To boost the trust industry growth, the Bangko Sentral ng Pilipinas (BSP) is currently working on two new circulars and three regulatory issuances that will come out within the year – all aimed at encouraging investor confidence in the fund and asset management sector.
BSP Governor Benjamin E. Diokno said that the trust business has recovered from the adverse effects of the COVID-19 pandemic, with 30 trust entities reporting assets under management (AUM) of P4.6 trillion as of end-March, up by 41.3 percent year-on-year.
“This is equivalent to nearly one-fourth of the total assets of the Philippine banking system (and) funds are invested primarily in debt securities, followed by equities and deposits in banks,” Diokno noted during his regular online press chats. “Though AUM dropped in March 2020 as the stock market dipped and clients’ preference shifted amid heightened market uncertainties, the trust industry has not only recovered but grown since then, expanding by 41.3 percent year on year,” he said.
The BSP has already circulated two draft circulars on trust regulations, part of what it calls the “Trust Business Model Initiative” which are policy reforms that are in two phases to rationalize the operations of trust entities and to provide for a more responsive trust sector for the benefit of the investing public.
Diokno said the first phase involved the reduction in the minimum required amount for investment management accounts and the expansion of financial instruments allowed for commingled funds. The second phase has seven areas that will be amended, particularly rules on unit investment trust funds (UITFs) and personal management trust.
“Apart from the two draft circulars already circulated for feedback, three additional issuances are targeted to be exposed for comments within the year,” said Diokno. “The first covers guidelines on performance measurement for UITFs. It is a common practice among trust entities to use benchmarks in measuring the performance of their UITFs. The BSP would provide guidelines in the selection of the appropriate benchmarks (and) the issuance will aid existing UITFs, participants and respective investors in fairly assessing the performance of UITFs vis-à-vis benchmarks,” he explained, adding that these guidelines will help investors make informed financial decisions.
The second trust rules’ amendment is on investment guidelines or the guidebook. “The amendment to the framework will provide trust entities with greater flexibility in the identification and management of investments depending on the capacity to manage the assets,” said Diokno.
“Finally, the BSP will issue amendments to the regulations to onboarding and the clients’ suitability assessment process. The expectations on the clients’ suitability assessment process will be expanded to ensure that these captures the risk tolerance and financial sophistication of clients, enabling trust entities to make more appropriate investment recommendations. Clients who are less financial savvy will also be accorded a higher degree of care and diligence by trust entities,” he said.
Five of the seven areas in the BSP’s phase two of its initiative to amend and improve trust regulations will come out this year, while two more issuances are scheduled for release in 2022. These are the alignment of the management of UITFs with the International Organization of Securities Commissions’ Principles for the Supervision of Operators of Collective Investment Schemes; and the amendments to Personal Management Trust regulations.
The growth in the AUM is primarily driven by UITFs which grew by 59 percent year-on-year as of end-March.
“The notable growth in UITFs is a welcome development. The BSP recognizes the importance of UITFs as an avenue for small retail investors to participate in the securities markets. Certainly, the online accessibility of UITFs contributed to their growth," said Diokno.
The trust industry is important to the financial system and in deepening the capital market since it provides “professional fund and asset management services that are consistent with their clients’ risk appetites and investment objectives,” the BSP chief added.