What’s new with BSP’s guidelines on trust corporations?

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What’s new with BSP’s guidelines on trust corporations?
The existing Trust Rating System will be revised to consider 'capital adequacy' as an additional component in evaluating the operations of a trust corporation, the central bank says

MANILA, Philippines – The Monetary Board on Thursday, June 18, approved the new guidelines on the establishment and operation of trust corporations (TCs), effectively updating the key components of Circular No. 710 issued in January 2011.

TCs are entities that are duly authorized by the central bank to engage in funds management under either a trustor-trustee arrangement or an agency type of agreement.

Unlike existing trust units of banks and non-bank financial institutions, TCs are organized as a corporation with its own capital and management structure, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Amando M. Tetangco Jr said that having an entity primarily performing trust activities, that is separate from the bank or a non-bank financial institution has been a prudential policy direction of the central bank.

He added that the new guidelines for TCs “not only follow through on that policy direction but further enhances the governance arrangements which should be of value to the clients of a trust corporation.”

What’s new?

Under the new guidelines, the existing Trust Rating System that BSP developed will be revised to consider “capital adequacy” as an additional component in evaluating the operations of a trust corporation. 

The Trust Rating System is a BSP assessment tool to evaluate the administration of fiduciary activities of trust entities.

Also, from minimum capitalization of P100 million ($2.23 million) at inception, TCs will have a 5-year transition period, then increase their capital to P300 million ($6.68 million). “This added flexibility recognizes that TCs will build up their operations during the transition period,” BSP said.

Also, a TC will not be subjected to credit-related prudential controls applicable to bank operations such as the single borrowers’ limit (SBL) and loan accommodations to directors, officers, stockholders, and their related interests (DOSRI).

To prevent any abuse, the guidelines reiterate the policy that banks and NBFIs which choose to provide trust services must do so only either through their trust department or through a subsidiary or affiliate trust corporation.

In addition, the TCs’ duties and responsibilities of the management and staff have been expanded to highlight the implementation of a sound risk management system and corporate governance practices. 

“Likewise, these individuals must possess the qualities and qualification that can assure the performance of trust functions in an expert and professional manner,” BSP said.

BSP said the approved guidelines is in line with its liberalization initiative that increases competition in the asset management business while enhancing governance standards. 

“The establishment of trust corporations is expected to increase market players. At the same time, the investing public can expect to benefit from more innovative trust products and services,” BSP said. Rappler.com

$1 = P44.90

Trust corporation concept image via Shutterstock

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