BSP issues rules on managing risks
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 26 Jul 2019 16:21:21 +0000
BANKS and quasi-banks (QBs) must conduct appropriate due diligence before making an investment and on an ongoing basis, according to monetary authorities’ newly approved risk-management guidelines.
In a statement on Friday, the Bangko Sentral ng Pilipinas (BSP) said its policymaking Monetary Board approved these guidelines on July 11.
“The conduct of due diligence reviews for new plain-vanilla instruments acquired for trading or short-term profit taking (i.e., to be held in the trading book) may be made at the option of the bank/QB, as long as the resulting positions from the investments are still within the set limits,” it explained.
The central bank said the guidelines aimed to set out the regulatory expectations in managing risks arising from investment activities, considering the exposures of banks/QBs to a wide range of instruments. These include bonds issued by emerging economies, complex structured products and other tradable assets.
These also take into account the lessons learned during the 2008 global financial crisis and the relevant guidance set out in the Basel Core Principles for Effective Banking Supervision.
“Specifically, these require a bank/QB with significant holdings of securities issued outside the country to assess whether its capital is sufficient to cover the risks arising from the possibility that the relevant foreign government may impose currency conversion restrictions,” the BSP said.
It also said the guidelines were meant to be applied proportionately, depending on the profile of the bank/QB and its investments, aware of the fact that BSP-supervised financial institutions have different structures, complexities and ranges of investment activities.
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