BSP may allow banks to outsource management of trust funds

The Bangko Sentral ng Pilipinas (BSP) said banks will be allowed to outsource the fund management of their unit investment trust funds (UITFs) in line with international principles of check and balance.

The BSP said it was studying the separation of the fund management and trustee roles of banks over UITFs, saying that banks are already doing this on their own anyway, in the course of making business decisions on the management of UITFs.

According to BSP Deputy Governor Nestor Espenilla, the BSP would issue rules and regulations setting the parameters for allowing banks to outsource fund management if they so decide.

"Fund management is a complicated job, some banks prefer to outsource it and take advantage of the expertise outside their own scope," Espenilla said. "That’s fine with us, in fact this is a step in the direction of international standard practice."

However, Espenilla said there would have to be guidelines from the BSP on the limits and internal checks that have to be observed when banks decide to outsource.

Espenilla said the responsibility of the fund manager would be to grow the fund and meet the investment objectives stated in the trust deed.

On the other hand, the trustee would be responsible for safeguarding the rights and interests of investors. "By separating the roles, the trustee can independently check the compliance of the fund manager to the provisions of the trust deed."

"As a result of the separation of the fund management and trustee functions, the trustee is allowed to act as the custodian of the fund," Espenilla said.

The BSP has already approved the issuance of UITF-like instruments with similar features under the Asian Bond Fund 2 (ABF) where fund management and trustee functions were awarded to different institutions.

The ABF2 Fund also incorporated the establishment of a supervisory committee as an additional mechanism for good corporate governance. A similar structure could be applicable to regular UITFs.