QuestionsQuestions (CIRCULAR NO. 891)
To set minimum standards governing how BSP-supervised financial institutions (BSFIs) conduct sales and marketing of financial products (as dealers or brokers), including client suitability, disclosures, personnel requirements, record retention, and enforcement.
It replaces the former sales and marketing guidelines for derivatives under Appendix 26 of the MORB and Appendix Q-16 of the MORNBFI, by transferring and amending their contents into Section X661 of the MORB and Section 4661Q of the MORNBFI; it also deletes Appendix 26/26a and Q-16/Q-16a.
They are placed in Section X661 of the MORB and Section 4661Q of the MORNBFI.
No. Trust departments are excluded and remain governed by Part IV of the MORB and MORNBFI, as applicable.
No. Cross-selling is excluded and governed by Section X172 of the MORB (as amended).
Debt and equity securities, hybrid securities, derivatives (as defined in the cited MORB/MORNBFI provisions), securitization structures, and similar products with substantial investment characteristics.
A broker buys and sells securities for the account of others, while a dealer buys and sells securities for its own account in the ordinary course of business.
Financial products whose terms, features, and risks are not reasonably likely to be understood by a non-sophisticated client due to complex structure, and which are difficult to value, especially where there is limited or no secondary market.
It involves obtaining necessary client information, classifying the client by financial sophistication and risk tolerance, and conducting a suitability review to ensure the recommended product fits the client’s needs, financial situation, objectives, risk tolerance/constraints, and the client’s knowledge/experience.
At minimum: investment amount/investible funds or exposure to be hedged; financial situation (assets, net worth, commitments, income, capacity to withstand losses); knowledge of financial products; investment/hedging experience; financial objectives; risk appetite; holding period/investment horizon; regulatory/legal constraints; and liquidity needs.
It must refrain from offering or recommending any financial product.
Into: market counterparty, sophisticated institutional client, sophisticated individual client, or other clients (with the circular encouraging more granular categorization mapped to these broad groups).
At minimum into conservative, moderate, and aggressive categories, based on willingness to take risks and capacity to absorb possible losses and whether losses would harm the client’s financial condition.
The product must be suitable to the client’s needs/financial situation/objectives; consistent with the client’s mandate, risk tolerance, and constraints; and aligned with the client’s knowledge and experience so the client understands the product’s nature and risks.
They may transact only in specified “plain vanilla” products, including certain peso/foreign-currency government securities, highly liquid sovereign bonds/corporate bonds and offshore-rated instruments meeting specified ratings, highly liquid domestic corporate bonds/commercial papers meeting specified ratings, and/or foreign exchange derivatives solely for hedging—subject to suitability review.
When the client is classified as a market counterparty, since the client is recognized as sufficiently sophisticated; however, the BSFI must still provide sufficient support for its classification.
BSFIs must provide sufficient, accurate, and comprehensible information, ensure marketing and sales are clear, fair, and not misleading, and provide minimum required written disclosures (typically with client signature/initials) covering product nature/features, outlay and costs, risks, returns/benefits, fees/charges where applicable, termination clauses, conflicts of interest, and relevant warnings (including past performance not indicative, and higher risk/complex product warnings when applicable).