MANILA, Philippines – Banks and other financial institutions will need to revise guidelines on internal control and internal audit following the Bangko Sentral ng Pilipinas’ approval of additional rules yesterday.
“The guidelines feature the fundamental elements of internal control namely, management overseeing and control culture; risk recognition and assessment; control activities; information and communications; and monitoring activities and correcting deficiencies,” the central bank said in a statement.
“These effectively broaden the regulatory expectations on internal control from previously being limited only to the implementation of basic internal control activities to promoting shared accountability of the board and personnel at all levels in the control process,” the BSP said.
The policy-making Monetary Board mandated the amended rules to strengthen the quality of governance in the institutions under the BSP’s watch and align them with international standards and best practices.
“The Monetary Board recognizes though, that there is no ‘one size fits all’ internal control framework. As such, consistent with the principle of proportionality, (financial institutions) are expected to adopt internal control frameworks that are suited to their size, risk profile and complexity of operations,” the BSP said.
The central bank said the new guidelines also support the view that internal audit function of banks are there to assess and complement operational management, risk management, compliance and other control functions.
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Financial institutions are permitted to outsource their internal audit function so long as this will not include areas covered by laws on deposit secrecy.
But the revised rules clarify that financial institutions belonging to a group of firms choosing to put up an internal audit function under its parent company do not fall under the outsourcing framework.
At the same time, the new guidelines expands the qualifications for the head of the internal audit function to consider candidates outside the accountancy profession.
The BSP stressed that universal and commercial banks are still required to hire certified public accountants or certified internal auditors as head of the internal audit function but thrift, rural, and cooperative banks may have a graduate of any accounting, business, finance, or economies course provided they have technical proficiency on the conduct of internal audit.
The central bank added that regardless of academic background, banks should see to it that candidates for internal audit heads meet the prescribed number of years of experience before hiring them.
