BSP enhances trust business rules

Published December 6, 2021, 5:45 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) will issue additional policy guidelines for the trust business to improve liquidity and access particularly in the P1.3-trillion unit investment trust fund (UITF) market.

BSP Governor Benjamin E. Diokno said that other than the three draft circulars the central bank has already circulated to banks and non-banks for comments, they are also about to issue investment guidelines and changes in the client suitability assessment (CSA) process as well as on the management of UITFs.

BSP Governor Benjamin E. Diokno

The BSP will also amend the personal management trust rules.

Diokno said that “to further the development of the industry” the BSP will improve and update its regulatory framework for trust entities under the Trust Business Model Initiative.

“Through the regulatory reforms, which are set to be rolled out in phases, the BSP seeks to emphasize the importance of good governance, effective risk management, and strong consumer protection,” said Diokno in a recent online event hosted by Trust Officers Association of the Philippines.

Policy issuances that are coming include the comprehensive investment guidelines that Diokno said “will serve as a guidebook on the investment processes for segregated trust accounts, other fiduciary accounts, and investment management accounts.”

“The BSP is also set to amend regulations on onboarding and the CSA process (and) these amendments will help ensure that onboarding procedures are tailored to clients’ risk profiles regardless of investment mandate,” said Diokno. The CSA process will be expanded “to capture the client’s risk tolerance and financial sophistication,” he added.

The BSP will likewise issue guidance to align the management of UITFs with the International Organization of Securities Commissions’ Principles for the Supervision of Operators of Collective Investment Schemes, said Diokno.

As for the personal management trust regulation updates, the BSP chief said this will be amended to clarify supervisory expectations on the process by which trust entities establish the trust purpose and dispositive provisions of such agreements.

In the meantime, the three proposed circulars that BSP earlier announced involve the licensing framework for UITFs, the creation of a common framework for the conduct of accounts review and guidelines on the performance measurement of UITFs.

Diokno has 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 P4.8 trillion as of end-June, up by 18.4 percent year-on-year. This was equivalent to 24.3 percent of total banking system assets.

The overall asset mix has been largely unchanged, with funds primarily invested in debt securities, followed by equities and deposits in banks.

Diokno said trust assets continued to be highly liquid with 90.3 percent classified as investments in highly marketable securities and deposits in banks.

The growth in UITFs increased industry profits. UITF assets grew by 34.1 percent year-on-year to P1.3 trillion by end June. There are about 1.6 million UITF participants, up by 117.4 percent compared with the same period in 2020.

“The substantial growth in UITFs is a welcome development. The liquidity of UITFs also makes them an appealing investment outlet during these times,” said Diokno. “The increased online accessibility of UITFs via various digital platforms has certainly contributed to their growth, and we anticipate a continued push in this regard,” he added.

The BSP is engaging its so-called Trust Business Model Initiative which are policy reforms that are in two phases. This is to rationalize the operations of trust entities for a more responsive trust sector.

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 UITFs and personal management trust.