Circular No. 1225: Guidelines on the Independent Review Mechanism for Resolution of Issues Arising from Bank Examinations

BANGKO SENTRAL NG PILIPINAS
OFFICE OFTHE COVERNOR
CIRCULAR NO. 1225
Series of 2o.25
Subject : Guidelines on the Independent Review Mechanism for Resolution of lssues Arising from Bank Examinations The Monetary Board, in its Resolution No. ll55 dated 27 November 2o.25, approved the guidelines on the independent review mechanism to implement the provisions of
Section 25 of Republic Act (RA) No. 7653, otherwise known as "The New Central Bank Act,"
as amended by RA No.l'12'll, which provides, among others:
The Bangko Sentral shall establish a mechanism for issues arising from bank examinations. lt shall be independent and reports directly to the Monetary Board, without prejudice to the authority of the Bangko Sentral and its Monetary Board to take enforcement and supervisory actions against supervised entities." Guidelines on the lndependent Review Mechanism for lssues Arising from Bank Examinations:
L lndepndent Bdy The Independent Review Committee (lRC) will evaluate and decide on issues arising from examinations raised by banks under these Guidelines. The IRC shall be composed of a Chairperson, as the Presiding Officer, and two other members, to be designated by the Governor. The Chairperson may call on any officer or employee of the BSP to assist and participate in the deliberation.
2. Appllcablllty. The independent mechanism applies only or is limited to issues
arising from regular, special, or overseeing examination. Banks may avail of this mechanism for issues arising from examinations resulting in any of the findings under the succeeding ltem 3'(Coverage) below.
5. Coveraga Only significant and serious supervisory issues cited during examinations
that affect the safety and soundness of banks shall be submitted for review of the lRC. For this purpose, significant and serious supervisory issues are those that involve any of the following:
a. Finding by the appropriate supervising department that an act or omission may be deemed as conducting unsafe or unsound banking as provided under existing regulations, and that this may be elevated to the MB fior confirmation.rThese shall cover any of the following circumstances:
i. The act or omission has resulted or may result in material loss or
damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; ' Such as Section l8l of the Manual of Regulations for Banks (MORB), Conducting Business in an Unsafe or Unsound Banking

The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors, investors, stockholders or to the BSP or to the public in general; The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negl igence; or
iv. The act or omission involves entering into any contract or transaction
manifestly and grossly disadvantageous to the bank, whether or not the director or officer profited or will profit thereby; and/or b. Major violations. These refer to acts or omissions that constitute failure to comply with the requirements of applicable laws, rules and regulations, as well as any order, instruction/directive or ruling issued by the BSP, having material adverse impact on the bank's financial condition (e.g., solvency, liquidity or profitability)or resulting in abnormal risk or danger to the bank's depositors, creditors, investors, stockholders, the BSP or to the public in general, or resulting in imposition of high level of penalties and other sanctions,2 or escalated supervisory actions.3
4. Exclusions. The independent review mechanism shall not apply to the following:
a. Banks under the Prompt Corrective Action tpCA) framework,a including those that are unwilling to submit to the PCA or unable to substantially comply with an agreed PCA plan. These are covered by the existing PCA process, thus, outside the scope of these guidelines. b. Banks under conservatorship, receivership, and/or liquidation that are covered under Sections 29 and 30 of RA 7653, as amended, which seek to protect the interest of the depositors and creditors; thus, outside the coverage of these guidelines.
c. BSP's conduct of inquiry of financial accounts and the banks' liability for
failure to temporarily hold disputed funds, including the liability for restitution of funds, pursuant to RA l2O1O or the Anti-Financial Account Scamming Act.
5. lssue Resolution Process.
a. Banks may submit a request for independent review of issues arising from examination as provided in ltem 3" (Coverage) of these Cuidelines within the following timelines:
2 High penalty level - refers to the level of monetary penalty imposed for conducting business in an unsafe or unsound manner. fraudulent acts, or major violations. Other sanctions include restrictions or suspension on activities and privileges, suspension of authorities, divestment and/or unwinding. 3 Section OO2 of the MORB, Supervisory Enforcement Policy provides that enforcement actions may be escalated if the desired change is not achieved and the root causes of the issues, concerns and problems are not addressed by the BSP-supervised financial institution within the prescribed timelines. a Appendix 68, Manual of Regulations for Banks (MORB). prompt Corrective Action Framework il. ilL Classification ; GEN ERAL

il.
i. Universal, commercial, lslamic and digital banks - within ten (1O)
banking days from the conduct of the post-exit meeting with the Board of Directors (BOD)and Senior Management, or from receipt of the notices of serious supervisory concern from the BSP;6 and All other banks - within ten (IO) banking days from receipt of the BSP's Evaluation of Reply to Advance Report of Examination Findings (AREF) or from receipt of the noticeT of serious supervisory concern from the BSP.e For this purpose, the bank shall submit its request to the lRC, through the IRC Secretariat (Secretariat) via email at lRCsecretariat@bsp.gov.ph. The request shall be signed by the bank's Chairperson, President, or officer of equivalent rank, accompanied by a certified true copy of the resolution of the bank's BOD authorizing the filing of said request and designation of the authorized representative/s. The request shall clearly articulate the relevant facts, specific issues that fall within the coverage of the independent review mechanism as discussed in ltem 3 above, and position of the bank supported with basis, together with all pertinent supporting documents. The bank shall also state in its request that it authorizes the BSP to debit its demand deposit account (DDA) with the BSP for the applicable filing fee upon filing said request. lf the authority to debit was not indicated in the request, said request will be considered as unfiled and will not toll the ten (tO)-day period to file. Requests filed beyond the prescribed timeline shall not be considered by the tRc. b. The following non-refundable processing fee shall be debited by the BSp from the bank's DDA upon filing of the request:
Universal/
Commercial/ lslamic Bank
Digital Bank Thrift Bank RuraU
Cooperative
Bank
Php5OO,OOO.OO 300.ooo.oo 200.ooo.oo too.ooo.oo The request shall be evaluated by the lRC. The final decision on the request of the Bank, as approved by the MB, shall be transmitted to the bank by the lRC, through its Secretariat. This supersedes any previous issuances inconsistent with this Circular. 'e.9. Show Cause Letter or Initial Advisory Letter. 6 The banks may only avail of the independent review mechanism for the same issue once, r.e., either within ten (lO) banking days from the conduct of the post-exit meeting with the Board of Directors and Senior Management, or from receipt of the notice of serious supervisory concern from the BSP. 7 e.g. Show Cause Letter or lnitial Advisory Letter. 8 The banks may only avail of the independent review mechanism for the same issue once, le.. either within ten (lo) banking days from the receipt of the BSP'S Evaluation of Reply to AREF or from receipt of the notice of serious supervisory concern from the BSP. Classification: GEN ERAL

This Circular shall take effect after fifteen (15) calendar days following its publication in the Official Gazette or in a newspaper of general circulation. For guidance and strict implementation. /24 ( . ELI M. REMOLONA" JR. Governor I Oecember2O2S Classification: GENERAL