BSP sets standards for UITF investors

The Bangko Sentral ng Pilipinas (BSP) will set a minimum standard for determining the suitability of investors buying unit investment trust funds (UITFs) to ensure that they are sufficiently aware of the inherent risks of the instrument.

The BSP said that under existing rules, banks are required to impose suitability standards for UITF investors to limit investments to sophisticated investors who know the risks of investing in instruments without protected principal.

BSP Deputy Governor Nestor Espenilla told reporters that the central bank was looking into the possibility of issuing a standard questionnaire that UITF frontliners would require their clients to fill out.

According to Espenilla, the questionnaire would determine whether the client is sufficiently aware of the risks involved in UITFs and whether they are suitable investors.

Espenilla said banks already use similar tools to determine the suitability of UITF investors but the BSP wanted to set a minimum standard that UITF sellers would follow and apply.

Espenilla said banks and trust institutions could expand and even tighten the BSP-set standard questionnaire but the BSP would set the parameters for the minimum requirement.

Aside from standardizing the customer suitability parameters, the BSP was also studying the possibility of accrediting frontline sales personnel who actually sell UITFs although this was expected to face more resistance from the industry.

BSP Governor Amando M. Tetangco Jr. said existing rules and regulations provide adequate cover and full disclosure rules for UITFs but some refinements might be necessary.

Tetangco said the most important feature of the rules required banks and their sales personnel to make sure that they are selling UITFs to investors with sufficient level of sophistication.

"The rules already have provisions setting customer suitability standards," Tetangco said. "That means UITFs can not be sold to just anyone, they have to know what they are buying and they have to besomewhat qualified to make decisions."

However, Tetangco said the BSP would still enhance this provisions by providing more specific requirements that UITF sales personnel would have to comply with.

"We’re also talking about whether we should accredit the people directing selling UITFs," Tetangco said. "We are having a series of meetings with the industry to determine this."

According to Tetangco, the BSP has already met with the Trust Officers Association of the Philippines (TOAP) to discuss the market events of recent weeks and the impact they would have on the regulation of UITFs.

"Clearly, more education is needed," he said. "Sales and marketing people handing UITFs might be thinking they’re still selling common trust funds and people might be thinking they’re still buying common trust funds."

Although similar, CTFs or common trust funds are principal-protected while UITFs are marked to market on a regular basis so that their net asset value actually fluctuates. The principal investment is not protected as they are in CTFs.

Tetangco said banks and other UITF agents should have client profiling but he ruled out allegations that sales and marketing people dealing directly with UITF investors were willfully misleading their clients.