Circular No. 1204: Amendments to the Regulations on the Periodic Review of Trust, Investment Management, and Other Fiduciary Accounts

. i^^ BANGKO SENTRAL NG PILIPINAS Subject: The Monetary Board. in its Resolution No. 1237 dated 25 October 2024. approved the amendments to Appendix 86 of the Manual of Regulations for Banks (MORB) and Appendix Q, 49 of the Manual of Regulations for Non-Bank Financial Institutions (MORNBFl) to set the supervisory expectations on the conduct of periodic review of trust. investment management. and other fiduciary accounts. Amendments to the Regulations on the Periodic Review of Trust, Investment Management, and Other Fiduciary Accounts OFFICE OFTHE GOVERNOR CIRCULAR No. 1204 Section I. Appendix 861Q-49 of the MORB/MORNBF! is hereby amended to read, as follows: Series of 2024 BASIC STANDARDS IN THE ADMINISTRATION OF TRUST. INVESTMENT MANAGEMENT, AND OTHER FIDUCIARYACCOUNTS (Appendix to Sec. 40,140, -Q) I. Introduction XXX 11. Statement of policy xXX 1/1. Standards The basic standards in the administration of trust, investment management. and other fiduciary accounts are meant to address the significant areas of operations and provide the minimum set of requirements and procedures: A. Account acceptance and rev/'ewprocesses XXX B. Account administration XXx Periodic review of existing accounts A trust entity (TE) shall conduct periodic reviews of its trust, investment management. and other fiduciary accou nts, hereinafLer referred to as "'accounts review, " to ensure that the TE performs its fiduciary duties and responsibilities. Classification: GENERAL I

01 An administrative review which shall ensure that accounts are being managed in accordance with their governing agreements; relevant laws. rules. and regulations; and applicable internal policies and procedures of the TE; and The accounts review shall consist of: till An investment review which shall ensure that a client's investment risks are properly managed by the TE and that the portfolio is aligned with a client's risk profile. investment objectives, risk tolerance. and liquidity needs. Upon the conduct of an investment review, the TE should be able to determine whether certain portfolios/assets are no longer appropriate for an account and/or a changein the structure(s) or composition of the portfolio(s) is required, consistent with prudent investment practices. A TE's conduct of accounts review shall be designed in accordance with the nature and complexity of the accounts that it manages and the degree of its tolerance for risk arising from its fiduciary duties and responsibilities. A TE is expected to show what it has done in the exercise of due diligence and prudence to protect the interest of the client and/or beneficiaries. As a general rule. all accounts shall be subject to an account review. A TE may opt to adopt alternative approaches in accordance with the following: (a ) The review of O ) trust and other fiduciary accounts where a TE exercises investment discretion, and (2) accounts, regardless of mandate that: Ii) possess unique, unusual characteristics: (ii) are the subject of pending litigation; or (iii) contain a complex portfolio (e. g. . multiple asset classes or high-risk investments). shall be conducted at the account level. The accountlevel review shall apply for both administrative and investment reviews. (b) Accounts vested with public interest or accounts potentially exposed to complaints from account holders or beneficiaries shall be subject to both investment a rid ad ministrative reviews. (c) Homogeneous accounts or those that possess common characteristics based on the type of product or service, or the type of investment outlet. and do riot fall under item "a" above. may be subject to collective administrative and/or investment review/s. Id) The investment review of multiple accounts of a single client shall be done at an aggregate level to account for the totality of the contractual relationships of the client with the TE. regardless of the mandate of the TE over the accounts. ' However. accounts vested with public interest may be subjected to account-!evel review. ' Accounts (e. g. . personal management trust. investment management accounts. and UITFs ) where the client is the sole trustor/principal shall be aggregated for purposes of the review. The TE may also adopt the same approach for accounts of clients with co- trustors/principals wherein the subject client is considered as the principal accountholder. Classification: GENERAL (e) Accounts of direct participants in U!TFs may be excluded from ad ministrative and investment reviews. I Page Z of 6

(f) A TE may dispense with the following reviews so long as the accounts do not fall under items "a" or "b' above: (1) Administrative review of investment management accounts; and (2 ) Investment review of non~discretionary accounts. There may be cases where a TE further identifies accounts that may be exempted from either administrative or investment review that are not covered by items "(11' and "(2)' above. These accounts are expected to be rare. As such. they may be excluded from review: Provided That the basis for the exclusion shall be clear and reasonable. Regardless of the approach taken for an account. the TE shall ensure that its exercise of fiduciary duties is not undermined. The exclusion of an account from a review shall be done with proper bases. In this regard. the TE shall implement effective operational procedures and controls to ensure that an account excluded from reviews is properly administered and invested in assets that are aligned with the client's risk profile and investment objective. In cases where the operational controls of the TE are deemed ineffective. the Bangko Sentral may direct the TE to perform a review of the accounts that have been subject to exclusion. The accounts review shall be conducted by personnel or a management committee who are/that is not directly involved in the management of investments and the administration of the account/s subject of the review. A TE's accounts review process shall be covered by a policy that sets out the following. at a minimum: (a) A statement of purpose that explains the rationale for the design of the TE's accounts review and its tolerance for the related risks; to) Approaches adopted for the conduct of the reviews (e. g. . at account level or collective; exclusion from administrative and/or investment reviews) and the criteria for classifying accounts under each approach; (c) Scope of the administrative and investment reviews, which shall depend on the TE's fiduciary duties and responsibilities. the nature of the accounts, and other relevant factors; At the minimum. the following shall be covered: For the administrat/Ve review￾Classification: GEN ERAL I. Existence of an accurate. complete. and current governing instrument; and ii. Extent and timeliness, of the trust entity's performance of the duties and responsibilities (e. g. , investment execution. real estate management. adherence to distribution clauses, processing of retirement/pre-need benefits) set out in the governing agreements and as required by relevant regulatory bodies or other interested parties; .I Page 3 of 6

For the investment review￾I. Suitability of the investment portfolio(s) vis-a-vis the governing agreements, client's risk profile. and any law-mandated restrictions; ii. Propriety of asset allocation and investments vis-a-vis client's liquidity needs. investment objectives, risk tolerance, and tax considerations. if any; iii. Fund performance evaluation vis-a-vis the d esignated benchmark or other relevant performance metrics; Promptness of deployment of funds to investments considering the nature and purpose of the account: Degree of concentration to a specific security, issuer. or industry considering the investment objectives. asset allocation model, and/or purpose of the account: and IV. v. vi. Whether transactions with a TE's own bank or affiliates are appropriate. dealt on an arm's length basis. and duly authorized; TEs are expected to perform a review of processes not mentioned above (e. g. , propriety of investment accreditation/approval, coin pieteness of client's on boarding documents, promptness and accuracy of posting receipts and disbursements to the respective accounts, accuracy and timeliness of the periodic reports provided to clients, accuracy and alignment of fees with the fee schedule and the timeliness of collection thereof) through the compliance and/or internal audit functions. (dI Rationale for the prioritization of the accounts to be reviewed; (e) Frequency of the review of covered accounts, which shall be in accordance with the following: Administrative review T e of Review Classification: GENERAL Once every three (3) years For accounts vested with publicinterest (i. e. . accounts that were opened for the benefit. or up hold the interest, of the public as mandated by laws. rules. or regulations Ie. g. , pre-need. employee benefit/ retirement or pension funds. selected quasi-judicial trustsj), the administrative review shall be conducted more frequently depending on the operational needs and nature of the accounts. Frequency I Factors that may influence the frequency of the review include the size of the assets, demographics of the investin ublic/beneficiaries. the Page 4 of 6

. T e of Review Investment review (f) Personnel/committee designated to conduct the administrative and/or investment review/s; (9) Timelines for the completion of the administrative and investment reviews and systems for ensuring that accounts are reviewed within the prescribed periods; (h) Exception and resolution tracking. This shall include the identification of items needing attention and pertinent risks: reviews that are past due: and corrective actions, realistic timelines for completion. and monitoring of compliance with the same; in Manner of documenting the results of the review: co Periodic reporting to the trust committee/board of directors on matters related to the reviews. including frequency and minimum content; and (k) Communication with clients on the results of the accounts review that warrant their attention, feedback. or action. This shall include the system that enables a trust account representative or officer to periodically contact clients and/or beneficiaries to determine whether their financial objectives and circumstances have changed. The internal audit function of a TE should assess the effectiveness of the TE's accounts review policy and its implementation. 2. Credit process complexity of the TE's duties and responsibilities, and law-mandated requirements. At least annually, or more frequently depending on the nature. investment needs. and/or requirements of the accou nts. Frequency Section 2. The following transitory provision shall be incorporated as a footnote to Appendix 861Q-49 of the MopB/MORNBFi under "Periodic review of existing accounts". Trust entities shall complete an analysis of the gaps between the requirements of this Circular and their existing policies, processes. and procedures within six (6) months from effectivity of this Circular. The results of the gap analysis shall be documented and made available for review by the Bangko Sentral. Trust entities are expected to make appropriate changes to their policies. processes, and procedures within one a I year from effectivity of this Circular. XXX XXx Classification: GENERAL I Page 5 of 6

. Section 3. This Circular shall take effect fifteen (15) calendar days following its publication in the Official Gazette or in any newspaper of general circulation in the Philippines. ^j:. November 2024 FOR THE MONETARY BOARD: C CHI G, FONACIER fficer-in-Charge Classification: GENERAL ., Page 5 of 6