Published 5 July 2021, The Daily Tribune

In the last article, I discussed about the Bangko Sentral ng Pilipinas’ (BSP) guidelines requiring BSP-Supervised Financial Institutions (BSFI) to develop a reputational risk management framework as a safeguard against any reputational threats that may lead to loss of trust of stakeholders.

In its effort to further ensure that BSFI maintain a good and strong reputation, the BSP issued, last 8 April 2021, Circular 1112, or the Know Your Employee (KYE) rules, which directs BSFI to apply adequate policies, risk management and internal control measures, specifically on matters regarding recruiting and selecting bank employee candidates, and managing the performance of current bank personnel.

Recognizing that one of the major sources of operational risk is “people risk,” BSP issued the KYE rules to “weed out unprincipled personnel who may cause reputational risk to a bank and to the financial system through rogue activities.”

Thus, in recruiting and selecting potential bank employees, the new rules provide stricter requirements. All BSFI are now required to develop a risk-focused screening process approach for its preemployment background based on factors like the position, reputational risk implication and responsibilities associated with a particular position.

Notably, the level of sensitivity of a certain position, particularly in bank branches or the access level of an employee, may require further screening. Additional background screening procedures include verification of character references, criminal records, psychological evaluation, past employment, credentials, and professional qualifications.

From the information gathered by the BSFI, the latter is expected to have sufficient understanding of a candidate’s personal background and character, conflict of interest and susceptibility to collusion, fraud, or illegal activities.

In screening a candidate, the BSFI must maintain sensitivity for any inaccuracy or false information given by a candidate. Thus, to prevent BSFI from being deceived, the KYE rules require BSFI to adopt a policy that sets out the expected actions from management when preemployment screening processes detect that the candidate was not truthful in giving out information.

For candidates who have passed the initial stages of preemployment, the Human Resource Department of the BSFI will have to require these candidates to accomplish the BSP’s Authorization Form for Querying to allow the former to check BSP records.

Prior to the Circular, screening against BSP records was only a voluntary action. Upon issuance of the KYE rules, BSFI are now mandated to use BSP records in considering the fitness and propriety of the candidate. The rules, however, note that screening against the records of the BSP shall only be part of and not the sole source of information for preemployment screening.

According to the BSP, BSFI and their officials may face administrative sanctions for non-compliance with the KYE rules. The range of sanctions that can be imposed on the bank can be monetary or non-monetary sanctions. While sanctions that can be imposed on the Filipinas officer can be inclusion in the watchlist file or disqualification to enter into the banking system, depending on the seriousness or gravity of the offense.

Certainly, BSFI are part of an industry imbued with trust and confidence that must be increasingly sensitive to, and vigilant in managing people risk. Thus, no less than utmost diligence must be exerted in onboarding potential employees and managing the performance of current personnel.

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