THE BANGKO SENTRAL ng Pilipinas (BSP) has reminded banks to comply with the maximum nine-year cumulative term limit for independent directors of BSP-supervised financial institutions, which follows previous issuances on corporate governance and reputational risk management.

In Memorandum No. M-2021-025, the central bank highlighted the provisions of both the Manual of Regulations for Banks and the Manual of Regulations for Non-Bank Financial Institutions which gives independent directors a maximum term of a cumulative period of nine years.

“After which, the independent director shall be perpetually barred from serving as independent director in the same BSP-supervised financial institution but may continue to serve as its regular director,” the circular said.

“All BSP-supervised financial institutions are hereby advised that pursuant to Monetary Board Resolution No. 371 dated March 31, 2021, the BSP shall not approve requests for exemption from the said term limit for independent directors,” it said.

BSP Deputy Governor Chuchi G. Fonacier said they have received “quite a few requests” for term extensions.

“The BSP would like to emphasize that the term of an independent director should only be for a maximum of nine years (cumulative). After having served for that period of time as an independent director, that person may no longer be considered as really independent,” Ms. Fonacier said in a Viber message on Sunday.

An independent director is a person, “who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director,” based on Memorandum Circular No. 16 Series of 2002 of the Securities and Exchange Commission.

Aside from being allowed to become a regular director after their nine-year term in a bank, an independent director can also serve the same function for other lenders, Ms. Fonacier said.

“They can serve as independent director for other banks after serving the maximum term of nine years in a certain bank provided they qualify as an ‘independent director’ for that bank,” she noted.

The central bank earlier released Circular No. 1112 which tightened policies and control measures for hiring and performance management of bankers.

Meanwhile, Circular 1114 issued last week requires banks to report “reputational risks” that could be caused by stakeholders, customers and bank employees, which could spill over and adversely impact earnings, capital, and liquidity.

“It is the thrust of the Bangko Sentral to promote good corporate governance and effective risk management systems in the financial industry,” the BSP said.

“It is in this light that the Bangko Sentral issued regulations that institutionalize control measures to highlight accountabilities, strengthen checks and balances, and ultimately protect the interest of customers and depositors,” it added. — Luz Wendy T. Noble

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