BSP to tighten UITF rules

Published June 12, 2021, 8:00 AM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) wants to implement stricter rules in its regulation of unit investment trust funds (UITFs) and is changing the qualification requirements before a bank or non-bank can establish a UITF.

The BSP is amending particular provisions in the existing circular such as on the establishment of UITFs and amendments to the features of UITFs. It is also proposing to change the requirements on plan rules and external audit for UITFs, and reinvestments of unit income of unit-paying funds.

The central bank has circulated the draft circular and is giving trust entities until June 23 to submit their feedbacks to the BSP.

Based on the proposed rules, the BSP said a trust entity may be allowed to create, administer and manage UITFs if found to have “appropriate expertise, systems, and infrastructure to market and administer UITFs, and manage the related risks” as well as “sound client suitability assessment process”.

To establish or create a UITF, a trust entity will have to secure the BSP authority to administer a particular class and/or structure of a UITF. UITFs include money market fund, a bond fund, balanced or equity fund. A fund may likewise be structured as a fund-of-funds, feeder fund, multi-class or unit-paying fund, said the BSP.

A first time trust entity creating a UITF will be evaluated based on its eligibility to administer a particular fund classification. Some of the qualification requirements will be prudential criterias, that it will have “no supervisory issues on investor protection” and has the capability to implement adequate risk management practices. A trust entity should also be able to “demonstrate operational readiness to manage the UITF it intends to create, and the ability to adequately comply with the minimum standards on disclosures (under the provisions in the circular) and client suitability assessment”.

The current rule on the creation of UITF is that any trust entity authorized to perform trust functions are allowed to establish, administer and maintain one or more UITFs such as a feeder fund, fund-of-funds, and/or multi-class fund. A UITF can also have a unit-paying feature where the income of the fund is distributed in the form of units called unit income.

The BSP is also proposing amendments to the key UITF features which will require written notification to the BSP such as: investment objectives/policies/strategies; risk profile; benchmark; and target investors of a multi-class fund.

The BSP also wants written notification on a UITFs’ target fund/s of a feeder fund or a fund-of-funds and income distribution policy of a unit-paying fund. The basis of the Net Asset Value per Unit computation, and other features of the fund that are disclosed in the key Information and investment disclosure statement are also key features that are being amended.