BSP tightens know-your-employee rules for banks


BSP CIRCULAR No. 1112, signed by Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno on April 8, directed banks to apply adequate policies, risk management and control measures in hiring and performance management of bankers.

Under the new rules, banks will now have to use BSP records to screen applicants, where findings will be considered in order to gauge the “fitness and propriety of the applicant for the position.”

“One of the major sources of operational risk is ‘people risk.’ In this regard, BSP-supervised institutions shall embed their enterprise-wide risk management framework measures to identify, measure, monitor, and control human resource-related risks,” Mr. Diokno said.

Banks will have to require candidates that passed initial stages of pre-employment process to accomplish a form authorizing them to check  BSP records.

The BSP now requires banks to adopt a “risk-focused” screening process that will assess applicants in relation to the sensitivity of the positions they are vying for. Banks should check applicants’ character references, criminal records, psychological evaluation, past employment, credentials, and professional qualifications.

“Information gathered shall enable BSP-supervised institutions to have sufficient understanding of the applicant’s personal background and character, conflict of interest, and susceptibility to collusion, fraud, or illegal activities,” the BSP circular said.

Banks are also expected to employ verification techniques to gauge whether details provided by an applicant contain inaccurate or false information.

“The BSP’s newest rules on the screening process further enhance the banking industry’s vigorous risk management protocols and reinforce our commitment to the highest standards of integrity,” Bankers Association of the Philippines President Jose Arnulfo “Wick” A. Veloso said in an e-mail to BusinessWorld.

“These additional layers in the screening process will help prevent incidents of fraud and misconduct, especially with the rapid rise of digitalization brought by the COVID-19 pandemic that has also brought an increase in the number of cybercrimes being reported,” Mr. Veloso, who is also the CEO and president of Philippine National Bank, added.

Chamber of Thrift Banks (CTB) Executive Director Suzanne I. Felix noted banks’ current practices already include a “high level of validation,” especially when hiring for sensitive positions.

“Banking is fundamentally an industry of trust. It is banking’s most important currency. Hence an extra amount of diligence is required (and expected) when onboarding personnel who will be entrusted with the funds of the depositing public, effectively making them a “trustee,” she said in an e-mail.

For instance, CTB member banks’ application process includes getting clearance from the National Bureau of Investigation and credit bureau to check the financial well-being of candidates, especially branch managers and high-level officers.

Apart from rules on application process, the BSP circular also stressed the need for performance management among bank officials.

“The financial circumstances of an employee who will be responsible for the custody of, or handling cash-related transactions, shall be taken into consideration in the evaluation of his continuing qualification,” it said.

The BSP said this will give banks the ability to detect suspicious behavior.

Among the red flags identified by the BSP are reluctance or refusal to take vacation leaves; involvement of personnel in cases with frequent override of internal controls; established limits or approving authorities; high incidents of policy circumventions; sudden or significant changes in lifestyle; standard of living; spending habits that are inconsistent with the salary; financial position; and level of indebtedness.

“Aligning BSP regulations with international best practices on know-your-employee procedures is just half the battle. The other half depends on the strength of oversight of the board of directors of BSP-supervised institutions in implementing these policies,” Mr. Diokno said. — Luz Wendy T. Noble