FINANCIAL PRODUCTS OF ALLIED UNDERTAKINGS OR INVESTMENT HOUSE UNITS OF BANKS

“Sec. 1631         Financial Products of Allied Undertakings or Investment House Units of Banks.  The
following guidelines shall govern the use of the head office and/or any
or all branches of universal banks and commercial banks as outlets for
the presentation and sale of financial products of their allied
undertakings (subsidiaries and affiliates as defined hereafter) or of
their investment house units. In case of sale of insurance products of
insurance company affiliates, said affiliates must be accredited or
pre-cleared by the Insurance Commission to ensure that only stable and
reputable insurance companies can sell their products through banks.

a.      Financial products covered by this Section are the following:

(1)     Credit cards;

(2)     Insurance products limited to:

a)         Life insurance products

1.         Term insurance (including mortgage redemption insurance)

2.         Whole life insurance

3.         Endowment

4.         Health and accident policies

5.         Variable life insurance contracts

6.         Life annuities

b)         Non-life insurance

1.         Fire insurance

2.         Marine cargo policies

3.         Homeowners’ policies

4.         Directors/officers liability insurance

(3)     Such other products as may be authorized by the Monetary Board.

b.      For
purposes of this Section, a subsidiary means a corporation more than
fifty percent (50%) of the voting stock of which is directly or
indirectly owned, controlled or held with power to vote by a bank while
an affiliate means a corporation at least five percent (5%) but not
exceeding fifty percent (50%) of the voting stock of which is directly
or indirectly owned, controlled or held with the power to vote by a
bank.  A domestic subsidiary or affiliate is any
subsidiary or affiliate domiciled in the Philippines and incorporated
under the laws of the Philippines, while a foreign subsidiary or
affiliate is a subsidiary or affiliate incorporated and organized under
the laws of the foreign country.

“Subsec. 1631.1       Statement of principles.  The
use of a bank’s head office and/or any or all of its branches in the
presentation and sale of financial products of allied undertakings or
investment house units could give the banking public the impression that
these products are covered by the deposit insurance system or
guaranteed by the parent bank.  To enable the
public to understand fully the attendant risks involved in these
transactions, a clear and explicit distinction between financial
products offered by a bank and those of its allied undertakings or
investment house units must be made in the presentation and sale of
these products, whether through written or verbal communications.

“Subsec. 1631.2       Prior Monetary Board approval.  The
presentation and sale of financial products shall be made by the bank
in its head office and/or any or all of its branches only upon prior
approval of the Monetary Board.

The bank’s proposal on said
presentation and sale shall provide information on the location of the
office where financial products will be sold.  Where
possible, the office shall not be located in the main lobby of the
bank’s head office and/or its branches and should be clearly
distinguishable by the public as a separate entity from the parent bank.  The
proposal shall likewise cover particulars on: a) personnel who will be
involved in the marketing of the financial products; and b) promotional
matters including safeguards that would ensure that the public will be
able to differentiate readily the bank products from the non-bank
products.  The public should also be able to distinguish personnel marketing non-bank products from regular bank personnel.  In case of sale of insurance products, the staff selling insurance policies must be duly licensed by the Insurance Commission.

“Subsec. 1631.3       Minimum documentary requirements.  The
following documents shall be submitted as basis for the evaluation of a
bank intending to sell financial products of its allied
undertakings/affiliates or its investment house units:

a.      Latest information on the allied undertaking/affiliate or investment house unit:

(1)        Annual report;

(2)        List of directors and senior officers; and

(3)        Income and expense statement for the last three (3) years.

b.      Copy
of the approval of the Board of Directors of both the parent bank and
allied undertakings or investment house units on the presentation and
sale of financial products;

c.       Justification of the presentation and sale of financial products;

d.      Detailed information on the financial products to be offered, including promotional materials which will be used;

e.      Outline
of the content of the training materials for bank’s staff and officers
who will be involved in the handling of the sale of financial products;

f.        Sample contracts; and

g.      Such other information that may be required by the BSP.

“Subsec. 1631.4       Financial ratios and other related requirements.
A bank intending to use its head office and any/or all its branches as
outlets for the presentation and sale of financial products of its
allied undertakings/affiliates or investment house units must comply
with the following requirements to ensure that only financially viable
institutions and complying with BSP rules and regulations are allowed to
undertake cross-selling activities:

a)      The bank during the last ninety (90) days immediately preceding the date of application has complied with the following:

1)      Ceilings on credit accommodations to directors, officers, stockholders and/or related interests;

2)      Liquidity floor on government deposits;

3)      Minimum capitalization as defined under Subsection X106 of the Manual of Regulation for Banks;

4)      Risk-based
capital adequacy ratio under Circular No. 280 dated 29 March 2001 or as
may be required by the Monetary Board in the future;

5)      Single borrower’s limit;

6)      Investment in bank premises and other fixed assets;

7)      Open foreign exchange position; and

8)      Foreign exchange asset cover on FCDU/EFCDU foreign currency liabilities.

b)      It
does not have float items outstanding for more than sixty (60) calendar
days in the “Due from/To Head Office/Branches/Offices” accounts and the
“Due from Bangko Sentral” account exceeding one percent (1%) of the total resources as of end of preceding month;

c)      It
has no weekly reserve deficiency against deposit liabilities, deposit
substitutes and common trust funds during the last twelve (12) weeks
immediately preceding the date of application;

d)      It
maintains adequate provisions for probable losses commensurate to the
quality of its asset portfolio but not lower than the required valuation
reserves as determined by the BSP; and

e)      It has a CAMELS Composite Rating of at least “3” in the last regular examination by the Bangko Sentral.

“Subsec. 1631.5       Promotional materials; stationeries and other paraphernalia

a.      The
promotional materials used in the sale of these financial products,
especially posters displayed in bank premises, shall contain the
following:

“(1)    The
logo of the allied undertaking or investment house unit promoting the
financial product accompanied by the words “A subsidiary or affiliate,
as the case may be of [name or parent bank]; and

(2)     The
words “financial product/s of (name of allied undertaking/investment
house unit) is/are not insured by the Philippine Deposit Insurance
Corporation and is/are not guaranteed by the (name of parent bank)”
shall be printed in capital letters, black letters against light
background/white letters against dark background with the following
print size:

[1] For other measurements of promotional materials, use of print size closest to indicated size of promotional material.

b.      Stationeries
and other paraphernalia used in the sale of aforementioned products
shall bear the logo of the allied undertaking or investment house unit
promoting the financial product and the words “a subsidiary or
affiliate, as the case may be of (name of parent bank)” should appear
visibly under the logo.

“Subsec. 1631.6       Contracts/information to be disclosed

c.       The
following paragraph shall be printed at the end of the contract in the
print size as the rest of the contract, or font size 12 whichever is
bigger, in capital letters and in bold font:

“This contract is between (name
of client) and (name of allied undertaking or investment house unit), a
subsidiary or affiliate, as the case may be of (name of parent bank).  All transactions arising out of or related to this contract shall be binding only between these two (2) contracting parties.  It
is understood that this transaction is neither insured by the
Philippine Deposit Insurance Corporation nor guaranteed by the parent
bank.”

d.      All other limitations that may affect the interest of the client shall also be disclosed in the contract.

“Subsec. 1631.7       Training.
The bank shall conduct training for the officers and staff who will be
involved in the handling of the sale of non-bank products to ensure that
they do not unwittingly guarantee or give the impression that the
financial products being offered are those of the parent bank.

“Subsec. 1631.8       Other Requirements

a.      Record-keeping and accounting for the financial products of the bank’s allied undertaking or investment house unit shall be separate from those of the parent bank.

b.      The
bank, in coordination with its allied undertaking/investment house
unit, shall formulate the guidelines and establish clear procedures for
evaluating client suitability.

“Subsec. 1631.9–1631.10 (Reserved)

“Sec. X632         Sanctions. Violations of the provisions of these Sections shall constitute grounds for the imposition on the bank of the following:

a.      Monetary
fines — Any amount as may be authorized by the Monetary Board not to
exceed Thirty Thousand pesos (P30,000) a day for each violation from the
time the violation was committed until it is corrected;

b.      Non-monetary penalty

(1)     Suspension of rediscounting privileges or access to Bangko Sentral credit facilities; and

(2)     Other sanctions as the Monetary Board may impose depending on the gravity of the offense.

This Circular shall take effect immediately.

Adopted: 8 Nov. 2002

(SGD.) RAFAEL B. BUENAVENTURA
Governor