Financial regulators conduct 3rd conglomerates’ review

Philippine Tribune
Philippine Tribune

The inter-agency Financial Sector Forum (FSF) is now on its third cross-sectoral Supervisory College review of financial conglomerates to enhance risk surveillance and monitoring of the financial system.

The FSF Supervisory College, which had a pilot run in mid-2022, started its second review of conglomerates in October last year. The FSF studied the results of the second review in March this year. During its meeting on Sept. 29, the FSF agreed to extend the review.

According to Bangko Sentral ng Pilipinas (BSP) Governor and FSF Chairman Eli M. Remolona Jr., the FSF has been taking a holistic approach in reforming the domestic financial sector.

“The work of the FSF is highly relevant and responsive to the emerging trends and changing environment,” he said.

During the FSF meeting, financial regulators such as the BSP, the Securities and Exchange Commission, the Philippine Deposit Insurance Corp., and the Insurance Commission agreed to intensify efforts for a “resilient, sustainable, and inclusive financial system” through its ongoing work in the areas of financial conglomerate supervision, (sustainable finance, information exchange, financial technology, consumer protection and education.

The Sept. 29 FSF meeting is also the first for Remolona since he took the oath office as BSP’s seventh governor in July.

The FSF recently exposed for comments the local sustainable finance taxonomy, which covers climate change mitigation and adaptation objectives.

The BSP said the local taxonomy will serve as a tool to assess whether an economic activity is environmentally or socially sustainable. “The document has given particular focus to micro, small and medium enterprises in line with the thrust to promote inclusive green finance,” it said.

Last Sept. 18, the FSF via the BSP released its proposed Philippine Sustainable Finance Taxonomy Guidelines (SFTG) that should form both strategic and imperative objectives to help the country raise the estimated $168 billion in green investments in the next seven years or so.

The Philippines has conditionally committed to a 75 percent reduction in greenhouse gas emissions by 2030.  

The FSF said the amount of financing needed to meet the country’s climate goals is “colossal” between 2020 and 2030.

The FSF noted that climate investments between 2017 and 2021 was only one percent of total cross border investment. This was “substantially below” other regional peers. It is then “strategic” and “imperative” to expand the domestic financial sector’s capacity to support and accelerate the Low Carbon and Climate Resilient transition, which will require multiple sources of finance.

This is where the SFTG comes in. However for now, it will focus on climate change. The BSP on Monday said banks should submit suggestions and feedback to the central bank by Oct. 6, with regards to the proposed guidelines.

The BSP released a consultation paper on the SFTG. The guidelines basically are a tool to classify whether an economic activity is environmentally or socially sustainable and it will also guide different stakeholders to make informed investment or financing decisions.

After the consultation, the BSP said the next step is the first phase taxonomy document which will then be produced and it “will be formalized into regulatory instruments at the discretion of the respective members of the FSF, in which an appropriate compliance timetable will be provided.”

The SFTG in its current form will focus on climate change mitigation and adaptation. In future iterations, biodiversity, circular economy, and social objectives will be considered. Other environmental and social considerations are proposed to be considered through additional screening based on the “do no significant harm” principle, and minimum social safeguards appropriate to the Philippines context, said the BSP.

The proposed SFTG, with World Bank’s technical support, is part of the Philippine Sustainable Finance Roadmap by the Technical Working Group on Sustainable Finance – called the “Green Force” which was released October 2021.

The BSP, SEC and IC, under the auspices of the FSF, was tasked to develop the taxonomy as part of the broader agenda of the Green Force.

Based on the paper, the plan is to have a sustainable finance taxonomy for a variety of users. These are the companies, investors, financial institutions, regulators and consumers. Such guidelines are expected to help industries come up with informed decision to “originate, invest, finance, purchase or monitor an asset, product, project, activity, company or portfolio.”

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