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Changing of the guard at the TOAP

(Article published in the April 9, 2002 issue of TODAY, Business Section)

The Trust Officers Association of the Philippines (TOAP) on April 1, 2002 elected its board of directors for the year 2002-03 amidst times both exciting and uncertain.

In the offing are significant changes in the economic and legal environment that are sure to affect the way trust business is going to be conducted in the Philippines in the years to come.

At the same time, the present scene is far from being a picture of tranquility and peace.

We see local copy-cats of international terrorists mocking the police with planted explosive devices with no trigerring mechanisms, legislators as if they had nothing better to do than gaudily dancing to the Cha-Cha or Charter change tune, and lawyers whose had built their fortunes and careers on the legal structure, sometimes overcoming and at other times exploiting its warts and blemishes, behaving in apparent concert with those whose interest lies in discrediting its hallowed institutions.

The nine-member board elected to face these confusing times are Ma. Teresa R. Toledo of Hogkong Shanghai Banking Corp. (HSBC); Roberto S._Vergara of PhilTrust Bank; Rolando D. Esquerra of Equitable PCI Bank; Ma. Elena S. Sarmiento of United Coconut Planters Bank (UCPB); Federico Tancongco of Rizal Commercial Banking Corp. (RCBC); Raul Diaz of PBCom; Susan Manalo of Bank of the Philippine Islands (BPI); Ador Abrogena of Banco De Oro and Antonio Inumerable of JP Morgan Chase.

A view of what looms ahead in the legal and regulatory area was provided the new board_by Finance Secretary Jose Isidro N. Camacho who delivered the keynote address during the general assembly meeting that followed the elections.

He briefly described five bills in various stages of enactment in Congress which are designed to accelerate the establishment of a market that meets global standards of transparency, governance and disclosure at the same time inviting players with incentives and assurances of a level playing field.

The first of these bills is the long-awaited Securitization Act of 2002 which seeks to provide a regulatory and tax framework conducive to the issue and sale of asset-back securities.

This will provide trust banks with new opportunities to act as trustees of the offerings as well as new investment outlets for the funds under their care.

Another is the Special Purpose Asset Vehicle Act of 2002, which, although intended primarily to enable financial institutions to get rid of their bad loans, will nevertheless generate a need for the services of trustees for the management of the portion of the asset management set aside for liquidity purposes.

The trustees will also be benefitted if the still hanging issue of whether trusts may invest in asset management companies is revolved favorably in the final version of the bill.

A third measure, close to the heart of TOAP because the TOAP was its main proponent, is the Personal Equity Retirement Account (PERA) bill.

Previous administrations had opposed the proposal because of the_revenue loss resulting from the grant of the tax incentives to the small savers.

But since it was among those mentioned by President Gloria Macapagal-Arroyo in her first State of the Nation Address, the current Department of Finance has shown flexibility on the issue of tax concessions.

If enacted into law, the PERA bill will spur the trust industry into doing what it does best, namely designing products intended to generate long-term funds for long-term uses and, more significant in the long run, educating the mass of small savers on the intricacies of sound investment and personal finance.

A major obstacle to the development of a robust bond market in the country is expected to be removed with the passage of the measure seeking to rationalize the Documentary Stamp Tax (DST) on debt instruments.

The DST, a tax conceived in an age long gone by and under premises that have long ago become irrelevant, increases the cost of intermediation and perpetuates a situation that exhibits favoritism among various types of financial instruments which by all rational standards ought to be treated uniformly.

At the very least, it is expected that only one tax will be applied on all types of financial instruments and no DST will be required when financial instruments are traded in the secondary market.

Finally, though the trust industry in a sense is a competitor to the pre-need industry, the enactment of the proposed Pre-Need Code will nevertheless benefit the trust banks which, as of June 30, 2001, managed P34.7 billion trust funds set up by pre-need companies for its clients.

Several issues are still very contentious, but what is clear is the resolve to ensure that the pre-need industry is able to live up to its promise of future security for its present investors.

This means that there will be definite set of prudential standards to follow on the management of trust funds as well as a strict monitoring of their expenses.

But not everything is_sweet and rosy for the trust industry's future.

The good secretary did not wish to spoil the general meeting's atmosphere of fun and optimism, but it was clear to other observers that for the trust industry to be taken seriously as credible fiduciary of its clients and not a mere adjunct to its bigger fund-generating brother, the banking industry, it must publicly take its stand on various raging questions.

For instance, in the light of the Enron-Arthur Andersen debacles, what is the trust industry doing or demanding from the accounting profession to ensure that the financial statements the trust industry relies upon are to be trusted and the companies they audit are not stealing the money of their investors?

In the local scene, what measures is the trust industry going to institute in order to prevent the recurrence of the tragedy that befell Urbancorp's URCOIN investors, a tragedy that was because of the disregard of management not only of the distinction between trust funds and bank funds but also of management's violation of basic prudential management standards that ought to characterize a fiduciary relationship?

Finally, up to when shall the trust industry continue to be so strapped by its still unsevered umbilical cord to the banking sector that it is unable to even publicly express a comment, whether for or against, such accounts as the Jose Velarde investment management account of impeachment fame? The currents of opportunity and challenge facing the new TOAP board are undoubtedly daunting.

But the mixture of new faces with the old in the 2002-2003 board, the variety of their perspectives coming as they do both from local and foreign banks, and the wealth of their personal experiences in trust and related fields, do provide more than sufficient basis to hope that the challenges will be adequately met and the opportunities properly exploited in the service of the country.

Their constituents and the industry's clientele demand and deserve nothing less.