholds and limits, whistle blowing mechanisms, and restitution of losses and other remedies for irregular RPTs,” it said.
Banks that are part of conglomerates, meanwhile, are required to create an RPT Committee, which should be entirely composed of independent directors as the majority and non-executive directors.
“The said committee shall be responsible for the continuing identification and review of existing relations between and among businesses and counter-parties, and for ensuring that RPTs are processed in the regular course of business, and are priced fairly,” the Bangko Sentral said.
The Bangko Sentral also defined expectations from the compliance and internal audit functions to strengthen the checks and balances system. The guidelines called for an improvement in the disclosure and regulatory reporting requirements on RPTs.
The bank now explicitly requires that annual reports adequately disclose relevant information on the governance of RPTs and specific details of exposures to related parties.
“The issuance apply to all banks, including their non-bank financial subsidiaries and affiliates, but initially exclude stand-alone non-bank financial institutions,” the bank regulator said.