Bangko Sentral to banks: Manage ‘reputational risks’

THE Bangko Sentral ng Pilipinas (BSP) announced over the weekend that it has approved guidelines for banks’ management of reputational risks. The BSP said this is a “prudential requirement” that is part of their corporate governance reform agenda to foster good governance and encourage prudent management of risks toward building the resilience of the financial system.

Under the new guidelines, banks are asked to identify, assess and manage reputational risks that are commensurate to their size, nature and complexity of operations, overall risk profile and systemic importance.

“As the financial sector continues to evolve and face challenges arising from digital disruption and stiffer competition, financial institutions must be increasingly sensitive to and vigilant in addressing potentially more damaging reputation events,” BSP Governor Benjamin E. Diokno said.

“With the right tools and perspective, financial institutions will be more equipped in preventing and managing reputational threats. If not properly managed, these reputational concerns may lead to financial losses, negative publicity and loss of stakeholder confidence, any of which could have a lasting debilitating impact on the institution,” he added.

The BSP said reputational risks to banks are closely interlinked with other risk exposures such as credit, market, liquidity, and operational risks, including those arising from cybersecurity threats and negative information in the social media.

A shortfall in any of these segments may also trigger reputational risks.

Under the new guidelines, banks must report to the BSP within five calendar days any reputation event, including issues arising within the different social media platforms, that may have an adverse effect on its relevant stakeholders and lead to a full-blown crisis if not responded to in a timely and effective manner.

Meanwhile, in cases of operational risk events, major cyber-related incidents, disruption of financial services and operations, or liquidity shortfall, banks shall comply with the notification and reporting requirements prescribed under existing regulations.

Banks are also given the flexibility to design and implement their reputational risk management function. This may be a stand-alone function or integrated with other risk management functions depending on how reputational risk exposures are being managed.