SEC mulls control over certain UITF operations

The Securities and Exchange Commission (SEC) is studying whether part of the operations of unit investment trust funds (UITFs) fall under its regulatory authority.

UITFs are pooled trust funds in acceptable currencies operated by a trust entity regulated by the Bangko Sentral ng Pilipinas (BSP). Banks started selling UITFs last year and the sector grew to as much as P300 billion by April this year.

The possible transfer of UITF regulation to the SEC is among the items being discussed under the proposed Revised Investment Companies Act (RICA).

SEC chairperson Fe Barin said while the possible supervision of UITFs by the SEC is something to look into the commission is open to consultations with central bank officials regarding the issue.

"We’re both regulators, we can discuss this. But one thing I can assure you is that the SEC will do what the law requires us to do. But this doesn’t mean we will supervise trust companies because it is the BSP which has authority over them," Barin said.

"There are so many questions that need to be answered first. Is it a security? Should it be registered with the SEC? These things are now being studied by the Corporation Finance Department. We are also set to discuss this in the financial sector forum," she added.

The BSP is reportedly not willing to relinquish control over UITFs to the SEC, pointing out it has the mandate to regulate trust products.

In the United States, the SEC manages UITFs, not the banking regulator.

The US Investment Act of 1940 authorizes the US SEC to regulate the operations of UITFs, mutual funds, which are legally known as open-end companies, and close-end companies. In the Philippines, mutual funds are regulated by the SEC.

The fund management industry is growing faster than bank deposits, with the worldwide average against deposits now hitting 75 percent.

Philippine assets held in common trust funds and UITFs combined are estimated at only P350 billion or 12 percent of total bank deposits, significantly lower than Singapore’s 17 percent, Malaysia’s 26 percent, Hong Kong’s 88 percent and even Thailand’s 13 percent.

Several investors in May lost money from their investment funds when Philippine bond prices fell sharply. Government bonds and shares of listed companies are the underlying securities of the investment funds. The value of the funds dropped in May when foreign investors pulled out their emerging market investments on expectations of a US Federal Reserve Board rate hike.