UITF Regulations and Guidelines Quiz

BSP Issuances Related to UITFs

• 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).