I. Adequate insurance for fidelity and fire liability (applicable to IT outsourcing);

m. Ownership/maintenance of the computer hardware, software (program source code), user and system documentation, master and transaction data files (applicable to IT outsourcing);

n. Guarantee that the service provider will provide necessary levels of transition assistance if the bank decides to convert to other service providers or other arrangements;

o. Access to the financial information of the service provider;

p. Access of internal and external auditors to information regarding the outsourced activities/services which they need to fulfill their respective responsibilities;

q. Access of BSP to the operators of the service provider in order to review the same in relation to the outsourced activities/services;

CIRCULAR No. 766

Series of 2012

SUBJECT: GUIDELINES IN STRENGTHENING CORPORATE GOVERNANCE AND RISK MANAGEMENT PRACTICES ON TRUST, OTHER FIDUCIARY BUSINESS, AND INVESTMENT MANAGEMENT ACTIVITIES.

Pursuant to Monetary Board Resolution No. 1325 dated 9 August 2012, the Manual of Regulations for Banks (MORB)/Manual of Regulations for Non-Bank Financial Institutions (MORNBFI), respectively, are hereby amended to read as follows:

SECTION 1. "Section X401/4401Q Statement of Principles.-The cardinal principle common to all trust and other relationships is fidelity. Policies predicated upon this principal SHALL BE directed towards OBSERVANCE OF THE FOLLOWING:

THE

1. PRUDENT ADMINISTRATION.
TRUST, INVESTMENT MANAGEMENT AND
OTHER FIDUCIARY ACCOUNTS SHALL BE
ADMINISTERED IN CONFORMITY WITH
THE INTENTION AND PURPOSE OF THE
CLIENTS AS MANIFESTED IN THE TERMS
OF THE AGREEMENT, AND WITH THE
SKILL, CARE, PRUDENCE AND
DILIGENCE NECESSARY UNDER THE
CIRCUMSTANCE THEN PREVAILING THAT
A PRUDENT MAN ACTING IN LIKE
CAPACITY AND FAMILIAR WITH SUCH
MATTERS WOULD EXERCISE IN THE
CONDUCT OF AN ENTERPRISE OF THE
LIKE CHARACTER AND WITH SIMILAR
AIMS.

2. UNDIVIDED LOYALTY AND UTMOST
CARE. IN THE DISCHARGE OF
FIDUCIARY RESPONSIBILITY, THE
INTERESTS OF CLIENTS SHALL BE
PLACED ABOVE THOSE OF THE BANK/
NON-BANK FINANCIAL INSTITUTION
CLEAR
(NBFI).
POLICIES AND
PROCEDURES SHALL BE DEVELOPED IN
DEALING WITH CONFLICT OF INTEREST
SITUATIONS. THE FIDUCIARY ASSETS
SHALL BE OBJECTIVELY AND FAIRLY
ADMINISTERED, INVESTED AND
DISTRIBUTED GIVING DUE REGARD TO
THE BENEFICIARIES' RESPECTIVE

INTERESTS.

3. NON-DELEGATION OF RESPONSIBILITIES. THE ADMINISTRATION OF THE TRUST, INVESTMENT MANAGEMENT, OR FIDUCIARY RESPONSIBILITIES OR THE

PERFORMANCE OF ACTS THAT SHOULD
BE PERSONALLY PERFORMED SHALL
NOT BE DELEGATED AS THE CLIENT'S
CONFIDENCE IS REPOSED ON THE
TRUST ENTITY (TE).

4. PRESERVING AND PROTECTING
PROPERTY. REASONABLE CARE AND
DILIGENCE SHALL BE OBSERVED TO
PRESERVE AND PROTECT THE
PROPERTY ENTRUSTED. FIDUCIARY
ASSETS SHALL BE KEPT LEGALLY
SEPARATE AND DISTINCT FROM RO
PRIETY ASSETS AND FROM ONE
FIDUCIARY/TRUST/INVESTMENT
MANAGEMENT ACCOUNT TO ANOTHER.

5. KEEPING AND RENDERING ACCOUNTS. A TRUE AND ACCURATE ACCOUNT OR RECORD OF TRANSACTIONS ENTERED INTO SHALL BE KEPT. RECORDS ON THE TRUST, INVESTMENT MANAGEMENT AND OTHER FIDUCIARY ACCOUNTS SHALL BE RENDERED ΤΟ THE TRUSTOR, PRINCIPAL, BENEFICIARY, OR OTHER PARTY IN INTEREST, OR THE COURT CONCERNED, OR ANY PARTY DULY DESIGNATED BY A COURT ORDER, AS THE CASE MAY BE, IN ACCORDANCE WITH SECTIONS X421/4421Q AND X425/ 4425Q. LIKEWISE, ALL MATERIAL FACTS WITHIN

THE KNOWLEDGE OR REASONABLY DISCOVERABLE BY THE TE, PARTICULARLY INFORMATION THAT WOULD ENABLE CLIENTS TO MAKE WELL-INFORMED DECISIONS, SHALL BE PROMPTLY TRANSMITTED/RELAYED TO CLIENTS FOR THEM TO PROTECT THEIR INTERESTS.

"FURTHERMORE, practices SHALL BE CARRIED OUT in accordance with the basic standards (Appendix 83, MORB/Q-48. MORNBFI) AND RISK MANAGEMENT GUIDELINES (APPENDIX A) for trust, other fiduciary and investment management accounts.

SEC. 2. X403/4403Q "Sections Definitions. For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated.

“A. TRUST ENTITY SHALL REFER TO A (A) BANK OR A NON-BANK FINANCIAL INSTITUTION, THROUGH ITS SPECIFICALLY DESIGNATED BUSINESS UNITS TO PERFORM TRUST FUNCTIONS, OR (B) TRUST CORPORATION, AUTHORIZED BY THE BANGKO

SENTRAL NG PILIPINAS (BSP) TO ENGAGE IN TRUST AND OTHER FIDUCIARY BUSINESS UNDER SECTION 79 OF R.A. NO. 8791 (THE GENERAL BANKING LAW OF 2000) OR THE PERFORM INVESTMENT MANAGEMENT SERVICES UNDER SECTION 53 OF R.A. NO. 8791."

The definition of terms under items "a" to "u" shall be respectively assigned letters "b" to "v".

SEC. 3. "Subsections X406.2/4406Q.2 Composition of trust committee. - The Trust Committee shall be composed of at least five (5) members including the (1) president OR ANY SENIOR OFFICER OF BANK/NBFI AND (2) the trust officer. THE REMAINING COMMITTEE MEMBERS. INCLUDING THE CHAIRPERSON, MAY BE ANY THE FOLLOWING: (1) NONEXECUTIVE DIRECTORS1 OR INDEPENDENT DIRECTORS? WHO ARE BOTH NOT PART OF THE AUDIT COMMITTEE; OR (2) THOSE CONSIDERED QUALIFIED "INDEPENDENT PROFESSIONALS", PROVIDED, THAT, the Philippine branch of a foreign bank may appoint its resident manager or chief executive officer in lieu of the president while the positions allotted for members of the board may be filled up by

the

AS

area manager and/or officers/ representatives from the Head Office, OR AFFILIATES OR SUBSIDIARIES OF THE HEAD OFFICE who are not involved in audit-related activities, PROVIDED FURTHER, THAT, IN CASE OF MORE THAN FIVE (5) TRUST COMMITTEE MEMBERSHIP, MAJORITY SHALL BE COMPOSED OF QUALIFIED NONEXECUTIVE MEMBERS."