Trust Corporation

CIRCULAR NO. 710 Series of 2011

Subject:  Trust Corporation

Pursuant to Monetary Board Resolution No. 26 dated 6 January 2011, the rules and regulations that shall govern the establishment of, grant of authority to engage in trust, other fiduciary business and investment management activities, and the conduct of trust, other fiduciary and investment management operations by trust corporations are hereby issued as follows:

Section 1.  Statement of Policy.  It is the policy of the Bangko Sentral ng Pilipinas to promulgate rules and regulations necessary for the proper conduct and development of trust, other fiduciary business and investment management activities.  Toward this end, authority to en-gage in trust, other fiduciary business and investment management activities shall be granted to all qualified trust corporations which meet the requirements provided herewith.

Section 2.  Scope of Trust, Other Fiduciary Business and Investment Management Activities.  A trust corporation shall be a stock corporation primarily created, and duly authorized by the Monetary Board, to engage only in trust, other fiduciary business and investment man-agement activities, which shall act as trustee or administer any trust or hold property in trust or on deposit for the use and benefit of others, and/or act as financial consultant, in-vestment adviser or portfolio manager.  It shall administer the funds or property under its custody with the diligence that a prudent man would exercise in the conduct of an enter-prise of a like character with similar aims:  Provided, That the trust corporation shall not accept and administer funds or property of any bank and/or quasi-bank, and act as trustee, fiduciary, financial consultant, investment adviser, or portfolio manager of such funds or property.  It shall also be known or referred to as a stand-alone trust corporation.

A trust corporation may accept peso and foreign currency denominated accounts:  Provided, That in the case of foreign currency denominated accounts, all relevant laws, rules and regulations issued by local regulatory agencies are complied with.

A trust corporation may be a subsidiary or an affiliate of a bank and/or a non-bank financial institution:  Provided, That the investing bank and/or non-bank  financial institution cannot engage in trust, other fiduciary business and investment management activities both directly through its separate and distinct department or other similar unit in the bank or non-bank  financial institution, and indirectly through a subsidiary or affiliate trust corpora-tion:  Provided further, That a bank and/or non-bank financial institution may acquire or in-vest in the equity of not more than two (2) trust corporations: Provided finally, That in the case of an investing bank, the acquisition or investment in the equity of a trust corporation shall be subject to all relevant laws, rules and regulations on equity investment of banks in a financial allied enterprise and the following limitations and restrictions:

1. In a single enterprise.  The equity investment of a bank in a single trust corporation shall be within the following ratios in relation to the total subscribed capital stock and to the total voting stock of the trust corporation:

INVESTOR/INVESTING BANK

UB

KB

TB

RB

Coop Bank

Limit in single trust corporation

100%

49%

40%

40%

40%

Provided: That the equity investment of a UB and a KB in any single trust corporation shall not exceed, at any time, twenty-five percent (25%) of the net worth of the in-vestor/investing bank as defined in Sec. X106 and Subsec. X121.5.

2. Aggregate limits. The total amount of investments in equities in all enterprises shall not exceed the following ratios in relation to the net worth of the investor/investing bank:

INVESTOR/INVESTING BANK

UB

KB

TB

RB

Coop Bank

Aggregate Limit

50%

35%

25%

25%

25%

Section 3.  Organizational Requirements

1. Articles of incorporation; by-laws.  The articles of incorporation and by-laws of any trust corporation, or any amendment thereto, shall not be registered with the Secur-ities and Exchange Commission (SEC) unless accompanied by a certificate of authority issued by the Monetary Board.

2. Application for authority to establish.  The incorporators/directors of the proposed trust corporation shall file and submit to the Monetary Board through the appropri-ate supervising and examining department of the Bangko Sentral ng Pilipinas (BSP) an application for authority to establish a trust corporation to primarily engage in trust, other fiduciary business and investment management activities, which shall be duly signed by all incorporators/directors, together with the following documents:

a. Accomplished biographical data of each incorporator, subscriber, proposed director and officer, if applicable;

b. Certified Statement of Assets and Liabilities as of a date not earlier than ninety (90) days prior to the filing of the application of each of the incorporator, subscriber, proposed director and officer together with the evidences of asset ownership such as bank certification/statement, savings passbook, certificate of time deposit, bond or stock certificate, transfer certificate of title and tax declaration. A waiver of rights under Republic Act No. 1405, as amended, shall also be submitted for purposes of verification of the declared assets, pursuant to the provisions of the Anti-Money Laundering Law, as amended; c. Certified photocopies of Income Tax Returns (ITRs) for the last three  calendar years of each incorporator, subscriber, proposed director and officer or similar document from the home country in the case of  Non-Filipino citizens; d. Clearance from the National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) of each of the incorporator, subscriber, proposed direc-tor and officer or similar document from the home country in the case of Non-Filipino citizens; e. Certification from home country’s supervisory authority that the Non-Filipino citizen has no derogatory record; f. For corporate subscribers, the following additional documents shall be submitted:

Copy of the board resolution authorizing the corporation to invest in such trust corporation and designating the person who will represent the corporation in connection therewith;

Copy of the latest articles of incorporation and by-laws;

Updated list of directors and principal officers;

Current list of major stockholders, indicating the citizenship and the number, amount and percentage of the voting and non-voting share held by them;

A copy each of the corporation’s audited financial statements for the last two (2) years prior to the filing of the application;

A copy of the corporation’s annual report to the stockholders for the year immediately preceding the date of filing of the application;

Certified photocopies of ITRs and BIR clearance for last two calendar years

For foreign corporation, it shall also submit a certification from its home country’s supervisory authority that it has no objection to the investment of such company in a trust corporation in the Philippines and that adequate information on such foreign corporation shall be provided to the BSP to the extent allowed under existing laws.

g. Detailed plan of operation and economic justification for establishing a trust corporation.  The plan should describe and analyze the industry and the market area from which the trust corporation expects to draw majority of its trust business and establish a strategy for its ongoing operation.  It should al-so describe how the trust corporation will be organized and controlled internally;

h. Projected financial statements for the first five years together with assumptions.  These should be consistent with its proposed plan of operation and would show sufficient capital to support its strategy and operation;

i. Detailed plan on how the subscribers would put up the required capitalization for the proposed trust corporation; and

j. Such other information that the BSP may require.

The application shall be considered filed and submitted on a first-come, first-served basis: Provided, That all required documents are complete and properly ac-complished:  Provided further, That in case of banks and non-bank financial institutions that decide to spin-off their trust department to a trust corporation, the docu-mentary requirements under items f and g may not be submitted. 3. Grounds for disapproval of application.  The Monetary Board may deny the application to organize a trust corporation on the basis of any of the findings that:

a. The trust corporation is being organized for any purpose other than to en-gage in the business of a legitimate trust corporation;

b. The trust corporation’s financial program is against the law, BSP rules and regulations, public policy, and public standard;  and

c. There exist other reasons, which the Monetary Board may consider as sufficient ground for such disapproval.

4. Requirements for the issuance of the certificates of authority to register and to operate.

a. Within sixty (60) days from receipt of advice of approval by the Monetary Board/Governor of their application for authority to establish a trust corporation, the incorporators shall:

Submit seven (7) copies of the articles of incorporation, treasurer’s sworn statement and by-laws which shall include provisions on the appointment of a president/trust officer or its equivalent position, if any, and other subordinate officers, and a clear definition of their du-ties and responsibilities; and

Deposit with any universal/commercial bank the initial paid-up capital of the proposed trust corporation.

b. Within thirty (30) days from receipt of advice of approval by the Monetary Board/Governor of their application for authority to establish a trust corporation, it shall pay a non-refundable license fee of five hundred thousand pesos (P500,000.00) to the BSP. c. Within thirty (30) days after the articles of incorporation and by-laws had been passed upon by the Office of the General Counsel and Legal Services, and the corresponding certificate of authority to register had been issued, the incorporators shall effect the filing and registration of said documents with the SEC.

d. Within six (6) months from receipt of advice of approval by the Monetary Board/Governor of their application for authority to establish a trust corporation to primarily engage in trust, other fiduciary business and investment management activities, the incorporators shall  secure the certificate of authority to operate the trust, other fiduciary business and investment man-agement activities and submit to the appropriate supervising and examining department of the BSP the following:

Copy of the articles of incorporation and by-laws including proof of registration with the SEC;

Certification of compliance with the conditions of approval duly signed by the incorporators, including the set-up of the basic security deposit mentioned in Section 6 below;

Names and positions of individuals designated as chairman and members of the board of directors, president/trust officer and other subordinate officers of the trust corporation with their respective bio-data and statement of duties and responsibilities;

Organizational chart which shows the names of departments/units with respective functions and responsibilities and designations of of-ficers/employees including responsibilities of personnel within the said departments/units.  The organizational chart should show clear accountability of the management structure and should provide for independent check and balance by the board of directors;

Risk Management Manual and Operations Manual embodying the policies, systems, and operating procedures of each department/unit in the organization covering the areas on (a) signing/delegated au-thorities, (b) procedures/flow of paperwork, and (c) other matters, together with the certification of the President/Trust Officer of the trust corporation that these manuals were prepared and aligned with existing BSP rules and regulations on risk management and trust, other fiduciary and investment management  activities and shall be implemented.  A trust corporation is expected to have in place, a risk management system that is appropriate to the nature and complexity of the trust corporation’s fiduciary activities;

Excerpts of the minutes of the organizational/director’s meetings confirming all organizational and pre-opening transactions relative to activities undertaken by the trust corporation to operate the trust, other fiduciary business and investment management activities (e.g., appointment of officers, and approval of authorized signatories);

Alphabetical list of all stockholders with the number and percentage of voting stocks owned/held;

List of natural persons/stockholders certified by the Corporate Secre-tary, owning voting stocks in the trust corporation and are related to other identified stockholders within the third (3rd) degree of consan-guinity or affinity, indicating the combined percentage of voting stocks held by these persons in the particular trust corporation, as well as juridical persons, including corporations that are wholly-owned or a majority of the stock of which is owned by any of such persons, including their wholly- or majority-owned subsidiaries;

Certification by the President/Trust Officer of the trust corporation that no person who is the spouse or relative within the second (2nd) degree of consanguinity or affinity of any person holding the position of Chairman, President/Trust Officer, Chief Executive Officer, Chief Operating Officer,  Executive Vice-President, Senior Vice President or any position of equivalent rank, General Manager, Treasurer, Chief Cashier, or Chief Accountant will be appointed to any of said positions in the trust corporation; and

Other documents/papers which may be required.

5. Commencement of Trust, Other Fiduciary Business and Investment Management Activities.  The trust corporation shall commence operation within one year from date of approval by the Monetary Board of their application for authority to establish a trust corporation to primarily engage in trust, other fiduciary business and invest-ment management activities: Provided, That the trust corporation may be granted by the Deputy Governor, Supervision and Examination Sector, a final extension of six (6) months subject to the formal presentation of valid justification and documentary proof that the trust corporation can commence operation within the six (6)-month period.  Otherwise, upon recommendation of the Deputy Governor, Supervision and Examination Sector, the Monetary Board shall revoke the authority to establish a trust corporation to primarily engage in trust, other fiduciary business and invest-ment management activities.

The trust corporation shall submit a written notice to the appropriate supervising and examining department of the BSP of the actual date of commencement of trust, other fiduciary and investment management operations not later than ten (10) days from such opening.

Section 4.  Assets Under Management.  Assets under management shall represent all funds, properties and securities, denominated in peso and other foreign currency, which the trust corporation, acting as trustee, fiduciary and agent, shall manage, administer, hold, and/or take custody, for the use and benefit of others.  In the performance of its trust, other fidu-ciary business and investment management activities, the assets under management of the trust corporation shall be kept separate and distinct from the general or other business owned and operated by its parent company, subsidiaries and related interest including all other funds, properties, and assets owned by such trust corporation.

Section 5.  Required Capital.  Upon incorporation/establishment, a trust corporation shall have a minimum paid-in capital of P300 million.  Thereafter, the trust corporation is required to maintain a minimum unimpaired combined capital account of P300 million, or such amounts as may be prescribed by the Monetary Board in the future, for assets under management up to P20 billion.

For assets under management amounting to more than P20 billion, an incremental capital shall be provided and computed as a percentage of the book value of the total volume of assets under management based on the following:

Assets Under Management (AUM)

Incremental Capital Requirement Based on Total Volume of AUM

Above P20.0 billion – P100.0 billion

6 basis points

Above P100.0 billion – P250.0 billion

8 basis points

Above P250.0 billion – P500.0 billion

10 basis points

Above P500.0 billion

12 basis points

The assets under management, for this purpose, shall be computed based on the average of the quarter-end balances of assets under management of the preceding four quar-ters.

The provision on incremental unimpaired combined capital shall be subject to periodic review.

For purposes of this Section, combined capital accounts shall mean the total capital stock, retained earnings and profit and loss summary, net of (a) valuation reserves on the allowable proprietary assets, and such other capital adjustments as may be required by the BSP, and (b) appraisal surplus or appreciation credit as a result of appreciation or an in-crease in book value of the assets of the trust corporation.

Whenever the combined capital accounts of the trust corporation are deficient with respect to the preceding paragraphs, the Monetary Board, after considering the report of the appropriate supervisory and examining department of the BSP on the state of solvency of the trust corporation concerned, shall require the trust corporation to institute necessary corrective action(s) to address its capital deficiency which may include the submission of an acceptable capitalization program.  Otherwise, the Monetary Board shall require the trust corporation, among others, to maintain net income and limit or prohibit the distribution of dividends to increase its capital accounts, or restrict the acceptance of new trust, other fidu-ciary and investment management accounts or introduction of new trust products or unit investment trust fund, until such corporation complies with the minimum capital require-ment.

Failure of the trust corporation to meet the minimum capital requirement shall be a ground for the imposition of sanctions and suspension/revocation of the authority to engage in trust, other fiduciary business and investment management activities.

Section 6. Basic Security Deposit.  Trust corporations, duly authorized by the Monetary Board, shall establish a basic security deposit for the faithful performance of trust and other fiduciary duties and investment management activities equivalent to the required capital under Section 5:  Provided, That at no time shall the basic security deposit be less than P300 million. The basic security deposit shall be in the form of securities acceptable to the BSP, earmarked in favor of the BSP;  Provided further, That the trust corporation shall issue an authorization in favor of the BSP to withdraw, dispose  and disburse the proceeds thereof to settle any claims arising from the breach of its duties as evidenced by a final and executory court order;  Provided finally, That the trust corporation shall not withdraw, transfer or  re-place such earmarked securities without prior written instruction from the BSP.

Section 7.  Allowable Proprietary Assets

1. Assets owned by the trust corporation shall be for the purpose of engaging in the business of trust, other fiduciary and investment management activities and main-taining the minimum capital requirement.  The allowable proprietary assets shall include eligible government securities deposited with the BSP in …