BSP sets basic trust operations standards

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has approved a new a set of basic standards on how trust operations are to be carried out, in a bid to protect investors and allow trust entities to manage risks, as more trust products become available in the market. "Trust and other fiduciary business and investment management activities have evolved with the changes in the financial market and advancement in technology," the central bank said. "These innovations have allowed trust entities to expand the scope of trust products and services offered to customers, thus increasing their exposure to various risks." Trust refers to a legal device or arrangement where an individual or an entity assigns the management of his or its properties or assets to a trust company, often a bank. The new set of standards, called "Basic Standards in the Administration of Trust, Other Fiduciary and Investment Management Accounts," was approved by the policymaking Monetary Board last week. They specify a minimum set of procedures with respect to the opening and acceptance, administration and termination of trust accounts. For instance, a trust company must carefully screen an applicant based on his or her assets and check for conflicts of interest before approving the account. Only trained bank officers may open sell unit investment trust funds, for example, and must conduct a "client suitability assessment" to check their client’s investment experience and risk tolerance. The central bank also required periodic review of accounts, credit process and investment process, in line with the administration of trust accounts. It also provided guidelines on the termination of trust accounts but left to the banks the creation of general policies particularly on the modes of delivery and liquidation of assets, fees to be collected, among others. Raul C. Diaz, president of the Trust Officers Association of the Philippines (TOAP), said the new set of standards will benefit the trust industry. "The [standards] will make improvements in the industry. These operationalized the risk disclosure to the client," Mr. Diaz said in a phone interview. He added that while most trust entities have been employing client suitability tests, for instance, the BSP formalized the procedure to make it mandatory for banks. Bank’s trust operations continued to grow, as latest data from the central bank showed that trust assets grew to P1.25 trillion as of the first quarter, 38% higher than a year ago.- BusinessWorld