BSP simplifies UITF licensing

MANILA, Philippines — The Bangko Sentral ng Pilipinas is set to simplify the licensing framework and certification program for unit investment trust funds (UITFs), according to BSP Governor Felipe Medalla.

In his keynote address during the induction of officers and general membership meeting of the Fund Managers Association of the Philippines (FMAP), Medalla assured the fund management industry of the central bank’s continued support.

Medalla said the regulator recognizes trusts as a key component of the banking system that plays an important role in money supply management.

Through its Trust Business Model initiative wherein the BSP pursues several reforms, Medalla said fund managers can enhance their operations and realize their goals.

“This includes the introduction of a simplified licensing framework for UITFs and the approval of the simplification of passing requirements for the UITF Certification Program,” Medalla said.

UITFs refer to open-ended pooled trust funds denominated in pesos or any acceptable currency, which are operated and administered by a trust entity and made available by participation. As an open-ended fund, participation or redemption is allowed as often as stated in the plan rules.

“We hope that through these reforms, the BSP will be able to assist organizations like FMAP to further their vision of being catalysts of change in the industry and upholding the interests of many Filipinos,” Medalla added.

Last October, the BSP decided to allow trust entities to invest in UITFs, with minimal non-resident funds in instruments issued by the central bank, to absorb excess liquidity in the financial system.

The central bank’s Monetary Board approved amendments to the Manual of Regulations for Non-Bank Financial Institutions pertaining to the participation of trust entities that manage UITFs with non-resident participants or those originating outside the country’s financial systems.

Under the approved amendments to the regulations, trust entities can now purchase BSP-issued bills and bonds in the secondary market for any UITF in which the share of net assets of non-residents does not exceed 10 percent of the net assets of the fund.

Expanding the coverage of participants in the secondary market trading of BSP securities enhances the central bank’s capability to absorb liquidity and helps transform the BSP securities as a primary tool for liquidity management.

According to the central bank, the measure is also aimed at ensuring the tradability and viability of BSP securities as a highly liquid instrument, thus allowing for better price discovery and monetary policy transmission.

The implementation of this policy supports the BSP’s prevailing monetary policy stance to increase liquidity absorption amid an elevated inflation environment, consistent with the BSP’s exit from monetary accommodation measures in response to the COVID-19 pandemic.

The regulator prohibits funds from non-residents to be invested in the term deposit facility (TDF), overnight deposit facility (ODF), and BSP securities facility (BSP-SF), as such instruments are deployed for the purpose of managing domestic liquidity in the financial system.

The BSP has committed to closely monitor the sources of funds placed by trust entities in the BSP’s facilities through periodic supervisory reporting requirements.