(Article published in the
issue of Manila Standard Today)
At the 2011 Annual Industry Convention of the Trust Officers Association of the Philippines (TOAP) held over last week-end at the beautiful Crimson Beach Resort and Spa in Mactan Island, I deliberately glossed over, in my discussion of the legal aspects of the stand-alone trust corporation (“a stand-alone”), Section 9 of Circular No. 710. I did not want to spoil their fun and thus did not point out what the newly ushered-in era in the conduct of trust business required of the organizers, directors and senior management of a stand-alone.
The reality, however, is that the main pillar of a stand-alone is its human resource. The stand-alone has very little flexibility with respect to its capital as reported in its balance sheet. It assets are allowed to be only in such kind and of such quality as may be necessary “for the purpose of engaging in the business of trust, other fiduciary and investment management activities and maintaining the minimum capital requirement.” These assets are for the most part limited in form to government securities, both those which are primary obligations and those are indebtedness of other entities but are guaranteed as to the payment of principal and interest by the government.
One stand-alone thus cannot
stand apart from the rest on the basis of what its assets are. Where it can
define itself, however, is in the quality and competence of its off-balance
sheet resource: the people who organize, govern, and manage its operations,
starting from the incorporators, directors, CEO and senior management and
all the way down to its lowest rank and file. They constitute the engine
that keeps the quality level of a stand-alone’s performance and establishes
and maintains its business reputation. Together, they, the human resource,
from day one and everyday forward, are called upon to constantly and
consistently earn and merit the trust of a stand-alone’s clientele and of
the public at large.
The general requirement for personnel of stand-alones is, under Sec. 9.1, that “the incorporators/subscribers and proposed directors and officers must be persons of integrity and of good credit reputation in the business community.” The integrity standard is more explicitly stated, albeit in the negative, in Sec. 9.2, which states that of (a) not having been convicted of crime involving moral turpitude and (b) unless otherwise allowed by existing law, are not officers and employees of a government agency, instrumentality, department or office charged with the supervision of or the granting of credit to trust entities. There is, of course, no implication in Circular 710 that being in the government is ipso facto a sign of not having integrity. Section 9.2 simply tries, as the better part of prudential regulation, to eliminate the conflict of interest that is inherent in one person being both a public official to whom trust entities are beholden and an organizer, director, or manager of one of such entities that could possibly be beholden to him. A stand-alone’s organizer, director or manager ought to be, to use a tired simile, like Cesar’s wife, free even from even just the mere suspicion of being unclean.
Following the trend of good corporate governance that has become fashionable in the country since the early 2000s, Section 5 of Circular No. 710 stresses that being a member of the board is no light matter. The board is made directly responsible for the proper administration and management of the institution’s trust business. Specifically, the members, as a body, are expected to understand the nature and level of risks taken by a stand-alone and are required to recognize the responsibility to provide proper oversight of the risk management process. Two of the members of board are required to be independent directors.
Because of these demands on the board and its members, maturity (at least 25 years of age), education (at least a college graduate or five-years in the school of hard knocks), attendance in a special seminar on corporate governance conducted by a BSP accredited trainor, and the now ubiquitous qualification of being “fit and proper” are required of directors. Significant is the need for at least one year of actual experience in trust business and investment management activities or training by an accredited training provider. To ensure hands-on involvement, a director must participate in at least 75% of all the board meetings which are supposed to be conducted periodically on a monthly basis or at least a minimum of nine meetings in a calendar year.
The heaviest burden of supervising and directing the business of a stand-alone fall on the president, who may also be called Trust Officer. His duty includes the administration of the accounts, implementation of the policies and instructions of the board, submission to the board of the reports necessary for the board to fulfill its function, maintenance of adequate books, records and files for each account, and the maintenance of necessary controls and measures to protect assets under the stand-alone’s management. This appointment must be approved by the Monetary Board which will consider him or her only after his bio-data has been scrutinized by the relevant supervising and examining department of the BSP.
The trust officer need not be named Clark Kent and can be simply be a Bruce Wayne; he is to be assisted by a couple of Robins in the person of a compliance officer and a risk officer both of whom are independent from the backroom and front office of the stand-alone. These adjutants are to have independent access to the board by directly reporting to the board itself or through its designated board level committees.
The President/Trust Officer and the other officers of a stand-alone may be removed from or disqualified from their positions if found, before or even subsequent to their assumption into office, to be not worthy of their responsible positions in a stand-alone.
Flight from the country is not a way out to one found by the Monetary Board as unworthy of being in the trust business; he or she may be put in the government watch list and subjected to, at the very least, the inconvenience of being in that roll of dishonor.
Coming as they do in the onset of this season Lent, these demands of Circular 710 on the personnel of a stand-alone, ought, rightfully, cause holy fear and trembling in their hearts.