002 SUPERVISORY ENFORCEMENT POLICY
a. Statement of policy and rationale
b. Objectives of the enforcement policy
(1) Achieving the desired change. Effect a change in the overall condition and governance of Bangko Sentral-supervised FIs consistent with the expectations set under relevant laws and regulations; and
(2) Mitigating risk. Mitigate risks to the FIs and other stakeholders in order to maintain the stability of the financial system.
c. General principles
(1) Root cause diagnosis. The enforcement action addresses the underlying cause of the supervisory issues and concerns.
(2) Consistently matching the severity of enforcement action to the supervisory issue. The deployment of appropriate enforcement action is commensurate with the severity of the supervisory issues and concerns. The severity of the supervisory issues and concerns is assessed in terms of prevalence 2 and persistence.
(3) Successive or simultaneous deployment of enforcement actions. Enforcement actions may be deployed successively or simultaneously taking into account the nature and seriousness of the difficulties encountered by the FIs and the ability and willingness of the FI’s Management to address the supervisory issues and concerns.
(4) Monitorability and follow-through. The Bangko Sentral monitors the FI’s progress/compliance with the expected actions to address the supervisory issues, concerns and problems.
(5) Escalation of enforcement actions. Enforcement actions may be escalated if the desired change is not achieved and the root causes of the FI’s issues, concerns and problems are not addressed by the FI within prescribed timelines.
d. Categories of enforcement actions
(1) Corrective actions
Corrective actions are enforcement actions intended to require the FI to address the underlying cause of supervisory issues, concerns and problems. These include the following:
(a) Bangko Sentral directives
Directives are basically orders and instructions communicated by the appropriate supervising department in Bangko Sentral requiring the FI to undertake a specific positive action or refrain from performing a particular activity within a prescribed timeline.
(b) Letter of Commitment (LOC)
The LOC is an enforcement action where the FI’s Board of Directors (Board) is required, upon approval and/or confirmation by the MB, to make a written commitment to undertake a specific positive action or refrain from performing a particular activity with a given time period.
The LOC is generally used to arrest emerging supervisory concerns before these develop into serious weaknesses or problems, or to address remaining supervisory issues and concerns.
Sanctions that may be imposed on an FI and/or its directors and officers, as provided under existing laws, Bangko Sentral rules and regulations, are subject to the prior approval and/or confirmation by the MB. Such sanctions include the following:
(i) Restrictions on activities and privileges
(ii) Suspension of authorities, privileges and other activities
(iii) Divestment and/or unwinding
(iv) Monetary sanction – penalties/fines against the FI
(b) Directors and officers
(ii) Restriction on compensation and benefits
The foregoing sanctions to individuals are without prejudice to the filing of separate civil or criminal actions against them, when appropriate.
(3) Other supervisory actions subject to prior MB approval, the Bangko Sentral, when warranted, may deploy other supervisory actions such as:
(a) Initiation into the PCA Framework;
(b) Issuance of a cease and desist order (CDO) against the FI as well as against its directors and officers;
(c) Conservatorship; and
(d) Placement under receivership.
e. Due Process
- Section 4 of R.A. No. 8791 (General Banking Law of 2000) defines the scope of Bangko Sentral’s supervisory powers, which may be grouped into three categories: (i) issuance of rules; (ii) examination and investigation; and (iii) enforcement of Prompt Corrective Action (PCA)
- Prevalence pertains to the pervasiveness of the supervisory issues, concerns and problems in relation to their impact on the FI’s solvency, asset quality, operating performance and liquidity, among others.