Question & AnswerQ&A (CIRCULAR NO. 891)
The main objective is to ensure that BSP-Supervised Financial Institutions (BSFIs) act with honesty, fairness, and professionalism in the sale and marketing of financial products, prioritizing the best interests of their clients and managing risks effectively.
These guidelines apply to all banks and non-bank financial institutions performing quasi-banking functions supervised by the BSP, acting as dealers or brokers of financial products. Trust departments and cross-selling activities are excluded.
Financial products refer to debt and equity securities, hybrid securities, derivatives, securitization structures, and similar products with substantial investment characteristics as defined under the Manual of Regulations for Banks and Non-Bank Financial Institutions.
Complex products are financial products whose terms, features, and risks are difficult for a non-sophisticated client to understand due to their complex structure, difficulty in valuation, and possibly limited or no secondary market.
A BSFI must obtain information including investment amount, financial situation, knowledge of financial products, investment experience, financial objectives, risk appetite, investment horizon, legal constraints, and liquidity needs to assess client suitability.
Clients are classified into: (1) Market counterparty, (2) Sophisticated institutional client, (3) Sophisticated individual client, and (4) Other clients (non-sophisticated).
Risk tolerance classifications include: (1) Conservative (avoids loss of principal), (2) Moderate (accepts moderate risk for higher returns), and (3) Aggressive (accepts higher risks for potentially higher long-term gains).
A BSFI must provide sufficient, accurate, and comprehensible information about products, including risks, fees, benefits, conflicts of interest, complaint handling, and termination clauses, ensuring promotions are clear, fair, and not misleading.
The client must provide written confirmation acknowledging they understand the risks, have been informed of protections they may lose, still wish to proceed, and accept all attendant risks, but BSFIs cannot offer a comprehensive waiver of suitability protections.
Personnel must be knowledgeable of the financial products, comply with relevant laws, meet qualification standards, undergo continual training, and their compensation should not conflict with client interests. The board and senior management are liable for their acts.
Such documents must be retained for at least five (5) years, or longer if there is an ongoing investigation or case where a client is involved, until a final judgment is reached.
The BSP can impose sanctions such as restrictions or prohibitions from certain activities, warnings, reprimands, suspension, removal, and disqualification of responsible directors, officers, or employees.