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About RCBC CORPORATE GOVERNANCE

RCBC adheres to the basic principles of good corporate governance, namely: transparency, accountability and fairness.

The Bank's corporate governance policies and rules are embodied in the board-approved Corporate Governance Manual which is updated and revised annually, with the objective of continually aligning the Bank's policies with the BSP and SEC issuances as well as international best practices on corporate governance. This also ensures that the interests of stockholders and stakeholders are always taken into account, the directors, officers, and employees are aware of their responsibilities and the business of the bank is conducted in a safe and sound manner. To improve governance structures and process through benchmarking against local and international leading practices, the latest revisions to the 2011 Revised Corporate Governance Manual incorporated best practices set by the (i) Basel Committee on Banking Supervision's Principles for Enhancing Corporate Governance and the (ii) Maharlika Board of the PSE.z

The Bank has likewise adopted fit and proper standards on directors and key personnel, taking into consideration their integrity/probity, technical expertise, physical/mental fitness, competence, relevant education/financial literacy, diligence, and knowledge/experience/training. The Board of Directors and senior management, on the other hand, have participated in corporate governance training seminars, to reinforce the pivotal role they play in the implementation of corporate governance in the Bank.

The Bank has a sufficient number of independent directors that gives the assurance of independent views and perspectives. Likewise, the independent functions of internal audit, the compliance office, and the risk management group lend comfort to stakeholders, including the regulators, of the Bank's commitment to the principles of good corporate governance.

A formal policy on related party transactions was developed and approved by the Bank's Board of Directors in September 2011. The policy set forth guidelines to ensure that agreements, arrangements or obligations to which the Bank or any of its subsidiaries is a party and which involves any director, officer, employee, agent or shareholder of the Bank are entered into on an arm's length basis, i.e., on terms no less favorable than those available to any unconnected third party under the same or similar circumstances.

The Bank has adopted an evaluation system that measures the performance of the Board of Directors and senior management on an annual basis. Additionally, as part of its Corporate Governance Improvement Plan, an annual assessment of the Chairman by the Bank's Independent Directors shall commence for the year 2011. Moreover, the Bank has put in place the annual review and evaluation of the performance/activities and/or output of the various Board Committees. The self-assessment forms are based on the Bank's Revised Corporate Governance Manual, SEC and BSP rules and regulations. The Bank has likewise complied with the guidelines and respective best practices under the PSE Corporate Governance Guidelines Disclosure Template. The Bank has participated in the Corporate Governance Balanced Scorecard Project for publicly listed companies (PLCs). This generated more active involvement by the Board and senior management in governance matters. The project promoted greater transparency through more disclosures which gave clients/investors the confidence that the bank they are dealing with adheres to the highest standards of good corporate governance.

THE BOARD OF DIRECTORS
The corporate powers of the Bank are exercised, its business conducted and all its property are controlled and held by the Board of Directors, composed of members elected by the stockholders. There are 15 directors, 4 of which are independent. All 15 directors are known for their independence, professionalism and integrity, and make decisions for RCBC with complete fidelity to RCBC and cognizant of their responsibilities under relevant law and regulation.

The Board has overall responsibility for the bank, including approving and overseeing the implementation of the Bank's strategic objectives, risk strategy, corporate governance and corporate values. The Board is also responsible for providing oversight of senior management. The Board exercises overall responsibility for defining appropriate governance practices as well as adequate corporate governance across the group and ensuring that there are governance policies and mechanisms appropriate to the structure, business and risks of the group and its entities. Moreover, the Board is responsible for establishing the "tone at the top" and in setting professional standards and corporate values that promote integrity for self, senior management, and other employees.

The roles of the Chairman of the Board and the Chief Executive Officer are separate to ensure an appropriate balance of power, increased accountability and better capacity for decision making by the Board. There is a delineation of functions between the Chairman and the CEO.

The responsibility to act and pass upon matters for action in between meetings of the Board has been delegated to an Executive Committee. The Board has delegated other responsibilities to its subcommittees. The Audit Committee provides oversight of the Bank's financial reporting and control, and internal and external audit functions. It monitors and evaluates the adequacy and effectiveness of the Bank's internal controls, including financial, operational and compliance controls, and risk management. The Corporate Governance Committee assists the Board in fulfilling its corporate governance responsibilities. It reviews and evaluates the qualifications of all persons nominated to the Board as well as those nominated to other positions requiring appointment by the Board. It is responsible for ensuring the Board’s effectiveness and due observance of corporate governance principles and guidelines. It makes recommendations to the Board regarding the continuing education of directors. The Risk Management Committee oversees the system of limits to discretionary authority that the Board delegates to management. It ensures that the system remains effective, that the limits are observed and that immediate corrective actions are taken whenever limits are breached. It likewise enables the Board to establish the Bank's risk tolerance within a risk-reward framework and ensures that a risk management strategy is in place that adheres to this framework. The Trust Committee oversees the trust and fiduciary business of the Bank. The Technology Committee oversees the bank's hardware/software purchases, monitors performances of various IT applications of the bank as well as status of various IT projects. The Personnel Evaluation and Review Committee investigates cases of violation of clearly defined Bank policies, rules and regulations. It also recommends to the Board the disciplinary measures and penalties to be meted out.

THE COMPLIANCE OFFICE
RCBC is committed to safeguard the integrity of the Bank by maintaining a high level of regulatory compliance. The Compliance Office, which was created by virtue of BSP Circular No. 145, is tasked with overseeing the effective implementation of the Bank's compliance program. This program is consistent with the Bank's mission of conducting its business with integrity, excellence and commitment while providing fast, affordable and quality financial services to its clients.

The Compliance Office promotes compliance awareness and proactive regulatory compliance among officers and staff through dissemination of regulatory issuances, regular monitoring, compliance-testing, and conducting seminars. It maintains a clear and open communication process within the Bank to provide Bank personnel with a clear understanding of banking laws, rules and regulations, as well as the risks and effects of non-compliance. The compliance function also covers oversight of the activities of Bank's domestic subsidiaries which are under BSP supervision, such as RCBC Savings Bank, RCBC Capital Corporation, Bankard, Inc., RCBC Securities, Inc., RCBC Forex Corporation, and the newly acquired Merchants Savings and Loan Association and Pres. JP Laurel Rural Bank, Inc, as well as its foreign subsidiaries, such as RCBC International Finance, RCBC Investments Ltd., RCBC North America, and RCBC Telemoney Europe. This ensures consistent and uniform implementation of the requirements of the BSP and other regulatory agencies. This also involves monitoring of inter-company transactions to ensure that these are done at arm's length and in the regular course of business.

In order to strengthen and improve the Bank's Compliance Program, the Compliance Office was reorganized in May 2011 and expanded into three departments, namely: the Anti-Money Laundering Department, the Testing and Monitoring Department and the Corporate Governance Department under the direct control and supervision of the Compliance Officer. Under these departments are AML Specialists, Compliance Specialists as well as an Education and Research Specialist. Likewise, the designated Deputy Compliance Officers from each unit/department/division are responsible for the actual implementation of applicable regulatory issuances and the submission of compliance certifications to the Compliance Office. Pursuant to BSP Circular No. 145, Section X170 of the BSP's MORB as amended and the SEC's Revised Code of Corporate Governance, the Board approved the latest revisions/updates to the Bank's Manual of Compliance in November 2011. Following the issuance of BSP Circular No. 747, Series of 2012 re: Revised Compliance Framework for Banks, the Bank's Compliance Program shall be updated and revised in order to comply with the provisions of the Circular.

In compliance with Circular No. 706 dated January 5, 2011 on Updated Anti-Money Laundering (AML) Rules and Regulations, the Compliance Office revised the Bank's 2010 AML Policy Manual to come up with a more comprehensive and risk-based Money Laundering and Terrorist Financing Prevention Program (MLPP) and prevent the Bank from being used, intentionally or unintentionally, for money laundering and terrorist financing activities. The MLPP was approved by the Board of Directors on 26 September 2011 and implemented bankwide, including the branches, subsidiaries/offices located within and outside the Philippines.