Philippines Guidelines for Corporate Governance and Risk Management Practices for Trusts, Fiduciary Businesses and Investment Management Activities – A Brief Overview

  • By: Staff Editor
  • Date: August 09, 2013
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The guidelines, issued in the Philippines, cover the following:
A.      Strengthening Corporate Governance
B.      Risk Management Practices in Trust, other fiduciary business and investment management activities
Definition of a Trust Entity
A trust entity means:
  1. A bank or a non-bank financial institution performing trust functions through its specifically designated business units
  2. Trust corporation authorized by the BSP
Guidelines for Strengthening Corporate Governance
1.      Composition of Trust Committee
The trust committee should include at least 5 members:
  1. President or any senior officer of the bank or NBFI
  2. Trust officer
  3. Remaining three including the Chairperson can be any of the following:
  • Non-executive directors or independent directors, both not part of Audit Committee
  • Those considered as qualified independent professionals
2.      Qualifications of Committee Members, Officers and Staff
  1. At least 1 year of actual experience in trust, other fiduciary business or investment management activities
  2. At least 3 years of professional experience in relevant field such as banking, finance, economic laws and risk management
  3. Completion of at least 90 training hours on trust, other fiduciary business or investment management activities acceptable to the BSP
  4. Completion of a relevant global or local professional certification program
  5. Should be familiar with Philippine laws, rules and regulations on trust business
  6. Should uphold at all times ethical and good governance standards
3.      Responsibilities of Administration
  1. Board of Directors should ensure an appropriate degree of independence between the activities of the Bank/NBFI proper and its trust department
  2. Trust Committee
  • Ensure that fiduciary activities are conducted in accordance with applicable rules and regulations
  • Ensure that prudent operating standards are relevant, comprehensive and effective
  • Oversee and evaluate performance of trust officer
  • Adopt an appropriate organizational structure and staffing pattern and operating budgets
  • Report regularly to the board of directors on matters arising from fiduciary activities
  • Conduct regular meetings at least once every quarter
iii.                Trust Officer
  • Ensure adherence to basic standards in the administration of trust and other fiduciary activities
  • Develop and implement relevant policies and procedures on fiduciary activities
  • Observe sound risk management practises
  • Carry out investment and other fiduciary activities
  • Report on business performance regularly to the trust committee
  • Maintain adequate books, records and files
  • Submit periodic reports to regulatory agencies on the conduct of trust operations
4.      Confirmation of the Appointment/Designation of Board of Directors, Trust Officer and Independent Professionals
  1. Should be fit and proper to discharge their respective functions. For being fit and proper, the following should be taken into account:
  • Integrity/Probity
  • Physical/mental fitness
  • Competence
  • Relevant education/financial literacy and training
  • Diligence and Knowledge/Experience
  1. The application of independent professionals and trust officers should be subject to confirmation by the Monetary Board based on the submission of the bio data of the proposed person to BSP within 7 banking days from approval of the board of directors
5.      Transitory Provision
Trust entities that do not meet the requirement of these guidelines should be given 12 days from the effective date to comply.
Guidelines for Risk Management Practices in Trust, other fiduciary business and investment management activities
Key Elements of Sound Risk Management System
Following are the key elements of sound risk management system:
  1. Active and appropriate oversight by the board of directors and trust committee
  • Board of directors and the trust committee should perform their responsibilities in accordance with the provisions of Manual of Regulations for Banks (MORB)/MORNBFI
  • The process of measuring, monitoring and controlling risks should be managed as independent function
  1. Adequate risk management processes, policies and procedures, includes
  • Scope of fiduciary products and services
  • Organizational structure
  • Authorities and responsibilities of board of directors, trust committee, trust officer and other staff members
  • Basic standards in the administration of trust, other fiduciary business and investment management activities
  • Accounts and records maintenance
  • Policy reviews
  • System of financial and regulatory reporting
  • Client-oriented safety nets
  1. Appropriate risk management system, monitoring and management of information systems provide detailed guidelines for:
  • Frequency of risk measurement
  • Sources of data
  • Appropriateness of risk measurement tools
  • Frequency of validation of risk measurement tools
  • Ability to measure risk at both transnational and portfolio levels
  • Frequency of review of the risk management system
  1. Prudent risk limits should be set according to:
  • Determination of the experience
  • Background and authority of individuals involved
  • Processes for setting and changing individual portfolio limits
  • Recognize the restriction and constraints that client may impose on trust entity
  1. Risk Monitoring and Management of Information System (MIS)
  • Effective risk monitoring involves accurate, timely, reliable and relevant information processing and reporting systems.
  • Risk monitoring policies should specify the following
    • Type, amount and timing of information reported
    • Methodology to ensure all identified risks
    • Frequency, timeliness, accuracy and clarity of monitoring reports
    • Report distribution to management
    • Comparability of output against pre-determined limits
  • Sophistication of Management of Information System (MIS) should be in accordance with the complexity and diversity of the trust entity’s operations
  1. Comprehensive and effective internal control system, audit and compliance programs
  • Internal Control (IC) systems
    • Should promote effective fiduciary operations and reliable financial and regulatory reporting
    • should be periodically reviewed by an independent party
  • Audit Program
    • Should be based on risk assessment methodology
    • Should provide an independent assessment of the efficiency and effectiveness of IC system
    • Should be reviewed by the BSP
  • Compliance Program
    • Should be well documented
    • Should include a strong commitment from the board of directors and trust committee
    • Should include periodic testing and validation process


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