Unified Financial Regulation For Philippine Financial Institutions
The Bangko Sentral ng Pilipinas or BSP signified their intent on setting up an integrated regulatory body that will combine the functions of the BSP, Insurance Commission (IC) and Securities and Exchange Commission (SEC) which is now long due and caught some by surprise given the BSP's long-standing resistance to the very idea of such integration.
This surprising change of heart may be indicative of the recognition of the growing complexity of the financial and loan markets plus the regulatory gaps that could occur and have in fact occurred as a result of such complexity.
The financial services industry, composed of banks, non-banking financial institutions, loan companies and insurance companies, has been growing fairly rapidly in the past couple of years. It was the non-banks, which include investment houses, mutual fund companies, security dealers, brokers, loan agencies and pawnshops that zoomed ahead with a phenomenal growth.
The healthy growth rate the industry currently enjoys attests to its recovery from the hiatus brought about by the Asian financial crisis almost 10 years ago.
Along with this growth comes increasing complexity in the financial products the industry offers. Take for example an insurance policy now provides more than just insurance. Often, it is a savings investment, pension and loan product.
The ups and downs of the pre-need industry have become well-known to us this couple of years with high profile cases where the pre-need firm was unable to meet its financial obligations to its insurance plan holders particularly the traditional educational plans. Banks and investment houses now offer a range of simple to extremely complex financial investment instruments beyond the usual loans, savings and time deposits, including the recently controversial and misunderstood UITFs, and various types of derivatives.
It is often said that the financial services industry is capable of developing a product for every conceivable need or opportunity and make a lot of money in the process. But the big question is your money safe when you invest it in these financial products?
Small savers or investors often do not understand the risks and returns that come with their various saving and investment options like mutual funds and UITFs.
The issue is crucial, especially now as we seek to channel more of the billions of dollars in overseas Filipino workers (OFW) remittances toward investments, and failures of financial institutions could destroy the lives of millions overnight.
This is where the role of the financial regulators in protecting the welfare of the investing public is critical. In the Philippines, we have several of them, each addressing a different segment of the financial services industry. The main ones are BSP for the banks, IC for insurance companies, SEC for corporations, and the Cooperatives Development Authority (CDA) for cooperatives.
The challenge lies in the way the lines distinguishing these various segments from one another are quickly vanishing. Under this situation and given the ever-widening array of complex financial products coming out of the industry practically every day, ambiguities have arisen as to which regulatory body should take care of new products as they come out.