Reforms underway to strengthen trust industry

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is pursuing various initiatives to further strengthen the trust industry through reforms covering several investment instruments.

 BSP Deputy Governor Nestor Espenilla Jr. said the proposed reforms cover derivatives on unit investment trust funds (UITFs) as well as life cycle or target date funds.

 “We are pursuing various initiatives to further invigorate the trust industry,” Espenilla said in a speech delivered during the 20th Anniversary and Awards Night of the Fund Managers Association of the Philippines (FMAP).

He pointed out the BSP is actively supporting the development of the domestic capital market as it provides additional means for the much-needed financing of a growing domestic economy.

Reforms undertaken include the issuance of risk management guidelines on investment activities, establishment of efficient payment systems, promoting project finance, and reforms in the trust business.

Espenilla said the regulator is studying the possible relaxation of a regulation that only allows UITF investment in derivatives for purposes of hedging.

“We are studying the possible relaxation of this restriction to allow for a more efficient management of investment portfolio,” he said.

Likewise, the BSP official explained the regulator is set to issue guidelines on life cycle or target date funds to expand the UITF product available to potential investors.

“We intend to issue some guidance on this type of fund which has defined financial purposes and asset allocation ceilings that vary over time,” he said.

Espenilla said the BSP would also issue regulations aimed at ensuring that BSP-supervised financial institutions exercise prudence in the conduct of investment management activities.

He explained the guidelines would set out minimum expectations on the practices that fund managers should establish for managing and controlling the risks peculiar to investments.

The regulations would cover holdings of debt and equity securities, hybrid securities, structured products as well as securitization structures including tradable loans, perpetual bonds as well as common and preferred shares.

“Moving forward, we anticipate that this will lead to better managed capital market issuances and greater benefits for issuers,” he said.

Espenilla said the regulator is keeping an eye on the increasing appetite of both the public and the private sectors to participate in large-scale infrastructure projects.