BSP tightens watch on trust entities

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has tightened its watch of trust entities by revising its tools used during on-site examinations to include a uniform standard on the assessment of risks related to fiduciary business.

“The revised trust rating system takes into consideration key factors essential in the operations of a trust entity and at the same time evaluates risk management practices,” the BSP said in a statement.

Trust entities are separate companies or bank arms whose main task is to manage funds entrusted to them by their clients who could be individuals or corporations.

The revised regulations for the trust business came on the heels of the issuance of a compliance rating system for banks and other financial institutions. The BSP has said it was meant to put “more structure” to the examination process.

According to the BSP, it revised its on-site examination tool to “integrate” a “risk assessment framework” which would assess the capability of trustees to respond and mitigate potential dangers.

The system, it said, will also now include “enforcement actions” that may be taken by the BSP should trustees fail or embark on practices “not consistent” with “sound fiduciary principles.” It did not elaborate.

A five-point rating system, with five indicating the “strongest performance,” will also be adopted. The original scale was from one to four, with the latter being the highest.

“The BSP endeavors to ensure that all trust entities are evaluated in a comprehensive and consistent manner,” the central bank said.

“(P)roper supervisory attention is focused on those engaging in fiduciary business that (is) not consistent with sound fiduciary principles,” it added.

The following will be evaluated during periodic evaluations: capability of board of directors and senior management officers; soundness of operations, controls and audits; compliance to applicable laws and regulations; prudent management of fiduciary assets; and earnings performance.

“The BSP shall assess which areas place the greatest impact on safety and soundness of the trust entity,” the central bank said.

The new rules will be implemented beginning on July.