Scope of Application
- Guidelines apply to all banks and non-bank financial institutions performing quasi-banking functions.
- Trust departments and cross-selling activities are excluded and governed by other specific regulations.
Definitions
- Financial Products include debt, equity securities, derivatives, securitization, and other similar investment products.
- Broker: Buys/sells securities on behalf of others.
- Dealer: Buys/sells securities on own account regularly.
- Complex products: Financial products with complex structures, difficult valuation, limited secondary markets.
Client Suitability Guidelines
- BSFIs must conduct suitability assessments before recommending financial products.
- Key client information to gather includes investment amount, financial situation, product knowledge, experience, financial objectives, risk appetite, holding period, regulatory/legal constraints, liquidity needs.
- BSFIs must explain the purpose of suitability assessment; insufficient information prohibits recommendations.
- Client classification by sophistication: Market counterparty, sophisticated institutional, sophisticated individual, other clients.
- Classification by risk tolerance: Conservative, moderate, aggressive.
- Maintain records of client classification and suitability assessments.
- Conservative clients limited to plain vanilla products.
- No suitability review for market counterparties, but classification must be justified.
- If clients insist on unsuitable products, explicit written confirmation after risk disclosure is required.
Disclosure Requirements
- All communications must be clear, fair, and not misleading.
- Marketing materials must disclose complete information about the product including risks.
- BSFIs must regularly review communication materials.
- Financial promotion must state BSFI's role clearly and present balanced risk-benefit information.
- Product disclosures must include nature, costs, risks, returns, conflict of interest, complaint handling, termination clauses, warnings.
- Illustrations of past or future performance must include disclaimers and worst-case scenarios.
- Complex products require standard high-risk warnings.
- Documentation of minimum disclosures must be in writing with client acknowledgment.
Sales and Marketing Personnel Standards
- Only knowledgeable personnel may present financial products.
- Personnel qualifications include education, training, certification, and experience.
- Personnel must comply with registration and regulatory requirements.
- BSFIs must have continual training programs.
- Management must review compensation schemes to avoid conflicts of interest.
- The Board and senior management are liable for acts of sales personnel but may take action against individuals.
Role of Control Functions
- Control functions must monitor effectiveness of sales and marketing policies regularly.
- Operational risk management frameworks must include sales/marketing risks.
- Compliance functions ensure adherence to laws and regulations.
- Internal audit should evaluate compliance with internal policies and issue recommendations.
Record Retention
- Documents evidencing compliance must be retained for at least 5 years.
- Records must be preserved beyond 5 years if involved in ongoing investigation or litigation until final resolution.
Enforcement Actions
- BSP may use supervisory tools and impose sanctions, including restrictions, reprimands, suspensions, removals, or disqualifications against BSFIs or responsible persons.
Transitory and Effectivity Provisions
- BSFIs are given 3 months to comply with new requirements after effectivity.
- Circular takes effect 15 calendar days after publication in an official gazette or newspaper.