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MB Strengthens Governance and Risk Management Standards for Trust, Other Fiduciary Business, and Investment Management Activities


In line with the thrust to continually introduce governance reforms in the financial industry, the Monetary Board (MB), in its meeting held on 9 August 2012, approved the amendments of existing trust regulations to strengthen the governance standards and risk management practices for Trust, Other Fiduciary Business, and Investment Management Activities of banks and non-bank financial intermediaries.  Earlier this year, the MB approved key issuances covering corporate governance (Cir. 749, as amended) and compliance system (Cir. 747) of BSP-supervised institutions.

The BSP considers the issuance of said guidelines timely in view of the remarkable growth of the trust industry in the last five (5) years in terms of assets under management, which reached the P3 trillion mark last April. The recently approved guidelines for fiduciary business which will complement the BSP-prescribed “Basic Standards in the Administration of Trust, Other Fiduciary, and Investment Management Accounts” issued in August 2008 are expected to further improve the discharge of trust entities’ fiduciary duties and uphold the required prudence in the administration of managed accounts.

The guidelines highlight the need to strengthen the required separation of institutions’ fiduciary business and proprietary dealings. Toward this objective, the guidelines introduce structural reforms in the trust committee composition such that the majority members, including the chairperson, shall consist of “independent members” which may include the bank/non-bank financial institution’s (NBFI) non-executive or independent directors, as defined under existing regulations. In recognition of the dearth of qualified directors who may be appointed as trust committee members given this stringent requirement, the guidelines allow as an option, the participation of an “independent professional” who is neither an employee nor director of the institution but may qualify and be appointed as trust committee member, subject to MB confirmation.  The guidelines maintain the participation of the Trust Officer in the trust committee and the minimum five (5) membership requirement but provide flexibility in the bank/institution proper representation to include any senior officer of the bank/NBFI or its President.  

The guidelines likewise clarify the distinct responsibilities of the Board of Directors, the Trust Committee, and the Trust Officer in the discharge of fiduciary functions.  In addition, the guidelines amend and expand the existing qualification requirements for trust committee members and trust officers in terms of relevant professional experience and technical background to allow broader representation from directors/officers/other professionals who possess the necessary expertise in the administration of fiduciary activities.  For instance, the policy allows as an alternative compliance on the training requirement, the completion of relevant global or local professional certification programs both for trust committee members and trust officers.  Moreover, it expands the qualification on professional background of trust committee members, which under existing regulation is limited to at least one (1) year experience in fiduciary business, to include at least three (3) years of exposure to relevant fields such as banking, finance, economics, law, and risk management.

Finally, the guidelines introduce the Risk Management standards, which provide principles-based guidance in the implementation of sound risk management practices for trust, other fiduciary business, and investment management activities.  As such, the applicability of said guidelines shall depend on the size, complexity, and risk profile of the institution’s fiduciary activities, consistent with BSP’s risk-based supervision framework.

A one (1) year transitory period from effectivity date of the issuance is allowed in view of the possible modifications to existing organizational structures of concerned entities and adoption of other reforms necessary to comply with said guidelines.

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