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X401

14.12.31

PART FOUR

TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT


MANAGEMENT ACTIVITIES

Section X401 Statement of Principles proprietary assets and from one (1) fiduciary/
The cardinal principle common to all trust trust/investment management account to
and other fiduciary relationships is fidelity. another.
Policies predicated upon this principle shall e. Keeping and rendering accounts. A
be directed towards observance of the true and accurate account or record of
following: transactions entered into shall be kept.
a. Prudent administration. The trust, Reports on the trust, investment management
investment management and other fiduciary and other fiduciary accounts shall be
accounts shall be administered in rendered to the trustor, principal, beneficiary,
conformity with the intention and purpose or other party in interest, or the court
of the client as manifested in the terms of concerned, or any party duly designated by
the agreement, and with the skill, care, a court order, as the case may be, in accordance
prudence and diligence necessary under the with Secs. X421 and X425. Likewise, all
circumstance then prevailing that a prudent material facts within the knowledge or
man acting in like capacity and familiar with reasonably discoverable by the TE, particularly
such matters would exercise in the conduct information that would enable clients to
of an enterprise of like character and with make well-informed decisions, shall be
similar aims. promptly transmitted/relayed to clients for
b. Undivided loyalty and utmost care. them to protect their interests.
In the discharge of fiduciary responsibility, Furthermore, practices shall be carried
the interests of clients shall be placed above out in accordance with the basic standards
those of the bank. Clear policies and (Appendix 83) and Risk Management
procedures shall be developed in dealing Guidelines (Appendix 83a) for trust, other
with conflict of interest situations. The fiduciary and investment management
fiduciary assets shall be objectively and accounts.
fairly administered, invested and distributed A bank authorized to engage in trust
giving due regard to the beneficiaries and fiduciary business is under no
respective interests. obligation, either legal or moral, to accept
c. Non-delegation of responsibilities. any such business being offered nor has it
The administration of the trust, investment the right to accept if the same is contrary to
management, or fiduciary responsibilities or law, rules, regulations, public order and
the performance of acts that should be public policy. It shall advertise its services
personally performed shall not be delegated in a dignified manner and enter such
as the clients confidence is reposed on the business only when demand for such service
trust entity (TE). is evident, when specially equipped to
d. Preserving and protecting property. render such service and upon full
Reasonable care and diligence shall be appreciation of the responsibilities involved.
observed to preserve and protect the It shall be ready and willing to give full
property entrusted. Fiduciary assets shall be disclosure of the services being offered and
kept legally separate and distinct from shall conduct its dealing with transparency.

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Harmonious relationship shall likewise be including investment management activities;


pursued with other professions to achieve B. Investment Management Activities
the common goal of mutual service to the shall apply to banks without trust authority
public and protection of its interest. but with authority to engage in investment
Banks may not receive or hold as trustee, management activities; and
agent, administrator, financial manager, or C. General Provisions shall apply to both.
other similar capacity, any fund or money
from the Government and government Sec. X403 Definitions. For purposes of
entities, except government financial regulating the operations of trust and other
institutions. Government-owned banks may fiduciary business and investment
receive or hold as trustee, agent, management activities, unless the context
administrator, financial manager, or other clearly connotes otherwise, the following
similar capacity, the following: shall have the meaning indicated.
a. Funds of local government units a. Trust entity (TE) shall refer to a:
(LGUs) which are expected to be available (1) bank or an NBFI, through its
for investment purposes for a relatively long specifically designated business unit to
period of time: Provided, further, That the perform trust functions; or
amounts held in trust or otherwise (2) trust corporation, authorized by the
managed/advised for and in behalf of the Bangko Sentral to engage in trust and other
LGUs shall be invested only in government fiduciary business under Section 79 of R.A.
securities, specifically, evidences of No. 8791 (The General Banking Law of
indebtedness of the National Government, 2000) or to perform investment management
the Bangko Sentral and other evidences of services under Section 53 of R.A. No. 8791.
indebtedness or obligations of government b. Trust business shall refer to any
entities, the servicing and repayment of activity resulting from a trustor-trustee
which are fully guaranteed by the National relationship (trusteeship) involving the
Government; and appointment of a trustee by a trustor for the
b. Funds of government and government administration, holding, management
entities which are authorized by special laws of funds and/or properties of the trustor by
to be placed in trust. the trustee for the use, benefit or advantage
(As amended by Circular Nos.828 dated 11 March 2014, 766 of the trustor or of others called
dated 17 August 2012, 721 dated 13 May 2011 and 618 dated 20 beneficiaries.
August 2008) c. Other fiduciary business shall refer
to any activity of a trust-licensed bank
Sec. X402 Scope of Regulations. These resulting from a contract or agreement
regulations shall govern the grant of whereby the bank binds itself to render
authority to and the management, services or to act in a representative
administration and conduct of trust, other capacity such as in an agency, guardianship,
fiduciary business and investment administratorship of wills, properties and
management activities (as these terms are estates, executorship, receivership, and
defined in Sec. X403) of banks. other similar services which do not create
The regulations are divided into three or result in a trusteeship. It shall exclude
(3) Sub-Parts where: collecting or paying agency arrangements
A. Trust and Other Fiduciary Business and similar fiduciary services which are
shall apply to banks authorized to engage inherent in the use of the facilities of the
in trust and other fiduciary business other operating departments of said bank.

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Investment management activities, which called an agent, under a contract to enter


are considered as among other fiduciary into transactions in his behalf.
business, shall be separately defined in the m. Agent shall refer to a person who
succeeding item to highlight its being a acts in representation or on behalf of
major source of fiduciary business. another with the latters authority.
d. Investment management activity n. Trust department shall refer to then
shall refer to any activity resulting from a department, office, unit, group, division or
contract or agreement primarily for any aggrupation which carries out the trust
financial return whereby the bank (the and other fiduciary business of a bank.
investment manager) binds itself to handle o. Trust officer shall refer to the
or manage investible funds or any designated head or officer-in-charge of the
investment portfolio in a representative trust department.
capacity as financial or managing agent, p. Trust account shall refer to an
adviser, consultant or administrator of account where transactions arising from a
financial or investment management, trusteeship are kept and recorded.
advisory, consultancy or any similar q. Common trust fund (CTF) shall
arrangement which does not create or refer to a fund maintained by a bank
result in a trusteeship. authorized to perform trust functions
e. Trust is a relationship or an under a written and formally established
arrangement whereby a person called a plan, exclusively for the collective
trustee is appointed by a person called a investment and reinvestment of certain
trustor to administer, hold and manage money representing participation in the plan
funds and/or property of the trust or for the received by it in its capacity as the trustee.
benefit of a beneficiary. r. Fiduciary account shall refer to an
f. Trust agreement is an instrument account where transactions arising from
in writing covering the terms and any of the other fiduciary businesses are
conditions of the trust. kept and recorded.
g. Trustee is any person who holds s. Investment Manager shall refer to any
legal title to the funds and/or property of a person or entity engaged in investment
trust. management activities as herein defined.
h. Trustor is any person who creates t. Investment Management Department
a trust. shall refer to the department, unit, group,
i. Beneficiary is any person for division or any aggrupation which carries
whose benefit a trust is created. out the investment management activities of
j. Fiduciary shall refer to any person a bank that does not have an authority to
or entity engaged in any of the other engage in trust and other fiduciary
fiduciary business as herein defined where business.
no trustor-trustee relation exists. u. Investment Management Officer shall
k. Agency shall refer to a contract refer to the designated head or officer-in-
whereby a person binds himself to charge of the investment management
render some service or to do something in department of a bank which does not have
representation or on behalf of another, with the authority to engage in trust and other
the consent or authority of the latter. fiduciary business.
l. Principal shall refer to the person v. Investment Management Account
who grants authority to another person shall refer to an account where

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transactions arising from investment with the appropriate department of the SES.
management activities are kept and The application shall be signed by the banks
recorded. president or officer of equivalent rank and
(As amended by Circular No.766 dated 17 August 2012) shall be accompanied by the following
documents:
a. Certified true copy of the resolution
A. TRUST AND OTHER of the institutions board of directors
FIDUCIARY BUSINESS authorizing the application; and
b. A certification signed by the
Sec. X404 Authority to Perform Trust and president or the officer of equivalent rank
Other Fiduciary Business. With prior that the institution has complied with all
approval of the Monetary Board, banks may conditions/prerequisites for the grant of
engage in trust and other fiduciary business authority to perform trust and other
under Chapter VII of R.A. No. 337, as fiduciary business.
amended.
If a bank is found to engage in X404.2 Required capital. Banks
unauthorized trust and other fiduciary applying for authority to perform trust and
business and/or investment management other fiduciary business must have
activities, whether as its primary, secondary minimum capital accounts as follows:
or incidental business, the Monetary Board UBs/KBs. The amount required under
may impose administrative sanctions against Sec. X111 or such amount as may be
such bank or its principal officers and/or required by the Monetary Board in the
majority stockholders or proceed against future.
them in accordance with law. Branches of foreign banks. The amount
The Monetary Board may take such action required under Sec. X105 or such amount
as it may deem proper such as, but may not as may be required by the Monetary Board
be limited to, requiring the transfer or in the future.
turnover of any trust and other fiduciary and/ TBs. P650.0 million or such amounts
or investment management account (IMA) as may be required by the Monetary Board
to duly incorporated and licensed entities in the future.
of the choice of the trustor, beneficiary or Banks authorized to perform and are
client, as the case may be. actually performing trust and other fiduciary
No bank shall advertise or represent business prior to 20 August 2002 whose
itself as being engaged in trust and other capital accounts are lower than the
fiduciary business or in investment management above-prescribed minimum capital
activities or represent itself as trustee or accounts shall, before declaring any
investment manager or use words of similar dividend, carry to surplus at least fifty
import; and/or use in connection with its percent (50%) of their net income from all
business title the words trust, trust corporation, operations since the last preceding dividend
trust company, trust plan or words of similar until such time that their capital accounts
import, without having obtained the meet the above requirement.
required authority to do so.
X404.3 Prerequisites for engaging in
X404.1 Application for authority to trust and other fiduciary business. Before
perform trust and other fiduciary business it may engage in trust and other fiduciary
Banks desiring to perform trust and other business, a bank shall comply with the
fiduciary business shall file an application following requirements:

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a. The applicant has been duly licensed (2) attendance by every member of the
or incorporated as a bank or created as such board of directors in a special seminar for
by special law or charter; board of directors conducted or accredited
b. The articles of incorporation or by the Bangko Sentral;
governing charter of the institution shall (3) the ceilings on credit
include among its powers or purposes, accommodations to DOSRI;
acting as trustee or administering any trust (4) liquidity floor requirements for
or holding property in trust or on deposit government deposits;
for the use, or in behalf of others; (5) single borrowers limit; and
c. The by-laws of the institution shall (6) investment in bank premises and
include among other things, provisions on other fixed assets;
the following; h. It maintains adequate provisions for
(1) The organization plan or structure probable losses commensurate to the
of the department, office or unit which shall quality of its asset portfolio but not lower
conduct the trust and other fiduciary than the required valuation reserves as
business of the institution; determined by the Bangko Sentral;
(2) The creation of a trust committee, i. It does not have float items
the appointment of a trust officer and outstanding for more than sixty (60)
subordinate officers of the trust department; calendar days in the Due From/To Head
and Office/Branches/Other Offices accounts
(3) A clear definition of the duties and and the Due from Bangko Sentral account
responsibilities as well as the line and exceeding one percent (1%) of the total
staff functional relationships of the various resources as of date of application;
units, officers and staff within the j. It has no past due obligations with the
organization; Bangko Sentral or with any government
d. The banks operation during the financial institution;
preceding calendar year and for the period k. It has established a risk management
immediately preceding the date of system appropriate to its operations
application has been profitable; characterized by clear delineation of
e. The bank is well capitalized whose responsibility for risk management,
risk-based capital adequacy ratio is not adequate risk measurement systems,
lower than twelve percent (12%) at the time appropriately structured risk limits,
of filing the application; effective internal controls and complete,
f. It has not incurred net weekly reserve timely and efficient risk reporting system;
deficiencies during the eight (8)-week l. It has a CAMELS composite rating of
period immediately preceding the date of at least 3 in the last regular examination
application; with management rating of not lower than
g. It has generally complied with 3; and
banking laws, rules and regulations, orders m. It has neither unpaid assessment due
or instructions of the Monetary Board and/ nor past due obligations with the PDIC.
or Bangko Sentral Management in the last Compliance with the foregoing as well
two (2) preceding examinations prior to the as with other requirements under existing
date of application, particularly on the regulations shall be maintained up to the
following: time the trust license is granted. A bank that
(1) election of at least two (2) fails in this respect shall be required to show
independent directors; compliance for another test period of the

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same duration. (2) administration of properties.


(As amended by Circular No. 674 dated 10 December 2009) c. Application for authority to engage
in limited trust business. A TB desiring to
X404.4 Pre-operating requirements engage in a limited trust business shall file
A bank authorized to engage in trust and an application with the Centralized
other fiduciary business shall, before Application and Licensing Group (CALG)
engaging in actual operations, submit to the of the SES. The application shall be signed
Bangko Sentral the following: by the bank president or officer of
a. Government securities acceptable to equivalent rank and shall be accompanied
the Bangko Sentral amounting to P500,000 by the following documents:
as minimum basic security deposit for the (1) Certified true copy of the resolution
faithful performance of trust and other of the banks board of directors authorizing
fiduciary duties required under Subsec. the application; and
X405.1; (2) Certification signed by the bank
b. Organization chart of the trust department president or officer of equivalent rank that
which shall carry out the trust and other the bank has complied with all the
fiduciary business of the bank; and conditions/pre-requisites for the grant of
c. Names and positions of individuals authority to engage in a limited trust
designated as chairman and members of the business.
trust committee, trust officer and other d. Required capital. A TB applying for
subordinate officers of the trust department authority to engage in limited trust business
with their respective bio-data and statement must have minimum capital accounts
of duties and responsibilities. under existing regulations or P100.0
million, whichever is higher, or such
Sec. 1404 (Reserved) amounts as may be required by the
Monetary Board in the future.
Sec. 2404 Grant of Authority to Engage in e. Pre-requisites for the grant of authority
Limited Trust Business to Thrift Banks to engage in limited trust business. A TB
a. Statement of policy. It is hereby applying for authority to engage in limited
declared the policy of the Bangko Sentral trust business must comply with the
to promote healthy competition in order to following requirements:
improve the delivery of banking services (1) The banks operation during the
especially in the countryside. Towards this preceding calendar year and for the period
end, authority to engage in limited trust immediately preceding the date of
business shall be granted to qualified TBs application has been profitable;
which meet the minimum capital required (2) The bank is well capitalized whose
for the grant of such authority, among others. risk-based CAR is not lower than twelve
b. Scope of limited trust business percent (12%) at the time of filing the
Limited trust business shall be confined to: application;
(1) court trusts or trusts under orders of (3) It has not incurred net weekly
court of competent jurisdiction, such as reserve deficiencies within eight (8) weeks
acting as: immediately preceding the date of
(a) executor or administrator of a will; application;
and (4) It has generally complied with
(b) guardian of the estate of a minor or banking laws, rules and regulations, orders
incompetent; and or instructions of the Monetary Board and/

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or Bangko Sentral Management in the last trust business. A TB authorized to engage


two (2) preceding examinations prior to the in limited trust business shall comply with
date of application, more particularly: the following requirements:
(a) election of at least two (2) (1) The articles of incorporation of the
independent directors; bank shall include among its powers or
(b) attendance by every member of the purposes, acting as trustee or administering
board of directors in a special seminar for trust or holding property in trust or on
board of directors conducted or accredited deposit for the use, or in behalf of others;
by the Bangko Sentral; (2) The by-laws of the bank shall include
(c) the ceilings on credit among others, provisions on the following:
accommodations to DOSRI; (a) The organization plan or structure of
(d) liquidity floor requirements for the department, office or unit which shall
government deposits; conduct the trust and other fiduciary
(e) SBL; and business of the bank;
(f) investment in bank premises and (b) The creation of a trust committee, to
other fixed assets; be composed of at least three (3) members
(5) It maintains adequate provisions for who are all members of the board of
probable losses commensurate to the directors and who are not operating
quality of its asset portfolio but not lower officers of the bank, and at least two (2) of
than the required valuation reserves as whom are independent directors: Provided,
determined by the Bangko Sentral; That if the bank decides to have a trust
(6) It does not have float items committee composed of at least five (5)
outstanding for more than sixty (60) members, the provisions of Subsec. X406.2
calendar days in the Due From/To Head shall apply;
Office/Branches/Offices accounts and the (c) The appointment of a trust officer and
Due From Bangko Sentral account exceeding subordinate officers of the trust department,
one percent (1%) of the total resources as office or unit: Provided, That the trust
of date of application; officer shall have the following:
(7) It has no past due obligations with (i) At least two (2) years of actual
the Bangko Sentral or with any government experience in trust operations; or
FI; (ii) At least one (1) year of actual
(8) It has established a risk management experience in trust operations and:
system appropriate to its operations 1) completion of a training program in
characterized by clear delineation of trust, other fiduciary business, or investment
responsibility for risk management, adequate management activities acceptable to the
risk measurement systems, appropriately Bangko Sentral; or
structured risk limits, effective internal 2) completion of a relevant global or
controls and complete, timely and efficient local professional certification program; or
risk reporting system; (iii) At least two (2) years of actual
(9) It has a CAMELS composite rating of experience as officer of a bank/NBFI or
at least 3 in the last regular examination related activities; and
with Management rating not lower than 1) completion of a training program in
3; and trust, other fiduciary business, or investment
(10) It has neither unpaid assessment management activities acceptable to the
due nor past due obligations with the PDIC; Bangko Sentral; or
f. Requirements for engaging in limited 2) completion of a relevant global or

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local professional certification program; acting as:


(d) A clear definition of the duties and (a) executor or administrator of a will; and
responsibilities as well as the line and staff (b) guardian of the estate of a minor or
functional relationships of the various units, incompetent; and
officers and staff within the organization. (2) administration of properties.
g. Administration of properties held in c. Application for authority to engage
trust. The properties held in trust or other in limited trust business. An RB desiring to
fiduciary capacity shall be administered in engage in a limited trust business shall file
accordance with the terms of the instrument an application with the CALG of the SES.
creating the trust and/or order of the court. The application shall be signed by the bank
Unless otherwise directed in writing by the president or officer of equivalent rank and
court, investments of fiduciary funds shall shall be accompanied by the following
be limited to: documents:
(1) Bank deposits; and (1) Certified true copy of the resolution
(2) Evidences of indebtedness of the of the banks board of directors authorizing
Republic of the Philippines or of the Bangko the application; and
Sentral, and any other evidences of (2) Certification signed by the bank
indebtedness or obligations the servicing president or officer of equivalent rank that
and repayment of which are fully guaranteed the bank has complied with all the
by the Republic of the Philippines; conditions/pre-requisites for the grant of
h. Applicability of the rules and authority to engage in a limited trust
regulations on trust, other fiduciary business business.
and investment management activities. The d. Required capital. An RB applying for
provision of this Part which are not authority to engage in limited trust business
inconsistent with the provisions of this must have minimum capital accounts of
Section shall apply to TBs authorized to P100.0 million, or such amounts as may be
engage in limited trust business. required by the Monetary Board in the
((Circular No. 583 dated 24 September 2007, as amended by future.
Circular Nos. 766 dated 17 August 2012 and 674 dated 10 e. Pre-requisites for the grant of
December 2009)
authority to engage in limited trust business
An RB applying for authority to engage in
Sec. 3404 Grant of Authority to Engage in
limited trust business must comply with the
Limited Trust Business to Rural Banks
following requirements:
a. Statement of policy. It is hereby
(1) The banks operation during the
declared the policy of the Bangko Sentral
preceding calendar year and for the period
to promote healthy competition in order to
immediately preceding the date of
improve the delivery of banking services
application has been profitable;
especially in the countryside. Towards this
(2) The bank is well capitalized whose
end, authority to engage in limited trust
risk-based CAR is not lower than twelve
business shall be granted to qualified RBs
percent (12%) at the time of filing the
which meet the minimum capital required
application;
for the grant of such authority, among others.
(3) It has not incurred net weekly
b. Scope of limited trust business
reserve deficiencies within eight (8) weeks
Limited trust business shall be confined to:
immediately preceding the date of
(1) court trusts or trusts under orders of
application;
court of competent jurisdiction, such as
(4) It has generally complied with

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banking laws, rules and regulations, orders in limited trust business shall comply with
or instructions of the Monetary Board and/ the following requirements:
or Bangko Sentral Management in the last (1) The articles of incorporation of the
two (2) preceding examinations prior to the bank shall include among its powers or
date of application, more particularly: purposes, acting as trustee or administering
(a) election of at least two (2) trust or holding property in trust or on
independent directors; deposit for the use, or in behalf of others;
(b) attendance by every member of the (2) The by-laws of the bank shall include
board of directors in a special seminar for among others, provisions on the following:
board of directors conducted or accredited (a) The organization plan or structure of
by the Bangko Sentral; the department, office or unit which shall
(c) the ceilings on credit conduct the trust and other fiduciary
accommodations to DOSRI; business of the bank;
(d) liquidity floor requirements for (b) The creation of a trust committee, to
government deposits; be composed of at least three (3) members
(e) SBL; and who are all members of the board of
(f) investment in bank premises and directors and who are not operating officers
other fixed assets; of the bank, and at least two (2) of whom
(5) It maintains adequate provisions for are independent directors: Provided, That if
probable losses commensurate to the quality the bank decides to have a trust committee
of its asset portfolio but not lower than the composed of at least five (5) members, the
required valuation reserves as determined provisions of Subsec. X406.2 shall apply;
by the Bangko Sentral; (c) The appointment of a trust officer and
(6) It does not have float items subordinate officers of the trust department,
outstanding for more than sixty (60) calendar office or unit: Provided, That the trust officer
days in the Due From/To Head Office/ shall have the following:
Branches/Offices accounts and the Due (i) At least two (2) years of actual
From Bangko Sentral account exceeding experience in trust operations; or
one percent (1%) of the total resources as (ii) At least one (1) year of actual
of date of application; experience in trust operations and:
(7) It has no past due obligations with 1) completion of a training program in
the Bangko Sentral or with any government FI; trust, other fiduciary business, or investment
(8) It has established a risk management management activities acceptable to the
system appropriate to its operations Bangko Sentral;or
characterized by clear delineation of 2) completion of a relevant global or
responsibility for risk management, adequate local professional certification program; or
risk measurement systems, appropriately (iii) At least two (2) years of actual
structured risk limits, effective internal experience as officer of a bank/NBFI or
controls and complete, timely and efficient related activities and:
risk reporting system; 1) completion of a training program in
(9) It has a CAMELS composite rating of trust, other fiduciary business, or investment
at least 3 in the last regular examination management activities acceptable to the
with Management rating not lower than Bangko Sentral; or
3; and 2) completion of a relevant global or
(10) It has neither unpaid assessment local professional certification program;
due nor past due obligations with the PDIC. (d) A clear definition of the duties and
f. Requirements for engaging in limited responsibilities as well as the line and staff
trust business. An RB authorized to engage functional relationships of the various units,

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officers and staff within the organization. of PERA Administrator shall be separately
g. Administration of properties held in accounted for and calculated as prescribed
trust. The properties held in trust or other under Section X960 and Appendix 34a of
fiduciary capacity shall be administered in this Manual.
accordance with the terms of the instrument (As amended by Circular Nos. 878 dated 22 May 2015 and 509
creating the trust and/or order of the court. dated 01 February 2006)
Unless otherwise directed in writing by the
court, investments of fiduciary funds shall X405.2 Eligible securities.
be limited to: Government securities which shall be
(1) Bank deposits; and deposited in compliance with the above
(2) Evidences of indebtedness of the basic security deposit shall consist of:
Republic of the Philippines or of the Bangko a. Evidences of indebtedness of the
Sentral, and any other evidences of Republic of the Philippines and of the
indebtedness or obligations the servicing and Bangko Sentral and any other evidences of
repayment of which are fully guaranteed by indebtedness or obligations the servicing
the Republic of the Philippines; and repayment of which are fully guaranteed
h. Applicability of the rules and by the Republic of the Philippines; and such
regulations on trust, other fiduciary business other kinds of securities which may be
and investment management activities. The declared eligible by the Monetary Board:
provision of this Part which are not Provided, That such securities shall be free,
inconsistent with the provision of this unencumbered, and not utilized for any
Section shall apply to RBs authorized to other purpose: Provided, further, That such
engage in limited trust business. securities shall have remaining maturity of
(Circular No. 583 dated 24 September 2007, as amended by not more than three (3) years from the date
Circular Nos. 766 dated 17 August 2012 and 674 dated 10 of deposit with the Bangko Sentral; and
December 2009) b. NDC Agri-Agra ERAP Bonds which
are not being used as alternative
Sec. X405 Security for the Faithful compliance with P.D. No. 717. The
Performance of Trust and Other Fiduciary requirement that the securities used shall
Business. have a remaining maturity of not more than
three (3) years shall not apply.
X405.1 Basic security deposit. A bank c. Five (5)- and Ten (10)-year SPTBs to
authorized to engage in trust and other finance the CARP-related expenditures,
fiduciary business shall deposit with the provided such bonds shall not be
Bangko Sentral eligible government hypothecated in any way or earmarked for
securities as security for the faithful any other purpose and they meet the three
performance of its trust and other fiduciary (3)-year remaining maturity requirement to
duties equivalent to at least one percent (1%) ensure that such bonds are liquid.
of the book value of the total volume of trust, d. Securities backed by the unreleased
other fiduciary and investment management IRAs of LGUs (issued by a Special Purpose
assets: Provided, That at no time shall such Trust administered by the DBP under the
deposit be less than P500,000. IRA Monetization Program of the Union of
Scripless securities under the Registry Local Authorities of the Philippines) the
of Scripless Securities (RoSS) System of the release of which IRA on scheduled date of
Bureau of Treasury (BTr) may be used as payment has been certified by the DBM as
basic security deposit for trust and other not being subject to any conditionalities:
fiduciary duties using the Guidelines Provided, That such securities shall be
enumerated in Appendix 34 of this Manual. eligible only to the extent of the present
The security for the faithful performance value of the bond computed using the

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X405.2 - X405.4
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original yield to maturity (as of auction/ The base amount for the basic security
issue date): Provided, further, That for deposit shall be the average of the month-
reserve for trust and other fiduciary duties, end balances of total trust, investment
the remaining maturities of the securities management and other fiduciary assets of
shall not exceed three (3) years; and the immediately preceding calendar quarter.
e. Zero Coupon Bond Issue by the HGC
of up to P7.0 billion five (5)-year regular X405.4 Compliance period; sanctions.
series and up to P3.0 billion seven (7)-year The trustee or fiduciary shall have thirty (30)
special series to finance its guaranty calendar days after the end of every calendar
servicing of socialized and low-cost quarter within which to deposit with the
housing projects: Provided, That they meet Bangko Sentral the securities required under
the three (3)-year remaining maturity this Section.
requirement to ensure that such bonds are The following sanctions shall be
liquid: Provided, further, That such bonds imposed for any deficiency in the basic
shall qualify as eligible reserve for trust and security deposit for the faithful
other fiduciary duties only to the extent of performance of trust, investment
the present value of the bond computed management and other fiduciary duties:
using the original yield to maturity (as of a. On the bank:
auction/issue date). i. Monetary penalty/ies:
f. Tobacco Excise Tax Receivable
Monetization Program Investment Offense Third and
Certificates (TEXTR Certificates) backed by Trust First Second subsequent
receivables representing the unreleased portion Asset Size offense(s)
of the obligation of the National Government TBs/RBs with
to its LGUs for their share of the Tobacco Limited Trust P300.00 P400.00 P500.00
Excise Taxes under R.A. No. 7171 amounting Authority
to P1.85 billion and covering the years 2001 Up to
and 2002: Provided, That such securities P500 P600.00 P700.00 P800.00
shall be eligible only to the extent of the million
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of

present value of the securities computed Above


using the original yield to maturity as of P500
Policy per calendar day

auction/issue date. million P1,000.00 P1,250.00 P1,500.00


g. Securities received, pursuant to the but not
Domestic Debt Exchange Offer of the Republic exceeding
of the Philippines, in exchange for securities P1 billion
that are eligible reserves for trust duties. Above
(As amended by Circular No. 509 dated 01 February 2006) P1 billion
but not P2,000.00 P3,000.00 P4,000.00
X405.3 Valuation of securities and exceeding
basis of computation of the basic security P10 billion
deposit requirement. For purposes of Above
determining compliance with the basic P10 billion
security deposit under this Section, the but not P5,000.00 P6,000.00 P7,000.00
amount of securities so deposited shall be exceeding
based on their book value, that is, cost as P50 billion
increased or decreased by the corresponding Above
discount or premium amortization. P50 billion P8,000.00 P9,000.00 P10,000.00

Manual of Regulations for Banks Part IV - Page 11


X405.4 - X405.5
15.10.31

ii. Non-monetary penalty beginning X405.5 Reserves 1 against peso-


with the third offense (all banks) - Prohibition denominated common trust funds and
against the acceptance of new trust and other trust and other fiduciary accounts -
fiduciary accounts, and from renewing others.
expiring trust and other fiduciary contracts a. Reserves against peso-denominated
up to the time the violation is corrected. CTFs. In addition to the basic security
b. On the trust officer and/or other deposit, a bank authorized to engage in trust
officer(s) responsible for the deficiency/non- and other fiduciary business shall maintain
compliance: reserves on:
(1) First offense - warning that subsequent (1) peso-denominated CTF; and
violations shall be dealt with more severely; (2) such other managed peso funds
(2) Second offense - written reprimand which partake the nature of collective
with a stern warning that subsequent investment of a peso-denominated CTF as
violations shall be subject to suspension; may be indicated by the presence of the
(3) Third offense - thirty (30) calendar following features:
day-suspension without pay; and (a) The funds are composed of
(4) Subsequent offense(s) - sixty (60) contributions from two (2) or more investors;
calendar day-suspension without pay. (b) The funds are managed/administered
For purposes of determining the frequency as a vehicle for collective investment and
of the violation, the banks compliance profile reinvestment;
for the immediately preceding three (3) years (c) The trustee/administrator/agent has
or twelve (12) quarters will be reviewed: the exclusive management and control over
Provided, That for purposes of determining the funds and the sole right at any time to
appropriate penalty on the trust officer and/or sell, convert, invest, exchange, transfer or
other responsible officer(s), any offense otherwise change or dispose of the assets
committed outside the preceding three (3) year comprising the funds; and
or twelve (12) quarter- period shall be (d) Investments/contributions to, or
considered as the first offense: Provided, withdrawals from, the funds are being
further, That in the case of trust officer, all allowed at anytime or as of a fixed date in
offenses committed by him in the past as trust the future, and/or the income, net of all
officer of other institution(s) shall also be expenses incurred in the management of the
considered: Provided, finally, That if the fund plus the fee of the trustee/administrator/
offense cannot be attributed to any other officer agent, are being distributed among the
of the bank, the trust officer shall be participants of the funds, without the need
automatically held responsible since the to liquidate all assets of the funds.
ultimate responsibility for ensuring compliance The required reserves against
with the regulation rests upon him, as evidence peso-denominated CTFs and such other
may warrant. managed peso funds which partake the
(As amended by Circular Nos. 617 dated 30 July 2008 and nature of a collective investment of
585 dated 15 October 2007) peso-denominated CTFs shall be as follows:

1
Reserve week starting 11 April 2014, the required reserves shall be as follows:
For reserves against peso denominated CTFs
UBs/KBs 19%
TBs 8%
For reserves against TOFA-Others
UBs/KBs 16%
TBs 8%

Increase in reserve requirements shall take effect on the reserve week starting 30 May 2014.

Part IV - Page 12 Manual of Regulations for Banks


X405.5 - X405.7
15.10.31

UBs/KBs - 20%1 fiduciary business with the Bangko Sentral


TBs - 9%1 in compliance with the reserve requirement
RBs - 4%1 shall no longer be paid interest effective
06 April 2012.
b. Reserves against TOFA - Others. In (As amended by Circular No. 753 dated 29 April 2012)
addition to the basic security deposit, banks/
institution authorized to engage in trust and X405.7 Computation of reserve
other fiduciary business shall maintain position. A bank authorized to engage in
reserves on TOFA - Others, except accounts trust and other fiduciary business shall
held under (1) Administratorship; (2) Bond calculate daily the required and available
Issues/Other Obligations Under Deed of reserves on the value per books of its peso-
Trust or Mortgage; (3) Custodianship and denominated CTFs and such other managed
Safekeeping; (4) Depository and peso funds, as well as on TOFA-Others,
Reorganization; (5) Employee Benefit Plans based on the seven-day week, starting
Under Trust; (6) Escrow; (7) P e r s o n a l Friday and ending Thursday including
Trust (testamentary or living trust); Saturdays, Sundays, holidays, non-banking
(8) Executorship;(9) Guardianship; (10) Life days or days when there is no clearing:
Insurance Trust; (11) Pre-need Plans Provided, That with reference to holidays,
(institutional/ individual); and (12) Personal non-banking days and days where there is
no clearing, the reserve position at the close
Equity and Retirement Account (PERA).
of banking day immediately preceding such
The required reserves against TOFA-
holidays, non-banking days or days where
Others shall be as follows:
there is no clearing, shall apply. For the
UBs/KBs - 17%1
purpose of computing reserve position, the
TBs - 9%
principal office in the Philippines and all
RBs - 4%
branches and agencies located therein shall
(As amended by Circular Nos. 878 dated 22 May 2015, 832
dated 27 May 2014, 830 dated 03 April 2014, 753 dated 29 be treated as a single unit.
March 2012, 551 dated 17 November 2006 and 539 dated 09 The required reserves in the current
August 2006) period (reference reserve week) shall be
computed based on the corresponding
X405.6 Composition of reserves. levels of peso-denominated CTFs and such
The provisions of Sec. X254 shall other managed peso funds, as well as on
govern the composition of reserves against TOFA-Others of the prior week.
peso-denominated CTFs and such other For purposes of computing the required
managed peso funds, as well as TOFA- and available statutory and liquidity reserves
Others, of banks authorized to engage in for peso-denominated CTFs and such other
trust and other fiduciary business. managed peso funds, as well as TOFA-
For purposes of this Subsection, a separate Others, the term value per books shall refer
deposit account shall be maintained by banks to the total volume of CTFs, other managed
with the Bangko Sentral exclusively for trust peso funds, as well as TOFA-Others less
reserves. Deposits maintained by banks booked Allowance for Probable Losses.
authorized to engage in trust and other (As amended by Circular No. 535 dated 04 July 2006)

1
Reserve week starting 11 April 2014, the required reserves shall be as follows:
For reserves against peso denominated CTFs
UBs/KBs 19%
TBs 8%
For reserves against TOFA-Others
UBs/KBs 16%
TBs 8%

Increase in reserve requirements shall take effect on the reserve week starting 30 May 2014.

Manual of Regulations for Banks Part IV - Page 13


X405.8 - X406.1
08.12.31

X405.8 Reserve deficiencies; activities.


sanctions. The provisions of Sec. X257 shall No bank shall undertake any of the trust
govern the computation of reserve and other fiduciary business and, whenever
deficiencies for peso-denominated CTFs and applicable, investment management
such other managed peso funds, as well as activities outside the direct control, authority
TOFA-Others, of banks authorized to engage and management of the trust department or
in trust and other fiduciary business, including through any department or office which is
the sanctions provided in said Section. involved in the other businesses of the bank,
such as the Treasury, Funds Management
X405.9 Report of compliance. Every or any similar department, otherwise, any
bank shall submit a report to the Bangko
such business shall be considered part of
Sentral of its daily required and available
the banks real liabilities.
reserves on peso-denominated CTFs and
The bank proper and the trust
such other managed peso funds, as well as
department may share the following
TOFA- Others, in such frequency and within
activities: (1) electronic data processing;
the deadline stated in Appendix 6.
(2) credit investigation; (3) collateral
Sec. X406 Organization and Management. appraisal; and (4) messengerial, janitorial
and security services.
X406.1 Organization. A bank b. The trust department, trust officer
authorized to engage in trust and other and other subordinate officers of the trust
fiduciary business shall, pursuant to Subsec. department shall only be directly
X404.1, include in its by-laws, provisions responsible to the banks trust committee
on the organization plan or structure of which shall, in turn, be only directly
the department, office or unit which shall responsible to the banks board of
conduct such business. The by-laws shall directors.
also include provisions on the creation of No director, officer or employee
a trust committee, the appointment of a taking part in the management of trust
trust officer and other subordinate officers and other fiduciary accounts shall
and a clear definition of their duties and perform duties in other departments or
responsibilities as well as their line and the audit committee of the bank and
staff functional relationships within the vice versa. However, branch managers
organization which shall be in accordance duly authorized by the board of directors
with the following guidelines. may, for or on behalf of the trust officer,
a. Trust and other fiduciary business sign predrawn trust instruments such as
of a bank shall be carried out through a CTFs.
trust department which shall be c. The organization structure and
organizationally, operationally, definition of duties and responsibilities of
administratively and functionally separate the trust committee, officers and
and distinct from the other departments employees of the trust department shall
and/or businesses of the institution. reflect adherence to the minimum internal
A bank which is also engaged in control standards prescribed by the
investment management activities, shall Bangko Sentral.
conduct the same only through its trust d. Provisions shall be made by the
department and the responsibilities of the bank to have legal assistance readily
board of directors, trust committee and available in the review of proposed and/
trust officer shall be construed to include or existing trust and fiduciary agreements
the proper administration and and documents and in the handling of
management of investment management legal and tax matters related thereto.

Part IV - Page 14 Manual of Regulations for Banks


X406.2
12.12.31

X406.2 Composition of trust including the chairperson, may be any of


committee. The Trust Committee shall be the following: (1) non-executive
composed of at least five (5) members directors1 or independent directors2 who are
including the (1) president or any senior both not part of the audit committee; or
officer of the bank; and (2) the trust officer. (2) those considered as qualified independent
The remaining committee members,

(Next page is Part IV- page 15)

1
As defined under Subsec. X141.1
2
As defined under Subsec. X141.2

Manual of Regulations for Banks Part IV - Page 14a


X406.2 - X406.3
12.12.31

professionals: Provided, That, the department shall be staffed by persons of


Philippine branch of a foreign bank may competence, integrity and honesty.
appoint its resident manager or chief Directors, committee members and officers
executive officer in lieu of the president charged with the administration of trust and
while the positions allotted for members of other fiduciary activities shall, in addition
the board may be filled up by the area to meeting the qualification standards
manager and/or officers/representatives prescribed for directors and officers of banks
from the Head Office, or affiliates or or for qualified independent professionals,
subsidiaries of the head office who are not possess the necessary technical expertise and
involved in audit-related activities; Provided, relevant experience in such business which
further, That, in case of more than five (5) may be indicated by any of the following:
trust committee membership, majority shall a. at least one (1) year of actual
be composed of qualified non-executive experience in trust, other fiduciary business,
members. or investment management activities;
A qualified independent professional b. at least three (3) years of professional
shall refer to a person who experience in relevant field such as banking,
a. is not a director/officer/employee of finance, economics, law, and risk
the bank during the last twelve (12) months management;
counted from the date of committee c. completion of at least ninety (90)
membership; training hours on trust, other fiduciary
b. is not a relative within the fourth business, or investment management
degree of consanguinity or affinity, activities acceptable to the Bangko Sentral;
legitimate or common-law of any executive or
director or those involved in the day to day d. completion of a relevant global or
management of institutions operations or local professional certification program.
officer of the bank; and A Trust Committee member should be
c. is not engaged or does not engage familiar with Philippine laws, rules and
in any transactions with the bank whether regulations on trust business, as well as
by himself or with other persons or through uphold at all times ethical and good
a firm of which he is a partner, other than governance standards.
transactions which are conducted at arms The trust officer who shall be appointed
length and could not materially interfere shall possess any of the following:
with or influence the exercise of his a. at least five (5) years of actual
judgment. experience in trust operations;
An independent professional may be b. at least three (3) years of actual
appointed as a Trust Committee member of experience in trust operations and must
other banks that belong to the same financial have:
conglomerate. (1) completed at least ninety (90) training
For purposes of this Subsection, the hours in trust, other fiduciary business, or
definition of officer under Subsec. X142.1 investment management activities
shall apply. acceptable to the Bangko Sentral; or
(As amended by Circular No. 766 dated 17 August 2012) (2) completed a relevant global or local
professional certification program; or
X406.3 Qualifications of committee c. at least five (5) years of actual experience
members, officers and staff. The banks trust as an officer of a bank and must have:

Manual of Regulations for Banks Part IV - Page 15


X406.3 - X406.9
12.12.31

(1) completed at least ninety (90) training (5) oversee and evaluate performance
hours in trust, other fiduciary business, or of the trust officer;
investment management activities (6) conduct regular meetings at least
acceptable to the Bangko Sentral; or once every quarter, or more frequently as
(2) completed a relevant global or local necessary, depending on the size and
professional certification program. complexity of the fiduciary business; and
For the purpose of this Subsection, actual (7) report regularly to the BOD on
experience refers to exposures in trust matters arising from fiduciary activities.
operations either as officer of a trust entity c. Trust Officer
or member of trust committee. The management of day-to-day fiduciary
(As amended by Circular Nos. 766 dated 17 August 2012 and activities shall be vested in the trust officer.
665 dated 04 September 2009) In this regard, the trust officer shall:
(1) ensure adherence to the basic
X406.4 Responsibilities of
standards in the administration of trust,
administration
other fiduciary and investment management
a. Board of Directors (BOD)
accounts pursuant to Appendix 83;
The responsibilities of the BOD in
(2) develop and implement relevant
relation to trust activities of a bank shall be
policies and procedures on fiduciary
those set forth under Subsec. X141.3. The
activities;
BOD shall ensure an appropriate degree of
(3) observe sound risk management
independence between the activities of the
practices and maintain necessary controls
bank proper and its trust department.
to protect assets under custody and held in
b. Trust Committee
trust or other fiduciary capacity;
The trust committee is a special
(4) carry out investment and other
committee which reports directly to the
fiduciary activities in accordance with
board of directors and is primarily
agreements with clients and parameters set
responsible for overseeing the fiduciary
by the trust committee as approved by the
activities of the bank. In discharging its
board of directors;
function, it shall:
(5) report regularly to the trust committee
(1) ensure that fiduciary activities are
on business performance and other matters
conducted in accordance with applicable
requiring its attention;
laws, rules and regulations, and prudent
(6) maintain adequate books, records
practices;
and files for each trust or other fiduciary
(2) ensure that policies and procedures
account and provide timely and regular
that translate the boards objectives and risk
disclosure to clients on the status of their
tolerance into prudent operating standards
accounts; and
are in place and continue to be relevant,
(7) submit periodic reports to regulatory
comprehensive and effective;
agencies on the conduct of the trust
(3) oversee the implementation of the
operations.
risk management framework and ensure that
(As amended by Circular No. 766 dated 17 August 2012)
internal controls are in place relative to the
fiduciary activities; X406.5 - X406.8 (Reserved)
(4) adopt an appropriate organizational
structure/staffing pattern and operating X406.9 Outsourcing services in trust
budgets that shall enable the trust departments
department to effectively carry out its (Deleted by Circular No. 765 dated 03 August 2012)
functions;

Part IV - Page 16 Manual of Regulations for Banks


X406.10 - X407
12.12.31

X406.10 Confirmation of the is no obligation on the part of the trustee,


appointment/designation of trust officer fiduciary or investment manager to
and independent professional. An guarantee returns on the funds or properties
independent professional and trust officer regardless of the results of the investment.
must be fit and proper to discharge their The trustee, fiduciary or investment manager
respective functions. In determining is entitled to fees/commissions which shall
whether a person is fit and proper for the be stipulated and fixed in the contract or
position, regard shall be given to the indenture and the trustor or principal is
following: Integrity/probity, physical/mental entitled to all the funds or properties and
fitness, competence, relevant education/ earnings less fees/commissions, losses and
financial literacy/training, diligence and other charges. Any agreement/arrangement
knowledge/experience. that does not conform to these shall not be
The appointment or designation of considered as trust, other fiduciary and/or
independent professional and trust officer investment management relationship.
shall be subject to confirmation by the The following shall not constitute a trust,
Monetary Board. The bio-data of the other fiduciary and/or investment
proposed independent professional and trust management relationship
officer shall be submitted to the Bangko a. When there is a preponderance of
Sentral, in a prescribed form indicated in purpose or of intent that the arrangement
Appendix 6, within seven (7) banking days creates or establishes a relationship: other
from approval of the board of directors or than a trust, fiduciary and/or investment
its functional oversight equivalent which management;
shall include the country head in case of b. When the agreement or contract is
foreign banks. Moreover, the independent itself used as a certificate of indebtedness
professional shall certify that he/she in exchange for money placement from
possesses the qualifications as herein clients and/or as the medium for confirming
prescribed and that all the information placements and investment thereof;
thereby supplied are true and correct.
c. When the agreement or contract of
If after evaluation, the Monetary Board
an account is accepted under the signature(s)
shall find grounds for disqualification, the
of those other than the trust officer or
concerned bank shall be informed thereof
subordinate officer of the trust department
and the independent professional and trust
or those authorized by the board of directors
officer so appointed or delegated shall be
to represent the trust officer;
removed from office even if he/she has
d. Where there is a fixed rate or guaranty
assumed the position to which he/she was
of interest, income or return in favor of its
appointed or delegated.
(Circular No. 665 dated 04 September 2009 and CL-045 dated client or beneficiary: Provided, however,
01 July 2011, as amended by Circular Nos. 766 dated 17 August That where funds are placed in fixed
2012 and 758 dated 11 May 2012) income-generating investments, a quotation
of income expectation or like terms, shall
Sec. X407 Non-Trust, Non-Fiduciary and/ neither be considered as arrangements with
or Non-Investment Management Activities a fixed rate nor a guaranty of interest, income
The basic characteristic of trust, other or return when the agreement or indenture
fiduciary and investment management categorically states in bold letters that the
relationship is the absolute non-existence quoted income expectation or like terms is
of a debtor-creditor relationship, thus, there neither assured nor guaranteed by the trustee

Manual of Regulations for Banks Part IV - Page 17


X407- X408
09.12.31

or fiduciary and it does not, therefore, entitle unsafe or unsound manner all relevant facts
the client to a fixed interest or return on his must be considered. An analysis of the
investments: Provided, further, That any of impact thereof on the banks operations and
the following practices or practices similar financial conditions must be undertaken,
and/or tantamount thereto shall be including evaluation of capital position,
construed as fixing or guaranteeing the rate asset condition, management, earnings
of interest, income or return: posture and liquidity position.
(1) Issuance of certificates, side In determining whether a particular act
agreements, letters of undertaking or other or omission, which is not otherwise
similar documents providing for fixed rates prohibited by any law, rule or regulation
or guaranteeing interest, income or return; affecting banks, may be deemed as
(2) Paying trust earnings based on conducting business in an unsafe or
indicated or expected yield regardless of the unsound manner, the Monetary Board,
actual investment results; upon report of the head of the supervising
(3) Increasing or reducing fees in order or examining department based on findings
to meet a quoted or expected yield; in an examination or a complaint, shall
(4) Entering into any arrangement, consider any of the following
scheme or practice which results in the circumstances:
payment of fixed rates or yield on trust a. The act or omission has resulted or
investments or in the payment of the may result in material loss or damage, or
indicated or expected yield regardless of the abnormal risk or danger to the safety,
actual investment results; and stability, liquidity or solvency of the bank;
e. Where the risk or responsibility is b. The act or omission has resulted or
exclusively with the trustee, fiduciary or may result in material loss or damage or
investment manager in case of loss in the abnormal risk to the banks depositors,
investment of trust, fiduciary or investment creditors, investors, stockholders or to the
management funds, when such loss is not Bangko Sentral or to the public in general;
due to the failure of the trustee or fiduciary c. The act or omission has caused any
to exercise the skill, care, prudence and undue injury, or has given unwarranted
diligence required by law. benefits, advantage or preference to the bank
Trust, other fiduciary and investment or any party in the discharge by the director
management activities involving any of the or officer of his duties and responsibilities
foregoing which are accepted, renewed or through manifest partiality, evident bad faith
extended after 16 October 1990 shall be or gross inexcusable negligence; or
reported as deposit substitutes and shall be d. The act or omission involves entering
subject to the reserve requirement for into any contract or transaction manifestly
deposit substitutes from the time of and grossly disadvantageous to the bank,
inception, without prejudice to the whether or not the director or officer
imposition of the applicable sanctions profited or will profit thereby.
provided for in Sections 36 and 37 of R.A. The list of activities which may be
No. 7653. considered unsafe and unsound is shown
in Appendix 48.
Sec. X408 Unsafe and Unsound Practices In line with the statement of principles
Whether a particular activity may be governing trust and other fiduciary business
considered as conducting business in an under Sec. X401, the trustee, fiduciary or

Part IV - Page 18 Manual of Regulations for Banks


X408 - X409.1
09.12.31

investment manager shall desist from the determined by the Monetary Board to be
following unsound practices: appropriate, but in no case to exceed
a. Entering in an arrangement whereby P30,000 a day on a per transaction basis
the client is at the same time the borrower taking into consideration the attendant
of his own fund placement, or whereby the circumstances, such as the gravity of the act
trustor or principal is a borrower of other or omission and the size of the bank, to be
trust, fiduciary or investment management imposed on the bank, their directors and/or
funds belonging to the same family or responsible officers;
business group of such trustor or principal; c. Suspension of interbank clearing
b. Granting loans or accommodations privileges/immediate exclusion from
to any trust committee member, officer and clearing;
employee of the trust department except d. Suspension of rediscounting
where such loans are obtained by said privileges or access to Bangko Sentral credit
persons as members of an employee benefit facilities;
fund of the trustees own institution; e. Suspension of lending or foreign
c. Borrowing from, or selling trust, other exchange operations or authority to accept
fiduciary and/or investment management new deposits or make new investments;
assets to, the bank proper to cover portfolio f. Suspension of responsible directors
losses and/or to guarantee the return of and/or officers;
principal or income; g. Revocation of quasi-banking license;
d. Granting new loans to any borrower and/or
who has a past due and/or classified loan h. Receivership and liquidation under
account with the bank proper or the trust Section 30 of R.A. No. 7653.
department; and All other provisions of Sections 30 and
e. Requiring clients to sign documents 37 of R.A. No. 7653, whenever appropriate,
in blank. shall also be applicable on the conduct of
(As amended by Circular No. 640 dated 16 January 2009) business in an unsafe or unsound manner.
The imposition of the above sanctions
X408.1 - X408.8 (Reserved) is without prejudice to the filing of
appropriate criminal charges against
X408.9 Sanctions. The Monetary culpable persons as provided in Sections 34,
Board may, at its discretion and based on 35 and 36 of R.A. No. 7653.
the seriousness and materiality of the acts
or omissions, impose any or all of the Sec. X409 Trust and Other Fiduciary
following sanctions provided under Section Business. The conduct of trust and other
37 of R.A. No. 7653 and Section 56 of R.A. fiduciary business shall be subject to the
No. 8791, whenever a bank conducts following regulations.
business in an unsafe and unsound manner:
a. Issue an order requiring the bank to X409.1 Minimum documentary
cease and desist from conducting business requirements. Each trust or fiduciary
in an unsafe and unsound manner and may account shall be covered by a written
further order that immediate action be taken document establishing such account, as
to correct the conditions resulting from such follows:
unsafe or unsound practice; a. In the case of accounts created by an
b. Fines in amounts as may be order of the court or other competent

Manual of Regulations for Banks Part IV - Page 19


X409.1 - X409.2
13.12.31

authority, the written order of said court or X409.2 Lending and investment
authority. disposition. Assets received in trust or in
b. In the case of accounts created by other fiduciary capacity shall be
corporations, business firms, organizations administered in accordance with the terms
or institutions, the voluntary written of the instrument creating the trust or other
agreement or indenture entered into by the fiduciary relationship.
parties, accompanied by a copy of the board When a trustee or fiduciary is granted
resolution or other evidence authorizing the discretionary powers in the investment
establishment of, and designating the disposition of trust or other fiduciary funds
signatories to, the trust or other fiduciary and unless otherwise specifically
account. enumerated in the agreement or indenture
c. In the case of accounts created by and directed in writing by the client, court
individuals, the voluntary written agreement of competent jurisdiction or other
or indenture entered into by the parties. competent authority, loans and investments
The voluntary written agreement or of the fund shall be limited to:
indenture shall include the following a. Evidences of indebtedness of the
minimum provisions: Republic of the Philippines and of the
(1) Title or nature of contractual Bangko Sentral, and any other evidences of
agreement in noticeable print; indebtedness or obligations the servicing
(2) Legal capacities, in noticeable print, and repayment of which are fully guaranteed
of parties sought to be covered; by the Republic of the Philippines or loans
(3) Purposes and objectives; against such government securities;
(4) Funds and/or properties subject of b. Loans fully guaranteed by the
the arrangement; Republic of the Philippines as to the
(5) Distribution of the funds and/or payment of principal and interest;
properties; c. Loans fully secured by a hold-out on,
(6) Duties and powers of trustee or assignment or pledge of deposits maintained
fiduciary; either with the bank proper or other banks,
(7) Liabilities of the trustee or fiduciary; or of deposit substitutes of the bank, or of
(8) Reports to the client; mortgage and chattel mortgage bonds issued
(9) Termination of contractual by the trustee or fiduciary;
arrangement and, in appropriate cases, d. Loans fully secured by real estate or
provision for successor-trustee or fiduciary; chattels in accordance with Section 78 of
(10) The amount or rate of the R.A. No. 337, as amended, and subject to
compensation of trustee or fiduciary; the requirements of Sections 75, 76, and
(11) A statement in noticeable print to 77 of R.A. No. 337, as amended; and
the effect that trust and other fiduciary e. Investment in the Bangko Sentral
business are not covered by the PDIC and special deposit account (SDA) facility made
that losses, if any, shall be for the account in accordance with the guidelines in
of the client; and Appendix 78 and subject to the provisions
(12) Disclosure requirements for of Sec. 1390 for UBs/KBs and Sec. 2390
transactions requiring prior authority and/ for TBs and Appendices 78a to 78c.
or specific written investment directive from The specific directives required under
the client, court of competent jurisdiction this Subsection shall consist of the following
or other competent authority. information:

Part IV - Page 20 Manual of Regulations for Banks


X409.2 - X409.3
13.12.31

(1) The transaction to be entered into; b. Purchase or acquire property or debt


(2) The borrowers name; instruments from any of the departments,
(3) Amount involved; and directors, officers, stockholders, or
(4) Collateral security(ies), if any. employees of the trustee or fiduciary, or
(As amended by M-2013-021 dated 17 May 2013, M-2012-034 relatives within the first degree of
dated 13 July 2012, M-2007-038 dated 29 November 2007 and
consanguinity or affinity, or the related
M-2007-011 dated 08 May 2007)
interest of such directors, officers and
X409.3 Transactions requiring prior stockholders; or from any corporation where
authority. A trustee or fiduciary shall not the trustee or fiduciary owns at least fifty
undertake any of the following transactions percent (50%) of the subscribed capital or
for the account of a client, unless prior to voting stock in its own right and not as
its execution, such transaction has been fully trustee nor in a representative capacity;
disclosed and specifically authorized in c. Invest in equities of, or in securities
writing by the client, beneficiary, other underwritten by, the trustee or fiduciary or
party-in-interest, court of competent a corporation in which the trustee or
jurisdiction or other competent authority: fiduciary owns at least fifty percent (50%)
a. Lend, sell, transfer or assign money of the subscribed capital or voting stock in
or property to any of the departments, its own right and not as trustee nor in a
directors, officers, stockholders or representative capacity; and
employees of the trustee or fiduciary, or d. Sell, transfer, assign, or lend money
relatives within the first degree of or property from one trust or fiduciary
consanguinity or affinity, or the related account to another trust or fiduciary account
interest of such directors, officers and except where the investment is in any of
stockholders; or to any corporation where those enumerated in Items a to d of
the trustee or fiduciary owns at least fifty Subsec. X409.2.
percent (50%) of the subscribed capital DOSRIs covered by this Subsection
or voting stock in its own right and not as shall be those considered as such under
trustee nor in a representative capacity; existing regulations on loans to DOSRI in

(Next Page is Part IV - Page 21)

Manual of Regulations for Banks Part IV - Page 20a


X409.3 - X409.6
09.12.31

Part III - E of this Manual. The procedural b. Provisions of Section 4(e) of the New
and reportorial requirements in said Rules on Registration of Short-Term
regulations shall also apply. Commercial Papers and Section 7(f) of the
The disclosure required under this New Rules on Registration of Long-Term
Subsection shall consist of the following Commercial Papers issued by the SEC
minimum information: (Appendices 13 and 14).
(1) The transactions to be entered into; c. Criteria for past due accounts; and
(2) Identities of the parties involved in d. Qualitative appraisal of loans,
the transactions and their relationships (shall investments and other assets that may require
not apply to Item d of this Subsection); provision for probable losses which shall be
(3) Amount involved; and booked in accordance with the Financial
(4) Collateral security(ies), if any. Reporting Package for Trust Institutions
The above information shall be made (FRPTI);
known to clients in a separate instrument e. Requirements of Sections 3 and 8
or in the very instrument creating the trust of the Securities and Regulation Code (SRC);
or fiduciary relationship. and
f. Provisions of Section 44 - Investments
X409.4 Ceilings on loans. Loans by Philippine residents - of the BSP Manual
funded by trust accounts shall be subject of Regulations on Foreign Exchange
to the SBL and DOSRI ceilings imposed Transactions (MORFXT), such that the
on banks under Secs. X303, X330 and cross-currency investments of peso trust and
X331. For purposes of determining other fiduciary accounts, including peso unit
compliance with said ceilings, the total investment trust (UIT) funds, shall be subject
amount of said loans granted by the trust to the following conditions:
department and the bank to the same (1) All cash flows of the trustee or
person, firm or corporation shall be fiduciary shall only be in pesos. In case the
combined. foreign exchange acquired or received by
the trustee or fiduciary as dividends/earnings
X409.5 Funds awaiting investment or divestment proceeds on such investment
or distribution. Funds held by the trustee are intended for reinvestment abroad, the
or fiduciary awaiting investment or same proceeds are not required to be
distribution shall not be held uninvested inwardly remitted and sold for pesos
or undistributed any longer than is through authorized agent banks: Provided,
reasonable for the proper management of That such proceeds are reinvested abroad
the account. within two (2) banking days from receipt of
the funds abroad;
X409.6 Other applicable regulations (2) The trustee or fiduciary shall
on loans and investments. The loans and purchase, invest, reinvest, sell, transfer or
investments of trust and other fiduciary dispose foreign currency-denominated
accounts shall be subject to pertinent laws, financial instruments, including securities as
rules and regulations for banks that shall defined in Section 3 of the SRC, through a
include but need not be limited to the distributor or underwriter duly authorized
following: or licensed by the government of the issuer
a. Requirements of Sections 39 and 40 of such instruments, or a counterparty FI
of R.A. No. 8791 (The General Banking (seller or buyer) accredited by the trustee or
Law of 2000; fiduciary: Provided, That, the conduct,

Manual of Regulations for Banks Part IV- Page 21


X409.6 - X409.8
09.12.31

documentation, and settlement of any of twenty percent (20%) final tax under Section
these transactions shall be outside 24(B)(1) of R.A. No. 8424 (The Tax Reform
Philippine jurisdiction; Act of 1997):
(3) The trustee of fiduciary shall record a. The tax exemption shall apply to
cross-currency investment transactions in trust indentures/agreements contracted on
the peso regular books at their foreign or after 03 January 2000;
currency amounts and their local currency b. The trust indenture/agreement shall
equivalent using the Philippine Dealing only be between individuals who are
System peso/US dollar closing rate and the Filipino citizens or resident aliens and
New York US dollar/third currencies closing banks acting as trustee. The trust indenture/
rate; and agreement shall be non-negotiable and
(4) The trustee or fiduciary shall comply non-transferable;
with the reportorial requirements that may be c. The trust indenture/agreement shall
prescribed by the BSP, which shall include as indicate that pursuant to Section 24(B)(1)
a minimum, the foreign currency amount and of R.A. No. 8424, interest income of the
the local currency equivalent of the total cross trust fund derived from investments in
currency investments with details on: (a) type interest-bearing instruments (e.g., time
of investments; and (b) amount of cash flow deposits, government securities, loans and
converted. other debt instruments) which are
For purposes of this Subsection, otherwise subject to the twenty percent
resident, as defined under Section 1 of the (20%) final tax shall be exempt from said
FX Manual, shall refer to the (a) trustee or final tax provided the fund was held by
fiduciary that administers the assets received the trustee-bank for at least five (5) years.
in trust or in other fiduciary capacity; or (b) If said fund was held for a period less than
principal that engages the services of the five (5) years, interest income shall be
investment manager under an investment subject to a final tax based on the following
management agreement. schedule
(As amended by Circular No. 676 dated 29 December 2009)
Holding Period Rate of Tax
X409.7 Operating and accounting
Four (4) years to less than five (5) years 5%
methodology. Trust and other fiduciary Three (3) years to less than four (4) years 12%
accounts shall be operated and accounted Less than three (3) years 20%
for in accordance with the following:
a. The trustee or fiduciary shall Necessarily, the trust indenture/
administer, hold or manage the fund or agreement shall clearly indicate the date
property in accordance with the instrument when the trustee-bank actually received the
creating the trust or other fiduciary trust funds which shall serve as basis for
relationship; and determining the holding period of the
b. Funds or property of each client funds.
shall be accounted separately and distinctly d. A trustee may accept additional
from those of other clients herein referred funds for inclusion in trust accounts which
to as individual account accounting. have been established as tax-exempt under
R.A. No. 8424. However, the receipt of
X409.8 Tax-exempt individual trust additional funds shall be properly
accounts. The following shall be the documented by indicating that they are part
features/requirements of individual trust of existing tax-exempt trust accounts and
accounts which may be exempted from the that the interest income of the additional

Part IV- Page 22 Manual of Regulations for Banks


X409.8 - X409.9
08.12.31

funds derived from investments in interest- (1) the purpose or intention of the trust;
bearing instruments shall be exempt from (2) the nature and value of the property
the twenty percent (20%) final tax under or sum of money that comprise the trust;
the same conditions mentioned in the (3) the trustees investment powers;
preceding item. The document shall also (4) the name(s) of the beneficiaries; and
indicate the date when the funds were (5) the terms and conditions under
received by the trustee-bank to serve as which the income and/or principal of the
basis for determining the minimum five trust is to be paid or to be disposed of during
(5)- year holding period for tax exemption the lifetime and ultimately, upon the death
purposes of the additional funds; and of the trustor or upon the occurrence of a
e. Tax-exempt individual trust accounts specified event(s).
established under this Subsection shall be A living trust may either be revocable
subject to the provisions of Subsecs. X409.1(c) or irrevocable.
and X409.2 up to X409.7. b. Minimum criteria. In line with such
definition, transactions considered as living
X409.9 Living trust accounts. The trust accounts should meet the following
guidelines on living trust accounts are as minimum criteria:
follows: (1) Minimum entry amount and
a. Definition. Living trust is defined under maintaining balance shall at least be
the Manual of Accounts for Trust, as a personal P100,000: Provided, That living trust accounts
trust created by agreement.It becomes with balances of up to P500,000 shall only
operational during the lifetime of the trustor as be invested in deposits and government
soon as the agreement is accomplished. securities;
Under a living trust, the trustor (also (2) Living trust accounts shall be
known as settlor) conveys property or a sum maintained for a minimum period of six
of money to be managed by the trustee, as (6) months. The termination of the living
the agreement dictates, for the benefit of trust agreement, for any cause, within the
the trustor and third person(s) or third minimum holding period shall render the
person(s) only. However, the trustor/s cannot trustor ineligible from opening a new living
create a trust with himself/themselves as the trust account within a period of one (1) year
sole beneficiary/(ies). The functions and from termination date;
authorities of the trustee as defined in the (3) Reversion of any part of the
agreement shall include: principal to the trustor, except in cases

(Next Page is Part IV - Page 23)

Manual of Regulations for Banks Part IV- Page 22a


X409.9
08.12.31

provided under the dispositive portion, shall consideration the frequency of redemption;
be allowed only upon termination of the the respective interests of each beneficiary;
living trust agreement: Provided, That in and to whom the proceeds shall be payable.
no case can there be a complete or Redemption of funds shall strictly be in
substantial reversion of the principal accordance with the said terms and
pursuant to the dispositive portion within conditions; and
the minimum holding period nor can the (6) A living trust account may be
principal fall below P100,000; opened jointly under one (1) living trust
(4) Any living trust account that does agreement by related individuals up to the
not meet the requirement on the minimum second degree of consanguinity or affinity;
entry and minimum maintaining balance Provided, That the requirements under Item
or is not invested in qualified outlets shall 5 above are fully complied with.
be considered as other fiduciary accounts Unrelated individuals or those beyond the
subject to applicable reserve and other second degree of consanguinity or affinity
requirements; may likewise open a joint living trust
(5) Pre-printed living trust agreements account under one (1) living trust
may be allowed for expediency: Provided, agreement: Provided, That the minimum
That the sections for the trust purpose and contribution of each individual is at least
the dispositive provision are left blank and P100,000: Provided further, That the trust
shall only be filled-up upon the clients is for a common purpose and: Provided
signing thereof. The purpose shall finally, That the requirements under Item
categorically state the real intention of the 5 are fully complied with.
trustor, which may include, but need not c. Marketing. Officers and personnel
be limited to: of the bank proper, including branch
(a) providing his/her and beneficiary/ managers, shall not be allowed to market
(ies) present and/or future financial support; living trust products and sign pre-printed
(b) protecting his/her beneficiary/(ies) living trust agreements. However, branch
against his/her inexperience in business managers/officers may be allowed to refer
matters; clients to the Trust Department and give
(c) preventing him/her from making short introduction on the living trust
imprudent expenditures; products to prospective clients.
(d) prevent the beneficiary/(ies) from d. Transitory provision. Outstanding
living beyond their means in case of living trust accounts that do not meet the
outright disposition of assets in their favor; foregoing additional requirements shall be
(e) protecting the beneficiary/(ies) given twelve (12)1 months from 11 April
against unforeseen contingencies such as 2006 to comply with the aforestated
incompetency, incapacity, physical requirements; otherwise, such accounts
disability or similar misfortune; and shall be considered as Other Fiduciary
(f) setting aside and segregating Accounts subject to applicable reserve
particular assets, proceeds or payments for requirements.
administration and distribution pursuant to e. Sanctions. Any violation of the
a court decree or by agreement. provisions of this Subsection shall be
The dispositive provision should clearly subject to the sanctions provided under
and specifically define the terms and Section 37 of R.A. No. 7653 (The New
conditions under which the principal and/or Central Bank Act).
income shall be distributed in order to (Circular Nos. 553 dated 22 December 2006 and 521 dated
accomplish such purpose/(s), by taking into 21 March 2006)

1
Original 6 months transitory period under Cir. 521 extended by another 6 months under Cir. 553

Manual of Regulations for Banks Part IV - Page 23


X409.10 - X409.16
08.12.31

X409.10 - X409.15 (Reserved) of more than ten percent (10%) of any class
of its equity security.
X409.16 Qualification and e. Investment and management of
accreditation of private banks acting as the funds. A domestic bank designated as
trustee on any mortgage or bond issuance trustee of a mortgage or bond issuance may
by any municipality, government-owned or hold and manage, in accordance with the
controlled corporation, or any body politic provisions of the trust indenture or
a. Applicability. Private banks duly agreement, the proceeds of the mortgage
accredited by the BSP may act as trustee or bond issuance and such assets and funds
on any mortgage or bond issued by any of the issuing municipality, corporation, or
municipality, GOCC, or any body politic. body politic as may be required to be
b. Application for accreditation. A delivered to the trustee under the trust
private bank desiring to act as trustee on indenture/agreement, subject to the
any mortgage or bond issued by any following conditions/restrictions:
municipality, GOCC, or any body politic (1) Pending the utilization of such funds
shall file an application for accreditation pursuant to the provisions of the trust
with the appropriate supervising and indenture/agreement, the same shall only be
examining department of SES. The deposited in any bank, other than the trustee/
application shall be signed by the president bank proper, its subsidiary or affiliate
or officer of equivalent rank of the bank authorized to accept deposits from the
and shall be accompanied by the following Government or government entities, or
documents: invested in peso-denominated treasury bills
(1) certified true copy of the resolution acquired/purchased from any securities
of the institutions board of directors dealer/entity, other than the trustee or any of
authorizing the application; its unit/department, its subsidiary or affiliate.
(2) a certification signed by the (2) Investments of funds constituting or
president or officer of equivalent rank that forming part of the sinking fund created as
the institution has complied with all the the primary source for the payment of the
qualification requirements for accreditation. principal and interests due the mortgage
c. Qualification requirements. A bank or bonds shall also be limited to deposits
applying for accreditation to act as trustee in any bank, other than the trustee/bank
on any mortgage or bond issued by any proper, its subsidiary or affiliate, authorized
municipality, government-owned or to accept deposits from the Government
controlled corporation, or any body politic or government entities and investments in
must comply with the requirements in government securities that are consistent
Appendix 5b. with such purpose which must be acquired/
d. Independence of the trustee. A purchased from any securities dealer/entity,
bank is prohibited from acting as trustee of other than the trustee or any of its unit/
a mortgage or bond issuance if any elective department, its subsidiary or affiliate.
or appointive official of the LGU, GOCC, f. Waiver of confidentiality. A bank
or body politic which issued said mortgage designated as trustee of any mortgage or
or bond and/or his related interests own bond issued by any municipality, GOCC,
such number of shares of the bank that will or any body politic shall submit to the
allow him or his related interests to elect appropriate supervising and examining
at least one (1) member of the board of department of SES a waiver of the
directors of such bank or is directly or confidentiality of information under
indirectly the registered or beneficial owner Sections 2 and 3 of R.A. No. 1405, as

Part IV - Page 24 Manual of Regulations for Banks


X409.16 - X409.17
08.12.31

amended, duly executed by the issuer of the date the violation was committed up to
the mortgage or bond in favor of the BSP. the date it was corrected;
g. Reportorial requirements. A bank (b) Suspension or revocation of the
authorized by the BSP to act as trustee of trust license;
the proceeds of mortgage or bond issuance (c) Suspension for one hundred twenty
of a municipality, GOCC or controlled (120) days without pay of the directors/
corporation, or body politic shall comply officers responsible for the violation.
with reportorial requirements that may be
prescribed by the BSP. X409.17 Trust fund of pre-need
h. Applicability of the rules and companies. The following rules and
Regulations on Trust, Other Fiduciary regulations shall govern the acceptance,
Business and Investment Management management and administration of the trust
Activities. The provisions of the Rules and funds of pre-need companies by banks and
Regulations on Trust, Other Fiduciary other entities authorized to perform trust
Business and Investment Management and other fiduciary functions.
Activities not inconsistent with the a. Administration of trust fund. In line
provisions of this Subsection shall form part with the policy of providing greater
of these rules. protection to pre-need planholders,
i. Sanctions. Without prejudice to the prudential measures are hereby laid out in
penal and administrative sanctions the administration of trust funds of preneed
provided for under Sections 36 and 37, companies. The trust fund, inclusive of
respectively, of the R.A. No. 7653, violation earnings, shall be administered and
of any provision of this Subsection shall be managed by the trustee with the skill, care,
subject to the following sanctions/penalties prudence and diligence necessary under
depending on the gravity of the offense: the circumstances then prevailing that a
(1) First offense prudent man, acting in the same capacity
(a) Fine of up to P10,000 a day for the and familiar with such matters, would
institution for each violation reckoned from exercise in the conduct of an enterprise of
the date the violation was committed up a like character and similar aims.
to the date it was corrected; and The trustee shall have exclusive
(b) Reprimand for the directors/officers management and control over the trust
responsible for the violation. fund and the right at any time to sell,
(2) Second offense convert, invest, change, transfer or
(a) Fine of up to P20,000 a day for the otherwise dispose of the assets comprising
institution for each violation reckoned from the funds.
the date the violation was committed up b. Trustee. No trust entity shall act as a
to the date it was corrected; trustee or administer or hold a trust fund
(b) Suspension for ninety (90) days established by a pre-need company, which
without pay for directors/officers is a subsidiary or affiliate, as defined under
responsible for the violation; and existing BSP regulations, of such trust entity.
(c) Revocation of the authority to act Trust entities currently holding or
as trustees on any mortgage or bond administering trust funds of an affiliate
issuance by any municipality, GOCCs, or pre-need company may continue to act as
body politic. trustee of such funds after the transition
(3) Subsequent offense period provided under Item g only upon
(a) Fine of up to P30,000 a day for the prior approval of the Monetary Board on
institution for each violation reckoned from the basis of a clear showing that no potential

Manual of Regulations for Banks Part IV - Page 25


X409.17 - X410
08.12.31

conflict of interest will arise. An absence of purchase or acquire property from, or sell,
any exception or finding on conflicts of transfer, assign or lend money or property
interest during an examination of the trust to, or purchase debt instruments of, any of
entity shall be deemed as prima facie the departments, directors, officers,
evidence that no potential conflict of interest stockholders, employees, subsidiaries and
will arise. affiliates of the trustee and/or the trustor,
c. Investment of the trust fund. Unless and relatives within the first degree of
otherwise allowed under existing laws or consanguinity or affinity, or the related
regulations issued by the agency having interests, of such directors, officers and
jurisdiction and supervision over pre-need stockholders, without prejudice to any rule
companies, or with prior written approval that may be issued by the agency having
by said agency, loans and investments of jurisdiction and supervision over such
the trust funds shall be limited to: preneed company allowing such transaction
(1) Evidences of indebtedness of the with the prior written approval of such
Republic of the Philippines and of the BSP, agency. Such written approval shall clearly
and any other evidences of indebtedness specify the amount of the loan and/or
or obligations wherein the servicing and investment including the name of the
repayment of which are fully guaranteed concerned director, officer, stockholder and
by the Republic of the Philippines or loans their related interests.
against such government securities; e. Applicability of the Rules and
(2) Commercial papers duly registered Regulations on Trust, Other Fiduciary
with the SEC with a credit rating of one (1) Business and Investment Management
for short term and AAA for long-term or Activities (Trust Rules). The provisions of the
their equivalent; Trust Rules consistent with the provisions of
(3) Loans fully guaranteed by the this Subsection shall supplementarily apply
Republic of the Philippines, as to the to trust funds of pre-need companies.
payment of principal and interest; f. Penalties and sanctions. Any
(4) Loans fully secured by a hold-out violation of the provisions of this Subsection
on, assignment or pledge of deposits shall be a ground for prohibiting the
maintained either with the bank proper or concerned entity from accepting, managing
other banks, and/or of deposit substitutes and administering trust funds of pre-need
or of mortgage and chattel mortgage bonds companies without prejudice to the
issued by the trustee/fiduciary or by other imposition of the applicable sanctions
banks; prescribed or allowed under the Trust Rules.
(5) Loans fully secured by real estate g. Transitory provisions. Banks which
in accordance with Section 37 and subject are presently administering and managing
to the requirements of Sections 39 and 40 trust funds of pre-need companies are
of R.A. No. 8791 and their implementing hereby given a period of one (1) year from
regulations; and 25 April 2006 to comply with the
(6) Loans fully secured by requirements hereof.
unconditional payment guarantees (such as (Memorandum to All Banks and NBFIs dated 28 March 2006)
standby letters of credit and letter of
indemnity) issued by banks/multilateral Sec. X410 Unit Investment Trust Funds/
financial institutions. Common Trust Funds.1 The following rules
d. Transactions with DOSRI. The and regulations shall govern the creation,
trustee shall not, for the account of the administration and investment/s of Unit
trustor or the beneficiary of the trust, Investment Trust (UIT) Funds.

1
The regulations on common trust funds (CTFs) were relocated to Appendix 60. UIT Funds regulations took effect on
01 October 2004 (effectivity of Circular 447 dated 03 September 2004).

Part IV - Page 26 Manual of Regulations for Banks


X410 - X410.3
15.10.31

The rules and regulations on Common Sentral under existing Bangko Sentral
Trust Funds (CTFs) are in Appendix 60. regulations.
i. Multi-class fund. A UIT fund structure
X410.1 Definitions. which has more than one (1) class of units
a. Unit Investment Trust Funds. Unit in the fund and is invested in the same pool
Investment Trust Funds are open-ended of securities and the same portfolio,
pooled trust funds denominated in pesos investment objectives and policies.
or any acceptable currency, which are j. Related party/company. For the
operated and administered by a trust entity purpose of this Section, the term refers to
and made available by participation. The another entity which is the trust entitys
term Unit Investment Trust Funds is (a) parent or holding company or
synonymous to CTFs. As an open-ended (b) subsidiary or affiliate, and wholly or
fund, participation or redemption is allowed majority-owned or controlled-entities of
as often as stated in its plan rules. such subsidiaries.
UIT Funds shall not include long term (As amended by Circular Nos. 853 dated 21 October 2014 and
funds designed for the primary purpose of 767 dated 21 September 2012)
availing the tax incentives/exemption under
Section 24(B)(1) of R.A. No. 8424 (The Tax X410.2 Establishment of a Unit
Reform Act of 1997). Investment Trust Fund. Any trust entity
b. Trust entity. Trust entity as defined authorized to perform trust functions may
under Section X403. establish, administer and maintain one (1)
c. Board of directors. For this purpose, or more UIT Funds subject to applicable
the term shall include a trust entitys duly provisions under this Section. A UIT Fund
constituted board of directors or its may be allowed to operate as a 1) feeder
functional oversight equivalent which shall fund, 2) fund-of-funds and/or 3) multi-class
include the country head in the case of fund: Provided, That the plan rules and
foreign banks. related documents shall state that the UIT
d. Collective investment scheme. An Fund is a feeder fund or a fund-of-funds,
investment vehicle where funds are solicited and/or multi-class fund, and provide an
from investors for collective investment and explanation or illustration of such
which are managed for the account of such structures. A UIT Fund may also be allowed
investors. to have a unit-paying feature where the
e. Feeder fund. A UIT Fund structure income of the fund is distributed in the form
that mandates the fund to invest at least of units called unit income.
(As amended by Circular Nos. 876 dated 20 April 2015,
ninety percent (90%) of its assets in a single 853 dated 21 October 2014 and 767 dated 21 September 2012)
collective investment scheme.
f. Fund-of-funds. A UIT Fund structure X410.3 Administration of a Unit
that mandates the fund to invest at least Investment Trust Fund. The trustee shall
ninety percent (90%) of its assets in more have exclusive management and control
than one (1) collective investment scheme. of each UIT Fund under its
g. Target fund. A local or foreign administration, and the sole right at any
collective investment scheme in which the time to sell, convert, reinvest, exchange,
UIT Fund invests all or a portion of its transfer or otherwise change or dispose
assets. of the assets comprising the fund:
h. Investor fund. A UIT Fund created Provided, That no participant in a UIT
to take the form of a feeder fund or a fund- Fund shall have or be deemed to have any
of-funds and is approved by the Bangko ownership or interest in any particular

Manual of Regulations for Banks Part IV- Page 27


X410.3 - X410.6
15.10.31

account or investment in the UIT Fund but units. Total Net Assets is a summation of
shall have only its proportionate beneficial the market value of each investment less
interest in the fund as a whole. fees, taxes, and other qualified expenses,
as defined under the plan rules.
X410.4 Relationship of trustee with When there is a different fee structure
Unit Investment Trust Fund. A trustee for each class, the NAVPu of each class shall
administering a UIT Fund shall not have any be computed by dividing total net assets of
other relationship with such fund other a class by the total outstanding units of such
than its capacity as trustee of the UIT Fund: class; where the net assets of each class shall
Provided, however, That a trustee which represent its proportionate share on the net
simultaneously administers other trust, assets of the multi-class fund less the trustee
fiduciary or investment management funds fee and expenses attributable to that class.
may invest such funds in the trustees UIT The net assets of the multi-class fund is the
Fund, if allowed under a policy approved summation of the market value of each
by the board of directors. investment less fees, taxes, and other
qualified expenses, but gross of trustee fees
X410.5 Operating and accounting and expenses attributable to a particular
methodology. A UIT Fund shall be class, as defined under the plan rules.
operated and accounted for in accordance e. For a UIT Fund with unit-paying
with the following: feature, the trustee may distribute the
a. The total assets and accountabilities income of the Fund subject to the minimum
of each fund shall be accounted for as a conditions enumerated hereunder.
single account referred to as pooled-fund (1) Distribution of income shall be made
accounting method. The investments of a only from cash received from interest
multi-class fund shall remain as one (1) pool income earned and cash dividends;
and are not separately allocated to classes. (2) Distribution of income shall be made
b. Contributions to each fund by clients after the trust entity has taken into
shall always be through participation in units consideration the following:
of the fund and each unit shall have uniform (a) Income for the period; and
rights and privileges, as any other unit; in the (b) The investment objective and
case of multi-class fund, units shall be distribution policy of the fund;
issued as units in a class of a fund. (3) Distribution of income to
c. All such participations shall be participants shall be after deduction of taxes
pooled and invested as one (1) account and expenses (net distribution);
(referred to as collective investments). (4) Distribution of income shall be
d. The beneficial interest of each effected through conversion of the income
participation unit shall be determined under for distribution into its equivalent units
a unitized net asset value per unit (NAVPu) based on the NAVPu as at the first business
valuation methodology defined in the day when units in the fund are quoted ex-
written plan of the UIT Fund, and no distribution1. Participants shall be entitled
participation shall be admitted to, or to his/her pro-rata share of said units which,
redeemed from, the fund or class of a fund, on distribution date, shall be automatically
except on the basis of such valuation. To considered redeemed;
arrive at a funds NAVPu, the funds total (5) The Plan rules shall state the
Net Assets is divided by the total outstanding distribution policy, including the sources of

1
Cum-distribution and ex-distribution refer to the date before and after distribution, respectively.

Part IV- Page 28 Manual of Regulations for Banks


X410.5 - X410.6
15.10.31

income to be distributed and the intended c. Risk disclosure. The Plan rules shall
frequency of distribution; state both the general risks and risks specific
(6) For monitoring purposes, the trustee to the type of fund.
shall separately account for the funds d. Investment powers of the trustee
income due for distribution; with respect to the fund, including the
(7) Where a distribution is made, a character and kind of investments, which
notice to each participant on his/her unit may be purchased, by the fund. There must
income shall be made available containing be an unequivocal statement of the full
information on the total amount of income discretionary powers of the trustee as far as
for distribution by the trustee, NAVPu ex- the funds investments are concerned. These
distribution and its basis, total number of powers shall be limited only by the duly stated
units for distribution, and unit income. Unit investment objective and policies of the fund.
income refers to the number of units for e. The unitized NAVPu valuation
every unit held by the participant entitled methodology as prescribed under Subsec.
for distribution. X410.5.d shall be employed. The plan rules
(As amended by Circular Nos. 876 dated 20 April 2015, 853 shall also provide the method of determining
dated 21 October 2014) the proportionate share of the classes of units
to the value of the assets of the fund.
X410.6 Plan rules. Each UIT Fund f. Terms and conditions governing the
shall be established, administered and admission or redemption of units of
maintained in accordance with a written participation in the fund. The Plan rules shall
trust agreement drawn by the trustee, state that the trustee, prior to admission of a
referred to as the Plan which shall be clients initial participation in the UIT Fund,
approved by the board of directors of the shall conduct a client suitability assessment
trustee and a copy of which shall be to profile the risk-return orientation and
submitted to the Bangko Sentral for suitability of the client to the specific type
processing and approval prior to its of fund. If the frequency of admission or
implementation. Each new UIT Fund Plan redemption is other than daily; that is, any
filed for approval shall be charged a business day, the same should be explicitly
processing fee of P10,000.00. stated in the Plan rules: Provided, That the
The Plan shall contain the following admission and redemption prices shall be
minimum elements: based on the end of day NAVPu of the fund
a. Title of the Plan. This shall or of the class of a fund, if applicable,
correspond to the product/brand name by computed after the cut-off time for fund
which the UIT Fund is proposed to be participation and redemption for that
known and made available to its clients. reference day, in accordance with existing
The Plan rules shall state the classification Bangko Sentral regulations on mark to
of the UIT Fund (e. g., money market fund, market valuation of investment securities.
bond fund, balanced fund and equity fund). g. Aside from the regular audit
b. Manner by which the fund is to be requirement applicable to all trust accounts,
operated. A statement of the funds investment an external audit of each UIT Fund shall be
objectives, policies and limitations, and, if conducted annually by an independent
applicable, income distribution policies, auditor acceptable to the Bangko Sentral and
distinctive features of the different classes of the results thereof made available to
units such as the level of trustee fees and participants. The external audit shall be
expenses for each class and other peculiarities conducted by the same external auditor
which the Bangko Sentral may allow. engaged for the audit of the trust entity.

Manual of Regulations for Banks Part IV- Page 29


X410.6- X410.7
14.12.31

h. Basis upon which the fund may be enhance the value of the fund, (2) payable
terminated. The Plan rules shall state the to a third party covered by a separate
rights of participants in case of termination contract, and (3) disclosed to participants.
of the fund. Termination of the fund shall The trustee shall secure prior Bangko Sentral
be duly approved by the trustees board of approval for outsourcing services provided
directors and a copy of the resolution under existing regulations. No other fees
submitted to the appropriate department of shall be charged to the fund.
the Bangko Sentral. Sales, distribution, marketing and/or
i. Liability clause of the trustee. There other promotional related expenses shall be
must be a clear and prominent statement for the account of the trustee and shall be
adjacent to where a client is required to presumed covered by the trust fee.
sign the participating trust agreement that In the case of a multi-class fund that have
(1) the UIT Fund is a trust product and different level of trustee fees and expenses,
not a deposit account or an obligation of, there shall be a policy on the equitable
or guaranteed, or insured by the trust allocation of any costs, charges, and
entity or its affiliates or subsidiaries; expenses payable out of the multi-class fund,
(2) the UIT Fund is not insured or governed which are not attributable to any particular
by the PDIC; (3) due to the nature of the class.
investment, yields and potential yields k. Such other matters as may be
cannot be guaranteed; (4) any loss/income necessary or proper to define clearly the rights
arising from market fluctuations and price of participants in the UIT Fund. The provisions
volatility of the securities held by the UIT of the Plan shall govern participation in the
Fund, even if invested in government fund including the rights and benefits of
securities, is for the account of the client/ persons having interest in such participation,
participant; (5) as such, the units of as beneficiaries or otherwise. The Plan may
participation of the investor in the UIT Fund, be amended by a resolution of the board of
when redeemed, may be worth more or be directors of the trustee: Provided, however,
worth less than his/her initial investment/ That participants in the fund shall be
contributions; (6) historical performance, immediately notified of such amendments
when presented, is purely for reference and shall be allowed to withdraw their
purposes and is not a guarantee of similar participations within a reasonable time but
future result; and (7) the trustee is not liable in no case less than thirty (30) calendar
for losses unless upon willful default, bad days after the amendments are approved,
faith or gross negligence. if they are not in conformity with the
j. Amount of fees/commission and other amendments made thereto: Provided
charges to be deducted from the fund. The further, That amendments to the Plan shall
amount of fees that shall be charged to a be submitted to the Bangko Sentral within
fund shall cover the funds fair and equitable ten (10) business days from approval of the
share of the routine administrative expenses amendments by the board of directors. For
of the trustee such as salaries and wages, purposes of imposing monetary penalties
stationery and supplies, credit investigation, provided under Subsec. X192.2 for delayed
collateral appraisal, security, messengerial submission of reports, the amendments to
and janitorial services, EDP expenses, the Plan shall be considered as Category
Bangko Sentral supervision fees and internal A-3 report. The amendments shall be
audit fees. However, the trustee may charge deemed approved after thirty (30) business
a UIT Fund for special expenses in case such days from date of completion of
expenses are (1) necessary to preserve or requirements.

Part IV- Page 30 Manual of Regulations for Banks


X410.6 - X410.7
15.10.31

A copy of the Plan shall be available at (a) The designated name and
the principal office of the trustee during classification of the fund, the funds trustee,
regular office hours, for inspection by any and the classes of a UIT fund, if any
person having an interest in the fund or by . (b) Minimum information regarding:
his authorized representative. Upon request, (i) The general investment policy and
a copy of the Plan shall be furnished such applicable risk profile. There shall be a clear
interested person. description/explanation of the general risks
(As amended by Circular Nos. 876 dated 20 April 2015, 853 attendant with investing in a UIT Fund,
dated 21 October 2014 and 593 dated 08 January 2008) including risk specific to a type of fund.
X410.7 Minimum disclosure Technical terms should likewise be defined
in laymens terms1.
requirements.
(ii) Particulars including administrative
a. Key Information and Investment
and marketing details, such as but not
Disclosure Statement. This document
limited to, pricing, cut-off time for
shall contain the key features and the
participation and redemption, early
prospective and outstanding investments
redemption penalty/ies, and any special
of a UIT Fund. It shall use plain language
features of the UIT fund, as applicable. For
presented in a concise manner, and shall
a UIT Fund with unit-paying feature, the
comply substantially with the format
marketing materials shall provide relevant
prescribed in Appendix 62. This
information on this feature including, but
document shall be updated and made
not limited to, disclosures that distributions
available to participants at least every
are not guaranteed and shall be determined
calendar quarter thereof.
by the trustee in accordance with the plan
For investments of feeder funds/fund
rules; and that income distribution may
of-funds, the trustee shall likewise make
result in an immediate decrease in NAVPu
available to all UIT Fund clients all
by the amount of distribution.
relevant information on the target fund/s.
(iii) All charges made/to be made
For a UIT Fund with unit-paying feature,
against the fund or class of a UIT Fund,
the KIIDS shall include the intended
including trust fees and other related charges.
frequency of income distribution and the
(iv) The availability of the Plan Rules
last five distribution dates, with information
governing the fund, upon the clients request
on the unit income and the distribution
and the contact details of the trustee.
yield: Provided, further, That the KIIDS shall
(v) Client and Product Suitability
disclose that distributions are not guaranteed
Standards. Prior to admission, the trustee
and are determined by the trustee in
shall perform a client profiling process for
accordance with the plan rules; and that
all UIT Fund participants under the general
income distribution may result in an
principles on client suitability assessment
immediate decrease in NAVPu by the
to guide the client in choosing investment
amount of the distribution. outlets that are best suited to his objectives,
b. Distribution of investment units. risk tolerance, preferences and experience.
The trustee may issue such conditions or The profiling process shall, at the minimum,
rules, as may affect the distribution of require the trustee to obtain client
investment units, subject to the minimum information through the Client Suitability
conditions enumerated hereunder. Assessment (CSA) form, classify the client
(1) Marketing materials. All marketing according to his financial sophistication
materials related to the sale of a UIT Fund and communicate the CSA results to the
shall clearly state:
1
Example: "Fixed income securities" does not really mean a guarantee of fixed earnings on the investor's participation;
"Risk-free" government securities which may be sovereign "risk-free" but not interest rate "risk-free"

Manual of Regulations for Banks Part IV- Page 31


X410.7
14.12.31

subject client. The general principles on investment/contributions; (6) historical


CSA shall also require the trustee to adopt performance, when presented, is purely for
a notice mechanism whereby clients are reference purposes and is not a guarantee of
advised and/or reminded of the explicit similar future result; and (7) the trustee is not
requirement to notify the trustee or its UIT liable for losses unless upon willful default,
Fund marketing personnel of any change bad faith or gross negligence.
in their characteristics, preferences or In addition to the agreement, every UIT
circumstances to enable the trustee to Fund participant shall be provided with -
update clients profile at least every (1) CSA form to be accomplished
three (3) years. during the profiling process required under
(c) The participation is not a deposit the general principles on CSA. This is
account but a trust product; and that any designed to ensure that based on relevant
loss/income is for the account of the information about the client, his investment
participant; that the trustee is not liable for profile is matched against the investment
losses unless upon willful default, bad faith parameters of the UIT Fund. At the
or gross negligence. minimum, client information shall include
(d) A balanced assessment of the personal or institutional data, investment
possible gains and losses of the UIT Fund objective, investment horizon, investment
and that the participation does not carry experience, and risk tolerance; and
any guaranteed rate of return, and is not (2) Risk disclosure statement, which in
insured by the PDIC. reference to Subsec. X410.6c, shall describe
(e) An advisory that the investor must the attendant general and specific risks that
read the complete details of the fund in the may arise from investing in the UIT Fund.
Plan Rules, make his/her own risk This statement shall be accomplished by the
assessment, and when necessary, he/she client every time he participates in a different
must seek independent/professional fund and shall be substantially in the form
opinion, before making an investment. as shown in Annex A of Appendix 62a.
(2) Evidence of participation. Every UIT Both documents shall be signed by the
Fund participant shall be given - client/participant and the UIT marketing
(a) A participating trust agreement. personnel who assessed and explained to
Such agreement shall clearly indicate that the concerned client his/her ability to bear
(1) the UIT Fund is a trust product and not a the risks and potential losses.
deposit account or an obligation of, or (b) A confirmation of participation and
guaranteed, or insured by the trust entity or redemption made to/from the fund that shall
its affiliates or subsidiaries; (2) the UIT Fund contain the following information:
is not insured or governed by the PDIC; (i) NAVPu of the fund on day of
(3) due to the nature of the investment, yields purchase/redemption;
and potential yields cannot be guaranteed; (ii) Number of units purchased/
(4) any loss/income arising from market redeemed; and
fluctuations and price volatility of the (iii) Absolute peso or foreign currency
securities held by the UIT Fund, even if value.
invested in government securities, is for the No indicative rates of return shall be
account of the client/participant; (5) as such, provided in the trust participating
the units of participation of the investor in the agreement. Marketing materials may present
UIT Fund, when redeemed, may be worth relevant historical performance purely for
more or be worth less than his/her initial reference and with clear indication that past

Part IV- Page 32 Manual of Regulations for Banks


X410.7- X410.8
15.10.31

results do not guarantee similar future (1) Duties and responsibilities of all UIT
results. marketing personnel;
(3) A participating trust agreement or (2) Conduct of due diligence check on
confirmation of contribution/redemption the fitness and propriety of all UIT marketing
need not be manually signed by the trustee personnel which includes monitoring and
or his authorized representative if the same reviewing on an ongoing basis their
is in the form of an electronic document performance; and
that conforms with the implementing rules (3) Conduct of continuing training and
and regulations of R.A. No. 8792, otherwise education especially on updates relative to
known as the E-Commerce Act. the fund products.
c. Regular computation and For purposes of this Subsection, a UIT
availability of NAVPu and other Fund may be sold by a bank employee
information. The trustee managing a UIT belonging to the same financial
fund shall: conglomerate as the trustee, subject to the
(1) Compute the NAVPu daily; provision of the cross-selling framework.
(2) Publish at least weekly the NAVPu To ensure the competence and integrity
in one (1) or more newspapers of national of all duly designated UIT marketing
circulation: Provided, That a pooled weekly personnel, all personnel involved in the sales
publication of such NAVPu shall be of these funds shall be required to undergo
considered as substantial compliance with standardized training program in
this requirement. The said publication, at accordance with the guidelines of this
the minimum, shall clearly state the name Subsection. This training program may be
of the fund, its general classification, the conducted by their respective trust entities
funds NAVPu and the moving return on in accordance with the minimum training
investment (ROI) of the fund on a year-to- program guidelines provided by the Trust
date (YTD) and year-on-year (YOY) basis; Officers Association of the Philippines
and (TOAP). Such training program shall
(3) Make available the historical net asset however be regularly validated by TOAP.
value per unit, declaration of trust or its (As amended by Circular Nos. 876 dated 20 April 2015, 852
equivalent document, disclosure dated 21 October 2014, 767 dated 21 September 2012 and 593
dated 08 January 2008)
documents, and other pertinent information
about a UIT Fund via its website or the Trust
Officers Association of the Philippines X410.8 Exposure limits. The
(TOAP)-administered website. For a UIT combined exposure of the UIT Fund to any
Fund with unit-paying feature, it shall also entity and its related parties shall not exceed
disclose when there is an income fifteen percent (15%) of the market value of
declaration, the total amount of income for the UIT Fund: Provided, That, a UIT Fund
distribution, NAVPu ex-distribution and its invested, partially or substantially, in
basis, total number of units for distribution, exchange traded equity securities shall be
unit income and historical distributions, if subject to the fifteen percent (15%) exposure
any. limit to a single entity/issuer: Provided,
d. Marketing personnel. The trustee further, That, in the case of an exchange
shall ensure that there are board-approved traded equity security which is included in
policies and procedures covering the an index and tracked by the UIT Fund, the
following: exposure of the UIT Fund to a single entity

(Next page is Part IV - Page 33)

Manual of Regulations for Banks Part IV- Page 32a


X410.8 - X410.9
15.10.31

shall be the actual benchmark weighting of administering the UITF and acting as lender,
the issuer or fifteen percent (15%), with due notice to its counterparty and the
whichever is higher. market operator; and
This limitation shall not apply to (g) Units/shares in collective investment
non-risk assets as defined by the Bangko schemes (CIS), i.e., target fund, shall include
Sentral. exchange traded fund (ETF) and other CIS,
In the case of feeder fund/fund-of-funds, subject to the following:
the exposure limit shall be applied on the (1) The investment objectives of the
target funds underlying investments. target fund are aligned with that of the
Furthermore, the investments in any one (1) investor fund;
target fund shall not exceed ten percent (2) The underlying investments of target
(10%) of the total net asset value of the target funds are limited to the allowable
fund. investment outlets set forth in this
In case the limits prescribed above are subsection;
breached due to the marking-to-market of (3) The target fund has no investment in
certain investment/s or any extraordinary other collective investment schemes; and
circumstances, e.g., abnormal redemptions (4) The target fund is supervised by a
which are beyond the control of the trustee, regulatory authority, as follows:
the trustee shall be given thirty (30) days (a) a local target fund shall either be
from the time the limit is breached, or in approved by the Bangko Sentral or registered
case of investor funds thirty (30) days from with the SEC.
date of receipt of report indicating the net (b) a target fund constituted in another
asset value of the fund, to correct the same. jurisdiction shall be registered/authorized/
(As amended by Circular Nos. 767 dated 21 September 2012 approved, as the case may be, and is
and 577 dated 17 August 2007) recognized as a collective investment
scheme in its home jurisdiction by a
X410.9 Allowable investments and regulatory authority that is a member of the
valuation. UIT Fund investments shall be International Organization of Securities
limited to bank deposits and the following Commissions (IOSCO); or any regulatory
financial instruments: authority acceptable to the Bangko Sentral
(a) Securities issued by or guaranteed to supervise the CIS.
by the Philippine government, or the (h) Such other tradable investment
Bangko Sentral; outlets/categories as the Bangko Sentral may
(b) Tradable securities issued by the allow:
government of a foreign country, any Provided, That the investment of the peso
political subdivision of a foreign country or UIT Fund in tradable foreign currency
any supranational entity; denominated financial instruments shall be
(c) Exchange-listed securities; subject to Items e and f of Subsec.
(d) Marketable instruments that are X409.6.
traded in an organized exchange; Provided, further, That a financial
(e) Loans traded in an organized instrument is regarded as tradable if quoted
market; and two-way prices are readily and regularly
(f) Loans arising from repo agreements available from an exchange, dealer, broker,
which are transacted through an exchange industry group, pricing service or regulatory
recognized by the SEC, subject to the agency, and those prices represent actual
condition that the repo contracts may be pre- and regularly occurring market transactions
terminated lawfully by the trust entity on an arms length basis: Provided, finally,

Part IV- Page 33 Manual of Regulations for Banks


X410.9 - X410.12
15.10.31

That the financial instrument is easy to market of the funds financial instruments
realize upon sale at any time. shall be in place at all times. In this
The UIT Fund may avail itself of respect, a daily reconcilement of the funds
financial derivatives instruments solely for resultant marked-to-market value with the
the purpose of hedging risk exposures of unrealized market losses and gains
the existing investments of the Fund, (respective contra asset balance) versus the
provided these are accounted for in book value of the fund for investments in
accordance with existing Bangko Sentral financial instruments shall be done and
hedging guidelines as well as the trust all differences resolved within the day.
entitys risk management and hedging b. Custody of securities. Investments
policies duly approved by the Trust in securities of a UIT Fund shall be held
Committee and disclosed to participants. for safekeeping by Bangko Sentral
The use of hedging instruments shall accredited third party custodians which
also be disclosed in the Plan as provided shall perform independent marking-to-
in Item c of Subsec. X410.6 and specified market of such securities.
in the key information and investment Investments in target funds of a UIT
disclosure statement as provided in Item a Fund structured as an investor fund shall
of Subsec. X410.7. be held for safekeeping by an institution
(As amended by Circular Nos. 876 dated 20 April 2015, 852 registered/authorized/approved by a
dated 21 October 2014 and 767 dated 21 September 2012 , relevant regulatory authority in its home
M-2010-033 dated 04 October 2010, Circular Nos. 676 dated
29 December 2009 and 675 dated 22 December 2009) jurisdiction to act as third party custodian.
(As amended by Circular No. 767 dated 21 September 2012)
X410.10 Other related guidelines on
X410.12 Counterparties.
valuation of allowable investments.
a. Dealings with related interests/bank
a. In pricing debt securities, the
proper/holding company/subsidiaries/
provision of Appendix 33a under the Other
affiliates and related companies. A trustee
Guidelines section shall apply for non-
of a UIT Fund shall be transparent at all
benchmark securities.
times and maintain an audit trail for all
b. In case outstanding UIT Fund
transactions with related parties or entities.
investments may deteriorate in quality, i.e.,
The trustee shall observe the principle of
no longer tradable as defined under Subsec.
best execution and no purchase/sale shall
X410.9, the trustee shall immediately
be made with related counterparties
provision to reflect fair value in accordance
without considering at least two (2)
with generally accepted accounting
competitive quotes from other sources.
principles or as may be prescribed by the
Consistent with the provisions of
Bangko Sentral. If no fair value is available,
Subsec. X410.4, a trustee may invest the
the instrument shall be assumed to be of no
funds of a UIT Fund structured as an
market value.
(As amended by Circular No. 813 dated 27 September 2013) investor fund in a target fund that is
administered by the trustee or its related
X410.11 Unit Investment Trust Fund party/company: Provided, That:
administration support. (i) there shall be no cross-holding
a. Backroom operations. Administrative between the investor fund and the target
rules on backroom under Sec. X421 shall fund, where cross-holding refers to the
be applicable to UIT Fund. Adequate holding of shares/units of participation in
systems to support the daily marking-to- one another by two (2) or more funds;

Manual of Regulations for Banks Part IV- Page 34


X410.12- X411.1
08.12.31

(ii) all initial charges on the target fund a. In the case of accounts created by
are waived; and corporations, business firms,
(iii) the trust/management fee shall be organizations or institutions, the voluntary
charged only once, either at the level of the written agreement or indenture entered
investor fund or at level of the target fund. into by the parties, accompanied by a
b. Accreditation of counterparties. The copy of the board resolution or other
Fund shall only invest with approved evidence authorizing the establishment of
counterparties qualified in accordance with and designating the signatories to, the
the policy duly approved by the Trust investment management account.
Committee. Counterparties shall be subject b. In the case of accounts created by
to appropriate limits in accordance with individuals, the voluntary written
sound risk management principles. agreement or indenture entered into by
(As amended by Circular No. 767 dated 21 September 2012) the parties.
The voluntary written agreement or
X410.13 Foreign currency- contract shall include the following
denominated unit investment trust funds. minimum provisions:
UIT Fund denominated in any acceptable (1) Pre-numbered contractual agreement
form;
foreign currency provided under existing
(2) Title or nature of contractual
Bangko Sentral rules and regulations may
agreement in noticeable print;
be established. Such fund may only be
(3) Legal capacities, in noticeable print,
invested in allowable investments
of parties sought to be covered;
denominated in pesos or any acceptable
(4) Purposes and objectives;
foreign currency as expressly allowed under
(5) The initial amount of funds and/or
the funds plan rules and properly disclosed
value of securities subject of the
to fund participants.
arrangement delivered to the investment
manager;
X410.14 Exemptions from statutory (6) Statement in underlined noticeable
and liquidity reserves, single borrowers print that:
limit, director, officers, stockholders and (a) The agreement is an agency and not
their related interests. The provisions on a trust agreement. As such, the client shall
reserves, single borrowers limit and DOSRI at all times retain legal title to funds and
ceilings under Subsec. X405.5, and properties subject of the arrangement;
Secs. X303, X330 and X331, respectively, (b) The arrangement does not guaranty
applicable to trust funds in general shall not a yield, return or income by the investment
be made applicable to UIT Funds. manager. As such, past performance of the
account is not a guaranty of future
Sec. X411 Investment Management performance and the income of investments
Activities. The conduct of investment can fall as well as rise depending on
management activities shall be subject to the prevailing market conditions; and
following regulations. (c) The investment management
agreement is not covered by the PDIC and
X411.1 Minimum documentary that losses, if any, shall be for the account
requirements. An investment management of the client;
account shall be covered by a written (7) Duties and powers of the investment
document establishing such account, as manager;
follows: (8) Liabilities of the investment manager;

Part IV- Page 34a Manual of Regulations for Banks


X411.1- X411.5
08.12.31

(9) Reports to the client; When an investment manager is granted


(10) The amount or rate of the discretionary powers in the investment
compensation of the investment manager; disposition of investment management
(11) Terms and conditions governing funds and unless otherwise specifically
withdrawals from the account; enumerated in the agreement or indenture
(12) Termination of contractual and directed in writing by the client, loans
arrangement; and and investments of the fund shall be limited
(13) Disclosure requirements for to:
transactions requiring prior authority and/ a. Evidences of indebtedness of the
or specific written investment directives Republic of the Philippines and of the
from the client. Bangko Sentral, and any other evidences of
A sample investment management indebtedness or obligations the servicing
agreement which conforms to the foregoing and repayment of which are fully guaranteed
requirements is shown as Appendix 24. by the Republic of the Philippines or loans
against such government securities;
X411.2 Minimum size of each b. Loans fully guaranteed by the
investment management account. No Republic of the Philippines as to the
investment management account shall be payment of principal and interest;
accepted or maintained for an amount less c. Loans fully secured by a hold-out on,
than P1.0 million. An investment assignment or pledge of deposits maintained
management account reduced to less than either with the bank proper or other banks,
P1.0 million due to investment losses shall or of deposit substitutes of the bank, or
be exempt from this requirement. mortgage and chattel mortgage bonds issued
by the investment manager; and
X411.3 Commingling of funds. d. Loans fully secured by real estate or
Two (2) or more individual investment chattels in accordance with Sections 37 and
management accounts shall not be 38 of R.A. No. 8791, and subject to the
commingled except for the purpose of requirements of Sections 39 and 40 of R.A.
investing in government securities or in duly No. 8791.
registered commercial papers: Provided, The specific directives required under
That the participation of each of the this Subsection shall consist of the following
aforementioned accounts in the information:
commingled account shall not be less than (1) The transaction to be entered into;
P1.0 million: Provided, further, That such (2) Borrowers name;
commingling has been duly disclosed and (3) Amount involved; and
specifically agreed in writing by the clients. (4) Collateral security(ies), if any.

X411.4 Lending and investment X411.5 Transactions requiring prior


disposition. Assets received in investment authority. An investment manager shall not
management capacity shall be administered undertake any of the following transactions
in accordance with the terms of the for the account of a client, unless prior to
instrument creating the investment its execution, such transaction has been fully
management relationship. disclosed and specifically authorized in
writing by the client:

(Next Page is Part IV- page 35)

Manual of Regulations for Banks Part IV- Page 34b


X411.1- X411.5
08.12.31

(9) Reports to the client; When an investment manager is granted


(10) The amount or rate of the discretionary powers in the investment
compensation of the investment manager; disposition of investment management
(11) Terms and conditions governing funds and unless otherwise specifically
withdrawals from the account; enumerated in the agreement or indenture
(12) Termination of contractual and directed in writing by the client, loans
arrangement; and and investments of the fund shall be limited
(13) Disclosure requirements for to:
transactions requiring prior authority and/ a. Evidences of indebtedness of the
or specific written investment directives Republic of the Philippines and of the
from the client. Bangko Sentral, and any other evidences of
A sample investment management indebtedness or obligations the servicing
agreement which conforms to the foregoing and repayment of which are fully guaranteed
requirements is shown as Appendix 24. by the Republic of the Philippines or loans
against such government securities;
X411.2 Minimum size of each b. Loans fully guaranteed by the
investment management account. No Republic of the Philippines as to the
investment management account shall be payment of principal and interest;
accepted or maintained for an amount less c. Loans fully secured by a hold-out on,
than P1.0 million. An investment assignment or pledge of deposits maintained
management account reduced to less than either with the bank proper or other banks,
P1.0 million due to investment losses shall or of deposit substitutes of the bank, or
be exempt from this requirement. mortgage and chattel mortgage bonds issued
by the investment manager; and
X411.3 Commingling of funds. d. Loans fully secured by real estate or
Two (2) or more individual investment chattels in accordance with Sections 37 and
management accounts shall not be 38 of R.A. No. 8791, and subject to the
commingled except for the purpose of requirements of Sections 39 and 40 of R.A.
investing in government securities or in duly No. 8791.
registered commercial papers: Provided, The specific directives required under
That the participation of each of the this Subsection shall consist of the following
aforementioned accounts in the information:
commingled account shall not be less than (1) The transaction to be entered into;
P1.0 million: Provided, further, That such (2) Borrowers name;
commingling has been duly disclosed and (3) Amount involved; and
specifically agreed in writing by the clients. (4) Collateral security(ies), if any.

X411.4 Lending and investment X411.5 Transactions requiring prior


disposition. Assets received in investment authority. An investment manager shall not
management capacity shall be administered undertake any of the following transactions
in accordance with the terms of the for the account of a client, unless prior to
instrument creating the investment its execution, such transaction has been fully
management relationship. disclosed and specifically authorized in
writing by the client:

(Next Page is Part IV- page 35)

Manual of Regulations for Banks Part IV- Page 34b


X411.5 - X411.8
09.12.31

a. Lend, sell, transfer or assign money (1) The transaction to be entered into;
or property to any of the departments, (2) Identities of the parties involved in
directors, officers, stockholders, or the transaction and their relationships
employees of the investment manager, or (shall not apply to Item d of this
relatives within the first degree of Subsection);
consanguinity or affinity, or the related (3) Amount involved; and
interests of such directors, officers and (4) Collateral security(ies), if any.
stockholders; or to any corporation where The above information shall be made
the investment manager owns at least fifty known to clients in a separate instrument
percent (50%) of the subscribed capital or or in the very instrument creating the
voting stock in its own right and not as investment management relationship.
trustee nor in a representative capacity;
b. Purchase or acquire property or debt X411.6 Title to securities and other
instruments from any of the departments, properties. Securities such as promissory
directors, officers, stockholders, or notes, shares of stocks, bonds and other
employees of the investment manager, or properties of the portfolio shall be issued
relatives within the first degree of or registered in the name of the principal
consanguinity or affinity, or the related or of the investment manager: Provided,
interests of such directors, officers and That in case of the latter, the instrument
stockholders; or from any corporation shall indicate that the investment manager
where the investment manager owns at least is acting in a representative capacity and
fifty percent (50%) of the subscribed capital that the principals name is disclosed
or voting stock in its own right and not as thereat.
trustee nor in a representative capacity;
c. Invest in equities of, or in securities X411.7 Ceilings on loans. Loans
underwritten by, the investment manager funded by IMAs shall be subject to the
or a corporation in which the investment DOSRI ceilings imposed on banks and IHs
manager owns at least fifty percent (50%) under Secs. X330 and X331. For purposes
of the subscribed capital or voting stock in of determining compliance with said
its own right and not as trustee nor in a ceilings, the total amount of said loans
representative capacity; and granted by the trust department and the bank
d. Sell, transfer, assign or lend money proper to the same person, firm or
or property from one trust, fiduciary or corporation shall be combined.
investment management account to
another trust, fiduciary or IMA except where X411.8 Other applicable regulations
the investment is in any of those enumerated on loans and investments. The loans and
in Items a to d of Subsec. X411.4. investments of IMAs shall be subject to
Directors, officers, stockholders, and pertinent laws, rules and regulations for
their related interests covered by this banks that shall include, but need not be
Subsection shall be those considered as limited to, the following:
such under existing regulations on loans a. Requirements of Sections 39 and 40
to DOSRI in Part III-E of this Manual. The of R.A. No. 8791 (The General Banking
procedural and reportorial requirements in Law of 2000);
said regulations shall also apply. b. Provisions of Section 4(e) of the New
The disclosure required under this Rules on Registration of Short-Term
Subsection shall consist of the following Commercial Papers and Section 7(f) of the
minimum information: New Rules on Registration of Long-Term

Manual of Regulations for Banks Part IV - Page 35


X411.8 - X411.10
09.12.31

Commercial Papers issued by the SEC closing rate and the New York US dollar/
(Appendices 13 and 14); third currencies closing rate; and
c. Criteria for past due accounts; (4) The investment manager shall
d. Qualitative appraisal of loans, comply with the reportorial requirements
investments and other assets that may that may be prescribed by the BSP, which
require provision for probable losses which shall include as a minimum, the foreign
shall be booked in accordance with the currency amount and the local currency
FRPTI; equivalent of the total cross currency
e. Requirements of Sections 3 and 8 investments with details on: (a) type of
of the SRC; and investments; and (b) amount of cash flow
f. Provisions of Section 44 converted.
Investments by Philippine Residents of the For purposes of this Subsection,
FX Manual, such that the cross-currency resident, as defined under Section 1 of the
investments of peso IMAs, shall be subject FX Manual, shall refer to the principal that
to the following conditions: engages the services of the investment
(1) All cash flows of the investment manager under an investment management
manager shall only be in pesos. In case the agreement.
foreign exchange acquired or received by (Circular No. 676 dated 29 December 2009)
the principal as dividends/earnings or
divestment proceeds on such investment are X411.9 Operating and accounting
intended for reinvestment abroad, the same methodology. IMAs shall be operated and
proceeds are not required to be inwardly accounted for in accordance with the
remitted and sold for pesos through following:
authorized agent banks: Provided, That such a. The investment manager shall
proceeds are reinvested abroad within two administer, hold, or manage the fund or
(2) banking days from receipt of the funds property in accordance with the instrument
abroad; creating the investment management
(2) The investment manager shall relationship; and
purchase, invest, reinvest, sell, transfer or b. Funds or property of each client
dispose foreign currency-denominated shall be accounted separately and distinctly
financial instruments, including securities from those of other clients herein referred
as defined in Section 3 of the SRC, through to as individual account accounting.
a distributor or underwriter duly (As amended by Circular No. 676 dated 29 December 2009)
authorized or licensed by the government
of the issuer of such instruments, or a X411.10 Tax-exempt individual
counterparty financial institution (seller or investment management accounts. The
buyer) authorized in writing by the following shall be the features/requirements
principal and/or accredited by the of IMAs of individuals which may be
investment manager: Provided, That, the exempted from the twenty percent (20%)
conduct, documentation, and settlement final tax under Section 24(B)(1) of R.A. No.
of any of these transactions shall be 8424 (The Tax Reform Act of 1997):
outside Philippine jurisdiction; a. The tax exemption shall apply to
(3) The investment manager shall investment management agreements
record cross-currency investment contracted on or after 03 January 2000;
transactions in the peso regular books at b. The investment management
their foreign currency amounts and their agreement shall only be between individuals
local currency equivalent using the who are Filipino citizens or resident aliens
Philippine Dealing System peso/US dollar and investment manager-banks. The

Part IV - Page 36 Manual of Regulations for Banks


X411.10 - X412.2
09.12.31

agreement shall be non-negotiable and date when the additional funds were
non-transferable; received by the investment manager-bank
c. The minimum amount of investment to serve as basis for determining the
for an IMA shall be P1.0 million; minimum five (5)-year holding period for tax
d. The investment management exemption purposes of the additional funds;
agreement shall indicate that pursuant to and
Section 24(B)(1) of R.A. No. 8424, interest f. Tax-exempt individual IMAs
income of the investment management established under this Subsection shall be
funds derived from investments in subject to the provisions of Subsecs.
interest-bearing instruments (e.g., time X411.1(b) and X411.2 up to X411.8.
deposits, government securities, loans (As amended by Circular No. 676 dated 29 December 2009)
and other debt instruments) which are
otherwise subject to the twenty percent Sec. X412 Foreign Currency Deposit Unit/
(20%) final tax, shall be exempt from said Expanded Foreign Currency Deposit Unit
final tax provided the funds are held under Trust Accounts; Other Fiduciary or
investment management by the investment Investment Management Accounts. Only a
manager for at least five (5) years. If said bank with authority to operate a foreign
funds are held by the investment manager currency deposit unit (FCDU) or an
for a period less than five (5) years, interest expanded foreign currency deposit unit
income shall be subject to a final tax which (EFCDU) under R.A. No. 6426, as amended,
shall be deducted and withheld from the may accept foreign currency-denominated
proceeds of the IMA based on the trust, other fiduciary or IMAs.
following schedule (As amended by Circular No. 666 dated 24 September 2009)

Holding Period Rate of Tax X412.1 Banks with trust authority or


investment management authority. A bank
Four (4) years to less than five (5) years 5% authorized to engage in trust business under
Three (3) years to less than four (4) years 12%
Less than three (3) years 20% Section 79 of R.A. No. 8791, or in
investment management activities only
Necessarily, the investment under Subsection 53.4 of R.A. No. 8791,
management agreement shall clearly which is also authorized to operate an
indicate the date when the investment FCDU or EFCDU under R.A. No. 6426, as
manager actually received the funds which amended, shall include FCDU/EFCDU trust
shall serve as basis for determining the other fiduciary or IMAs among those
holding period of the funds; managed or administered by its trust/
e. The investment manager may investment management department under
accept additional funds for inclusion in the responsibility of the board of directors,
IMAs which have been established as tax- the trust/investment management committee
exempt under R.A. No. 8424. However, the and the trust/investment management
receipt of additional funds shall be properly officer.
documented by indicating that they are part (As amended by Circular No. 666 dated 24 September 2009)
of existing tax-exempt IMAs and that the
interest income of the additional funds X412.2 Additional deposit for the
derived from investments in interest-bearing faithful performance of trust duties or
instruments shall be exempt from the investment management activities. A bank
twenty percent (20%) final tax under the authorized to engage in trust business or
same conditions mentioned in the preceding investment management activities that
item. The document shall also indicate the accepts FCDU/EFCDU trust other fiduciary

Manual of Regulations for Banks Part IV - Page 37


X412.2 - X414.1
12.12.31

or IMAs shall deposit with the Bangko capital stock and no part of such surplus
Sentral additional eligible government shall at any time be paid out in dividends
securities under Subsec. X405.2 as security but losses accruing in the course of its
for the faithful performance of trust duties business may be charged against surplus.
or investment management activities
equivalent to at least one percent (1%) of B. INVESTMENT MANAGEMENT
the value of the FCDU/EFCDU trust or ACTIVITIES
investment management assets based on the
average of the month-end balances of such Sec. X414 Authority to Perform
assets during the immediately preceding Investment Management. Banks may be
quarter as converted in the local currency authorized by the Monetary Board to act as
at the prevailing foreign exchange rate. Such managing agent, adviser, consultant or
securities shall be deposited within thirty administrator of investment management/
(30) banking days after the end of every advisory/consultancy account under Section
calendar quarter. 53.4 of R.A. No. 8791. However, such
(As amended by Circular No. 666 dated 24 September 2009) authority shall not be construed to include
the authority to engage in trust and other
X412.3 Applicability of rules and fiduciary business under Chapter IX of R.A.
regulations. Unless otherwise revised by the No. 8791.
provisions of this Section, the rules and If a bank is found to engage in
regulations governing the administration of unauthorized investment management
trust, other fiduciary or IMAs, including activities, the Monetary Board may impose
UITFs, shall be observed. Also applicable administrative sanctions against such bank
are rules and regulations on the operations or its principal officers and/or majority
of FCDUs/EFCDUs that include, among stockholders or proceed against them in
other things, regulations on acceptable accordance with law.
foreign currencies, eligible and ineligible The Monetary Board may take such
foreign currency sources; foreign currency action as it may deem proper such as, but
cover requirements; and allowable loans and may not be limited to, requiring the transfer
investments. or turnover of any IMA to duly incorporated
(As amended by Circular No. 666 dated 24 September 2009) and licensed entities of the choice of the
client.
X412.4 Liquidity requirement for A bank not authorized to engage in
foreign currency deposit unit/expanded investment management activities shall not
foreign currency deposit unit common advertise or represent itself as being
trust funds engaged in investment management
(Deleted by Circular No. 666 dated 24 September 2009) activities or represent itself as investment
manager or use words of similar import.
Sec. X413 Required Surplus. A bank
authorized to engage in trust and other fiduciary X414.1 Required capital. Banks
business shall, before the declaration of applying for authority to perform investment
dividends, carry to surplus at least ten percent management activities must have minimum
(10%) of its net profits realized out of its trust, capital accounts of not less than P300
investment management and other fiduciary million or such amount as may be required
business since the last preceding dividend by the Monetary Board or other regulatory
declaration until the surplus shall amount to agency.
twenty percent (20%) of its authorized (As amended by Circular No. 756 dated 24 April 2012)

Part IV - Page 38 Manual of Regulations for Banks


X414.2 - X415.3
12.12.31

X414.2 Prerequisites for engaging in faithful performance of investment


investment management activities. A bank management duties required under Subsec.
before it may engage in investment X415.1;
management activities shall comply with the b. Organization chart of the investment
following requirements: management department which shall carry
a. The bank has been duly licensed by out the investment management activities of
the Bangko Sentral or created by special law the bank; and
or charter. c. Names and positions of individuals
b. The articles of incorporation or designated as chairman and members of the
charter of the bank shall include among its investment management committee,
powers or purposes the authority to engage investment management officer and other
in investment management activities. subordinate officers of the investment
c. The by-laws of the bank shall include, management department.
among other things: (As amended by Circular No. 756 dated 24 April 2012)
(1) The organization plan or structure
of the department, office or unit which shall Sec. X415 Security for the Faithful
conduct the investment management Performance of Investment Management
activities of the institution; Activities
(2) The creation of an investment
X415.1 Basic security deposit. A bank
management committee, the appointment
authorized to engage in investment
of an investment management officer and
management activities shall deposit with the
subordinate officers of the investment
Bangko Sentral eligible government
management department; and
securities as security for the faithful
(3) A clear definition of the duties and
performance of its investment management
responsibilities as well as the line and staff
activities equivalent to at least one percent
functional relationships of the various units, (1%) of the book value of the total
officers and staff within the organization. investment management assets: Provided,
d. The applicant shall also meet the That at no time shall such deposit be less
additional requirements under Subsec. than P500,000.
X404.3d to m. Scripless securities under the RoSS
Compliance with the foregoing as well system of the BTr may be used as basic
as with other requirements under existing security deposit for the faithful performance
regulations, shall be maintained up to the of investment management activities
time the investment management authority using the guidelines enumerated in
is granted. A bank that fails in this respect Appendix 33.
shall be required to show compliance for
another test period of the same duration. X415.2 Eligible securities. Securities
(As amended by Circular No. 756 dated 24 April 2012) enumerated in Subsec. X405.2 shall be eligible
as security deposit for faithful performance of
X414.3 Pre-operating requirements investment management activities.
A bank authorized to engage in investment
management activities shall, before engaging X415.3 Valuation of securities and
in actual operations, submit to the Bangko basis of computation of the basic security
Sentral the following: deposit requirement. For purposes of
a. Government securities acceptable to determining compliance with the basic
the Bangko Sentral amounting to P500,000 security deposit under this Section, the
as minimum basic security deposit for the amount of securities so deposited shall be

Manual of Regulations for Banks Part IV - Page 39


X415.3 - X415.4
08.12.31

based on their book value, that is, cost as ii. Non-monetary penalty beginning
increased or decreased by the corresponding with the third offense (all banks) -
discount or premium amortization. Prohibition against the acceptance of new
The base amount for the basic security IMAs and from renewing expiring
deposit shall be the average of the month- investment management contracts up to the
end balances of the total assets of investment time the violation is corrected.
management funds of the immediately b. On the Head of the Investment
preceding calendar quarter. Management Department and/or other
officers responsible for the deficiency/
X415.4 Compliance period; sanctions non-compliance:
The investment manager shall have thirty (1) First offense - warning that
(30) calendar days after the end of every subsequent violations shall be dealt with
calendar quarter within which to deposit more severely;
with the Bangko Sentral securities required (2) Second offense - written reprimand
under this Section. with a stern warning that subsequent
The following sanctions shall be violations shall be subject to suspension;
imposed for any deficiency in the basic (3) Third offense - thirty (30) calendar
security deposit for the faithful performance day-suspension without pay; and
of investment management activity: (4) Subsequent offense(s) - sixty (60)
a. On the bank: calendar day-suspension without pay.
i. Monetary penalty/ies: For purposes of determining the
Offense Third and frequency of the violation, the banks
Trust First Second subsequent compliance profile for the immediately
Asset Size offense(s) preceding three (3) years or twelve (12)
TBs/RBs with quarters will be reviewed: Provided, That
Limited Trust P300.00 P400.00 P500.00 for purposes of determining appropriate
Authority penalty on the head of the Investment
Up to Management Department and/or other
P500 P600.00 P700.00 P800.00 responsible officer(s), any offense
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of

million committed outside the preceding three (3)


Above year or twelve (12) quarter - period shall
Penalty per Calendar Day

P500 be considered as the first offense:


million P1,000.00 P1,250.00 P1,500.00 Provided, further, That in the case of the
but not head of the Investment Management
exceeding Department, all offenses committed by
P1 billion him in the past as the head of the
Above Investment Management Department of
P1 billion other institution(s) shall also be
but not P2,000.00 P3,000.00 P4,000.00 considered: Provided, finally, That if the
exceeding offense cannot be attributed to any other
P10 billion officer of the bank, the head of the
Above Investment Management Department
P10 billion shall be automatically held responsible
but not P5,000.00 P6,000.00 P7,000.00 since the ultimate responsibility for
exceeding ensuring compliance with the regulation
P50 billion rests upon him, as evidence may warrant.
Above (As amended by Circular Nos. 617 dated 30 July 2008 and
P50 billion P8,000.00 P9,000.00 P10,000.00 585 dated 15 October 2007)

Part IV - Page 40 Manual of Regulations for Banks


X416 - X421
09.12.31

Sec. X416 Organization and Management but losses accruing in the course of its
The provisions of Sec. X406 up to Subsec. business may be charged against surplus.
X406.9 shall govern the organization and
management of banks without trust license C. GENERAL PROVISIONS
which are engaged in investment
management activities only. The following Sec. X421 Books and Records. The banks
terms shall, however, be used: trust department or investment management
a. Investment management activities, department shall keep books and records
in lieu of trust and other fiduciary business; on trust, other fiduciary and IMAs separate
b. Investment management accounts, and distinct from the books and records of
in lieu of trust and other fiduciary accounts; its other businesses and shall follow the
c. Investment management committee, FRPTI prescribed by the BSP.
in lieu of trust committee; Each trust, other fiduciary or IMA shall
d. Investment management officer, in have a record separate from all other
lieu of trust officer; and accounts except only in the case of CTFs
e. Investment management department, where the trustee can maintain common
in lieu of trust department. records utilizing pooled fund accounting
(As amended by M-2007-009 dated 22 March 2007) method for each fund: Provided, That the
trustee shall clearly indicate in the records
Sec. X417 Non-Investment Management the trustors owning participation in the
Activities. The provisions of Sec. X407 shall CTF and the extent of the interest of such
apply in determining non-investment trustors.
management activities except that the terms Books and records shall contain full
trust, other fiduciary, trustee and fiduciary information relative to each trust, other
shall be disregarded. fiduciary or IMA and shall be supported by
duplicate signed copies of related
Sec. X418 Unsound Practices. The documents. Said records and duplicate
provisions of Sec. X408 shall govern the signed copies of related documents shall be
unsound practices for IMAs. compiled and kept as to allow inspection
by BSP examiners and submission of
Sec. X419 Conduct of Investment information or reports as may be required
Management Activities. The provisions of by competent authorities.
Secs. X411 and X412 shall govern the The banks trust department or
conduct of investment management investment management department shall
activities of a bank without a trust license. maintain separate general ledger accounts
(As amended by Circular No. 666 dated 24 September 2009) and other relevant sub-accounts for tax-
exempt individual trust accounts, CTFs and
Sec. X420 Required Surplus. A bank individual management accounts
authorized to engage in investment established under Section 24(B)(1) of
management activities shall, before the R.A. No. 8424 and Subsecs. X409.8,
declaration of dividends, carry to surplus at X411.9, and Item 8 of Appendix 60. The
least ten percent (10%) of its net profits banks trust department or investment
realized out of its investment management management department shall also adopt
activities since the last preceding dividend appropriate systems, internal control
declaration until the surplus shall amount procedures and audit trail mechanisms to
to twenty percent (20%) of its authorized ensure that the correct amount of final tax
capital stock and no part of such surplus is withheld or exempted from such accounts.
shall at any time be paid out in dividends, (As amended by Circular No. 653 dated 05 May 2009)

Manual of Regulations for Banks Part IV - Page 41


X422 - X424
08.12.31

Sec. X422 Custody of Assets. All moneys, persons or entities unless the rebates, fees
properties or securities received by a bank and other payments shall accrue to the
in its capacity as trustee, fiduciary, or benefit of the trust, other fiduciary or IMA
investment manager shall be kept physically or the beneficiaries thereof.
separate and distinct from the assets of its Officers and employees of the trust
other businesses and shall be under the joint department or investment management
custody of at least two (2) persons, one of department of banks, while serving as such,
whom shall be an officer of the trust or shall be prohibited from retaining any
investment management department, compensation for acting as co-trustee or
designated for that purpose by the board of fiduciary in the administration of a trust,
directors. other fiduciary or IMA.
The investment of each trust, other No bank shall collect, for its own
fiduciary or investment management account, referral and/or arrangement fees,
account shall be kept physically separated or any other fees that take the nature of
from those of other trust, other fiduciary or payment to the bank from whatever source,
IMAs, and adequately identified as the assets in connection with loans sourced from trust
or property of the relevant account. funds managed by its trust department:
Provided, That if such fees are collected, the
Sec. X423 Fees and Commissions. A bank same shall be properly disclosed to the
acting as trustee, fiduciary or investment trustor, and shall accrue to the benefit of
manager shall be entitled to reasonable fees the trust, in accordance with the provisions
and commissions which shall be of Secs. X401 and X407.
determined on the basis of the cost of (As amended by Circular No. 541 dated 30 August 2006)
services rendered and the responsibilities
assumed: Provided, That where the trustee, Sec. X424 Taxes. The terms and conditions
fiduciary or investment manager is acting of trust, other fiduciary or investment
as such under appointment by a court, the management agreements including CTF
compensation shall be that allowed or plans shall contain provisions regarding the
approved by the court: Provided, further, applicability of regulations governing
That in the case of CTFs, the fee which a taxation on the income of trust, other
trustee may charge each participant shall be fiduciary or IMAs. For this purpose, the
fully disclosed by the trustee in the CTF plan, trustee, fiduciary or investment manager
prospectus, flyers, posters and in all forms shall maintain adequate records and shall
of advertising materials to market the funds include information such as the amount of
and in the documents given to clients as final income tax withheld at source and the
proof of participation in the fund. In no case amount withheld by the trustee, fiduciary
shall such fees and commissions be based or investment manager in the periodic
on the excess of the income of the trust, reports submitted to trustors, beneficiaries,
other fiduciary or investment management principals and other parties in interest.
funds over a certain amount or percentage. With respect to tax-exempt CTFs,
No trustee, fiduciary or investment individual trust and IMAs established under
manager shall solicit or receive rebates on Section 24(B)(1) of R.A. No. 8424, the
commissions, fees and other payments for banks trust department or investment
the services rendered to the trust, other management department shall be
fiduciary or IMA or beneficiaries of the trust, responsible for obtaining the tax-exemption
other fiduciary or IMA by stockbrokers, real certifications which may be required by the
estate brokers, insurance agents and similar BIR for the interest-bearing instruments

Part IV - Page 42 Manual of Regulations for Banks


X424 - X425.3
15.10.31

where the CTFs, individual trust funds and c. The reports shall be prepared in
investment management funds will be such frequency as required under the
invested. Likewise, the banks shall ensure agreement but shall not in any case be longer
that the correct amount of final tax on the than once every quarter; and
interest income on the interest-bearing d. The reports shall be made available
instruments is withheld/deducted from the to clients not later than twenty (20) calendar
proceeds from the CTF participation, trust days from the end of the reference date/
or IMA and remitted to the BIR in the event period in Item c above.
said tax becomes due such as when funds
are withdrawn before the required five (5)- X425.2 To the Bangko Sentral. A bank
year holding period or when corporations acting as trustee, fiduciary or investment
happen to invest in the tax-exempt trust manager shall submit periodic reports
instruments created within the purview of prescribed by the appropriate department
R.A. No. 8424. of the SES on the banks trust and other
fiduciary business and investment
Sec. X425 Reports Required. management activities within the deadlines
indicated in Appendix 6.
X425.1 To trustor, beneficiary, (As amended by Circular No. 880 dated 22 May 2015)
principal. A bank acting as trustee, fiduciary
or investment manager shall render reports X425.3 Audited financial statements.
on the trust, other fiduciary or IMAs to the The trust/investment management
trustor, beneficiary, principal or other party department shall adopt the provisions of the
in interest or the court concerned or any Philippine Financial Reporting Standards
party duly designated by the court order, as (PFRS)/Philippine Accounting Standards
the case may be, under the following (PAS) in all respect, for purposes of
guidelines: preparing the AFS of its trust and other fiduciary
a. The reports shall be in such forms and investment management activities. The
as to apprise the party concerned of the following guidelines shall likewise be
significant developments in the observed in the preparation of the AFS:
administration of the account and shall (a) The provisions of PFRS/ PAS shall
consist of: be adopted effective the annual financial
(1) A balance sheet; statements beginning 01 January 2008;
(2) An income statement; (b) A complete set of financial
(3) A schedule of earning assets of the statements shall comprise of the following:
account; and (1) Balance sheet as of the end of the
(4) An investment activity report. period;
b. Items (3) and (4) above shall include (2) Income statement for the period;
at least the following: (3) Statement of changes in
(1) Name of issuer or borrower; accountabilities, which shall show a
(2) Type of instrument; reconciliation of the net carrying amount at
(3) Collateral, if any; the beginning and end of the period of the
(4) Amount invested; following accounts:
(5) Earning rate or yield; (i) principal;
(6) Amount of earnings; (ii) accumulated income; and
(7) Transaction date; and (iii) net unrealized gains/(losses) on
(8) Maturity date; available for sale financial assets, separately

Manual of Regulations for Banks Part IV - Page 43


X425.3 - X426.1
15.10.31

disclosing the changes in each of the in the notes to financial statements: Provided,
foregoing accounts; further, That comparative periods shall be
(4) Notes, which shall comprise of a presented in the AFS for the financial reporting
summary of significant accounting policies period beginning 01 January 2009 and
and other disclosure requirements thereafter.
provided under PFRS/PAS: Provided, That (e) The following transitory rules and
for purposes of complying with the regulations shall govern the accounting
disclosure of the nature and extent of risks treatment of specific items for purposes of
arising from financial instruments as preparing the AFS for the financial reporting
required under PFRS 7, disclosure period beginning 01 January 2008:
statements may be made based on the (1) The provisions of PFRS/PAS shall
general categories of contractual only be applied to accounts outstanding as
relationships (i.e., UITF-trust, institutional- of end-December 2008;
trust, and individual-trust; other fiduciary; (2) Reclassification of previously
institutional-agency, and individual- recognized financial instruments shall no
agency; and special purpose trust) of the longer be allowed except as allowed under
trust/investment management department existing regulations;
of a bank with its clients; and (3) The fair value of ROPA and
(5) Balance sheet as at the beginning of Investment Properties as of the date of
the earliest comparative period when a trust/ transition to PFRS/PAS may be used as the
investment management department applies deemed cost of said properties as of that
an accounting policy retrospectively or date: Provided, That said ROPA and
when it makes a retrospective restatement Investment Properties shall be subsequently
of items in the financial statements, or when accounted for in accordance with the
it reclassifies items in the financial provisions of the FRPTI.
statements. (Circular No. 653 dated 05 May 2009)
(c) The balance sheet, income statement
and statement of changes in accountabilities X425.4 Post-bond flotation report.
(Superseded by Circular No.769 dated 26
shall be presented for each of the general September 2012)
categories of contractual relationships (i.e.,
UITF-trust, institutional-trust, and individual- Sec. X426 Audits.
trust; other fiduciary; institutional-agency,
and individual-agency; and special purpose X426.1 Internal audit. The banks
trust) of the trust/investment management internal auditor shall include among his
department of a bank with its clients; functions, the conduct of annual audit of
(d) Comparative information for periods the trust department or investment
before 01 January 2008 need not be management department. However, should
presented in the AFS for the financial the board of directors, in a resolution entered
reporting period beginning 01 January in its minutes, require the internal auditor
2008: Provided, That disclosure to adopt a suitable continuous audit system
statements on the end-2007 balances of to supplement and/or to replace the
total assets of the general categories of performance of the annual audit, the audit
contractual relationships of the trust/ may be conducted in intervals
investment management department of a commensurate with the assessed levels of
bank with its clients prepared based on the risk in trust and investment management
Generally Accepted Accounting Principles operations: Provided, That such intervals
(GAAP) previously applied, shall be presented shall be supported and reassessed regularly

Part IV - Page 44 Manual of Regulations for Banks


X426.1 - X428
15.10.31

to ensure appropriateness given the current contractual relationships (i.e., UITF-trust,


risk and volume of the trust and investment institutional-trust, and individual trust; other
management operations. In any case, the fiduciary; institutional-agency, and
audit shall ascertain whether the institutions individual-agency; and special purpose trust)
trust and other fiduciary business and of the trust/investment management
investment management activities have department of a bank with its clients
been administered in accordance with laws, following the format in Appendix 87.
Bangko Sentral rules and regulations, and (As amended by Circular No. 653 dated 05 May 2009)
sound trust or fiduciary principles.
(As amended by Circular No. 871 dated 05 March 2015) X426.3 Board action. A report of the
foregoing audits, together with the actions
X426.2 External audit. The trust and thereon, shall be noted in the minutes of
other fiduciary business and investment the board of directors of the bank.
management activities of a bank shall be
included in the annual financial audit by Sec. X427 Authority Resulting from Merger
independent external auditors required or Consolidation. In merger of FIs, the
under Subsec. X190.1. authority to engage in trust and other
The audit of the assets and fiduciary business and in investment
accountabilities of the trust department/ management activities shall continue to be
investment management department of a in effect if the surviving institution has such
bank authorized to engage in trust and other authority and the same has not been
fiduciary business, investment management withdrawn by the Bangko Sentral. In case
activities, which shall cover at the minimum the surviving institution does not have
a review of the trust investment management previous authority but desires to engage in
operations, practices and policies, including trust and other fiduciary business and in
audit and internal control system, shall be investment management activities, it shall
subject to auditing standards to the extent secure the prior approval of the Monetary
necessary to express an opinion on the Board to engage in such business as part of
financial statements. its application for merger to enable it to
The audit of the trust/investment incorporate such among its powers or
management department of a bank purpose clause in its articles of
authorized to engage in trust and other incorporation, articles of merger, by-laws
fiduciary business/investment management and such other pertinent documents.
activities shall be covered by a separate In the consolidation of FIs where the
resulting entity is an entirely new one, it shall
supplemental audit report to be submitted
secure from the Monetary Board an authority
to the banks board of directors and to the
to engage in trust and other fiduciary
Bangko Sentral within the prescribed period
business or in investment management
containing, among other things, the
activities before it may engage in such
complete set of financial statements of the
business.
trust/ investment management department
of a bank prepared in accordance with the Sec. X428 Receivership. Whenever a
provisions of Subsec. X425.3 together with receiver is appointed by the Monetary Board
the other information required by the for a bank which is authorized to engage in
Bangko Sentral to be submitted under trust and other fiduciary business or in
Subsec. X190.1: Provided, That a investment management activities, the
reconciliation statement of the balance sheet receiver shall, pursuant to the instructions
in the AFS and the FRPTI shall be prepared of the Monetary Board, proceed to close the
for each of the general categories of trust, other fiduciary and IMAs promptly

Manual of Regulations for Banks Part IV - Page 45


X428 - X441.4
15.10.31

and/or transfer all other accounts to to the sanctions/penalties under Subsec.


substitute trustees, fiduciaries or investment X441.29.
managers acceptable to the trustors, (As amended by Circular Nos 873 dated 25 March 2015.
beneficiaries, principals or other parties in 714 dated 10 March 2011, M-2007-002 dated 23 January 2007,
M-2006-009 dated 06 July 2006, M-2006-002 dated 05 June
interest: Provided, That where the trustee, 2006 and Circular No. 524 dated 31 March 2006)
fiduciary or investment manager is acting
as such under appointment by a court, the X441.1 Statement of policy. It is the
receiver shall proceed pursuant to the policy of the Bangko Sentral to promote the
instructions of said court. protection of investors in order to gain their
confidence and encourage their participation
Sec. X429 Surrender of Trust or Investment in the development of the domestic capital
Management License. Any bank which has market. Therefore, the following rules and
been authorized to engage in trust and other regulations are promulgated to enhance
fiduciary business or in investment transparency of securities transactions with
management activities and which intends the end in view of protecting investors.
to surrender said authority shall file with the
Bangko Sentral a certified copy of the X441.2 Applicability of this
resolution of its board of directors regulation. This regulation shall govern
manifesting such intention. The appropriate securities custodianship and securities
department of the SES shall then conduct registry operations of banks and NBFIs under
an examination of the banks trust, other Bangko Sentral supervision. It shall cover
fiduciary business and investment all their transactions in securities as defined
management activities. If the bank is found in Section 3 of the Securities Regulation
to have satisfactorily discharged its duties Code (SRC), whether exempt or required to
and responsibilities as trustee, fiduciary or be registered with the SEC, that are sold,
investment manager, and has provided for borrowed, purchased, traded, held under
the orderly closure or transfer of its trust, custody or otherwise transacted in the
fiduciary or investment management Philippines where at least one (1) of the
accounts, the Monetary Board, on the basis parties is a bank or an NBFI under Bangko
of the recommendation of the examining Sentral supervision. However, this
department, shall order the withdrawal of regulation shall not cover the operations of
the banks authority to engage in trust and stock and transfer agents duly registered
other fiduciary management activities. with the SEC pursuant to the provisions of
SRC Rule 36-4.1 and whose only function
Secs. X430 X440 (Reserved) is to maintain the stock and transfer book
for shares of stock.
Sec. X441 Securities Custodianship and
Securities Registry Operations. The X441.3 Prior Bangko Sentral
following rules and regulations shall govern approval. Banks may act as securities
securities custodianship and securities custodian and/or registry only upon prior
registry operations of banks under Bangko Monetary Board approval.
Sentral regulations.
The guidelines to implement the delivery X441.4 Application for authority. A
of securities are provided in Appendix 68. bank desiring to act as securities custodian
Violation of any provision of the and/or registry shall file an application
guidelines in Appendix 68 shall be subject with the appropriate supervising

Part IV - Page 46 Manual of Regulations for Banks


X441.4 - X441.5
13.12.31

and examining department of the Bangko operations) and other related documents
Sentral. The application shall be signed by embodying the risk management system
the highest ranking officer of the bank and must be submitted to the appropriate
shall be accompanied by a certified true supervising and examining department at
copy of the resolution of the banks board the time of application for authority and
of directors authorizing the bank to engage within thirty (30) days from updates;
in securities custodianship and/or registry f. It must have adequate technological
and, in the case of a branch of a foreign capabilities and the necessary technical
bank, approval by its highest ranking expertise to ensure the protection, safety and
regional officer with proof of delegated integrity of client assets, such as:
authority from the banks board of directors. (1) It can maintain an electronic registry
dedicated to recording of accountabilities
X441.5 Pre-qualification requirements to its clients; and
for a securities custodian/registry (2) It has an updated and
a. The securities custodian must be a comprehensive computer security system
bank that is authorized to engage in covering system, network and
investment management or trust business. telecommunication facilities that will:
The securities registry must be a bank. (a) limit access only to authorized
b. It must have complied with the users;
minimum capital accounts required under (b) preserve data integrity; and
existing regulations, as follows: (c) provide for audit trail of
(1) Domestic banks. The minimum transactions.
capital required under Subsec. X111.1 or the g. It has complied, during the period
minimum capital required for TBs operating immediately preceding the date of
in Metro Manila, whichever is higher. application, with the following:
(2) Branches of foreign banks. The (1) ceilings on credit accommodation
minimum capital required under Subsec. to DOSRI; and
X105.4.b. (2) single borrowers limit.
c. Its risk-based capital adequacy ratio h. It has no reserve deficiencies during
is not lower than twelve percent (12%) at the eight (8) weeks immediately preceding
the time of filing the application; the date of application;
d. It must have a CAMELS composite i. It has set up the prescribed
rating of at least 4 (as rounded off) in the allowances for probable losses, both general
last regular examination; and specific, as of date of application;
e. It must have in place a j. It has not been found engaging in
comprehensive risk management system unsafe and unsound practices during the last
approved by its board of directors (or six (6) months preceding the date of
equivalent management committee in the application;
case of foreign bank branches) appropriate k. It has generally complied with laws,
to its operations characterized by a clear rules and regulations, orders or instructions
delineation of responsibility for risk of the Monetary Board and/or Bangko
management, adequate risk measurement Sentral Management;
systems, appropriately structured risk limits, l. It has submitted additional
effective internal control and complete, documents/information which may be
timely and efficient risk reporting systems. requested by the appropriate supervision
In this connection, a manual of operations and examination department, such as, but
(which includes custody and/or registry not limited to:

Manual of Regulations for Banks Part IV - Page 47


X441.5 - X441.8
13.12.31

(1) Standard custody/registry agreement in respect of dividends, interest earnings or


and other standard documents; proceeds from the sale/redemption/maturity
(2) Organizational structure of the of securities held under custodianship:
custody/registry business; Provided, That the custodian shall immediately
(3) Transaction flow; and make known to the securities owner all
(4) For those already in the custody or collections received and payments made with
registry business, a historical background for respect to the securities under custody.
the past three (3) years; j. In addition to the above basic
m. It shall be conducted in a separate functions, it may perform the value-added
unit headed by a qualified person with at service of securities lending as agent:
least two (2) years experience in custody/ Provided, That it complies with the
registry operations; pre-qualification requirements under Item
n. It can interface with the clearing and o of Subsec. X441.5: Provided, further,
settlement system of any recognized That the securities lending service shall be
exchange in the country capable of covered by a Securities Lending
achieving a real time gross settlement of Authorization Agreement (SLAA) which
trades; and shall be attached to the custody contract.
o. A securities custodian which A securities custodian which renders the
provides the value-added service of value-added service of securities lending
securities lending involving securities that involving securities that are sold, offered and
are sold, offered for sale or distributed within distributed within the Philippines shall
the Philippines must be a duly-licensed comply with all other pertinent rules
lending agent registered with the SEC. and regulations of the SEC on securities
(As amended by Circular Nos. 822 dated 13 December 2013 lending and borrowing operations.
and 714 dated 10 March 2011) (As amended by Circular No. 714 dated 10 March 2011)

X441.6 Functions and responsibilities X441.7 Functions and responsibilities


of a securities custodian. A securities of a securities registry
custodian shall have the following basic a. Maintains an electronic registry
functions and responsibilities: book;
a. Safekeeps the securities of the client; b. Delivers confirmation of transactions
b. Holds title to the securities in a and other documents within agreed trading
nominee capacity; periods;
c. Executes purchase, sale and other c. Issues registry confirmations for
instructions; transfers of ownership as it occurs;
d. Performs at least a monthly d. Prepares regular statement of
reconciliation to ensure that all positions are securities balances at such frequency as may
properly recorded and accounted for; be required by the owner on record but not
e. Confirms tax withheld; less frequent than every quarter; and
f. Represents clients in corporate e. Follows appropriate legal
actions in accordance with the direction documentation to govern its relationship
provided by the securities owner; with the Issuer.
g. Conducts mark-to-market valuation
and statement rendition; X441.8 Protection of securities of the
h. Does earmarking of encumbrances customer. A custodian must incorporate the
or liens such as, but not limited to, Deeds following procedures in the discharge
of Assignment and court orders; and of its functions in order to protect
i. Acts as a collecting and paying agent the securities of the customer:

Part IV - Page 48 Manual of Regulations for Banks


X441.8 - X441.9
15.10.31

a. Administration of securities c. Documentation. The appropriate


custodianship accounts of banks. 1 documentation for custodianship shall be
Securities custodianship accounts shall be made and it shall clearly define, among
administered in the Trust Unit of a bank. others, the authority, role, responsibilities,
As an exception, however, a custodian fees and provision for succession in the event
bank may be allowed to administer the custodian can no longer discharge
custodianship accounts in the Bank Proper: its functions. It shall be accepted
Provided, That this is limited to in writing by the counterparties.
custodianship accounts wherein the The governing custodianship agreement
securities custodian performs the basic shall be pre-numbered and this number shall
functions and responsibilities provided be referred to in all amendments and
under Subsec. X441.6: Provided, further, supplements thereto.
That the custodian bank secures prior MB d. Confirmation of custody. The custodian
approval on this arrangement: Provided, shall issue a custody confirmation to the
finally, That a custodian bank that is purchaser or borrower of securities to
seeking exemption from the general evidence receipt or transfer of securities as
requirement should be able to demonstrate they occur. It shall contain, as a minimum,
that it has instituted adequate risk the following information on the securities
management systems and prudential under custody:
controls in the Bank Proper to ensure the (1) Owner of securities;
protection of client assets, maintain (2) Issuer;
proper segregation of functions and (3) Securities type;
prevent conflict of interest situations that (4) Identification or serial numbers;
may arise in the administration (5) Quantity;
of securities custodianship accounts (6) Face value; and
b. Accounting and recording for (7) Other information, which may be
securities. Custodians must employ requested by the parties.
accounting and safekeeping procedures that e. Periodic reporting. The custodian
fully protect customer securities. It is shall prepare at least quarterly (or as frequent
essential that custodians segregate customer as the owner of securities will require)
securities from one another and from its securities statements delivered to the
proprietary holdings to protect the same registered owners address on record. Said
from the claims of its general creditors. statement shall present detailed information
Securities held under custodianship such as, but not limited to, inventory of
shall be recorded in the books of the securities, outstanding balances, and market
custodian at the face value of said securities values.
in the off-balance sheet account Securities (As amended by Circular No. 714 dated 10 March 2011)
Held Under Custodianship by Bank
Proper, if booked in the Bank Proper, or X441.9 Independence of the registry
the other fiduciary sub-account and securities custodian. A Bangko Sentral-
Custodianship, if booked in the Trust accredited securities registry must be a third
Department. party that does not belong to the same
Securities held under custodianship financial conglomerate or banking group as
where the custodian performs the that of the issuer of securities. A Bangko
value-added service of securities Sentral-accredited securities custodian must
lending as agent shall be booked in the Trust be a third party that does not belong to the
Department. same financial conglomerate or banking

1
Existing Bangko Sentral-accredited custodian banks which intend to administer their securities custodianship business in
the bank proper shall be given thirty (30) banking days from 01 April 2011 to comply with the provisions of the Subsection.

Manual of Regulations for Banks Part IV - Page 49


X441.9 - X441.13
15.10.31

group as that of the issuer and seller of registry shall not disclose to any
securities held under custody. A bank unauthorized person any information
accredited by Bangko Sentral as securities relative to the securities under its
custodian may, however, continue holding custodianship/registry. The Management
securities it sold under the following cases: shall likewise ensure the confidentiality of
a. where the purchaser is a related entity client accounts of the custody or registry
acting in its own behalf and not as agent or unit from other units within the same
representative of another; organization.
b. where the purchaser is a non-resident
with existing global custody agreement X441.12 Compliance with Anti-
governed by foreign laws and conventions Money Laundering laws/regulations. For
wherein the bank is designated as custodian purposes of compliance with the
or sub-custodian; and requirements of R.A. No. 9160, otherwise
c. upon approval by the Bangko Sentral, known as the Anti-Money Laundering Act
where the purchaser is an insurance of 2001, as amended, particularly
company whose custody arrangement is the provisions regarding customer
either governed by a global custody identification, record keeping and reporting
agreement where the bank is designated as of suspicious transactions, a Bangko Sentral-
custodian or sub-custodian or by a direct accredited custodian may rely on referral
custody agreement with features at par with by the seller issuer of securities: Provided,
the standards set under this Subsection That it maintains a record of such referral
drawn or prepared by the parent company together with the minimum identification,
owning more than fifty percent (50%) of the information/documents required under the
capital stock of the purchaser and executed law and its implementing rules and
by the purchaser itself and its custodian. regulations.
Purchases by non-residents and insurance A Bangko Sentral-accredited custodian
companies that are exempted from the must maintain accounts only in the true and
independence requirement of this Section full name of the owners of the security.
shall, however, be subject to all other However, said securities owners may be
provisions of this Subsection. identified by number or code in reports and
(As amended by Circular No. 873 dated 25 March 2015)
correspondences to keep his identity
X441.10 Registry of Scripless confidential.
Securities of the Bureau of the Treasury. Securities subject of pledge and/or deed
The Registry of Scripless Securities (RoSS), of assignment as of 14 October 2004 (date
operated by the Bureau of the Treasury, of Circular 457), may be held by a lending
which is acting as a registry for government bank up to the original maturity of the loan
securities is deemed to be automatically or full payment thereof, whichever comes
accredited for purposes of this Section and is earlier.
likewise exempted from the independence
requirement under Subsec. X441.9. Securities X441.13 Basic security deposit.
registered under the RoSS shall be delivered Securities held under custodianship whether
in accordance with the guidelines set forth in booked in the Trust Department or carried
Appendices 68 and 68a. in the regular books of the bank shall be
(As amended by Circular No. 873 dated 25 March 2015) subject to a security deposit for faithful
performance of duties at the rate of 1/25 of
X441.11 Confidentiality. A Bangko one percent (1%) of the total face value or
Sentral-accredited securities custodian/ P500,000 whichever is higher.

Part IV - Page 50 Manual of Regulations for Banks


X441.13 - X499
12.12.31

However, securities held under c. Subsequent offenses


custodianship where the custodian also (1) Fine of up to P30,000 a day for the
performs securities lending as agent shall institution for each violation from the date
be subject to a higher basic security deposit the violation was committed up to the date
of one percent (1%) of the total face value. it was corrected;
Compliance shall be in the form of (2) Suspension or revocation of the
government securities deposited with the authority to act as securities custodian and/
Bangko Sentral eligible pursuant to existing or registry; and
regulations governing security for the faithful (3) Suspension for one hundred twenty
performance of trust and other fiduciary (120) days without pay of the directors/
business. officers responsible for the violation.
(As amended by Circular No.714 dated 10 March 2011)
Secs. X442 X498 (Reserved)
X441.14 Reportorial requirements
An accredited securities custodian shall D. GENERAL PROVISION ON
comply with reportorial requirements that SANCTIONS
may be prescribed by the Bangko Sentral,
which shall include as a minimum, the face Sec. X499 Sanctions. Any violation of the
and market value of securities held under provisions of this Part shall be subject to
custodianship. Sections 36 and 37 of R.A. No. 7653
without prejudice to the imposition of
X441.15 X441.28 (Reserved) other sanctions as the Monetary Board
may consider warranted under the
X441.29 Sanctions. Without prejudice circumstances that may include the
to the penal and administrative sanctions suspension or revocation of a banks
provided for under Sections 36 and 37,
authority to engage in trust and other
respectively, of the R.A. No. 7653,
fiduciary business or in investment
violation of any provision of this Section management activities, and such other
shall be subject to the following sanctions/ sanctions as may be provided by law.
penalties: In the case of non-compliance with
a. First offense the requirements of Secs. X401, 2404
(1) Fine of up to P10,000 a day for the Items (i) (iii) and 3404 Items (i)
institution for each violation reckoned from (iii) and Subsecs. X406.2 to X406.4 and
the date the violation was committed up to X406.10 additional sanction may be
the date it was corrected; and imposed, which may include but not
(2) Reprimand for the directors/officers limited to, curtailment of fiduciary
responsible for the violation. activities and/or introduction of new
b. Second offense - business. 1
(1) Fine of up to P20,000 a day for the The guidelines for the imposition of
institution for each violation reckoned from monetary penalty for violations/offenses
the date the violation was committed up to with sanctions falling under Section 37 of
the date it was corrected; and R.A. No. 7653 on banks, their directors
(2) Suspension for ninety (90) days and/or officers are shown in Appendix 67.
without pay of directors/officer responsible (As amended by Circular No. 766 dated 17 August 2012)
for the violation.

________________
1
Trust entities of banks that do not meet the requirements shall be given twelve (12) months from
10 September 2012 to comply.

Manual of Regulations for Banks Part IV - Page 51