BSP eyes risk-based framework to assess banks’ ability to protect their customers

THE BANGKO SENTRAL ng Pilipinas (BSP) is proposing a risk-based framework for its assessment of financial institutions’ ability to safeguard consumer rights as part of the implementation of the Financial Products and Services Consumer Protection Act.

The central bank is looking to adopt the Financial Consumer Protection Risk-and-Impact Supervisory Model (FCPRISM) that will cover its assessment of banks starting next year, it said in a draft circular.

“FCPRISM supports a holistic and forward-looking supervisory assessment of a BSP-supervised institution’s (BSI) capacity to safeguard consumer rights and deliver fair consumer outcomes in a consistent and sustainable manner,” it said.

The framework has a risk-based approach as the level of supervisory engagement will depend on a BSI’s consumer impact and consumer protection risk profile, allowing the regulator to better allocate its resources. This means that institutions “with greater potential to cause consumer harm” will be supervised more closely.

“It also facilitates the conduct of consolidated supervision, where impact and risks are viewed on a group-wide basis,” the BSP said.

Still, the principles, concepts, and processes of the framework will apply to all BSIs, regardless of size and risk profile.

The FCPRISM is grounded on three major elements: the BSI’s consumer impact, its risk profile, and the corresponding level of supervisory engagement.

“The first element captures the BSI’s potential impact in terms of harm to consumers, public confidence, and the functioning of financial services in the event of material failures in the BSI’s conduct, operations, and/or controls. The second reflects the BSI’s ability to uphold consumer rights and sustain delivery of fair outcomes over time, as represented by its Overall CP Stance,” it said.

“The third considers both consumer impact and CP stance in determining the appropriate degree of supervisory attention. A BSI with higher impact or weaker CP capability will necessarily require a higher degree of supervisory engagement.”

It said a BSI’s consumer impact will be assessed by evaluating the possible scale, reach, and severity of consumer harm, which would include persistent weaknesses in consumer protection practices that including broader effects on consumer confidence and the functioning of financial services.

Meanwhile, for risk profiling, the BSP will assess a BSI’s sustained capability to protect consumer rights via how well they manage risks in their retail activities, as well as the strength of governance, compliance, and internal audit arrangements across the institution. This will also take into account the BSI’s structural complexity and consumer profile, as well as institutional assurance and oversight support.

“The assessments of the Net CP Risk Profile and Institutional Assurance and Oversight Support are combined to determine the Overall CP Stance of the BSI. It represents a supervisory judgment on the BSI’s capacity to safeguard consumer interests and deliver fair consumer outcomes in a consistent and sustainable manner, including under plausible changes in its business model and periods of heightened consumer risk,” the central bank said.

“The Overall CP Stance is expressed on a four-point scale: Consumer-Centric, Consumer-Attentive, Consumer-Risk Exposed, and Consumer-Harm Evident.”

Lastly, the BSP will assess the level of supervisory engagement required for BSIs depending on their impact ratings and risk profiles, which will be reflected in combination and frequency of supervisory activities.

These supervisory activities are reporting requirements, meetings, on-site examinations, periodic risk assessments, and complaints-based surveillance. — A.M.C. Sy