However, the BSP was cold on the proposal to impose a mandatory holding period for UITFs, saying that existing rules already had provisions intended to discourage premature liquidation of UITFs.
As the market calmed following the suspension of Treasury bills (T-bill) auctions until June 6, regulators said the BSP’s UITF rules require full disclosure to ensure that clients knew what they were investing in.
BSP Deputy Governor Nestor Espenilla told reporters that sales personnel handling UITFs were trained and certified by the Trust Officers Association of the Philippines (TOAP).
Espenilla said the setup was an agreement between the TOAP and the BSP, essentially leaving it up to the TOAP to police its own ranks and ensure that UITF personnel are adequately trained.
"But that could be studied, it’s a possibility" Espenilla said when asked whether the BSP could consider individual licensing of UITF sales people.
According to Espenilla, banks and trust institutions both have the responsibility to ensure that investors knew exactly what they were putting their money into, including the possibility of losing their principal since the instrument did not protect the principal investment.
"When you sign your contract with the bank, it should be clearly stated there. It’s not a fine print," he said. "So if you are a UITF investor and you were not told of the risks, then that is against the rules."
However, Espenilla said there was no need to impose mandatory holding periods for UITFs since banks and trust institutions already impose penalties for early liquidation.
"The idea is to discourage the practice but we can not prohibit it," he said. "Investors should be aware that UITFs were never meant to be short-term investment instruments. They should also know that they yield more than, say, deposits, but they are also much more risky."
Espenilla told investors not to panic over the surge in interest rates.
BSP officials said the recent spike in interest rates was unusual but still normal in a free market, not unlike the occasional volatility in foreign exchange rates.
Espenilla said the central bank is keeping an eye on developments in the market but said things appeared to have started to normalize after its knee-jerk reaction to external factors.
UITFs holders have been hurt by the surge in local interest rates as the market experienced unusual volatility due to fears of another round of interest rates hike in the US.