The Bangko Sentral ng Pilipinas (BSP) has updated its previous proposal to set a minimum periodic review for trust, other fiduciary and investment management accounts (IMA) for both banks and non-banks to better manage risks and other trust-related liabilities.

In a draft circular released for circulation on Tuesday, March 26, the BSP said banks and non-banks’ board of directors will “adopt policies and procedures on the conduct of periodic reviews of trust, other fiduciary, and investment management accounts (to) ensure that the fiduciary responsibilities of the TE (trust entity) to its clients are fulfilled, thereby reducing the exposure of the TE to related liability.”

The minimum requirement for the conduct or frequency of reviews should be at least annually for the investment review and once every three years for the administrative review.

As defined in the proposed circular, the investment review ensures that a client’s investment risks are properly managed by the TE and that a portfolio is aligned with a client’s risk profile, investment objectives, risk tolerance, and liquidity needs, said the BSP.

“In an investment review, the reviewing officer/committee 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,” said the circular.

In an administrative review, the TE will ensure that accounts are being managed as per the governing agreements and relevant rules and regulations. These include accounts vested with public interest which the BSP described as accounts that were opened for the benefit or to uphold the interest of the public as mandated by laws, rules or regulations such as pre-need, employee benefit/retirement or pension funds and selected quasi-judicial trusts.

“The administrative review shall be conducted more frequently depending on the operational needs and nature of the accounts such as the size of the assets, demographics of the investing public/beneficiaries, complexity of the TE’s duties and responsibilities, law-mandated requirements and/or restrictions, and other factors relevant to the account,” said the BSP.

A TE is a bank or a non-bank with a specifically designated business unit to perform trust functions. It could also be a trust corporation authorized by the BSP to engage in trust and other fiduciary business or to perform investment management services.

A trust business refers to any activity resulting from a trustor-trustee relationship while other fiduciary business is any activity of a trust-licensed bank whereby the bank binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership, among others. As to IMA, this is any activity resulting from a contract or agreement primarily for financial return.

Meanwhile, the draft circular said unit investment trust funds or UITFs will have an investment review at the fund level to “determine the consistency of fund management practices with the provisions of the related Declaration of Trust.” The review will include a monitoring mechanism, tracking system, among others.

The BSP will give banks and non-banks time to transition to the amended periodic review once approved, or for a period of six months.

The central bank will continue to disseminate the draft circular until April 15, 2024, which is also the deadline for feeback or suggestions to be submitted to the BSP.

The last trust-related guidelines that BSP approved was in August last year about the use of benchmarks in assessing the returns of UITFs to help investors make informed financial decisions.

BSP Circular No. 1178, approved on Aug. 9, 2023, has a one-year transitory provision which should allow Tes to have enough time to review benchmarks of all existing funds.

The review will determine the benchmarks’ “propriety and validity” based on the BSP rules on key information and investment disclosure statements.

Basically, benchmarks allow UITF participants to fairly assess whether a fund is overperforming or underperforming against a relevant market index or a portfolio with a comparable return-risk profile.

As of March 20, 2024, the BSP is supervising 22 big banks with trust authorities; five thrift banks with trust business ; seven trust corporations; and three other non-bank financial intermediaries.