Law Summary

Introduction

This memorandum outlines amendments to the Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities (Trust Rules), as mandated by Monetary Board Resolution No. 1180 dated September 17, 1997. The amendments primarily focus on the liquidity reserve requirements for financial intermediaries engaging in trust and fiduciary activities.

SECTION 1: Reserves Against Peso-Denominated Common Trust Funds

• Legal Principle: The reserve requirements for peso-denominated common trust funds have been established and adjusted.
• Key Definitions:
  • Peso-Denominated Common Trust Funds: Collective investment funds managed by financial intermediaries.
• Requirements:
  • A basic reserve of 10% against peso-denominated common trust funds is required.
  • An additional 6% liquidity reserve is mandated effective October 15, 1997.
  • A subsequent 5% liquidity reserve is to be implemented effective November 15, 1997.
  • The reserves may be held in the form of short-term market-yielding government securities purchased directly from the BSP-Treasury Department.
• Important Timeframes:
  • October 15, 1997: Initial liquidity reserve comes into effect.
  • November 15, 1997: Adjusted liquidity reserve requirement takes effect.

SECTION 2: Reserves Against Trust and Other Fiduciary Accounts (TOFA) a Others

• Legal Principle: Similar reserve requirements apply to Trust and Other Fiduciary Accounts with specific exceptions noted.
• Key Definitions:
  • Trust and Other Fiduciary Accounts (TOFA): Accounts managed by financial intermediaries that fall under fiduciary duties.
• Requirements:
  • A reserve of 10% is also required against TOFA a Others, with several exceptions listed:
    • Accounts held under administration
    • Bond issues under deed of trust or mortgage
    • Custodianship and safekeeping
    • Depository/reorganization
    • Employees' benefit plans under trust
    • Escrow accounts
    • Personal trusts (testamentary or living trusts)
    • Executorships and guardianships
    • Life insurance trusts
    • Pre-need plans (institutional/individual)
  • An additional 6% liquidity reserve effective October 15, 1997, followed by a 5% liquidity reserve effective November 15, 1997, is required.
  • Reserves are to be provided from the funds of the TOFA a Others.
• Important Timeframes:
  • October 15, 1997: Initial liquidity reserve for TOFA a Others starts.
  • November 15, 1997: Adjusted liquidity reserve requirement starts.

Key Takeaways

• Financial intermediaries must adhere to a 10% reserve for peso-denominated common trust funds and TOFA a Others.
• Additional liquidity reserves of 6% (from October 15, 1997) and 5% (from November 15, 1997) are mandated.
• Specific exceptions to reserve requirements for TOFA a Others have been clearly delineated.
• Reserves must be held in government securities purchased from the BSP-Treasury Department.

These amendments aim to enhance liquidity management for financial intermediaries engaged in trust and fiduciary activities, ensuring compliance with monetary policies set by the Bangko Sentral ng Pilipinas (BSP).