Accounting Alert

This Accounting Alert is issued to circulate Bangko Sentral ng Pilipinas (BSP) Circular No. 1178 series of 2023 dated August 9, 2023.

Entities shall be given one (1) year from the effectivity of this Circular to conduct a review of the benchmarks of all existing funds to determine their propriety and validity in accordance with these guidelines; and to make appropriate changes to their policies, processes, procedures and Key Information and Investment Disclosure Statements to comply with these Guidelines.

Executive Summary

The Monetary Board, in its Resolution No. 988 dated 27 July 2023, approved the amendments to Section 414/414-Q and Appendix 56/Q-33 of the Manual of Regulations for Banks (MORB)/Manual of Regulations for Non-Bank Financial Institutions (MORNBFI), to provide guidelines on the use of benchmarks in presenting the returns of UlTFs.

The Circular discusses the guidelines on the selection of benchmarks for UITFs and the minimum disclosure requirements in the Key Information and Investment Disclosure Statement (KIIDS) in presenting the fund performance against the benchmark.

The Amendments

Guidelines on the Selection of Benchmarks for UITFS

Benchmarks allow UITF participants to fairly assess whether a fund is overperforming or underperforming vis-i-vis a relevant market index or a portfolio with a comparable return-risk profile. As such, the trustee's presentation of fund performance shall be based on the principles of fair representation and full disclosure.

The trustee shall include in its policies and procedures the following:

a. Process for the selection and approval of a benchmark;

b. Process for the periodic review of the continuing appropriateness of the chosen benchmark and the criteria for changing the benchmark; and

c. Contingency plan in the event that the benchmark becomes unavailable or is fundamentally changed (i.e. there has been a change that would result in a significantly different benchmark value).

A valid benchmark for UITF has the following characteristics:

a. Has a clearly defined objective;

b. Appropriately reflects the market or sector it aims to represent;

c. ls comprised of sufficiently diversified financial instruments that are liquid1;

d. ls objectively and consistently calculated;

e. ls a total return benchmark2; and

f. Reflects returns that are net of taxes.

In cases when the appropriate benchmark for UITF does not satisfy item(s) e and/or f, the trustee shall disclose the same in KIIDS.

Minimum disclosure requirements

The KIIDS shall contain the key features of the UITF, the fund performance against a benchmark and the fund's prospective and outstanding investments.  This document shall be updated and made available to participants at least every calendar quarter and made publicly available not later than forty-five (45) calendar days from the reference period. 

Presented below is the minimum information that shall be disclosed in the KIIDS in presenting the fund performance against a benchmark.

(1) The description and key characteristics of the benchmark, and its use relative to the fund's objective or investment strategy (e.g. whether the fund aims to track the performance of the benchmark or to outperform the same;

(2) For a customized benchmark (i.e., a benchmark created by the trustee via the combination of multiple benchmarks), the description of each component benchmark and its corresponding weight as well as the rebalancing frequency, if any;

(3) lf the benchmark is managed or administered by a related party of the trustee as defined under Sec. 131/131-Q, how the trustee and the benchmark manager/administrator manage existing and potential conflicts of interest;

(4) ​lf there are misalignments between the risk-return profile and/or characteristics of the UITF and those of the benchmark, the reason/s for and the extent of the misalignments; and

(5) lf there has been a change in the benchmark, the date the benchmark was changed, as well as the description of and reason for the change in the benchmark. These details and the illustrative presentation of performance against the old and new benchmarks shall be disclosed in the KIIDS for a minimum of one (1) year from the date of adoption of the new benchmark.

The required information under the minimum disclosure requirements and guidelines on the selection of benchmarks; and the appendix to Sec 414/414-Q on minimum disclosure requirement shall be clearly stipulated in the KIIDS and not relegated to linked sources.

---------------------------------------------------------------------------------------------------------------------------------------------------------

1. Such that the price movement or trading activity of each component security cannot unduly influence the benchmark returns

2. Total return is the rate of return that includes the realized and unrealized gains and losses plus income during the period

See attached Circular for further details.