The Bangko Sentral ng Pilipinas (BSP) has amended the outsourcing framework for banks by directly aligning their outsourcing activities with their risk capacity.
Under the new regulation, the Monetary Board has identified the functions that are inherent to banking and may not be outsourced. These are services associated with placement of deposits and withdrawals, granting of loans and extension of other credit exposures, and management functions such as position-taking and market risk-taking activities, managing exposures and strategic decision-making.
The revised framework departs from a listing of banking activities that may be outsourced and adopts a more thematic approach. It recognizes that an enumeration is unlikely to keep abreast of evolving market needs.
However, it also requires banks to manifest their capacity to handle all the risks that arise from outsourcing while continuing to mandate that all pertinent laws must be followed.
Banks may enter into outsourcing arrangements without BSP approval as long as they have a CAMELS (Capital, Asset, Management, Earnings, Liquidity and Sensitivity to market risk) composite rating of at least 3. They should also get a rating of not lower than 3 in the category for Management.
Meanwhile, banks with CAMELS rating of below 3 need to seek approval from BSP, which will evaluate the outsourcing application based on the bank’s ability to manage risks.
The revised framework is consistent with the best practices espoused by the Joint Forum and the Committee on European Banking Supervisors which has now been reconstituted as the European Banking Authority. The Joint Forum, on the other hand, is made up of the Basel Committee on Banking Supervision, International Organization of Securities Commissions and International Association of Insurance Supervisors.
The new guidelines also follow Resolution Number 1 of the Banking Industry Tripartite Council (BITC). Said landmark resolution was signed by representatives of the BSP, Department of Labor and Employment, Bankers Association of the Philippines, Chamber of Thrift Banks, Rural Bankers Association of the Philippines, National Union of Bank Employees, Associated Labor Unions, Federation of Free Workers and the National Association of Trade Unions.
The BITC resolution provides for the agreed framework for handling outsourcing arrangements in the banking industry.