MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4811.12.31(b.) Identification of degree of discretiongranted by client to the TE. This processinvolves the determination of the extent ofdiscretion granted to the TE to manage theclient’s portfolio.(1) Discretionary. The TE has authorityor discretion to invest the funds/propertyof the client in accordance with theparameters set forth by the client. Suchauthority of the TE which obtained acomposite Trust Rating of “4” in the latestBSP examination will not be subject to theinvestment limitations provided underSubsecs. X409.2 and X409.3 for trust andother fiduciary accounts and Subsecs. X411.4and X411.5 for investment managementaccounts, respectively; and(2) Non-discretionary. Investmentactivity of the TE is directed by the clientor limited only to specific securities orproperties and expressly stipulated in theagreement or upon written instruction ofthe client.(3) Documentation. The trust, fiduciaryor investment management relationshipshall be formally established through awritten legal document such as the trust orinvestment management agreement. Theengagement documents shall clearlyspecify the extent of fiduciary assignments/responsibilities of the TE and articulate thenature and limits of each party’s status astrustor/principal or trustee/agent. Policiesand procedures shall provide that trust orinvestment management agreements aresigned by the trust officer or , subordinateofficer of the trust department, or in thecase of UIT Funds, branch managers/officers duly authorized by the board ofdirectors.The documentation process must alsoconsider the following:(a.) The Agreement must conform to therequirements provided under Subsec.X409.1 for trust and other fiduciary accountsand Subsec. X411.1 for investmentmanagement accounts. In addition, theAgreement shall contain the followingprovisions:(i.) A description of the services to beprovided;(ii.) All charges relating to the servicesor instruments envisaged and how thecharges are calculated;(iii.)The obligations of the client withrespect to the transactions envisaged, inparticular his financial commitmentstowards the TE; and(iv.)For engagements involvingmanagement of assets or properties, thedegree of discretion granted to the trusteeor agent must be clearly defined and statedin the agreement;(b.) The Agreement shall be in plainlanguage understandable by the client and/or personnel of the TE responsible forexplaining the contents of the agreementto the client.(c.) For complex investment productssuch as financial derivatives instruments orthose that use synthetic investmentvehicles, the TE shall disclose to the clientand require client’s prior written conformityto the following:(i.) Key features of investment servicesand financial instruments envisaged,according to the nature of such instrumentsand services;(ii.) The type(s) of instruments andtransactions envisaged;(iii.)The obligations of the TE with respectto the transactions envisaged, in particular,its reporting and notice obligations to theclients; and(iv.) An appropriate disclosure bringing tothe client’s attention the risks involved inthe transactions envisaged.(d.) In order to give a fair and adequatedescription of the investment service orfinancial instrument, the TE shall provide aclearly stated and easily understood RiskDisclosure Statement to its clients, whichforms part of or attached to the trust, fiduciaryor investment management agreement. TheManual of Regulations for Non-Bank Financial Institutions App. Q-48 - Page 5