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Manual of Regulations for Banks Part IV - Page 1

PART FOUR

TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENTMANAGEMENT ACTIVITIES

X401 - X40211.12.31

Section X401 Statement of PrinciplesThe cardinal principle common to all trustand other fiduciary relationships is fidelity.Policies predicated upon this principle aredirected towards confidentiality, scrupulouscare, safety and prudent management ofproperty including reasonable probabilityof income with proper accounting andappropriate reporting thereon. Practices aredesigned in accordance with the basicstandards for trust, other fiduciary andinvestment management accounts inAppendix 83 to promote efficiency inadministration and operation; to adhere andconform to the terms of the instrument orcontract; and to maintain absoluteseparation of property free from anyintrusion of conflict of interest.

A bank authorized to engage in trustand fiduciary business is under noobligation, either legal or moral, to acceptany such business being offered nor has itthe right to accept if the same is contrary tolaw, rules, regulations, public order andpublic policy. It shall advertise its servicesin a dignified manner and enter suchbusiness only when demand for suchservice is evident, when speciallyequipped to render such service and uponfull appreciation of the responsibilitiesinvolved. It shall be ready and willing togive full disclosure of the services beingoffered and shall conduct its dealing withtransparency. Harmonious relationshipshall likewise be pursued with otherprofessions to achieve the common goalof mutual service to the public andprotection of its interest.

Banks may not receive or hold astrustee, agent, administrator, financialmanager, or other similar capacity, anyfund or money from the Government and

government entities: Provided, however, Thatgovernment-owned banks may receive or holdas trustee, agent, administrator, financialmanager, or other similar capacity, thefollowing:

a. Funds of local government units(LGUs) which are expected to be available forinvestment purposes for a relatively long periodof time: Provided, further, That the amountsheld in trust or otherwise managed/ advisedfor and in behalf of the LGUs shall be investedonly in government securities, specifically,evidences of indebtedness of the NationalGovernment, the BSP and other evidences ofindebtedness or obligations of governmententities, the servicing and repayment of whichare fully guaranteed by the NationalGovernment; and

b. Funds of government and governmententities which are authorized by special lawsto be placed in trust.(As amended by Circular Nos. 721 dated 13 May 2011 and 618dated 20 August 2008)

Sec. X402 Scope of Regulations. Theseregulations shall govern the grant of authorityto and the management, administration andconduct of trust, other fiduciary business andinvestment management activities (as theseterms are defined in Sec. X403) of banks.

The regulations are divided into three (3)Sub-Parts where:

A. Trust and Other Fiduciary Businessshall apply to banks authorized to engage intrust and other fiduciary business includinginvestment management activities;

B. Investment Management Activitiesshall apply to banks without trust authority butwith authority to engage in investmentmanagement activities; and

C. General Provisions shall apply toboth.

Manual of Regulations for BanksPart IV - Page 2

Sec. X403 Definitions. For purposes ofregulating the operations of trust and otherfiduciary business and investmentmanagement activities, unless the contextclearly connotes otherwise, the followingshall have the meaning indicated. a. Trust business shall refer to anyactivity resulting from a trustor-trusteerelationship (trusteeship) involving theappointment of a trustee by a trustor for theadministration, holding, managementof funds and/or properties of the trustor bythe trustee for the use, benefit or advantageof the trustor or of others calledbeneficiaries. b. Other fiduciary business shall referto any activity of a trust-licensed bankresulting from a contract or agreementwhereby the bank binds itself to renderservices or to act in a representativecapacity such as in an agency, guardianship,administratorship of wills, properties andestates, executorship, receivership, andother similar services which do not createor result in a trusteeship. It shall excludecollecting or paying agency arrangementsand similar fiduciary services which areinherent in the use of the facilities of theother operating departments of said bank.Investment management activities, whichare considered as among other fiduciarybusiness, shall be separately defined in thesucceeding item to highlight its being a majorsource of fiduciary business. c. Investment management activityshall refer to any activity resulting from acontract or agreement primarily forfinancial return whereby the bank (theinvestment manager) binds itself to handleor manage investible funds or anyinvestment portfolio in a representativecapacity as financial or managing agent,adviser, consultant or administrator offinancial or investment management,advisory, consultancy or any similararrangement which does not create orresult in a trusteeship.

d. Trust is a relationship or anarrangement whereby a person called atrustee is appointed by a person called atrustor to administer, hold and managefunds and/or property of the trust or for thebenefit of a beneficiary. e. Trust agreement is an instrumentin writing covering the terms and conditionsof the trust. f. Trustee is any person who holds legaltitle to the funds and/or property of a trust. g. Trustor is any person who createsa trust. h. Beneficiary is any person forwhose benefit a trust is created. i. Fiduciary shall refer to any personor entity engaged in any of the otherfiduciary business as herein defined whereno trustor-trustee relation exists. j. Agency shall refer to a contractwhereby a person binds himself to rendersome service or to do something inrepresentation or on behalf of another, withthe consent or authority of the latter. k. Principal shall refer to the personwho grants authority to another personcalled an agent, under a contract to enterinto transactions in his behalf. l. Agent shall refer to a person whoacts in representation or on behalf ofanother with the latters authority. m. Trust department shall refer to thendepartment, office, unit, group, division orany aggrupation which carries out the trustand other fiduciary business of a bank. n. Trust officer shall refer to thedesignated head or officer-in-charge of thetrust department. o. Trust account shall refer to anaccount where transactions arising from atrusteeship are kept and recorded. p. Common trust fund (CTF) shallrefer to a fund maintained by a bankauthorized to perform trust functions undera written and formally established plan,exclusively for the collective investmentand reinvestment of cer ta in money

X40308.12.31


representing participation in the planreceived by it in its capacity as the trustee.

q. Fiduciary account shall refer to anaccount where transactions arising from anyof the other fiduciary businesses are keptand recorded.

r. Investment Manager shall refer toany person or entity engaged in investmentmanagement activities as herein defined.

s. Investment Management Departmentshall refer to the department, unit, group,division or any aggrupation which carriesout the investment management activitiesof a bank that does not have an authority toengage in trust and other fiduciary business.

t. Investment Management Officershall refer to the designated head or officer-in-charge of the investment managementdepartment of a bank which does not havethe authority to engage in trust and otherfiduciary business.

u. Investment management accountshall refer to an account where transactionsarising from investment managementactivities are kept and recorded.

A. TRUST AND OTHERFIDUCIARY BUSINESS

Sec. X404 Authority to Perform Trust andOther Fiduciary Business. With priorapproval of the Monetary Board, banksmay engage in trust and other fiduciarybusiness under Chapter VII of R.A. No. 337,as amended.

If a bank is found to engage inunauthorized trust and other fiduciarybusiness and/or investment managementactivities, whether as its primary, secondaryor incidental business, the Monetary Boardmay impose administrative sanctions againstsuch bank or its principal officers and/ormajority stockholders or proceed againstthem in accordance with law.

The Monetary Board may take suchaction as it may deem proper such as, butmay not be limited to, requiring the transfer

or turnover of any trust and other fiduciaryand/or investment management account(IMA) to duly incorporated and licensedentities of the choice of the trustor,beneficiary or client, as the case may be.

No bank shall advertise or representitself as being engaged in trust and otherfiduciary business or in investmentmanagement activities or represent itself astrustee or investment manager or use wordsof similar import; and/or use in connectionwith its business title the words trust, trustcorporation, trust company, trust plan orwords of similar import, without havingobtained the required authority to do so.

X404.1 Application for authority toperform trust and other fiduciary businessBanks desiring to perform trust and otherfiduciary business shall file an applicationwith the appropriate supervising andexamining department. The application shallbe signed by the banks president or officerof equivalent rank and shall be accompaniedby the following documents:

a. Certified true copy of the resolutionof the institutions board of directorsauthorizing the application; and

b. A certification signed by thepresident or the officer of equivalent rankthat the institution has complied with allconditions/prerequisites for the grant ofauthority to perform trust and other fiduciarybusiness.

X404.2 Required capital. Banksapplying for authority to perform trust andother fiduciary business must haveminimum capital accounts as follows:

UBs/KBs. The amount required underSec. X111 or such amount as may berequired by the Monetary Board in thefuture.

Branches of foreign banks. The amountrequired under Sec. X105 or such amountas may be required by the Monetary Boardin the future.

X403 - X404.209.12.31


TBs. P650.0 million or such amounts asmay be required by the Monetary Board inthe future.

Banks authorized to perform and areactually performing trust and otherfiduciary business prior to 20 August 2002whose capital accounts are lower than theabove-prescribed minimum capitalaccounts shall, before declaring anydividend, carry to surplus at least fiftypercent (50%) of their net income from alloperations since the last precedingdividend until such time that their capitalaccounts meet the above requirement.

X404.3 Prerequisites for engaging intrust and other fiduciary business. Beforeit may engage in trust and other fiduciarybusiness, a bank shall comply with thefollowing requirements:

a. The applicant has been duly licensedor incorporated as a bank or created as suchby special law or charter;

b. The articles of incorporation orgoverning charter of the institution shallinclude among its powers or purposes,acting as trustee or administering any trustor holding property in trust or on depositfor the use, or in behalf of others;

c. The by-laws of the institution shallinclude among other things, provisions onthe following;

(1) The organization plan or structureof the department, office or unit which shallconduct the trust and other fiduciarybusiness of the institution;

(2) The creation of a trust committee, theappointment of a trust officer and subordinateofficers of the trust department; and

(3) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization;

d. The banks operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

e. The bank is well capitalized whoserisk-based capital adequacy ratio is notlower than twelve percent (12%) at the timeof filing the application;

f. It has not incurred net weeklyreserve deficiencies during the eight (8)-week period immediately preceding the dateof application;

g. It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Board and/orBSP Management in the last two (2)preceding examinations prior to the date ofapplication, particularly on the following:

(1) election of at least two (2)independent directors;

(2) attendance by every member of theboard of directors in a special seminar forboard of directors conducted or accreditedby the BSP;

(3) the ceilings on creditaccommodations to DOSRI;

(4) liquidity floor requirements forgovernment deposits;

(5) single borrowers limit; and(6) investment in bank premises and

other fixed assets;h. It maintains adequate provisions for

probable losses commensurate to the qualityof its asset portfolio but not lower than therequired valuation reserves as determinedby the BSP;

i. It does not have float itemsoutstanding for more than sixty (60) calendardays in the Due From/To Head Office/Branches/Other Offices accounts and theDue from Bangko Sentral accountexceeding one percent (1%) of the totalresources as of date of application;

j. It has no past due obligations withthe BSP or with any government financialinstitution;

k. It has established a risk managementsystem appropriate to its operationscharacterized by clear delineation ofresponsibility for risk management, adequaterisk measurement systems, appropriately

X404.2 - X404.309.12.31


structured risk limits, effective internalcontrols and complete, timely and efficientrisk reporting system;

l. It has a CAMELS composite ratingof at least 3 in the last regular examinationwith management rating of not lower than3; and

m. It has neither unpaid assessmentdue nor past due obligations with the PDIC.

Compliance with the foregoing as wellas with other requirements under existingregulations shall be maintained up to thetime the trust license is granted. A bank thatfails in this respect shall be required to showcompliance for another test period of thesame duration.(As amended by Circular No. 674 dated 10 December 2009)

X404.4 Pre-operating requirementsA bank authorized to engage in trust andother fiduciary business shall, beforeengaging in actual operations, submit to theBSP the following:

a. Government securities acceptable tothe BSP amounting to P500,000 as minimumbasic security deposit for the faithfulperformance of trust and other fiduciary dutiesrequired under Subsec. X405.1;

b. Organization chart of the trustdepartment which shall carry out the trust andother fiduciary business of the bank; and

c. Names and positions of individualsdesignated as chairman and members of thetrust committee, trust officer and othersubordinate officers of the trust departmentwith their respective bio-data and statementof duties and responsibilities.

Sec. 1404 (Reserved)

Sec. 2404 Grant of Authority to Engage inLimited Trust Business to Thrift Banks

a. Statement of policy. It is herebydeclared the policy of the BSP to promotehealthy competition in order to improve thedelivery of banking services especially inthe countryside. Towards this end, authority

to engage in limited trust business shall begranted to qualified TBs which meet theminimum capital required for the grant ofsuch authority, among others.

b. Scope of limited trust businessLimited trust business shall be confined to:

(1) court trusts or trusts under orders ofcourt of competent jurisdiction, such asacting as:

(a) executor or administrator of a will;and

(b) guardian of the estate of a minor orincompetent; and

(2) administration of properties.c. Application for authority to engage

in limited trust business. A TB desiring toengage in a limited trust business shall filean application with the CentralizedApplication and Licensing Group (CALG)of the SES. The application shall be signedby the bank president or officer of equivalentrank and shall be accompanied by thefollowing documents:

(1) Certified true copy of the resolutionof the banks board of directors authorizingthe application; and

(2) Certification signed by the bankpresident or officer of equivalent rank that thebank has complied with all the conditions/pre-requisites for the grant of authority toengage in a limited trust business.

d. Required capital. A TB applying forauthority to engage in limited trust businessmust have minimum capital accounts underexisting regulations or P100.0 million,whichever is higher, or such amounts as maybe required by the Monetary Board in thefuture.

e. Pre-requisites for the grant ofauthority to engage in limited trust business.A TB applying for authority to engage inlimited trust business must comply with thefollowing requirements:

(1) The banks operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

X404.3 - 240409.12.31


(2) The bank is well capitalized whoserisk-based CAR is not lower than twelvepercent (12%) at the time of filing theapplication;

(3) It has not incurred net weeklyreserve deficiencies within eight (8) weeksimmediately preceding the date ofapplication;

(4) It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Boardand/or BSP Management in the last two (2)preceding examinations prior to the date ofapplication, more particularly:

(a) election of at least two (2)independent directors;

(b) attendance by every member of theboard of directors in a special seminar forboard of directors conducted or accreditedby the BSP;

(c) the ceilings on creditaccommodations to DOSRI;

(d) liquidity floor requirements forgovernment deposits;

(e) SBL; and(f) investment in bank premises and

other fixed assets;(5) It maintains adequate provisions for

probable losses commensurate to the qualityof its asset portfolio but not lower than therequired valuation reserves as determinedby the BSP;

(6) I t does not have f loat i temsoutstanding for more than sixty (60)calendar days in the Due From/To HeadOffice/Branches/Offices accounts and theDue From Bangko Sentral accountexceeding one percent (1%) of the totalresources as of date of application;

(7) It has no past due obligations withthe BSP or with any government FI;

(8) It has established a risk managementsystem appropriate to its operationscharacterized by clear delineation ofresponsibility for risk management, adequaterisk measurement systems, appropriatelystructured risk limits, effective internal

controls and complete, timely and efficientrisk reporting system;

(9) It has a CAMELS composite rating ofat least 3 in the last regular examination withManagement rating not lower than 3; and

(10) It has neither unpaid assessmentdue nor past due obligations with the PDIC;

f. Requirements for engaging inlimited trust business. A TB authorized toengage in limited trust business shall complywith the following requirements:

(1) The articles of incorporation of thebank shall include among its powers orpurposes, acting as trustee or administeringtrust or holding property in trust or ondeposit for the use, or in behalf of others;

(2) The by-laws of the bank shallinclude among others, provisions on thefollowing:

(a) The organization plan or structureof the department, office or unit which shallconduct the trust and other fiduciarybusiness of the bank;

(b) The creation of a trust committee,to be composed of at least three (3)members who are all members of the boardof directors and who are not operatingofficers of the bank, and at least two (2) ofwhom are independent directors: Provided,That if the bank decides to have a trustcommittee composed of at least five (5)members, the provisions of Subsec. X406.2shall apply;

(c) The appointment of a trust officerand subordinate officers of the trustdepartment, office or unit: Provided, Thatthe trust officer shall have the following:

(i) At least two (2) years of actualexperience in trust operations; or

(ii) At least one (1) year of actualexperience in trust operations andcompletion of a training program in trustoperations acceptable to the BSP; or

(iii) At least two (2) years of actualexperience as officer of a bank andcompletion of a training program in trustoperations acceptable to the BSP; and

240409.12.31


(d) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization.

g. Administration of properties held intrust. The properties held in trust or otherfiduciary capacity shall be administered inaccordance with the terms of the instrumentcreating the trust and/or order of the court.Unless otherwise directed in writing by thecourt, investments of fiduciary funds shallbe limited to:

(1) Bank deposits; and(2) Evidences of indebtedness of the

Republic of the Philippines or of the BSP,and any other evidences of indebtedness orobligations the servicing and repayment ofwhich are fully guaranteed by the Republicof the Philippines;

h. Applicability of the rules andregulations on trust, other fiduciary businessand investment management activities. Theprovision of this Part which are notinconsistent with the provisions of thisSection shall apply to TBs authorized toengage in limited trust business.(Circular No. 583 dated 24 September 2007, as amended byCircular No. 674 dated 10 December 2009)

Sec. 3404 Grant of Authority to Engage inLimited Trust Business to Rural Banks

a. Statement of policy. It is herebydeclared the policy of the BSP to promotehealthy competition in order to improve thedelivery of banking services especially inthe countryside. Towards this end, authorityto engage in limited trust business shall begranted to qualified RBs which meet theminimum capital required for the grant ofsuch authority, among others.

b. Scope of limited trust businessLimited trust business shall be confined to:

(1) court trusts or trusts under ordersof court of competent jurisdiction, such asacting as:

(a) executor or administrator of a will;and

2404 - 340409.12.31

(b) guardian of the estate of a minor orincompetent; and

(2) administration of properties.c. Application for authority to engage

in limited trust business. An RB desiring toengage in a limited trust business shall filean application with the CALG of the SES.The application shall be signed by the bankpresident or officer of equivalent rank andshall be accompanied by the followingdocuments:

(1) Certified true copy of the resolutionof the banks board of directors authorizingthe application; and

(2) Certification signed by the bankpresident or officer of equivalent rank that thebank has complied with all the conditions/pre-requisites for the grant of authority toengage in a limited trust business.

d. Required capital. An RB applying forauthority to engage in limited trust businessmust have minimum capital accounts ofP100.0 million, or such amounts as may berequired by the Monetary Board in the future.

e. Pre-requisites for the grant ofauthority to engage in limited trust businessAn RB applying for authority to engage inlimited trust business must comply with thefollowing requirements:

(1) The banks operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

(2) The bank is well capitalized whoserisk-based CAR is not lower than twelvepercent (12%) at the time of filing theapplication;

(3) It has not incurred net weeklyreserve deficiencies within eight (8) weeksimmediately preceding the date ofapplication;

(4) It has generally complied withbanking laws, rules and regulations, ordersor instructions of the Monetary Boardand/or BSP Management in the last two (2)preceding examinations prior to the date ofapplication, more particularly:


340409.12.31

(a) election of at least two (2)independent directors;

(b) attendance by every member of theboard of directors in a special seminar forboard of directors conducted or accreditedby the BSP;

(c) the ceilings on creditaccommodations to DOSRI;

(d) liquidity floor requirements forgovernment deposits;

(e) SBL; and(f) investment in bank premises and

other fixed assets;(5) It maintains adequate provisions

for probable losses commensurate to thequality of its asset portfolio but not lowerthan the required valuation reserves asdetermined by the BSP;

(6) It does not have float itemsoutstanding for more than sixty (60) calendardays in the Due From/To Head Office/Branches/Offices accounts and the DueFrom Bangko Sentral account exceedingone percent (1%) of the total resources asof date of application;

(7) It has no past due obligations withthe BSP or with any government FI;

(8) It has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risk limits,effective internal controls and complete,timely and efficient risk reporting system;

(9) It has a CAMELS composite rating ofat least 3 in the last regular examination withManagement rating not lower than 3; and

(10) It has neither unpaid assessmentdue nor past due obligations with the PDIC.

f. Requirements for engaging inlimited trust business. An RB authorized toengage in limited trust business shall complywith the following requirements:

(1) The articles of incorporation of thebank shall include among its powers orpurposes, acting as trustee or administering

trust or holding property in trust or ondeposit for the use, or in behalf of others;

(2) The by-laws of the bank shallinclude among others, provisions on thefollowing:

(a) The organization plan or structureof the department, office or unit which shallconduct the trust and other fiduciarybusiness of the bank;

(b) The creation of a trust committee,to be composed of at least three (3) memberswho are all members of the board ofdirectors and who are not operating officersof the bank, and at least two (2) of whomare independent directors: Provided, That ifthe bank decides to have a trust committeecomposed of at least five (5) members, theprovisions of Subsec. X406.2 shall apply;

(c) The appointment of a trust officerand subordinate officers of the trustdepartment, office or unit: Provided, Thatthe trust officer shall have the following:

(i) At least two (2) years of actualexperience in trust operations; or

(ii) At least one (1) year of actualexperience in trust operations andcompletion of a training program in trustoperations acceptable to the BSP; or

(iii) At least two (2) years of actualexperience as officer of a bank andcompletion of a training program in trustoperations acceptable to the BSP; and

(d) A clear definition of the duties andresponsibilities as well as the line and stafffunctional relationships of the various units,officers and staff within the organization.

g. Administration of properties held intrust. The properties held in trust or otherfiduciary capacity shall be administered inaccordance with the terms of the instrumentcreating the trust and/or order of the court.Unless otherwise directed in writing by thecourt, investments of fiduciary funds shallbe limited to:

(1) Bank deposits; and(2) Evidences of indebtedness of the

Republic of the Philippines or of the BSP,


3404 - X405.209.12.31

and any other evidences of indebtedness orobligations the servicing and repayment ofwhich are fully guaranteed by the Republicof the Philippines;

h. Applicability of the rules andregulations on trust, other fiduciary businessand investment management activities. Theprovision of this Part which are notinconsistent with the provision of thisSection shall apply to RBs authorized toengage in limited trust business.(Circular No. 583 dated 24 September 2007, as amended byCircular No. 674 dated 10 December 2009)

Sec. X405 Security for the FaithfulPerformance of Trust and Other FiduciaryBusiness

X405.1 Basic security deposit. A bankauthorized to engage in trust and otherfiduciary business shall deposit with the BSPeligible government securities as security forthe faithful performance of its trust and otherfiduciary duties equivalent to at least onepercent (1%) of the book value of the totalvolume of trust, other fiduciary andinvestment management assets: Provided,That at no time shall such deposit be lessthan P500,000.

Scripless securities under the Registryof Scripless Securities (RoSS) System of theBureau of Treasury (BTr) may be used asbasic security deposit for trust and otherfiduciary duties using the Guidelinesenumerated in Appendix 34 of this Manual.

X405.2 Eligible securities. Governmentsecurities which shall be deposited incompliance with the above basic securitydeposit shall consist of:

a. Evidences of indebtedness of theRepublic of the Philippines and of the BSPand any other evidences of indebtedness orobligations the servicing and repayment ofwhich are fully guaranteed by the Republicof the Philippines; and such other kinds ofsecurities which may be declared eligible

by the Monetary Board: Provided, That suchsecurities shall be free, unencumbered, andnot utilized for any other purpose: Provided,further, That such securities shall haveremaining maturity of not more than three(3) years from the date of deposit with theBSP; and

b. NDC Agri-Agra ERAP Bonds whichare not being used as alternative compliancewith P.D. No. 717. The requirement thatthe securities used shall have a remainingmaturity of not more than three (3) yearsshall not apply.

c. Five (5)- and Ten (10)-year SPTBs tofinance the CARP-related expenditures,provided such bonds shall not behypothecated in any way or earmarked forany other purpose and they meet the three(3)-year remaining maturity requirement toensure that such bonds are liquid.

d. Securities backed by the unreleasedIRAs of LGUs (issued by a Special PurposeTrust administered by the DBP under theIRA Monetization Program of the Union ofLocal Authorities of the Philippines) therelease of which IRA on scheduled date ofpayment has been certified by the DBM asnot being subject to any conditionalities:Provided, That such securities shall beeligible only to the extent of the present valueof the bond computed using the originalyield to maturity (as of auction/issue date):Provided, further, That for reserve for trustand other fiduciary duties, the remainingmaturities of the securities shall not exceedthree (3) years; and

e. Zero Coupon Bond Issue by theHGC of up to P7.0 billion five (5)-yearregular series and up to P3.0 billion seven(7)-year special series to finance its guarantyservicing of socialized and low-cost housingprojects: Provided, That they meet the three(3)-year remaining maturity requirement toensure that such bonds are liquid: Provided,further, That such bonds shall qualify aseligible reserve for trust and other fiduciaryduties only to the extent of the present value


X405.2 - X405.408.12.31

of the bond computed using the originalyield to maturity (as of auction/issue date).

f. Tobacco Excise Tax ReceivableMonetization Program InvestmentCertificates (TEXTR Certificates) backed byreceivables representing the unreleasedportion of the obligation of the NationalGovernment to its LGUs for their share ofthe Tobacco Excise Taxes under R.A. No.7171 amounting to P1.85 billion andcovering the years 2001 and 2002: Provided,That such securities shall be eligible only tothe extent of the present value of thesecurities computed using the original yieldto maturity as of auction/issue date.

g. Securities received, pursuant to theDomestic Debt Exchange Offer of the Republicof the Philippines, in exchange for securitiesthat are eligible reserves for trust duties.(As amended by Circular No. 509 dated 01 February 2006)

X405.3 Valuation of securities andbasis of computation of the basic securitydeposit requirement. For purposes ofdetermining compliance with the basicsecurity deposit under this Section, theamount of securities so deposited shall bebased on their book value, that is, cost asincreased or decreased by the correspondingdiscount or premium amortization.

The base amount for the basic securitydeposit shall be the average of themonth-end balances of total trust, investmentmanagement and other fiduciary assets ofthe immediately preceding calendar quarter.

X405.4 Compliance period; sanctionsThe trustee or fiduciary shall have thirty (30)calendar days after the end of every calendarquarter within which to deposit with the BSPthe securities required under this Section.

The following sanctions shall beimposed for any deficiency in the basic

security deposit for the faithful performanceof trust, investment management and otherfiduciary duties:

a. On the bank:i. Monetary penalty/ies:

Offense Third and Trust First Second subsequent

Asset Size offense(s)

TBs/RBs with

Limited Trust P300.00 P400.00 P500.00

Authority

Up to

P500 P600.00 P700.00 P800.00

million

Above

P500

million P1,000.00 P1,250.00 P1,500.00

but not

exceeding

P1 billion

Above

P1 billion

but not P2,000.00 P3,000.00 P4,000.00

exceeding

P10 billion

Above

P10 billion

but not P5,000.00 P6,000.00 P7,000.00

exceeding

P50 billion

Above

P50 billion P8,000.00 P9,000.00 P10,000.00

ii. Non-monetary penalty beginningwith the third offense (all banks) -Prohibition against the acceptance of newtrust and other fiduciary accounts, and fromrenewing expiring trust and other fiduciarycontracts up to the time the violation iscorrected.

b. On the trust officer and/or otherofficer(s) responsible for the deficiency/non-compliance:

UB

s/K

Bs/

TBs

with

Ful

l Tr

ust

Aut

hori

ty a

nd w

ith T

rust

Ass

ets

of

Pen

alty

per

Cal

enda

r D

ay


(1) First offense - warning thatsubsequent violations shall be dealt withmore severely;

(2) Second offense - written reprimandwith a stern warning that subsequentviolations shall be subject to suspension;

(3) Third offense - thirty (30) calendarday-suspension without pay; and

(4) Subsequent offense(s) - sixty (60)calendar day-suspension without pay.

For purposes of determining thefrequency of the violation, the bankscompliance profile for the immediatelypreceding three (3) years or twelve (12)quarters will be reviewed: Provided, Thatfor purposes of determining appropriatepenalty on the trust officer and/or otherresponsible officer(s), any offensecommitted outside the preceding three (3)year or twelve (12) quarter- period shallbe considered as the first offense: Provided,further, That in the case of trust officer, alloffenses committed by him in the past astrust officer of other institution(s) shall alsobe considered: Provided, finally, That if theoffense cannot be attributed to any otherofficer of the bank, the trust officer shallbe automatically held responsible since theultimate responsibility for ensuringcompliance with the regulation rests uponhim, as evidence may warrant.(As amended by Circular Nos. 617 dated 30 July 2008 and585 dated 15 October 2007)

X405.5 Reserves against peso-denominated common trust funds andtrust and other fiduciary accounts -others

a. Reserves against peso-denominated CTFs. In addition to the basicsecurity deposit, a bank authorized toengage in trust and other fiduciary businessshall maintain reserves on:

(1) peso-denominated CTF; and

(2) such other managed peso fundswhich partake the nature of collectiveinvestment of a peso-denominated CTF asmay be indicated by the presence of thefollowing features:

(a) The funds are composed ofcontributions from two (2) or moreinvestors;

(b) The funds are managed/administered as a vehicle for collectiveinvestment and reinvestment;

(c) The trustee/administrator/agent hasthe exclusive management and control overthe funds and the sole right at any time tosell, convert, invest, exchange, transfer orotherwise change or dispose of the assetscomprising the funds; and

(d) Investments/contributions to, orwithdrawals from, the funds are beingallowed at anytime or as of a fixed date inthe future, and/or the income, net of allexpenses incurred in the management ofthe fund plus the fee of the trustee/administrator/agent, are being distributedamong the participants of the funds, withoutthe need to liquidate all assets of the funds.

The required reserves againstpeso-denominated CTFs and such othermanaged peso funds which partake thenature of collective investment ofpeso-denominated CTFs shall be as follows:

UBs/KBs - 10%1

TBs - 5%2

RBs - 4%In addition to the regular reserve

requirement, the liquidity reserves againstpeso-denominated CTFs and such otherpeso funds which partake the nature ofcollective investment of peso-denominatedCTFs shall be as follows:

UBs/KBs - 11%1

TBs - 4%2

The liquidity reserve shall bemaintained in the Reserve Deposit

1 Under Circular 491 dated 12 July 2005, regular reserve and liquidity reserve rates shall be 10% and 11%, respectively,effective the reserve week starting 15 July 2005.2 Under MAB dated 29 December 2004, regular reserve and liquidity reserve rates shall be 6% and 2%, respectively,effective the reserve week starting 07 January 2005.

X405.4 - X405.508.12.31


Account (RDA) with the BSP, or may be inthe form of the following: Provided, That itcomplies with the guidelines shown inAppendix 71.

(i) Short-term market-yieldinggovernment securities purchased directlyfrom the BSP-Treasury Department (TD);

(ii) NDC Agri-Agra ERAP Bonds whichare not being used as alternativecompliance with P.D. No. 717. Therequirement that the securities used shallhave a term of not more than one (1) yearshall not apply; and

(iii) PEACe bonds only to the extent ofthe original gross issue proceedsdetermined at the time of the auction, pluscapitalized interest on the underlyingzero-coupon Treasury Notes as and whenthe corresponding interest is earned overthe life of the bonds;

Any deficiency in the liquidity reservesshall continue to be in the forms or modesprescribed under existing regulations forthe composition of required reserves.

The reserves on peso-denominatedCTFs and such other managed peso fundsshall be provided out of such funds.

b. Reserves against TOFA - Others.In addition to the basic security deposit,banks shall maintain reserves on TOFA-Others, except accounts held under(1) Administratorship; (2) Bond Issues/OtherObligations Under Deed of Trust orMortgage; (3) Custodianship andSafekeeping; (4) Depository andReorganization; (5) Employee BenefitPlans Under Trust; (6) Escrow; (7) PersonalTrust (testamentary or living trust);(8) Executorship; (9) Guardianship;(10) Life Insurance Trust; and (11) Pre-need Plans (institutional/individual).

The required reserves against TOFAOthers shall be as follows:

UBs/KBs - 6%TBs - 5%RBs - 4%

The liquidity reserve, which is inaddition to the regular reserve, shall be asfollows:

UBs/KBs - 11%1

TBs - 4%RBs - 0%

The liquidity reserve shall bemaintained in the RDA with the BSP, ormay be in the form of the following:Provided, That it complies with theguidelines shown in Appendix 71.

(1) Short-term market-yieldinggovernment securities purchased directlyfrom the BSP-TD: Provided, That thereserves on TOFA-Others shall beprovided out of such funds;

(2) NDC Agri-Agra ERAP Bonds whichare not being used as alternativecompliance with P.D. No. 717. Therequirement that the securities used shallhave a term of not more than one (1) yearshall not apply; and

(3) PEACe bonds only to the extent ofthe original gross issue proceedsdetermined at the time of the auction, pluscapitalized interest on the underlyingzero-coupon Treasury Notes as and whenthe corresponding interest is earned overthe life of the bonds.

Any deficiency in the liquidity reservesshall continue to be in the forms or modesprescribed under existing regulations forthe composition of required reserves.

The reserves on TOFA-Others shall beprovided by the institution out of said funds.(As amended by Circular Nos. 551 dated 17 November 2006 and539 dated 09 August 2006)

X405.6 Composition of reservesa. The provisions of Sec. X254 shall

govern the composition of reserves againstpeso-denominated CTFs and such othermanaged peso funds, as well asTOFA-Others, of banks authorized toengage in trust and other fiduciarybusiness.

1 Under Circular 491 dated 12 July 2005, regular reserve and liquidity reserve rates shall be 6% and 11%, respectively,effective the reserve week starting 15 July 2005.

X405.5 - X405.608.12.31


For purposes of this Subsection, aspecial deposit account shall be maintainedby banks with the BSP exclusively for trustreserves. Deposits maintained by banksauthorized to engage in trust and otherfiduciary business with the BSP up to fortypercent (40%) of the required reservesagainst peso-denominated CTFs (less thepercentage allowed to be maintained in theform of short-term market-yieldinggovernment securities), as well as therequired reserves on TOFA-Others (lessthe percentage allowed to be maintainedin the form of short-term market-yieldinggovernment securities), shall be paidinterest at four and one-half percent (4%)(for UBs/KBs and TBs) and four percent(4%) (for RBs) per annum effective09 October 1998 based on the averagedaily balance of said deposits to be creditedquarterly.

Effective 01 July 2003, publishedinterest rates that will be applied on BSPsSDAs of banks shall be inclusive of the tenpercent (10%) VAT.

b. The required reserves which maybe in the form of short-term market-yielding government securities shall bepurchased directly from the BSP TreasuryDepartment at one-half percent (%)below the prevailing market rate for anequivalent term and volume and subjectto BSPs firm commitment to buy back atany time at prevailing market rates. Suchreserves in the form of governmentsecurities shall be in addition to other formsof eligible reserves such as cash in vault oron deposit with BSP.

All purchases of said governmentsecurities shall be under the RoSS systemof the BTr. Transactions covering saidsecurities shall be recorded in accordancewith the guidelines in Appendix 34.

X405.7 Computation of reserveposition. A bank authorized to engage intrust and other fiduciary business shallcalculate daily the required and available

reserves on the value per books of itspeso-denominated CTFs and such othermanaged peso funds, as well as onTOFA-Others, based on the seven-dayweek, starting Friday and ending Thursdayincluding Saturdays, Sundays, holidays,non-banking days or days when there isno clearing: Provided, That with referenceto holidays, non-banking days and dayswhere there is no clearing, the reserveposition at the close of banking dayimmediately preceding such holidays, non-banking days or days where there is noclearing, shall apply. For the purpose ofcomputing reserve position, the principaloffice in the Philippines and all branchesand agencies located therein shall betreated as a single unit.

The required reserves in the currentperiod (reference reserve week) shall becomputed based on the correspondinglevels of peso-denominated CTFs and suchother managed peso funds, as well as onTOFA-Others of the prior week.

For purposes of computing the requiredand available statutory and liquidityreserves for peso-denominated CTFs andsuch other managed peso funds, as well asTOFA-Others, the term value per booksshall refer to the total volume of CTFs, othermanaged peso funds, as well asTOFA-Others less booked Allowance forProbable Losses.(As amended by Circular No. 535 dated 04 July 2006)

X405.8 Reserve deficiencies;sanctions. The provisions of Sec. X257 shallgovern the computation of reservedeficiencies for peso-denominated CTFsand such other managed peso funds, aswell as TOFA-Others, of banks authorizedto engage in trust and other fiduciarybusiness, including the sanctions providedin said Section.

X405.9 Report of compliance. Everybank shall submit a report to the BSP of itsdaily required and available reserves on

X405.6 - X405.908.12.31


peso-denominated CTFs and such othermanaged peso funds, as well as TOFA-Others, in such frequency and within thedeadline stated in Appendix 6.

Sec. X406 Organization and Management

X406.1 Organization. A bankauthorized to engage in trust and otherfiduciary business shall, pursuant to Subsec.X404.1, include in its by-laws, provisionson the organization plan or structure of thedepartment, office or unit which shallconduct such business. The by-laws shallalso include provisions on the creation of atrust committee, the appointment of a trustofficer and other subordinate officers and aclear definition of their duties andresponsibilities as well as their line and stafffunctional relationships within theorganization which shall be in accordancewith the following guidelines.

a. Trust and other fiduciary business ofa bank shall be carried out through a trustdepartment which shall be organizationally,operationally, administratively andfunctionally separate and distinct from theother departments and/or businesses of theinstitution.

A bank which is also engaged ininvestment management activities, shallconduct the same only through its trustdepartment and the responsibilities of theboard of directors, trust committee and trustofficer shall be construed to include theproper administration and management ofinvestment management activities.

No bank shall undertake any of the trustand other fiduciary business and, wheneverapplicable, investment managementactivities outside the direct control,authority and management of the trustdepartment or through any department oroffice which is involved in the otherbusinesses of the bank, such as theTreasury, Funds Management or anysimilar department, otherwise, any such

business shall be considered part of thebanks real liabilities.

The bank proper and the trustdepartment may share the followingactivities: (1) electronic data processing;(2) credit investigation; (3) collateralappraisal; and (4) messengerial, janitorialand security services.

b. The trust department, trust officerand other subordinate officers of the trustdepartment shall only be directlyresponsible to the banks trust committeewhich shall, in turn, be only directlyresponsible to the banks board of directors.

No director, officer or employee takingpart in the management of trust and otherfiduciary accounts shall perform duties inother departments or the audit committeeof the bank and vice versa. However,branch managers duly authorized by theboard of directors may, for or on behalf ofthe trust officer, sign predrawn trustinstruments such as CTFs.

c. The organization structure anddefinition of duties and responsibilities ofthe trust committee, officers and employeesof the trust department shall reflectadherence to the minimum internal controlstandards prescribed by the BSP.

d. Provisions shall be made by thebank to have legal assistance readilyavailable in the review of proposed and/orexisting trust and fiduciary agreements anddocuments and in the handling of legal andtax matters related thereto.

X406.2 Composition of trustcommittee. The trust committee shall becomposed of at least five (5) membersincluding the president, the trust officer anddirectors who are appointed by the boardof directors on a regular rotation basis andwho are not officers of the bank proper.No member of the audit committee, if thebank has any, shall be concurrentlydesignated as a member of the trustcommittee: Provided, That in the case of a

X405.9 - X406.208.12.31

Manual of Regulations for Banks

trust committee composed of more thanfive (5) members, the appointment thereinof an operating officer may be allowed onlyif the required balance in the membershipof at least three (3) members of the boardfor every operating officer shall bemaintained: Provided, further, That thePhilippine branch of a foreign bank mayappoint its resident manager or chiefexecutive officer in lieu of the presidentwhile the positions allotted for membersof the board may be filled up by the areamanager and/or officers/representativesfrom the Head Office who are not involvedin audit-related activities.

For purposes of this Subsection, theterm officer shall include the president,executive vice-president, general manager,corporate secretary, treasurer and othersmentioned as officers of the bank, or thosewhose duties as such are defined in theby-laws, or are generally known to beofficers of the bank (or any of its branchesand offices other than the Head Office)either through announcement,representation, publication or any kind ofcommunication made by the bank.

The board of directors shall duly notein the minutes the committee members anddesignate the chairman who shall be oneof the directors referred to above.

X406.3 Qualifications of committeemembers, officers and staff. The bankstrust department shall be staffed by personsof competence, integrity and honesty.Directors, committee members andofficers charged with the administration oftrust and other fiduciary activities shall, inaddition to meeting the qualificationstandards prescribed for directors andofficers of banks, possess the necessarytechnical expertise in such business:Provided, That trust officers who shall beappointed shall have at least five (5) yearsof actual experience in trust operations, orat least three (3) years of actual experience

in trust operations and completed at leastone (1) year training program in trustoperations acceptable to the BSP, or atleast five (5) years of actual experience asofficer of a bank or related activities andcompleted at least one (1) year trainingprogram in trust operations acceptable tothe BSP.(As amended by Circular No. 665 dated 04 September 2009)

X406.4 Responsibilities ofadministration

a. Board of Directors. The board ofdirectors is responsible for the properadministration and management of trust andother fiduciary business. Funds andproperties held in trust or in any fiduciarycapacity shall be administered with the skill,care, prudence and diligence necessaryunder the circumstances then prevailing thata prudent man, acting in like capacity andfamiliar with such matters, would exercisein the conduct of an enterprise of likecharacter and with similar aims.

The responsibilities of the board ofdirectors shall include, but need not belimited to, the following:

(1) It shall determine and formulategeneral policies and guidelines on the:(a) acceptance, termination, or closure oftrust and other fiduciary accounts;(b) proper administration and managementof each trust and other fiduciary account;and (c) investment, reinvestment anddisposition of funds or property held in itscapacity as trustee or fiduciary;

(2) It shall direct and review theactions of the trust committee and allofficers and employees designated tomanage the trust and other fiduciaryaccounts, especially accounts withoutspecific agreements on investments ordiscretionary accounts;

(3) It shall approve or confirm theacceptance, termination or closure of alltrust and other fiduciary accounts and shallrecord such in its minutes;

X406.2 - X406.409.12.31

Part IV - Page 15


(4) Upon the acceptance of an account,it shall immediately review all non-cashassets received for management. Likewise,it shall make a review of the trust and/orfiduciary assets at least once every twelve(12) months to determine the advisabilityof retaining or disposing of such assets;

(5) It shall be responsible for takingappropriate action on the examinationreports of supervisory agencies, internaland/or external auditors on the bankstrust and other fiduciary business andrecording such actions thereon in theminutes;

(6) It shall designate the members of thetrust committee, the trust officer andsubordinate officers of the trust departmentand shall be responsible for requiringreports from said committee and officersand recording its actions thereon in theminutes; and

(7) It shall establish an appropriatestaffing pattern and adopt operatingbudgets that shall enable the trustdepartment to effectively carry out itsfunctions. It shall likewise be responsiblefor providing the officers and staff of thebank with appropriate training programsin the administration and operation of allphases of trust and other fiduciarybusiness.

The board of directors may, by actionduly entered in the minutes, delegate itsauthority for the acceptance, termination,closure or management of trust and otherfiduciary accounts to the trust committeeor to the trust officer, subject to certainguidelines approved by the board.

b. Trust Committee. The trustcommittee duly constituted and authorizedby the board of directors shall act withinthe sphere of authority which may beprovided in the by-laws and/or as may bedelegated by the board, such as, but notlimited to, the following:

(1) The acceptance and closing of trustand other fiduciary accounts;

(2) The initial review of assets placedunder the trustees or fiduciarys custody;

(3) The investment, reinvestment anddisposition of funds or property;

(4) The review and approval oftransactions between trust and/orfiduciary accounts; and

(5) The review of trust and otherfiduciary accounts at least once every twelve(12) months to determine the advisabilityof retaining or disposing of the trust orfiduciary assets, and/or whether the accountis being managed in accordance with theinstrument creating the trust or otherfiduciary relationship.

For this purpose, the trust committeeshall meet whenever necessary and keepminutes of its actions and make periodicreports thereon to the board.

c. Trust Officer. The trust officerdesignated by the board of directors ashead of the Trust Department shall actand represent the bank in all trust andother fiduciary matters within the sphereof his authority as may be provided inthe by-laws or as may be delegated bythe board. His responsibilities shallinclude, but need not be limited to thefollowing:

(1) The administration of trust andother fiduciary accounts;

(2) The implementation of policiesand instructions of the board of directorsand the trust committee;

(3) The submission of reports onmatters which require the attention of thetrust committee and the board ofdirectors;

(4) The maintenance of adequatebooks, records and files for each trust orother fiduciary account; and

(5) The maintenance of necessarycontrols and measures to protect assetsunder his custody and held in trust orother fiduciary capacity.

X406.5 - X406.8 (Reserved)

X406.4 - X406.808.12.31

Part IV - Page 16


X406.9 Outsourcing services in trustdepartments. Trust departments of banksperforming trust and other fiduciarybusiness and investment managementactivities are covered by the requirementof prior BSP approval for outsourcingservices under Subsec. X162.3.(M-2007-009 dated 22 March 2007)

X406.10 Approval of theappointment/designation of trust officersRegardless of rank, the appointment/designation of trust officers shall requireprior approval of the Monetary Board. Thebio-data of the proposed trust officers shallbe submitted to the appropriate departmentof the SES.

The appointment/designation of allincumbent trust officers not previouslyapproved/confirmed by the Monetary Boardshall be submitted, within six (6) monthsfrom 24 September 2009, to the BSP,through the appropriate department of theSES, for approval.

The documentary requirements on theapproval of the appointment of trust officersof banks are listed in Appendix 98a.(Circular No. 665 dated 04 September 2009, CL-045 dated 01July 2011)

Sec. X407 Non-Trust, Non-Fiduciary and/or Non-Investment Management ActivitiesThe basic characteristic of trust, otherfiduciary and investment managementrelationship is the absolute non-existenceof a debtor-creditor relationship, thus, thereis no obligation on the part of the trustee,fiduciary or investment manager toguarantee returns on the funds or propertiesregardless of the results of the investment.The trustee, fiduciary or investment manageris entitled to fees/commissions which shallbe stipulated and fixed in the contract orindenture and the trustor or principal isentitled to all the funds or properties andearnings less fees/commissions, losses andother charges. Any agreement/arrangement

that does not conform to these shall not beconsidered as trust, other fiduciary and/orinvestment management relationship.

The following shall not constitute a trust,other fiduciary and/or investmentmanagement relationship:

a. When there is a preponderance ofpurpose or of intent that the arrangementcreates or establishes a relationship otherthan a trust, fiduciary and/or investmentmanagement;

b. When the agreement or contract isitself used as a certificate of indebtednessin exchange for money placement fromclients and/or as the medium for confirmingplacements and investment thereof;

c. When the agreement or contract ofan account is accepted under thesignature(s) of those other than the trustofficer or subordinate officer of the trustdepartment or those authorized by the boardof directors to represent the trust officer;

d. Where there is a fixed rate orguaranty of interest, income or return infavor of its client or beneficiary: Provided,however, That where funds are placed infixed income-generating investments, aquotation of income expectation or liketerms, shall neither be considered asarrangements with a fixed rate nor aguaranty of interest, income or return whenthe agreement or indenture categoricallystates in bold letters that the quoted incomeexpectation or like terms is neither assurednor guaranteed by the trustee or fiduciaryand it does not, therefore, entitle the clientto a fixed interest or return on hisinvestments: Provided, further, That any ofthe following practices or practices similarand/or tantamount thereto shall beconstrued as fixing or guaranteeing the rateof interest, income or return:

(1) Issuance of certificates, sideagreements, letters of undertaking or othersimilar documents providing for fixedrates or guaranteeing interest, income orreturn;

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Part IV - Page 17


(2) Paying trust earnings based onindicated or expected yield regardless of theactual investment results;

(3) Increasing or reducing fees in orderto meet a quoted or expected yield;

(4) Entering into any arrangement,scheme or practice which results in thepayment of fixed rates or yield on trustinvestments or in the payment of theindicated or expected yield regardless of theactual investment results; and

e. Where the risk or responsibility isexclusively with the trustee, fiduciary orinvestment manager in case of loss in theinvestment of trust, fiduciary or investmentmanagement funds, when such loss is notdue to the failure of the trustee or fiduciaryto exercise the skill, care, prudence anddiligence required by law.

Trust, other fiduciary and investmentmanagement activities involving any of theforegoing which are accepted, renewed orextended after 16 October 1990 shall bereported as deposit substitutes and shall besubject to the reserve requirement fordeposit substitutes from the time ofinception, without prejudice to theimposition of the applicable sanctionsprovided for in Sections 36 and 37 ofR.A. No. 7653.

Sec. X408 Unsafe and Unsound PracticesWhether a particular activity may beconsidered as conducting business in anunsafe or unsound manner all relevant factsmust be considered. An analysis of theimpact thereof on the banks operations andfinancial conditions must be undertaken,including evaluation of capital position,asset condition, management, earningsposture and liquidity position.

In determining whether a particular act oromission, which is not otherwise prohibitedby any law, rule or regulation affecting banks,may be deemed as conducting business in anunsafe or unsound manner, the Monetary Board,upon report of the head of the supervising

or examining department based onfindings in an examination or a complaint,shall consider any of the followingcircumstances:

a. The act or omission has resultedor may result in material loss or damage,or abnormal risk or danger to thesafety, stability, liquidity or solvencyof the bank;

b. The act or omission has resulted ormay result in material loss or damage orabnormal risk to the banks depositors,creditors, investors, stockholders or to theBSP or to the public in general;

c. The act or omission has caused anyundue injury, or has given unwarrantedbenefits, advantage or preference to thebank or any party in the discharge by thedirector or officer of his duties andresponsibilities through manifest partiality,evident bad faith or gross inexcusablenegligence; or

d. The act or omission involvesentering into any contract or transactionmanifestly and grossly disadvantageous tothe bank, whether or not the director orofficer profited or will profit thereby.

The list of activities which may beconsidered unsafe and unsound is shownin Appendix 48.

In line with the statement of principlesgoverning trust and other fiduciary businessunder Sec. X401, the trustee, fiduciary orinvestment manager shall desist from thefollowing unsound practices:

a. Entering in an arrangementwhereby the client is at the same timethe borrower of his own fund placement,or whereby the trustor or principal is aborrower of other trust, fiduciary orinvestment management fundsbelonging to the same family or businessgroup of such trustor or principal;

b. Granting loans or accommodationsto any trust committee member, officerand employee of the trust departmentexcept where such loans are obtained by

Part IV - Page 18

X407 - X40809.12.31


said persons as members of an employeebenefit fund of the trustees own institution;

c. Borrowing from, or selling trust,other fiduciary and/or investmentmanagement assets to, the bank proper tocover portfolio losses and/or to guaranteethe return of principal or income;

d. Granting new loans to anyborrower who has a past due and/orclassified loan account with the bank properor the trust department; and

e. Requiring clients to signdocuments in blank.(As amended by Circular No. 640 dated 16 January 2009)

X408.1 - X408.8 (Reserved)

X408.9 Sanctions. The MonetaryBoard may, at its discretion and based onthe seriousness and materiality of the actsor omissions, impose any or all of thefollowing sanctions provided under Section37 of R.A. No. 7653 and Section 56 ofR.A. No. 8791, whenever a bank conductsbusiness in an unsafe and unsound manner:

a. Issue an order requiring the bank tocease and desist from conducting businessin an unsafe and unsound manner and mayfurther order that immediate action be takento correct the conditions resulting from suchunsafe or unsound practice;

b. Fines in amounts as may bedetermined by the Monetary Board to be

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Part IV - Page 18a

(Next page is Part IV- Page 19)


appropriate, but in no case to exceedP30,000 a day on a per transaction basistaking into consideration the attendantcircumstances, such as the gravity of theact or omission and the size of the bank,to be imposed on the bank, their directorsand/or responsible officers;

c. Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

d. Suspension of rediscountingprivileges or access to BSP credit facilities;

e. Suspension of lending or foreignexchange operations or authority to acceptnew deposits or make new investments;

f. Suspension of responsible directorsand/or officers;

g. Revocation of quasi-bankinglicense; and/or

h. Receivership and liquidation underSection 30 of R.A. No. 7653.

All other provisions of Sections 30 and37 of R.A. No. 7653, whenever appropriate,shall also be applicable on the conduct ofbusiness in an unsafe or unsound manner.

The imposition of the above sanctionsis without prejudice to the filing ofappropriate criminal charges againstculpable persons as provided in Sections34, 35 and 36 of R.A. No. 7653.

Sec. X409 Trust and Other FiduciaryBusiness. The conduct of trust and otherfiduciary business shall be subject to thefollowing regulations.

X409.1 Minimum documentaryrequirements. Each trust or fiduciaryaccount shall be covered by a writtendocument establishing such account, asfollows:

a. In the case of accounts created byan order of the court or other competentauthority, the written order of said court orauthority.

b. In the case of accounts created bycorporations, business firms, organizations

or institutions, the voluntary writtenagreement or indenture entered into by theparties, accompanied by a copy of the boardresolution or other evidence authorizingthe establishment of, and designating thesignatories to, the trust or other fiduciaryaccount.

c. In the case of accounts created byindividuals, the voluntary writtenagreement or indenture entered into by theparties.

The voluntary written agreement orindenture shall include the followingminimum provisions:

(1) Title or nature of contractualagreement in noticeable print;

(2) Legal capacities, in noticeableprint, of parties sought to be covered;

(3) Purposes and objectives;(4) Funds and/or properties subject of

the arrangement;(5) Distribution of the funds and/or

properties;(6) Duties and powers of trustee or

fiduciary;(7) Liabilities of the trustee or fiduciary;(8) Reports to the client;(9) Termination of contractual

arrangement and, in appropriate cases,provision for successor-trustee or fiduciary;

(10) The amount or rate of thecompensation of trustee or fiduciary;

(11) A statement in noticeable print tothe effect that trust and other fiduciarybusiness are not covered by the PDIC andthat losses, if any, shall be for the accountof the client; and

(12) Disclosure requirements fortransactions requiring prior authority and/or specific written investment directivefrom the client, court of competentjurisdiction or other competent authority.

X409.2 Lending and investmentdisposition. Assets received in trust or inother fiduciary capacity shall beadministered in accordance with the terms

X408.9 - X409.208.12.31


of the instrument creating the trust or otherfiduciary relationship.

When a trustee or fiduciary is granteddiscretionary powers in the investmentdisposition of trust or other fiduciary funds andunless otherwise specifically enumerated in theagreement or indenture and directed in writingby the client, court of competent jurisdiction orother competent authority, loans andinvestments of the fund shall be limited to:

a. Evidences of indebtedness of theRepublic of the Philippines and of the BSP,and any other evidences of indebtednessor obligations the servicing and repaymentof which are fully guaranteed by theRepublic of the Philippines or loans againstsuch government securities;

b. Loans fully guaranteed by theRepublic of the Philippines as to thepayment of principal and interest;

c. Loans fully secured by a hold-outon, assignment or pledge of depositsmaintained either with the bank proper orother banks, or of deposit substitutes of thebank, or of mortgage and chattel mortgagebonds issued by the trustee or fiduciary;

d. Loans fully secured by real estateor chattels in accordance with Section 78of R.A. No. 337, as amended, and subjectto the requirements of Sections 75, 76, and77 of R.A. No. 337, as amended; and

e. Investment in the BSP special depositaccount (SDA) facility made in accordancewith the guidelines in Appendix 78.

The specific directives required underthis Subsection shall consist of thefollowing information:

(1) The transaction to be entered into;(2) The borrowers name;(3) Amount involved; and(4) Collateral security(ies), if any.

(As amended by M-2007-038 dated 29 November 2007 andM-2007-011 dated 08 May 2007)

X409.3 Transactions requiringprior authority. A trustee or fiduciaryshall not undertake any of the followingtransactions for the account of a client,

unless prior to its execution, suchtransaction has been fully disclosed andspecifically authorized in writing by theclient, beneficiary, other party-in-interest,court of competent jurisdiction or othercompetent authority:

a. Lend, sell, transfer or assign moneyor property to any of the departments,directors, officers, stockholders oremployees of the trustee or fiduciary, orrelatives within the first degree ofconsanguinity or affinity, or the relatedinterest of such directors, officers andstockholders; or to any corporation wherethe trustee or fiduciary owns at least fiftypercent (50%) of the subscribed capital orvoting stock in its own right and not astrustee nor in a representative capacity;

b. Purchase or acquire property ordebt instruments from any of thedepartments, directors, off icers,stockholders, or employees of the trusteeor fiduciary, or relatives within the firstdegree of consanguinity or affinity, or therelated interest of such directors, officersand stockholders; or from anycorporation where the trustee orfiduciary owns at least fifty percent (50%)of the subscribed capital or voting stockin its own right and not as trustee nor ina representative capacity;

c. Invest in equities of, or insecurities underwritten by, the trustee orfiduciary or a corporation in which thetrustee or fiduciary owns at least fiftypercent (50%) of the subscribed capitalor voting stock in its own right and notas trustee nor in a representativecapacity; and

d. Sell, transfer, assign, or lendmoney or property from one trust orfiduciary account to another trust orfiduciary account except where theinvestment is in any of those enumeratedin Items a to d of Subsec. X409.2.

DOSRIs covered by this Subsectionshall be those considered as such underexisting regulations on loans to DOSRI in

X409.2 - X409.308.12.31


Part III - E of this Manual. The proceduraland reportorial requirements in saidregulations shall also apply.

The disclosure required under thisSubsection shall consist of the followingminimum information:

(1) The transactions to be entered into;(2) Identities of the parties involved in

the transactions and their relationships (shallnot apply to Item d of this Subsection);

(3) Amount involved; and(4) Collateral security(ies), if any.The above information shall be made

known to clients in a separate instrumentor in the very instrument creating the trustor fiduciary relationship.

X409.4 Ceilings on loans. Loansfunded by trust accounts shall be subjectto the SBL and DOSRI ceilings imposedon banks under Secs. X303, X330 andX331. For purposes of determiningcompliance with said ceilings, the totalamount of said loans granted by the trustdepartment and the bank to the sameperson, firm or corporation shall becombined.

X409.5 Funds awaiting investmentor distribution. Funds held by the trusteeor fiduciary awaiting investment ordistribution shall not be held uninvestedor undistributed any longer than isreasonable for the proper management ofthe account.

X409.6 Other applicable regulationson loans and investments. The loans andinvestments of trust and other fiduciaryaccounts shall be subject to pertinent laws,rules and regulations for banks that shallinclude but need not be limited to thefollowing:

a. Requirements of Sections 39 and 40of R.A. No. 8791 (The General BankingLaw of 2000;

b. Provisions of Section 4(e) of the NewRules on Registration of Short-TermCommercial Papers and Section 7(f) of theNew Rules on Registration of Long-TermCommercial Papers issued by the SEC(Appendices 13 and 14).

c. Criteria for past due accounts; andd. Qualitative appraisal of loans,

investments and other assets that may requireprovision for probable losses which shall bebooked in accordance with the FinancialReporting Package for Trust Institutions(FRPTI);

e. Requirements of Sections 3 and 8of the Securities and Regulation Code (SRC);and

f. Provisions of Section 44 - Investmentsby Philippine residents - of the BSP Manualof Regulations on Foreign ExchangeTransactions (MORFXT), such that thecross-currency investments of peso trust andother fiduciary accounts, including peso unitinvestment trust (UIT) funds, shall be subjectto the following conditions:

(1) All cash flows of the trustee orfiduciary shall only be in pesos. In case theforeign exchange acquired or received bythe trustee or fiduciary as dividends/earningsor divestment proceeds on such investmentare intended for reinvestment abroad, thesame proceeds are not required to beinwardly remitted and sold for pesosthrough authorized agent banks: Provided,That such proceeds are reinvested abroadwithin two (2) banking days from receipt ofthe funds abroad;

(2) The trustee or fiduciary shallpurchase, invest, reinvest, sell, transfer ordispose foreign currency-denominatedfinancial instruments, including securities asdefined in Section 3 of the SRC, through adistributor or underwriter duly authorizedor licensed by the government of the issuerof such instruments, or a counterparty FI(seller or buyer) accredited by the trustee orfiduciary: Provided, That, the conduct,

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documentation, and settlement of any ofthese transactions shall be outsidePhilippine jurisdiction;

(3) The trustee of fiduciary shall recordcross-currency investment transactions inthe peso regular books at their foreigncurrency amounts and their local currencyequivalent using the Philippine DealingSystem peso/US dollar closing rate and theNew York US dollar/third currencies closingrate; and

(4) The trustee or fiduciary shall complywith the reportorial requirements that may beprescribed by the BSP, which shall include asa minimum, the foreign currency amount andthe local currency equivalent of the total crosscurrency investments with details on: (a) typeof investments; and (b) amount of cash flowconverted.

For purposes of this Subsection,resident, as defined under Section 1 of theFX Manual, shall refer to the (a) trustee orfiduciary that administers the assets receivedin trust or in other fiduciary capacity; or (b)principal that engages the services of theinvestment manager under an investmentmanagement agreement.(As amended by Circular No. 676 dated 29 December 2009)

X409.7 Operating and accountingmethodology. Trust and other fiduciaryaccounts shall be operated and accountedfor in accordance with the following:

a. The trustee or fiduciary shalladminister, hold or manage the fund orproperty in accordance with the instrumentcreating the trust or other fiduciaryrelationship; and

b. Funds or property of each clientshall be accounted separately and distinctlyfrom those of other clients herein referredto as individual account accounting.

X409.8 Tax-exempt individual trustaccounts. The following shall be thefeatures/requirements of individual trustaccounts which may be exempted from the

twenty percent (20%) final tax under Section24(B)(1) of R.A. No. 8424 (The Tax ReformAct of 1997):

a. The tax exemption shall apply totrust indentures/agreements contracted onor after 03 January 2000;

b. The trust indenture/agreement shallonly be between individuals who areFilipino citizens or resident aliens andbanks acting as trustee. The trust indenture/agreement shall be non-negotiable andnon-transferable;

c. The trust indenture/agreement shallindicate that pursuant to Section 24(B)(1)of R.A. No. 8424, interest income of thetrust fund derived from investments ininterest-bearing instruments (e.g., timedeposits, government securities, loans andother debt instruments) which areotherwise subject to the twenty percent(20%) final tax shall be exempt from saidfinal tax provided the fund was held bythe trustee-bank for at least five (5) years.If said fund was held for a period less thanfive (5) years, interest income shall besubject to a final tax based on the followingschedule

Holding Period Rate of Tax

Four (4) years to less than five (5) years 5%Three (3) years to less than four (4) years 12%Less than three (3) years 20%

Necessarily, the trust indenture/agreement shall clearly indicate the datewhen the trustee-bank actually received thetrust funds which shall serve as basis fordetermining the holding period of thefunds.

d. A trustee may accept additionalfunds for inclusion in trust accounts whichhave been established as tax-exempt underR.A. No. 8424. However, the receipt ofadditional funds shall be properlydocumented by indicating that they are partof existing tax-exempt trust accounts andthat the interest income of the additional

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Part IV- Page 22


funds derived from investments in interest-bearing instruments shall be exempt fromthe twenty percent (20%) final tax underthe same conditions mentioned in thepreceding item. The document shall alsoindicate the date when the funds werereceived by the trustee-bank to serve asbasis for determining the minimum five(5)- year holding period for tax exemptionpurposes of the additional funds; and

e. Tax-exempt individual trust accountsestablished under this Subsection shall besubject to the provisions of Subsecs. X409.1(c)and X409.2 up to X409.7.

X409.9 Living trust accounts. Theguidelines on living trust accounts are asfollows:

a. Definition. Living trust is defined underthe Manual of Accounts for Trust, as a personaltrust created by agreement.It becomesoperational during the lifetime of the trustor assoon as the agreement is accomplished.

Under a living trust, the trustor (alsoknown as settlor) conveys property or a sumof money to be managed by the trustee, asthe agreement dictates, for the benefit ofthe trustor and third person(s) or thirdperson(s) only. However, the trustor/s cannotcreate a trust with himself/themselves as thesole beneficiary/(ies). The functions andauthorities of the trustee as defined in theagreement shall include:

(1) the purpose or intention of the trust;(2) the nature and value of the property

or sum of money that comprise the trust;(3) the trustees investment powers;(4) the name(s) of the beneficiaries; and(5) the terms and conditions under

which the income and/or principal of thetrust is to be paid or to be disposed of duringthe lifetime and ultimately, upon the deathof the trustor or upon the occurrence of aspecified event(s).

A living trust may either be revocableor irrevocable.

b. Minimum criteria. In line with suchdefinition, transactions considered as livingtrust accounts should meet the followingminimum criteria:

(1) Minimum entry amount andmaintaining balance shall at least beP100,000: Provided, That living trust accountswith balances of up to P500,000 shall onlybe invested in deposits and governmentsecurities;

(2) Living trust accounts shall bemaintained for a minimum period of six(6) months. The termination of the livingtrust agreement, for any cause, within theminimum holding period shall render thetrustor ineligible from opening a new livingtrust account within a period of one (1) yearfrom termination date;

(3) Reversion of any part of theprincipal to the trustor, except in cases

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provided under the dispositive portion, shallbe allowed only upon termination of theliving trust agreement: Provided, That inno case can there be a complete orsubstantial reversion of the principalpursuant to the dispositive portion withinthe minimum holding period nor can theprincipal fall below P100,000;

(4) Any living trust account that doesnot meet the requirement on the minimumentry and minimum maintaining balanceor is not invested in qualified outlets shallbe considered as other fiduciary accountssubject to applicable reserve and otherrequirements;

(5) Pre-printed living trust agreementsmay be allowed for expediency: Provided,That the sections for the trust purpose andthe dispositive provision are left blank andshall only be filled-up upon the clientssigning thereof. The purpose shallcategorically state the real intention of thetrustor, which may include, but need notbe limited to:

(a) providing his/her and beneficiary/(ies) present and/or future financial support;

(b) protecting his/her beneficiary/(ies)against his/her inexperience in businessmatters;

(c) preventing him/her from makingimprudent expenditures;

(d) prevent the beneficiary/(ies) fromliving beyond their means in case ofoutright disposition of assets in their favor;

(e) protecting the beneficiary/(ies)against unforeseen contingencies such asincompetency, incapacity, physicaldisability or similar misfortune; and

(f) setting aside and segregatingparticular assets, proceeds or payments foradministration and distribution pursuant toa court decree or by agreement.

The dispositive provision should clearlyand specifically define the terms andconditions under which the principal and/orincome shall be distributed in order toaccomplish such purpose/(s), by taking into

consideration the frequency of redemption;the respective interests of each beneficiary;and to whom the proceeds shall be payable.Redemption of funds shall strictly be inaccordance with the said terms andconditions; and

(6) A living trust account may beopened jointly under one (1) living trustagreement by related individuals up to thesecond degree of consanguinity or affinity;Provided, That the requirements under Item5 above are fully complied with.Unrelated individuals or those beyond thesecond degree of consanguinity or affinitymay likewise open a joint living trustaccount under one (1) living trustagreement: Provided, That the minimumcontribution of each individual is at leastP100,000: Provided further, That the trustis for a common purpose and: Providedfinally, That the requirements under Item5 are fully complied with.

c. Marketing. Officers and personnelof the bank proper, including branchmanagers, shall not be allowed to marketliving trust products and sign pre-printedliving trust agreements. However, branchmanagers/officers may be allowed to referclients to the Trust Department and giveshort introduction on the living trustproducts to prospective clients.

d. Transitory provision. Outstandingliving trust accounts that do not meet theforegoing additional requirements shall begiven twelve (12)1 months from 11 April2006 to comply with the aforestatedrequirements; otherwise, such accountsshall be considered as Other FiduciaryAccounts subject to applicable reserverequirements.

e. Sanctions. Any violation of theprovisions of this Subsection shall besubject to the sanctions provided underSection 37 of R.A. No. 7653 (The NewCentral Bank Act).(Circular Nos. 553 dated 22 December 2006 and 521 dated21 March 2006)

1 Original 6 months transitory period under Cir. 521 extended by another 6 months under Cir. 553

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X409.10 - X409.15 (Reserved)

X409.16 Qualification andaccreditation of private banks acting astrustee on any mortgage or bond issuanceby any municipality, government-owned orcontrolled corporation, or any body politic

a. Applicability. Private banks dulyaccredited by the BSP may act as trusteeon any mortgage or bond issued by anymunicipality, GOCC, or any body politic.

b. Application for accreditation. Aprivate bank desiring to act as trustee onany mortgage or bond issued by anymunicipality, GOCC, or any body politicshall file an application for accreditationwith the appropriate supervising andexamining department of SES. Theapplication shall be signed by the presidentor officer of equivalent rank of the bankand shall be accompanied by the followingdocuments:

(1) certified true copy of the resolutionof the institutions board of directorsauthorizing the application;

(2) a certification signed by thepresident or officer of equivalent rank thatthe institution has complied with all thequalification requirements for accreditation.

c. Qualification requirements. A bankapplying for accreditation to act as trusteeon any mortgage or bond issued by anymunicipality, government-owned orcontrolled corporation, or any body politicmust comply with the requirements inAppendix 5b.

d. Independence of the trustee. Abank is prohibited from acting as trustee ofa mortgage or bond issuance if any electiveor appointive official of the LGU, GOCC,or body politic which issued said mortgageor bond and/or his related interests ownsuch number of shares of the bank that willallow him or his related interests to electat least one (1) member of the board ofdirectors of such bank or is directly orindirectly the registered or beneficial owner

of more than ten percent (10%) of any classof its equity security.

e. Investment and management ofthe funds. A domestic bank designated astrustee of a mortgage or bond issuance mayhold and manage, in accordance with theprovisions of the trust indenture oragreement, the proceeds of the mortgageor bond issuance and such assets and fundsof the issuing municipality, corporation, orbody politic as may be required to bedelivered to the trustee under the trustindenture/agreement, subject to thefollowing conditions/restrictions:

(1) Pending the utilization of such fundspursuant to the provisions of the trustindenture/agreement, the same shall only bedeposited in any bank, other than the trustee/bank proper, its subsidiary or affiliateauthorized to accept deposits from theGovernment or government entities, orinvested in peso-denominated treasury billsacquired/purchased from any securitiesdeale

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