BSP to set rules on managing risks

The Bangko Sentral ng Pilipinas (BSP) has released the proposed guidelines aimed at enhancing how banks and financial institutions manage model-related risks to strengthen operational resilience amid the increasing use of complex algorithms in the sector.

- By KEISHA TA-ASAN

In a draft circular posted on its website, the central bank outlined the requirements for BSP-supervised financial institutions (BSFIs) to establish a comprehensive framework for model risk management (MRM), covering all stages of a model's life cycle.

"With the increasing adoption of sophisticated models, the potential for model risk is amplified," the BSP said.

"Consequently, BSFIs are expected to establish and maintain a sound framework for the effective management of model risk commensurate with their size, operational complexity, risk profile, and extent of model usage," it added.

The proposed guidelines come as more financial institutions rely on quantitative models, including those using artificial intelligence (AI) and machine learning, to inform credit decisions, risk management, pricing, and even regulatory compliance.