Benjamin Diokno wearing a suit and tie talking on a cell phone: BSP tightens rules on securities custodianship ? The STAR/Mong Pintolo, File BSP tightens rules on securities custodianship

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said only banks with robust risk management and governance systems as well as appropriate information technology (IT) infrastructure would be allowed to offer securities custodianship and registry services.

BSP Governor Benjamin Diokno said the regulator has simplified the licensing processes for BSP-supervised financial institutions (BSFIs) to act as securities custodianship and securities registry operators as part of efforts to further deepen the domestic capital market and strengthen investor protection.

“This will complement existing initiatives to expand investment opportunities for the public and at same time ensure that their interests are adequately protected,” Diokno said.

The BSP believes the new regulations approved under Monetary Board Resolution 646 issued last May 27 will attract more players in the industry and expand the client base.

Securities custodian is designated by investors to perform the functions of safekeeping, holding title to the securities in a nominee capacity, reports rendition, mark-to-market valuation, collection and payment of dividends, interest earnings or proceeds from the sale, redemption, maturity of securities held.

On the other hand, securities registry is designated or appointed by an issuer of securities to maintain the securities registry book either in electronic or in printed form. It records the initial issuance of the securities and subsequent transfers of ownership and issues registry confirmations to the buyers or holders.

The enhanced rules require banks that intend to engage in securities custodianship and securities registry operations to only notify the BSP of their intention to engage in said activities and to submit a certification of compliance with the prudential criteria and pre-qualification requirements set out.?

The pre-qualification requirements emphasize the importance of the independence of the securities custodianship operations from the securities underwriting, dealing, or brokering operations of the BSFIs.?

The amended regulations also allow banks and financial institutions to perform securities custodianship and registry services for a related party provided that appropriate safeguards and controls on related party transactions are adopted to prevent conflict of interest on the said arrangement.?

Further, the amended rules provide an option for a securities seller to perform self-managed securities custodianship arrangement where securities sold to or managed on behalf of a BSFI’s clients to be maintained under a BSFI’s own unit performing securities custodian services, subject to compliance with the minimum prudential controls.?

However, banks and financial institutions are prohibited from performing securities custodianship or registry services to their own securities issued.

According to the BSP, the new rules prescribe the measures to strengthen client/investor protection by setting the supervisory expectations on disclosure and reporting requirements to clients, the conduct of customer due diligence and record keeping.

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