Law Summary
Statement of Principles (Section X172)
- Bank premises can be used to present and distribute non-bank financial products.
- There is a risk of creating an impression that the bank guarantees these products.
- BSP sets framework to manage risks and ensure consumer protection in cross-selling.
Definitions (Subsection X172.1)
- Cross-selling: Presentation/sale of non-bank financial products to bank clients inside bank premises through communication.
- Financial conglomerate: Interrelated entities providing services in at least two financial sectors.
- Banking group classified under financial conglomerate.
- Financial product of allied undertaking: Products created by entities in the same conglomerate.
- Financial product provider: Regulated entity creating the product, supervised by BSP, SEC, or IC.
- Bank premises: Physical locations of bank's head office, branches, and offices.
- Investment risk: Potential loss of principal or failure to achieve target returns.
Financial Products Covered (Subsection X172.2)
- Products must be from providers within the same financial conglomerate and approved by appropriate regulator.
- Simple retail products without investment risk (e.g., credit cards, loans, debit cards) may be cross-sold freely.
- Simple insurance products (traditional life and non-life) allowed regardless of conglomerate affiliation.
- Collective investment schemes (CIS) such as mutual funds, UITFs, and VULs may be cross-sold if from the same conglomerate.
Governance and Conditions on Cross-Selling (Merged Subsection X172.3)
- Board of directors must oversee cross-selling policies.
- Banks must exercise due care in assessing products and providers.
- Written policies to assess product nature and suitability for target customers required.
- Customers have rights to product choice, refusal of bundles, and substitution with competitor products.
- Complaint mechanisms must be established as part of agreements with providers.
- Regular reviews of cross-selling arrangements to consider operational and reputational risks.
- Register of all cross-selling agreements and providers must be maintained.
- For CIS products:
- Bank employees act as referral agents only unless specifically trained.
- Clear distinction between bank employees and product representatives.
- CIS sales must occur in separate areas from bank product sales.
Minimum Documentary Requirements (Subsection X172.4)
- Retained as previously established in Circular No. 801.
Fair and Balanced View of Products (Renumbered Subsection X172.5)
- Not amended, continues to govern balanced product presentation.
Cross-Selling of Collective Investment Schemes and Customer Suitability (New Subsection X172.6)
- Enhanced consumer protection due to investment risks.
- Banks must ensure CIS compliance with regulations before cross-selling.
- Financial product providers must observe minimum practices including:
- Product Highlight Sheet (PHS): Key product information, risks, fees, exit strategies, contact info.
- Client Suitability Assessment (CSA): Assess client’s understanding, risk tolerance, capacity.
- Investment Policy Statement (IPS): Documents client’s investment philosophy/directives.
- Disclosure of conflicts of interest.
- Standard disclosure statement prominently displayed with product materials.
- Banks must document compliance, subject to BSP inspection.
Financial Product Providers (Amended Subsection X172.7)
- Banks must conduct due diligence on providers’ integrity, capacity, financial strength, and track record.
- Providers must have complaint resolution mechanisms.
- Providers responsible for ensuring representatives are knowledgeable, trained, and properly licensed.
- Providers and banks must belong to the same financial conglomerate for cross-selling.
- Provider under BSP supervision must have a CAMELS rating of at least "3" or equivalent.
Authority to Cross-Sell (Amended Subsection X172.8)
- Banks must have CAMELS rating of at least "3" and no major issues to engage in cross-selling.
- Monetary Board approval required, through application signed by President or Country Officer.
- Initial application must explain relationship within financial conglomerate and products involved.
- Supporting documents: Board resolution and compliance certifications.
- Approval permits continuous cross-selling until revoked.
- Additional product approvals require further certifications; some approvals delegated to BSP officials.
- BSP reserves right to validate compliance.
- Monetary Board may suspend cross-selling if conditions lapse.
- Banks can reapply once conditions improve.
Complaints Handling (Amended Subsection X172.9)
- Banks jointly responsible with providers for resolving cross-selling complaints.
- Effective redress mechanisms with clear processes must be established.
Sanctions for Violation (Revised Subsection X172.10)
- Monetary penalties up to P30,000 per day per violation.
- Non-monetary sanctions deemed appropriate by Monetary Board depending on the offense.
Repealing Clause (Section 2)
- Section 2 (Transitory Provision) of Circular No. 801 is repealed.
Transitory Provisions (Section 3)
- Circular effective 15 days after publication.
- Banks must review existing cross-selling arrangements within 30 days and report deviations.
- Certification of compliance must be submitted if fully compliant.
- One-year compliance period for previously approved cross-sold financial products.
This detailed framework modernizes and tightens the rules governing cross-selling of financial products in bank premises, particularly emphasizing consumer protection and prudent governance in relation to collective investment schemes.