UITF Regulations and Guidelines Quiz

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Questions and Answers

Which BSP issuance primarily focuses on the allowable investments for Unit Investment Trust Funds (UITFs)?

BSP Circular 577

BSP Circular 675 (correct)

BSP Circular 852

BSP Circular 1152

Which circular introduced amendments to the UITF regulations related to feeder funds and fund of funds?

BSP Circular 853

BSP Circular 844

BSP Circular 907

BSP Circular 767 (correct)

Which of the following circulars addresses cross-selling of Collective Investment Schemes (CIS)?

BSP Circular 676

BSP Circular 876

BSP Circular 844 (correct)

BSP Circular 891

Which BSP issuance provides guidelines on sales and marketing for financial products, potentially impacting UITFs?

BSP Circular 891 (A) Signup and view all the answers

What is the primary intention behind the BSP's regulations of UITFs?

To align the operation of pooled funds with international best practices and differentiate them from deposit products (A) Signup and view all the answers

Which of these regulations specifically aims to enhance the credibility of pooled funds for retail investors?

UITF rules, in general (D) Signup and view all the answers

What does BSP Circular 853 introduce in regards to UITFs?

Creation of Multi-Class UITF (C) Signup and view all the answers

Which BSP issuance relates to the minimum disclosure requirements for UITFs?

BSP Circular 852 (D) Signup and view all the answers

What is the primary purpose of the Customer Suitability Assessment (CSA) form?

To classify clients based on their financial knowledge and risk tolerance. (B) Signup and view all the answers

Which of the following best describes how assets are accounted for in a UITF?

Using a pooled-fund accounting method, with all assets combined into a single account. (A) Signup and view all the answers

What is the significance of a unit in relation to a UITF?

It represents a uniform participation with equal rights and privileges. (B) Signup and view all the answers

Under what circumstances would a management fee be charged only once for a fund?

When an Investor Fund invests in a related Target Fund. (D) Signup and view all the answers

What restriction is placed on feeder funds regarding trading activity?

Switching of funds that signifies active trading is strictly prohibited. (A) Signup and view all the answers

Which of the following is NOT an exemption that UITFs benefit from?

Capital tax. (C) Signup and view all the answers

What criterion dictates the admission or redemption of units within the fund?

The net asset value per unit (NAVPu) valuation. (C) Signup and view all the answers

What is required of previously certified UITF marketing personnel before they can sell Feeder Funds and Fund of Funds?

They must complete a supplementary course specifically for these types of funds. (B) Signup and view all the answers

According to the guidelines, what should be the relationship between the investment objectives of a feeder fund and its target fund?

The target fund's objectives should be aligned with the feeder fund. (C) Signup and view all the answers

What is the limitation on the underlying investments of target funds, as per the guidelines?

They are limited to the allowable investment outlets set forth in Subsection X410.9/4410Q.9 of the MORB/MORNBFI. (B) Signup and view all the answers

According to the guidelines, what criteria must a foreign target fund meet to be considered eligible?

Being authorized by a regulatory authority in its home jurisdiction that is a member of the IOSCO. (C) Signup and view all the answers

What is one of the powers, duties and responsibilities that the Investor Fund Trustee must define, according to the guidelines?

Choosing and switching Target Funds (D) Signup and view all the answers

What does the trustee have to disclose regarding material changes?

Disclose to all clients through internal process. (B) Signup and view all the answers

According to the provided guidelines, which of the following is required information about target funds that must be disclosed by a Trustee?

Fund Manager and Total Expense Ratio (A) Signup and view all the answers

According to the guidelines, what should be explicitly stated about a UITF structured as a feeder fund in marketing materials?

That it is structured as a Feeder Fund or Fund of Funds (A) Signup and view all the answers

What specific detail is mentioned regarding fees within the context of feeder funds and fund of funds?

Fees should be well documented, properly explained, and disclosed to clients. (C) Signup and view all the answers

What is the primary role of a Personal Information Controller (PIC)?

To control the collection, holding, processing or use of personal information. (A) Signup and view all the answers

Which right allows an individual to correct inaccuracies in their personal data?

The right to rectify (D) Signup and view all the answers

According to the material, what is a key aspect concerning fees associated with products that have an automatic right to a cooling-off period?

Fees must be appropriately determined, discussed, and explained to consumers. (A) Signup and view all the answers

Which of the following best describes a Personal Information Processor (PIP)?

A person or body to whom a PIC outsources the processing of personal data. (D) Signup and view all the answers

What is the 'right to data portability' as it relates to data privacy?

The right to transfer personal data between different systems. (B) Signup and view all the answers

What information is required to be disclosed for feeder funds and fund of funds?

Fund manager, latest available outstanding investments of the target fund/s, fund objectives, NAV/NAVPU, historical performance, total expense ratio, and clear statement in marketing materials that the UITF is structured as either a Fund of Funds or Feeder Funds. (D) Signup and view all the answers

Regarding fee charges on feeder funds or fund of funds, which of the following is correct?

The investor fund UITF may charge its own trust fee apart from the trust fee charged by the target fund/s and may invest in its own or related target funds, provided that management fee shall only be charged once, whether at the level of the investor fund OR at the level of the target fund. (C) Signup and view all the answers

What discretionary powers does the Investor Fund Trustee have regarding target funds?

The trustee has the power to choose, switch target funds, and can suspend the trading of the UITF due to suspension of one or any of its target funds. (C) Signup and view all the answers

In a multi-class fund structure, how are the assets treated?

The investments of multi-class UIT fund shall remain as one pool and are not separately allocated to classes. (D) Signup and view all the answers

What is the standard accounting method for multi-class funds?

Pooled-fund accounting method, where the total assets and accountabilities of each fund are accounted for as a single account. (D) Signup and view all the answers

How do clients contribute to a multi-class UIT fund?

Clients contribute through participation in units of the fund, with units issued as units in a class of a fund. (C) Signup and view all the answers

How do the rights of each unit in a multi-class UIT fund compare within the same class?

Each unit within a class has uniform rights and privileges. (A) Signup and view all the answers

According to the provided text, what aspects may vary between participation classes in a multi-class UITF?

Minimum investment amounts and fees. (B) Signup and view all the answers

For a multi-class UIT fund, how should costs not directly attributable to a specific unit class be allocated?

Based on a policy that allocates costs among unit classes. (D) Signup and view all the answers

How is the Net Asset Value Per Unit (NAVPU) of each unit class in a multi-class UIT fund determined?

The net assets for each unit class divided by the total outstanding units of that class. (A) Signup and view all the answers

In calculating the total net assets of a multi-class UIT fund, how are trustee fees and expenses handled?

They are excluded from the total net asset calculation before deductions for trustee fees and expenses at a class level. (D) Signup and view all the answers

For a multi-class UIT fund, how are trustee fees applied to each unit class?

They are applied to each class's proportionate share of the net assets of the multi-class UIT fund. (B) Signup and view all the answers

In a multi-class UIT fund with varying fee structures, how is the difference in fees reflected?

It is reflected in the NAVPU of each unit class. (D) Signup and view all the answers

Considering a multi-class UIT fund with different management fees for classes A (1.00%), B (1.50%), and C (2.00%), and minimum investment requirements of 10,000,000, 5,000,000 and 1,000,000 respectively, will each class have the same NAVPU?

No, different fee structures will result in different NAVPUs for each class. (B) Signup and view all the answers

What is the primary goal of a distributing UIT fund?

To provide a regular stream of income to participating investors. (C) Signup and view all the answers

What types of securities might a distributing UIT fund typically invest in?

A mix of dividend paying stocks, preferred stocks, and/or coupon paying bonds. (A) Signup and view all the answers

Study Notes

BSP Circular 447: Unit Investment Trust Fund
BSP Circular 577: UITF Exposure Limit to a Single Person or Entity
BSP Circular 593: Amendments to the UITF Regulations
BSP Circular 675: Allowable Investments of UITFs
BSP Circular 676: Cross-currency investment for Peso Trust, Other Fiduciary and IMAs, and Peso UITFs
Memorandum M-2010-033: Clarification on the implementation of Circulars 675 and 676
BSP Circular 767: Amendments to the UITF Regulations (Feeder Fund and Fund of Funds)
BSP Circular 844: Cross-selling of Collective Investment Schemes
BSP Circular 852: Amendments to the UITF Regulations (Minimum disclosure requirements)
BSP Circular 853: Creation of Multi-Class UITF
BSP Circular 876: UITFs with unit-paying feature
BSP Circular 891: Sales and Marketing Guidelines for Financial Products
BSP Circular 907: Amendments to UITF Regulations (CIS of target funds)
BSP Circular 1031: Additional Guidelines on the Grant of Licenses/Authorities and Types of Licenses of Permissible Activities
BSP Circular 1152: Amendments to the Regulations on Unit Investment Trust Funds (UITFs)

Objectives of UITF Rules

Align operations of pooled funds with international best practices
Ensure differentiation from deposit products
Enhance credibility of pooled funds to retail investors
Enable pooled funds to evolve as major institutional investors

Allowable Investments of UITFs

Securities issued by or guaranteed by the Philippine government or the Bangko Sentral ng Pilipinas
Tradable securities issued by foreign governments, political subdivisions, or supranational entities
Exchange-listed securities
Marketable instruments traded in organized exchanges
Loans traded in organized markets (promissory notes not allowed)
Loans arising from repo agreements transacted through a recognized exchange, subject to lawful termination by the trust entity and due notice to counterparty and market operator
Units/shares in collective investment schemes (Target Funds, including Exchange Traded Funds (ETFs) and other CIS), subject to specific conditions
Other tradable investment outlets/categories allowed by the BSP, with specific conditions on financial instruments traded in foreign currency

Exposure Limits

The combined exposure of a UITF to any entity and its related parties shall not exceed 15% of the market value of the UITF
A UITF invested in exchange-traded securities is subject to a 15% exposure limit to a single entity/issuer, provided the exposure limit is the actual benchmark weighting of the issuer or 15%, whichever is higher
The exposure limit does not apply to non-risk assets as defined by the BSP
For feeder funds and fund-of-funds, the exposure limit applies to the target fund's underlying investments
Investments in any one target fund shall not exceed 10% of the total net asset value of the target fund

Non-risk assets

Cash
Debt securities issued by the BSP or the Philippine government
Deposits maintained in lending banks and held in the Philippines
Debt securities issued by the U.S. government
Debt securities issued by central governments, central banks of foreign countries and multilateral financial institutions
International Finance Corporation
Asian Development Bank
World Bank
Internationally accepted rating agencies

Exposure Limits - Breaches

In case of breaches due to MTM or extraordinary circumstances, the trustee has 30 days (or 30 days from receipt of investor fund NAV)
At least 90% of a feeder fund’s assets to be invested in a single collective investment scheme
At least 90% of a fund-of-funds’ assets shall be invested in more than one collective investment scheme

UITF Disclosures

All marketing materials must clearly state:
- Fund's name, classification, trustee, and classes of units
- General and specific risks of investing in layman's terms
- Details of administrative and marketing procedures (e.g., subscriptions/redemption conditions, cut-off times)
- All charges (e.g., trust fees, custody fees)
- Availability of plan rules
- Trustee's contact details
- Client and product suitability standards
- Participation is not a deposit product but a trust product; trustee not liable for losses unless due to willful default, bad faith, or gross negligence
Include balanced assessment of possible gains and losses
Advise that investors must fully understand fund details and seek independent/professional opinions if necessary
No indicative rates of return; past performance is not a guarantee of future results

UITF Disclosures (Participating Trust Agreement)

The UITF is not a deposit or guaranteed/insured product
Yields and potential yields cannot be guaranteed
Any losses/income from market fluctuations/volatility is the participant’s responsibility
Units redeemed may be more or less than the initial investment
Historical performance is strictly for reference only and does not guarantee future results
Trustee not liable for losses except in case of willful default, bad faith, or gross negligence

UITF Disclosures (Income Distribution Feature)

Income for distribution is determined by the trustee according to the UITF’s Plan, not guaranteed
Frequency of income distribution
Income payout rate
Manner of receiving unit income
NAVPU may decrease due to income distribution

UITF Disclosures (Participation and Redemption)

Confirmation of Participation and Redemption must contain:
NAVPU as of the day of purchase/redemption
Number of units purchased/redeemed
Exact amount in peso or foreign currency equivalent
Optional: Electronically signed confirmations accepted instead of physical signatures

Guidelines for Feeder Funds and Fund of Funds

Underlying investment objectives of target funds should align with investor fund
Target funds investment is limited to the allowable investment outlets that fall under MORB/MORNBFI Subsection X41,0 and 4410Q.9
Target fund holds no investments in other collective investment schemes
Target funds are supervised by regulating bodies (BSP or SEC for Philippine jurisdiction, IOSCO member)

Guidelines for Feeder Funds and Fund of Funds (TOAP's General Policy)

Powers, duties, and responsibilities of the Investor Fund Trustee
- Choosing and switching target Funds
- Suspension of trading UITF
- Cash holdings in excess of regulatory/defined cash allocations
- Valuation, subscription, and redemption frequencies
Internal Processes/Disclosures
- Internal procedures and client disclosure of material changes important to investment decisions
- Minimum information on target funds to be disclosed by trustee
- Fund manager, Investment objectives, Latest holdings/available investments, Historical Performance, NAVPU, Expense Ratio
Marketing materials must state structure as Feeder Fund or Fund of Funds
Fees documented and disclosed to clients (Investor Fund fees, Target Fund fees, and potential rebates/reimbursement)
Asset allocation ranges must be mentioned in the plan rules

Guidelines for Feeder Funds and Fund of Funds (Breaches)

BSP prescribed exposure limits for regular UITFs apply to target funds
Switching of funds that signal trading activity is strictly prohibited

Guidelines for Feeder Funds and Fund of Funds (Marketing Personnel)

Certified UITF Sales Personnel (CUSP) must be properly trained
Necessary supplementary courses are required for those who sell feeder funds and funds of funds

Operating and Accounting Methodology

Pooled-fund accounting method to aggregate all fund assets and liabilities
Uniform rights and privileges for each participation unit
Multi-class funds: uniform issuance of units within each class
Beneficial interest per unit determined via NAVPU valuation
UITFs exempt from statutory and liquidity reserves, single borrower limit, and DOSRI ceilings

UITF Documents

Customer Suitability Assessment Form (CSA) (signed by client and marketing personnel)
Profiling process for client suitability, guidance in investment choices, and risk tolerance assessment, client classification based on sophistication
UITF Participating Trust Agreement (PTA)
Risk Disclosure Statement (RDS) (client-signed upon participation in any different fund)
CSA Waiver (as applicable)
Confirmation of Participation/Redemption (includes the NAVPU upon day of subscription, number of units, and exact value)

UITF Reports

Key information and investment disclosure statements (KIIDS) are made available quarterly
Regular publications/computations/availability of the fund's NAVPU (at least weekly in a national newspaper)
Weekly publication stating the fund name, general classification, NAVPU, and YTD and YoY return
NAVPU computed daily, and the figures available to investors/participants upon request
Updates to available documents/rules, historical NAVPU, Plan rules, and disclosure documents must be available on the trustee's website or uitf.com.ph, and investment performance YTD and YOY

Cooling Off Period

Consumers have the right for a cooling-off period to cancel agreements for a financial instrument
Notice to cancel the agreement to the BSP is permitted, and no penalty
The BSP can, however, collect reasonable processing fees
Provisions for instruments traded or to be traded are exempt
The consumer has at least two (2) banking days.
Consumers with aggregate investments over P500,000 are excluded

Data Privacy

Data privacy rights include the following: -The right to be informed -The right to access -The right to object (to processing) -The right to erasure or blocking (of data)
- The right to damages (in case of violation of data protection)
- The right to file complaint
- The right to rectify
- The right to data portability
Personal Information Controller (PIC) controls collection, processing, and use of personal information, and can instruct others to do so
Personal Information Processor (PIP) processes personal information for a controller

New UITF Structures: Feeder Funds and Fund of Funds

Fund Manager, Latest Investments, Fund Objectives, NAVPU, Historical Performance, Expense Ratio
UITF structured as Feeder Fund or Fund of Funds (must be clear in marketing material)

New UITF Structures: Distributing Fund

UIT Fund with distribution feature distributes income as units/shares
Aims for regular income to participants, can invest in various income securities (e.g., dividend-paying stocks, preferred stocks, and coupon-paying bonds)
Provides a non-guaranteed stream of additional income and potential for capital appreciation
Additional units are given to participants via "unit income" on a pro-rata basis

New UITF Structures: Multi-Class Funds

One UITF with many participation classes
Each class has uniform rights and privileges
Class variations possible based on fees (e.g., minimum investment amounts)

Amendments Multi-class Funds

All assets and liabilities of the multi-class UITF will be treated as one pooled account (no separate account for each class)
Contributions are made through participation units
Different fees/expense levels for various classes reflected in the NAVPU for each class based on total assets minus appropriate class fees and expenses.
Trustee fee for each class is applied against proportionate share of the multi-class UITF's net assets.

Other Regulations

Trustee must not have beneficial interest in fund
Know-Your-Customer standards (KYC) required prior to transactions
Termination of UITF requires approval from the Trust Committee, the board and the BSP, and notification of participants
Cross-selling allowed for certain financial conglomerates
Multi-class UITFs have a single pool of assets and securities, and same investment objectives and policies
Distributing UITFs have income distribution features, where revenue is paid in units called ‘unit income.’
Multi-asset UITFs invest in various assets (fixed income, securities, equities).

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Description

Test your knowledge on the regulations and guidelines governing Unit Investment Trust Funds (UITFs). This quiz covers various BSP issuances, their intentions, and important concepts like the Customer Suitability Assessment. Enhance your understanding of pooled funds and investment schemes relevant to retail investors.