Published 3 September 2021, The Daily Tribune

The business of banking is an industry imbued with public interest wherein the general public’s trust and confidence in the system are given high regard and paramount importance. Because of their fiduciary nature, banking institutions are expected to exert the highest degree of diligence in exercising their functions. They are obliged as well to provide high standards of integrity and performance in all transactions.

To supervise the banking industry, the Bangko Sentral ng Pilipinas (BSP) is tasked to issue rules which establish standards for the operation of financial institutions based on sound business practices and to examine the institutions for compliance and irregularities.

In line with its supervisory powers, the BSP issued last 20 August 2021, Circular 1125, s. 2021 or the Revised Guidelines on the Imposition of Monetary Penalties on Bangko Sentral-Supervised Financial Institutions (BSFI), and/or their Directors/Trustees, Officers and/or Employees for Violations with Sanctions Falling under Section 37 of RA 7653 (The New Central Bank Act), as amended.

To promote trust in the banking industry and instill accountability among lenders, the Circular imposes a maximum penalty of P1,000,000 for each transactional violation or P100,000 per business day for a continuing violation committed by BSFI, their directors, trustees, officers, and employees.

The Circular significantly changes the former monetary penalty of P30,000 per calendar day for each violation. The significant increase reflects the provisions in the BSP Charter which was approved last 2019.

The BSP defines a transactional violation as an act or an omission, constituting a violation of any applicable law or any order, instruction/directive or regulation issued by the Monetary Board.

For licensing-related violations, a transaction violation includes the failure to obtain approval prior to engaging in an activity which the institution is qualified to undertake at the onset, based on eligibility test and assessment of compliance with the prudential criteria set forth under BSP rules and regulations.

Meanwhile, a continuing violation pertains to a violation that persists or lingers over time from the instant the particular act was committed or omitted until the violation is halted.

According to the BSP, payment of monetary penalties shall be imposed for the following acts: Willful delay in submitting required reports and publication; refusal to permit examination into the affairs of the financial institution; willful making of a false or misleading statement to the BSP; willful failure or refusal to comply with any banking law or order, instruction or regulation issued by the BSP; commission of irregularities, and conducting business in an unsafe or unsound manner as may be determined by the Monetary Board.

In addition to the initial penalty, the Circular provides that in case profit is gained or loss is avoided as a result of a violation, the BSP may also impose of a fine of not more than three times the profit gained or loss avoided.

The BSP, however, ensures fairness, consistency, and reasonableness in the imposition of monetary penalties, by taking into consideration the attendant circumstances of each case, such as the nature and gravity of the violation or irregularity, the size of the financial institution, the intentionality of the violation, and measures undertaken to stop or correct the violation.

The appropriate department of the BSP will notify the bank, director, trustee, officer, or employee concerned of the violation together with a directive show cause within 15 banking days from receipt of the letter why no monetary penalty should be imposed.

The decision of the BSP shall be communicated to the bank, director, officer, or employee concerned. However, the BSP may impose non-monetary sanctions along with monetary penalties if appropriate.

Upon receipt of the notice of the decision, the bank, director, officer, or employee concerned shall pay the monetary penalty within a period of 15 calendar days. Such payment shall not be suspended by the filing of an appeal.

The imposition of monetary penalties by the BSP governor shall be final and executory until reversed, modified or lifted by the Monetary Board on appeal.

An appeal should be filed within 15 calendar days from the receipt of the notice of the decision. No motion for reconsideration of the decision of the BSP governor or the Monetary Board on appeal shall be allowed. Similar to court proceedings, a pro forma appeal or motion for reconsideration shall be denied outright.

As provided in the Circular, the BSP recognizes the need to impose penalties as one of the possible administrative sanctions to hold BSFI and their directors, trustees, officers, and employers accountable for their conduct, deter the future commission of violations and achieve the overarching supervisory objectives of changed behavior and mitigated risks.

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