BSFIs told to manage reputational risk

Bangko Sentral ng Pilipinas (BSP)-supervised financial institutions (BSFIs) have one year to implement reputational risk management in their operations, according to the monetary authorities.

In a statement on Friday, the central bank announced its policy-making Monetary Board approved the guidelines on reputational risk management, which set out the supervisory expectations for BSFIs on the identification, assessment and management of reputational risks that are commensurate to their size, nature, complexity of operations, overall risk profile and systemic importance.

According to the BSP, reputational risk is 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. Such risks may trigger reputational risk or vice versa.

In that regard, it said BSFIs are expected to adopt a framework to holistically and actively manage reputational risk across the organization and within the conglomerate or group to which they belong. They should also clearly communicate and disseminate the roles and responsibilities of personnel across the organization.

BSFIs are provided with flexibility in designing and implementing their reputational risk management function, which may be a standalone function or integrated with other risk management functions depending on how reputational risk exposures are being managed.

They may also continue to use their existing measures or consider adopting the tools suggested in the guidance to identify and assess reputational risks relevant to their business and industry, the Bangko Sentral added.

It further said BSFIs are required to report to the central bank within five calendar days from its determination of any reputation event, including issues arising within the different social media platforms, that may have an adverse effect on the relevant stakeholders of the BSFI and lead to a full-blown crisis if not responded to in a timely and effective manner.

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

They are given one year to fully comply with the guidelines on reputational risk management.

The central bank said the prudential requirement is part of its corporate governance reform agenda to foster good governance and encourage prudent management of risks toward building the resilience of the financial system.

“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,” Bangko Sentral Governor Benjamin Diokno was quoted as saying.

“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 lasting debilitating impact on the institution,” he added.