Overcoming Challenges

Ma. Dolores B. Yuvienco Assistant

Governor

Governance Structure• Setting strategic goals

– should taking into account the bank’s long term financial interests, level of risk tolerance and ability to manage risks effectively

– should be implemented with clearly defined responsibilities and accountabilities

Governance Structure• Setting strategic goals

– adopt policies, procedures and systems commensurate and suited to the risk profile and scope of operations of the bank

Governance Structure• Exercising objective judgment

– select board of directors from a broad pool of candidates

– have a sufficient number of non-executive directors in the board

– minimum number of independent directors: at least 20% but not less than 2 of the members of the board, rounded up to the nearest whole number

Governance Structure• Exercising objective judgment

– adopted “5-2-5” rule of the SECdirector can only serve as such in the same

company for 5 consecutive yearsthe term may be extended for another 5

consecutive years only after a 2-year cooling off period

after serving for 10 years, the independent director shall be perpetually barred from being elected as such in the same company

Governance StructureAudit CommitteeCEO, CFO and/or Treasurer shall not be appointed as

members of the audit committee

Risk Oversight CommitteeShall be chaired by a non-executive member of the

board Shall have at least 1 independent director as member

Corporate Governance CommitteeShall be chaired by an independent director

Governance Structure• Exercising objective judgment

– non-complex banks specifically, thrift; rural and cooperative banks, may constitute at a minimum, the audit committee

Governance Structure• Strengthening checks and balances systems

– Banks should have appropriate and effective checks and balances systems in place

– non-executive members of the board of directors should conduct regular meetings with the heads of internal audit, compliance and risk management functions and the external auditor

Governance Structure• Strengthening checks and balances systems

– internal controls and internal audit comprise the primary line of defense of banks against abusive practices

– opinion of external auditors lends credibility to the financial statements prepared by the bank

– the compliance system contributes to a strengthened control environment and increase in franchise value of banks.

Compliance function• Elements of the compliance system

– compliance program duly approved by the board of directors;

– a constructive working relationship of the BSP; and– a clear and open communication lines within the

bank to educate and address compliance matters

Compliance function

• simple banks may designate a non-executive member of the board of directors to serve as the chief compliance officer in a concurrent capacity

Overcoming Challenges

Ma. Dolores B. Yuvienco Assistant

Governor