nestor a espenilla, jr : opening remarks during the chat with analysts chat with analysts by mr nestor a espenilla, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), via audio teleconference, manila, 25 july 2018. * * * good afternoon. whether you are here with us today at the bangko sentral ng pilipinas ( bsp ) or are participating via audio - conferencing, it is my pleasure to welcome all of you. thank you for joining this first by - invitation - chat we have organized for economic and financial analysts. our objective this afternoon is to promote better understanding of the bsp ’ s policy actions and provide background on developments that have prompted our monetary policy decisions. let me begin with our mandates. the bsp has three. our primary mandate is to promote price stability conducive to a balanced and sustainable growth of the economy. we are also tasked with maintaining financial stability and developing the payments system. since 2002, the bsp has been committed to the inflation targeting framework. this calls for monetary policy decisions to be forward - looking and dependent on comprehensive and rigorous assessment of all relevant data and forecasts. the framework also calls for flexibility of the exchange rate so that we can conduct independent monetary policy primarily focused on domestic conditions. nevertheless, external factors are always considered. we also react to excessive exchange rate volatility particularly if this affects inflation expectations and poses a risk to the inflation outlook. our it framework has been reinforced with the adoption of the interest rate corridor ( irc ) system in 2016. with the development of auction - based instruments complementing the overnight reverse repurchase borrowing rate as the policy rate signal, the bsp has expanded its options for maintaining firm monetary control. early this year, economic data suggested that an adjustment in policy rate was not yet warranted as the uptick in prices was driven mainly by supply - side factors. moreover, our forecast continued to show inflation upticks as transitory and moderating within the target in 2019. nevertheless, recognizing increasing volatilities in world oil prices and interest rates, the bsp responded to changing monetary conditions and allowed the term deposit facility ( tdf ) rates to rise. market rates have correspondingly risen. our two successive policy rate hikes in may and june were measured and deliberate responses to the evolving economic environment and dynamic market conditions. these were meant to help anchor

the major risks banks are facing. so the efforts banks should undertake concerning compliance, may become comparable in size and importance to the endeavours of banks in relation to the implementation of the new basel ii capital accord. however, unlike the various risks discussed by the new capital accord, holding additional capital to ‘ cover ’ compliance risks will not act as a mitigating factor. other efforts are needed. during the first part of this speech i will briefly discuss what should be understood under compliance. then i will go more in depth on the nature of the compliance related problems that not only banks, but the entire financial world is encountering. subsequently, a closer look at what compliance really implies and what the international standard - setting bodies perceive as compliance. i will then discuss some issues involved in the abn amro case and lessons learned. i will conclude with some broader perspectives on how to approach the challenges ahead. case study involving riggs bank, united states senate, permanent subcommittee on investigations, committee on governmental affairs, released on 15 july 2004, page 2. press release of 29 april 2005, www. bis. org / press / p050429. htm scope and definition of compliance the notion of ‘ compliance ’ literally means ‘ obedience ’ or ‘ dutifulness ’. it has a broad scope. as such it is known to have various interpretations. to avoid any misunderstandings during my speech, i will provide you with the definition used by the basel committee. in its compliance function paper, the committee has defined compliance risk as being “ the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with laws, regulations, rules, related self - regulatory organization standards, and codes of conduct applicable to its banking activities ” 3. hence, compliance generally covers matters such as observing proper standards of market conduct, managing conflicts of interest and treating customers fairly. also, compliance typically includes specific areas such as the prevention of money laundering and terrorist financing, and may extend to tax laws that are relevant to the structuring of banking products or customer advice 4. in my opinion, the compliance function should protect the institution against unlawful behaviour and strengthen its ethical consciousness. drivers of compliance related problems as supervisors we provide frameworks and guidance for the financial sector to facilitate the functioning of the financial world - although i am aware that our efforts may not always be perceived as such by the industry. in the end, however, the industry