THE BANGKO SENTRAL ng Pilipinas (BSP) will let trust entities (TEs) — specifically unit investment trust funds (UITFs) — go beyond their exposure limit given the operational difficulties caused by the pandemic.
The central bank said in a memorandum signed by BSP Deputy Governor Chuchi G. Fonacier on May 1 that UITFs will be allowed to correct possible breaches in the limit to their exposure to any entity and related parties, which under BSP rules should not be beyond 15% of their market value, within 30 calendar days from the time the enhanced community quarantine (ECQ) is lifted.
“The BSP recognizes that the implementation of the enhanced community quarantine in light of the COVID-19 pandemic is an extraordinary circumstance,” the memo said.
“Because of the ECQ, a TE may experience operational difficulties in servicing the requirements of its clients, and as a result, incur breaches in respect of its UITFs’ exposures to depository banks,” it added. “In this regard, a TE is expected to conduct its own risk assessment and set internal thresholds for such breaches.”
The ceiling is mandated under the Manual of Regulation for Banks and the Manual of Regulations for Non-Bank Financial Institutions.
Under the rules, TEs are given 30 days after the breach of the limit due to the marking-to-market of certain investments or extraordinary circumstances to correct their position.
The memorandum said a trust entity that incurs breaches will need to report to the BSP its internal thresholds and the details of any breaches on a weekly basis “until the exposures are brought back to within the regulatory limit.”
This relaxation of rules will help firms that have been affected by market volatility amid the pandemic, according to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.
“This regulatory relief measure on trust entities would give flexibility in servicing and managing the UITF investments for their respective investors amid relatively volatile market conditions that may have significantly altered valuations as well as some operational constraints brought about by the ECQ/lockdown,” Mr. Ricafort said in a text message. — L.W.T. Noble