BSP issues new rules on sale of financial products

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has issued new guidelines governing the sales and marketing of financial products by banks amid the heightened risks arising from clients investing in unsuitable products.

BSP Governor Amando Tetangco Jr. said the risks arising from clients transacting in unsuitable products have intensified with the distribution of financial products gaining more significance as a business line for BSP-supervised financial institutions and the increasing complexity of financial products being offered in the market.

“They (banks) have to have policies and procedures in place for the marketing of financial products particularly on the specifications of information that would have to be gathered for the client suitability,” Tetangco said.

Last Oct. 29, the BSP endorsed the issuance of regulations governing the sales and marketing of financial products. The new policy embodies the minimum expectations for the sales and marketing practices of BSP-supervised financial institutions.

It requires supervised institutions to have appropriate policies, procedures, and controls in place to ensure the suitability of products being offered to clients.

Furthermore, the new regulations build on the existing sales and marketing guidelines for derivatives by extending the coverage of the rules to a wider spectrum of instruments that includes debt and equity securities, hybrid securities, and similar products with substantial investment characteristics.

Tetangco said the proper conduct of client suitability is therefore deemed a crucial part not only of consumer protection but also of the self-protection of supervised entities against adverse claims.

“Information should be gathered in the conduct of client suitability. There is also greater emphasis on disclosure requirements for financial products marketed by the banks through their treasury departments,” he added.

The regulations enhance the existing guidelines by explicitly defining the minimum information to be obtained from a client during the initial stage of the suitability assessment.

The new rules requires BSP-supervised financial institutions to classify clients according to their risk tolerance in addition to their sophistication, and setting out the suite of products that may be offered to conservative clients.

It likewise articulates circumstances for the acceptable use of waivers such that clients are not made to automatically and comprehensively waive the outcome of the client classification process and the resulting protections even before a product is recommended or offered.

The BSP-supervised financial institutions are also required to regularly review compensation and incentive programs for sales personnel and ensure that these are designed in a way that would prevent conflicts of interest.

In line with the BSP’s thrust to improve governance among its supervised entities, the guidelines emphasize the role of control functions in ensuring the financial institution complies with its own policies and procedures and relevant laws, rules and regulations in respect of their sales and marketing activities.

The supervised institutions would have three months from the effectivity of the circular to make appropriate changes in their sales and marketing policies, processes and materials to be able to comply with the new regulations.