Bangko Sentral expands allowed investments for trust firms’ funds
TRUST FIRMS will soon be allowed to invest pooled funds in more instruments under new rules released by the Bangko Sentral ng Pilipinas (BSP), as it also adjusted reporting standards relative to decision-making protocols in place.
The BSP introduced two new investment instruments wherein trust firms can allocate assets under management, under Circular 966 signed by Governor Nestor A. Espenilla, Jr. on Tuesday.
Under the circular, trust entities may now invest funds in traditional deposit products offered by big banks operating in the Philippines, as well as in tradable securities issued by a foreign country. These add to the current options of investing in government-issued debt papers, state-guaranteed loans, debts secured via hold-out on deposits, and in fully-secured loans by real estate and chattels.
On the other hand, the BSP removed the provision that allows trust firms to place the funds in the central bank’s term deposit facility, in keeping with the phase-out of their access to the auctions which took effect June 30.
The new guidelines accord “greater flexibility” for trust entities in managing a client’s portfolio, while making a distinction between discretionary and non-discretionary arrangements.
“As the revised rules give trust entities more latitude in managing the funds of clients, higher standards are set in terms of managing the accounts and in protecting the interest of the investors,” the central bank said in a statement yesterday.
The changes cover trust entities which make the decision as to where they will deploy the fund placements on behalf of the client, which will have to report their balance sheet, income statement, investment activity, and return on investment to clients on a quarterly basis, on top of the details of the trust account under a firm’s watch.
On the other hand, non-discretionary deals -- or trust firms which act based on an investor’s specific instructions -- will simply have to “confirm” each purchase and sale transaction.
Both arrangements would need to disclose the issuer’s name, type of instrument, collateral, principal amount, market value, marking-to-market gains of losses, yield, amount of earning, transaction date, and maturity date.
“The revised policy is consistent with the thrust of the BSP to adopt a differentiated regulatory approach based on the major business activities and investment mandate of trust entities particularly ‘trust,’ ‘advisory,’ ‘advisory with execution’ and ‘execution only’ mandates,” the BSP added, noting that the new scheme would “improve operational efficiency” and “promote greater investor confidence.”
As investment avenues were liberalized, the BSP also streamlined the regulatory standards to make firms with discretionary powers more accountable of their investment decisions, versus the expectations set for those simply carrying out client instructions.
Trust firms must adopt a “disciplined” investment strategy, the central bank said, as it gave the asset managers six months to adjust internal procedures to align with these changes.
The regulator said the new policy is one of a series of reforms covering trust and other fiduciary businesses. In June 2015, the BSP allowed bank trust departments to scale up as stand-alone trust corporations focused on portfolio management and investment.