For the guidance of supervisory expectations, the Bangko Sentral ng Pilipinas (BSP) has amended the regulations on the periodic review of trust, investment management and other fiduciary accounts.
BSP Deputy Governor Chuchi G. Fonacier in a circular memo (BSP Circular No. 1204) that she signed on Nov. 8, said that in implementing the basic standards in the administration of trust, investment management and other fiduciary accounts, the review processes are set, such as the administrative review and the investment review.
“A trust entity (TE) shall conduct periodic reviews of its trust, investment management and other fiduciary accounts, hereinafter referred to as ‘accounts review’ to ensure that the TE performs its fiduciary duties and responsibilities,” said Fonacier in the circular.
The BSP noted that a TE's conduct of accounts review will be in the “nature and complexity of the accounts that it manages and the degree of its tolerance for risk arising from its fiduciary duties and responsibilities.” It added that a TE is expected to show what it has done in the exercise of due diligence and prudence to protect the interest of the client and beneficiaries.
As defined by the BSP, an administrative review will ensure that accounts are being managed in accordance with their governing agreements, relevant laws, rules and regulations, and applicable internal policies and procedures of the TE.
An investment review, meanwhile, ensures that a client's investment risks are properly managed by the TE and that the portfolio is aligned with a client's risk profile, investment objectives, risk tolerance and liquidity needs, said the BSP.
“Upon the conduct of an investment review, the TE should be able to determine whether certain portfolios/assets are no longer appropriate for an account and/or a change in the structure(s) or composition of the portfolio(s) is required, consistent with prudent investment practices,” according to the circular.
The BSP said the frequency of the administrative review should be every three years while an investment review is “at least” annually or “more frequently depending on the nature, investment needs, and/or requirements of the accounts”.
At the minimum, the BSP said the following should be covered by the accounts’ administrative review: the existence of an accurate, complete and current governing instrument; and the extent and timeliness of the TE's performance of the duties and responsibilities.
As for the investment review, among others the following should be covered: suitability of the investment portfolios vis-a-vis the governing agreements, client's risk profile and any law-mandated restrictions; propriety of asset allocation and investments vis-a-vis client's liquidity needs, investment objectives, risk tolerance, and tax considerations if any; fund performance evaluation vis-a-vis the designated benchmark or other relevant performance metrics; and promptness of deployment of funds to investments considering the nature and purpose of the account.