The International Monetary Fund (IMF) is calling for the lifting of the country’s bank secrecy law to further strengthen the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).
“The BSP’s regulatory framework is broadly effective for the size and complexity of the Philippine banking system, but legislative gaps continue to hinder effective supervision of banks,” it said in its latest country report on Thursday.
The IMF explained that significant weaknesses in the legislative framework, arising notably from the bank secrecy law and the lack of power for the central bank to supervise the parent companies and their affiliates of banking groups, “present a material hindrance to effective supervision.”
It added that the bank secrecy law states that all bank deposits with banking institutions in the Philippines are considered to be of an absolutely confidential nature and may not be examined, inquired or looked into by any person, including the Bangko Sentral, except in defined circumstances.
For instance, the multilateral institution said the BSP has the power to access supervised bank records to conduct its supervisory work. The BSP has open access to the bank’s board, management and staff, when required, but the laws restrict access to information related to depositors.
Also, while there is an exemption from the bank secrecy law pertaining to the reporting of suspicious transactions to the Anti-Money Laundering Council, the central bank is not permitted to share information pertaining to suspicious activities to other relevant domestic and foreign financial sector supervisory authorities for supervisory purposes unless authorized by the Monetary Board.
With these, the IMF pointed out that the Bangko Sentral “should be granted unimpaired access to information on all customer accounts, and the ability, without constraints, to employ and share depositor information for any prudential purpose (e.g., funding concentrations from related parties, intra-group dependencies, cash flow analysis, related- party transactions [RPT] and off-site anti-money laundering [AML] data and analysis) in order to fulfill its supervisory mandate to address safety and soundness concerns.”
For its part, the BSP said it echoes the view of the IMF on the importance of lifting the bank deposit secrecy law.
“The amendment of the bank deposit secrecy laws will enable the BSP and other financial sector regulators to fully and effectively discharge their supervisory mandates to promote the safety and soundness of the financial sector and protect the depositing public,” it stressed.
The central bank added that it recognizes that allowing financial sector regulators unrestricted access to bank records, including depositor information, should be subject to strong professional confidentiality arrangements.
Republic Act 1405, or the “Law on Secrecy of Bank Deposits,” was put in place in 1955 to ensure the confidentiality of all types of bank deposits, except when the depositor allows disclosure, in case of impeachment proceedings, upon the order of a court in cases of bribery or dereliction of duty of a public official, or where the deposit is the subject of litigation.
The law sought to encourage people to place their money in banks and discourage private hoarding, so that the funds can be used for lending.