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(NAR) VOL. III NO. 3 / JULY - SEPTEMBER 1992

[ BSP MEMORANDUM, May 26, 1992 ]

AMENDMENTS TO THE RULES AND REGULATIONS ON TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT ACTIVITIES



The Monetary Board, in its Resolution No. 472 dated May 22, 1992, approved the following amendments to the Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities:

SECTION 1. Section 407 is hereby amended to read as follows:
SECTION 407.  Non-Trust, Non-Fiduciary and/or Non-Investment Management Activities.
THE BASIC CHARACTERISTIC OF TRUST AND OTHER FIDUCIARY RELATIONSHIP IS THE ABSOLUTE NON-EXISTENCE OF A DEBTOR-CREDITOR RELATIONSHIP, THUS THERE IS NO OBLIGATIONS ON THE PART OF THE TRUSTEE OR FIDUCIARY TO GUARANTEE RETURNS ON THE FUNDS OR PROPERTIES REGARDLESS OF THE RESULTS OF THE INVESTMENT. THE TRUSTEE OR FIDUCIARY IS ENTITLED TO FEES/COMMISSIONS WHICH SHALL BE STIPULATED AND FIXED IN THE CONTRACT OR INDENTURE AND THE TRUSTOR OR PRINCIPAL IS ENTITLED TO ALL THE FUNDS OR PROPERTIES AND EARNINGS LESS FEES/COMMISSIONS, LOSSES AND OTHER CHARGES. ANY AGREEMENT/ARRANGEMENT THAT DOES NOT CONFORM TO THESE SHALL NOT BE CONSIDERED AS TRUST OR OTHER FIDUCIARY RELATIONSHIP.

The following shall not constitute a trust, fiduciary and/or investment management relationship:

a. When there is a preponderance of purpose or of intent that the arrangement creates or establishes a relationship other than a trust, fiduciary, and/or investment management, as determined by the Governor or Monetary Board upon the findings and recommendations of the appropriate supervising and examining department of the Central Bank;

b. When the agreement or contract is itself used as a certificate of indebtedness in exchange for money placement from clients and/or as the medium for confirming placements and investment thereof;

c. When the agreement or contract of an account is accepted under the signature(s) of those other than the trust officer or subordinate officer of the trust department or those authorized by the board of directors to represent the trust officer;

d. Where there is a fixed rate or guaranty of interest, income or return in favor of its client or beneficiary: Provided, however, That where funds are placed in fixed income-generating investments, A QUOTATION OF ‘INCOME EXPECTATION’ OR LIKE TERMS, SHALL NEITHER BE CONSIDERED AS ARRANGEMENTS WITH FIXED RATE NOR A GUARANTY OF INTEREST, INCOME OR RETURN WHEN THE AGREEMENT OR INDENTURE CATEGORICALLY STATES IN BOLD LETTERS THAT THE QUOTED ‘INCOME EXPECTATION’ OR LIKE TERMS IS NEITHER ASSURED NOR GUARANTEED BY THE TRUSTEE OR FIDUCIARY AND IT DOES NOT, THEREFORE, ENTITLE THE CLIENT TO A FIXED INTEREST OR RETURN ON HIS INVESTMENT.

PROVIDED, FINALLY, THAT ANY OF THE FOLLOWING PRACTICES SIMILAR AND/OR TANTAMOUNT THERETO SHALL BE CONSTRUED AS FIXING OR GUARANTEEING THE RATE OF INTEREST, INCOME OR RETURN:
  1. ISSUANCE OF CERTIFICATES, SIDE AGREEMENTS, LETTERS OF UNDER-TAKING, OR OTHER SIMILAR DOCUMENTS PROVIDING FOR FIXED RATES OR GUARANTEEING INTEREST, INCOME OR RETURN;

  2. PAYING TRUST/IMA EARNINGS BASED ON INDICATED OR EXPECTED YIELD REGARDLESS OF THE ACTUAL INVESTMENT RESULTS;

  3. INCREASING OR REDUCING FEES/COMMISSIONS IN ORDER TO MEET A QUOTED OR EXPECTED YIELD;

  4. ENTERING INTO ANY ARRANGEMENT, SCHEME OR PRACTICE WHICH RESULTS IN THE PAYMENT OF FIXED RATES OR YIELD ON TRUST/IMA INVESTMENTS OR IN THE PAYMENT OF THE INDICATED OR EXPECTED YIELD REGARDLESS OF THE ACTUAL INVESTMENT RESULTS."
e. Where the risk or responsibility is exclusively with the trustee, fiduciary or investment manager in case of loss in the investment of trust, fiduciary or investment management funds, when such loss is not due to the failure of the trustee or fiduciary to exercise the skill, care, prudence and diligence required by law.

Trust, other fiduciary and investment management activities involving any of the foregoing which are accepted, renewed or extended after October 16, 1990 shall be reported as deposit substitutes and shall be subject to the reserve requirement for deposit substitutes from the time of inception, without prejudice to the imposition of the applicable sanctions provided for in Section 34, 34-A and 34-B of R.A. No. 265, as amended, or Sections 12 and 16 of Presidential Decree No. 129, as amended.
SECTION 2. Section 417 (d) is hereby amended to read as follows:
SECTION 417.  Non-Investment Management Activities. — The following shall not constitute an investment management relationship:
d. Where there is a fixed rate or guaranty of interest, income or return in favor of its client or beneficiary: Provided, however, That where of ‘INCOME EXPECTATION’ OR LIKE TERMS, SHALL NEITHER BE CONSIDERED AS ARRANGEMENTS WITH FIXED RATE NOR A GUARANTY OR INTEREST, INCOME OR RETURN WHEN THE AGREEMENT OR INDENTURE CATEGORICALLY STATES IN BOLD LETTERS THAT THE QUOTE ‘INCOME EXPECTATION’ OR LIKE TERMS IS NEITHER ASSURED NOR GUARANTEED BY THE TRUSTEE OR FIDUCIARY AND IT DOES NOT, THEREFORE, ENTITLE THE CLIENT TO A FIXED INTEREST OR RETURN ON HIS INVESTMENT.

PROVIDED, FINALLY, THAT ANY OF THE FOLLOWING PRACTICES OR PRACTICES SIMILAR AND/OR TANTAMOUNT THERETO SHALL BE CONSTRUED AS FIXING OR GUARANTEEING THE RATE OF INTEREST, INCOME OR RETURN:
  1. ISSUANCE OF CERTIFICATES, SIDE AGREEMENTS, LETTERS OF UNDERTAKING, OR OTHER SIMILAR DOCUMENTS PROVIDING FOR FIXED RATES OR GUARANTEEING INTEREST, INCOME OR RETURN;

  2. PAYING TRUST/IMA EARNINGS BASED ON INDICATED OR EXPECTED YIELD REGARDLESS OF THE ACTUAL INVESTMENT RESULTS;

  3. INCREASING OR REDUCING FEES/COMMISSIONS IN ORDER TO MEET A QUOTED OR EXPECTED YIELD;

  4. ENTERING INTO ANY ARRANGEMENT, SCHEME OR PRACTICE WHICH RESULTS IN THE PAYMENT OF FIXED RATES OR YIELD ON TRUST/IMA INVESTMENTS OR IN THE PAYMENT OF THE INDICATED OR EXPECTED YIELD REGARDLESS OF THE ACTUAL INVESTMENT RESULTS."
SECTION 3. Subsection 410.2 is hereby amended so that Items (g) and (j) thereof shall read as follows:
"Subsection 410.2.   Minimum Documentary Requirements for Common Funds. — In addition to the trust agreement or indenture required under Section 409.1, each common trust fund shall be established, administered and maintained in accordance with a written declaration of trust referred to as the ‘plan’, which shall be approved by the board of directors of the trustee and copy submitted to the appropriate supervision and examination department of the Central Bank within thirty (30) banking days prior to its implementation.

The Plan shall make provisions on the following matters:

g. DETAILED INFORMATION ON THE basis, FREQUENCY, AND method of valuing and accounting of common trust fund assets AND EACH PARTICIPATION IN THE FUND;

j.  SCHEDULE OF fees/commissions WHICH SHALL BE UNIFORMLY APPLIED TO ALL PARTICIPANTS IN A FUND AND WHICH SHALL NOT BE CHANGED BETWEEN VALUATION DATES; and"
SECTION 4. Subsection 410.6 is hereby amended so that Item 5 thereof shall read as follows:
Subsec. 410.6. Operating and Accounting Methodology. — By its inherent nature, a common trust fund shall be operated and accounted for in accordance with the following:
  1. The interest of each participant shall be determined by a formal method of participation valuation established in the written plan of the common trust fund, AND NO PARTICIPATION SHALL BE ADMITTED TO OR WITHDRAWN FROM THE FUND EXCEPT ON THE BASIS OF SUCH VALUATION."
These amendments shall take effect immediately.

Adopted: 26 May 1992

(SGD.) GABRIEL C. SINGSON
Senior Deputy Governor
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