Blog: New Reputational Risk Guidelines to Strengthen Resilience: BSP – Regulation Asia

Financial institutions have until April 2022 to fully comply with the BSP’s new guidelines on reputational risk management.

The BSP (Bangko Sentral ng Pilipinas) has said in a recent online briefing that its new guidelines on reputational risk management will help to make the domestic financial system more resilient to shocks.

The guidelines were outlined in recent circular which set out the BSP’s supervisory expectations for financial institutions on the identification, assessment and management of reputational risks, commensurate to their size, nature, complexity of operations, overall risk profile and systemic importance.

The circular defined reputational risk as “events or circumstances that threaten earnings, capital and liquidity arising from negative perception on the financial institutions by its customers, shareholders, investors, and employees, market analysts, media and other stakeholders like regulators and other government agencies”.

These risks can be caused by irregularities ranging from computer hacking to fraud by rogue employees, and can adversely affect a financial institution’s ability to maintain existing business relationships, establish new businesses or partnerships, and continuously access varied sources of funding, the circular said.

The guidelines set out a holistic approach for financial institutions to use to effectively manage reputational risk, taking into consideration the interrelationships with other risk areas. The reputational risk management framework must not only be embedded in the financial institutions’ enterprise-wide risk management system, but also integrated in the crisis management process.

Under the guidelines, financial institutions are expected to implement mechanisms to monitor reputational risks, including through early warning indicators such as complaints volumes, instances of negative news, and the number of violations of laws, regulations or codes of conduct.

According to local reports, at a recent briefing, BSP Governor Benjamin Diokno emphasises the importance of having a clear understanding of various sources of reputational risk and their impact on supervised entities. “We underscore this because building and maintaining stakeholder confidence in financial institutions is key to fostering the stability and growth in the financial sector,” he said.

Diokno also highlighted the need to protect the trust of stakeholders in the financial system, saying that formal guidelines on reputational risk will help govern what is largely left to the discretion of individual institutions.

“A well-established reputation enables banks and other financial institutions to strengthen their market position, increase their market value, and to attract and retain talents,” he said.

BSP supervised financial institutions have until April 2022 to fully comply with the guidelines.

Among the requirements, financial institutions will have to alert the BSP within five calendar days about any event affecting their reputation.

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