BSP mulls accreditation of unit trust fund sales personnel

The Bangko Sentral ng Pilipinas (BSP) is considering the possibility of accrediting frontline personnel who sell unit investment trust funds (UITFs) as regulators seek to tighten the rules on the new instruments to prevent abuses.

BSP Governor Amando M. Tetangco Jr. said over the weekend that the 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 requires banks and their sales personnel to make sure that they sell UITFs only to investors with sufficient level of sophistication.

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

However, Tetangco said the BSP could still enhance the rules by providing a specific requirement that UITF sales personnel will have to comply with.

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

According to Tetangco, the BSP 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 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 are willfully misleading their clients.

There are proposals for the BSP to impose a mandatory holding period for UITFs but officials rejected the idea since the instruments are intended to be liquid and tradeable.

As the market calmed somewhat following the suspension of Treasury Bill auctions until June 6, regulators said the BSP’s UITF rules precisely require full disclosure to ensure that clients know what they are investing in but they admitted that continuous review would benefit the industry.

At present, sales personnel handling UITFs are being trained and certified by the Trust Officers Association of the Philippines (TOAP) under an agreement, essentially leaving it up to the TOAP to police its own ranks and ensure that UITF personnel are adequately trained.

According to BSP deputy governor Nestor Espenilla, banks and trust institutions both have the responsibility to ensure that investors know exactly what they are putting their money into, including the possibility of losing their principal since the instrument does 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 is 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 cannot prohibit it," he said. "Investors should be aware that UITFs were never meant to me short-term investment instruments. They should also know that they yield more than, say, deposits, but they are also much more risky."