TOAP UCP Reviewer March 2023 Regs and Ops PDF

BSP issuances related to UITFs BSP Circular 447 Unit Investment Trust Fund MUST READ BSP Circular 577 UITF Exposure Limit to a Single Person or Entity BSP Circular 593 Amendments to the UITF Regulations BSP Circular 675 Allowable Invest...

BSP issuances related to UITFs BSP Circular 447 Unit Investment Trust Fund MUST READ 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 Cross-currency investment for Peso Trust, Other Fiduciary and IMAs, and Objectives of the UITF Rules: BSP Circular 676 Peso UITFs BSP  To align the operation of pooled Memorandum Clarification on the implementation of Circulars 675 and 676 funds with international best M-2010-033 BSP Circular 767 Amendments to the UITF Regulations (Feeder Fund and Fund of Funds) practices and to ensure differentiation from deposit products BSP Circular 844 Cross-selling of Collective Investment Schemes BSP Circular 852 Amendments to the UITF Regulations (Minimum disclosure requirements)  To enhance the credibility of BSP Circular 853 Creation of Multi-Class UITF BSP Circular 876 UITFs with unit-paying feature pooled funds to retail investors, BSP Circular 891 Sales and Marketing Guidelines for Financial Products enabling them to evolve as major institutional investors that can support BSP Circular 907 Amendments to UITF Regulations (CIS of target funds) the deepening of the domestic capital Additional Guidelines on the Grant of Licenses/Authorities and Types of markets BSP Circular 1031 Licenses of Permissible Activities BSP Circular 1152 Amendments to the Regulations on Unit Investment Trust Funds (UITFs) Trust Officers Association of the Philippines Allowable investments of UITFs a. Securities issued by or guaranteed by the Philippine government or the Bangko Sentral ng Pilipinas; b. Tradable securities issued by the government of a foreign country, any political subdivision of a foreign country or any supranational entity; c. Exchange-listed securities d. Marketable instruments that are traded in an organized exchange; e. Loans traded in an organized market (promissory notes not allowed); f. Loans arising from repo agreements which are transacted through an exchange recognized by the SEC, subject to the condition that the repo contracts may be terminated lawfully by the trust entity administering the UITF and acting as lender, with due notice to its counterparty and the market operator; Trust Officers Association of the Philippines Allowable investments of UITFs g. Units/shares in collective investment schemes, i.e. Target Funds, including Exchange Traded Funds (or ETFs) and other Collective Investment Schemes (or CIS), subject to the following: 1. The investment objectives of the Target Fund are aligned with that of the Investor Fund 2. The underlying investments of Target Funds are limited to the allowable investment outlets as prescribed by the BSP 3. The Target Fund has no investment in other collective investment schemes and 4. The Target Fund is supervised by a regulatory authority, as follows: A local Target Fund shall either be approved by the BSP or registered with the SEC A Target Fund constituted in another jurisdiction shall be registered/authorized/approved, as the case may be, and is recognized as a CIS in its home jurisdiction by a regulatory authority that is a member of the International Organization of Securities Commissions (IOSCO) or any regulatory authority acceptable to the BSP to supervise the CIS. Trust Officers Association of the Philippines Allowable investments of UITFs h. Such other tradable investment outlets /categories as the BSP may allow.  Provided that the investment in peso UITF in tradable foreign currency-denominated financial instruments shall be subject to items “e” and “f” of Subsection X409.6  Provided that a financial instrument is regarded as tradable if quoted two-way prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual regularly occurring market transactions on an arm’s length basis.  Hedging is allowed solely to manage risk exposures. Investment in securities of UITFs shall be held for safekeeping by BSP accredited third party custodians which shall perform independent MTM of such securities. Trust Officers Association of the Philippines 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, partially or substantially, in exchange traded securities shall be subject to the 15% exposure limit to a single entity/issuer: Provided further, that, in the case of an exchange traded equity security which is included in an index tracked by the UIT Fund, the exposure limit of the UIT Fund to a single entity shall be the actual benchmark weighting of the issuer or fifteen percent (15%), whichever is higher. The above limitation shall not apply to non-risk assets as defined by the BSP. For feeder fund and fund-of-funds, the exposure limit shall be applied on 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. Trust Officers Association of the Philippines Non-risk assets per BSP MORB Assets considered as non-risk by the BSP includes: 1. Cash; 2. Debt securities issued by the BSP or the Philippine government; 3. Deposits maintained in the lending bank and held in the Philippines; 4. Debt securities issued by the U.S. government; 5. Debt securities issued by central governments, central banks of foreign countries and multilateral financial institutions such as International Finance Corporation, Asian Development Bank and World Bank, with the highest credit quality given by any two internationally accepted rating agencies; - MORB Subsection X330.1 Trust Officers Association of the Philippines Exposure Limits In case the prescribed exposure limits are breached due to MTM or any extraordinary circumstances which are beyond the control of the trustee, the trustee is given 30 days from the time the limit is breached , or in the case of investor funds, 30 days from the date of receipt of report indicating the net asset value of the target fund, to correct the breach. At least 90% of a feeder fund’s assets shall 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 Trust Officers Association of the Philippines UITF Disclosures All marketing materials related to the sale of UITFs must clearly state:  Name, classification, Fund’s trustee, and classes of units  General and specific risks attendant to investing in the Fund in layman’s terms  Admin and marketing details e.g. subs/red conditions, cut-off time  All charges made against the Fund or class of unit, e.g. trust fees, custody fees  Availability of Plan Rules upon request  Contact details of trustee  Client and Product Suitability Standards  Participation is not a “deposit product” but a trust product; any gain/loss is for the account of the participant; that the trustee is not liable for losses unless upon wilful default, bad faith or gross negligence. Trust Officers Association of the Philippines UITF Disclosures All marketing materials related to the sale of UITFs must clearly state:  Balanced assessment of the possible gains and losses of the UITF and that participation does not carry a guaranteed rate of return and is not insured by the PDIC  An advisory that the investor must read the complete details of the Fund in the Plan Rules and make his/her own risk assessment and when necessary seek independent/professional opinion before making an investment. No indicative rates of return shall be provided in the PTA. Marketing materials may present relevant historical performance for reference, with a clear statement that past results do not guarantee similar future results. Trust Officers Association of the Philippines UITF Disclosures Disclosures on the Participating Trust Agreement: The UITF is a trust product and not a deposit account or an obligation of, or guaranteed or insured by the trust entities or its affiliates or subsidiaries. The UITF is not insured or governed by the PDIC. Due to the nature of the investment, yields and potential yields cannot by guaranteed. Any loss/income arising from market fluctuations and price volatility of the securities held by the UITF , even if invested in government securities, is for the account of the Participant. The units of participation of the investor in the UITF, when redeemed, may be worth more or be worth less than his/her initial investment/contribution. Historical performance, when presented, is purely for reference purposes and is not a guarantee of similar future results. The Trustee is not liable for loss unless upon willful default, bad faith or gross negligence. Trust Officers Association of the Philippines UITF Disclosures For a UITF with income distribution feature, to include the following: income for distribution shall be determined by the trustee in accordance with the UITFs’ Plan and are not guaranteed; the intended frequency of income distribution; the last five distribution dates with information on the income payout rate; the manner by which unit income will received; that the NAVPu of the fund may immediately decrease as a result of distributing the income of the fund. For Feeder/funds fund-of-funds, relevant information on the target fund/s. Trust Officers Association of the Philippines UITF Disclosures The Confirmation of Participation and Redemption shall contain the following: NAVPU of the fund on day of purchase/redemption Number of units purchased/redeemed Absolute peso or foreign currency value A PTA or Confirmation of Participation and Redemption need not be manually signed by the trustee or his authorized representative if the same is in the form of an electronic document that conforms with R.A. No 8792 (Electronic Commerce Act). Confirmation of Participation may or may not be a document for redemption of participation. Trust Officers Association of the Philippines Guidelines for Feeder Funds and Fund of Funds (BSP Circular 767) The investment objectives of target funds should be aligned with that of the investor fund The underlying investments of the target funds are limited to the allowable investment outlets set forth in Subsection X410.9/4410Q.9 of the MORB/MORNBFI The target fund has no investment in other collective investment schemes The target fund is supervised by a regulatory authority as follows: 1. A local target fund shall either be approved by the BSP or registered with the SEC 2. A target fund constituted in another jurisdiction shall be registered/authorized/approved, as the case may be, in its home jurisdiction by a regulatory authority that is a member of the international organization of securities commissions (IOSCO) Trust Officers Association of the Philippines Guidelines for Feeder Funds and Fund of Funds (TOAP’s General Policy) The powers, duties and responsibilities of the Investor Fund Trustee must include and define the following: Choosing and switching Target Funds Suspension of trading the UITF Holdings in cash in excess of regulatory or defined cash allocation Valuation, subscription and redemption frequencies Trust Officers Association of the Philippines Guidelines for Feeder Funds and Fund of Funds (TOAP’s General Policy) Internal Processes/Disclosures Internal process and client disclosure with regards to material changes. Material changes are those that a reasonable investor would consider important to his investment decision to buy, hold or sell. Switching of Target Funds  Minimum information on Target Funds to be disclosed by Trustee:  Fund Manager  Latest available outstanding investments of the Target Fund/s  Fund Objectives  NAV/NAVPU  Historical Performance  Total Expense Ratio Trust Officers Association of the Philippines Guidelines for Feeder Funds and Fund of Funds (TOAP’s General Policy) Internal Processes/Disclosures (continued) Marketing materials should clearly state that the UITF is structured as a Feeder Fund or Fund of Funds Fees should be well documented and properly explained and disclosed to clients.  Investor Fund Collection of Fees from Target Funds or Target Fund Manager (e.g. rebates or trailer fees)  Fee Charged on UITF on top of Target Fund/s’ management fee  Investor Fund investing in related Target Fund --- management fee to be charged only once, either at the level of the Target Fund or the Investor Fund Asset allocation ranges for the Target Fund/s must be included in the Plan Rules Trust Officers Association of the Philippines Guidelines for Feeder Funds and Fund of Funds (TOAP’s General Policy) Breaches BSP prescribed exposure limits for regular UITFs apply to the Target Fund/s. For feeder funds, switching of funds that signify trading activity is strictly prohibited. Marketing Personnel Certified UITF Sales Personnel (CUSP) charged with marketing and selling Feeder Funds and Fund of Funds shall be trained properly. Previously certified UITF marketing personnel must undergo and pass a supplementary course for the selling of Feeder Funds and Fund of Funds. Trust Officers Association of the Philippines Operational Guidelines Operating and accounting methodology: Pooled-fund accounting method wherein total assets and accountabilities of each fund shall be accounted for as a single account Subscription to the UITF shall be through participation in units; each unit shall have uniform rights and privileges In the case of a multi-class fund, units shall be issued in a class of the fund All participations shall be pooled and invested as one account Beneficial interest per unit shall be determined under a unitized Net Asset Value Per Unit (NAVPu) valuation methodology Units admitted to or redeemed from the fund will be based on the NAVPU valuation UITFS are exempt from statutory and liquidity reserves, single borrowers limit and DOSRI ceilings. Trust Officers Association of the Philippines Operational Guidelines: UITF Documents ALL UITF PARTICIPANTS/INVESTORS SHALL BE GIVEN: 1. Customer Suitability Assessment Form (CSA) - to be signed by the client and the UITF marketing personnel Profiling process to assess if client is suitable to invest in UITFs, in general To guide client in choosing best investment to suit his objectives, risk tolerance, preferences and experience To classify clients according to financial sophistication Undertaken on a per client basis signed by both client and Trust marketing personnel 2. UITF Participating Trust Agreement (PTA) 3. Risk Disclosure Statement (RDS) - must be accomplished by the client every time he participates in a different fund. Trust Officers Association of the Philippines Operational Guidelines: UITF Documents ALL UITF PARTICIPANTS/INVESTORS SHALL BE GIVEN: 4. Customer Suitability Assessment Waiver – if applicable 5. Confirmation of Participation / Redemption  Fund NAVPu on day of subscription  Number of Units Purchased  Absolute PHP or FCY value Trust Officers Association of the Philippines Operational Guidelines: UITF Documents Which of these documents can a Certified UITF Sales Person sign?  Customer Suitability Assessment Form (CSA)  Risk Disclosure Statement (RDS) Profiling process to assess if client is suitable to A Risk Disclosure Statement must be invest in UITFs, in general accomplished by a client every time he To guide client in choosing best investment to participates in a different fund. suit his objectives, risk tolerance, preferences and experience  CSA Waiver To classify clients according to financial As applicable sophistication  Confirmation of Participation/Redemption Undertaken on a per client basis signed by both client and Trust marketing personnel Fund NAVPu on day of subscription Number of Units Purchased  UITF Participating Trust Agreement (PTA) Absolute PHP or FCY value Trust Officers Association of the Philippines Operational Guidelines: UITF Documents Which of these documents can a Certified UITF Sales Person sign?  Customer Suitability Assessment Form (CSA)  Risk Disclosure Statement (RDS) Profiling process to assess if client is suitable to A Risk Disclosure Statement must be invest in UITFs, in general accomplished by a client every time he To guide client in choosing best investment to participates in a different fund. suit his objectives, risk tolerance, preferences and experience  CSA Waiver To classify clients according to financial As applicable sophistication  Confirmation of Participation/Redemption Undertaken on a per client basis signed by both client and Trust marketing personnel Fund NAVPu on day of subscription Number of Units Purchased  UITF Participating Trust Agreement (PTA) Absolute PHP or FCY value Trust Officers Association of the Philippines Operational Guidelines: UITF Documents Which of these documents can a Certified UITF Sales Person sign?  Customer Suitability Assessment Form  Risk Disclosure Statement (RDS) (CSA) A Risk Disclosure Statement must be Profiling process to assess if client is suitable accomplished by a client every time he to invest in UITFs, in general participates in a different fund. To guide client in choosing best investment to suit his objectives, risk tolerance, preferences ✗ CSA Waiver and experience As applicable To classify clients according to financial sophistication ✗ Confirmation of Participation/ Redemption Undertaken on a per client basis signed by both client and Trust marketing personnel Fund NAVPu on day of subscription Number of Units Purchased  UITF Participating Trust Agreement (PTA) Absolute PHP or FCY value Trust Officers Association of the Philippines UITF Reports 1. Key Information and Investment Disclosure Statement (KIIDS) – made available quarterly 2. Regular publication/computation/availability of the Fund’s NAVPU  At least weekly publication of NAVPU in one or more newspaper of national circulation  Weekly publication, at the minimum, shall state: Fund name The NAVPU shall be computed daily and made General fund classification available to participants and prospective Fund’s NAVPU participants upon request. YTD return YoY return 3. Make available on trustee’s website – (i) updated Plan, (ii) latest KIIDS, (iii) historical NAVPU, Plan Rules, and disclosure documents on trustee’s website or uitf.com.ph and (iv) moving return on investment for each fund on a YTD and YOY basis. Trust Officers Association of the Philippines KIIDS Template Trust Officers Association of the Philippines Operational Guidelines COOLING OFF PERIOD Cooling-off period is the right given to a consumer, who is a natural person, to cancel the agreement for a particular financial instrument availed. Consumers may be permitted to cancel the agreement without penalty of any kind upon his or her written notice to the BSFI during the cooling-off period. The BSFI may however collect or recover reasonable amount of processing fees. Conditions and fees for products with automatic right to cooling off must be appropriately determined, discussed and explained to consumers. Trust Officers Association of the Philippines Operational Guidelines COOLING OFF PERIOD FULL PROVISION The "cooling-off' period shall be for a reasonable number of days, of at least two (2) banking days, immediately following the submission of any agreement or contract, particularly for financial instruments with a remaining term of at least one (1) year: Provided, that consumers with aggregate investment size of P500 thousand and above are excluded from invoking the cooling off period: Provided, further, That securities "traded“ or "to be traded" are exempt from the coverage of the cooling-off period. Consumers may be permitted to cancel the agreement without penalty of any kind upon his or her written notice to the BSFI during the cooling-off period. The BSFI may however collect or recover reasonable amount of processing fees. Conditions and fees for products with automatic right to cooling off must be appropriately determined, discussed and explained to consumers. Trust Officers Association of the Philippines Data Privacy Rights The right to be The right to The right to The right to informed access object erasure or blocking The right to The right to file The right to The right to damages a complaint rectify data portability Trust Officers Association of the Philippines Data Privacy Terms PERSONAL INFORMATION CONTROLLER (PIC) PERSONAL INFORMATION PROCESSOR (PIP) refers to a person or organization who controls the refers to any natural or juridical person or any collection, holding, processing or use of personal other body to whom a PIC may outsource or information, including a person or organization who instruct the processing of personal data instructs another person or organization to collect, pertaining to a data subject hold, process, use, transfer or disclose personal information on his or her behalf. excludes: 1. a person or organization who performs such functions as instructed by another person or organization; or 2. an individual who collects, holds, processes or uses personal information in connection with the individual’s personal, family or household affairs. Trust Officers Association of the Philippines New UITF Structures Feeder Funds and Fund of Funds Minimum Disclosures  Fund Manager  Latest available outstanding investments of the target fund/s  Fund Objectives  NAV / NAVPU  Historical performance  Total Expense Ratio  Marketing materials shall clearly state that the UITF is structured as either a Fund of Funds or Feeder Funds Trust Officers Association of the Philippines New UITF Structures Feeder Funds & Fund of Funds Minimum Disclosures  Fee Charges on Feeder Funds or Fund of Funds  Investor Fund UITF may charge its own trust fee apart from the trust fee charged by the target fund/s  Investor Fund 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  Duties and Responsibilities of the Investor Fund Trustee Discretionary Powers on:  Choosing the target funds  Switching of target funds  Suspension of trading of the UITF (due to suspension of one or any of its target funds) Trust Officers Association of the Philippines New UITF Structures: Multi-Class Funds One UITF with a single pool of assets but different participation classes Each participation class has uniform rights and privileges Participation class may vary according to terms and fees, for example a) Minimum investment amounts b) Fees Trust Officers Association of the Philippines Amendments Multi-class Funds “Subsection X410.5/4410Q.5 Operating and accounting methodology.” A. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as pooled-fund accounting method. THE INVESTMENTS OF MULTI-CLASS UIT FUND SHALL REMAIN AS ONE POOL AND ARE NOT SEPARATELY ALLOCATED TO CLASSES. Contributions to each fund by clients shall always be through participation in units of the fund; IN THE CASE OF MULTI-CLASS UIT FUND, UNITS SHALL BE ISSUED AS UNITS IN A CLASS OF A FUND and each unit shall have uniform rights or privileges, as any other unit. J. Amount of fees/commission and other charges to be deducted from the fund. FOR MULTI-CLASS UIT FUND THAT HAVE DIFFERENT LEVEL OF TRUSTEE FEES AND EXPENSES, THERE SHALL BE A POLICY FOR ALLOCATING BETWEEN UNIT CLASSES ANY COSTS, CHARGES, AND EXPENSES PAYABLE OUT OF THE FUND, WHICH ARE NOT ATTRIBUTABLE TO ANY PARTICULAR UNIT CLASS. Trust Officers Association of the Philippines Amendments Multi-class Funds D. WHERE THERE IS A DIFFERENT FEE STRUCTURE FOR EACH UNIT CLASS, SUCH DIFFERENCE SHALL BE REFLECTED IN THE NAVPU OF EACH UNIT CLASS.  TO ARRIVE AT THE UNIT CLASS’ NAVPU, THE NET ASSETS FOR EACH UNIT CLASS IS DIVIDED BY THE TOTAL OUTSTANDING UNITS OF SUCH UNIT CLASS. THE TOTAL NET ASSETS OF THE MULTI- CLASS UIT FUND IS THE SUMMATION OF THE MARKET VALUE OF EACH INVESTMENT LESS FEES, TAXES AND OTHER QUALIFIED EXPENSES,  AS DEFINED IN THE PLAN RULES, EXCLUDING TRUSTEE FEES AND EXPENSES APPLICABLE TO EACH UNIT CLASS.  PROVIDED FURTHER THAT, NET ASSETS FOR EACH UNIT CLASS IS THE PROPORTIONATE SHARE ON THE TOTAL NET ASSETS OF THE MULTI-CLASS UIT FUND LESS TRUST FEES.  THE TRUSTEE FEES APPLICABLE TO THE UNIT CLASS SHALL BE APPLIED ON THE CLASS’ PROPORTIONATE SHARE ON THE NET ASSETS OF THE MULTI-CLASS UIT FUND. Trust Officers Association of the Philippines UnionBank Template New UITF Structures: Multi-Class Funds Sample Structure Unit Minimum Trust/Management Fee Class Investment A 1.00% 10,000,000 B 1.50% 5,000,000 C 2.00% 1,000,000 In this case, will each class have the same NAVPU? Trust Officers Association of the Philippines New UITF Structures: Distributing Fund DISTRIBUTING FUND  A UIT Fund which has an income distribution feature whereby the income of the fund is distributed in the form of units.  Its goal is to provide a regular stream of income to participating investors.  The fund may invest in various income-generating securities like dividend paying stocks, preferred stocks and/or coupon paying bonds.  The investment objective will be generally to provide participating investors a non-guaranteed stream of additional income and also a potential for capital appreciation.  Instead of paying cash dividends outright, the fund shall give out additional units to participating investors (called unit income) on a pro-rata basis. Trust Officers Association of the Philippines New UITF Structures: Distributing Fund DISTRIBUTING FUND  All dividend income and coupon payments received by the fund shall be accrued to the fund itself.  The bank DOT shall provide the guidelines and shall state the frequency (quarterly, semi-annual or annual) of unit payment to the investors.  The DOT shall likewise set an ex-date and a date payable. The ex-date shall refer to the cut-off date for the unit-dividend entitlement whereas the date payable shall refer to the day when the unit dividends are actually paid out to the investors. The Declaration of Trust should also provide, in plain and simple language, how the computation is made for the UNIT payouts. Trust Officers Association of the Philippines New UITF Structures: Distributing Fund Number of Units increase but NAVPU declines Trust Officers Association of the Philippines Other Regulations  The Trustee should not have any beneficial interest in the fund.  The standard Know-Your-Customer (KYC) is required prior to any trust transaction.  Termination of a UITF requires approval of the Trust Committee, the board and BSP and due notice to each participant of the UITF. Cross selling of UITFs UITFs may be sold by a bank employee belonging to the same financial conglomerate as the trustee, subject to the provisions of the cross-selling framework. Trust Officers Association of the Philippines Other Regulations Multi-class UITFs UITFs with more than one class of units in the fund and is invested in the same pool of securities and the same portfolio, investment objectives and policies Distributing UITFs UITFs which have an income distribution feature whereby the income of the fund is distributed in the form of units called unit income Multi-asset UITFs UITFs which invest in a diversified portfolio of fixed income securities, equities, and other allowable investments for UITFs Trust Officers Association of the Philippines