Government mulls international standards for investment funds

Financial regulators are considering the possibility of aligning their regulations with international best practice for such products as trust funds, mutual funds and variable insurance products.

If approved, regulators would be implementing harmonized rules on eligible investments, exposure limits, valuation and disclosure, sales practices, fees and commissions, custodianship, reporting and incentives.

The products, known as collective investment products, have spawned widespread complaints from investors who expect returns on their investments without knowing the risks and complexities of these products.

Financial regulators said that to minimize violations, confusion and abuses, regulatory policies should be aligned with international best practice that have been tried and tested in more developed markets.

The Bangko Sentral ng Pilipinas (BSP) said discussions have begun on the alignment of regulatory policies for collective investment products in an effort to compel issuers to comply with international best practice.

BSP Deputy Governor Ernesto Espenilla said the initial proposals have already been presented and discussed in the Financial Sector Forum, the multi-agency body composed of the BSP, the Securities and Exchange Commission (SEC), the Insurance Commission (IC) and the Philippine Deposit Insurance Corp (PDIC).

According to Espenilla, the existing regulations were complex and the FSF would have to determine the individual flexibilities of the agencies involved and how far they could go without requiring Congressional action.

"On the part of the BSP, the Monetary Board is already empowered to put down rules and regulations on trust funds but the SEC, for example, might have to go through amendments in order to adopt the international best practice," Espenilla said.

According to Espenilla, the regulations governing mutual funds, in particular, were hard-coded in the Investment Company Act and adjustments might need legislative action.

"What we did is to lay down the international best practice as the starting point," Espenilla said. "The next question is how can we align ourselves and to what extent can we do it?"

International best practice, according to Espenilla, would give regulators the starting point as well as the target for regulatory adjustments.

Although mutual funds, trust funds and variable insurance products were different products with specific peculiarities, Espenilla said it was possible to come up with a rationalized standards for determining eligible investments and exposure limits.

Likewise, Espenilla said valuation, disclosure, sales practices, fees and commissions and custodianship by a third party as well as reporting to investors could also be harmonized across the three major product groups.

"International best practice will be the alignment point and the FSF process will take over," Espenilla said. "The uniform standard will be set and the individual agencies involved will in turn adopt them on the products within their jurisdictions."